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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: June 11, 1999
APPLE RESIDENTIAL INCOME TRUST, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 0-23983 54-1816010
-------- ------- ----------
(State of (Commission (IRS Employer
incorporation) File Number) Identification No.)
306 EAST MAIN STREET
RICHMOND, VIRGINIA 23219
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code:
(804) 643-1761
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<PAGE>
APPLE RESIDENTIAL INCOME TRUST, INC.
FORM 8-K
Index
Page No.
--------
Item 2. Acquisition or Disposition of Assets 3
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits
a. Independent Auditors' Report 7
Historical Statement of Income and Direct Operating 8
Expenses
Notes to Historical Statement of Income and Direct 9
Operating Expenses
b. Pro Forma Consolidated Balance Sheet as of March 10
31, 1999 (unaudited)
Pro Forma Consolidated Statement of Operations for the 11
Year ended December 31, 1998 (unaudited)
Pro Forma Consolidated Statement of Operations for 13
the Three Months ended March 31, 1999 (unaudited)
c. Exhibits
10.1 Purchase Contract for Canyon Hills
Apartments
10.2 Property Management Agreement for
Canyon Hills Apartments
23.1 Consent of Independent Auditors
2
<PAGE>
Item 2. Acquisition or Disposition of Assets
CANYON HILLS APARTMENTS
Austin, Texas
On June 11, 1999, Apple REIT Limited Partnership (together with its parent
companies, the "Company") purchased the Canyon Hills Apartments, a 229-unit
apartment complex having an address of 6307 Bluff Springs Road, Austin, Texas
(the "Property").
The purchase price for the property was $12,150,000. At closing, the
Company paid the entire purchase price in cash using proceeds from the sale of
its Common Shares. Title to the Property was conveyed to the Company by limited
warranty deed. The Seller was Austin/Canyon Hill, Ltd., a Texas limited
partnership which is not affiliated with the Company.
Location. The Property is located on Bluff Springs Road just east of
Highway 35 in Austin, Texas, which is the capital of Texas. The following
information on Austin is based in part on information provided by the greater
Austin Chamber of Commerce.
The economy of the greater Austin metropolitan area is diversified, with
key economic factors being the semiconductor and computer industries,
manufacturing, real estate and higher education. The rapid development of the
semiconductor and computer industries has been accompanied by rapid developments
in the transportation, finance, insurance, communications and utilities
capabilities of the area.
Major employers in the Austin area include Dell Computer, Motorola, IBM,
Advanced Micro Devices, and Solectron. The Austin area employs approximately
135,000 government workers. The city's largest employer is the University of
Texas, with over 19,000 employees. Additionally, the Bergstrom International
Airport employs approximately 11,000 people.
The Metropolitan Statistical Area that includes Austin had a 1998
population of nearly 1.1 million. Much of the recent population growth in the
area is due to relocations from other parts of the country, although the
percentage of total population growth represented by relocated persons is
expected to decrease over the coming years. Currently, job gains in the Austin
metropolitan area are at approximately four percent per year.
The immediate area surrounding the Property consists of other multi-family
and single-family housing, and commercial and retail development. The Property
is located near restaurants, shopping, businesses, schools and churches. The
Property is an approximately 10-minute drive from the University of Texas and
the Texas State Capitol, is an approximately 15-minute drive from Austin's new
Bergstrom International Airport and is an approximately 10-minute drive from the
Austin central business district.
3
<PAGE>
Description of the Property. The Property consists of 229 garden-style
apartments in 10 two-and three-story buildings on approximately 8.7 acres of
land. The Property was constructed in 1996.
The Property is relatively new, and Cornerstone Realty Income Trust, Inc.
(the "Advisor") believes that the Property has been well maintained and is in
excellent condition. The Company has budgeted approximately $57,250 for certain
minor capital improvements, including minor decorating and additional
landscaping.
The Property offers five different unit types. The unit mix and rents
currently being charged new tenants as of June 1999 are as follows:
<TABLE>
<CAPTION>
Approximate Interior
Quantity Type Square Footage Monthly Rental
-------- ---- -------------- --------------
<S> <C> <C>
78 One bedroom, one bathroom 650 $ 625 - 650
62 One bedroom, one bathroom 716 655 - 680
20 One bedroom, one bathroom 755 695 - 715
30 Two bedrooms, one bathroom 978 825 - 860
39 Two bedrooms, two bathrooms 1,116 905 - 940
</TABLE>
The apartments provide a combined total of approximately 183,000 square
feet of net rentable area.
Leases at the Property are for terms of one year or less. Average rental
rates for the last five years have generally increased. As an example, a
two-bedroom, two-bathroom apartment unit (1,116 square feet) rented for $910 in
1996, $930 in 1997, and $930 in 1998. The average effective annual rental per
square foot at the Property for 1996, 1997 and 1998 was $10.80, $11.03 and
$11.03, respectively.
The buildings are wood frame construction with a combination of Austin
Cream Limestone and cementitous siding over gypsum sheeting with
fiberglass-asphalt composition shingles.
The amenities at the Property consist of an outdoor split-level swimming
pool with a waterfall and Jacuzzi, a children's pool, a business center, a
fitness center, a laundry facility and a controlled-access gate. The Property
also has a clubhouse that includes a kitchen, conference room and a leasing
office. There is ample paved parking for residents and there are 100 covered car
ports.
All units have wall-to-wall carpeting in the living areas, ceramic tile
entry ways and vinyl floors in the kitchens and baths. Each apartment unit has a
cable television hook-up and an individually controlled heating and air
conditioning unit. Each kitchen has a refrigerator/ freezer with ice maker,
electric range and oven, microwave, dishwasher and garbage disposal.
4
<PAGE>
All apartment units have nine-foot crown-molded ceilings, a ceiling fan in the
master bedroom, French doors, mini-blinds and outside storage. Also, certain
select units have full-sized washer/dryer connections, built-in entertainment
centers, garden tubs, his and her sinks, linen closets and wood-burning
fireplaces with mantles and tile hearths. The owner of the property pays for
cold water, sewer service and trash removal. The tenants are responsible for
their electricity usage, which includes hot water, cooking, lighting, heating
and air conditioning.
There are at least six apartment properties that compete with the
Property. All offer similar amenities and have rents that are generally
comparable to those of the Property. Based on a recent telephone survey, the
Advisor estimates that occupancy at nearby competing projects now averages
approximately 95%.
According to information provided by the Seller, physical occupancy at the
Property averaged 56% in 1996 (the year of completion of construction), 89% in
1997 and 93% in 1998. On May 27, 1999, the Property was 97% occupied. Tenants
are principally a mix of professionals and students.
The following table sets forth the 1998 real estate tax information on the
Property:
<TABLE>
<CAPTION>
Jurisdiction Assessed Value Tax Rate Tax
------------ -------------- -------- ---
<S> <C> <C> <C>
Austin City and Travis County $11,908,000 $2.51040 $298,938.43
</TABLE>
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $10,847,657) 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. Amounts to be spent by the Company on
repairs and improvements will be treated for tax purposes as permitted by the
Internal Revenue Code based on the nature of the expenditures.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Advisor and the Company to be relevant in evaluating the
Property for acquisition by the Company included the following:
1. The Austin area generally and the specific area in which the
Property is located are perceived as being characterized by a diverse and
rapidly developing economy. Accordingly, it is believed such economy and
its anticipated growth and development will support stable occupancy rates
and reasonable increases in rents at the Property.
2. The Property was constructed in 1996 and is therefore relatively
new and in excellent condition.
3. The Property is conveniently located near several major
employers.
5
<PAGE>
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be necessarily indicative of future operating
results.
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 of $243,000. 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.
6
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Apple Residential Income Trust, Inc.
Richmond, Virginia
We have audited the accompanying statement of income and direct
operating expenses exclusive of items not comparable to the proposed future
operations of the property Canyon Hills Apartments located in Austin, Texas for
the twelve month period ended May 31, 1999. This statement is the responsibility
of the management of Canyon Hills Apartments. Our responsibility is to express
an opinion on this statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the statement. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying statement was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission (for
inclusion in a filing by Apple Residential Income Trust, Inc.) and excludes
material expenses, described in Note 2 to the statement, that would not be
comparable to those resulting from the proposed future operations of the
property.
In our opinion, the statement referred to above presents fairly, in all
material respects, the income and direct operating expenses of Canyon Hills
Apartments (as defined above) for the twelve month period ended May 31, 1999, in
conformity with generally accepted accounting principles.
/s/ L.P. Martin & Co., P.C.
Richmond, Virginia
June 18, 1999
7
<PAGE>
CANYON HILLS APARTMENTS
STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES EXCLUSIVE OF
ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY
TWELVE MONTH PERIOD ENDED MAY 31, 1999
INCOME
Rental and Other Income $ 1,800,833
-------------
DIRECT OPERATING EXPENSES
Administrative and Other 248,191
Insurance 28,342
Repairs and Maintenance 184,855
Taxes, Property 298,938
Utilities 49,823
-------------
TOTAL DIRECT OPERATING EXPENSES 810,149
-------------
Operating income exclusive of items not
comparable to the proposed future operations
of the property $ 990,684
=============
See accompanying notes to the financial statements.
8
<PAGE>
CANYON HILLS APARTMENTS
NOTES TO THE STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES
EXCLUSIVE OF ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY
TWELVE MONTH PERIOD ENDED MAY 31, 1999
NOTE 1 - ORGANIZATION
Canyon Hills Apartments is a 229 unit garden style apartment complex located on
8.73 acres in Austin, Texas. The assets comprising the property were owned by
Austin/Canyon Hills, Ltd., an entity unaffiliated with Apple Residential Income
Trust, Inc., during the financial statement period. Apple Residential Income
Trust, Inc. purchased the property June 11, 1999.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue and Expense Recognition - The accompanying statement of rental
operations has been prepared using the accrual method of accounting. In
accordance with Rule 3-14 of Regulation S-X of the Securities and Exchange
Commission, the statement of income and direct operating expenses excludes
interest and non rent related income and expenses not considered comparable to
those resulting from the proposed future operations of the property. Excluded
expenses are property depreciation, amortization and management fees.
Estimates - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Repairs and Maintenance - Repairs and maintenance costs are expensed as
incurred, while significant improvements, renovations and replacements are
capitalized.
Advertising - Advertising costs are expensed in the period incurred.
9
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 (UNAUDITED)
The accompanying Unaudited Pro Forma Consolidated Balance Sheet as of March 31,
1999, is presented as if the Company had owned the properties included in the
table below as of March 31, 1999.
In the opinion of management all adjustments necessary to reflect the effects of
the Offering have been made.
The Unaudited Pro Forma Consolidated Balance Sheet is presented for comparative
purposes only and is not necessarily indicative of what the actual financial
position of the Company would have been at March 31, 1999, nor does it purport
to represent the future financial position of the Company. This Unaudited Pro
Forma Consolidated Balance Sheet should be read in conjunction with, and is
qualified in its entirety by, the Company's respective historical financial
statements and notes thereto.
<TABLE>
<CAPTION>
Canyon
Historical Hills
Balance Pro Forma Total
Sheet Adjustments Pro Forma
---------- ----------- ----------
<S> <C> <C> <C>
Assets 6/11/99
Investment in rental property:
Land $ 42,150,935 $ 1,239,300 $ 43,390,235
Buildings and property improvements 217,067,397 11,153,700 228,221,097
Furniture and fixtures 3,781,247 - 3,781,247
-------------- ------------ -------------
262,999,579 12,393,000 275,392,579
Less accumulated depreciation (9,999,170) - (9,999,170)
-------------- ------------ -------------
253,000,409 12,393,000 265,393,409
Cash and cash equivalents 45,705,746 (12,393,000) 33,312,746
Prepaid expenses 198,152 - 198,152
Other assets 5,264,649 - 5,264,649
-------------- ------------ -------------
Total Assets $ 304,168,956 $ - $ 304,168,956
============== ============ =============
Liabilities and Shareholders' Equity
Mortgage notes payable $ 32,038,329 - $ 32,038,329
Accounts payable 2,445,788 - 2,445,788
Accrued expenses 1,956,577 - 1,956,577
Rents received in advance 50,922 - 50,922
Tenant security deposits 877,096 - 877,096
-------------- ------------ -------------
Total Liabilities 37,368,712 - 37,368,712
Shareholders' Equity
Common stock 271,283,376 - 271,283,376
Class B convertible stock 20,000 - 20,000
Net income less than distributions (4,503,132) - (4,503,132)
-------------- ------------ -------------
Total Shareholders' Equity $ 266,800,244 $ - $ 266,800,244
-------------- ------------ -------------
Total Liabilities and Shareholders' Equity $ 304,168,956 $ - $ 304,168,956
============== ============ =============
</TABLE>
Notes to Pro Forma Balance Sheet
Pro Forma adjustments represent the purchase price of the related property,
including the 2% acquisition fee to Cornerstone Realty Income Trust, Inc. or
affiliate allocated between land and building.
Adjustments to cash reflect the use of cash on hand to purchase properties.
10
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1998 (UNAUDITED)
The Unaudited Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1998, is presented as if the 16 property acquisitions during 1998
and 3 property acquisitions in 1999 had occurred on January 1, 1998. The
Unaudited Pro Forma Consolidated Statement of Operations assumes the Company
qualifying as a REIT, distributing at least 95% of its taxable income, and,
therefore, incurring no federal income tax liability for the period presented.
In the opinion of management, all adjustments necessary to reflect the effects
of these transactions have been made.
The Unaudited Pro Forma Consolidated Statement of Operations is presented for
comparative purposes only and is not necessarily indicative of what the actual
results of the Company would have been for the year ended December 31, 1998, if
the acquisitions had occurred at the beginning of the period presented, nor does
it purport to be indicative of the results of operations in future periods. The
Unaudited Pro Forma Consolidated Statement of Operations should be read in
conjunction with, and is qualified in its entirety by, the Company's respective
historical financial statements and notes thereto.
<TABLE>
<CAPTION>
Historical 1998 Pro Forma
Statement of Acquisitions Pro Forma Before 1999
Operations Adjustments (G) Adjustments Acquisitions
------------ --------------- ----------- ------------
<S> <C> <C> <C>
Revenue:
Rental income $30,764,904 $ 12,107,074 - $ 42,871,978
Expenses:
Property and maintenance 8,819,809 4,101,546 - 12,921,355
Taxes and insurance 4,453,177 1,586,415 - 6,039,592
Property management 1,685,713 - $ 662,496 (A) 2,348,209
General and administrative 799,732 - 138,849 (B) 938,581
Amortization expense 38,758 - - 38,758
Depreciation of rental property 5,788,476 - 2,074,177 (C) 7,862,653
Total expenses 21,585,665 5,687,960 2,875,522 30,149,148
Income before interest income (expense) 9,179,239 6,419,114 (2,875,522) 12,722,830
Interest income 1,638,544 - (602,009) (F) 1,036,535
Interest expense (737,875) - (847,327) (D) (1,585,202)
Net income $10,079,908 6,419,114 (4,324,858) $ 12,174,163
Earnings per common share:
Basic and Diluted $ 0.51
Basic and diluted weighted average common
shares outstanding 19,910,408 4,887,573 (E) 24,797,981
===========
<PAGE>
<CAPTION>
Sierra Grayson Canyon
Ridge Square Hills
Pro Forma Pro Forma Pro Forma Pro Forma Total
Adjustments Adjustments Adjustments Adjustments Pro Forma
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
1/5/99 2/1/99 6/11/99
Revenue:
Rental income $1,192,111 $1,514,932 $1,800,833 - $47,379,854
Expenses:
Property and maintenance 534,083 519,501 482,869 - 14,457,808
Taxes and insurance 148,050 192,683 327,280 - 6,707,605
Property management - - - $ 245,164 (A) 2,593,373
General and administrative - - - 51,827 (B) 990,408
Amortization expense - - - - 38,758
Depreciation of rental property - - - 918,827 (C) 8,781,480
------- ------- ------- ---------- ----------
Total expenses 682,133 712,184 810,149 1,215,818 33,569,431
------- ------- ------- ---------- ----------
Income before interest income (expense) 509,978 802,748 990,684 (1,215,818) 13,810,423
Interest income - - - (1,036,535)(F) -
Interest expense - - - (454,881)(D) (2,040,083)
------- ------- ------- ---------- ----------
Net income 509,978 802,748 990,684 (2,707,234) $ 11,770,340
============
Earnings per common share:
Basic and Diluted $ 0.47
============
Basic and diluted weighted average
common shares outstanding 24,797,981
============
</TABLE>
(A) Represents the property management fees of 5% of rental income and
processing costs equal to $2.50 per apartment per month charged by the
external management company for the period not owned by the Company.
(B) Represents the advisory fee of .25% of accumulated capital contributions
under the "best efforts" offering for the period of time not owned by the
Company.
(C) Represents the depreciation expense of the properties acquired based on the
purchase price, excluding amounts allocated to land, for the period of time
not owned by the Company. The weighted average life of the property
depreciated was 27.5 years.
(D) Represents the interest expense for 5 of the 1998 property acquisitions and
1 of the 1999 property acquisitions for the period in which the properties
were not owned, interest was computed based on market interest rates of
6.5% on mortgage debt of $31.2 million that was assumed at acquisition.
(E) Represents additional common shares assuming the properties were acquired
on January 1, 1998 with the net proceeds from the "best efforts" offering
of $10 per share (net $8.90 per share).
(F) Represents reduction of interest income associated with $35.2 million of
cash used to purchase properties at an interest rate of 5%.
(G) See following table for details.
11
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1998 (UNAUDITED)
The following schedule provides detail of 1998 acquisitions by property included
in the Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1998.
<TABLE>
<CAPTION>
Copper Summer Park Cottonwood
Main Park Timberglen Crossing Silverbrook I Tree Village Crossing
Pro Forma Pro Forma Pro Forma Pro Forma Pro Forma Pro Forma Pro Forma
Adjustments Adjustments Adjustments Adjustments Adjustments Adjustments Adjustments
----------- ----------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Date of Acquisition 2/4/98 2/13/98 3/31/98 5/8/98 6/1/98 7/1/98 7/9/98
Revenue
Rental income $ 122,458 $ 162,912 $ 228,612 $ 876,661 $ 505,033 $ 641,049 $ 565,147
Expenses:
Property and maintenance 44,674 39,814 147,405 308,738 202,428 224,466 216,861
Taxes and insurance 18,797 21,513 29,927 98,600 63,114 79,850 74,067
Property management - - - - - - -
Property management fee - - - - - - -
General and administrative - - - - - - -
Amortization expense - - - - - - -
Depreciation of rental property - - - - - - -
-------- --------- -------- --------- --------- --------- ---------
Total expenses 63,471 61,327 177,332 407,338 265,542 304,316 290,928
Income before interest income (expense) 58,987 101,585 51,280 469,323 239,491 336,733 274,219
Interest income - - - - - - -
Interest expense - - - - - - -
-------- --------- -------- --------- --------- --------- ---------
Net income $ 58,987 $ 101,585 $ 51,280 $ 469,323 $ 239,491 $ 336,733 $ 274,219
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pace's Grayson
Silverbrook II Point Devonshire Newport Square II
Pro Forma Pro Forma Pro Forma Pro Forma Pro Forma
Adjustments Adjustments Adjustments Adjustments Adjustments
-------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Date of Acquisition 7/24/98 7/17/98 7/17/98 7/24/98 7/24/98
Revenue
Rental income $ 536,970 $1,167,372 $ 534,027 $ 686,911 $1,046,462
Expenses:
Property and maintenance 188,406 349,407 156,111 235,111 284,868
Taxes and insurance 61,559 143,119 75,941 109,875 133,916
Property management - - - - -
Property management fee - - - - -
General and administrative - - - - -
Amortization expense - - - - -
Depreciation of rental property - - - - -
--------- --------- --------- --------- ----------
Total expenses 249,965 492,526 232,052 344,986 418,784
Income before interest income (expense) 287,005 674,846 301,975 341,925 627,678
Interest income - - - - -
Interest expense - - - - -
--------- --------- --------- --------- ----------
Net income $ 287,005 $ 674,846 $ 301,975 $ 341,925 $ 627,678
<PAGE>
<CAPTION>
Estrada Cutter's Burney Courts on
Oaks Point Oaks Pear Ridge
Pro Forma Pro Forma Pro Forma Pro Forma Total
Adjustment Adjustments Adjustments Adjustments Pro Forma
---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Date of Acquisition 7/27/98 10/29/98 10/28/98 11/17/98 -
Revenue
Rental income $ 962,727 $1,217,238 $1,309,756 $1,543,739 $12,107,074
Expenses:
Property and maintenance 281,613 430,131 472,141 519,372 4,101,546
Taxes and insurance 124,830 146,572 180,438 224,297 1,586,415
Property management - - - - -
Property management fee - - - - -
General and administrative - - - - -
Amortization expense - - - - -
Depreciation of rental property - - - - -
-------- --------- --------- --------- -----------
Total expenses 406,443 576,703 652,579 743,669 5,687,960
Income before interest income (expense) 556,284 640,536 657,177 800,070 6,419,114
Interest income - - - - -
Interest expense - - - - -
-------- --------- --------- --------- -----------
Net income $556,284 $ 640,536 $ 657,177 $ 800,070 $ 6,419,114
</TABLE>
12
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1999 (UNAUDITED)
The Unaudited Pro Forma Consolidated Statement of Operations for the three month
period ended March 31, 1999, is presented as if 2 of the 4 property acquisitions
during 1999 had occurred on January 1, 1999. The Company acquired Sierra Ridge
on January 5, 1999. The property's operations for the period not owned are not
included in the pro forma adjustments since the impact to these pro-formas would
be immaterial. In addition, audited financial statements were not available for
Hunters Creek purchased in April 1999.
The Unaudited Pro Forma Consolidated Statement of Operations assumes the Company
qualifying as a REIT, distributing at least 95% of its taxable income, and,
therefore, incurring no federal income tax liability for the period presented.
In the opinion of management, all adjustments necessary to reflect the effects
of these transactions have been made.
The Unaudited Pro Forma Consolidated Statement of Operations is presented for
comparative purposes only and is not necessarily indicative of what the actual
results of the Company would have been for the three month period ended March
31, 1999, if the acquisitions had occurred at the beginning of the period
presented, nor does it purport to be indicative of the results of operations in
future periods. The Unaudited Pro Forma Consolidated Statement of Operations
should be read in conjunction with, and is qualified in its entirety by, the
Company's respective historical financial statements and notes thereto.
<TABLE>
<CAPTION>
Grayson Canyon
Historical Square Hills
Statement of Pro Forma Pro Forma Pro Forma Total
Operations Adjustments Adjustments Adjustments Pro Forma
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
2/1/99 6/11/99
Revenue:
Rental income $11,416,283 $ 126,244 $ 450,208 - $11,992,735
Expenses:
Property and maintenance 2,812,974 43,292 120,717 - 2,976,983
Taxes and insurance 1,680,693 16,057 81,820 - 1,778,570
Property management 622,695 - $ 31,040 (A) 653,735
General and administrative 187,278 - 8,247 (B) 195,525
Amortization expense 126,544 - - 126,544
Depreciation of rental property 2,330,543 - 127,985 (C) 2,458,528
----------- --------- --------- --------- ---------
Total expenses 7,760,727 59,349 202,537 167,272 8,189,885
Income before interest income (expense) 3,655,556 66,895 247,671 (167,272) 3,802,850
Interest income 388,121 - - (164,931)(E) 223,190
Interest expense (402,995) - - (37,907)(D) (440,902)
----------- --------- --------- --------- ---------
Net income $ 3,640,682 66,895 247,671 (370,109) $ 3,585,139
=========== ===========
Earnings per common share:
Basic and Diluted $ 0.12 $ 0.12
=========== ===========
Basic and diluted weighted average
common shares outstanding 29,243,930 - 29,243,930
=========== ======== ===========
</TABLE>
(A) Represents the property management fees of 5% of rental income and
processing costs equal to $2.50 per apartment per month charged by the
external management company for the period not owned by the Company.
(B) Represents the advisory fee of .25% of accumulated capital contributions
under the "best efforts" offering for the period of time not owned by the
Company.
(C) Represents the depreciation expense of the properties acquired based on the
purchase price, excluding amounts allocated to land, for the period of time
not owned by the Company. The weighted average life of the property
depreciated was 27.5 years.
(D) Represents the interest expense on mortgage debt for Grayson Square for the
period not owned during the three months period ended March 31, 1999,
interest was computed based on interest rates on the properties mortgage
debt that was assumed at acquisition.
(E) Represents reduction of interest income associated with $14.8 million of
cash used to purchase properties at an interest rate of 5%.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Apple Residential Income Trust, Inc.
Date: June 28, 1999 By /s/ Glade M. Knight
----------------------------------------
Glade M. Knight, Chief Executive Officer
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EXHIBIT INDEX
Apple Residential Income Trust, Inc.
Form 8-K dated June 11, 1999
Exhibit Number Exhibit
- -------------- -------
10.1 Purchase Contract for
Canyon Hills Apartments
10.2 Property Management Agreement
for Canyon Hills Apartments
23.1 Consent of Independent Auditors
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EXHIBIT 10.1
PURCHASE CONTRACT
THIS AGREEMENT made and entered into this 9th day of June, 1999 (the
"Effective Date"), between CORNERSTONE REALTY GROUP, INC. or its nominee,
(hereinafter called "Purchaser"), and AUSTIN/CANYON HILLS, LTD., a Texas limited
partnership (hereinafter called "Seller").
ARTICLE I
THE PROPERTY
1.1 SALE OF PROPERTY. Seller agrees to sell and convey, and Purchaser
agrees to purchase, Seller's real property known as CANYON HILLS APARTMENTS
located in AUSTIN, TX, with all buildings and improvements located thereon, as
more particularly described in the attached legal description in EXHIBIT A
including, but not limited to 229 individually heated and air conditioned
apartment units, with all appurtenances, together with all appliances, drapes,
carpeting, shrubbery and all other personal property owned by Seller and used in
connection with the premises, including, the inventory of personal property to
be supplied by Seller and attached hereto as EXHIBIT B (all such real and
personal property hereinafter collectively referred to as the "Property" unless
the context clearly indicates otherwise).
ARTICLE II
PAYMENT OF PURCHASE PRICE
2.1 PURCHASE PRICE. The total purchase price (the "Purchase Price")
shall be TWELVE MILLION ONE HUNDRED FIFTY THOUSAND ($12,150,000) DOLLARS as
evidenced by cash or cash equivalent at closing.
2.2 DEPOSITS. ONE HUNDRED THOUSAND ($100,000) DOLLARS upon full
execution of this Agreement and an additional ONE HUNDRED THOUSAND ($100,000)
DOLLARS shall be placed in escrow by Purchaser at the end of the "Inspection
Period" described in Article VI below. In the event that Purchaser fails to
deposit such additional $100,000 with the Title Company within forty-eight (48)
hours after the end of the Inspection Period, Purchaser shall be deemed to be in
default of its obligations hereunder. Said deposits shall be placed in escrow
with Heritage Company of Austin, Inc. or its authorized agent (the "Title
Company"), 98 San Jacinto Boulevard, Suite 400, Austin, TX 78701, Attn.: Jan Cox
Dwyer, as an earnest money deposit which may be credited against the purchase
price or applied as per Article XI below.
2.3 INDEPENDENT CONTRACT CONSIDERATION. Purchaser shall, concurrently
with its execution hereof, deliver to Seller a check in the amount of FIFTY
($50) DOLLARS (the "Independent Contract Consideration"), which amount Seller
and Purchaser agree has been bargained for as consideration for Seller's
execution and delivery of this Agreement and Purchaser's right to inspect the
Property. The Independent Contract Consideration is in addition
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to and independent of any other consideration or payment provided for in this
Agreement and is non-refundable in all events.
ARTICLE III
TITLE MATTERS
3.1 TITLE. Seller, shall convey good and indefeasible title by Special
Warranty Deed in the form attached hereto as EXHIBIT C, subject only to general
taxes for the current year not yet due and payable and utility easements which
do not interfere with the present use of the Property, and the "Permitted
Exceptions". "Permitted Exceptions" are those title exceptions listed in the
title commitment, which are not objected to or waived by Purchaser pursuant to
Section 3.2 below.
(A) Title shall be free from any and all liens or mortgages
and Seller shall be responsible for any prepayment penalties necessary to
deliver such free title.
3.2 TITLE DEFECTS; ELECTION TO CURE. Seller shall furnish to Purchaser
at Seller's expense a commitment for Title Insurance from the Title Company,
(the "Commitment" or the "Title Report") within ten (10) days after the
Effective Date, covering the Property binding the Title Company to issue a Texas
Owner Policy of Title Insurance (the "Title Policy") on the standard form
prescribed by the Texas State Board of Insurance at the Closing, in the full
amount of the Purchase Price, insuring Purchaser's fee simple title to the
Property to be good and indefeasible, together with true and correct copies of
all instruments listed on Schedule B to the Commitment (as well as any other
documents or instruments listed therein which will not be released at closing).
If the Commitment or the Survey (as hereinafter defined) shows any exceptions
which are not acceptable to Purchaser in Purchaser's sole discretion, Purchaser
shall give written notice of such objections to Seller's counsel during the
Inspection Period. Seller may, at its option, elect whether to cure said
objections or by written notice (Seller's Notice") to Purchaser indicate its
intention not to cure, Seller having no obligation to cure any such defects
which are objected to by Purchaser that would require the expenditure of more
than Ten Thousand ($10,000) Dollars.
3.3 ELECTION NOT TO CURE DEFECTS. Should Seller elect not to cure such
objections, Purchaser shall have the right, as its sole and exclusive remedies,
either to waive such objections and proceed to close this Agreement subject to
such uncured objections, but without reduction of the Purchase Price, or to
terminate this Agreement and receive a refund of all deposits previously made by
Purchaser, whereupon each party shall thereupon be released from all obligations
hereunder, and all deposits shall be immediately returned to Purchaser.
3.4 SURVEY. As soon as reasonably possible, and in any event within ten
(10) days after the Effective Date , Seller shall, at Seller's expense, deliver
or cause to be delivered to the Seller, the Title Company, and to Purchaser
Seller's existing survey (the "Survey") of the Property. In the event that
Purchaser elects to obtain an update of such existing Survey or a new Survey of
the Property, any costs incurred in so doing shall be borne by Purchaser.
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ARTICLE IV
PRORATIONS
4.1 INCOME AND EXPENSE ALLOCATIONS. The following shall be prorated, on
a calendar-month basis, as of the date of closing: rents and other income from
the Property; operating expenses (on such service contracts, including laundry
contract, and other obligations as Purchaser may agree to assume); and general
and real property taxes and personal and business property taxes for the year of
closing (based on the most recent assessment and the most recent levy).
Purchaser shall receive a credit against the Purchase Price for the amount of
any security deposits and prepaid rentals held by the Seller pursuant to
provisions of the tenant leases. Seller shall cause all utility meters to be
read on the date of closing, and Seller shall pay to Purchaser (or furnish
evidence of prior payment) an amount equal to utility charges incurred or
accrued up to the reading of such utility meters. Seller shall retain the right
to any security deposits on deposit with any utility companies, and Purchaser
shall be required to deposit with any such utility companies security deposits
for its own account. If final readings and billings cannot be obtained as of the
date of closing, the final bills when received shall be prorated based upon the
number of days Seller owned the Property in such final billing period.
4.2 CLOSING COSTS. Purchaser and Seller shall pay their customary share
of all taxes, recording fees, if any, imposed on the Deed, or any other
documents executed in connection with the transfer of the Property. Seller
agrees to pay the basic premium cost of the Title Policy. Purchaser shall pay
the premium for the amendment of the boundary exception in the Title Policy
referred to in Section 3.2 hereof, if Purchaser desires such amendment, together
with any other endorsements to the Title Policy required by Purchaser. Seller
shall pay any prepayment penalty charged by the holders of any existing
mortgages.
4.3 ALLOCATION OF RENTS. Rents collected by Seller prior to Closing
shall be prorated as agreed in 4.1 above. Purchaser shall apply rents received
after Closing first to payment of the current rent due to Purchaser, then to
delinquent rents due to Purchaser, and last to rents due to Seller as of the
Closing but uncollected prior to settlement. Purchaser agrees to use its best
efforts in good faith to collect the amount of any rental arrears from tenants
and Purchaser agrees to remit promptly to Seller any such arrears actually paid
by such tenants to Purchaser. Seller shall retain the right to commence legal
action against a tenant for any delinquent rent apportioned to the Seller.
4.4 PRIOR LEASE CONCESSIONS. If Seller has committed to give any future
monetary concessions to tenants under existing leases which relate to a period
of time after closing and as to which Purchaser would become liable, then Seller
shall pay to Purchaser said amount in a lump sum at closing.
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ARTICLE V
POSSESSION OF THE PROPERTY
5.1 POSSESSION. Possession of the Property shall be delivered to
Purchaser at closing, subject to the rights of the tenants under existing leases
and rental agreements.
ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING
6.1 Conditions Precedent. Purchaser's obligation to purchase shall be
subject to and contingent upon the satisfaction of the following conditions
precedent:
(A) Receipt by Purchaser of an engineering report of building
and site conditions, satisfactory to Purchaser in its sole discretion, said
report to include in part, a description of any hazardous waste sites, hazardous
wastes and/or hazardous materials affecting the Property. Purchaser shall have
until the expiration of the Inspection Period (as hereinafter defined) to review
the reports set forth herein and exercise its right to reject the Property based
thereon or the right hereunder shall be deemed waived.
(B) The receipt by Purchaser of Seller documents described in
Section 7.2 below.
(C) On the condition that Seller's representations and
warranties described in Article VIII below remain true and correct in all
material respects.
(D) On the condition that there have been no material or
adverse changes to the property or leases.
(E) Seller acknowledges that Purchaser is a public entity and
that it is required to furnish financial statements to the Securities and
Exchange Commission in connection with this acquisition. Seller agrees to make
the information available for Purchaser at the Property to audit the last 12
months of operation of the Property so that a report can be generated that is in
compliance with accounting Regulation S-X of the Securities and Exchange
Commission.
(F) Purchaser determining during the Inspection Period that all
water, sewer, gas, electric, telephone, and drainage facilities and all other
utilities required by law or by the normal use and operation of the Property are
and at the time of closing will be installed to the property line, are and at
the time of closing will be connected pursuant to valid permits, and are and at
the time of closing will be adequate to service the Property and to permit full
compliance with all requirements of law and normal usage of the Property by the
tenants thereof and their licensees and invitees.
6.2 INSPECTION. This Agreement shall be further subject to and
contingent upon Purchaser's satisfactory inspection as follows herein below.
6.2.1 PREPARATION FOR INSPECTION. At the execution of this Agreement,
Seller shall deliver to Purchaser copies of the following: The current rent roll
for the Property; detailed statements of income and expenses with respect to the
Property for the past two years; the most
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recent tax bills for the Property; utility bills for the Property for the twelve
(12) months previous to the date hereof; all contract, mortgages, and other
documents creating liens of security interest on the Property, or any part
thereof and all promissory notes secured thereby; all insurance policies
applicable to the Property to include loss runs for the last three (3) years;
Plans and Specifications for the Property, service contracts, and Certificates
of Occupancy, to the extent reasonably available; a copy of Seller's title
policy and most Seller's most recent survey for the Property. A copy of any
environmental or engineering reports on the property. All these items shall be
certified by Seller to be accurate and complete to Seller's actual knowledge and
belief.
PURCHASER ACKNOWLEDGES THAT ALL INFORMATION AND REPORTS DELIVERED OR TO BE
DELIVERED BY SELLER OR ITS AGENTS OR CONSULTANTS TO PURCHASER ARE BEING MADE
AVAILABLE SOLELY AS AN ACCOMMODATION TO PURCHASER AND MAY NOT BE RELIED UPON BY
PURCHASER IN CONNECTION WITH THE PURCHASE OF THE PROPERTY. HOWEVER, SELLER
WARRANTS THAT ALL RECORDS GIVEN TO THE PURCHASER WERE PREPARED IN THE ORDINARY
COURSE OF BUSINESS AND WERE RELIED UPON BY THE SELLER. PURCHASER AGREES THAT
SELLER SHALL HAVE NO LIABILITY OR OBLIGATION WHATSOEVER FOR ANY INACCURACY IN OR
OMISSION FROM ANY REPORT. PURCHASER HAS CONDUCTED, OR WILL CONDUCT PRIOR TO THE
EXPIRATION OF THE INSPECTION PERIOD, ITS OWN INVESTIGATION OF THE PHYSICAL
CONDITION OF THE PROPERTY TO THE EXTENT PURCHASER DEEMS SUCH AN INVESTIGATION TO
BE NECESSARY OR APPROPRIATE. Purchaser and its representatives shall hold in
strictest confidence all data and information obtained with respect to the
Property, whether obtained before or after the execution and delivery of this
Agreement, and shall not disclose the same to others; provided, however, that it
is understood and agreed that Purchaser may disclose such data and information
to the employees, lenders, consultants, accountants and attorneys of Purchaser
or as otherwise may be required by law. In the event this Agreement is
terminated or Purchaser fails to perform hereunder, Purchaser shall promptly
return to Seller any statements, documents, schedules, exhibits or other written
information obtained from Seller in connection with this Agreement or the
transaction contemplated herein. In the event of a breach or threatened breach
by Purchaser or its agents or representatives of this Section 6.2.1, Seller
shall be entitled to an injunction restraining Purchaser or its agents or
representatives from disclosing, in whole or in part, such confidential
information.
6.2.2 INSPECTION OF BOOKS AND RECORDS; ACCESS. Upon receipt by
Purchaser of all documents requested in the paragraph above, Purchaser, its
employees, agents and contractors shall have until 5:00 p.m. Houston, Texas time
on June 8, 1999 (the "Inspection Period") to enter upon the Property (subject to
the rights of the tenants) during normal business hours for the purpose of
making physical inspections thereof, including but not limited to roofs,
heating, cooling, electrical and plumbing systems, swimming pool, appliances,
and structural elements of the buildings. Seller hereby reserves the right to
have a representative present at the time Purchaser makes any such inspections.
Purchaser shall notify Seller not less than one (1) business day in advance of
making any such inspection. In making any inspection hereunder, Purchaser will
treat, and will cause any representative of Purchaser to treat, all information
obtained by Purchaser pursuant to the terms of this Agreement as strictly
confidential. Purchaser
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agrees to indemnify and hold Seller harmless from any and all liens, claims,
liabilities or damages sustained by, or threatened against, Seller which result
from or arise out of any inspections by Purchaser or its authorized
representatives pursuant to this Section 6.2 or pursuant to any other provision
of this Agreement. Upon the conclusion of the Inspection Period this Contract
shall be deemed to be a firm agreement of purchase and sale binding the parties
hereto, subject to the other provisions and conditions contained herein. All
inspection fees, appraisal fees, engineering fees, environmental consultant's
fees, loan application fees, and other expenses of any kind incurred by
Purchaser relating to the inspection of the Property shall be solely Purchaser's
expense.
6.2.3 RIGHT OF TERMINATION DURING INSPECTION PERIOD. Purchaser shall
also be permitted to review all original leases, expense records, tenant cards
and occupancy data available, which information shall be made available to
Purchaser at the Property. If Purchaser is not satisfied, in its sole and
exclusive discretion, with the state of maintenance and repair of the Property
or the rents, occupancy or expenses of the Property, then notwithstanding
anything contained herein to the contrary, Purchaser shall have the right to
terminate this Agreement by giving written notice to Seller before the end of
the Inspection Period, and no party hereto shall have any further liability to
any other party hereto, and all deposits shall be returned to Purchaser. In the
event that Purchaser fails to give notice of termination to Seller prior to the
expiration of the Inspection Period, Purchaser shall be deemed to have elected
to waive its right to terminate this Agreement pursuant to this Section 6.2.3.
6.2.4 "RENT READY." During the Inspection Period, both Seller and
Purchaser will inspect an apartment unit at the Property and mutually agree that
said apartment shall be representative of a "rent ready" unit by which all other
units shall be judged for "rent ready" condition at closing. All vacant
apartment units, are to be in a "rent ready" condition (as defined above), at
the time of closing, containing, but not limited to the following amenities,
i.e., carpet, refrigerator, range, garbage disposal, heating, plumbing and
electrical systems; provided, however, Seller shall not be obligated to have
units which become vacant within one (1) week of closing rent ready. However, in
such event, the parties shall adjust the value of the work to be done.
6.2.5 CONDITION OF PERSONAL PROPERTY AT CLOSING. All personal property
included in the sale and all mechanical, electrical, heating, air conditioning,
sewer, water and plumbing systems will be substantially in the same working
order at the time of closing and in substantially the same condition as at the
time of the initial inspection by Purchaser. If Seller fails to make reasonable
efforts to conserve the Property, Purchaser shall have the option of waiving
such requirement, in writing, and proceeding to closing, or Purchaser may void
this Agreement and obtain a prompt return of its deposit.
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ARTICLE VII
CLOSING
7.1 CLOSING. Closing will be held on June 9, 1999, at such place and at
such time as the parties may agree.
7.2 SELLER'S DELIVERIES. At closing, Seller shall execute and deliver
to Purchaser the Special Warranty Deed referred to in Paragraph 3 hereof and
shall also execute, where necessary, and deliver to Purchaser, the following in
a form reasonably acceptable to Purchaser:
(A) A Bill of Sale, with special warranty of title
transferring the personal property (as shown in Schedule B) to Purchaser free of
all liens, charges and encumbrances.
(B) The Title Policy issued by the underwriter for the Title
Company pursuant to the Title Commitment, subject only to the Permitted
Exceptions, in the full amount of the Purchase Price, dated as of the date of
Closing.
(C) Originals or copies of all signed leases and rental
agreements in effect with tenants of the Property not for more than one (1)
year.
(D) All security and cleaning deposits made by such tenants.
Seller will give the tenants the required notice of such transfer in compliance
with the laws of TEXAS.
(E) An affidavit of Seller in such form as will cause the
Title Company to omit from the title insurance policy the exclusion relating to
unrecorded mechanic's and materialmen's liens.
(F) A rent roll certified by Seller to be true and correct as
of the date of closing showing the name of, and the amount of monthly rental
payable, by each tenant of the Property, the apartment occupied by the tenant,
the date to which rent has been paid, any advance payment of rent, and the
amount of any escrow, or security deposit of tenant.
(G) An affidavit of Seller that to its actual knowledge and
belief as well as that of its agents and/or representatives there are, on the
date of closing, no unsatisfied judgments, creditor's claims other than in the
course of business, tax liens, or pending bankruptcies involving Seller.
(H) Seller shall provide, a certificate from a licensed
extermination contractor, who is regularly engaged in the business of pest
control, that all buildings are free from any termite or other wood-boring
insect infestation. Said certificate shall be dated within 90 days of closing,
bearing the contractor's name, contractors license number, the signature of the
party authorized to sign for the contractor and the date of the inspection.
Should damage exist, Seller may, but shall not be obligated to proceed to have
any corrective work completed prior to closing. If Seller does not make the
repairs prior to closing, Purchaser, at its option, may either proceed to
settlement and have such sums required for repairs deducted from Seller's
proceeds, or may in its sole discretion terminate this Agreement. Seller shall
promptly return Purchaser's deposit upon such termination.
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(I) Assignments of all Seller's interest in the following in
the form attached hereto as EXHIBIT D: (1) all assignable licenses and permits
relating to the operation of the Property, (2) the leases and rental agreements
with tenants of the Property, (3) the existing Property telephone number and (4)
the business and trade name as set forth in Par. 1.1.
(J) Assignments without recourse of all warranties and
guarantees (see Exhibit D) to the extent the same are assignable and to the
extent such are still in effect and provide Purchaser with copies of all such
warranties and guarantees without limitation for all appliances, dishwashers,
disposals, refrigerators, heating and air conditioning units, washers and
dryers.
(K) Consent of the Seller's partners to the sale of the
Property and any other approvals required under Seller's organizational
documents, which may affect Seller's ability to convey title to the Property.
(L) Provide documents for the transfer of the telephone,
electric, water and sewer, and gas utilities, as may be required by the utility,
for execution at closing.
(M) Satisfactory evidence of the power and authority of Seller
to enter into and consummate this Agreement.
(N) Affidavit that Seller has received no notice from any
governmental agency or any other official body inspecting the Property of the
presence of asbestos and/or any other hazardous material at the Property.
(O) Seller shall provide a satisfactory and valid written
termination of the management agreement executed by the existing management and
rental agent for the Property, without cost to the Purchaser.
(P) A notice letter to all the residents of the apartment
complex as to change of ownership in the form prepared by the Purchaser.
(Q) All such other documents as are normally transferred at
settlement in the jurisdiction in which the property is located or are
reasonably requested by Purchaser or its counsel.
(R) A representation letter as normally required by auditors
for a public company in the form attached hereto as EXHIBIT E. This clause shall
survive closing for one year.
(S) Closing Memorandum and Indemnification Agreement in
substantially the form attached hereto as EXHIBIT F.
7.3 PURCHASER'S DELIVERIES. At closing and contemporaneously with the
Seller's compliance with the provisions of Section 7.2, Purchaser shall:
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(A) Pay to Seller the cash portion of the purchase price,
adjusted for the prorations herein provided for in Article IV.
(B) Execute and deliver an assumption of obligations under
leases and any contracts which may be accepted by the Purchaser and any other
obligations specifically set forth herein.
(C) Deliver to the Seller a resolution of the Purchaser that:
(i) This Agreement has been duly authorized, executed and
delivered by the Purchaser and is a valid and binding agreement of Purchaser,
and
(ii) Purchaser has complete unrestricted power to buy the
Property from the Seller and to execute any documents required to effectuate the
transfer.
(D) Execute all such other documents as are normally
transferred at settlement in the jurisdiction in which the Property is located
or are reasonably requested by Seller or its counsel.
ARTICLE VIII
SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1 Representations of the Parties. Seller warrants (which warranties
shall not survive settlement unless designated to the contrary) that as of the
date hereof and as of closing hereof:
(A) That Seller, is the owner in fee simple of the Property
and has the power to convey same.
(B) That Seller is not subject to any other agreements or
arrangements, with the exception of those contained in any existing mortgage
documents which would prevent Seller from selling the Property to Purchaser.
This warranty shall survive for one year following closing.
(C) All necessary action has been taken by Seller to authorize
the execution of this Agreement and the performance of the obligations
contemplated hereunder, which are not excluded elsewhere in existing mortgage
documents. This warranty shall survive for one year following closing.
(D) Seller has no actual knowledge and has not been advised in
writing that it is in default under any lease, rental agreement service or
equipment contract, or mortgage or other encumbrances relating to the Property.
This warranty shall survive for one year following closing.
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(E) Seller has no actual knowledge of any existing or
threatened litigation which relates to or which would affect the Property,
except for a pending lawsuit, J.D. Ramming Paving Co., Inc. v. Behrens
Construction, Inc., et al. Seller agrees to take such steps as are necessary for
the Title Company to omit said item from the title report or by providing
sufficient sums to be deposited in the escrow account of the Title Company. This
warranty shall survive for one year following closing.
(F) Seller has no actual knowledge that any part of the
Property or the operation of the Property, is in violation or may violate any
governmental statute, regulation, ordinance or building code or of any private
restriction, that any governmental authority requires any work to be done on or
affecting the Property, or that any governmental authority has expressed an
intent to condemn or to make special improvements for the benefit of the
Property or any part thereof. This warranty shall survive for one year following
closing.
(G) That Seller is not a "foreign person" within the meaning of
the Internal Revenue Code of 1954, as amended (the "Code"), and that Seller will
furnish to Purchaser prior to closing an affidavit in form satisfactory to
Purchaser confirming the same.
(H) That to Seller's knowledge, the Property was never utilized
as a disposal site for hazardous waste products and will furnish to Purchaser an
affidavit confirming same.
(I) Seller covenants and agrees that, between this date and the
date of closing, Seller shall continue to maintain, operate and manage the
Property in a manner consistent with its prior practices, making every
reasonable effort to do nothing which might damage the reputation of the
Property or the relationships with the tenants. Seller shall not permit the
modification, extension or cancellation of any tenant lease (except in
accordance with the terms of such lease) or any dealing with any tenant other
than the ordinary course of managing the Property, without the prior written
consent of Purchaser. If the leases of any tenants expire before thirty (30)
days after the date of closing, Seller shall, up to the date of closing and
without cost to the Purchaser, continue its normal course of operation with
respect to causing tenants to be obtained for apartments which are unrented.
(J) Seller warrants that it has complied with the keyless,
dead-bolt lock requirement.
(K) EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT AND IN THE
CLOSING DOCUMENTS TO BE EXECUTED IN CONNECTION HEREWITH (THE "CLOSING
DOCUMENTS"), IT IS UNDERSTOOD AND AGREED THAT SELLER IS NOT MAKING AND HAS NOT
AT ANY TIME MADE ANY WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER,
EXPRESS OR IMPLIED, WITH RESPECT TO THE PROPERTY, INCLUDING, BUT NOT LIMITED TO,
ANY WARRANTIES OR REPRESENTATIONS AS HABITABILITY, MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE. PURCHASER ACKNOWLEDGES AND AGREES THAT, UPON CLOSING,
SELLER SHALL SELL AND CONVEY TO PURCHASER AND PURCHASER SHALL ACCEPT THE
PROPERTY "AS IS, WHERE IS, WITH ALL FAULTS", EXCEPT TO
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THE EXTENT EXPRESSLY PROVIDED OTHERWISE IN THIS AGREEMENT AND IN THE CLOSING
DOCUMENTS. PURCHASER REPRESENTS TO SELLER THAT PURCHASER HAS CONDUCTED, OR WILL
CONDUCT PRIOR TO CLOSING, SUCH INVESTIGATIONS OF THE PROPERTY, INCLUDING, BUT
NOT LIMITED TO, THE PHYSICAL AND ENVIRONMENTAL CONDITIONS THEREOF, AS PURCHASER
DEEMS NECESSARY OR DESIRABLE TO SATISFY ITSELF AS TO THE CONDITION OF THE
PROPERTY AND THE EXISTENCE OR NONEXISTENCE OR CURATIVE ACTION TO BE TAKEN WITH
RESPECT TO ANY HAZARDOUS OR TOXIC SUBSTANCES ON OR DISCHARGED FROM THE PROPERTY,
AND WILL RELY SOLELY UPON SAME AND NOT UPON ANY INFORMATION PROVIDED BY OR ON
BEHALF OF SELLER OR ITS AGENTS OR EMPLOYEES WITH RESPECT THERETO, OTHER THAN
SUCH REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER AS ARE EXPRESSLY SET
FORTH IN THIS AGREEMENT AND IN THE CLOSING DOCUMENTS.
All references in this Agreement to the phrases "actual
knowledge" or "knowledge" of Seller shall refer only to the current actual
knowledge of Arnold C. Tauch, President of the General Partner of Seller, the
person who, as an officer of the General Partner of Seller, is primarily
responsible for supervision of the operation and management of the Property, and
shall not be construed to refer to the knowledge of any other officer, agent or
employee of Seller or any affiliate of Seller or the General Partner of Seller
or to impose upon Arnold C. Tauch, Seller, or any other person or entity any
duty to investigate the matter to which such actual knowledge, or the absence
thereof, pertains; provided, however, the foregoing individual is acting solely
within his capacity as an officer of the General Partner of Seller and in no
manner, expressly or implied, is making any of the representations contained
herein in an individual capacity.
8.2 CONTINUATION OF REPRESENTATIONS, WARRANTIES AND COVENANTS
TO THE DATE OF CLOSING. If each of the warranties set forth in this section does
not remain true up to and including the time of closing as to any material
matters, this Contract, at Purchaser's election, shall be terminated, the
deposits shall be returned to Purchaser with costs actually expended by
Purchaser for the inspection and preparation for closing, or Purchaser may elect
to close the sale and waive failure of the warranties.
8.3 BREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS. No
claim for a breach of any representation or warranty of Seller shall be
actionable or payable if the breach in question results from or is based on a
condition, state of facts or other matter which was actually known to Purchaser
prior to the expiration of the Inspection Period, it being expressly
acknowledged and agreed by the parties hereto that Purchaser is performing
various inspections, tests, and studies of the Property and is engaging various
independent consultants with respect thereto. With respect to any representation
or warranty herein which, by its express terms, is to survive closing, Seller
shall have no liability to Purchaser for a breach of any representation or
warranty (a) unless the valid claims for all such breaches collectively
aggregate more than Twenty-Five Thousand and No/100 Dollars ($25,000.00), in
which event the full amount of such valid claims shall be actionable, up to the
Cap (as defined in this Section), and (b) unless written notice containing a
description of the specific nature of such breach shall have been given by
11
<PAGE>
Purchaser to Seller prior to the expiration of said one (1) year period, and an
action shall have been commenced by Purchaser against Seller within two (2)
years of Closing. As used herein, the term "Cap" shall mean the total net
proceeds received by Seller in connection with this transaction. Notwithstanding
the provisions of 8.2 above, Seller shall indemnify Purchaser for all reasonable
costs incurred as a result of the failure of any of Seller's representations,
warranties or covenants contained herein to remain true as of the date of
closing.
ARTICLE IX
CONDEMNATION; RISK OF LOSS
9.1 PROPERTY DAMAGE. If, prior to closing, any part of the Property is
damaged by fire or other casualty in an amount not greater than TWO HUNDRED
THOUSAND ($200,000) DOLLARS, Purchaser agrees to accept the Property with an
assignment of: (i) the insurance proceeds, (ii) any deductible, and (iii) rent
loss insurance proceeds. In the event that such damage is in an amount greater
than TWO HUNDRED THOUSAND ($200,000) DOLLARS, this Agreement may be canceled at
the option of the Purchaser within fifteen (15) days after notice of the
occurrence of such casualty. In the event of cancellation as aforesaid, this
Agreement shall become null and void and the parties shall be released of all
obligations hereunder and all payments made shall be returned. Should Purchaser
elect to carry out this Agreement despite such damage, Seller shall assign to
Purchaser all insurance proceeds and any deductible arising from such damage and
will compensate Purchaser for lost rent collections to the extent of insurance
proceeds received. Seller shall promptly notify Purchaser in writing upon the
occurrence of any such damage.
9.2 CONDEMNATION. In the event of any actual or threatened taking,
pursuant to the power of eminent domain, all or any part thereof, or any actual
or proposed sale in lieu thereof, the Seller shall give written notice thereof
to the Purchaser promptly after Seller learns or receives notice thereof. Upon a
taking of a material part of the Property greater than TWO HUNDRED THOUSAND
($200,000) DOLLARS or any part of the building or more than 5% of the parking
area, Purchaser may elect to either (a) terminate this Agreement within fifteen
(15) days after notice of the occurrence of such taking, in which event the
deposits shall be immediately returned to Purchaser and all other rights and
obligations of the parties hereunder shall terminate immediately, or (b) waive
its right to terminate this Agreement and proceed to closing, in which event all
proceeds, awards and other payments arising out of such condemnation or sale
(actual or threatened) shall be paid to the Purchaser at Closing, if such
payment has been received. If payment has not as yet been received, but an
amount has been agreed upon, Seller shall assign the claim to Purchaser.
9.3 RISK OF LOSS. Prior to closing, all risks of loss or damage by
every casualty shall be borne by the Seller.
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ARTICLE X
BROKER'S COMMISSION
10.1 COMMISSION. Purchaser agrees to pay a brokerage fee to LAMM REAL
ESTATE, LTD. and Seller agrees to pay a brokerage commission to C.B. RICHARD
ELLIS, INC., pursuant to separate agreements. Said brokerage fees shall be
deemed earned if, and only if, settlement occurs hereunder, and shall not be
deemed earned even if Purchaser and/or Seller wrongfully fail(s) to consummate
the purchase and sale herein contemplated. Seller and Purchaser represent and
warrant to each other that no other brokerage fees are or shall be owing in
connection with this transaction or in any way with the Property or this
Agreement, and Seller and Purchaser hereby indemnify and hold the other harmless
from any and all claims of any other person so claiming.
ARTICLE XI
DEFAULT
11.1 DEFAULT DEFINED. Default for the purpose of this Agreement shall
mean any failure by Seller or Purchaser to fulfill all the terms, conditions and
covenants contained herein, however, it shall not be an event of default for
either party to exercise its rights to terminate this Agreement as contained in
other provisions herein.
11.2 SELLER'S DEFAULT. Upon Seller's default, the Purchaser, at its
election, may as its sole and exclusive remedy, either (1) require specific
performance of Seller, or (2) cancel this Agreement and obtain a prompt return
of the deposits and all expenses incurred by Purchaser, in which case this
Agreement shall be terminated and the parties released from all obligations
hereunder, or (3) the Purchaser may waive such defaults and proceed to
settlement. Seller shall indemnify Purchaser for any reasonable costs incurred
by Purchaser if Purchaser elects to pursue its option (1) noted above, to
include reasonable attorney fees. Purchaser shall not have the right to
institute a suit for damages (and hereby waives any such right to institute a
suit for damages) against Seller.
11.3 PURCHASER'S DEFAULT. Upon Purchaser's default, this Agreement
shall be terminated and both parties released from all obligations hereunder,
and the deposit shall be retained by the Seller as liquidated damages. Such
amount and terms are agreed upon by and between Seller and Purchaser as
liquidated damages, due to the difficulty and inconvenience of ascertaining and
measuring actual damages, and the uncertainty thereof, and the payment of the
deposit and the terms provided herein shall constitute full satisfaction of
Purchaser's obligations under this Agreement. Such amount is agreed upon by and
between Seller and Purchaser as a reasonable estimate of just compensation for
the harm caused by Purchaser's default. Seller shall have no other remedy
against Purchaser in the event of Purchaser's default.
13
<PAGE>
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 ENTIRE AGREEMENT. This Agreement sets forth the entire
understanding between the parties; it supersedes all previous agreements and
representations which are deemed merged herein and may not be modified except in
writing.
12.2 ASSIGNMENT. Purchaser may assign this Agreement without the
consent of Seller to an entity associated with the Purchaser.
12.3 SEVERABILITY. If any provision, sentence, phrase or word of this
Agreement or the application thereof to any person or circumstance shall be held
invalid, the remainder of this Agreement or the application of such provision,
sentence, phrase, or word to persons or circumstances, other than those as to
which it is held invalid, shall remain in full force and effect.
12.4 BINDING EFFECT. The parties to the Agreement mutually agree that
it shall be binding upon and inure to the benefit of their respective heirs,
representatives, successors in interest and assigns.
12.5 CONTROLLING LAW. It is the intent of the parties hereto that all
questions with respect to the construction of this Agreement and the rights and
liabilities of the parties shall be determined in accordance with the provisions
of the laws of the State of Texas.
12.6 COUNTERPARTS. To facilitate execution, this Agreement may be
executed in as many counterparts as may be required. It shall not be necessary
that the signature on behalf of both parties hereto appear in each counterpart
hereof, and it shall be sufficient that the signature on behalf of both parties
hereto appear on one or more such counterparts. All counterparts shall
collectively constitute a single contract.
12.7 INCORPORATION BY REFERENCE. All of the Exhibits referred to
herein and/or attached hereto shall be deemed to constitute a part of the
Agreement.
12.8 HEADINGS. The headings of the Articles and sections hereof are
inserted for convenience only and shall not be deemed to constitute a part of
the Agreement.
12.9 CONSTRUCTION OF CONTRACT. Each party hereto has reviewed and
revised (or requested revisions of) this Agreement, and therefore the normal
rule of construction that any ambiguities are to be resolved against a
particular party shall not be applicable in the construction and interpretation
of this Contract or any amendments or exhibits hereto.
14
<PAGE>
12.10 CONFIDENTIALITY. The parties shall keep confidential the
existence of this Agreement, the transactions described herein, and all
information obtained from the other party both during and subsequent to the
transaction. However, the covenants contained in this paragraph shall not apply
in respect to any information which (a) was already known to either party when
such information was received from the other, (b) was readily available to the
general public at the time of such receipt, (c) subsequently becomes known to
the general public through no fault or omission by the other party, (d) is
subsequently disclosed by a third party which has the bona fide right to make
such disclosure, or (e) is required to be disclosed by law or a governmental
agency. This clause shall survive closing.
12.11 HOLIDAYS. If any of the deadlines in this Agreement ends on, or
if any event is to occur on, a Saturday, Sunday, or legal holiday, the deadline
or the date for performance shall automatically be extended to the next day
which is not a Saturday, Sunday, or legal holiday.
12.12 LEAD WARNING STATEMENT. Every purchaser of any interest in
residential real property on which a residential dwelling was built prior to
1978 is notified that such property may present exposure to lead from lead-based
paint that may place young children at risk of developing lead poisoning. Lead
poisoning in young children may produce permanent neurological damage, including
learning disabilities, reduced intelligence quotient, behavioral problems, and
impaired memory. Lead poisoning also poses a particular risk to pregnant women.
The seller of any interest in residential real property is required to provide
the buyer with any information on lead-based paint hazards from risk assessments
or inspections in the seller's possession and notify the buyer of any known
lead-based paint hazards. A risk assessment or inspection for possible
lead-based paint hazards is recommended prior to purchase.
12.12.1. Seller has no knowledge of lead-based paint and/or lead-based
paint hazard in the housing.
12.12.2. Seller has no reports or records pertaining to lead-based
paint and/or lead-based paint hazards in the housing.
12.12.3. Purchaser is hereby granted a 10-day opportunity (or the
length of the Inspection Period, whichever is longer) to conduct a risk
assessment or inspection for the presence of lead- based paint and/or lead-based
paint hazards.
12.13 EXHIBITS. The following exhibits are attached to this Agreement
and are incorporated into this Agreement by this reference and made a part
hereof for all purposes:
EXHIBIT A, the legal description of the Land.
EXHIBIT B, list of personal property
EXHIBIT C, the form of Deed.
EXHIBIT D, the form of the Assignment and Assumption of
Personal Property, Service Contracts, Warranties
and Leases.
EXHIBIT E, the form of the Representation Letter.
EXHIBIT F, Closing Memorandum and Indemnification Agreement.
15
<PAGE>
12.14 NON-RECORDING. The execution by Seller and Purchaser of this
Agreement has not been acknowledged before a notary public or other officer
authorized to take acknowledgments, and neither this Agreement nor any
memorandum or affidavit hereof is to be filed for record. In the event that
Purchaser records this Agreement or any memorandum or affidavit hereof, Seller
shall have the right, at its option, to terminate this Agreement, whereupon the
Deposit, together will all accrued interest thereon, shall be delivered to
Seller as liquidated damages for Purchaser's breach hereof and Seller and
Purchaser shall be fully and finally released herefrom.
12.15 ATTORNEYS' FEES. In the event it becomes necessary for either
party hereto to file a suit to enforce this Agreement or any provisions
contained herein, the party prevailing in such action shall be entitled to
recover, in addition to all other remedies or damages, reasonable attorneys'
fees incurred in such suit.
12.16 BROKER DISCLOSURE. Purchaser acknowledges that, at the time of
execution of this Agreement, the aforementioned Brokers advised Purchaser that
Purchaser should have the abstract covering the Property examined by an attorney
of Purchaser's own selection or that Purchaser should be furnished with or
obtain a policy of title insurance.
12.17 AMENDMENTS. This Agreement may not be modified or amended,
except by an agreement in writing signed by the Seller and the Purchaser. The
parties may waive any of the conditions contained herein or any of the
obligations of the other party hereunder, but any such waiver shall be effective
only if in writing and signed by the party waiving such conditions or
obligations.
12.18 AUTHORITY. Each person executing this Agreement warrants and
represents that he is fully authorized to do so.
12.19 TIME OF ESSENCE. Time is of the essence of this Agreement.
However, each party shall have the right to one adjournment to June 16th.
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<PAGE>
ARTICLE XIII
NOTICE
13.1 NOTICE. All notices required or permitted to be given under this
Agreement shall be in writing and shall be sent or delivered to the address set
forth below (or such other address as may be hereafter specified in writing):
To Seller:
Mr. Arnold Tauch
Falcon Group, Inc.
5225 Katy Fry., #530
Houston, TX 77007
Fax: (713) 861-0971
With a copy to Seller's Attorneys:
Kyle Lippman, Esq.
Nathan, Sommers, Lippman, Jacobs & Gorman
2800 Post Oak Blvd., 61st Floor
Houston, TX 77056-5705
Fax: (713) 892-4800
To Purchaser:
Mr. Gus Remppies
Cornerstone Realty Group, Inc
306 E. Main Street
Richmond, VA 23219
Fax: (804) 782-9302
With a copy to Purchaser's Attorneys:
Harry S. Taubenfeld, Esq.
Zuckerbrod & Taubenfeld
575 Chestnut St., P.O. Box 488
Cedarhurst, NY 11516
Fax: (516) 374-3490
and
Robert E. Morrison, Esq.
Brown McCarroll & Oaks Hartline
300 Crescent Court, Suite 1400
Dallas, TX 75201
Fax: (214) 999-6170
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<PAGE>
13.2 DELIVERY OF NOTICE. Notices sent either by Registered or Certified
Mail, Return Receipt Requested, or by overnight express mail shall be deemed
given when deposited in the United States Mail, postage prepaid, or delivered to
a reliable overnight courier or by fax. Notices sent in any other manner shall
be deemed given only when actually delivered at the specified address.
IN WITNESS WHEREOF, the Seller and the Purchaser have caused this
Agreement to be executed this day and date first written above.
SELLER:
AUSTIN/CANYON HILLS, LTD., a Texas
limited partnership
BY: Austin/Canyon Hills I, Inc.,
a Texas corporation, General Partner
BY: /s/ Kyle Tauch
-------------------
Name: Kyle Tauch
Title: Secretary
PURCHASER:
CORNERSTONE REALTY GROUP, INC.
BY: /s/ Gus G. Remppies
---------------------
Its: Senior Vice President
----------------------
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<PAGE>
EARNEST MONEY RECEIPT
Heritage Title Company of Austin, Inc. acknowledges receipt of this fully
executed Agreement and the Earnest Money in the amount of $100,000.00, on this
the ___ day of _____________, 1999 (the "Effective Date"), and agrees as
follows:
(a) immediately, by courier (for no later than next business day delivery), to
deliver to Seller, Seller's counsel, Purchaser, and Purchaser's counsel a copy
of this Agreement, as fully executed by Seller, Purchaser, Agent, and the Title
Company; and,
(b) to issue the Commitment (as defined in Section 3.2 of this Agreement) and
deliver same to Purchaser and to Purchaser's counsel, with a copy to Seller,
within ten (10) days after the Effective Date.
HERITAGE TITLE COMPANY OF AUSTIN, INC.
By:_____________________________________________
Name:___________________________________________
Title:__________________________________________
19
EXHIBIT 10.2
PROPERTY MANAGEMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 11th day of June,
1999 by and between Apple REIT Limited Partnership, a Virginia limited
partnership (hereinafter referred to as "Owner"), and Apple Residential
Management Group, Inc., a Virginia corporation (hereinafter referred to as
"Manager").
W I T N E S S E T H :
WHEREAS, Owner is the owner of Canyon Hills Apartments (hereinafter
referred to as the "Property"); and
WHEREAS, Owner and Manager desire to enter into this Agreement for the
purposes herein contained.
NOW, THEREFORE, in consideration of the promises herein contained, and
for other valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. DESIGNATION OF MANAGER AS MANAGER FOR THE PROPERTY. Owner hereby
engages Manager as sole and exclusive manager to rent, manage and operate the
Property, upon the conditions and for the term and compensation herein set
forth. All or a portion of the services being performed by Manager may be
contracted or subcontracted to another property management company, provided
that such company agrees to be bound by the terms of this Agreement.
2. TERM OF AGREEMENT; RENEWAL. This Agreement shall be valid for an
initial term of two (2) years. In the event Owner sells its interest in the
Property, this Agreement will terminate upon the date of such sale. Unless
either party by written notice sent to the other party at least sixty (60) days
before the end of any two-year term hereof elects not to renew this Agreement,
this Agreement shall renew automatically for successive terms of two (2) years
on the same terms as contained herein.
3. ACCEPTANCE OF ENGAGEMENT. Manager hereby accepts its engagement as
the manager of the Property and agrees to perform all services necessary for the
care, protection, maintenance and operation of the Property, including the
following:
a. The collection of all rents and other income from the
Property, provided that nothing herein contained shall constitute a guarantee by
Manager of the payment of rent by tenants;
b. The purchase, at the expense of Owner, of all equipment,
tools, appliances, materials, supplies and uniforms necessary for the
maintenance or operation of the Property;
<PAGE>
c. The contracting on behalf of Owner for water, gas,
electricity and other services necessary for the operation and maintenance of
the Property;
d. The advertising for the rental of space in the Property,
the cost of which shall be paid or by Owner;
e. The use of all reasonable efforts to keep the Property
rented by procuring tenants for the Property and negotiating and executing on
behalf of Owner all leases for space in the Property;
f. The employment, discharge and payment of all employees or
contractors necessary to be employed in the management and operation of the
Property. Owner agrees that all wages (and federal and state unemployment
insurance and other required charges) of such employees, and all compensation of
such employees and contractors, shall be paid from Owner's funds;
g. The preparation and filing of all returns and other
documents (other than promissory notes, mortgages, deeds of trust or other
documents or instruments which would encumber the Property) required under the
Federal Insurance Contributions Act and the Federal Unemployment Tax Act, or any
similar federal or state legislation. Manager shall also file returns and
reports, and pay from Owner's funds, all sums as may from time to time be
required by the state or locality in which the Property is located;
h. The maintenance of full books of account with correct
entries of all receipts and expenditures, which books of account shall be the
property of Owner and shall at all times be open to the inspection of Owner or
any of its employees or duly authorized agents;
i. The furnishing to Owner of all lenders' annual property
inspection letters regarding repairs necessary to avoid mortgage loan defaults.
The furnishing monthly of a detailed statement of all receipts and disbursements
for that month, such statement to be furnished on or before the 20th day of each
month for the preceding month. Such statement shall show the status of
collections and shall be supported by cancelled checks, vouchers, duplicate
invoices and similar documentation covering all items of income and expense,
which shall be kept in Manager's office and shall be available for inspection by
Owner's representatives at all times. Manager shall also furnish a monthly
operating statement showing the income and expense for the month, and year to
date, and for the same month of the preceding year. The cost of performing the
accounting functions outlined in paragraphs h and i shall be paid for by Owner
pursuant to the terms of this Agreement;
j. The furnishing of annual reports to Owner which shall
contain a composite financial report of the monthly statements provided in
accordance with paragraph I, plus a statement by Manager as to the operations of
the Property during the previous year and recommendations, if any, as to
necessary policy changes or improvements which should be
<PAGE>
implemented in the forthcoming year, which recommendations shall be accompanied
by an estimated budget for such items;
k. The furnishing from time to time, at least semi-annually,
of a tentative budget of expenses;
l. The furnishing from time to time, at least annually, of the
following schedules: (1) forecast of rental and occupancy changes; (2) review of
lease negotiations; (3) annual analysis of leases; and (4) schedule of capital
improvements and method of financing such improvements;
m. The furnishing, on a regular basis, of all forms necessary
to operate and lease the Property and manage the personnel including, but not
limited to, form leases, contracts and management policies; and
n. During the initial term of this Agreement, supervising the
transition from former ownership of the Property and implementing new management
systems with respect to operation of the Property.
4. DEPOSITS OF RENT AND OTHER INCOME. All sums received from rents,
tenant security deposits or other deposits on space in the Property, deposits on
keys and other income from the Property, shall be deposited from time to time as
collected by Manager to the credit of Owner in such bank or banks as may from
time to time be designated by Owner. Such funds shall be disbursed only in
accordance with the terms of each individual lease and in accordance with any
applicable federal, state or local laws, regulations or ordinances.
5. INSURANCE. Owner shall place all insurance policies with respect to
the Property and its operation. Manager shall be included as an insured in the
policies covering general liability, public liability and workers' compensation
insurance. In the event Manager is authorized by Owner to place insurance
policies, the companies, the general agents, the amounts of coverage and the
risks insured shall be subject to the approval of Owner.
6. INDEMNIFICATION. Owner hereby agrees to indemnify and hold harmless
Manager against and in respect of any loss, cost or expense (including
reasonable investigative expenses and attorneys' fees), judgment, award, amount
paid in settlement, fine, penalty and liability of any and every kind incurred
by or asserted against Manager by reason of or in connection with the employment
of Manager hereunder, the performance by Manager of the services described
herein or the occurrence or existence of any event or circumstance which results
or is alleged to have resulted in death or injury to any person or destruction
of or damage to any property and any suit, action or proceeding (whether
threatened, initiated or completed) by reason of the foregoing; provided,
however, that no such indemnification of Manager shall be made, and Manager
shall indemnify and hold Owner harmless against, and to the extent of, any loss
that a court of competent jurisdiction shall, by final adjudication, determine
to have resulted from willful misconduct, gross negligence or fraud by or on the
part of Manager.
<PAGE>
7. COMPENSATION OF MANAGER FOR MANAGING THE PROPERTY. Owner shall pay
to Manager a "Property Management Fee" for management of the Property pursuant
to this Agreement in an amount equal to five percent (5%) of the monthly gross
revenues from the Property. The Property Management Fee shall be paid to Manager
on or before the 10th day of each month and shall be based upon the income
received by Owner (for such month) which has been obtained by such date. If
additional gross revenues are received by Owner after the day Manager is paid,
the sum due to Manager on account of such additional income shall be paid to
Manager when Manager is paid its fees for the next succeeding month.
8. REIMBURSEMENT OF EXPENSES. Owner shall reimburse Manager for
Manager's expenses, including salaries and related overhead expenses, associated
with bookkeeping, accounting and financial reporting services pertaining to the
Property.
9. RESERVES FOR CAPITAL ITEMS. Owner acknowledges that the budget
prepared by Manager, pursuant to paragraph 3(k), will contain a category labeled
"Reserve for Capital Items." Owner agrees to place rents and other income in a
bank account, or to permit Manager to transfer Owner's funds to such account, in
sufficient amounts to meet the needs reflected in such budget. Such funds shall
be placed in the account on a monthly basis as reflected in the budget.
10. CASH FLOW. Owner acknowledges that the budget prepared by Manager,
pursuant to paragraph 3(k), will contain a category labeled "Cash Flow." Owner
agrees, in the event that the budgeted cash flow for the Property is "negative"
in any month covered by the budget, to place sufficient funds in a bank account,
or to permit Manager to transfer Owner's funds to such account, to make up the
budgeted operating deficit. These funds must be placed in such account at least
forty-five (45) days before the budgeted deficit is to occur.
11. POWER OF ATTORNEY. Owner hereby makes, constitutes and appoints
Manager its true and lawful attorney-in-fact, for it and in its name, place and
stead and for its use and benefit to sign, acknowledge and file all documents
and agreements (other than promissory notes, mortgages, deeds of trust or other
documents or instruments which would encumber the Property) necessary to perform
or effect the duties and obligations of Manager under the terms of this
Agreement. The foregoing power of attorney is a special power of attorney
coupled with an interest. It may only be terminated by cancelling this Agreement
as provided herein.
12. RELATIONSHIP OF PARTIES. The parties agree and acknowledge that
Manager is and shall operate as an independent contractor in performing its
duties under this Agreement, and shall not be deemed an employee or agent of
Owner.
13. ENTIRE AGREEMENT. This Agreement represents the entire
understanding between the parties hereto with regard to the transactions
described herein and may only be amended by a written instrument signed by the
party against whom enforcement is sought.
14. GOVERNING LAW. This Agreement shall be construed in accordance with
and be governed by the laws of the Commonwealth of Virginia.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
OWNER:
APPLE REIT LIMITED PARTNERSHIP,
a Virginia limited partnership
By: Apple General, Inc., general partner
By: /s/ S. J. Olander, Jr.
----------------------
Title: Vice President
--------------------
<PAGE>
MANAGER:
APPLE RESIDENTIAL MANAGEMENT GROUP, INC.
By: /s/ S. J. Olander, Jr.
---------------------
Title: Secretary
------------------
EXHIBIT 23.1
Consent of Independent Auditors
--------------------------------
The Board of Directors
Apple Residential Income Trust, Inc.
Richmond, Virginia
We consent to the use of our report dated June 18, 1999 with respect to
the statement of income and direct operating expenses exclusive of items not
comparable to the proposed future operations of the property Canyon Hills
Apartments for the twelve month period ended May 31, 1999, for inclusion in a
form 8K filing with the Securities and Exchange Commission by Apple Residential
Income Trust, Inc.
/s/ L.P. Martin & Co., P.C.
Richmond, Virginia
June 18, 1999
