UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File Number
December 31, 1998 0-23983
APPLE RESIDENTIAL INCOME TRUST, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1816010
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification Number)
306 East Main Street
Richmond, VA 23219
(Address of principal executive offices) (Zip Code)
(804)643-1761
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
(None)
Securities registered pursuant to Section 12(g) of the Act:
(None)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
--- ---
At March 26, 1999, there was 30,495,187 common shares of the registrant
outstanding.
The common shares of the Company are not currently being traded in any market.
Therefore, the common shares did not have either a market selling price or bid
and asked prices within 60 days prior to the date of this filing, and the
aggregate market value of the common shares held by non-affiliates of the
registrant is not determinable.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Yes x No
--- ---
1
<PAGE>
Documents Incorporated By Reference
-----------------------------------
The portions of the registrant's Prospectus dated October 16, 1998 and
Supplement No. 4 dated February 16, 1998 as filed on October 29, 1998 and
February 17, 1999, respectively, with the Commission pursuant to Rule 424(b)
under the Securities Act of 1933, relative to the registrant's registration
statement on Form S-11 (File No. 333-64029), are incorporated by reference in
Parts I, II, and III of this report.
The portions of the registrant's Current Report on Form 8-K dated February 4,
1998 referred to in Part I.
The portions of the registrant's Current Report on Form 8-K dated February 13,
1998 referred to in Part I.
The portions of the registrant's Current Report on Form 8-K dated March 31, 1998
referred to in Part I.
The portions of the registrant's Current Report on Form 8-K dated May 8, 1998
referred to in Part I.
The portions of the registrant's Current Report on Form 8-K dated June 2, 1998
referred to in Part I.
The portions of the registrant's Current Report on Form 8-K dated July 1, 1998
referred to in Part I.
The portions of the registrant's Current Report on Form 8-K dated July 9, 1998
referred to in Part I.
The portions of the registrant's Current Report on Form 8-K dated October 28,
1998 referred to in Part I.
The portions of the registrant's Current Report on Form 8-K dated November 17,
1998 referred to in Part I.
INTRODUCTION
This Annual Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1993, as amended. Such statements involve
known and unknown risks, uncertainties, and other factors which may cause the
actual results, performance, or achievements of the Company to be materially
different from the results of operations or plans expressed or implied by such
forward-looking statements. Such factors include, among other things,
unanticipated adverse business developments affecting the Company or the
properties, as the case may be, and adverse changes in the real estate markets
and general and local economies and business conditions and Year 2000 compliance
issues. Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore there can be no assurance that
such statements included in this Annual Report will prove to be accurate. In
light of the significant uncertainties inherent in the forward-looking
statements included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the results
or conditions described in such statements or the objectives and plans of the
Company will be achieved. In addition, the Company's continued qualification as
a real estate investment trust involves the application of highly technical and
complex provisions of the Internal Revenue Code. Readers should carefully review
the Company's financial statements and the notes thereto, as well as the risk
factors described in the Company's filings with the Securities and Exchange
Commission.
PART I
ITEM 1. BUSINESS
Apple Residential Income Trust, Inc. (together with its
subsidiaries, Apple Limited, Inc., Apple General, Inc., Apple
REIT Limited Partnership, Apple REIT II Limited Partnership,
Apple REIT III Limited Partnership, Apple REIT IV Limited
Partnership, Apple REIT V Limited Partnership, Apple REIT VI
Limited Partnership, Apple REIT VII Limited Partnership, the
"Company"), a Virginia corporation, was incorporated in August
1996. Operations of rental property commenced on January 28,
1997. The business of the Company is to acquire existing
residential apartment complexes located in Texas and the
southwestern region of the United States. The Company owned 25
properties comprising 6,604 apartment units within that region
as of December 31, 1998. The Company's property acquisitions
are described in Item 2 of this report, which is hereby
incorporated herein by reference. The complete investment
objectives and policies of the Company are described under the
caption "Investment Objectives and Policies" on pages 25
through 33 of the Company's prospectus dated October 16, 1998
(the "Prospectus") filed with the Securities and Exchange
Commission pursuant to Rule 424 (b) (3) on October 29, 1998
relative to the Company's Registration Statement on Form S-11
(Registration No. 333-64029), which are hereby incorporated
herein by reference.
2
<PAGE>
Originally, the properties were acquired and owned directly by
Apple Residential Income Trust, Inc. without the interposition
or use of any subsidiary companies. Company management
determined that the direct ownership of its properties could
inhibit in certain respects the Company's flexibility in
planning certain transactions or acquisitions. For example,
the direct-ownership structure makes it difficult, if not
impossible, for potential sellers of properties to exchange
their properties for equity interest in the Company in a
manner that could defer tax liabilities for the sellers.
Company management felt that this lack of flexibility could
hinder the Company's acquisition of desirable properties from
sellers seeking such tax deferral. Furthermore, Company
management believed that the direct-ownership structure tended
to maximize the Company's exposure to certain franchise taxes.
Based upon the foregoing, Company management proposed to the
Board of Directors, and the Board of Directors adopted and
submitted for approval by the shareholders, a proposal to the
effect of which would be to transfer the apartment properties
of Apple Residential Income Trust, Inc. to a newly-organized
limited partnership indirectly wholly-owned by Apple
Residential Income Trust, Inc. The shareholders approved this
proposal on December 19, 1997.
Apple Residential Income Trust, Inc. transferred the
properties to a Virginia limited partnership, the partners of
which are two newly created, wholly-owned subsidiaries of the
Company. Apple Residential Income Trust, Inc. formed the two
wholly-owned subsidiaries, Apple Limited, Inc. and Apple
General, Inc., as Virginia corporations. Apple Residential
Income Trust, Inc. then transferred an undivided 99 percent
interest in the properties to Apple Limited, Inc. and an
undivided 1 percent interest in the properties to Apple
General, Inc. Apple Limited, Inc. and Apple General, Inc.
together formed the limited partnership, Apple REIT Limited
Partnership (the "Partnership"), as a Virginia limited
partnership. Apple Limited, Inc. contributed its 99% interest
in the properties to the Partnership in exchange for a 99%
limited partnership interest in the Partnership. Apple
General, Inc. contributed its 1% interest in the properties to
the Partnership in exchange for a 1% general partnership
interest in the Partnership. The properties were transferred
to the Partnership on December 29, 1997. The Partnership now
holds the properties and conducts the business activities of
the Company associated with the properties.
Shareholders effectively continue to hold the same ownership
interest in the properties following the transactions
described above, through Apple Residential Income Trust,
Inc.'s 100% ownership of Apple Limited, Inc. (which owns a 99%
interest in the Partnership), and 100% ownership of Apple
General, Inc. (which owns 1% interest in the Partnership).
Apple General, Inc., as general partner of the Partnership,
manages the affairs of the Partnership. Apple Residential
Income Trust, Inc. as sole shareholder of Apple General, Inc.
will be entitled to exercise the rights of a 100%-shareholder
with respect to Apple General, Inc., including the election
and removal of directors of that company. At the present time,
Glade M. Knight, Chairman of the Board and Chief Executive
Officer of Apple Residential Income Trust, Inc., is the sole
director and President of Apple General, Inc.
Environmental Matters
---------------------
In connection with each of its property acquisitions, the
Company obtains a Phase I Environment Report and such
additional environmental reports and surveys as are
necessitated by such preliminary report. Based on such
reports, the Company is not aware of any environmental
situations requiring remediation at its properties, which have
not been or are not currently being remediated as necessary.
No material remediation costs have or are expected to occur.
Property Acquisitions in 1998
-----------------------------
The following is a summary of the property acquisitions made
by the Company during 1998.
On February 4, 1998, the Company acquired Main Park Apartments
in Duncanville, Texas. Information with respect to this
property is hereby incorporated herein by reference from pages
3 through 6 of the Company's Report on Form 8-K dated February
4, 1998.
On February 13, 1998, the Company acquired Timberglen
Apartments in Dallas, Texas. Information with respect to this
property is hereby incorporated herein by reference from pages
3 through 6 of the Company's Report on Form 8-K dated February
13, 1998.
On March 31, 1998, the Company acquired the Copper Ridge
Apartments in Fort Worth, Texas. Information
<PAGE>
with respect to this property is hereby incorporated herein by
reference from pages 3 through 7 of the Company's Report on
Form 8-K dated March 31, 1998.
4
<PAGE>
On May 8, 1998, the Company acquired Bitter Creek Apartments,
(which was subsequently renamed "Silver Brook I") in Grand
Prairie, Texas. Information with respect to this property is
hereby incorporated herein by reference from pages 4 through 8
of the Company's Report on Form 8-K dated May 8, 1998.
On June 1, 1998, the Company acquired Summer Tree Apartments
in Dallas, Texas. Information with respect to these properties
is hereby incorporated herein by reference from pages 4
through 8 of the Company's Report on Form 8-K dated June 2,
1998.
On July 1, 1998, the Company acquired Park Village Apartments
in Bedford, Texas. Information with respect to this property
is hereby incorporated herein by reference from pages 4
through 8 of the Company's Report on Form 8-K dated July 1,
1998.
On July 9, 1998, the Company acquired Cottonwood Crossing
Apartments in Arlington, Texas. Information with respect to
this property is hereby incorporated herein by reference from
pages 7 through 10 of the Company's Report on Form 8-K dated
July 9, 1998.
On July 17, 1998, the Company acquired Pepper Square
Apartments, (which was subsequently renamed "Devonshire") in
Dallas, Texas, and Pace's Point Apartments in Lewisville,
Texas. Information with respect to these properties is hereby
incorporated herein by reference from pages 10 through 16 of
the Company's Report on Form 8-K dated July 9, 1998.
On July 24, 1998, the Company acquired Hayden's Crossing
Apartments, (which was subsequently renamed "Silver Brook II")
in Grand Prairie, Texas, Emerald Oaks Apartments in Grapevine,
Texas, and Newport Apartments in Austin, Texas. Information
with respect to this property is hereby incorporated herein by
reference from pages 16 through 25 of the Company's Report on
Form-8-K dated July 9, 1998.
On July 27, 1998, the Company acquired Estrada Apartments in
Irving, Texas. Information with respect to this property is
hereby incorporated herein by reference from pages 26 through
29 of the Company's Report on Form 8-K dated July 9, 1998.
On October 28, 1998, the Company acquired Burney Oaks
Apartments in Arlington, Texas. Information with respect to
this property is hereby incorporated herein by reference from
pages 4 through 8 of the Company's Report on Form 8-K dated
October 28, 1998.
On October 29, 1998, the Company acquired Brandywine Park
Apartments, (which was subsequently renamed "Cutter's Point")
in Richardson, Texas. Information with respect to this
property is hereby incorporated herein by reference from pages
9 through 12 of the Company's Report on Form 8-K dated October
28, 1998.
On November 17, 1998, the Company acquired The Courts on Pear
Ridge in Dallas, Texas. Information with respect to this
property is hereby incorporated herein by reference from pages
3 through 8 of the Company's Report on Form 8-K dated November
17, 1998.
Recent Developments
-------------------
On January 5, 1999, the Company acquired Sierra Ridge
Apartments, a 230-unit apartment complex in San Antonio, Texas
for a purchase price of $5,817,000. On February 1, 1999, the
Company purchased Grayson Square Apartments, a 200-unit
apartment complex in Grapevine, Texas for a purchase price of
$9,350,000.
The Company has hired financial advisors to evaluate a
potential merger. In addition, the Company has appointed
independent committees of the board of directors to evaluate
the potential merger.
The Company's Board of Directors met on March 30, 1999, and
voted to approve a merger with Cornerstone Realty Income
Trust, Inc. subject to, among other requirements, an
affirmative vote of the Company's shareholders.
ITEM 2. Properties
PROPERTY DESCRIPTIONS AND CHARACTERISTICS
As of December 31, 1998, the Company owned 26 apartment communities comprising
6,604 apartment units. The Properties are located in Texas.
5
<PAGE>
The following table sets forth specific information regarding the
Properties:
<TABLE>
<CAPTION>
Total Average
Initial Total Investment Unit Size
Year Date of Acquisition Investment at Number Per Unit at Square
Property Location Completed Acquisition Encumbrances Cost 12-31-98(1) of Units 12-31-98 Feet)
-------- -------- --------- ----------- ------------ ---- ----------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Texas
- -----
Mill Crossing Arlington 1979 February 1997 $4,544,121 5,458,746 184 $29,667 691
Polo Run Arlington 1984 March 1997 6,858,974 8,061,726 224 35,990 854
Aspen Hill Arlington 1979 January 1997 5,690,560 7,502,434 240 31,260 671
Cottonwood Crossing Arlington 1985 July 1998 5,700,000 6,147,288 200 30,736 751
Burney Oaks Arlington 1985 October 1998 9,300,000 9,679,771 240 40,332 794
The Arbors on Forest Ridge Bedford 1986 April 1997 7,748,907 8,632,706 210 41,108 804
Park Village Bedford 1983 July 1998 7,000,000 7,477,425 238 31,418 647
Brookfield Dallas 1984 January 1997 5,458,485 6,583,990 232 28,379 714
Paces Cove Dallas 1982 June 1997 9,277,355 9,833,200 328 29,979 670
Toscana Dallas 1986 March 1997 5,854,531 6,792,187 192 35,376 601
Timberglen Dallas 1984 February 1998 12,000,000 13,126,845 304 43,180 728
Summer Tree Dallas 1980 June 1, 1998 5,700,000 6,415,878 232 27,655 575
Devonshire Dallas 1978 July 1998 $3,627,425 5,205,000 6,699,709 144 46,526 876
The Courts at Pear Ridge Dallas 1988 November 1998 11,500,000 11,806,367 242 48,787 774
Wildwood Euless 1984 March 1997 3,963,519 4,684,813 120 39,040 755
Copper Crossing Fort Worth 1980/1981 November 1997 9,275,000 10,965,314 400 27,413 739
Eagle Crest Irving 1983/1985 January 1997 15,650,000 17,862,629 484 36,906 887
Remington Hills Irving 1984/1985 August 1997 13,100,000 15,295,457 362 42,253 957
Estrada Oaks Irving 1983 July 1998 9,350,000 9,867,652 248 39,789 771
Main Park Duncanville 1984 February 1998 8,000,000 8,650,550 192 45,055 939
Silver Brook I Grand Prairie 1982 May 8, 1998 13,505,000 14,853,903 472 31,470 842
Silver Brook II Grand Prairie 1984 July 1998 3,047,994 4,705,000 5,290,519 170 31,121 741
Pace"s Point Lewisville 1985 July 1998 7,679,619 11,405,000 12,869,988 300 42,900 762
Emerald Oaks Grapevine 1986 July 1998 6,635,025 10,930,000 11,768,594 250 47,074 850
Newport Austin 1988 July 1998 3,020,775 6,330,000 6,741,792 200 33,709 741
Cutter's Point Richardson 1978 October 1998 8,100,000 8,690,442 196 44,339 1010
Total/Average $24,010,838 $216,151,452 $241,759,925 6,604 $36,608 775
=========== ============ ============ ===== ======= ===
</TABLE>
<TABLE>
<CAPTION>
December December Year-to-Date Year-to-DateRent Per
Average Average Economic Economic Month
Rent-Per-Month Rent-Per-Month Occupancy Occupancy
Property 12/31/98 12/31/97 12/31/98 12/31/97
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Texas
- -----
Mill Crossing $510.23 $462.07 87% 91%
Polo Run 590.61 556.22 91% 92%
Aspen Hill 503.50 459.79 88% 88%
Cottonwood Crossing 507.08 - 96% -
Burney Oaks 606.46 - 93% -
The Arbors on Forest Ridge 615.60 588.01 95% 96%
Park Village 509.45 - 90% -
Brookfield 518.64 472.19 95% 97%
Paces Cove 540.01 507.12 94% 92%
Toscana 529.06 499.70 93% 95%
Timberglen 595.83 - 93% -
Summer Tree 495.00 - 93% -
Devonshire 612.59 - 94% -
The Courts at Pear Ridge 719.39 - 93% -
Wildwood 629.74 590.31 89% 93%
Copper Crossing 468.32 523.54 89% 89%
Eagle Crest 629.09 595.10 93% 93%
Remington Hills 797.28 726.52 93% 94%
Estrada Oaks 589.63 - 94% -
Main Park 699.15 - 96% -
Silver Brook I 524.11 - 94% -
Silver Brook II 505.92 - 86% -
Pace"s Point 591.78 - 93% -
Emerald Oaks 668.47 - 91% -
Newport 575.71 - 93% -
Cutter's Point 659.56 - 96% -
Total/Average $585 $555 92% 93%
==== ==== === ===
</TABLE>
6
<PAGE>
(1) "Total Investment" includes the purchase price of the
property plus real estate commissions, closing costs and
improvements capitalized since the date of acquisition.
(2) An open item denotes that the Company did not own the
property during the period indicated.
(3) Copper Crossing is comprised of Copper Crossing (completed
in 1981) and Copper Ridge (completed in 1980), acquired in
November 1997 and March 1998, respectively, at a cost of
$4,750,000, and $4,525,000. They are adjacent properties and
are operated as one apartment community.
(4) Average rent per month reflects December's monthly gross
potential rent less concessions divided by the property's
number of units.
(5) Economic occupancy percentage reflects adjusted scheduled
rent divided by adjusted gross potential where adjusted
gross potential consists of gross potential net of
concessions, model unit costs, and employee units costs, and
adjusted scheduled rent consists of adjusted gross potential
net of vacancies and bad debt expense.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM, 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is currently no established public market in which the
Company's common shares are traded.
On February 3, 1999, there were 10,372 shareholders of
record of the Company's common shares.
Distributions of $13,040,936 were made to the shareholders
during 1998. Distributions were $.20 per share for the first
and second quarters and $.21 per share for the third and
forth quarters in 1998.
The Company's Registration Statement on Form S-11 (File No.
333-10635) was originally declared effective by the
Securities and Exchange Commission on November 19, 1996, and
on that date the Company commenced an on-going best-efforts
offering (the "Offering") of its Common Shares, no par
value. The managing underwriter is David Lerner Associates,
Inc. All of the Common Shares are being sold for the account
of the Company.
The following tables set forth information concerning the
Offering and the use of proceeds from the Offering as of
December 31, 1998:
7
<PAGE>
Common Shares Registered:
-------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1,666,666.67 Common Shares $9 per Common Share $ 15,000,000
28,500,000.00 Common Shares $10 per Common Share $285,000,000
Totals: 30,166,666.67 Common Shares
</TABLE>
Common Shares Sold:
-------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1,666,667.67 Common Shares $9 per Common Share $ 15,000,000
26,246,828.33 Common Shares $10 per Common Share $262,468,283
Totals: 27,913,495600 Common Shares $277,468,283
</TABLE>
Expenses of Issuance and Distribution of Common Shares
<TABLE>
<CAPTION>
<S> <C>
1. Underwriting discounts and commission $ 27,746,828
2. Expenses of underwriters $ --
3. Direct or indirect payments to directors or officers
Of the Company or their associates, to ten percent
Shareholders, or to affiliates of the Company $ --
4. Fees and expenses of third parties $ 1,590,902
Total Expenses of Issuance and Distribution of
Common Shares $ 29,337,624
Net Proceeds to the Company $ 248,130,553
1. Purchase of real estate (including repayment of
indebtedness incurred to purchase real estate) $ 188,380,614
2. Interest on indebtedness $ 1,196,259
3. Working capital $ 44,261,782
4. Fees to the following (all affiliates of officers of
the Company):
a. Apple Advisors, Inc. $ 14,894
b. Apple Realty Group, Inc. $ 624,382
c. Cornerstone Realty Income Trust, Inc. $ 7,827,622
5. Fees and expenses of third parties:
a. Legal $ --
b. Accounting $ --
6. Other (specify-Deposit to purchase real estate) $ 5,825,000
Total of Application of Net Proceeds to the Company $ 248,130,553
</TABLE>
In addition to the foregoing, on April 25, 1997, the Company sold to Cornerstone
Realty Income Trust, Inc. 417,778 Common Shares at $9.00 per Common Share (total
proceeds of $3,760,000) in a transaction not involving any public offering
within the meaning of Section 4 (2) of the Securities Act of 1933. The offer and
sale of these Common Shares was effectuated on a negotiated basis to an
accredited institutional investor satisfying the standard described in Rule 506
(b) (2) (ii) under the Securities Act of 1933. No underwriting discounts or
commissions were paid in connection with this sale of Common Shares.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the registrant and
should be read in conjunction with the financial statements and related notes of
the Company included under Item 8 of this report.
- --------------------------------------------------------------------------------
8
<PAGE>
<TABLE>
<CAPTION>
As of December 31, 1998 1997 1996 (b)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING RESULTS
Rental Income $ 30,764,904 $ 12,005,968 $--
Net Income 10,079,908 3,499,194 --
Distributions Declared and Paid 13,040,936 3,249,098 --
- --------------------------------------------------------------------------------------------------------------------
PER SHARE
Net Income $ 0.51 $ 0.54 $--
Distributions $ 0.82 $ 0.60 $--
Distributions Representing Return of Capital 0% 0% --
Weighted Average Shares Outstanding-Basic 19,910,408 6,493,114 --
- --------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Investment in Rental Property $ 241,759,925 $ 89,634,348 $----
Total Assets $ 281,847,152 $ 112,485,520 $ 100
Notes Payable $ 25,165,861 $-- $----
Shareholders' Equity $ 249,199,621 $ 109,340,555 $ 100
Shares Outstanding $ 28,331,274 12,371,829 $ 10
- --------------------------------------------------------------------------------------------------------------------
OTHER DATA
Cash Flow from:
Operating Activities $ 17,122,276 $ 7,075,025 $--
Investing Activities $(130,842,627) $ (88,753,814) $--
Financing Activities $ 129,630,977 $ 105,841,261 $--
Number of Properties Owned at Year-End 25 11 --
- --------------------------------------------------------------------------------------------------------------------
FUNDS FROM OPERATIONS CALCULATION
Net Income $ 10,079,908 $ 3,499,194 $--
Depreciation of Real Estate 5,788,476 1,898,003 --
- --------------------------------------------------------------------------------------------------------------------
Funds from Operations (a) $ 15,868,384 $ 5,397,197 $--
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Funds from operations is defined as income before gains (losses) on
investments and extraordinary items (computed in accordance with generally
accepted accounting principles) plus real estate depreciation and after
adjustment for significant nonrecurring items, if any. This definition conforms
to the recommendations set forth in a White Paper adopted by the National
Association of Real Estate Investment Trusts (NAREIT). The company considers
funds from operations in evaluating property acquisitions and its operating
performance, and believes that funds from operations should be considered along
with, but not as an alternative to, net income and cash flows as a measure of
the company's operating performance and liquidity. Funds from operations, which
may not be comparable to other similarly titled measures of other REITs, does
not represent cash generated from operating activities in accordance with
generally accepted accounting principles and is not necessarily indicative of
cash available to fund cash needs.
(b) The company commenced operations in January 1997.
ITEM 7 AND 7A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION/MARKET RISK DISCLOSURE.
The following discussion is based on the consolidated financial statements of
the company as of December 31, 1998. This information should be read in
conjunction with the selected financial data and the company's consolidated
financial statements included elsewhere in this annual report. The company is
operated and has elected to be treated as a real estate investment trust (REIT)
for federal income tax purposes.
9
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO DECEMBER 31, 1997
INCOME AND OCCUPANCY
The results of the company's property operations for the year ended December 31,
1998 include the results of operations from the pre-1998 acquisitions and from
the 16 properties acquired in 1998 from their respective acquisition dates. The
increased rental income and operating expenses for the year ended December 31,
1998, over the year ended December 31, 1997, are primarily due to a full year of
operation in 1998 of the 1997 acquisitions as well as the incremental effect of
the 1998 acquisitions.
The principal source of the company's revenue is the rental operation of its
apartment communities. Rental income increased 156% in 1998 to $30,764,904 from
$12,005,968 in 1997 due to the above factors. Rental income is expected to
increase from the impact of planned improvements, which are being made in an
effort to improve the properties' marketability, economic occupancies and rental
rates.
Overall average economic occupancy was 92% in 1998 and 93% in 1997. Rental rates
for the portfolio increased 5% to $585 on December 31, 1998, from $555 on
December 31, 1997. The increase is due to a combination of rental increases and
the acquisition of properties with higher average rental rates.
EXPENSES
Total property expenses increased 161% to $21,585,665 in 1998 from $8,271,066 in
1997. The operating expense ratio (the ratio of operating expenses, excluding
depreciation, amortization and general and administrative expenses, to rental
income) decreased to 49% in 1998 from 50% in 1997. The decrease is primarily due
to a full year of operation of the 1997 acquisitions and increased efficiencies
associated with economies of scale. The company contracts its property
management to a third party (see Note 6 to consolidated financial statements).
General and administrative expenses totaled 2.6% of revenues in 1998 and 2.9% in
1997. These expenses represent the administrative expenses of the company as
distinguished from the operations of the company's properties. The percentage of
general and administrative expenses is expected to further decrease as the
company's operations grow.
Depreciation of real estate increased to $5,788,476 in 1998 from $1,898,003 in
1997, and is directly attributable to the acquisition of apartment communities
in 1998 and a full year of depreciation of properties acquired in 1997.
INTEREST AND INVESTMENT INCOME AND EXPENSE
The company earned interest income of $1,638,544 in 1998 and $222,676 in 1997
from the investment of its cash and cash reserves. The increase is due to the
company's investment balance held in liquid money market investments pending use
for acquisitions. The weighted-average interest rate earned on short-term
investments was 4.5% in 1998 and 4% in 1997. The company incurred interest
expense of $737,875 in 1998 related to the assumption of mortgage loans and
$458,384 in 1997 associated with short-term borrowings under its line of credit.
These amounts include the amortization of loan costs. The weighted average
interest rate on 1998 mortgage notes payable was 6.5%, and on the line of credit
during 1997 was 7.8%.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO DECEMBER 31, 1996
INCOME AND OCCUPANCY
As operations of the company commenced in January 1997, a comparison of the
years ended December 31, 1996 and December 31, 1997 is not possible. The results
of the company's property operations for the year ended December 31, 1997,
include the results of operations from the 11 properties acquired in 1997 from
their respective acquisition dates. Substantially all of the company's revenue
is from the rental operation of its apartment communities. Rental income was
$12,005,968 in 1997.
Overall average economic occupancy was 93% in 1997. Rental rates for the
portfolio were $555 at December 31, 1997.
EXPENSES
Total property expenses were $8,271,066 in 1997. The operating expense ratio was
50% in 1997. The company contracts its property management to a third party (see
Note 6 to consolidated financial statements). General and administrative
expenses totaled 2.9% of revenues in 1997. Depreciation of real estate was
$1,898,003.
INTEREST AND INVESTMENT INCOME AND EXPENSE
The company earned interest income of $222,676 in 1997 from the investment of
its cash and cash reserves. The weighted average interest rate earned on
short-term investments was 4%. The company incurred $458,384 of interest expense
in 1997, associated with short-term borrowings under its line of credit to fund
acquisitions. The weighted average interest rate on the line of credit during
1997 was 7.8%.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
EQUITY
There was a significant change in the company's liquidity during the year ended
December 31, 1998, as the company continued to grow. During 1998, the company
sold 15,959,445 shares of its common stock to its investors (including 790,863
common shares sold through the company's additional share option), bringing the
total number of shares outstanding to 28,331,274. The total gross proceeds,
since the start of its "best efforts" offering in 1997, from the shares sold
were $281,228,144, which netted $251,890,553 to the company after the payment of
underwriter fees and other offering-related costs.
Using proceeds from the sale of common shares of $142,800,094 and assumption of
mortgage loans of $24,159,019, the company acquired 3,828 apartment units in 16
residential rental communities during 1998. These acquisitions brought the total
number of residential rental communities to 25 and the total apartment units
owned at year-end to 6,604. During 1998, the company made the following 16
acquisitions:
<TABLE>
<CAPTION>
Initial Number Date
Description Location Acquisition Cost of Units Acquired
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Main Park Duncanville, TX $8,000,000 192 February 1998
Timberglen Dallas, TX 12,000,000 304 February 1998
Copper Crossing II Fort Worth, TX 4,525,000 200 March 1998
Silverbrook I Grand Prairie, TX 13,505,000 472 May 1998
Summer Tree Dallas, TX 5,700,000 232 June 1998
Park Village Bedford, TX 7,000,000 238 July 1998
Cottonwood Crossing Arlington, TX 5,700,000 200 July 1998
Devonshire Dallas, TX 5,205,000 144 July 1998
Pace's Point Lewisville, TX 11,405,000 300 July 1998
Silverbrook II Grand Prairie, TX 4,705,000 170 July 1998
Emerald Oaks Grapevine, TX 10,930,000 250 July 1998
Newport Austin, TX 6,330,000 200 July 1998
Estrada Oaks Irving, TX 9,350,000 248 July 1998
Burney Oaks Arlington, TX 9,300,000 240 October 1998
Cutter's Point Richardson, TX 8,100,000 196 October 1998
The Courts on Pear Ridge Dallas, TX 11,500,000 242 November 1998
- -------------------------------------------------------------------------------------------------------------------
$133,255,000 3,828
</TABLE>
NOTES PAYABLE
During July 1998, the company assumed $24.2 million in mortgage loans in
connection with the acquisition of five properties. The total of the mortgage
loans at December 31, 1998, including $1.2 million in premiums relating to
valuing debt at fair value, was approximately $25.2 million (see Note 3 to the
consolidated financial statements).
CASH AND CASH EQUIVALENTS
Cash and cash equivalents totaled $40,073,198 at December 31, 1998. During the
year, the company distributed $13,040,936 to its shareholders, of which
$7,908,627 was reinvested in additional shares under the terms of the company's
additional share option. The reinvested funds netted the company $7,117,767
after payment of underwriter fees.
CAPITAL REQUIREMENTS
The company has an ongoing capital commitment to fund its renovation program for
acquired properties. In addition, the company expects to acquire new properties
during the year. The company anticipates that it will continue to operate as it
did in 1998 and fund these cash needs from a variety of sources, including
equity, cash reserves, and assumption of mortgage loans.
The company continues to renovate its properties. In connection with these
renovations, the company capitalized improvements of $12 million in 1998. At
least $6 million of additional capital improvements are budgeted for 1999 on the
existing property portfolio, which are expected to be funded through cash
reserves and dividend reinvestment.
The company has short-term cash flow needs in order to conduct the operation of
its properties. The rental income generated from the properties supplies ample
cash to provide for the payment of these operating expenses and the payment of
distributions to shareholders.
The company is operated as, and annually elects to be taxed as, a real estate
investment trust under the Internal Revenue Code. As a result, the company has
no provision for taxes and thus there is no effect on the company's liquidity
from a provision for taxes.
Capital resources are expected to grow with the future sale of its shares and
from cash flow from operations. Approximately 55% of all 1998 distributions,
totaling a net amount of $7,117,767, were reinvested in additional common
shares. In general, the company's liquidity and capital resources are believed
to be more than adequate to meet its cash requirements during 1999.
11
<PAGE>
The company is expecting to continue with significant growth during 1999. The
company plans to have monthly equity closings in 1999, until the offering is
fully funded or until such time as the company may opt to discontinue it. It is
anticipated that the equity funds will be invested in additional apartment
communities. Since year-end 1998, the company purchased two additional apartment
properties using cash and an assumption of a mortgage loan totaling $15,167,000.
The company is continuously evaluating other potential acquisitions; however, no
acquisitions are considered probable at this time.
In 1997, the company granted Cornerstone a continuing right to purchase up to
9.8% of the common shares of Apple at the market price, net of selling
commissions. Cornerstone owned 417,778 common shares of the company at a cost of
$3.76 million which represents approximately 1.5% of the company's common shares
outstanding at December 31, 1998. The company also granted Cornerstone a "first
right of refusal" to purchase the properties or business of Apple. Cornerstone
has stated in its public filings its intent to make periodic evaluations on the
feasibility of purchasing the company. Cornerstone and Apple have hired external
financial advisors and formed separate independent committees of the respective
boards of directors to consider a potential merger.
IMPACT OF YEAR 2000
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
The company's accounting, property management, human resources, and payroll
services and computer systems are provided by an outside management company. The
managing company states the applications are classified as year 2000 compliant
by their respective software vendors once upgraded. The managing company is
actively engaged in upgrading the computer systems.
The company is also exposed to the risk that one or more of its vendors or
service providers could experience year 2000 problems that impact the ability of
such vendor or service provider to provide goods and services. Though this is
not considered as significant a risk with respect to the suppliers of goods, due
to the availability of alternative suppliers, the disruption of certain
services, such as utilities, could, depending upon the extent of the disruption,
have a material adverse impact on the company's operations. To date, the company
is not aware of any vendor or service provider year 2000 issue that management
believes would have a material adverse impact on the company's operations.
However, the company has no means of ensuring that its vendors or service
providers will be year 2000-ready. The inability of vendors or service providers
to complete their year 2000 resolution process in a timely fashion could have an
adverse impact on the company. The effect on non-compliance by vendors or
service providers is not determinable at this time.
The company utilizes microprocessors which are imbedded in systems which are
part of the company's operations. In particular, year 2000 problems in the HVAC,
elevator, telephone, security, or other such systems at the properties could
disrupt operations at the affected properties. The company completed an
assessment of these systems in 1998 and has an ongoing plan to make all systems
compliant. At this point, based on the status of its assessment, the company
does not believe material systems will be non-compliant. Additionally, many of
these systems, which operate automatically, can be operated manually and
consequently in the event these systems experience a failure as a result of the
year 2000 problem, the disruption caused by such failure should not be material
to the company's operations.
Failure to correct a material year 2000 problem could result in an interruption
in, or a failure of, certain normal business activities or operations. The
company believes that, with the implementation of new or upgraded business
systems and completion of the year 2000 project as scheduled, the possibility of
significant interruptions of normal operations due to the failure of those
systems will be reduced. However, the company is also dependent upon the power
and telecommunications infrastructure within the United States. The most
reasonable likely worst-case scenario would be that the company may experience
disruption in its operations if any of these third-party suppliers reported a
system failure. Although the company's year 2000 project will reduce the level
of uncertainty about the compliance and readiness of its material third-party
providers, due to the general uncertainty over year 2000 readiness of these
third-party suppliers, the company is unable to determine at this time whether
the consequences of year 2000 failures will have a material impact.
There should be no additional cost to the company for the software and computer
hardware upgrades. The software upgrades are included in the annual maintenance
fee paid by the managing company to the vendors, and the computer hardware
upgrades are included in the ordinary course of business regardless of the year
2000 issue.
The company has contingency plans for certain critical applications. These
contingency plans involve, among other actions, manual workarounds and
contracting with vendors capable of providing services.
MARKET RISK DISCLOSURE
Substantially all of the company's market risk is exposure to changes in
mortgage interest rates related to the recent assumption of
12
<PAGE>
mortgage loans and interest rates on short-term investments. The contractual
weighted average interest rates of the assumed debt was 7.56%. The company
marked this debt to market using interest rates available on similar mortgage
loans at the time of assumption, resulting in effective interest expense of
6.5%. The company invests proceeds from its best efforts offering in short-term
money market investments pending acquisitions. The company intends to invest
this money in real estate assets as suitable opportunities arise and does not
anticipate maintaining as high a level of cash as it did during 1998.
If interest rates on short-term investments were to decrease by 100 basis points
in 1999 from what they were in 1998, net income would decrease by approximately
$350,000, assuming the same level of cash investment (see discussion above). It
is anticipated that the impact on net income from a reduction in short-term
rates would not be as great as indicated above, as the invested cash amounts are
expected to decrease upon investment in real estate assets in 1999. In the event
of a change of such magnitude, management would likely take actions to further
mitigate its exposure to the change. However, due to the uncertainty of the
specific actions that would be taken and their possible effects, the sensitivity
analysis assumes no changes in the company's financial structure.
IMPACT OF INFLATION
The company does not believe that inflation had any significant impact on the
operation of the company in 1998. Future inflation, if any, would likely cause
increased operating expenses, but the company believes that increases in
expenses would be more than offset by increases in rental revenues. Continued
inflation may also cause capital appreciation of the company's properties over
time, as rental rates and replacement costs increase.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Auditors
The Board of Directors and Shareholders
Apple Residential Income Trust, Inc.
We have audited the accompanying consolidated balance sheets of Apple
Residential Income Trust, Inc. (the "Company") as of December 31, 1998 and 1997,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for the years then ended. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Apple
Residential Income Trust, Inc. at December 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as whole, presents fairly in all
material respects the information set forth therein.
/s/ Ernst & Young LLP
Richmond, Virginia
February 4, 1999
13
<PAGE>
<TABLE>
<CAPTION>
Financial Information
Consolidated Balance Sheets
December 31, 1998 1997
- ------------ ---- ----
<S> <C> <C>
Assets
Investment in rental property
Land $40,761,281 $15,396,823
Buildings and property improvements 197,807,725 73,113,886
Furniture and fixtures 3,190,919 1,123,639
- -------------------------------------------------------------------------------------------------------------------
241,759,925 89,634,348
Less accumulated depreciation (7,686,479) (1,898,003)
- -------------------------------------------------------------------------------------------------------------------
234,073,446 87,736,345
Cash and cash equivalents 40,073,198 24,162,572
Prepaid expenses 339,605 142,581
Other assets 7,360,903 444,022
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $281,847,152 $112,485,520
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES and SHAREHOLDERS' EQUITY
Liabilities
Mortgage notes payable $25,165,861 --
Accounts payable 1,565,453 $536,324
Accrued expenses 4,883,852 2,143,888
Rents received in advance 150,351 70,051
Tenant security deposits 882,014 394,702
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 32,647,531 3,144,965
- -------------------------------------------------------------------------------------------------------------------
Shareholders' Equity
Common stock, no par value, authorized 50,000,000
shares; issued and outstanding 28,331,274 shares
and 12,371,829 shares, respectively 251,890,553 109,090,459
Class B convertible stock, no par value, authorized 200,000 shares;
issued and outstanding 200,000 shares 20,000 20,000
Receivable from officer-shareholder -- (20,000)
Net income greater (less) than distributions (2,710,932) 250,096
- -------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 249,199,621 109,340,555
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $281,847,152 $112,485,520
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Operations
- -------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUE:
Rental income $30,764,904 $12,005,968
- -------------------------------------------------------------------------------------------------------------------
EXPENSES:
Property and maintenance 8,819,809 3,571,484
Taxes and insurance 4,453,177 1,765,741
Property management 1,685,713 656,267
General and administrative 799,732 351,081
Amortization expense 38,758 28,490
Depreciation of rental property 5,788,476 1,898,003
- -------------------------------------------------------------------------------------------------------------------
Total expenses 21,585,665 8,271,066
Income before interest income (expense) 9,179,239 3,734,902
Interest income 1,638,544 222,676
Interest expense (737,875) (458,384)
- -------------------------------------------------------------------------------------------------------------------
Net income $10,079,908 $3,499,194
- -------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per common share $0.51 $0.54
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Shareholders' Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Convertible Class B Stock
---------------------------------------------- Receivable Net Income Total
Number Number From Officer- Greater (Less) Shareholders'
of Shares Amount of Shares Amount Shareholder Than Distributions Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 10 $100 200,000 $20,000 $(20,000) $-- $100
Net proceeds from the sale of shares 11,756,545 103,552,905 -- -- -- -- 103,552,905
Net income -- -- -- -- -- 3,499,194 3,499,194
Cash distributions declared to
shareholders ($.60 per share) -- -- -- -- -- (3,249,098) (3,249,098)
Shares issued to Cornerstone Realty
Income Trust, Inc. 417,778 3,760,000 -- -- -- -- 3,760,000
Shares issued through
Additional Share Option 197,496 1,777,454 -- -- -- -- 1,777,454
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 12,371,829 109,090,459 200,000 20,000 (20,000) 250,096 109,340,555
Net proceeds from the sale of shares 15,168,582 135,682,327 -- -- -- -- 135,682,327
Net income -- -- -- -- -- 10,079,908 10,079,908
Cash distributions declared to
shareholders ($.818 per share) -- -- -- -- -- (13,040,936) (13,040,936)
Payment from officer-shareholder -- -- -- -- 20,000 -- 20,000
Shares issued through
Additional Share Option 790,863 7,117,767 -- -- -- -- 7,117,767
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 28,331,274 $251,890,553 200,000 $20,000 $-- $(2,710,932) $249,199,621
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
- -------------------------------------------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 10,079,908 $ 3,499,194
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 5,827,234 1,926,493
Amortization of deferred financing costs 28,781 60,490
Amortization of mortgage notes payable premium (104,460) --
Changes in operating assets and liabilities:
Prepaid expenses (197,024) (142,581)
Other assets (1,159,420) (533,002)
Accounts payable 1,029,129 536,324
Accrued expenses 1,645,180 1,631,776
Rent received in advance 80,300 70,051
Tenant security deposits (107,352) 26,280
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 17,122,276 7,075,025
- -------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisitions of rental property, net of liabilities assumed (112,620,816) (85,147,726)
Capital improvements (12,396,811) (3,606,088)
Earnest deposit money for pending acquisition of rental property (5,825,000) --
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (130,842,627) (88,753,814)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings -- 39,640,000
Repayments of short-term borrowings -- (39,640,000)
Repayment of mortgage notes payable (148,181) --
Payment from officer-shareholder 20,000 --
Net proceeds from issuance of shares 142,800,094 109,090,359
Cash distributions paid to shareholders (13,040,936) (3,249,098)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 129,630,977 105,841,261
- -------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 15,910,626 24,162,472
Cash and cash equivalents, beginning of year 24,162,572 100
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 40,073,198 $ 24,162,572
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Apple Residential Income Trust, Inc., together with its subsidiaries Apple
Limited, Inc., and Apple General, Inc., and seven subsidiary partnerships (the
"company"), is an externally advised real estate investment trust formed on
August 7, 1996, as a Virginia corporation. The company operates in one defined
business segment as an owner-operator of residential apartment communities in
Texas. The majority of the company's apartment communities are located in the
Dallas/Fort Worth, Texas metropolitan area. All operations commenced in January
1997 and, therefore, no statements of operations or cash flows are presented for
periods prior to January 1997. The accompanying consolidated financial
statements include the accounts of Apple Residential Income Trust, Inc. and its
subsidiaries. All significant inter-company accounts and transactions have been
eliminated in consolidation.
SUMMARY OF NEW ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, the company adopted Statement 130, "Reporting
Comprehensive Income." Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the company's net income or shareholders'
equity. The company does not currently have any items of comprehensive income
requiring separate reporting and disclosure.
CASH AND CASH EQUIVALENTS
Cash equivalents include highly liquid money market investments with original
maturities of three months or less. The fair market value of cash and cash
equivalents approximate their carrying value. Cash equivalents of $36,220,000
and $22,556,000 were invested with First Union National Bank at December 31,
1998 and 1997, respectively.
INVESTMENT IN RENTAL PROPERTY
The investment in rental property is recorded at cost, net of depreciation,
which includes real estate brokerage commissions paid to Apple Realty Group,
Inc., Cornerstone Realty Income Trust, Inc., and Apple Residential Management
Group Inc. (see Note 6 to the consolidated financial statements).
The company records impairment losses on rental property used in the operations
if indicators of impairment are present and the undiscounted cash flows
estimated to be generated by the respective properties are less than their
carrying amount. Impairment losses are measured as the difference between the
asset's fair value and its carrying value. No impairment losses have been
recorded to date.
Repairs and maintenance costs are expensed as incurred, while significant
improvements, renovations, and replacements are capitalized. Depreciation is
computed on a straight-line basis over the estimated useful lives of the related
assets which are 27.5 years for buildings and major improvements and a range
from five to 10 years for furniture and fixtures.
INCOME RECOGNITION
Rental, interest, and other income are recorded on an accrual basis. The
company's properties are leased under operating leases that, typically, have
terms that do not exceed one year.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized over the term of the related debt.
Amortization of deferred financing costs is classified as interest expense in
the consolidated statements of operations.
STOCK INCENTIVE PLANS
The company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options. As discussed in
Note 5, the alternative fair value accounting provided for under FASB Statement
No. 123, "Accounting for Stock-Based Compensation" ("FASB 123"), requires use of
option valuation models that were developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
ADVERTISING COSTS
Costs incurred for the production and distribution of advertising are expensed
as incurred.
EARNINGS PER SHARE
Basic and diluted earnings per common share are calculated in accordance with
FASB Statement 128, "Earnings Per Share." Basic earnings per common share is
computed based upon the weighted average number of shares outstanding during the
year. Diluted earnings per common share is calculated after giving effect for
all potential common shares that were
18
<PAGE>
outstanding for the year.
FEDERAL INCOME TAXES
The company is operated as, and annually elects to be taxed as, a real estate
investment trust under the Internal Revenue Code of 1986, as amended (the
"Code"). Generally, a real estate investment trust, which complies with the
provisions of the Code and distributes at least 95% of its taxable income to its
shareholders, does not pay federal income taxes on its distributed income.
Accordingly, no provision has been made for federal income taxes.
For income tax purposes, distributions paid to shareholders consist of ordinary
income and return of capital or a combination thereof. Distributions per share
were $.82 and $.60 for the years ended December 31, 1998 and 1997, respectively.
In 1998 and 1997, the total distribution was taxable as ordinary income.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
NOTE 2
INVESTMENT IN RENTAL PROPERTY
The following is a summary of rental property owned at December 31, 1998.
<TABLE>
<CAPTION>
Initial Total Accumulated Date
Description Acquisition Cost Investment* Depreciation Acquired ** Encumbrances
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Brookfield $5,458,485 $6,583,990 $461,797 January 1997 --
Eagle Crest 15,650,000 17,862,629 1,090,199 January 1997 --
Aspen Hills 5,690,560 7,502,434 503,215 January 1997 --
Mill Crossing 4,544,121 5,458,746 340,409 February 1997 --
Polo Run 6,858,974 8,061,726 476,847 March 1997 --
Wildwood 3,963,519 4,684,813 263,140 March 1997 --
Toscana 5,854,531 6,792,187 383,495 March 1997 --
The Arbors on Forest Ridge 7,748,907 8,632,706 488,283 April 1997 --
Pace's Cove 9,277,355 9,833,200 452,595 June 1997 --
Remington at Las Colinas 13,100,000 15,295,457 668,070 August 1997 --
Copper Crossing 9,275,000 10,965,314 337,705 November 1997 --
Main Park 8,000,000 8,650,550 274,697 February 1998 --
Timberglen 12,000,000 13,126,845 384,619 February 1998 --
Silverbrook 18,210,000 20,144,422 367,291 May 1998 $3,047,994
Summer Tree 5,700,000 6,415,878 73,713 June 1998 --
Park Village 7,000,000 7,477,425 126,428 July 1998 --
Cottonwood Crossing 5,700,000 6,147,288 106,322 July 1998 --
Devonshire 5,205,000 6,699,709 83,371 July 1998 3,627,425
Pace's Point 11,405,000 12,869,988 194,112 July 1998 7,679,619
Emerald Oaks 10,930,000 11,768,594 198,390 July 1998 6,635,025
Newport 6,330,000 6,741,792 113,758 July 1998 3,020,775
Estrada Oaks 9,350,000 9,867,652 147,860 July 1998 --
Burney Oaks 9,300,000 9,679,771 52,635 October 1998 --
Cutter's Point 8,100,000 8,690,442 40,770 October 1998 --
The Courts on Pear Ridge 11,500,000 11,806,367 56,758 November 1998 --
- -------------------------------------------------------------------------------------------------------------------
$216,151,452 $241,759,925 $7,686,479 $24,010,838
</TABLE>
* Includes real estate commissions, closing costs, and improvements
capitalized since the date of acquisition.
** Date listed is the date which the property was first acquired. The
subsequent acquisition of adjacent properties has been combined in the
other categories.
The following is a reconciliation of the carrying amount of real estate owned:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE AT JANUARY 1 $ 89,634,348 $--
Real estate purchased*** 139,728,766 86,028,260
Improvements, furniture, and fixtures 12,396,811 3,606,088
- -------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31 $241,759,925 $89,634,348
</TABLE>
*** In connection with the acquisition of rental property during 1998, the
company assumed mortgage loans of $24,159,019, which was increased by $1,259,403
for a fair value adjustment.
19
<PAGE>
The following is a reconciliation of accumulated depreciation:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE AT JANUARY 1 $1,898,003 $--
Depreciation expense 5,788,476 1,898,003
- -------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31 $7,686,479 $1,898,003
</TABLE>
NOTE 3
NOTES PAYABLE
In connection with the acquisitions of five properties in July 1998, the company
assumed five mortgage notes with a principal amount of $24,159,019. These
mortgage notes were recorded at a fair value of $25,418,421 at the date of
assumption. The difference between the fair value and principal balance is being
amortized as an adjustment to interest expense over the term of the respective
notes. At December 31, 1998, the balance of the mortgage notes payable was
$25,165,861. Mortgage notes payable are due in monthly installments, including
principal and interest. Prepayment penalties apply for early retirements.
Scheduled maturities are at various dates through December 2005. The weighted
average contractual interest rate on the mortgage notes was 7.56% at December
31, 1998, and the effective weighted average rate was 6.5% including the effect
of the fair value adjustment. Interest paid by the company in 1998 was $910,689
relating to the mortgage loans.
The aggregate maturities of mortgage notes payable for the five years subsequent
to December 31, 1998 were as follows:
Year Amount
---------------------
1999 $ 495,273
2000 543,922
2001 569,283
2002 596,599
2003 7,803,458
Thereafter 15,157,326
---------------------------
$25,165,861
During 1997, the company entered into an agreement with a commercial bank to
obtain an unsecured revolving line of credit not to exceed $20 million to
facilitate in the timely acquisition of properties. The unsecured line of credit
expired on March 31, 1998 and was not amended to extend the maturity date. The
company paid interest of $312,466 in 1997 relating to the unsecured line of
credit. The weighted average interest rate incurred under the line of credit was
7.8% in 1997.
No interest was capitalized in 1998 or 1997.
NOTE 4
SHAREHOLDERS' EQUITY
During 1998, the company completed its initial "best efforts" offering of $250
million and extended the offering for an additional $50 million of which $28
million was raised as of December 31, 1998. The company is raising equity
capital through the "best efforts" offering of shares by David Lerner
Associates, Inc. (the "Managing Dealer"), which receives selling commissions and
a marketing expense allowance based on proceeds of the shares sold. The company
received gross proceeds of $159,594,450 and $121,633,733 from the sale of
15,959,445 and 12,371,819 shares, including shares sold through the reinvestment
of distributions, for the years ended December 31, 1998 and 1997, respectively.
The Managing Dealer received selling commissions and a marketing expense
allowance equal to 7.5% and 2.5%, respectively, of the gross proceeds of shares
sold. During 1998 and 1997, the underwriter earned $15,959,445 and $11,787,399,
respectively. The net proceeds of the offering, after deducting selling
commissions and other offering expenses, were $142,800,094 and $109,090,359 for
1998 and 1997, respectively. These totals include 417,778 shares purchased by
Cornerstone Realty Income Trust, Inc. ("Cornerstone") in 1997 for $3,760,000
outside of the public "best efforts" offering. Cornerstone owned approximately
1.5% of the company's outstanding shares on December 31, 1998 (see Note 6 to the
consolidated financial statements).
On November 14, 1996, the company issued 200,000 Class B Convertible Shares to
Mr. Glade Knight, president and chairman of the board of the company, for $.10
per share or $20,000 in aggregate.
There are no dividends payable on the Class B Convertible Shares. On liquidation
of the company, the holder of the Class B Convertible Shares is entitled to a
liquidation payment of $.10 per Class B Convertible Share before any
distribution of liquidation proceeds to the holders of the common shares.
Holders of more than two-thirds of the Class B Convertible Shares must approve
any proposed amendment to the Articles of Incorporation that would adversely
affect the Class B Convertible Shares or create a new class of stock senior to,
or on a parity with, the Class B Convertible Shares. The Class B Convertible
Shares are convertible into Common Shares upon and for 180 days following the
occurrence of either of the following events: (1) substantially all of the
company's assets, stock, or business is sold or otherwise transferred, whether
through sale, exchange, merger, consolidation, lease, share exchange, or
otherwise; or (2) the Advisory Agreement with the Advisor is terminated or not
renewed, and the company ceases to use Apple
20
<PAGE>
Residential Management Group, Inc. to provide substantially all of its property
management services. Upon the occurrence of either triggering event, each Class
B Convertible Share is convertible into a number of common shares based upon the
gross proceeds raised through the date of conversion in the "best efforts"
offering according to the following formula:
Gross Proceeds Number of
Raised from Common Shares
Sales of Common through Conversion
Shares through of One Class B
Date of Conversion Convertible Share
----------------------------------------------------
$50 million 1.0
$100 million 2.4
$150 million 4.2
$200 million 6.4
$250 million 8.0
No additional consideration is due upon the conversion of the Class B
Convertible Shares. Upon the probable occurrence of a triggering event, the
company will record expense for the difference between the market value of the
company's stock and par value of the Class B Convertible Shares in the statement
of operations based on the full convertibility of the Class B Convertible
Shares.
The company provides a plan which allows shareholders to reinvest distributions
in the purchase of additional shares of the company ("Additional Share Option
Plan"). Of the total proceeds raised from common shares during the years ended
December 31, 1998 and 1997, $7,908,627 (net proceeds of $7,117,767) and
$1,974,949 (net proceeds of $1,777,454), respectively, were provided through the
reinvestment of distributions.
NOTE 5
BENEFIT PLANS
STOCK INCENTIVE PLANS
Under the 1997 Incentive Plan, as amended, a maximum of 1,242,735 options could
be granted, at the discretion of the Board of Directors, to certain officers and
key employees of the company. Under the Directors Plan, as amended, a maximum of
517,443 options could be granted to the independent directors of the company.
In 1998, the company granted 11,376 options to purchase shares under the
Directors Plan and no options under the Incentive Plan.
On September 17, 1998, the company's board of directors approved the grant to
Glade M. Knight of options to purchase common shares (the "Award Agreement").
This grant was made apart from the Incentive Plan. The Award Agreement provides
Mr. Knight options to purchase 355,111 common shares (the "Award Options"). The
Award Options vest in five equal parts, if, as, and when there is sold in the
company's "best efforts" additional $50 million offering of $10 million, $20
million, $30 million, $40 million, and $50 million, respectively (each a break
point), in shares. If the offering is terminated at any point other than one of
the break points, a pro rata portion of the Award Options will vest at the time
of termination. Under the terms of the Award Agreement, 142,045 options to
purchase shares were vested at December 31, 1998.
Under the Award Agreement, the exercise price of the Award Options will be $10
per common share acquired, which is equal to the selling price of the common
shares under the "best efforts" offering. However, if a triggering event occurs,
the exercise price will be $1.00 per common share for the following 180 days. A
triggering event means the occurrence of either of the following events: (1)
substantially all of the company's assets, stock, or business is sold or
otherwise transferred; or (2) the Advisory Agreement between the company and
Apple Residential Advisors, Inc. ("ARA") is terminated or not renewed, and the
company ceases to use Apple Residential Management Group, Inc. ("ARMG") to
provide substantially all of its property management services.
If a triggering event occurs, and the holder of the Award Options either elects
not to, or fails to, exercise any exercisable Award Options, then the company
will pay to the holder the difference between the exercise price and the value
of the common shares that would be obtained upon exercise. If the exercise or
the receipt of payment in lieu of such exercise subjects the holder to an
additional penalty tax under the Internal Revenue Code, the company will pay to
the holder an additional amount to offset the penalty tax.
Both the Incentive Plan and the Directors Plan of the company generally provide,
among other things, that options be granted at exercise prices not lower than
the market value of the shares on the date of grant. At the earliest, options
become exercisable at the date of grant. The optionee has up to 10 years from
the date on which the options first become exercisable during which to exercise
the options. Activity in the company's share option plans during the years ended
December 31, 1998 and 1997 is summarized in the following table:
21
<PAGE>
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------------------------
Weighted Average Weighted Average
OptionsExercise Price Options Exercise Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding, beginning of year 20,550 $10.00 -- --
Granted 366,487 10.00 20,550 $10.00
Exercised -- -- -- --
Forfeited -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Outstanding, end of year 387,037 $10.00 20,550 $10.00
Exercisable at end of year 173,971 $10.00 20,550 $10.00
- -------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE FAIR VALUE OF
OPTIONS GRANTED DURING THE YEAR $.40 $.83
</TABLE>
Pro forma information regarding net income and earnings per share is required by
FASB 123, under the fair value method described in that statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1998
and 1997, respectively: risk-free interest rates of 5.5% for 1998 and 6.7% for
1997; a dividend yield of 9.0% for 1998 and 7.0% for 1997; volatility factors of
the expected market price of the company's common stock of .160 for 1998 and
.161 for 1997; and a weighted average expected life of the options of five years
for 1998 and 10 years for 1997.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility.
Because the company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of FASB 123 pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The full
impact is included in the pro forma amounts disclosed below.
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pro forma FASB 123
Net income $10,019,905 $3,482,138
As reported net income $10,079,908 $3,499,194
Pro forma FASB 123
Earnings per share $.50 $.54
As reported net income per share $.51 $.54
</TABLE>
401(K) SAVINGS PLAN
Eligible employees of the company participate in a contributory employee savings
plan. Under the plan, the company may match a percentage of contributions made
by eligible employees, such percentage to apply to a maximum of 1% of their
annual salary. Expenses under this plan for 1998 were $11,190.
NOTE 6 RELATED-PARTY TRANSACTIONS
The company had contracted with Apple Residential Management Group, Inc.
("ARMG") to manage the acquired properties; Apple Residential Advisors, Inc.
("ARA") to advise and provide the company with day-to-day management services;
and Apple Realty Group, Inc. ("the Cornerstone affiliates") to acquire and
dispose of real estate assets held by the company. ARMG, ARA, and Apple Realty
Group, Inc. were initially owned by Glade M. Knight. Mr. Knight also serves as
chairman of the board and chief executive officer of the company and Cornerstone
Realty Income Trust, Inc. Before the transaction described below, during 1997,
the company paid ARMG a management fee equal to 5% of rental income plus
reimbursement of certain expenses in the amount of $52,375. The company paid ARA
a fee equal to .25% of total contributions received by the company in the amount
of $14,894. The company paid Apple Realty Group, Inc. a fee of 2% of the
purchase price of the acquired properties in the amount of $624,382.
During 1997, with the approval of the company, Cornerstone entered into
subcontract agreements with ARMG and ARA, whereby Cornerstone agreed to provide
advisory and property management services to the company in exchange for fees
and expense reimbursement on the same terms described above. During 1998 and
1997, the company paid Cornerstone or the Cornerstone affiliates $2,220,593 and
$822,497, respectively, in management and advisory fees.
During 1997, with the consent of the company, Cornerstone acquired all the
assets of Apple Realty Group, Inc. The sole material asset of Apple Realty
Group, Inc. was the acquisition/disposition agreement with the company.
Cornerstone paid $350,000 in cash and issued 150,000 common shares (valued at an
aggregate of $1,650,000) to Glade M. Knight in exchange for the assignment of
the rights to the acquisition/disposition agreement. Cornerstone was entitled,
under the terms of the asset/disposition agreement, to a real estate
22
<PAGE>
commission equal to 2% of the gross purchase price of the company's properties
plus reimbursement of certain expenses. During 1998 and 1997, Apple paid
Cornerstone $2,665,100 and $1,031,066, respectively, for acquisition services
under the agreement.
Cornerstone owns 417,778 shares of the company's common stock which were
purchased during 1997 for $3,760,000, which represents approximately 1.5% of the
total common shares of the company outstanding on December 31, 1998. The company
granted Cornerstone a continuing right to acquire up to 9.8% of the common
shares of the company at market price, net of selling commissions. The company
paid Cornerstone distributions of $340,483 in 1998 and $253,172 in 1997.
The company also has granted Cornerstone a "first right of refusal" to purchase
the property or business of Apple. Cornerstone has stated in its public filings
its intent to make periodic evaluations on the feasibility of purchasing the
company. The company and Cornerstone have hired external advisors and have
formed separate, independent committees of the respective boards of directors to
consider a potential merger.
NOTE 7
QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly results of operations for the years
ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $4,928,751 $6,106,378 $9,221,478 $10,508,297
Income before interest income (expense) 1,635,832 2,004,663 2,830,639 2,708,105
Net income 1,959,718 2,476,742 2,884,732 2,758,716
Basic and diluted earnings
per common share .14 . 14 . 13 . 11
Distributions per share .20 . 20 . 21 . 21
- -------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------
Revenue $1,154,400 $2,824,034 $3,788,306 $4,239,228
Income before interest income (expense) 475,487 983,700 1,089,092 1,186,623
Net income 556,255 830,469 856,729 1,255,741
Basic and diluted earnings
per common share .16 . 15 . 12 . 12
Distributions per share -- . 20 . 20 . 20
</TABLE>
NOTE 8
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NUMERATOR:
Net income numerator for basic and diluted earnings $10,079,908 $3,499,194
DENOMINATOR:
Denominator for basic earnings per
share-weighted-average shares 19,910,408 6,493,114
Effect of dilutive securities:
Stock options -- --
- -------------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share-adjusted
weighted-average shares and assumed conversion 19,910,408 6,493,114
- -------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per share $ .51 $ .54
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Options outstanding of 173,971 are not included in dilutive earnings per share
calculations since they are not dilutive. Class B Convertible Shares are not
included in earnings per common share calculations until such time it becomes
probable that such shares can be converted to common shares (see Note 4).
NOTE 9
SUBSEQUENT EVENT
In January 1999, the company declared and paid cash distributions to
shareholders of $5,349,330, of which $3,147,377 was reinvested
23
<PAGE>
in the Additional Share Option. The company also closed the sale to investors of
627,164 shares at $10 per share representing net proceeds to the company of
$5,644,475 after payment of underwriter fees. In January 1999, the company
purchased Sierra Ridge Apartments in San Antonio, Texas. The 230-unit apartment
community was purchased for $5,817,000 in cash. In February 1999, the company
purchased Grayson Square Apartments in Grapevine, Texas. The 200-unit apartment
community was purchased for $9,350,000, consisting of $2,357,215 in cash and the
assumption of a $6,992,785 mortgage loan.
NOTE 10
PRO FORMA INFORMATION (UNAUDITED)
The following unaudited pro forma information for the years ended December 31,
1998 and 1997 is presented as if (a) the company had qualified as a REIT,
distributed all of its taxable income and, therefore, incurred no federal income
tax expense during the period; and (b) the company had used proceeds from its
best efforts offering or assumed mortgages to acquire the properties purchased
during 1998 and 1997. The pro forma information does not purport to represent
what the company's results of operations would have been if such transactions,
in fact, had occurred on January 1, 1997, nor does it purport to represent the
results of operations for future periods.
<TABLE>
<CAPTION>
Unaudited Pro Forma Totals 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue $42,871,978 $41,247,614
Net Income 10,970,342 10,187,703
Basic earnings per share .48 .46
</TABLE>
The pro forma information presented above reflects adjustments for the actual
rental income and rental expenses of the properties purchased during 1998 and
1997 for the respective periods in 1998 and 1997 prior to acquisition by the
company. Net income has been adjusted as follows: (1) property management and
advisory expenses have been adjusted based on the company's contractual
arrangements; (2) depreciation has been adjusted based on the company's basis in
the properties; and (3) interest expense has been adjusted based on the interest
rate in effect at the assumption of the mortgage debt.
NOTE 11
POTENTIAL MERGER WITH CORNERSTONE REALTY INCOME TRUST, INC. (UNAUDITED)
The Company's Board of Directors met on March 30, 1999, and voted to approve a
merger with Cornerstone Realty Income Trust, Inc. subject to, among other
requirements, an affirmative vote of the Company's shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
OWNERSHIP OF EQUITY SECURITIES
"Beneficial Ownership" as used herein has been determined in accordance with the
rules and regulations of the Securities and Exchange Commission and is not to be
construed as an admission that any of such Shares are in fact beneficially owned
by any person. As of the Record Date, there are no shareholders known to the
Company who own beneficially more than 5% of the outstanding Shares.
Beneficial Ownership of Shares held by directors and executive officers of the
Company as of the Record Date is indicated in the table below. Each person named
in the table and included in the director/officer group has sole voting and
investment powers as to such Shares, or shares such powers with his or her
spouse and minor children, if any.
<TABLE>
<CAPTION>
Number of
Shares
Beneficially Percent of Class
Name Owned(1) ----------------
---- --------
<S> <C> <C>
Lisa B. Kern . 10,642.00 *
Glade M. Knight(2) 361,228.05 *
Penelope W. Kyle 11,142.00 *
Bruce H. Matson 10,642.00 *
All directors and executive officers as a group 393,654.05 *
</TABLE>
- -----------------------
24
<PAGE>
* Less than one percent of outstanding Shares.
(1) Includes Shares that may be acquired upon the exercise of stock options, as
follows: Mss. Kern and Kyle and Mr. Matson - 10,642 Shares each at $10 per
Share.
(2) In addition, Mr. Knight owns 200,000 Class B Convertible Shares of which
30,000 Class B Convertible Shares are beneficially held for Debra A. Jones
and Stanley J. Olander, Jr., 15,000 Class B Convertible Shares each. The
Class B Convertible Shares are convertible upon the occurrence of certain
events into Shares pursuant to a formula based upon the gross proceeds
raised by the Company through the date of conversion.
ELECTION OF DIRECTORS
Nominees for Directors. At the Annual Meeting, four (4) directors are to be
elected, each to hold office until the next annual meeting of Shareholders, or
until his or her successor is duly elected and qualified, except in the event of
death, resignation or removal. The nominees for election to the four positions
on the Board of Directors to be voted upon at the Annual Meeting are Lisa B.
Kern, Glade M. Knight, Penelope W. Kyle and Bruce H.
Matson.
The nominees, their ages, the year of election of each to the Board of Directors
of the Company, their principal occupations during the past five years or more,
and directorships of each in public companies in addition to the Company, and
the executive officers of the Company, are as follows:
Glade M. Knight, 54, is Chairman, Chief Executive Officer and President of the
Company. Since 1972, Mr. Knight has held executive and/or ownership positions in
several corporations involved in the management of and investment in real
estate, and has served, directly or indirectly, as a general or limited partner
of 71 limited partnerships owning 80 properties comprising over 13,000 apartment
units. Mr. Knight is also a director, Chairman of the Board and President of
Cornerstone Realty Income Trust, Inc. Cornerstone Realty Income Trust, Inc. is a
real estate investment trust which at December 31, 1998 owned 58 apartment
communities comprising 13,462 apartment units in the mid-Atlantic and
southeastern United States.
Penelope W. Kyle, 51, is a director of the Company. Ms. Kyle has been the
director of the Virginia Lottery since September 1, 1994. Ms. Kyle worked in
various capacities for CSX Corporation and its affiliated companies from 1981
until August 1994. She served as Vice President, Administration and Finance for
CSX Realty, Inc. beginning in 1991, as Vice President, Administration for CSX
Realty, Inc. from 1989 to 1991, and as Assistant Vice President and Assistant to
the President for CSX Realty, Inc. from 1987 to 1989. Ms. Kyle is also a
director of Cornerstone Realty Income Trust, Inc.
Lisa B. Kern, 38, is a director of the Company. Ms. Kern is a portfolio manager
and Vice President of Davenport & Co., LLC, an investment banking firm, in
Richmond, Virginia. Previously, Ms. Kern was a Vice President with Crestar
Bank's Trust and Investment Management Group from 1989 to 1996.
Bruce H. Matson, 41, is a director of the Company. Mr. Matson is a Vice
President and director of the law firm of LeClair Ryan, a Professional
Corporation, in Richmond, Virginia. Mr. Matson has practiced law since 1983.
EXECUTIVE OFFICERS
The Company's sole executive officer is Glade M. Knight. Information with regard
to Mr. Knight is set forth above under the caption "Election of Directors."
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICER
The Company did not pay a salary to its executive officer for the year ending
December 31, 1998. The Company operates as an "externally-advised" and
"externally-managed" real estate investment trust ("REIT"). See "Certain
Relationships and Agreements - Management Contracts"
COMPENSATION OF DIRECTORS
During 1998, independent directors (Mss. Kern and Kyle and Mr. Matson) received
annual directors' fees of $5,000 plus $500 for each meeting of the Board and
$100 for each committee meeting attended; however, independent directors did not
receive any compensation for attending a committee meeting if it occurred on the
same day as a meeting of the entire Board of Directors. Non-independent
directors received no compensation from the Company for their service as
directors. All directors were reimbursed by the
25
<PAGE>
Company for their travel and other out-of-pocket expenses incurred in attending
meetings of the directors or a committee and in conducting the business of the
Company.
In addition, in 1998, each independent director received an option to purchase
3,792 Shares, exercisable at $10 per Share. Independent directors will receive
additional Share options in 1999 and future years under the Company's
Non-Employee Directors Stock Option Plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information on security ownership of certain beneficial owners and management is
included in Item 10.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Contracts. The Company operates as an "externally-advised" and
"externally-managed" REIT. Through subcontract agreements, Cornerstone Realty
Income Trust, Inc. ("Cornerstone") serves as the advisor to and as the manager
of the properties of the Company. In addition, Cornerstone provides property
acquisition services to the Company.
Prior to March 1, 1997, the Company entered into a separate management agreement
with Apple Residential Management Group, Inc. (the "Management Company") with
respect to each property acquired. Under the terms of these agreements, the
Company was obligated to pay the Management Company a management fee equal to 5%
of gross rental income from the related property plus reimbursement of certain
expenses. Prior to March 1, 1997, under the terms of the advisory agreement with
Apple Residential Advisors, Inc. (the "Advisor"), the Company was obligated to
pay to the Advisor an annual advisory fee of up to 0.25% of the Company's assets
based on certain performance criteria. Prior to March 1, 1997, Mr. Knight was
the sole owner of the Management Company and the Advisor. Effective March 1,
1997, with the approval of the Company, Cornerstone entered into subcontract
agreements with the Management Company and the Advisor whereby Cornerstone
provides advisory and property management services to the Company in exchanges
for fees and expense reimbursement on the same terms described above. For the
period prior to March 1, 1997, the Company paid to the Management Company a
management fee plus reimbursement of certain expenses in the amount of $52,375
and to the Advisor an advisory fee in the amount of $14,894. For the period from
March 1, 1997 through December 31, 1997, the Company paid to Cornerstone
$822,934 in management and advisory fees and $214,961 for certain reimbursable
items.
Prior to March 1, 1997, under the terms of the acquisition agreement with Apple
Realty Group, Inc. (the sole owner of which was Mr. Knight), the Company was
obligated to pay Apple Realty Group, Inc. a brokerage commission of 2% of the
gross purchase price of each property acquisition. Effective March 1, 1997, with
the approval of the Company, Cornerstone acquired all the assets of Apple Realty
Group, Inc., including the rights to the acquisition agreement. The purchase
price for the assets was $2 million, paid $350,000 in cash and $1,650,000 in
Cornerstone common shares (150,000 Cornerstone common shares valued at $11 per
common share). For the period prior to March 1, 1997, the Company paid to Apple
Realty Group, Inc. fees in the amount of $624,382. For the period from March 1,
1997 through December 31, 1997, the Company paid to Cornerstone approximately
$1,031,066 under the acquisition agreement.
Other Relationships. The husband of Penelope W. Kyle, who is a director of the
Company, is a partner in McGuire, Woods, Battle & Boothe LLP, which serves as
general counsel to the Company.
26
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of the report
1. Financial Statements
The following consolidated financial statements of the registrant
are included in Item 8:
Independent Auditors' Report
Ernst & Young LLP
Consolidated Balance Sheets
December 31, 1998 and 1997
Consolidated Statements of Operations
Years Ended December 31, 1998 and 1997
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1998 and 1997
Consolidated Statements of Cash Flows
Years Ended December 31, 1998 and 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation
(Included on pages 27 and 28 of this Form 10-K Report)
All other financial statement schedules have been omitted because
they are not applicable or not required or because the required
information is included elsewhere in the financial statements or
notes thereto.
3. Exhibits
Incorporated herein by reference are the exhibits listed under
"Exhibits Index" on pages 30 through 35 of this Form 10-K Report.
(b) Reports on Form 8-K
During the last quarter of 1998, the Company filed the following
Current Reports on Form 8-K:
On November 12, 1998, the registrant filed a Report dated October
28, 1998 on Form 8-K The item reported was Item 2 (acquisition of
Burney Oaks and Brandywine Park Apartments (which was
subsequently renamed Cutter's Point)).
On December 2, 1998, the registrant filed a Report dated November
17, 1988 on Form 8-K. The item reported was Item 2 (the
acquisition of The Courts on Pear Ridge Apartments).
27
<PAGE>
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION (AS OF DECEMBER 31, 1998)
YEAR TO DATE DECEMBER
<TABLE>
<CAPTION>
Subsequently Gross Amount Carried
Initial Cost Capitalized
Encum- --------------------------------------------------------------------------------------
Description brances Land Bldg. Impr. Land Bldg. & Impr. Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1) Brookfield $ 0 $ 1,146,282 $ 4,312,203 $ 1,125,505 $ 1,204,680 $ 5,379,310 $ 6,583,990
* Dallas, TX
* Multi-family housing
2) Eagle Crest $ 0 $ 2,973,500 $12,676,500 $ 2,212,629 $ 3,089,848 $14,772,781 $17,862,629
* Irving, TX
* Multi-family housing
3) Aspen Apartments $ 0 $ 1,081,206 $ 4,609,354 $ 1,811,874 $ 1,129,710 $ 6,372,724 $ 7,502,434
* Arlington, TX
* Multi-family housing
4) Mill Crossing $ 0 $ 772,501 $ 3,771,620 $ 914,625 $ 803,374 $ 4,655,372 $ 5,458,746
* Arlington, TX
* Multi-family housing
5) Polo Run $ 0 $ 891,667 $ 5,967,307 $ 1,202,752 $ 936,906 $ 7,124,820 $ 8,061,726
* Arlington, TX
* Multi-family housing
6) Wildwood Apartments $ 0 $ 832,339 $ 3,131,180 $ 721,294 $ 882,101 $ 3,802,712 $ 4,684,813
* Euless, TX
* Multi-family housing
7) Toscana Apartments $ 0 $ 819,634 $ 5,034,897 $ 937,656 $ 859,080 $ 5,933,107 $ 6,792,187
* Dallas, TX
* Multi-family housing
8) Arbors on Forest Ridge $ 0 $ 697,402 $ 7,051,505 $ 883,799 $ 728,237 $ 7,904,469 $ 8,632,706
* Bedford, TX
* Multi-family housing
9) Paces Cove $ 0 $ 1,948,245 $ 7,329,110 $ 555,845 $ 1,840,222 $ 7,992,978 $ 9,833,200
* Dallas, TX
* Multi-family housing
10) Remington Hills $ 0 $ 3,144,000 $ 9,956,000 $ 2,195,457 $ 3,069,248 $12,226,209 $15,295,457
* Irving, TX
* Multi-family housing
11) Copper Crossing $ 0 $ 1,624,250 $ 7,650,750 $ 1,690,314 $ 1,691,100 $ 9,274,214 $10,965,314
* Fort Worth, TX
* Multi-family housing
12) Main Park $ 0 $ 560,000 $ 7,440,000 $ 650,550 $ 583,632 $ 8,066,918 $ 8,650,550
* Duncanville, TX
* Multi-family housing
13) Timberglen $ 0 $ 2,400,000 $ 9,600,000 $ 1,126,845 $ 2,463,445 $10,663,400 $13,126,845
* Dallas, TX
* Multi-family housing
14) Silver Brook I $ 0 $ 3,106,150 $10,398,850 $ 1,348,903 $ 3,230,222 $11,623,681 $14,853,903
* Grand Prairie, TX
* Multi-family housing
15) Summer Tree $ 0 $ 2,964,000 $ 2,736,000 $ 715,878 $ 3,067,972 $ 3,347,906 $ 6,415,878
* Dallas, TX
* Multi-family housing
</TABLE>
<TABLE>
<CAPTION>
Date of Date
Description Acc. Dep Const. Acquired Dep. Life
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1) Brookfield $ 461,797 1984 Jan. 28, 1997 27.5 yrs.
* Dallas, TX
* Multi-family housing
2) Eagle Crest $ 1,090,199 1983 Jan. 30, 1997 27.5 yrs.
* Irving, TX 1985
* Multi-family housing
3) Aspen Apartments $ 503,215 1979 Jan. 31, 1997 27.5 yrs.
* Arlington, TX
* Multi-family housing
4) Mill Crossing $ 340,409 1979 Feb. 21, 1997 27.5 yrs.
* Arlington, TX
* Multi-family housing
5) Polo Run $ 476,847 1984 Mar. 31, 1997 27.5 yrs.
* Arlington, TX
* Multi-family housing
6) Wildwood Apartments $ 263,140 1984 Mar. 31, 1997 27.5 yrs.
* Euless, TX
* Multi-family housing
7) Toscana Apartments $ 383,495 1986 Mar. 31, 1997 27.5 yrs.
* Dallas, TX
* Multi-family housing
8) Arbors on Forest Ridge $ 488,283 1986 Apr. 25, 1997 27.5 yrs.
* Bedford, TX
* Multi-family housing
9) Paces Cove $ 452,595 1982 June 24, 1997 27.5 yrs.
* Dallas, TX
* Multi-family housing
10) Remington Hills $ 668,070 1984 Aug. 6, 1997 27.5 yrs.
* Irving, TX 1985 Aug. 6, 1997
* Multi-family housing
11) Copper Crossing $ 337,705 1980/1981 Nov. 25, 1997 27.5 yrs.
* Fort Worth, TX
* Multi-family housing
12) Main Park $ 274,697 1984 Feb. 4, 1998 27.5 yrs.
* Duncanville, TX
* Multi-family housing
13) Timberglen $ 384,619 1984 Feb. 13, 1998 27.5 yrs.
* Dallas, TX
* Multi-family housing
14) Silver Brook I $ 287,655 1982 May 8, 1998 27.5 yrs.
* Grand Prairie, TX
* Multi-family housing
15) Summer Tree $ 73,713 1980 June 1, 1998 27.5 yrs.
* Dallas, TX
* Multi-family housing
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Subsequently Gross Amount Carried
Initial Cost Capitalized
Encum- -------------------------------------------------------------------------------------------
Description brances Land Bldg. Impr. Land Bldg. & Impr. Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
16) Park Village $0 $840,000 $6,160,000 $477,425 $866,647 $6,610,778 $7,477,425
* Bedford, TX
* Multi-family housing
17) Cottonwood $0 $456,000 $5,244,000 $447,288 $474,835 $5,672,453 $6,147,288
* Arlington, TX
* Multi-family housing
18) Devonshire $3,627,425 $1,665,600 $3,539,400 $1,494,709 $1,895,151 $4,804,558 $6,699,709
* Dallas, TX
* Multi-family housing
19) Pace's Point $7,679,619 $1,938,850 $9,466,150 $1,464,988 $2,133,651 $10,736,337 $12,869,988
* Lewisville, TX
* Multi-family housing
20) Newport $3,020,775 $506,400 $5,823,600 $411,792 $532,096 $6,209,696 $6,741,792
* Austin, TX
* Multi-family housing
21) Emerald Oaks $6,635,025 $874,400 $10,055,600 $838,594 $921,151 $10,847,443 $11,768,594
* Grapevine, TX
* Multi-family housing
22) Silver Brook II $3,047,994 $1,035,100 $3,669,900 $585,519 $1,090,666 $4,199,853 $5,290,519
* Grand Prairie, TX
* Multi-family housing
23) Estrada Oaks $0 $1,776,500 $7,573,500 $517,652 $1,846,524 $8,021,128 $9,867,652
* Irving, TX
* Multi-family housing
24) Burney Oaks $0 $1,023,000 $8,277,000 $379,771 $1,061,758 $8,618,013 $9,679,771
* Arlington, TX
* Multi-family housing
25) Cutter's Point $0 $1,944,000 $6,156,000 $590,442 $2,000,255 $6,690,187 $8,690,442
* Richardson, TX
* Multi-family housing
26) The Courts on Pear Ridge $0 $2,300,000 $9,200,000 $306,367 $2,358,770 $9,447,597 $11,806,367
* Dallas, TX
* Multi-family housing
------------------------------------------------------------- --------------------------------------
$24,010,838 $39,321,026 $176,830,426 $25,608,473 $40,761,281 $200,998,644 $241,759,925(1)
</TABLE>
<TABLE>
<CAPTION>
Date of Date
Description Acc. Dep Const. Acquired Dep. Life
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
16) Park Village $126,428 1983 July 1, 1998 27.5 yrs.
* Bedford, TX
* Multi-family housing
17) Cottonwood $106,322 1985 July 9, 1998 27.5 yrs.
* Arlington, TX
* Multi-family housing
18) Devonshire $83,371 1978 July 17, 1998 27.5 yrs.
* Dallas, TX
* Multi-family housing
19) Pace's Point $194,112 1985 July 17, 1998 27.5 yrs.
* Lewisville, TX
* Multi-family housing
20) Newport $113,758 1988 July 24, 1998 27.5 yrs.
* Austin, TX
* Multi-family housing
21) Emerald Oaks $198,390 1986 July 24, 1998 27.5 yrs.
* Grapevine, TX
* Multi-family housing
22) Silver Brook II $79,635 1984 July 24, 1998 27.5 yrs.
* Grand Prairie, TX
* Multi-family housing
23) Estrada Oaks $147,860 1983 July 27, 1998 27.5 yrs.
* Irving, TX
* Multi-family housing
24) Burney Oaks $52,635 1985 Oct. 28, 1998 27.5 yrs.
* Arlington, TX
* Multi-family housing
25) Cutter's Point $40,770 1978 Oct. 29, 1998 27.5 yrs.
* Richardson, TX
* Multi-family housing
26) The Courts on Pear Ridge $56,758 1988 Nov. 17, 1998 27.5 yrs.
* Dallas, TX
* Multi-family housing
------------
$7,686,479
</TABLE>
(1) Represents the aggregate cost for Federal Income tax purposes.
(2) Included real estate commissions, closing costs and improvements capitalized
since the date of acquisition.
(3) The following is a reconciliation of the carrying amount of real estate
owned:
Balance at January 1, 1998 $89,634,348
Real estate purchased 139,728,766
Improvements, furniture and fixtures 12,396,811
--------------
Balance at December 31, 1998 $241,759,925
==============
(4) The following is a reconciliation of accumulated depreciation:
Balance at January 1, 1998 $1,898,003
Depreciation expense 5,788,476
--------------
Balance at December 31, 1998 $7,686,479
==============
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized this 29th
day of March, 1999.
APPLE RESIDENTIAL INCOME TRUST, INC.
By: /s/ Glade M. Knight
------------------------------
Glade M. Knight,
President
Pursuant to the requirements of the Securities Exchange Act
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Glade M. Knight Director, President March 29, 1999
- --------------------------------------- Chief Executive
Glade M. Knight Officer, Chief
Financial Officer
(and Principal
Accounting Officer)
/s/ Penelope W. Kyle Director March 29, 1999
- ---------------------------------------
Penelope W. Kyle
/s/ Bruce H. Matson Director March 29, 1999
- ---------------------------------------
Bruce H. Matson
/s/ Lisa B. Kern Director March 29, 1999
- ---------------------------------------
Lisa B. Kern
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
3.1 Articles of Incorporation of Apple Residential Income
Trust, Inc. (Incorporated by reference to Exhibit 3.1
filed in the registrant's registration statement on Form
S-11; File No. 333-10635).
3.2 Articles of Amendment to the Articles of Incorporation of
Apple Residential Income Trust, Inc. (Incorporated by
reference to Exhibit 3.3 filed in the registrant's
registration statement on Form S-11; File No. 333-10635).
3.3 Articles of Amendment to the Articles of Incorporation of
Apple Residential Income Trust, Inc. (Incorporated by
reference to Exhibit 3.4 filed in the registrant's
registration statement on Form S-11; File No. 333-10635).
3.4 Amended and Restated Bylaws of Apple Residential Income
Trust, Inc. (Amended and Restated Through December 19,
1997). (Incorporated by reference to Exhibit 3.5 filed in
the registrant's registration statement on Form S-11; File
No. 333-10635).
4.1 Loan Agreement dated as of March 1, 1997, by and between
Apple Residential Income Trust, Inc. And First Union
National Bank of Virginia. (Incorporated by reference to
Exhibit 4.1 filed in the registrant's registration
statement on Form S-11; File No. 333-10635).
4.2 Amendment to Loan Agreement dated as of August 1, 1997, by
and between Apple Residential Income Trust, Inc. and First
Union National Bank of Virginia. (Incorporated by
reference to Exhibit 4.2 filed in the registrant's
registration statement on Form S-11; File No. 333-10635).
4.3 Amended and Restated Promissory Note dated August 1, 1997,
from Apple Residential Income Trust, Inc. to the order of
First Union National Bank of Virginia. (Incorporated by
reference to Exhibit 4.3 filed in the registrant's
registration statement on Form S-11; File No. 333-10635).
The Company agrees to furnish the Commission on request a
copy of any instrument with respect to long-term debt of
the Company or its subsidiaries the total amount of
securities authorized under which does not exceed 10% of
the total assets of the Company and its subsidiaries on a
consolidated basis.
10.1 Advisory Agreement between Apple Residential Income Trust,
Inc. and Apple Residential Advisors, Inc. (Incorporated by
reference to Exhibit 10.1 filed in the registrant's
registration statement on Form S-11; File No. 333-10635).
10.2 Form of Property Management Agreement between Apple
Residential Income Trust, Inc. and Apple Residential
Management Group, Inc. (Incorporated by reference to
Exhibit 10.2 filed in The registrant's registration
statement on Form S-11; File No. 333-10635.)
10.3 Property Acquisition/Disposition Agreement between Apple
Residential Income Trust, Inc. and Apple Realty Group,
Inc. (Incorporated by reference to Exhibit 10.3 filed in
the registrant's registration statement on Form S-11; File
No. 333-10635).
10.4 Apple Residential Income Trust, Inc. 1996 Incentive Plan.
This is a management contract or compensatory plan or
arrangement required to be filed as an exhibit pursuant to
Item 14(c) of Form 10-K. (Incorporated by reference to
Exhibit 10.4 filed in the registrant's registration
statement on Form S-11; File No. 333-10635).
10.5 Apple Residential Income Trust, Inc. 1996 Non-Employee
Directors Stock Option Plan. This is a management contract
or compensatory plan or arrangement required to be filed
as an exhibit pursuant to Item 14(c) of Form 10-K.
(Incorporated by reference to Exhibit 10.5 filed in the
registrant's registration s statement on Form S-11; File
No. 333-10635).
<PAGE>
Exhibit Number Description
10.6 Right of First Refusal Agreement. (Incorporated by
reference to Exhibit 10.6 filed in the registrant's
registration statement on Form S-11; File No. 333-10635).
10.7 Advisory Agreement Subcontract among Apple Residential
Income Trust, Inc., Apple Residential Advisors, Inc. and
Cornerstone Realty Income Trust, Inc. (Incorporated by
reference to Exhibit 10.4 to Form S-3 of Cornerstone
Realty Income Trust, Inc. (File No. 333-23693) filed On
March 20, 1997).
10.8 Property Management Agreement Subcontract among Apple
Residential Income Trust, Inc., Apple Residential
Management Group, Inc. and Cornerstone Realty Income
Trust, Inc. (Incorporated by reference to Exhibit 10.5 to
Form S-3 of Cornerstone Realty Income Trust, Inc. (File
No. 333-23693) filed on March 20, 1997).
10.9 Agreement and Bill of Transfer and Assignment among Apple
Residential Income Trust, Inc., Apple Realty Group, Inc.
and Cornerstone Realty Income Trust, Inc. (Incorporated by
reference to Exhibit 10.6 to Form S-3 of Cornerstone
Realty Income Trust, Inc. (File No. 333-23693) filed on
March 20, 1997).
10.10 Common Share Purchase Option Agreement between Apple
Residential Income Trust, Inc. and Cornerstone Realty
Income Trust, Inc. (Incorporated herein by reference to
Exhibit 10.8 to Form S-3 of Cornerstone Realty Income
Trust, Inc. (File No. 333-23693) filed on March 20, 1997).
10.11 Articles of Incorporation of Apple Limited, Inc.
(Incorporated by reference to Exhibit
10.12 filed in the registrant's registration statement on Form
S-11; File No. 333-10635).
10.12 Bylaws of Apple Limited, Inc. (Incorporated by reference
to Exhibit 10.13 filed in the registrant's registration
statement on Form S-11; File No. 333-10635).
10.13 Articles of Incorporation of Apple General, Inc.
(Incorporated by reference to Exhibit 10.l4 filed in the
registrant's registration statement on Form S-11; File No.
333-10635).
10.14 Bylaws of Apple General, Inc. (Incorporated by reference
to Exhibit 10.15 filed in the registrant's registration
statement on Form S-11; File No. 333-10635).
10.15 Certificate of Limited Partnership of Apple REIT Limited
Partnership. (Incorporated by reference to Exhibit 10.16
filed in the registrant's registration statement on Form
S-11; File No. 333-10635).
10.16 Limited Partnership Agreement of Apple REIT Limited
Partnership. (Incorporated by reference to Exhibit 10.17
filed in the registrant's registration statement on Form
S-11; File No. 333-10635).
10.17 Property Management Agreement for Brookfield Apartments.
(Incorporated by reference to Exhibit 10.7 to Current
Report on Form 8-K dated January 28, 1997 of Apple
Residential Income Trust, Inc.; File No. 333-10635).
10.18 Property Management Agreement for Eagle Crest I & II
Apartments. (Incorporated by reference to Exhibit 10.8 to
Current Report on Form 8-K dated January 28, 1997 of Apple
Residential Income Trust, Inc.; File No. 333-10635).
10.19 Property Management Agreement for Tahoe Apartments.
(Incorporated by reference to Exhibit 10.9 to Current
Report on Form 8-K dated January 28, 1997 of Apple
Residential Income Trust, Inc.; File No. 333-10635).
<PAGE>
Exhibit Number Description
10.20 Property Management Agreement for Mill Crossing
Apartments. (Incorporated by reference to Exhibit 10.3 to
Current Report on From 8-K dated February 21, 1997 of
Apple Residential Income Trust, Inc.; File No. 333-10635).
10.21 Property Management Agreement for Polo Run Apartments.
(Incorporated by reference to Exhibit 10.4 to Current
Report on Form 8-K dated March 31, 1997 of Apple
Residential Income Trust, Inc.; File No. 333-10635).
10.22 Property Management Agreement for Wildwood Apartments.
(Incorporated by reference to Exhibit 10.6 to Current
Report on Form 8-K dated March 31, 1997 of Apple
Residential Income Trust, Inc.; File No. 333-10635)
10.23 Property Management Agreement for Toscana Apartments.
(Incorporated by reference to Exhibit 10.6 to Current
Report on Form 8-K dated March 31, 1997 of Apple
Residential Income Trust, Inc.; File No. 333-10635).
10.24 Property Management Agreement for the Arbors on Forest
Ridge Apartments. (Incorporated by reference to Exhibit
10.2 to Current Report on From 8-K dated April 25, 1997 of
Apple Residential Income Trust, Inc.; File No. 333-10635).
10.25 Property Management Agreement for Pace's Cove Apartments.
(Incorporated by reference to Exhibit 10.2 to Current
Report on Form 8-K dated June 24, 1997 of Apple
Residential Income Trust, Inc.; File No. 333-10635).
10.26 Property Management Agreement for Remington Hills at Las
Colinas (formerly Chaparosa and Riverhill) Apartments.
(Incorporated by reference to Exhibit 10.3 to Current
Report on Form 8-K dated August 6, 1997 of Apple
Residential Income Trust, Inc.; File No. 333-10635).
10.27 Property Management Agreement for Copper Crossing
Apartments. (Incorporated by reference to Exhibit 10.2 to
Current Report on Form 8-K dated November 24, 1997 of
Apple Residential Income Trust, Inc.; File No. 333-10635).
10.28 Property Management Agreement for Main Park Apartments.
(Incorporated by reference to Exhibit 10.2 to Current
Report on Form 8-K dated February 4, 1998 of Apple
Residential Income Trust, Inc.; File No. 333- 10635).
10.29 Property Management Agreement for Timberglen Apartments.
(Incorporated by reference to Exhibit 10.2 to Current
Report on Form 8-K dated February 13, 1998 of Apple
Residential Income Trust, Inc.; File No. 333- 10635)
10.30 Property Management Agreement for Copper Ridge Apartments.
(Incorporated by reference to Exhibit 10.2 to Current
Report on Form 8-K dated March 31, 1998 of Apple
Residential Income Trust, Inc.; File No. 333-10635).
10.31 Property Management Agreement for Bitter Creek Apartments.
(Incorporated by reference to Exhibit 10.2 to Current
Report on Form 8-K dated May 8, 1998 of Apple Residential
Income Trust, Inc.; File No. 0-23983).
10.32 Property Management Agreement for Summer Tree Apartments.
(Incorporated by reference to Exhibit 10.2 to Current
Report on Form 8-K dated June 2, 1998 of Apple Residential
Income Trust, Inc.; File No. 0-23983).
10.33 Property Management Agreement for Park Village Apartments.
(Incorporated by reference to Exhibit 10.2 to Current
Report on Form 8-K dated July 1, 1998 of Apple Residential
Income Trust, Inc.; File No. 0-23983).
10.34 Certificate of Limited Partnership for Apple REIT II
Limited Partnership. (Incorporated by reference to Exhibit
10.1 to Current Report on Form 8-K dated July 9, 1998 of
Apple Residential Income Trust, Inc.; File No. 0- 23983).
<PAGE>
Exhibit Number Description
10.35 Certificate of Limited Partnership for Apple REIT III
Limited Partnership. (Incorporated by reference to Exhibit
10.2 to Current Report on Form 8-K dated July 9, 1998 of
Apple Residential Income Trust, Inc.; File No. 0- 23983).
10.36 Certificate of Limited Partnership for Apple REIT IV
Limited Partnership. (Incorporated by reference to Exhibit
10.3 to Current Report on Form 8-K dated July 9, 1998 of
Apple Residential Income Trust, Inc.; File No. 0- 23983).
10.37 Certificate of Limited Partnership for Apple REIT V
Limited Partnership. (Incorporated by reference to Exhibit
10.4 to Current Report on Form 8-K dated July 9, 1998 of
Apple Residential Income Trust, Inc.; File No. 0- 23983).
10.38 Certificate of Limited Partnership for Apple REIT VI
Limited Partnership. (Incorporated by reference to Exhibit
10.5 to Current Report on Form 8-K dated July 9, 1998 of
Apple Residential Income Trust, Inc.; File No. 0- 23983).
10.39 Limited Partnership Agreement for Apple REIT II Limited
Partnership. (Incorporated by reference to Exhibit 10.6 to
Current Report on Form 8-K dated July 9, 1998 of Apple
Residential Income Trust, Inc.; File No. 0-23983).
10.40 Limited Partnership Agreement for Apple REIT III Limited
Partnership. (Incorporated by reference to Exhibit 10.7 to
Current Report on Form 8-K dated July 9, 1998 of Apple
Residential Income Trust, Inc.; File No. 0- 23983).
10.41 Limited Partnership Agreement for Apple REIT IV Limited
Partnership. (Incorporated by reference to Exhibit 10.8 to
Current Report on Form 8-K dated July 9, 1998 of Apple
Residential Income Trust, Inc.; File No. 0- 23983).
10.42 Limited Partnership Agreement for Apple REIT V Limited
Partnership. (Incorporated by reference to Exhibit 10.9 to
Current Report on Form 8-K dated July 9, 1998 of Apple
Residential Income Trust, Inc.; File No. 0- 23983).
10.43 Limited Partnership Agreement for Apple REIT VI Limited
Partnership. (Incorporated by reference to Exhibit 10.10
to Current Report on Form 8-K dated July 9, 1998 of Apple
Residential Income Trust, Inc.; File No. 0- 23983).
10.44 Property Management Agreement for Cottonwood Crossing
Apartments. (Incorporated by reference to Exhibit 10.18 to
Current Report on Form 8-K dated July 9, 1998 of Apple
Residential Income Trust, Inc.; File No. 0- 23983).
10.45 Property Management Agreement for Pace's Point Apartments.
(Incorporated by reference to Exhibit 10.19 to Current
Report on Form 8-K dated July 9, 1998 of Apple Residential
Income Trust, Inc.; File No. 0-23983).
10.46 Property Management Agreement for Pepper Square
Apartments. (Incorporated by reference to Exhibit 10.20 to
Current Report on Form 8-K dated July 9, 1998 of Apple
Residential Income Trust, Inc.; File No. 0-23983).
10.47 Property Management Agreement for Emerald Oaks Apartments.
(Incorporated by reference to Exhibit 10.21 to Current
Report on Form 8-K dated July 9, 1998 of Apple Residential
Income Trust, Inc.; File No. 0-23983).
10.48 Property Management Agreement for Hayden's Crossing
Apartments. (Incorporated by reference to Exhibit 10.22 to
Current Report on Form 8-K dated July 9, 1998 of Apple
Residential Income Trust, Inc.; File No. 0-23983).
10.49 Property Management Agreement for Newport Apartments.
(Incorporated by reference to Exhibit 10.23 to Current
Report on Form 8-K dated July 9, 1998 of Apple Residential
Income Trust, Inc.; File No. 0-23983).
10.50 Property Management Agreement for Estrada Oaks Apartments.
(Incorporated by reference to Exhibit 10.24 to Current
Report on Form 8-K dated July 9, 1998 of Apple Residential
Income Trust, Inc.; File No. 0-23983).
<PAGE>
Exhibit Number Description
10.51 Property Management Agreement Subcontract for Pace's Point
Apartments. (Incorporated by reference to Exhibit 10.25 to
Current Report on Form 8-K dated July 9, 1998 of Apple
Residential Income Trust, Inc.; File No. 0- 23983).
10.52 Property Management Agreement Subcontract for Pepper
Square Apartments. (Incorporated by reference to Exhibit
10.26 to Current Report on Form 8-K dated July 9, 1998 of
Apple Residential Income Trust, Inc.; File No. 0-23983).
10.53 Property Management Agreement Subcontract for Emerald Oaks
Apartments. (Incorporated by reference to Exhibit 10.27 to
Current Report on Form 8-K dated July 9, 1998 of Apple
Residential Income Trust, Inc.; File No. 0-23983).
10.54 Property Management Agreement Subcontract for Hayden's
Crossing Apartments. (Incorporated by reference to Exhibit
10.28 to Current Report on Form 8-K dated July 9, 1998 of
Apple Residential Income Trust, Inc.; File No. 0-23983).
10.55 Property Management Agreement Subcontract for Newport
Apartments. (Incorporated by reference to Exhibit 10.29 to
Current Report on Form 8-K dated July 9, 1998 of Apple
Residential Income Trust, Inc.; File No. 0- 23983).
10.56 Property Management Agreement for Burney Oaks Apartments.
(Incorporated by reference to Exhibit 10.3 to Current
Report on Form 8-K dated October 28, 1998 of Apple
Residential Income Trust, Inc.; File No. 0-23983).
10.57 Property Management Agreement for Brandywine Park
Apartments. (Incorporated by reference to Exhibit 10.4 to
Current Report on Form 8-K dated October 28, 1998 of Apple
Residential Income Trust, Inc.; File No. 0-23983).
10.58 Property Management Agreement for The Courts on Pear Ridge
Apartments. (Incorporated by reference to Exhibit 10.2 to
Current Report on Form 8-K dated November 17, 1998 of
Apple Residential Income Trust, Inc.; File No. 0-23983).
10.59 Property Management Agreement for Sierra Ridge Apartments.
(Incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K dated January 5, 1999 of Apple
Residential Income Trust, Inc.; File No. 0-23983).
10.60 Property Acquisition/Disposition Agreement dated January
1, 1999. (Incorporated by reference to Exhibit 10.3 to the
Current Report on Form 8-K dated January 5, 1999 of Apple
Residential Income Trust, Inc.; File No. 0- 23983).
10.61 Property Management Agreement for Grayson Square
Apartments. (Incorporated by reference to Exhibit 10.2 to
Current Report on Form 8-K dated February 1, 1999 of Apple
Residential Income Trust, Inc.; File No. 0-23983).
10.62 Certificate of Limited Partnership of Apple REIT VII
Limited Partnership. (Incorporated by reference to Exhibit
10.3 to Current Report on Form 8-K dated February 1, 1999
of Apple Residential Income Trust, Inc.; File No. 0-
23983).
10.64 Stock Option Agreement dated November 9, 1998 between
Glade M. Knight and Apple Residential Income Trust, Inc.
This is a management contract or compensatory plan or
arrangement required to be filed as an exhibit pursuant to
Item 14(c) of Form 10-K. FILED HEREWITH.
21 Subsidiaries of Apple Residential Income Trust, Inc. FILED
HEREWITH.
23 Consent of Independent Auditors. FILED HEREWITH
27 Financial Data Schedule. FILED HEREWITH
99.1 Pages 3 through 6 of the Current Report on Form 8-K of
Apple Residential Income Trust, Inc. dated February 4,
1998. FILED HEREWITH.
99.2 Pages 3 through 6 of the Current Report on Form 8-K of
Apple Residential Income Trust, Inc. dated February 13,
1998. FILED HEREWITH.
<PAGE>
Exhibit Number Description
99.3 Pages 3 through 7 of the Current Report on Form 8-K of
Apple Residential Income Trust, Inc. dated March 31, 1998.
FILED HEREWITH.
99.4 Pages 4 through 8 of the Current Report on Form 8-K of
Apple Residential Income Trust, Inc. dated May 8, 1998.
FILED HEREWITH.
99.5 Pages 4 through 8 of the Current Report on Form 8-K of
Apple Residential Income Trust, Inc. dated June 2, 1998.
FILED HEREWITH.
99.6 Pages 4 through 8 of the Current Report on Form 8-K of
Apple Residential Income Trust, Inc. dated July 1, 1998.
FILED HEREWITH.
99.7 Pages 7 through 29 of the Current Report on Form 8-K of
Apple Residential Income Trust, Inc. dated July 9, 1998.
FILED HEREWITH.
99.8 Pages 4 through 12 of the Current Report on Form 8-K of
Apple Residential Income Trust, Inc. dated October 28,
1998. FILED HEREWITH.
99.9 Pages 3 through 7 of the Current Report on Form 8-K of
Apple Residential Income Trust, Inc. dated November 17,
1998. FILED HEREWITH.
EXHIBIT 10.64
Apple Residential Income Trust, Inc.
Stock Option Agreement
November 9, 1998
Glade M. Knight
306 East Main Street
Richmond, Virginia 23219
Dear Mr. Knight:
You have been designated to receive a nonstatutory stock option to
purchase shares of the common stock of Apple Residential Income Trust, Inc. (the
"Company") on the terms set forth in this letter. A nonstatutory stock option is
an option that does not receive special tax treatment under the Internal Revenue
Code.
This letter constitutes an option agreement (the "Agreement") between you
and the Company. The Compensation Committee of the Company's Board of Directors
shall administer this Agreement. The terms and conditions of the option award
are as follows:
1. Nonstatutory Option. In consideration of your agreement contained in
this letter, the Company hereby grants to you a nonstatutory option (the
"Option") to purchase from the Company up to 355,111 shares of common stock of
the Company ("Company Stock") at a price of $10 per share (the "Option Price").
2. Option Vesting. The Option shall vest and become exercisable with
respect to the number of shares of Company Stock determined in accordance with
the following formula (your "Vested Shares"):
(A (divided by) B) x C = number of Vested Shares
<PAGE>
where "A" is the total number of shares of Company Stock sold to the
public (pursuant to the Company's Prospectus dated October 16, 1998, as that
Prospectus may be supplemented from time to time) in the Additional Offering,
"B" is Five Million, and "C" is 355,111 shares of Company Stock; provided,
however, that the Option shall be deemed to vest in five equal parts, if, as and
when there is sold to the public in the Additional Offering one million, two
million, three million, four million and five million shares of Company Stock,
and the Option shall vest with respect to shares not corresponding to one of the
aforementioned break-points only if and when the Additional Offering is
terminated before completion. The value represented by "A" shall include any
Company Stock sold up to nine (9) months following the commencement of the
Additional Offering; any sale of Company Stock occurring after nine months from
such date shall not be used in the above calculation. For example, if 20 million
shares of Company Stock are sold during the Company's Additional Offering,
142,044 shares of Company Stock covered by the Option will become Vested Shares.
The Option may only be exercised with respect to your Vested Shares. The number
of Vested Shares determined pursuant to the foregoing formula shall not exceed
355,111 shares. For purposes of this agreement, "Additional Offering" shall mean
the Company's offering of Company Stock to the general public through a
registration statement filed with the Securities and Exchange Commission and
effective as of October 16, 1998.
3. Expiration of the Option. The Option will expire ten (10) years from
the Date of Grant (the "Expiration Date").
4. Entitlement to Exercise the Option. The grant of the Option is subject
to the following terms and conditions:
(a) Except as otherwise stated in this Agreement, the Option may be
exercised, in whole or in part and to the extent vested, from the Date of
Grant until the earliest of (i) the Expiration Date, (ii) 60 days from
your retirement or termination of your status as an executive officer of
the Company for reasons other than death or disability, or (iii) 180 days
from the date you terminate your status as an executive officer of the
Company by reason of death or disability. The Committee shall, in its sole
discretion, determine whether the executive officer is disabled.
<PAGE>
(b) Except as otherwise stated in this paragraph, the Option may be
exercised only while you are an executive officer of the Company.
5. Payment Under Option. You may exercise the Option, in whole or in part
and to the extent vested, but only with respect to whole shares of Company
Stock. You may pay the Option price in cash, in Mature Shares of Company Stock,
or in any combination thereof. For purposes of this Agreement, "Mature Shares"
shall mean shares of Company Stock for which the holder has good title, free and
clear of all liens and encumbrances and which such holder either (i) has held
for at least six months, or (ii) has purchased on the open market. If you
deliver Mature Shares of Company Stock to make any such payment, the shares
shall be valued at the Fair Market Value thereof on the date you exercise the
Option. For purposes of this agreement, "Fair Market Value" shall mean, on any
given date, (i) if the Company Stock is traded on an exchange, the closing
registered sales price of the Company Stock on such day on the exchange on which
it generally has the greatest trading volume, (ii) if the Company Stock is
traded in the over-the-counter market, the average between the closing bid and
asked prices on such day as reported by NASDAQ, or (iii) if the Company Stock is
not traded on any exchange or in the over-the-counter market, the Fair Market
Value shall be determined by the Committee using any reasonable method in good
faith.
6. Transferability of Option. The Option is not transferable by you (other
than by will or by the laws of descent and distribution) and, except as
otherwise stated in this letter, may be exercised during your lifetime only by
you. Notwithstanding the preceding, you shall have the right to transfer the
rights under the Option granted in this Agreement during your lifetime subject
to the following limitations:
(a) transfers may be made only to the following transferees: (i) the
optionee's children, step-children, grandchildren, step-grandchildren or
other lineal descendants (including relationships arising from legal
adoptions) (such individuals are hereinafter referred to as "Immediate
Family Members"); (ii) trust(s) for the exclusive benefit of any one or
more of the optionee's Immediate Family Members (the optionee's spouse may
also be a beneficiary); or (iii) partnership(s), limited liability
compan(ies) or
<PAGE>
other entit(ies), the only partners, members or interest holders of which
are among the optionee's Immediate Family Members (the optionee's spouse
may also hold an interest);
(b) there may be no consideration for the transfer;
(c) there may be no subsequent transfer of the transferred Option
except by will or the laws of descent and distribution;
(d) following transfer, the Option shall continue to be subject to
the same terms and conditions as were applicable immediately prior to
transfer (including the conditions under which the Option may terminate
prior to its expiration); except that the transferee rather than the
optionee may deliver the Option exercise notice and payment of the
exercise price;
(e) only the vested portion of the Option is transferable;
(f) written notice of any transfer must be delivered to the Chief
Financial Officer of the Company; and
(g) the optionee's estate may transfer the Option to the
beneficiaries of such estate, subject to the limitations set forth in
items (b) through (f) above.
7. Adjustments. If the number of outstanding shares of Company Stock is
increased or decreased as a result of: (i) a subdivision or consolidation of
shares, (ii) the payment of a stock dividend, (iii) a stock split, or (iv) any
other change in the capitalization that is effective without receipt of
consideration by the Company, the number of shares with respect to which you
have an unexercised Option and the Option price shall be appropriately adjusted
by the Company, whose determination shall be binding.
<PAGE>
8. Triggering Events. Notwithstanding any other provision to the contrary,
in the case of the occurrence of a "Triggering Event," as defined below, the
following provisions shall apply:
(a) For purposes of this paragraph 8, a "Triggering Event" shall
mean:
(i) substantially all of the Company's assets, stock or
business is sold or transferred, whether through sale, exchange,
merger, consolidation, lease, share exchange or otherwise; or
(ii) the Advisory Agreement between the Company and Apple
Residential Advisors, Inc. (whether or not subject to a subcontract
arrangement) is terminated or not renewed, and the Company ceases to
use Apple Residential Management Group, Inc. (whether or not subject
to a subcontract arrangement) to provide substantially all of its
property management services.
(b) Upon a Triggering Event, the vested portion of the Option shall
be exercisable at an exercise price of $1.00 per share of Company Stock
and remain exercisable for 180 days following the occurrence of such
event.
(c) If you elect in writing not to exercise the vested portion of
the Option or if you fail to exercise the vested portion of the Option
within the 180 day period as described in subparagraph (b) above, the
Company shall, immediately upon receipt of such written election or
expiration of the 180 day period, pay you, in cash, the difference between
the exercise price ($1.00) and the Fair Market Value of the Company Stock
that could be obtained upon exercise of the vested portion of the Option
(or, as appropriate, the fair market value, as determined in good faith by
the Committee, of securities received in exchange for or receivable in
lieu of such Company Stock in the context of an acquisition transaction
that constitutes a Triggering Event in which Company Stock is to be
exchanged for or replaced by other securities).
<PAGE>
(d) If the exercise of the vested portion of the Option or the
receipt of payment in lieu of such exercise (collectively, "Option
Income") would subject you to an excise tax under Internal Revenue Code
Sections 280G or 4999, the Company shall pay to you, in cash, an
additional amount equal to the sum of the excise tax due and the federal,
state and local income taxes due on the additional amount (cumulatively,
the "Gross-Up Payment"), such that the net amount retained by you will
equal the Option Income. The Gross-Up Payment shall be paid to you as soon
as possible following the exercise of the vested portion of the Option or
the receipt of payment in lieu of such exercise, bu in no event later than
ninety (90) calendar days after such date. For purposes of determining the
amount of the Gross-Up Payment, you shall be deemed to pay federal income
taxes at your highest marginal rate in the calendar year in which the
Gross-Up Payment is to be made and the state and local income taxes at
your highest marginal rates in the state and locality of your residence,
net of the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes.
9. Exercise and Notices. To exercise the vested portion of your Option,
you must deliver to the Chief Financial Officer of the Company written notice,
signed by you, stating the number of shares you have elected to purchase, and
payment to the Company as described in paragraph 5. Any notice to be given under
the terms of this letter shall be addressed to the Chief Financial Officer of
the Company at the Company's primary business address, and any notice to be
given to you shall be given to you or your personal representative, legatee or
distributee, and shall be addressed to him or her at the address set forth
above. Either party may hereafter designate in writing any other address for
purposes of notice in a notice duly sent to the other. Notices shall be deemed
to have been duly given if mailed, postage prepaid, addressed as aforesaid.
10. Withholding. By signing this letter, you agree to make arrangement
satisfactory to the Company to comply with any income tax withholding
requirements that may apply upon the exercise of the Option.
<PAGE>
11. Continuation as Officer of the Company. Neither the Agreement nor the
Option confers upon you any right to continue as an officer of the Company or
limits in any respect the right of the Company to terminate your status as an
officer.
12. Delivery of Certificate. The Company may delay delivery of the
certificate for shares purchased pursuant to the exercise of an Option until (i)
the admission of such shares to listing on any stock exchange on which the
Company Stock may then be listed, (ii) receipt of any required representation by
you or completion of any registration or other qualification of such shares
under any state or federal law or regulation that the Company's counsel shall
determine as necessary or advisable, and (iii) receipt by the Company of advice
by counsel that all applicable legal requirements have been complied with. As a
condition of exercising the Option, you may be required to execute a customary
written indication of your investment intent and such other agreements as the
Company deems necessary or appropriate to comply with applicable securities
laws.
13. Acceptance of Option. Your acceptance of the Option, which shall be
deemed to take place when you sign where indicated on this letter, places no
obligation or commitment on you to exercise the Option. By signing below, you
indicate your acceptance of the Option and your agreement to the terms and
conditions set forth in this letter, which shall become the Company's Agreement
with you. Unless the Company otherwise agrees in writing, this letter will not
be effective as an Agreement if such copy is not signed and returned.
APPLE RESIDENTIAL INCOME TRUST, INC.
/s/ Glade M. Knight
----------------------------------------
Chairman and Chief Executive Officer
Agreed and Accepted:
/s/ Glade M. Knight
- ---------------------
Glade M. Knight
EXHIBIT 21
SUBSIDIARIES OF APPLE RESIDENTIAL INCOME TRUST, INC.
Apple owns all of the outstanding shares (consisting, in each case, of 100
common shares) of Apple General, Inc., a Virginia corporation, and Apple
Limited, Inc., a Virginia corporation.
Apple General, Inc. is the sole general partner of (with a 1% interest in),
and Apple Limited, Inc. is the sole limited partner of (with a 99% interest in),
each of the following Virginia limited partnerships:
Apple REIT Limited Partnership
Apple REIT II Limited Partnership
Apple REIT III Limited Partnership
Apple REIT IV Limited Partnership
Apple REIT V Limited Partnership
Apple REIT VI Limited Partnership
Apple REIT VII Limited Partnership
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following Registration
Statements of Apple Residential Income Trust, Inc. of our report dated February
4, 1999, with respect to the consolidated financial statements and schedule of
Apple Residential Income Trust, Inc. included in this Annual Report (Form 10-K)
for the year ended December 31, 1998:
Registration Statement Number Description
----------------------------- -----------
333-64703 Form S-8, pertaining to the Company's 1996
Non-Employee Directors Stock Option Plan
333-64701 Form S-8, pertaining to the Company's 1996
Incentive Plan
/s/ Ernst & Young LLP
Richmond, Virginia
March 29, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 40,073,198
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 241,759,925
<DEPRECIATION> 7,686,479
<TOTAL-ASSETS> 281,847,152
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 251,910,553
<OTHER-SE> 2,710,932
<TOTAL-LIABILITY-AND-EQUITY> 249,199,621
<SALES> 0
<TOTAL-REVENUES> 30,764,904
<CGS> 0
<TOTAL-COSTS> 21,585,665
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 737,875
<INCOME-PRETAX> 10,079,908
<INCOME-TAX> 0
<INCOME-CONTINUING> 10,079,908
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,079,908
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001021351
<NAME> APPLE RESIDENTIAL INCOME TRUST, INC.
<MULTIPLIER> 1,000
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 40,073,198
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 241,759,925
<DEPRECIATION> 7,686,479
<TOTAL-ASSETS> 281,847,152
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 251,910,553
<OTHER-SE> 2,710,932
<TOTAL-LIABILITY-AND-EQUITY> 249,199,621
<SALES> 0
<TOTAL-REVENUES> 30,764,904
<CGS> 0
<TOTAL-COSTS> 21,585,665
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 737,875
<INCOME-PRETAX> 10,079,908
<INCOME-TAX> 0
<INCOME-CONTINUING> 10,079,908
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,079,908
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
Item 2. Acquisition or Disposition of Assets
MAIN PARK APARTMENTS
Duncanville, Texas
On February 4, 1998, Apple Residential Income Trust, Inc. (the
"Company") purchased the Main Park Apartments located at 1303 South Main Street
in Duncanville (southwest of Dallas), Texas (The "Property").
The Property comprises 192 apartment units. The purchase price for the
Property was $8,000,000. The seller was MGW Apartments Partnership, a Texas
limited partnership which is not affiliated with the Company, Apple Residential
Advisors, Inc. or their Affiliates. The entire purchase price was paid using
proceeds from the sale of Company common shares. Title to the Property was
conveyed to the Company by limited warranty deed.
LOCATION. The Property is located on South Main Street in Duncanville,
southwest of Dallas, within the greater Dallas/Fort Worth Consolidated
Metropolitan Statistical Area, or as it is called locally, "The Metroplex." The
following information is based in part upon information provided by the Dallas
Chamber of Commerce.
The Dallas/Fort Worth Metroplex is in the north-central part of Texas
and is composed of nine counties. The 1996 population of The Metroplex was
approximately 4,400,000. Dallas is the second largest city in the state, behind
Houston.
The economy of the Dallas/Fort Worth area is complex and diversified.
Key economic factors include a large manufacturing base (including as products
military hardware, electronics, automobiles, industrial equipment, oil-field
parts, food products and chemicals), banking, insurance services,
communications, oil and gas production and air transportation. Major employers
in the area include Texas Instruments, Southwestern Bell, General Motors, J.C.
Penney, NationsBank and Vought Aircraft Company.
The Metroplex is also an established transportation center for the
nation. The Dallas/Fort Worth International Airport occupies approximately
17,800 acres of land between the two cities. It is the largest commercial
airport in the United States in terms of land area, and is the fourth busiest
airport in the world, with 1,700 daily arrivals and departures.
The area also has a well-established system of interstate highways and
supporting secondary routes. The Metroplex is located at the hub of Interstates
35,45, 20 and 30. Two outer loops, Interstate 635 in Dallas and Interstate 820
in Fort Worth, surround the respective cities.
<PAGE>
The many institutions of higher learning in the area include Southern
Methodist University, the University of Texas at Dallas, the University of Texas
at Arlington, the University of North Texas, and Texas Christian University.
The immediate area surrounding the Property consists of other
multi-family, single-family, commercial and retail development. The Property is
located near restaurants, businesses, schools, and churches, and is readily
accessible from Interstate 20 and Highway 67. The Property is an approximately
20-minute drive from downtown Dallas.
DESCRIPTION OF THE PROPERTY. The Property consists of 192 garden-style
apartment units in 24 two-story buildings on approximately 10.4 acres of land.
The Property was constructed in 1984.
The Property offers eight different unit types. The unit mix and rents
being charged new tenants as of February, 1998 are as follows:
Approximate
Interior
Quantity Type Square Footage Monthly Rental
49 One bedroom/one bathroom 757 $579
11 One bedroom/one bathroom (view) 757 609
22 One bedroom/one bathroom w/den 901 689
8 One bedroom/one bathroom w/den (view) 901 709
39 Two bedrooms/two bathrooms 1,056 749
15 Two bedrooms/two bathrooms (view) 1,056 769
38 Two bedrooms/two bathrooms 1,058 769
10 Two bedrooms/two bathrooms (view) 1,058 789
The apartments provide a total of approximately 180,000 square feet of
net rentable area.
The Company believes that the Property has generally been well
maintained and is in good condition. The Company has budgeted approximately
$144,000 for additional capital improvements to the Property. These improvements
will include clubhouse renovations, exterior painting and interior upgrades.
2
<PAGE>
Leases at the Property are generally for terms of one year or less.
Average rental rates for the past five years have generally increased. As an
example, a two-bedroom, two-bathroom apartment unit (1,058 square feet) rented
for $608 in 1993, $618 in 1994, $655 in 1995, $683 in 1996 and $702 in 1997. The
average effective annual rental per square foot at the Property for 1993, 1994,
1995, 1996 and 1997 was $7.08, $7.20, $7.63, $7.96, and $8.18, respectively.
The buildings are wood-frame construction with a combination of brick
veneer and masonite hardboard siding on reinforced concrete slab foundations.
Roofs are sloped fiberglass shingled on plywood.
The Property has two outdoor swimming pools, a jacuzzi, two laundry
facilities and a wooded creek view. There is also a clubhouse which includes a
kitchen, entertainment area and leasing office. There is ample paved parking for
the tenants.
All apartment units have wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen, bath, entry and utility areas. Each apartment unit
has a cable television hook-up and an individually controlled heating and air
conditioning unit. Each kitchen is equipped with a refrigerator/freezer,
electric range and oven, dishwasher and garbage disposal. Each apartment unit
has a fireplace, washer/dryer connections, miniblinds, exterior storage and a
private balcony or patio. All upstairs units have vaulted ceilings. The owner of
the Property pays for cold water, gas usage for hot water, sewer service and
trash removal. Tenants pay for their own electricity service, which includes
cooking, lighting, heating and air conditioning.
There are at least 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 the nearby competing properties now averages
approximately 94%.
According to information provided by the seller, physical occupancy at
the Property averaged approximately 94% in 1993, 95% in 1994, 96% in 1995, 96%
in 1996, and 96% in 1997. As of February 4, 1998, the Property was 95 %
occupied. The tenants are a mix of white-collar workers, blue-collar workers,
students and retired persons.
The following table sets forth the 1997 real estate tax information of
the Property:
Assessed
Jurisdiction Value Rate Tax
- ------------ ----- ---- ---
County of Dallas $6,850,180 $2.80107 $191,878.34
3
<PAGE>
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $7,458,550) will generally be depreciated
over 27.5 years on a straight-line basis. The basis of the personal property
portion will be depreciated in accordance with the modified accelerated cost
recovery system of the Code. Amounts to be spent by the Company on repairs and
improvements will be treated for tax purposes as permitted by the Code based on
the nature of the expenditures.
The Advisor and the Company believe that the Property is and will
continue to be adequately covered by property and liability insurance.
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 Dallas/Fort Worth area generally and the specific area in which
the Property is located were perceived as being characterized by a diverse,
stable and steadily growing economy. Accordingly, it was believed that such
economy and its anticipated growth and development would support stable
occupancy rates and reasonable increases in rents at the Property.
2. Based upon an engineering report and its own inspections, the
Advisor believes that the Property has been well maintained and is generally in
good condition, although the Advisor believes that the planned repairs and
improvements will allow future increases in rents at the Property.
3. The Property is strategically located in the Duncanville area, which
is one of the most commercially active areas in the Metroplex, and has a
well-respected school system.
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 will pay Cornerstone Realty Income
Trust, Inc., a property acquisition fee equal to 2% of the purchase price of the
Property, or $160,000. Cornerstone Realty Income Trust, Inc. will serve as
property manager for the Property and for its services will be paid by the
Company a monthly management fee equal to 5% of the gross revenues of the
Property plus reimbursement of certain expenses.
4
Item 2. Acquisition or Disposition of Assets
TIMBERGLEN APARTMENTS
Dallas, Texas
On February 13, 1998, Apple Residential Income Trust, Inc. (the
"Company") purchased the Timberglen Apartments located at 3773 Timberglen Road
in Dallas, Texas (The "Property"). The Property comprises 304 apartment units.
The purchase price for the Property was $12,000,000. The seller was
Timberglen Apartments, Ltd., a Texas limited partnership which is not affiliated
with the Company, Apple Residential Advisors, Inc. or their Affiliates. The
entire purchase price was paid using proceeds from the sale of Company common
shares. Title to the Property was conveyed to the Company by limited warranty
deed.
LOCATION. The Property is located in the north area of Dallas, within
the greater Dallas/Fort Worth Consolidated Metropolitan Statistical Area, or as
it is called locally, "The Metroplex." The following information is based in
part upon information provided by the Dallas Chamber of Commerce.
The Dallas/Fort Worth Metroplex is in the north-central part of Texas
and is composed of nine counties. The 1996 population of The Metroplex was
approximately 4,400,000. Dallas is the second largest city in the state, behind
Houston.
The economy of the Dallas/Fort Worth area is complex and diversified.
Key economic factors include a large manufacturing base (including as products
military hardware, electronics, automobiles, industrial equipment, oil-field
parts, food products and chemicals), banking, insurance services,
communications, oil and gas production and air transportation. Major employers
in the area include Texas Instruments, Southwestern Bell, General Motors, J.C.
Penney, NationsBank and Vought Aircraft Company.
The Metroplex is also an established transportation center for the
nation. The Dallas/Fort Worth International Airport occupies approximately
17,800 acres of land between the two cities. It is the largest commercial
airport in the United States in terms of land area, and is the fourth busiest
airport in the world, with 1,700 daily arrivals and departures.
The area also has a well-established system of interstate highways and
supporting secondary routes. The Metroplex is located at the hub of Interstates
35,45, 20 and 30. Two outer loops, Interstate 635 in Dallas and Interstate 820
in Fort Worth, surround the respective cities.
The many institutions of higher learning in the area include Southern
Methodist University, the University of Texas at Dallas, the University of Texas
at Arlington, the University of North Texas, and Texas Christian University.
<PAGE>
The immediate area surrounding the Property consists of other
multi-family, commercial and retail development. The Property is located near
restaurants, businesses, schools, and churches, and is readily accessible from
Interstate 35, the North Dallas Tollway, Central Expressway and LBJ Freeway. The
Property is an approximately 15-minute drive from downtown Dallas.
DESCRIPTION OF THE PROPERTY. The Property consists of 304 garden and
townhouse style apartment units in 28 two-story and three-story buildings on
approximately 10.5 acres of land. The Property was constructed in 1984.
The Property offers five different unit types. The unit mix and rents
being charged new tenants as of February, 1998 are as follows:
<TABLE>
<CAPTION>
Approximate
Interior
Quantity Type Square Footage Monthly Rental
<S> <C> <C> <C>
120 One bedroom/one bathroom 512 $485
80 One bedroom/one bathroom 743 570
32 One bedroom/one bathroom w/den 841 650
48 Two bedrooms/two bathrooms 983 710
24 Two bedrooms/two bathrooms/studio TH 1,100 810
</TABLE>
The apartments provide a total of approximately 221,000 square feet of
net rentable area.
The Company believes that the Property has generally been well
maintained and is in good condition. The Company has budgeted approximately
$228,000 for additional capital improvements to the Property. These improvements
will include clubhouse renovations, landscaping and interior upgrades.
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 (743 square feet) rented for
$410 in 1993, $420 in 1994, $440 in 1995, $485 in 1996 and $510 in 1997. The
average effective annual rental per square foot at the Property for 1993, 1994,
1995, 1996 and 1997 was $6.97, $7.14, $7.48, $8.25, and $8.67, respectively.
The buildings are wood-frame construction with a combination of brick
veneer, stucco and masonite hardboard siding on reinforced concrete slab
foundations. Roofs are sloped fiberglass shingled on plywood.
The Property has a two-tiered outdoor swimming pool, two laundry
facilities and an access gate to the Property. There is also a clubhouse which
includes a kitchen, entertainment area and a leasing office. There is ample
paved parking for the tenants.
2
<PAGE>
All apartment units have wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and baths. Each apartment unit has a cable
television hook-up and an individually controlled heating and air conditioning
unit. Each kitchen is equipped with a refrigerator/freezer, electric range and
oven, dishwasher, microwave and garbage disposal. Each apartment unit (other
than the smallest one-bedroom unit) has a fireplace and washer/dryer
connections. About 16 units substitute a dry bar for the fireplace. Each
apartment unit (other than the largest two-bedroom unit) has a large patio with
exterior storage. All of the upper level units have vaulted ceilings. The owner
of the Property pays for cold water, gas usage for hot water, sewer service and
trash removal. Tenants pay for their own electricity service, which includes
cooking, lighting, heating and air conditioning.
There are at least 10 apartment properties that compete with the
Property. All offer similar amenities and generally have rents that are
comparable to those of the Property. Based on a recent telephone survey, the
Advisor estimates that occupancy in the nearby competing properties now averages
approximately 95%.
According to information provided by the seller, physical occupancy at
the Property averaged approximately 94% in 1993, 95% in 1994, 97% in 1995, 97%
in 1996, and 97% in 1997. As of February 12, 1998, the Property was 97 %
occupied. The tenants are a mix of white-collar workers, blue-collar workers,
students and retired persons.
The following table sets forth the 1997 real estate tax information of
the Property:
Assessed
Jurisdiction Value Rate Tax
- ------------ -------- ---- ---
City of Dallas $9,423,870 $0.65160 $61,405.94
County of Denton 9,500,000 0.25590 24,310.50
Carollton-Farmers Branch ISD 9,423,870 1.49610 140,990.52
----------
$226,706.96
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $9,600,176) will generally be depreciated
over 27.5 years on a straight-line basis. The basis of the personal property
portion will be depreciated in accordance with the modified accelerated cost
recovery system of the Code. Amounts to be spent by the Company on repairs and
improvements will be treated for tax purposes as permitted by the Code based on
the nature of the expenditures.
The Advisor and the Company believe that the Property is and will
continue to be adequately covered by property and liability insurance.
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:
3
<PAGE>
1. The Dallas/Fort Worth area generally and the specific area in which
the Property is located were perceived as being characterized by a diverse,
stable and steadily growing economy. Accordingly, it was believed that such
economy and its anticipated growth and development would support stable
occupancy rates and reasonable increases in rents at the Property.
2. Based upon an engineering report and its own inspections, the
Advisor believes that the Property has been well maintained and is generally in
good condition, although the Advisor believes that the planned repairs and
improvements will allow future increases in rents at the Property.
3. The Company owns multiple properties in The Metroplex. Accordingly,
the Company believes that it is knowledgeable concerning the rental market and
may also benefit from certain economics in scale in the operation of its
properties.
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 will pay Cornerstone Realty Income
Trust, Inc., a property acquisition fee equal to 2% of the purchase price of the
Property, or $240,000. Cornerstone Realty Income Trust, Inc. will serve as
property manager for the Property and for its services will be paid by the
Company a monthly management fee equal to 5% of the gross revenues of the
Property plus reimbursement of certain expenses.
4
Item 2. Acquisition or Disposition of Assets
COPPER RIDGE APARTMENTS
Fort Worth, Texas
On March 31, 1998, Apple REIT Limited Partnership (together with its
parent company, Apple Residential Income Trust, Inc., the "Company") purchased
the Copper Ridge Apartments located at 5643 Bellaire Drive South in Fort Worth,
Texas (the "Property"). The Property comprises 200 apartment units. The purchase
price for the Property was $4,525,000. The seller was Copper Limited
Partnership, a Missouri limited partnership which was not affiliated with the
Company, Apple Residential Advisors, Inc. or their Affiliates. The entire
purchase price was paid using proceeds from the sale of common shares of Apple
Residential Income Trust, Inc. Title to the Property was conveyed to the Company
by limited warranty deed.
The Property is adjacent to the Copper Crossing Apartments, which were
purchased by the Company in November 1997. These two properties will be operated
by the Company as a single property under the name "Copper Crossing Apartments."
LOCATION. The Property is located off of Bryant-Irvin Highway in Fort
Worth, Texas, in Tarrant County, which is part of the greater Dallas/Fort Worth
Consolidated Metropolitan Statistical Area, or as it is called locally, "The
Metroplex." The following information is based in part upon information provided
by the Dallas Chamber of Commerce.
The Dallas/Fort Worth Metroplex is in the north-central part of Texas
and is composed of nine counties. The 1996 population of The Metroplex was
approximately 4,400,000. Dallas is the second largest city in the state, behind
Houston.
The economy of the Dallas/Fort Worth area is complex and diversified.
Key economic factors include a large manufacturing base (including as products
military hardware, electronics, automobiles, industrial equipment, oil-field
parts, food products and chemicals), banking, insurance services,
communications, oil and gas production and air transportation. Major employers
in the area include Texas Instruments, Southwestern Bell, General Motors, J.C.
Penney, NationsBank and Vought Aircraft Company.
The Metroplex is also an established transportation center for the
nation. The Dallas/Fort Worth International Airport occupies approximately
17,800 acres of land between the two cities. It is the largest commercial
airport in the United States in terms of land area, and is the fourth busiest
airport in the world, with 1,700 daily arrivals and departures.
The area also has a well-established system of interstate highways and
supporting secondary routes. The Metroplex is located at the hub of Interstates
35, 45, 20 and 30. Two
<PAGE>
outer loops, Interstate 635 in Dallas and Interstate 820 in Fort Worth, surround
the respective cities.
The many institutions of higher learning in the area include Southern
Methodist University, the University of Texas at Dallas, the University of Texas
at Arlington, the University of North Texas, and Texas Christian University.
The immediate area surrounding the Property consists of other
multi-family housing, single-family housing, commercial and retail development.
The Property is located near restaurants, businesses, schools, and churches, and
is readily accessible from Interstate 20, Highway 183 and Interstate 820, which
are the major highways in the area.
The Property is close to Hulen Mall, a major regional mall. This
regional mall has spurred significant construction and corresponding retail
growth in the Hulen Mall/Benbrook area. The Property is an approximately
30-minute drive from the Dallas/Fort Worth International Airport, an
approximately 15-minutes drive from the Fort Worth central business district and
an approximately 30-minute drive from the Dallas central business district.
DESCRIPTION OF THE PROPERTY. The Property consists of 200 garden-style
apartment units in 15 two-story buildings on approximately seven acres of land.
The Property was constructed in 1980.
The Property offers six different unit types. The unit mix and rents
being charged new tenants as of March 1998 are as follows:
<TABLE>
<CAPTION>
Approximate Interior
Quantity Type Square Footage Monthly Rental
-------- ---- -------------- --------------
<S> <C> <C> <C> <C> <C>
64 One bedroom, one 651 $410-455
bathroom
48 One bedroom, one 732 435-460
bathroom
16 One bedroom, one 878 490-560
bathroom with den
32 Two bedrooms, two 918 540-560
bathrooms
24 Two bedrooms, two 945 555-600
bathrooms
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Approximate Interior
Quantity Type Square Footage Monthly Rental
-------- ---- -------------- --------------
<S> <C> <C> <C> <C> <C>
16 Two bedrooms, two 1,110 650-675
bathrooms with den
</TABLE>
The apartments provide a total of approximately 160,000 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 capital improvements to the Property.
These repairs and improvements will include clubhouse renovations, exterior
painting and wood replacement.
Leases at the Property are generally for terms of one year or less.
Average rental rates for the past five years have generally increased. As an
example, a two-bedroom, two-bathroom apartment unit (918 square feet) rented for
$420 in 1993, $430 in 1994, $440 in 1995, $450 in 1996, and $450 in 1997. The
average effective annual rental per square foot at the Property for 1993, 1994,
1995, 1996, 1997, was $5.73, $5.87, $6.01, $6.14, and $6.14, respectively.
The buildings are wood-frame construction with a combination of brick
veneer and hardboard ship-lap siding on reinforced concrete slab foundations.
Roofs are sloped fiberglass shingled on plywood.
The Property has an outdoor swimming pool, laundry facility and
barbecue areas. There is also a clubhouse with a leasing office. There is ample
paved parking for the tenants.
All apartment units have wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bathrooms. Each apartment unit has a cable
television hook-up and an individually controlled heating and air conditioning
unit. Each kitchen is equipped with a refrigerator/freezer, electric range and
oven, dishwasher and garbage disposal. Each apartment unit has a woodburning
fireplace, a screened patio or balcony, ceiling fans, miniblinds and a
pass-through bar, and some of the apartment units have washer/dryer connections.
The owner of the Property pays for cold water, gas usage for hot water, sewer
service and trash removal. Tenants pay for their own electricity service, which
includes cooking, lighting, heating and air conditioning.
There are at least five other apartment properties that compete with
the Property. All offer similar amenities and generally have rents that are
comparable to those of the Property. Based on a recent telephone survey, the
Advisor estimates that occupancy in the nearby competing properties now averages
approximately 94%.
3
<PAGE>
According to information provided by the seller, physical occupancy at
the Property averaged approximately 92% in 1996 and 91% in 1997.Information for
earlier periods is not available. As of March 31, 1998, the Property was 90 %
occupied. The tenants are a mix of white- collar workers, blue-collar workers,
students and retired persons.
The following table sets forth the 1997 real estate tax information of
the Property:
<TABLE>
<CAPTION>
Assessed
Jurisdiction Value Rate Tax
------------ ----- ---- ---
<S> <C> <C> <C>
County of Tarrant $3,537,000 $2.01160 $71,150.15
City of Benbrook 3,537,000 0.78500 27,765.45
Total $98,915.60
</TABLE>
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $3,796,661) will be depreciated over 27.5
years on a straight-line basis. The basis of the personal property portion will
be depreciated in accordance with the modified accelerated cost recovery system
of the Code. Amounts to be spent by the Company on repairs and improvements will
be treated for tax purposes as permitted by the Code based on the nature of the
expenditures.
The Advisor and the Company believe that the Property is and will
continue to be adequately covered by property and liability insurance.
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 Dallas/Fort Worth area generally and the specific area in which
the Property is located were perceived as being characterized by a diverse,
stable and steadily growing economy. Accordingly, it was believed that such
economy and its anticipated growth and development would support stable
occupancy rates and reasonable increases in rents at the Property.
2. Based upon an engineering report and its own inspections, the
Advisor believes that the Property has been well maintained and is generally in
good condition, although the Advisor believes that the planned repairs and
improvements will allow an increase in rents at the Property.
3. The Property is strategically located in the "Hulen Mall/Benbrook
area," which is one of the most commercially active areas in the Metroplex. In
addition, the Company and the Advisor believe that the combination and operation
of the Property with the adjacent Copper Crossing Apartments will offer
operational efficiencies and competitive advantages.
ACQUISITION AND MANAGEMENT SERVICES AND FEES. In consideration of
services rendered to the Company in connection with the selection and
acquisition of the Property, the Company will pay Cornerstone Realty Income
Trust, Inc. a property acquisition fee equal to 2% of the purchase price of the
Property, or $90,500. Cornerstone Realty Income Trust, Inc. will serve as
property manager for the Property and for its services will be paid by the
Company a monthly management fee equal to 5% of the gross revenues of the
Property plus reimbursement of certain expenses.
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.
4
Item 2. Acquisition or Disposition of Assets
BITTER CREEK APARTMENTS
Grand Prairie, Texas
On May 8, 1998, Apple REIT Limited Partnership (together with its
parent company, Apple Residential Income Trust, Inc., the "Company") purchased
the Bitter Creek Apartments located at 2934 Alouette in Grand Prairie, Texas
(the "Property").
The Property comprises 472 apartment units. The purchase price for the
Property was $13,505,000. The seller was Bitter Creek, L.P., a Texas limited
partnership which was not affiliated with the Company, Apple Residential
Advisors, Inc. (the "Advisor") or their affiliates. The purchase price was paid
entirely in cash using proceeds from the sale of common shares of the Company.
Title to the Property was conveyed to the Company by limited warranty deed.
LOCATION. The Property is located on Highway 360 in Grand Prairie,
Texas, in Tarrant County, which is part of the greater Dallas/Fort Worth
Consolidated Metropolitan Statistical Area, or as it is called locally, "The
Metroplex." 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
<PAGE>
outer loops, Interstate 635 in Dallas and Interstate 820 in Fort Worth, surround
the respective cities.
The many institutions of higher learning in the area include Southern
Methodist University, the University of Texas at Dallas, the University of Texas
at Arlington, the University of North Texas, and Texas Christian University.
The immediate area surrounding the Property consists of other
multi-family housing, single-family housing, commercial and retail development.
The Property is an approximately 10-minute drive from the Dallas/Fort Worth
International Airport, an approximately 20-minute drive from downtown Fort Worth
and an approximately 20-minute drive from downtown Dallas.
DESCRIPTION OF THE PROPERTY. The Property consists of 472 apartment
units in 36 buildings on approximately 20.7 acres of land. The Property was
constructed in 1982.
The Property offers five different unit types. The unit mix and rents
being charged new tenants as of March 1998 are as follows:
<TABLE>
<CAPTION>
Approximate Interior
Quantity Type Square Footage Monthly Rental
-------- ---- -------------- --------------
<S> <C> <C> <C>
48 One bedroom, one 600 $439
bathroom
192 One bedroom, one 720 459
bathroom
128 Two bedrooms, two 950 529
bathrooms
72 Two bedrooms, two 1,000 579
bathrooms
32 Three bedrooms, two 1,150 699
bathrooms
</TABLE>
All unit types are available with a fireplace for an extra $10 per
month. The apartments provide a total of approximately 397,000 square feet of
net rentable area.
2
<PAGE>
The Company believes that the Property has generally been well
maintained and is in good condition. However, the Company has budgeted
approximately $354,000 for repairs and capital improvements to the Property.
These repairs and improvements will include clubhouse renovations, exterior
painting and wood replacement, interior upgrades and a new fitness center.
The following information is provided by the seller. Physical occupancy
at the property averaged approximately 94% in 1993, 92% in 1994, 91% in 1995,
92% in 1996 and 96% in 1997. Leases at the property are generally for terms of
one year or less. Average rental rates for the past five years have generally
increased. As an example, a two-bedroom, two-bathroom apartment (1,000 square
feet) rented for $499 in 1993, $509 in 1994, $519 in 1995, $529 in 1996 and $539
in 1997. The average effective annual rental per square foot at the property for
1993, 1994, 1995, 1996 and 1997 was $6.83, 6.96, 7.10, 7.24, and 7.37,
respectively.
The Property has two outdoor swimming pools with fountains, a tennis
court, four laundry facilities and a sand volleyball court. There is also a
clubhouse with a kitchen, entertainment area and a leasing office.
The buildings are wood-frame construction with a combination of brick
veneer and masonite hardboard on concrete slab foundations. Roofs are pitched
and covered with fiberglass shingled on plywood.
Each apartment unit has wall-to-wall carpeting in the living area and
vinyl floors in the kitchen and bath. Each apartment unit has a cable television
hook-up and an individually controlled heating and air-conditioning unit. Each
kitchen has a refrigerator/freezer, electric range and oven, dishwasher and
garbage disposal. Each unit (except the smallest one-bedroom unit) has
full-sized washer/dryer connections. A total of 232 units have woodburning
fireplaces, and each second-floor unit has vaulted ceilings. Each unit has
walk-in closets, outside storage, a covered balcony or patio and ceiling fans.
The owner of the property pays for cold water, sewer charges, gas (for hot
water) and trash removal. The tenants pay for electricity service, which
includes cooking, lighting, heating and air-conditioning.
There are at least 12 apartment properties that compete with the
Property. All offer similar amenities and generally have rents that are
comparable to those of the Property. Based on a recent telephone survey, the
Advisor estimates that occupancy at nearby competing properties averaged
approximately 92% at March 31, 1998.
As of April 14, 1998, the Property was approximately 92% occupied.
3
<PAGE>
The following table sets forth the 1997 real estate tax information on
the Property:
<TABLE>
<CAPTION>
Assessed
Jurisdiction Value Rate Tax
------------ ----- ---- ---
<S> <C> <C> <C>
County of Tarrant $8,700,000 $1.99520 $173,582.05
City of Grand Prairie 8,929,790 0.68000 60,722.40
Total $234,304.45
</TABLE>
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $10,526,521) will be depreciated over
27.5 years on a straight-line basis. The basis of the personal property portion
will be depreciated in accordance with the modified accelerated cost recovery
system of the 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.
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 Dallas/Fort Worth area generally and the specific area in which
the Property is located were perceived as being characterized by a diverse,
stable and steadily growing economy. Accordingly, it was believed that such
economy and its anticipated growth and development would support stable
occupancy rates and reasonable increases in rents at the Property.
2. Based upon an engineering report and its own inspections, the
Advisor believes that the Property has been well maintained and is generally in
good condition, although the Advisor believes that the planned repairs and
improvements will allow an increase in rents at the Property.
3. The Property has an advantageous location - approximately mid-way
between Dallas and Fort Worth and near the Dallas/Fort Worth International
Airport - and is located in a rapidly-growing area proximate to centers of
employment and retail development.
ACQUISITION AND MANAGEMENT SERVICES AND FEES. In consideration of
services rendered to the Company in connection with the selection and
acquisition of the Property, the Company paid Cornerstone Realty Income Trust,
Inc. a property acquisition fee equal to 2% of the purchase price of the
property, or $270,000. Cornerstone Realty Income Trust, Inc. will serve as
property manager for the Property and for its services will be paid by the
Company a
4
<PAGE>
monthly management fee equal to 5% of the gross revenues of the Property plus
reimbursement of certain expenses.
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.
5
Item 2. Acquisition or Disposition of Assets
SUMMER TREE APARTMENTS
North Dallas, Texas
On June 2, 1998, Apple REIT Limited Partnership (together with its
parent companies, Apple Residential Income Trust, Inc., Apple General, Inc. and
Apple Limited, Inc., the "Company") purchased the Summer Tree Apartments located
at 13250 Emily Road in North Dallas, Texas (the "Property").
The Property comprises 232 apartment units. The purchase price for the
Property was $5,700,000. The seller was Sunrise Enterprises, Inc., a Texas
corporation which was not affiliated with the Company, Apple Residential
Advisors, Inc. (the "Advisor") or their affiliates. The purchase price was paid
entirely in cash using proceeds from the sale of Shares of the Company. Title to
the Property was conveyed to the Company by limited warranty deed.
LOCATION. The Property is located on Emily Road on the north side of
Interstate 635 (L.B.J. Freeway), and just west of U.S. Highway 75 (Central
Expressway) in North Dallas, Texas. The Property is located within the 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.
<PAGE>
The area also has a well-established system of interstate highways and
supporting secondary routes. The Metroplex is located at the hub of Interstates
35, 45, 20 and 30. Two outer loops, Interstate 635 in Dallas and Interstate 820
in Fort Worth, surround the respective cities.
The many institutions of higher learning in the area include Southern
Methodist University, the University of Texas at Dallas, the University of Texas
at Arlington, the University of North Texas, and Texas Christian University.
The immediate neighborhood surrounding the Property consists of other
multi-family and single-family housing and commercial and retail development.
The Property is located approximately one-quarter mile from a
multi-billion-dollar Texas Instruments facility. The Property is proximate to
other businesses, restaurants, schools and churches and is readily accessible
from Interstate 635 and Highway 75. The Property is an approximately 20-minute
drive from Dallas/Fort Worth International Airport and an approximately
15-minute drive from downtown Dallas.
DESCRIPTION OF THE PROPERTY. The Property consists of 232 garden-style
apartment units in 11 two and three story buildings on approximately six acres
of land. The Property was constructed in 1980.
The Property offers four different unit types. The unit mix and rents
being charged new tenants as of June 1998 are as follows:
APPROXIMATE INTERIOR
QUANTITY TYPE SQUARE FOOTAGE MONTHLY RENTAL
-------- ---- -------------- --------------
96 One bedroom, one bathroom 481 $439
48 One bedroom, one bathroom 575 464
72 One bedroom, one bathroom 622 484
16 Two bedrooms, two bathrooms 933 659
The apartments provide a total of approximately 133,500 square feet of
net rentable area.
The Company believes that the Property has generally been well
maintained and is in good condition. However, the Company has budgeted
approximately $348,000 for repairs and improvements to the Property to include
clubhouse renovations, exterior painting, pool renovations, sign replacement and
interior upgrades.
2
<PAGE>
The following information is provided by the seller. Physical occupancy
at the Property averaged approximately 94% in 1993, 94% in 1994, 96% in 1995,
96% in 1996 and 97% in 1997. Leases at the Property are generally for terms of
one year or less. Average rental rates for the past five years have generally
increased. As an example, a one-bedroom, one-bathroom apartment (622 square
feet) rented for $390 in 1993, $424 in 1994, $444 in 1995, $454 in 1996 and $484
in 1997. The average effective annual rental per square foot at the Property for
1993, 1994, 1995, 1996 and 1997 was $7.97, $8.67, $9.07, $9.28, and $9.89,
respectively.
The Property has an outdoor swimming pool, a fitness center, a laundry
facility and card- accessed entrance gates. The Property also has a clubhouse
with a kitchen, entertainment area and leasing office. There is ample paved
parking for tenants.
The buildings are wood frame construction with a combination of brick
veneer, stucco and wood lap siding on concrete slab foundations. Roofs are
pitched and covered with asphalt shingles on plywood sheathing.
Each apartment unit has wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath. Each apartment unit has a cable television
hook-up and individually controlled heating and air-conditioning unit. Each
kitchen has a refrigerator/freezer, electric range and oven, dishwasher,
microwave oven and garbage disposal. All units have washer/dryer connections and
all units except the smallest one-bedroom units have a wood-burning fireplace.
The owner of the Property pays for cold water, sewer charges, gas (for hot
water) and trash removal. The tenants pay for their electricity service, which
includes cooking, lighting, heating and air-conditioning.
There are at least eight apartment properties that compete with the
Property. All offer similar amenities and generally have rents that are
comparable to those of the Property. Based on a recent telephone survey, the
Advisor estimates that occupancy at nearby competing properties averaged
approximately 97% on May 31, 1998.
As of May 31, 1998, the Property was approximately 98% occupied. The
tenants are primarily a mix of white-collar and blue-collar workers.
3
<PAGE>
The following table sets forth the 1997 real estate tax information on
the Property:
JURISDICTION ASSESSED VALUE RATE TAX
------------ -------------- ---- ---
County of Dallas . . . . . . . $4,423,510 $0.44307 $19,599.25
City of Dallas . . . . . . . . 4,423,510 0.65160 28,823.59
Richardson I.S.D. . . . . . . . 4,423,510 1.60000 70,776.16
----------
Total . . . . . . . . . . $119,199.00
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $2,738,537) will be depreciated over 27.5
years on a straight-line basis. The basis of the personal property portion will
be depreciated in accordance with the modified accelerated cost recovery system
of the Code. Amounts to be spent by the Company on repairs and improvements will
be treated for tax purposes as permitted by the Code based on the nature of the
expenditures.
The Advisor and the Company believe that the property is and will
continue to be adequately covered by property and liability insurance.
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 Dallas/Fort Worth area generally and the specific area in which
the Property is located were perceived as being characterized by a diverse,
stable and steadily growing economy. Accordingly, it was believed that such
economy and its anticipated growth and development would support stable
occupancy rates and reasonable increases in rents at the Property.
2. Based upon an engineering report and its own inspections, the
Advisor believes that the Property has been well maintained and is generally in
good condition, although the Advisor believes that the planned repairs and
improvements will allow an increase in rents at the Property.
3. The Property has an advantageous location - convenient to the
Dallas/Fort Worth International Airport and downtown Dallas - and is located in
a rapidly-growing area proximate to centers of employment and retail
development.
ACQUISITION AND MANAGEMENT SERVICES AND FEES. In consideration of
services rendered to the Company in connection with the selection and
acquisition of the Property, the Company paid Cornerstone Realty Income Trust,
Inc. a property acquisition fee equal to 2% of the purchase price
4
<PAGE>
of the property, or $114,000. Cornerstone Realty Income Trust, Inc. will serve
as property manager for the Property and for its services will be paid by the
Company a monthly management fee equal to 5% of the gross revenues of the
Property plus reimbursement of certain expenses.
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.
5
Item 2. Acquisition or Disposition of Assets
PARK VILLAGE APARTMENTS
Bedford, Texas
On July 1, 1998, Apple REIT Limited Partnership (together with its
parent companies, Apple Residential Income Trust, Inc., Apple General, Inc. and
Apple Limited, Inc., the "Company") purchased the Park Village Apartments
located at 2401 L. Don Dodson Drive, in Bedford, Texas (the "Property").
The Property comprises 238 apartment units. The purchase price for the
Property was $7,000,000. The seller was Park Village Investment Partnership, a
Texas limited partnership which was not affiliated with the Company, Apple
Residential Advisors, Inc. (the "Advisor") or their affiliates. The purchase
price was paid entirely in cash using proceeds from the sale of Shares of the
Company. Title to the Property was conveyed to the Company by limited warranty
deed.
LOCATION. The Property is located on L. Don Dodson Drive off of Central
Drive just north of Airport Freeway (Highway 183) in Bedford, Texas. 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.
<PAGE>
The area also has a well-established system of interstate highways and
supporting secondary routes. The Metroplex is located at the hub of Interstates
35, 45, 20 and 30. Two outer loops, Interstate 635 in Dallas and Interstate 820
in Fort Worth, surround the respective cities.
The many institutions of higher learning in the area include Southern
Methodist University, the University of Texas at Dallas, the University of Texas
at Arlington, the University of North Texas, and Texas Christian University.
The immediate neighborhood surrounding the Property consists of other
multi-family and single-family housing and commercial and retail development.
The Property is proximate to businesses, restaurants, schools and churches and
is readily accessible from Interstates 121, 360 and 183. The Property is an
approximately 10-minute drive from Dallas/Fort Worth International Airport and
an approximately 20-minute drive from either downtown Dallas or Fort Worth.
DESCRIPTION OF THE PROPERTY. The Property consists of 238 garden-style
apartment units in 23 two story buildings on approximately ten acres of land.
The Property was constructed in 1983.
The Property offers six different unit types. The unit mix and rents
being charged new tenants as of June 1998 are as follows:
<TABLE>
<CAPTION>
APPROXIMATE INTERIOR
QUANTITY TYPE SQUARE FOOTAGE MONTHLY RENTAL
-------- ---- -------------- --------------
<S> <C> <C> <C> <C>
48 One Bedroom/One Bath 456 $390
64 One Bedroom/One Bath 521 420
62 One Bedroom/One Bath 669 495
32 One Bedroom/One Bath/Den 841 580
16 Two Bedroom/Two Bath 920 625
16 Two Bedroom/Two Bath 983 670
</TABLE>
The apartments provide a total of approximately 154,070 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 $238,000 for repairs and
2
<PAGE>
improvements to the Property to include clubhouse renovations, exterior
painting, sign replacement and interior upgrades.
The following information is provided by the seller. Physical occupancy
at the Property averaged approximately 95% in 1993, 97% in 1994, 97% in 1995,
96% in 1996 and 96% in 1997. Leases at the Property are generally for terms of
one year or less. Average rental rates for the past five years have generally
increased. As an example, a two-bedroom, two-bathroom apartment (983 square
feet) rented for $560 in 1993, $560 in 1994, $580 in 1995, $605 in 1996 and $630
in 1997. The average effective annual rental per square foot at the Property for
1993, 1994, 1995, 1996 and 1997 was $7.58, $7.58, $7.85, $8.14, and $8.53,
respectively.
The Property has an outdoor swimming pool, hot tub and two laundry
facilities. The Property also has a clubhouse with a leasing office. There is
ample paved parking for tenants.
The buildings are wood frame construction with a combination of brick
veneer, stucco and wood siding on concrete slab foundations. Roofs are pitched
composition.
Each apartment unit has wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath. Each apartment unit has smoke detectors, a
cable television hook-up and individually controlled heating and
air-conditioning unit. Each kitchen has a refrigerator/freezer, electric range
and oven, dishwasher, and garbage disposal. All units except the smallest
one-bedroom units have washer/dryer connections and a wood-burning fireplace.
The owner of the Property pays for cold water, sewer charges, gas (for hot
water) and trash removal. The tenants pay for their electricity service, which
includes cooking, lighting, heating and air-conditioning.
There are at least seven apartment properties that compete with the
Property. All offer similar amenities and generally have rents that are
comparable to those of the Property. Based on a recent telephone survey, the
Advisor estimates that occupancy at nearby competing properties averaged
approximately 94% on July 1, 1998.
As of July 1, 1998, the Property was approximately 97% occupied. The
tenants are primarily a mix of white-collar and blue-collar workers and retired
persons.
3
<PAGE>
The following table sets forth the 1997 real estate tax information on
the Property:
<TABLE>
<CAPTION>
JURISDICTION ASSESSED VALUE RATE TAX
------------ -------------- ---- ---
<S> <C> <C> <C>
County of Tarrant ................................. $5,392,450 $ .264836 $14,281.15
City of Bedford ................................... 5,392,450 0.369000 19,898.14
T C Hospital ...................................... 5,392,450 0.234070 12,622.11
T C Jr. College ................................... 5,392,450 0.057690 3,110.90
H-E-B I.S.D. ..................................... 5,392,450 1.606257 86,616.61
----------
Total ........................................ $136,528.91
</TABLE>
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $6,165,062 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.
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 Dallas/Fort Worth area generally and the specific area in which
the Property is located were perceived as being characterized by a diverse,
stable and steadily growing economy. Accordingly, it was believed that such
economy and its anticipated growth and development would support stable
occupancy rates and reasonable increases in rents at the Property.
2. Based upon an engineering report and its own inspections, the
Advisor believes that the Property has been well maintained and is generally in
good condition, although the Advisor believes that the planned repairs and
improvements will allow an increase in rents at the Property.
3. The Property has an advantageous location - convenient to the
Dallas/Fort Worth International Airport and downtown Dallas and Fort Worth - and
is located in a rapidly-growing area proximate to centers of employment and
retail development.
4
<PAGE>
ACQUISITION AND MANAGEMENT SERVICES AND FEES. In consideration of
services rendered to the Company in connection with the selection and
acquisition of the Property, the Company paid Cornerstone Realty Income Trust,
Inc. a property acquisition fee equal to 2% of the purchase price of the
property, or $140,000. Cornerstone Realty Income Trust, Inc. will serve as
property manager for the Property and for its services will be paid by the
Company a monthly management fee equal to 5% of the gross revenues of the
Property plus reimbursement of certain expenses.
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.
5
Item 2. Acquisition or Disposition of Assets
All references herein to the "Company" include Apple Residential Income
Trust, Inc. and its subsidiaries, Apple REIT Limited Partnership, Apple REIT II
Limited Partnership, Apple REIT III Limited Partnership, Apple REIT IV Limited
Partnership, Apple REIT V Limited Partnership and Apple REIT VI Limited
Partnership.
COTTONWOOD CROSSING APARTMENTS
Grand Prairie, Texas
On July 9, 1998, Apple REIT Limited Partnership purchased the
Cottonwood Crossing Apartments located at 2105 Cottonwood Club, in Arlington,
Texas (the "Property").
The Property comprises 200 apartment units. The purchase price for the
Property was $5,700,000. The seller was Cottonwood Realty Associates, a New York
general partnership which was not affiliated with the Company, Apple Residential
Advisors, Inc. (the "Advisor") or their affiliates. The purchase price was paid
using proceeds from the sale of Shares of the Company. Title to the Property was
conveyed to the Company by limited warranty deed.
LOCATION. The Property is located on Cottonwood Club off of Pioneer
Parkway (Spur 303), a major east/west thoroughfare in Arlington, Texas. The
Property is located within the greater Dallas/Forth 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.
<PAGE>
The area also has a well-established system of interstate highway and
supporting secondary routes. The Metroplex is located at the hub of Interstates
35, 45, 20 and 30. Two outer loops, Interstate 635 in Dallas and Interstate 820
in Fort Worth, surround the respective cities.
The many institutions of higher learning in the area include Southern
Methodist University, the University of Texas at Dallas, the University of Texas
at Arlington, the University of North Texas, and Texas Christian University.
The immediate neighborhood surrounding the Property consists of other
multi-family and single-family housing and commercial and retail development.
The Property is conveniently located near fine restaurants, businesses, schools
and churches and is readily available from Interstates 360, 20 and 30, the
Arlington area interstates. The Property is an approximately 20- minute drive
from Dallas/Fort Worth International Airport, an approximately 15-minute drive
from downtown Fort Worth and an approximately 30-minute drive from downtown
Dallas.
DESCRIPTION OF THE PROPERTY. The Property consists of 200 apartment
units in 10 buildings on approximately 6.8 acres of land. The Property was
constructed in 1985.
The Property offers four different unit types. The unit mix and rents
being charged new tenants as of July 1998 are as follows:
<TABLE>
<CAPTION>
APPROXIMATE INTERIOR
QUANTITY TYPE SQUARE FOOTAGE MONTHLY RENTAL
-------- ---- -------------- --------------
<S> <C> <C> <C> <C>
100 One bedroom, one bathroom 628 $400
52 One bedroom, one bathroom 868 545
w/den
8 Two bedrooms, one bathroom 868 555
40 Two bedrooms, two bathrooms 883 575
</TABLE>
The apartments provide a total of approximately 150,200 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 $300,000 for repairs and capital improvements to the Property to
include clubhouse renovations, exterior painting, landscaping and interior
upgrades.
The following information was provided by the seller. Physical
occupancy at the Property averaged approximately 92% in 1993, 94% in 1994, 95%
in 1995, 96% in 1996 and 96% in 1997. Leases at the Property are generally for
terms of one year or less. Average rental rates
2
<PAGE>
for the past five years have generally increased. As an example, a one-bedroom,
one- bathroom apartment (868 square feet) rented for $440 in 1993, $455 in 1994,
$455 in 1995, $465 in 1996 and $475 in 1997. The average effective annual rental
per square foot at the Property for 1993, 1994, 1995, 1996 and 1997 was $6.19,
$6.40, $6.40, $6.54, and $6.68, respectively.
The Property has an outdoor swimming pool with a fountain and a
clubhouse with a leasing office. The buildings are wood framed construction with
a combination of brick veneer and wood siding on concrete slab foundations.
Roofs are pitched composition.
Each apartment unit has wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath. Each apartment unit has a cable television
hook-up and individually controlled heating and air-conditioning unit. Each
kitchen has a refrigerator/freezer, electric range and oven, dishwasher and
garbage disposal. All of the units include ceiling fans, french patio doors,
full size washer/dryer connections, fireplace, a patio or balcony and outside
storage. The owner of the Property pays for cold water, sewer charges, gas (for
hot water) and trash removal. The tenants pay for their electricity service,
which includes cooking, lighting, heating and air-conditioning.
There are at least three apartment properties that compete with the
Property. All offer similar amenities and generally have rents that are
comparable to those of the Property. Based on a recent telephone survey, the
Advisor estimates that occupancy at nearby competing properties averaged
approximately 97% on June 30, 1998.
As of June 30, 1998, the Property was approximately 89% occupied. The
tenants are primarily a mix of blue-collar and white-collar workers, students
and retired persons.
The following table sets forth the 1997 real estate tax information on
the Property:
<TABLE>
<CAPTION>
JURISDICTION ASSESSED VALUE RATE TAX
------------ -------------- ---- ---
<S> <C> <C> <C>
County of Tarrant . . . . . . . . . . . . $4,700,000 $1.9952 $ 93,774.21
City of Arlington . . . . . . . . . . . . . $4,700,000 $0.6380 $ 29,986.00
-----------
Total . . . . . . . . . . . . . . . . $123,760.21
</TABLE>
The basis of the depreciable residential real property portion of the
Property (approximately $5,248,575 at the time of acquisition) 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.
3
<PAGE>
The Advisor and the Company believe 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 Company to be relevant in evaluating the Property for
acquisition by the Company included the following:
1. The Dallas/Fort Worth area generally and the specific area in which
the Property is located were perceived as being characterized by a diverse,
stable and steadily growing economy. Accordingly, it was believed that such
economy and its anticipated growth and development would support stable
occupancy rates and reasonable increase in rents at the Property.
2. Based upon an engineering report and its own inspections, the
Advisor believes that the Property has been well maintained and is generally in
good condition, although the Advisor believes that the planned repairs and
improvements will allow an increase in rents at the Property.
3. The Property has an advantageous location - between Dallas and Fort
Worth, and near the Dallas/Fort Worth International Airport - and is located in
a rapidly-growing area proximate to centers of employment and retail
development.
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 the 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, Cornerstone Realty Income Trust, Inc. earned a
property acquisition fee equal to 2% of the purchase price of the property, or
$114,000.
Cornerstone Realty Income Trust, Inc. will serve as property manager
for the Property and for its services will be paid by the Company a monthly
management fee equal to 5% of the gross revenues of the Property plus
reimbursement of certain expenses.
PACE'S POINT APARTMENTS
Lewisville, Texas
On July 17, 1998, Apple REIT V Limited Partnership purchased the Pace's
Point Apartments located at 247 East Corporate Drive, in Lewisville, Texas (the
"Property").
The Property comprises 300 apartment units. The purchase price for the
Property was $11,405,000. The seller was Corporate Drive, L.P., a Texas limited
partnership which was not affiliated with the Company, the Advisor or their
affiliates. The purchase price was paid through a combination of (i)
approximately $3,691,383 in cash using proceeds from the sale of the Shares of
the Company and (ii) approximately $7,713,617 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 $7,836,000 held by the Federal National Mortgage
Association ("Fannie Mae"). On July 17, 1998, the outstanding principal balance
of the mortgage loan was $7,713,616.57. The interest on the mortgage loan is
8.555% per annum; amortization is based on a 30-year amortization term; and
prepayments are permitted upon notice and payment of a prepayment premium based
on a yield maintenance formula contained in the loan documents. The maturity
date of the mortgage loan is July, 1, 2003, and the balance due at maturity,
assuming no payment has been made on principal in advance of its due date, is
$7,307,129.73
4
<PAGE>
LOCATION. The Property is located on East Corporate Drive in
Lewisville, Texas. The Property is located within "The Metroplex." For
information on The Metroplex, see under "Cottonwood Crossing Apartments" above.
The immediate neighborhood surrounding the Property consists of other
multi-family and single-family housing and commercial and retail development.
The Property is an approximately 15-minute drive from Dallas/Fort Worth
International Airport, an approximately 25-minute drive from downtown Dallas and
an approximately 20-minute drive from downtown Fort Worth.
DESCRIPTION OF THE PROPERTY. The Property consists of 300 apartment
units in 14 buildings on approximately 12.6 acres of land. The Property was
constructed in 1985.
The Property offers six different unit types. The unit mix and rents
being charged new tenants as of July 1998 are as follows:
<TABLE>
<CAPTION>
APPROXIMATE INTERIOR
QUANTITY TYPE SQUARE FOOTAGE MONTHLY RENTAL
-------- ---- -------------- --------------
<S> <C> <C> <C> <C> <C>
36 One bedroom, one bathroom 535 $479 - 499
24 One bedroom, one bathroom 581 499 - 519
84 One bedroom, one bathroom 683 539 - 559
40 One bedroom, one bathroom 779 599 - 619
with den
56 Two bedrooms, two bathrooms 875 649 - 669
60 Two bedrooms, two bathrooms 966 689 - 709
</TABLE>
The apartments provide a total of approximately 229,000 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 $225,000 for repairs and capital improvements to the Property to
include clubhouse renovations, additional landscaping and interior upgrades.
The following information was provided by the seller. Physical
occupancy at the Property averaged approximately 94% in 1993, 95% in 1994, 96%
in 1995, 96% in 1996 and 96% in 1997. Leases at the Property are generally for
terms of one year or less. Average rental rates for the past five years have
generally increased. As an example, a one-bedroom, one- bathroom apartment (581
square feet) rented for $400 in 1993, $449 in 1994, $449 in 1995, $449 in 1996
and $469 in 1997. The average effective annual rental per square foot at
5
<PAGE>
the Property for 1993, 1994, 1995, 1996 and 1997 was $7.36, $8.26, $8.26,
$8.26, and $8.63, respectively.
The Property has two outdoor swimming pools, a jacuzzi, a sand
volleyball court, a fitness center, a sauna, 23 carports and two laundry
facilities. The Property also has a clubhouse with a leasing office.
The buildings are wood framed construction with a combination of brick
veneer and painted horizonal wood siding on concrete slab foundations. Roofs are
pitched and covered with fiberglass shingled on plywood.
Each apartment unit has wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath. Each apartment unit has a cable television
hook-up and individually controlled heating and air-conditioning unit. Each
kitchen has a refrigerator/freezer, electric range and oven, dishwasher and
garbage disposal. All units have full-sized washer/dryer connections. Some of
the units have wood-burning fireplaces, vaulted ceilings and alarm systems. Each
unit has walk-in closets, outside storage, a covered balcony or patio and
ceiling fans. The owner of the Property pays for cold water, sewer charges, gas
(for hot water) and trash removal. The tenants pay for their electricity
service, which includes cooking, lighting, heating and air-conditioning.
There are at least 15 apartment properties that compete with the
Property. All offer similar amenities and generally have rents that are
comparable to those of the Property. Based on a recent telephone survey, the
Advisor estimates that occupancy at nearby competing properties averaged
approximately 95% on June 30, 1998.
As of June 30, 1998, the Property was approximately 95% occupied. The
tenants are primarily a mix of white-collar and blue-collar workers, students
and retired persons.
The following table sets forth the 1997 real estate tax information on
the Property:
JURISDICTION ASSESSED VALUE RATE TAX
------------ -------------- ---- ---
County of Denton............... $9,389,517 $0.25590 $ 24,027.77
City of Lewisville............. $9,389,517 $1.51600 $142,345.08
Lewisville I.S.D............... $9,389,517 $0.48949 $ 45,960.75
-------------
Total................. $212,333.60
The basis of the depreciable residential real property portion of the
Property (approximately $9,633,257 at the time of acquisition) will be
depreciated over 27.5 years on a straight-line basis. The basis of the personal
property portion will be depreciated in accordance with the modified accelerated
cost recovery system of the Code. Amounts to be spent by the Company on repairs
and improvements will be treated for tax purposes as permitted by the Code based
on the nature of the expenditures.
6
<PAGE>
The Advisor and the Company believe 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 Company to be relevant in evaluating the Property for
acquisition by the Company included the following:
1. The Dallas/Fort Worth area generally and the specific area in which
the Property is located were perceived as being characterized by a diverse,
stable and steadily growing economy. Accordingly, it was believed that such
economy and its anticipated growth and development would support stable
occupancy rates and reasonable increases in rents at the Property.
2. Based upon an engineering report and its own inspections, the
Advisor believes that the Property has been well maintained and is generally in
good condition, although the Advisor believes that the planned repairs and
improvements will allow an increase in rents at the Property.
3. The Property has an advantageous location - convenient to the
Dallas/Fort Worth International Airport, downtown Dallas and downtown Fort Worth
- - and is located in a rapidly growing area proximate to centers of employment
and retail development.
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 the 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, Cornerstone Realty Income Trust, Inc. earned a
property acquisition fee equal to 2% of the purchase price of the property, or
$228,100. At closing, Cornerstone Realty Income Trust, Inc. was paid a portion
of the property acquisition fee corresponding to the portion of the purchase
price of the property paid in cash by the Company. The cash portion of the
purchase price was approximately $3,691,383, and 2% of that amount was
approximately $73,828. The balance of the property acquisition fee will be paid
if, when and as the indebtedness taken subject to at closing is repaid by the
Company.
Cornerstone Realty Income Trust, Inc. will serve as property manager
for the Property and for its services will be paid by the Company a monthly
management fee equal to 5% of the gross revenues of the Property plus
reimbursement of certain expenses.
PEPPER SQUARE APARTMENTS
North Dallas, Texas
On July 17, 1998, Apple REIT VI Limited Partnership purchased the
Pepper Square Apartments located at 6069 Beltline Road, in North Dallas, Texas
(the "Property").
The Property comprises 144 apartment units. The purchase price for the
Property was $5,205,000. The seller was Pepper Square Associates, Ltd., a Texas
limited partnership which was not affiliated with the Company, the Advisor or
their affiliates. The purchase price was paid through a combination of (i)
approximately $1,561,576 in cash using proceeds from the sale of the Shares of
the Company and (ii) approximately $3,643,424 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 $3,701,000 held by Fannie Mae. On July 17, 1998,
the outstanding principal balance of the mortgage loan was $3,643,423.53. The
interest on the mortgage loan is 8.575% per annum; amortization is based on a
30-year amortization term; and prepayments are permitted upon notice and payment
of a prepayment premium based on a yield maintenance formula contained in the
loan documents. The maturity date of the mortgage loan is July 1, 2006, and the
balance due at maturity, assuming no payment has been made on principal in
advance of its due date, is $3,312,543.23.
7
<PAGE>
LOCATION. The Property is located on Beltline Road in North Dallas,
Texas. The Property is located within "The Metroplex." For information on The
Metroplex, see under "Cottonwood Crossing Apartments" above.
The immediate neighborhood surrounding the Property consists of other
multi-family and single-family housing and commercial and retail development.
The Property is an approximately five-minute drive from Preston Mall, the
Galleria Mall and Valley View Mall. The Property is an approximately 25-minute
drive from Dallas/Fort Worth International Airport.
DESCRIPTION OF THE PROPERTY. The Property consists of 144 apartment
units in 15 buildings on approximately 5.9 acres of land. The Property was
constructed in 1978.
The Property offers six different unit types. The unit mix and rents
being charged new tenants as of July 1998 are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
QUANTITY TYPE INTERIOR SQUARE MONTHLY
-------- ---- FOOTAGE RENTAL
------- -------------
<S> <C> <C> <C> <C>
24 One bedroom, one bathroom 622 $449
32 One bedroom, one bathroom 777 499
24 One bedroom, one bathroom 888 559
32 Two bedrooms, two bathrooms 948 659
30 Two bedrooms, two bathrooms 1,044 679
2 Two bedrooms, two bathrooms 1,185 799
with sun room
</TABLE>
The apartments provide a total of approximately 126,090 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 $288,000 for repairs and capital improvements to the Property to
include clubhouse renovations, siding repair and replacement, exterior painting,
landscaping and interior upgrades.
The following information was provided by the seller. Physical
occupancy at the Property averaged approximately 94% in 1993, 93% in 1994, 95%
in 1995, 93% in 1996 and 95% in 1997. Leases at the Property are generally for
terms of one year or less. Average rental rates for the past five years have
generally increased. As an example, a one-bedroom, one-bathroom apartment (777
square feet) rented for $459 in 1993, $479 in 1994, $489 in 1995, $489 in 1996
and $499 in 1997. The average effective annual rental per square foot at
8
<PAGE>
the Property for 1993, 1994, 1995, 1996 and 1997 was $7.30, $7.61, $7.77,
$7.77, and $7.93, respectively.
The Property has an outdoor swimming pool, a weight room, a jogging
trail, 63 carports and a laundry facility. The Property also has a clubhouse
with a leasing office.
The buildings are wood framed construction with a combination of brick
veneer and painted stucco and shingled wood exterior walls on concrete slab
foundations. Roofs are pitched and covered with fiberglass shingled on plywood.
Each apartment unit has wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath. Each apartment unit has a cable television
hook-up and individually controlled heating and air-conditioning unit. Each
kitchen has a refrigerator/freezer, electric range and oven, dishwasher and
garbage disposal. Some units have a wood burning fireplace or full-sized
washer/dryer connections. Each unit has walk-in closets, outside storage, a
covered balcony or patio and ceiling fans. The owner of the Property pays for
cold water, sewer charges, gas (for hot water) and trash removal. The tenants
pay for their electricity service, which includes cooking, lighting, heating and
air-conditioning.
There are at least 13 apartment properties that compete with the
Property. All offer similar amenities and generally have rents that are
comparable to those of the Property. Based on a recent telephone survey, the
Advisor estimates that occupancy at nearby competing properties averaged
approximately 94% on June 30, 1998.
As of June 30, 1998, the Property was approximately 94% occupied. The
tenants are primarily a mix of white-collar and blue-collar workers, students
and retired persons.
The following table sets forth the 1997 real estate tax information on
the Property:
JURISDICTION ASSESSED VALUE RATE TAX
------------ -------------- ---- ---
County of Dallas...................$4,059,090 $0.44307 $ 17,984.61
City of Dallas.....................$4,059,090 $0.65160 $ 26,449.03
Dallas I.S.D.......................$4,059,090 $1.46053 $ 59,284.23
------------
Total..................... $103,717.87
The basis of the depreciable residential real property portion of the
Property (approximately $3,607,225 at the time of acquisition) will be
depreciated over 27.5 years on a straight-line basis. The basis of the personal
property portion will be depreciated in accordance with the modified accelerated
cost recovery system of the Code. Amounts to be spent by the Company on repairs
and improvements will be treated for tax purposes as permitted by the Code based
on the nature of the expenditures.
9
<PAGE>
The Advisor and the Company believe 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 Company to be relevant in evaluating the Property for
acquisition by the Company included the following:
1. The Dallas/Fort Worth area generally and the specific area in which
the Property is located were perceived as being characterized by a diverse,
stable and steadily growing economy. Accordingly, it was believed that such
economy and its anticipated growth and development would support stable
occupancy rates and reasonable increases in rents at the Property.
2. Based upon an engineering report and its own inspections, the
Advisor believes that the Property has been well maintained and is generally in
good condition, although the Advisor believes that the planned repairs and
improvements will allow an increase in rents at the Property.
3. The Property is strategically located near the Preston Mall,
Galleria Mall and Valley View Mall, and is convenient to the Dallas/Fort Worth
International Airport.
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 the 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, Cornerstone Realty Income Trust, Inc. earned a
property acquisition fee equal to 2% of the purchase price of the property, or
$104,100. At closing, Cornerstone Realty Income Trust, Inc. was paid a portion
of the property acquisition fee corresponding to the portion of the purchase
price of the property paid in cash by the Company. The cash portion of the
purchase price was approximately $1,561,576, and 2% of that amount was
approximately $31,232. The balance of the property acquisition fee will be paid
if, when and as the indebtedness taken subject to at closing is repaid by the
Company.
Cornerstone Realty Income Trust, Inc. will serve as property manager
for the Property and for its services will be paid by the Company a monthly
management fee equal to 5% of the gross revenues of the Property plus
reimbursement of certain expenses.
EMERALD OAKS APARTMENTS
Grapevine, Texas
On July 24, 1998, Apple REIT II Limited Partnership purchased the
Emerald Oaks Apartments located at 2100 Grayson Drive, in Grapevine, Texas (the
"Property").
The Property comprises 250 apartment units. The purchase price for the
Property was $10,930,000. The seller was Newemerald Texas, Ltd., a Texas limited
partnership which was not affiliated with the Company, the Advisor or their
affiliates. The purchase price was paid through a combination of (i)
approximately $4,244,294 in cash using proceeds from the sale of the Shares of
the Company and (ii) approximately $6,685,706 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 $9,650,000 held by Fannie Mae. On July 24, 1998,
the outstanding principal balance of the mortgage loan was $6,685,706.08. The
interest on the mortgage loan is 6.75% per annum; amortization is based on a
30-year amortization term; and prepayments are permitted under the following
circumstances: after May 1, 2001 to April 30, 2002 at 102% of the principal
balance of the mortgage loan, from May 1,2002 to April 30, 2003 at 101% of the
principal balance, and from May 1, 2003 and thereafter at 100% of the principal
balance. The maturity date of the mortgage loan is April 1, 2007, and the
balance due at maturity, assuming no payment has been made on principal in
advance of its due date, is $5,509,607.59.
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 at least 20% of
the apartment units must be occupied by persons who, at the time of the initial
occupancy of the apartment units, are "low or moderate income tenants." The term
low or moderate 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.
10
<PAGE>
LOCATION. The Property is located on Grayson Drive, within Tarrant
County, northwest of the City of Dallas and near the Dallas/Fort Worth
International Airport. The Property is located within "The Metroplex." For
Information on The Metroplex, see under "Cottonwood Crossing Apartments" above.
The immediate neighborhood surrounding the Property consists of other
multi-family and single-family housing and commercial and retail development.
The Property is an approximately 10-minute drive from Dallas/Fort Worth
International Airport, an approximately 25-minute drive from downtown Dallas,
and an approximately 15-minute drive from downtown Fort Worth.
DESCRIPTION OF THE PROPERTY. The Property consists of 250 apartment
units in 19 buildings on approximately 13.5 acres of land. The Property was
constructed in 1986.
The Property offers five different unit types. The unit mix and rents
being charged new tenants as of July 1998 are as follows:
<TABLE>
<CAPTION>
APPROXIMATE INTERIOR
QUANTITY TYPE SQUARE FOOTAGE MONTHLY RENTAL
-------- ---- -------------- --------------
<S> <C> <C> <C> <C>
28 One bedroom, one bathroom 600 $479
92 One bedroom, one bathroom 750 569
70 One bedroom, one bathroom with 900 669
den
44 Two bedrooms, two bathrooms 1,018 779
16 Three bedrooms, two bathrooms 1,186 899
</TABLE>
The apartments provide a total of approximately 213,000 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 $250,000 for repairs and capital improvements to the Property to
include clubhouse renovations, exterior painting, installation of new gutters
and downspouts and paving repairs.
The following information was provided by the seller. Physical
occupancy at the Property averaged approximately 90% in 1993, 94% in 1994, 94%
in 1995, 92% in 1996 and 93% in 1997. Leases at the Property are generally for
terms of one year or less. Average rental rates for the past five years have
generally increased. As an example, a one-bedroom, one-bathroom apartment (750
square feet) rented for $425 in 1993, $450 in 1994, $480 in 1995, $519 in 1996
and $549 in 1997. The average effective annual rental per square foot at
11
<PAGE>
the Property for 1993, 1994, 1995, 1996 and 1997 was $6.76, $7.16, $7.64,
$8.26, and $8.74, respectively.
The Property has two outdoor swimming pools with picnic areas and
grills, a jacuzzi, a sand volleyball court, 19 carports and two laundry
facilities. The Property also has a clubhouse with a leasing office.
The buildings are wood framed construction with a combination of brick
veneer, stucco and painted wood siding on concrete slab foundations. Roofs are
pitched and covered with fiberglass shingled on plywood.
Each apartment unit has wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath. Each apartment unit has a cable television
hook-up and individually controlled heating and air-conditioning unit. Each
kitchen has a refrigerator/freezer, electric range and oven, dishwasher, and
garbage disposal. All units (except for the smallest one-bedroom unit) have
full-sized washer/dryer connections. Each upstairs unit has a fireplace and each
downstairs unit has a built-in bookcase and nine-foot ceilings. The owner of the
Property pays for cold water, sewer charges, gas (for hot water) and trash
removal. The tenants pay for their electricity service, which includes cooking,
lighting, heating and air-conditioning.
There are at least three apartment properties that compete with the
Property. All offer similar amenities and generally have rents that are
comparable to those of the Property. Based on a recent telephone survey, the
Advisor estimates that occupancy at nearby competing properties averaged
approximately 96% on June 30, 1998.
As of June 30, 1998, the Property was approximately 92% occupied. The
tenants are primarily a mix of white-collar workers, students and retired
persons.
The following table sets forth the 1997 real estate tax information on
the Property:
JURISDICTION ASSESSED VALUE RATE TAX
------------ -------------- ---- ---
County of Tarrant............... $7,850,000 $0.5566 $ 43,692.79
City of Grapevine............... $7,850,000 $1.9427 $152,501.95
-----------
Total.................. $196,194.74
The basis of the depreciable residential real property portion of the
Property (approximately $10,224,983 at the time of acquisition) will be
depreciated over 27.5 years on a straight-line basis. The basis of the personal
property portion will be depreciated in accordance with the modified accelerated
cost recovery system of the Code. Amounts to be spent by the Company on repairs
and improvements will be treated for tax purposes as permitted by the Code based
on the nature of the expenditures.
The Advisor and the Company believe that the property is and will
continue to be adequately covered by property and liability insurance.
12
<PAGE>
MATERIAL FACTORS CONSIDERED IN ASSESSING THE PROPERTY. The factors
considered by the Company to be relevant in evaluating the Property for
acquisition by the Company included the following:
1. The Dallas/Fort Worth area generally and the specific area in which
the Property is located were perceived as being characterized by a diverse,
stable and steadily growing economy. Accordingly, it was believed that such
economy and its anticipated growth and development would support stable
occupancy rates and reasonable increase in rents at the Property.
2. Based upon an engineering report and its own inspections, the
Advisor believes that the Property has been well maintained and is generally in
good condition, although the Advisor believes that the planned repairs and
improvements will allow an increase in rents at the Property.
3. The Property has an advantageous location - convenient to the
Dallas/Fort Worth International Airport, downtown Dallas and downtown Fort Worth
- - and is located in a rapidly growing area proximate to centers of employment
and retail development.
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 the 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, Cornerstone Realty Income Trust, Inc. earned a
property acquisition fee equal to 2% of the purchase price of the property, or
$218,600. At closing, Cornerstone Realty Income Trust, Inc. was paid a portion
of the property acquisition fee corresponding to the portion of the purchase
price of the property paid in cash by the Company. The cash portion of the
purchase price was approximately $4,244,294, and 2% of that amount was
approximately $84,886. The balance of the property acquisition fee will be paid
if, when and as the indebtedness taken subject to at closing is repaid by the
Company.
Cornerstone Realty Income Trust, Inc. will serve as property manager
for the Property and for its services will be paid by the Company a monthly
management fee equal to 5% of the gross revenues of the Property plus
reimbursement of certain expenses.
HAYDEN'S CROSSING APARTMENTS
Grand Prairie, Texas
On July 24, 1998, Apple REIT III Limited Partnership purchased the
Hayden's Crossing Apartments located at 2802 South State Highway 360, in Grand
Prairie, Texas (the "Property").
The Property comprises 170 apartment units. The purchase price for the
Property was $4,705,000. The seller was Hayden's Crossing, Ltd., a Texas limited
partnership which was not affiliated with the Company, the Advisor or their
affiliates. The purchase price was paid through a combination of (i)
approximately $1,632,601 in cash using proceeds from the sale of the Shares of
the Company and (ii) approximately $3,072,399 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 $5,550,00 held by Fannie Mae. On July 24, 1998,
the outstanding principal amount of the mortgage loan was $3,072,399.07. The
interest on the mortgage loan is 6.47% per annum; amortization is based on a
30-year amortization term; and prepayments are permitted under the following
circumstances: after May 1, 2001 to April 30, 2002 at 102% of the principal
balance of the mortgage loan, from May 1, 2002 to April 30, 2003 at 101% of the
principal balance, and from may 1, 2003 and thereafter at 100% of the principal
balance. The maturity date of the mortgage loan is April 1, 2004, and the
balance due at maturity, assuming no payment has been made on principal in
advance of its due date, is $2,743,814.97.
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 "low or moderate income tenants."
The term low or moderate 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.
13
<PAGE>
LOCATION. The Property is located on South State Highway 360 in Grand
Prairie, Texas and is adjacent to Bitter Creek Apartments which were purchase by
the Company on May 8, 1998. The Property is located within "The Metroplex." For
information on The Metroplex, see under "Cottonwood Crossing Apartments" above.
The immediate neighborhood surrounding the Property consists of other
multi-family and single-family housing and commercial and retail development.
The Property is an approximately 10-minute drive from Dallas/Fort Worth
International Airport and an approximately 20-minute drive from either downtown
Dallas or downtown Fort Worth.
DESCRIPTION OF THE PROPERTY. The Property consists of 170 apartment
units in 12 buildings on approximately 7.1 acres of land. The Property was
constructed in 1984.
The Property offers four different unit types. The unit mix and rents
being charged new tenants as of July 1998 are as follows:
<TABLE>
<CAPTION>
APPROXIMATE INTERIOR
QUANTITY TYPE SQUARE FOOTAGE MONTHLY RENTAL
-------- ---- -------------- --------------
<S> <C> <C> <C> <C>
56 One bedroom, one bathroom 556 $429
52 One bedroom, one bathroom 716 469
36 Two bedrooms, two bathrooms 878 549
26 Two bedrooms, two bathrooms 1,000 620
</TABLE>
All unit types are available with a fireplace for an extra $10 per
month. The apartments provide a total of approximately 126,000 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 $340,000 for repairs and capital improvements to the Property to
include clubhouse renovations, exterior painting, wood replacement and a new
fitness center.
The following information was provided by the seller. Physical
occupancy at the Property averaged approximately 93% in 1993, 92% in 1994, 96%
in 1995, 96% in 1996 and 95% in 1997. Leases at the Property are generally for
terms of one year or less. Average rental rates for the past five years have
generally increased. As an example, a two-bedroom, two-bathroom apartment (878
square feet) rented for $449 in 1993, $474 in 1994, $484 in 1995, $489 in 1996
and $509 in 1997. The average effective annual rental per square foot at the
Property for 1993, 1994, 1995, 1996 and 1997 was $6.54, $6.91, $7.05, $7.13, and
$7.42, respectively.
The Property has an outdoor swimming pool, a jacuzzi, a tennis court
and a laundry facility. The Property also has a clubhouse with a kitchen,
entertainment area and leasing office.
14
<PAGE>
The buildings are wood framed construction with a combination of brick
veneer and hardboard ship-lap siding on concrete slab foundations. Roofs are
pitched and covered with fiberglass shingled on plywood.
Each apartment unit has wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath. Each apartment unit has a cable television
hook-up and individually controlled heating and air-conditioning unit. Each
kitchen has a refrigerator/freezer, electric range and oven, dishwasher and
garbage disposal. The largest one-bedroom and the largest two-bedroom units have
full-sized washer/dryer connections. A total of 92 units have a wood-burning
fireplace and each second-floor unit has vaulted ceilings. Each unit has walk-in
closets, outside storage, a covered balcony or patio, and ceiling fans. The
owner of the Property pays for cold water, sewer charges, gas (for hot water)
and trash removal. The tenants pay for their electricity service, which includes
cooking, lighting, heating and air-conditioning.
There are at least eight apartment properties that compete with the
Property. All offer similar amenities and generally have rents that are
comparable to those of the Property. Based on a recent telephone survey, the
Advisor estimates that occupancy at nearby competing properties averaged
approximately 95% on June 30, 1998.
As of June 30, 1998, the Property was approximately 89% occupied. The
tenants are primarily a mix of white-collar and blue-collar workers, students
and retired persons.
The following table sets forth the 1997 real estate tax information on
the Property:
JURISDICTION ASSESSED VALUE RATE TAX
------------ -------------- ---- ---
County of Tarrant.......... $3,150,000 $1.9952 $62,848.67
City of Grand Prairie...... $3,312,080 $0.6800 $22,522.08
------------
Total ............ $85,370.75
The basis of the depreciable residential real property portion of the
Property (approximately $3,739,211 at the time of acquisition) will be
depreciated over 27.5 years on a straight-line basis. The basis of the personal
property portion will be depreciated in accordance with the modified accelerated
cost recovery system of the Code. Amounts to be spent by the Company on repairs
and improvements will be treated for tax purposes as permitted by the Code based
on the nature of the expenditures.
The Advisor and the Company believe that the property is and will
continue to be adequately covered by property and liability insurance.
MATERIAL FACTORS CONSIDERED IN ASSESSING THE PROPERTY. The factors
considered by the Company to be relevant in evaluating the Property for
acquisition by the Company included the following:
15
<PAGE>
1. The Dallas/Fort Worth area generally and the specific area in which
the Property is located were perceived as being characterized by a diverse,
stable and steadily growing economy. Accordingly, it was believed that such
economy and its anticipated growth and development would support stable
occupancy rates and reasonable increase in rents at the Property.
2. Based upon an engineering report and its own inspections, the
Advisor believes that the Property has been well maintained and is generally in
good condition, although the Advisor believes that the planned repairs and
improvements will allow an increase in rents at the Property.
3. The Property has an advantageous location - approximately mid-way
between Dallas and Fort Worth and near the Dallas/Fort Worth International
Airport - and is located in a rapidly- growing area proximate to centers of
employment and retail development. In addition, the Company and the Advisor
believe that the combination and operation of the Property with the adjacent
Bitter Creek Apartments will offer operational efficiencies and competitive
advantages.
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 the 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, Cornerstone Realty Income Trust, Inc. earned a
property acquisition fee equal to 2% of the purchase price of the property, or
$94,100. At closing, Cornerstone Realty Income Trust, Inc. was paid a portion of
the property acquisition fee corresponding to the portion of the purchase price
of the property paid in cash by the Company. The cash portion of the purchase
price was approximately $1,632,601, and 2% of that amount was approximately
$32,652. The balance of the property acquisition fee will be paid if, when and
as the indebtedness taken subject to at closing is repaid by the Company.
Cornerstone Realty Income Trust, Inc. will serve as property manager
for the Property and for its services will be paid by the Company a monthly
management fee equal to 5% of the gross revenues of the Property plus
reimbursement of certain expenses.
NEWPORT APARTMENTS
Austin, Texas
On July 24, 1998, Apple REIT IV Limited Partnership purchased the
Newport Apartments located at 1930 West Rundberg Lane, in Austin, Texas (the
"Property").
The Property comprises 200 apartment units. The purchase price for the
Property was $6,330,000. The seller was Newemerald Texas, Ltd., a Texas limited
partnership which was not affiliated with the Company, the Advisor or their
affiliates. The purchase price was paid through a combination of (i)
approximately $ 3,286,127 in cash using proceeds from the sale of the Shares of
the Company and (ii) approximately $ 3,043,873 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 $6,275,000 held by Fannie Mae. On July 24,
1998, the outstanding principal balance of the mortgage loan was $3,043,873.04.
The interest on the mortgage loan is 6.675% per annum; amortization is based on
a 30-year amortization term; and prepayments are permitted under the following
circumstance: after May 1, 2001 to April 30, 2002 at 102% of the principal
balance of the mortgage loan, from May 1, 2002 to April 30, 2003 at 101% of the
principal balance, and from May 1, 2003 and thereafter at 100% of the principal
balance. The maturity date of the mortgage loan is December 1, 2005, and the
balance due at maturity, assuming no payment has been made on principal in
advance of its due date, is $2,614,373.31.
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 the persons who, at the time of
initial occupancy of the apartments units, are "low or moderate income tenants."
The term low or moderate 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.
16
<PAGE>
LOCATION. The Property is located on West Rundberg Lane 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.
The Metropolitan Statistical Area that includes Austin had a 1995
population that exceeded one million and is expected to have a population of
approximately 1.1 million by the end of 1998. 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 neighborhood surrounding the Property consists of other
multi-family and single-family housing and commercial and retail development.
Newport Apartments are located near The Colonade Mall and Northcross Mall, and
are an approximately 20-minute drive from an IBM facility and a Texas
Instruments facility. This property is within a few blocks of a new Dell
Computer facility and is a 15-minute drive from the downtown Austin business
district.
DESCRIPTION OF THE PROPERTY. The Property consists of 200 apartment
units in 15 buildings on approximately 10 acres of land. The Property was
constructed in 1988.
The Property offers four different unit types. The unit mix and rents
being charged new tenants as of July 1998 are as follows:
<TABLE>
<CAPTION>
APPROXIMATE INTERIOR
QUANTITY TYPE SQUARE FOOTAGE MONTHLY RENTAL
-------- ---- -------------- --------------
<S> <C> <C> <C> <C>
60 One bedroom, one bathroom 510 $469
60 One bedroom, one bathroom 710 549
40 One bedroom, one bathroom 875 629
40 One bedroom, one bathroom 1,000 699
with den
</TABLE>
The apartments provide a total of approximately 148,000 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 $400,000 for repairs and capital improvements to the Property to
include clubhouse renovations, exterior painting and siding replacement and
interior upgrades.
17
<PAGE>
The following information was provided by the seller. Physical
occupancy at the Property averaged approximately 97% in 1993, 96% in 1994, 95%
in 1995, 93% in 1996 and 88% in 1997. Leases at the Property are generally for
terms of one year or less. Average rental rates for the past five years have
generally increased. As an example, a one-bedroom, one-bathroom apartment (1000
square feet) rented for $426 in 1993, $465 in 1994, $669 in 1995, $679 in 1996
and $689 in 1997. The average effective annual rental per square foot at the
Property for 1993, 1994, 1995, 1996 and 1997 was $5.66, $6.18, $8.90, $9.03, and
$9.16, respectively.
The Property has an outdoor swimming pool, a lighted tennis court, a
picnic area and two laundry facilities. The Property also has a clubhouse with a
leasing office.
The buildings are wood framed construction with a combination of brick
veneer and wood siding on concrete slab foundations. Roofs are pitched and
covered with fiberglass shingled on plywood.
Each apartment unit has wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath. Each apartment unit has a cable television
hook-up and individually controlled heating and air-conditioning unit. Each
kitchen has a refrigerator/freezer, electric range and oven, dishwasher and
garbage disposal. All units have full-sized washer/dryer connections and all
upper-level units have vaulted ceilings. Some of the units have wood-burning
fireplaces, dry bars and private patios or decks. Each unit has walk-in closets,
outside storage and ceiling fans. The owner of the Property pays for cold water,
sewer charges, gas (for hot water) and trash removal. The tenants pay for their
electricity service, 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 at nearby competing properties averaged
approximately 96% on June 30, 1998.
As of June 30, 1998, the Property was approximately 93% occupied. The
tenants are primarily a mix of white-collar and blue-collar workers, students
and retired persons.
The following table sets forth the 1997 real estate tax information on
the Property:
JURISDICTION ASSESSED VALUE RATE TAX
------------ -------------- ---- ---
Travis County ............. $6,600,000 $0.4938 $ 32,590.80
City of Austin............. $6,600,000 $0.5401 $ 35,646.60
Austin I.S.D............... $6,600,000 $1.4010 $ 92,466.00
ACC (Travis)............... $6,600,000 $0.0500 $ 3,300.00
------------
Total ............ $164,003.40
18
<PAGE>
The basis of the depreciable residential real property portion of the
Property (approximately $5,920,449 at the time of acquisition) will be
depreciated over 27.5 years on a straight-line basis. The basis of the personal
property portion will be depreciated in accordance with the modified accelerated
cost recovery system of the Code. Amounts to be spent by the Company on repairs
and improvements will be treated for tax purposes as permitted by the Code based
on the nature of the expenditures.
The Advisor and the Company believe that the property is and will
continue to be adequately covered by property and liability insurance.
MATERIAL FACTORS CONSIDERED IN ASSESSING THE PROPERTY. The factors
considered by 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 were perceived as being characterized by a diverse and
rapidly developing economy. Accordingly, it was believed that such economy and
its anticipated growth and development would support stable occupancy rates and
reasonable increases in rents at the Property.
2. Based on an engineering report and its own inspections, the Advisor
believes that the Property has been well maintained and is generally in good
condition, although the Advisor believes that the planned repairs and
improvements will allow future increases in rents at the Property.
3. The Property is conveniently located near The Colonade Mall,
Northcross Mall, an IBM facility, a Texas Instruments facility and a new Dell
Computer facility.
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 the 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, Cornerstone Realty Income Trust, Inc. earned a
property acquisition fee equal to 2% of the purchase price of the property, or
$126,600. At closing, Cornerstone Realty Income Trust, Inc. was paid a portion
of the property acquisition fee corresponding to the portion of the purchase
price of the property paid in cash by the Company. The cash portion of the
purchase price was approximately $3,286,127, and 2% of that amount was
approximately $65,723. The balance of the property acquisition fee will be paid
if, when and as the indebtedness taken subject to at closing is repaid by the
Company.
Cornerstone Realty Income Trust, Inc. will serve as property manager
for the Property and for its services will be paid by the Company a monthly
management fee equal to 5% of the gross revenues of the Property plus
reimbursement of certain expenses.
19
<PAGE>
ESTRADA OAKS APARTMENTS
Irving, Texas
On July 27, 1998, Apple REIT Limited Partnership purchased the Estrada
Oaks Apartments located at 2115 Estrada Parkway, in Irving, Texas (the
"Property").
The Property comprises 248 apartment units. The purchase price for the
Property was $9,350,000. The seller was Dallas - Fort Worth Properties, L.P., a
Texas limited partnership which was not affiliated with the Company, the Advisor
or their affiliates. The purchase price was paid using proceeds from the sale of
Shares of the Company. Title to the Property was conveyed to the Company by
limited warranty deed.
LOCATION. The Property is located on Estrada Parkway south of Airport
Freeway (SH 183) and west of Belt Line Road in Irving, Texas. The Property is
readily available from Highways 181 and 163, two major highways in Irving,
Texas. The Property is located within "The Metroplex." For information on The
Metroplex, see under "Cottonwood Crossing Apartments" above.
The immediate neighborhood surrounding the Property consists of other
multi-family and single-family housing and commercial and retail development.
The Property is conveniently located near fine restaurants, businesses, schools
and churches. The Property is an approximately 5-minute drive from Dallas/Fort
Worth International Airport, an approximately 25-minute drive from downtown
Dallas and downtown Fort Worth.
DESCRIPTION OF THE PROPERTY. The Property consists of 248 apartment
units in 14 buildings on approximately 10.1 acres of land. The Property was
constructed in 1983.
The Property offers ten different unit types. The unit mix and rents
being charged new tenants as of July 1998 are as follows:
<TABLE>
<CAPTION>
APPROXIMATE INTERIOR
QUANTITY TYPE SQUARE FOOTAGE MONTHLY RENTAL
-------- ---- -------------- --------------
<S> <C> <C> <C>
24 One bedroom, one bathroom 490 $480
56 One bedroom, one bathroom 608 510
60 One bedroom, one bathroom 744 565
10 One bedroom, one bathroom 744 575
tennis court view
10 One bedroom, one bathroom 744 580
pool view
24 Two bedrooms, one bathroom 886 670
30 Two bedrooms, two bathrooms 942 715
2 Two bedrooms, two bathrooms 942 730
pool view
30 Two bedrooms, two bathrooms 1081 770
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE INTERIOR
QUANTITY TYPE SQUARE FOOTAGE MONTHLY RENTAL
-------- ---- -------------- --------------
<S> <C> <C> <C> <C>
2 Two bedrooms, two bathrooms 1081 785
pool view
</TABLE>
The apartments provide a total of approximately 191,328 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 $248,000 for repairs and capital improvements to the Property to
include clubhouse renovations, exterior painting and wood replacement.
The following information was provided by the seller. Physical
occupancy at the Property averaged approximately 94% in 1993, 94% in 1994, 95%
in 1995, 96% in 1996 and 95% in 1997. Leases at the Property are generally for
terms of one year or less. Average rental rates for the past five years have
generally increased. As an example, a one-bedroom, one-bathroom apartment (744
square feet) rented for $430 in 1993, $470 in 1994, $470 in 1995, $470 in 1996
and $490 in 1997. The average effective annual rental per square foot at the
Property for 1993, 1994, 1995, 1996 and 1997 was $7.16, $7.82, $7.82, $7.82, and
$8.16, respectively.
The Property has an outdoor swimming pool, a jacuzzi, lighted tennis
courts, a fitness center, a laundry facility and 80 covered parking spaces. The
Property also has a clubhouse with a leasing office.
The buildings are wood framed construction with a combination of brick
veneer and painted wood siding on concrete slab foundations. Roofs are high
sloped with asphalt shingles.
Each apartment unit has wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath. Each apartment unit has a cable television
hook-up and individually controlled heating and air-conditioning unit. All of
the units include ceiling fans, intrusion alarm systems, patio/balcony and
outside storage. All of the units, except the two smallest one bedroom floor
plans, include full size washer/dryer connections and all of the units, except
the smallest one bedroom floor plan, include wood burning fireplaces with
mantels. Select units includes microwaves, icemakers and double french patio
doors. All kitchens are equipped with a frost free refrigerator/freezer,
self-cleaning electric range and oven, dishwasher and garbage disposal. The
owner of the Property pays for cold water, sewer charges, gas (for hot water)
and trash removal. The tenants pay for their electricity service, which includes
cooking, lighting, heating and air-conditioning.
There are at least three apartment properties that compete with the
Property. All offer similar amenities and generally have rents that are
comparable to those of the Property. Based on a recent telephone survey, the
Advisor estimates that occupancy at nearby competing properties averaged
approximately 98% on June 30, 1998.
21
<PAGE>
As of July 27, 1998, the Property was approximately 97% occupied. The
tenants are primarily a mix of blue-collar and white-collar workers, students
and retired persons.
The following table sets forth the 1997 real estate tax information on
the Property:
JURISDICTION ASSESSED VALUE RATE TAX
------------ -------------- ---- ---
County of Dallas........... $7,009,660 $0.44307 $ 31,057.70
City of Irving............. $7,009,660 $0.49300 $ 34,557.62
Irving I.S.D............... $7,009,660 $1.64840 $115,547.24
------------
Total ............ $181,162.56
The basis of the depreciable residential real property portion of the
Property (approximately $7,579,500 at the time of acquisition) will be
depreciated over 27.5 years on a straight-line basis. The basis of the personal
property portion will be depreciated in accordance with the modified accelerated
cost recovery system of the Code. Amounts to be spent by the Company on repairs
and improvements will be treated for tax purposes as permitted by the Code based
on the nature of the expenditures.
The Advisor and the Company believe that the property is and will
continue to be adequately covered by property and liability insurance.
MATERIAL FACTORS CONSIDERED IN ASSESSING THE PROPERTY. The factors
considered by the Company to be relevant in evaluating the Property for
acquisition by the Company included the following:
1. The Dallas/Fort Worth area generally and the specific area in which
the Property is located were perceived as being characterized by a diverse,
stable and steadily growing economy. Accordingly, it was believed that such
economy and its anticipated growth and development would support stable
occupancy rates and reasonable increases in rents at the Property.
2. Based upon an engineering report and its own inspections, the
Advisor believes that the Property has been well maintained and is generally in
good condition, although the Advisor believes that the planned repairs and
improvements will allow an increase in rents at the Property.
3. The Property has an advantageous location - convenient to the
Dallas/Fort Worth International Airport, downtown Dallas and downtown Fort Worth
- - and is located in a rapidly growing area proximate to centers of employment
and retail development.
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 the report not to be necessarily indicative of future
operating results.
22
<PAGE>
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. earned a
property acquisition fee equal to 2% of the purchase price of the property, or
$187,000.
Cornerstone Realty Income Trust, Inc. will serve as property manager
for the Property and for its services will be paid by the Company a monthly
management fee equal to 5% of the gross revenues of the Property plus
reimbursement of certain expenses.
23
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 located in Tarrant County in the city of Arlington, which
is located between Dallas and Fort Worth. Arlington is approximately 13 miles
east of the Fort Worth Central Business District and approximately 20 miles west
of the Dallas Central Business District.
Owing in large part to its location between Dallas and Fort Worth,
Arlington has become a focus of business development in the area. Major
employers include General Motors, National Semiconductor, Johnson & Johnson,
Doskocil Manufacturing Company and Arlington Memorial Hospital. The area is also
the site of several large warehousing and distribution companies whose primary
market is The Metroplex.
The University of Texas at Arlington has an enrollment of approximately
23,000 students. Arlington also serves as a major medical center for its own
population and for residents of outlying communities as well. Arlington Memorial
Hospital has a staff of approximately 1,680 and HCA South Arlington Medical
Center has approximately 640 employees, making both of them among the largest
employers in the city.
The immediate neighborhood surrounding the Property consists of other
multi-family and single-family housing, and commercial and retail development.
The Property is proximate to businesses, restaurants, schools and churches and
is readily accessible from Highways 360 and 183. The Property is an
approximately 20-minute drive from Dallas/Fort Worth International Airport, an
approximately 30-minute drive from the Dallas Central Business District, and an
approximately 15- minute drive from the Forth Worth Central Business District.
Description of the Property. The Property consists of 240 garden-style
apartment units in 12 two- and three-story buildings on approximately 9.6 acres
of land. The Property was constructed in 1985.
The Property offers 10 different unit types. The unit mix and rents being
charged new tenants as of October 1998 are as follows:
-5-
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE INTERIOR
QUANTITY TYPE SQUARE FOOTAGE MONTHLY RENTAL
-------- ---- -------------- --------------
<S> <C> <C> <C>
96 One bedroom, one bathroom 620 $ 515
8 One bedroom, one bathroom 710 575
w/desk
24 One bedroom, one bathroom 710 580
w/fireplace
32 One bedroom, one bathroom 800 620
w/sunroom
4 Two bedrooms, two bathrooms 965 705
w/desk
16 Two bedrooms, two bathrooms 965 710
w/fireplace
4 Two bedrooms, two bathrooms 1,000 725
w/desk
16 Two bedrooms, two bathrooms 1,000 730
w/fireplace
20 Two bedrooms, two bathrooms 1,050 740
w/sunroom
20 Two bedrooms, two bathrooms 1,120 750
w/sunroom
</TABLE>
The apartments provide a total of approximately 190,500 square feet of net
rentable area.
The Company believes that the Property has generally been well maintained
and is in good condition. However, the Company has budgeted approximately
$180,000 for repairs and improvements to the Property, to include clubhouse
renovations, exterior painting and interior upgrades.
The following information is provided by the seller. Physical occupancy at
the Property averaged approximately 95% in 1993, 94% in 1994, 94% in 1995, 93%
in 1996, 95% in 1997 and 93% during the first nine months of 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 (800 square feet) rented for $450 in 1993, $475 in 1994,
$505 in 1995, $545 in 1996 and $545 in 1997. The average effective annual rental
per square foot at the Property for 1993, 1994, 1995, 1996 and 1997 was $6.67,
$7.04, $7.48, $8.07, and $8.07, respectively.
-6-
<PAGE>
The Property has an outdoor swimming pool, a fitness center, two saunas, a
heated Jacuzzi and controlled access. There is a clubhouse with a leasing office
and there is ample paved parking for tenants. There are also 228 covered parking
spaces.
The buildings are wood frame construction with exteriors of a combination
of brick veneer, painted wood and stucco on concrete slab foundations. Roofs are
pitched and covered with asphalt shingles on plywood sheathing.
Each apartment unit has wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath. Each apartment unit has a cable television
hook-up and individually controlled heating and air-conditioning unit. Each
kitchen has a refrigerator/freezer, electric range and oven, dishwasher and
garbage disposal. Each unit has a washer and dryer, a pantry, a linen closet and
miniblinds. A total of 96 units have a fireplace and 24 units have a built-in
desk. The owner of the Property pays for cold water, sewer service, trash
removal and gas for hot water. The residents pay for their electricity usage,
which includes cooking, lighting, heating and air-conditioning.
There are at least seven apartment properties that compete with the
Property. All offer similar amenities and generally have rents that are
comparable to those of the Property. Based on a recent telephone survey, the
Advisor estimates that occupancy at nearby competing properties averaged
approximately 95% on October 31, 1998.
As of October 28, 1998, the Property was approximately 94% occupied. The
tenants are a mix of white-collar and blue-collar workers, students and retired
persons.
The following table sets forth the 1998 real estate tax information on the
Property:
<TABLE>
<CAPTION>
JURISDICTION ASSESSED VALUE RATE TAX
------------ -------------- ---- ---
<S> <C> <C> <C>
County of Tarrant .......... $6,948,993 $2.10152 $146,034.20
City of Arlington .......... 6,948,993 0.63800 44,334.58
-----------
Total ................. $190,368.78
</TABLE>
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $8,283,095) 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.
-7-
<PAGE>
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 Dallas/Fort Worth area generally and the specific area in which the
Property is located were perceived as being characterized by a diverse, stable
and steadily growing economy. Accordingly, it was believed that such economy and
its anticipated growth and development would support stable occupancy rates and
reasonable increases in rents at the Property.
2. Based upon an engineering report and its own inspections, the Advisor
believes that the Property has been well maintained and is in good condition,
although the Advisor believes that the planned repairs and improvements will
allow a further increase in rents at the Property.
3. The Property has an advantageous location - convenient to the
Dallas/Fort Worth International Airport and both downtown Dallas and downtown
Fort Worth - and is located in a rapidly-growing area proximate to centers of
employment and retail development in the city of Arlington.
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 Apple Residential Management Group, Inc. a property
acquisition fee equal to 2% of the purchase price of the property, or $186,000.
Apple Residential Management Group, Inc. will serve as property manager for the
Property and for its services will be paid by the Company a monthly management
fee equal to 5% of the gross revenues of the Property plus reimbursement of
certain expenses.
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.
-8-
<PAGE>
BRANDYWINE PARK APARTMENTS
Richardson, Texas
On October 29, 1998, Apple REIT Limited Partnership purchased the
Brandywine Park Apartments located at 1111 Abrams Road in Richardson, Texas (the
"Property").
The Property comprises 196 apartment units. The purchase price for the
Property was $8,100,000. The seller was Abrams One Properties Limited
Partnership, a Texas limited partnership, which is not affiliated with the
Company, the Advisor or their affiliates. The purchase price was paid entirely
in cash using proceeds from the sale of Common Shares of the Company. Title to
the Property was conveyed to the Company by limited warranty deed.
Location. The Property is located on Abrams Road on the north side of
Interstate 635 (L.B.J. Freeway) and east of U. S. Highway 75 (Central
Expressway) in Richardson, outside of Dallas, Texas. The Property is located
within The Metroplex. See above under "Burney Oaks Apartments" for a description
of The Metroplex.
The immediate area surrounding the Property consists of other multi-family
and single-family housing, and commercial and retail development. The Property
is located less than a mile from a multi-billion-dollar Texas Instruments
facility. The Property is also located immediately adjacent to Richland
Community College, a two-year college. The Property is located near restaurants,
businesses, schools and churches and is readily accessible from Interstate 635
and Highway 75. The Property is an approximately 20-minute drive from
Dallas/Fort Worth International Airport and an approximately 15-minute drive
from downtown Dallas.
Description of the Property. The Property consists of 196 garden-style
apartment units in 17 two-story buildings on approximately 11 acres of land. The
Property was constructed in 1978.
The Property offers three different unit types. The unit mix and rents
being charged new tenants as of October 1998 are as follows:
<TABLE>
<CAPTION>
APPROXIMATE INTERIOR
QUANTITY TYPE SQUARE FOOTAGE MONTHLY RENTAL
- -------- ---- -------------- --------------
<S> <C> <C> <C>
80 One bedroom, one bathroom 700 $530
60 Two bedrooms, two bathrooms 1,067 740
56 Three bedrooms, two 1,392 870
bathrooms
</TABLE>
The apartments provide a total of approximately 200,000 square feet of net
rentable area.
The Company believes the Property has generally been well maintained and is
in good condition for a property of its age. However, the Company has budgeted
approximately
-9-
<PAGE>
$1,078,000 for repairs and improvements to the Property, including clubhouse
renovations, siding replacement, exterior painting, pool renovations, foundation
corrections and interior upgrades.
The following information is provided by the seller. Physical occupancy at
the Property averaged approximately 96% in 1996 , 97% in 1997 and 97% during the
first nine months of 1998. Occupancy rates for earlier periods are not
available. 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 three-bedroom, two-bathroom apartment (1,392 square feet) rented for
$700 in 1993, $710 in 1994, $710 in 1995, $735 in 1996 and $750 in 1997. The
average effective annual rental per square foot at the Property for 1993, 1994,
1995, 1996 and 1997 was $6.50, $6.60, $6.60, $6.83, and $6.97, respectively.
The Property has an outdoor swimming pool, a playground and a picnic are.
There is also a clubhouse with a leasing office. There are also 196 covered
parking spaces and additional paved uncovered parking.
The buildings are wood frame construction with a combination of brick
veneer and painted wood siding exteriors on concrete slab foundations. Roofs are
pitched and covered with asphalt shingles on plywood sheathing.
Each apartment unit has wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath. Each apartment unit has a cable television
hook-up and individually controlled heating and air-conditioning unit. Each
kitchen has a refrigerator/freezer, electric range and oven, dishwasher and
garbage disposal. All units have a washer and dryer, a wood-burning fireplace,
ten-foot ceilings, ceiling fans, mini and vertical blinds and assigned covered
parking. The owner of the Property pays for cold water, sewer service, trash
removal and gas for hot water. The tenants pay for their electricity service,
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 at nearby competing properties averaged
approximately 94% on October 31, 1998.
As of October 26, 1998, the Property was approximately 98% occupied. The
tenants are a mix of white-collar and blue-collar workers and retired persons.
The following table sets forth the 1998 real estate tax information on the
Property:
<TABLE>
<CAPTION>
JURISDICTION ASSESSED VALUE RATE TAX
------------ -------------- ---- ---
<S> <C> <C> <C>
County of Dallas ............... $6,073,780 $0.4330 $ 26,303.96
City of Richardson ............. 6,073,780 0.4438 26,958.47
Richardson I.S.D ............... 6,073,780 1.6257 98,741.44
----------
Total ..................... $152,003.88
</TABLE>
-10-
<PAGE>
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $6,161,411) will be depreciated over 27.5
years on a straight-line basis. The basis of the personal property portion will
be depreciated in accordance with the modified accelerated cost recovery system
of the Code. Amounts to be spent by the Company on repairs and improvements will
be treated for tax purposes as permitted by the Code based on the nature of the
expenditures.
The Advisor and the Company believe that the Property is and will continue
to be adequately covered by property and liability insurance.
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 Dallas/Fort Worth area generally and the specific area in which the
Property is located were perceived as being characterized by a diverse, stable
and steadily growing economy. Accordingly, it was believed that such economy and
its anticipated growth and development would support stable occupancy rates and
reasonable increases in rents at the Property.
2. Based upon an engineering report and its own inspections, the Advisor
believes that the Property has been well maintained and is generally in good
condition for a property of its age, although the Advisor believes that the
planned repairs and improvements will allow a further increase in rents at the
Property.
3. The Property has an advantageous location close to major employers,
including particularly a large Texas Instruments facility.
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 Apple Residential Management Group, Inc. a property
acquisition fee equal to 2% of the purchase price of the property, or $162,000.
Apple Residential Management Group, Inc. will serve as property manager for the
Property and for its services will be paid by the Company a monthly management
fee equal to 5% of the gross revenues of the Property plus reimbursement of
certain expenses.
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.
Item 5. Other Events
Cornerstone Realty Income Trust, Inc. ("Cornerstone") has been providing
property management, advisory and real estate brokerage services to the Company.
The property management and advisory services have been provided by Cornerstone
under subcontracts from Apple Residential Management Group, Inc. ("ARMG") and
Apple Residential Advisors, Inc. ("ARA"), the entities that originally
contracted with the Company for the providing of such services. As to the real
estate brokerage services, Cornerstone previously purchased the assets
-11-
<PAGE>
of Apple Realty Group, Inc. ("ARG") - consisting principally of the real estate
brokerage agreement - and thereby succeeded to ARG in providing such services to
the Company.
Effective at the close of business on September 30, 1998, the subcontract
agreements described above were terminated, and ARA assigned to ARMG its rights
and responsiblities under the advisory agreement. Thus, as of October 1, 1998,
the property management and advisory services to the Company are now performed
by ARMG using employees leased from Cornerstone. Effective October 1, 1998,
Cornerstone sold to ARMG its rights in the real estate brokerage agreement.
Beginning on such date ARMG will provide the services and be entitled to the
compensation under the real estate brokerage agreement. ARMG will lease
employees necessary to provide such services from Cornerstone.
It is not expected that the restructuring of the relationships under which
the Company receives property management, advisory and real estate brokerage
services will have any material effect on the Company since in substance
Cornerstone will continue to provide such services to the Company.
-12-
The Metroplex is located at the hub of four interstate highways.
Interstate 35 (Stemmons Freeway) and Interstate 45 provide north/south access to
and from the Metroplex, while Interstate 20 and Interstate 30 (C.F. Hon Freeway)
provide east/west access. Another major artery feeding into the central city is
US-67 (Marvin D. Love Freeway). Two outer loops, Interstate 635 in Dallas and
Interstate 820 in Forth 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 1,000-acre Texas Motor Speedway was recently completed. It is
located just north of Alliance Airport in Denton County, and currently seats
approximately 160,000 people. The speedway has created approximately 6,200 new
permanent and temporary jobs for the area.
The immediate area surrounding the Property consists of other
multifamily, residential, commercial and retail development. The Property is
readily accessible from Interstate 635 and North Dallas Tollway. The Property is
an approximately 25-minute drive from the Dallas/Fort Worth International
Airport and within 15 minutes from Dallas Central Business District.
Description of the Property. The Property consists of 242 apartment
units in 16 two-story buildings on approximately 9.4 acres of land. The Property
was constructed in 1988.
The Property offers 16 different unit types. The unit mix and rents
being charged new tenants as of November, 1998 are as follows:
<TABLE>
<CAPTION>
Approximate Interior
Quantity Type Square Footage Monthly Rental
-------- ---- -------------- --------------
<S> <C> <C> <C>
36 One Bedroom/One Bathroom 639 $585
w/Drybar
18 One Bedroom/One Bathroom 639 595
w/Fireplace
18 One Bedroom/One Bathroom 639 605
w/Fireplace/Vaulted Ceilings
34 One Bedroom/One Bathroom 721 625
w/Drybar
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
Approximate Interior
Quantity Type Square Footage Monthly Rental
-------- ---- -------------- --------------
<S> <C> <C> <C>
26 One Bedroom/One Bathroom 721 $650
w/Fireplace
12 One Bedroom/One Bathroom 721 660
w/Fireplace/Vaulted Ceilings
10 One Bedroom/One 812 680
Bathroom/Sunroom w/Drybar
2 One Bedroom/One 812 690
Bathroom/Sunroom w/Fireplace
12 One Bedroom/One 812 700
Bathroom/Sunroom
w/Fireplace/Vaulted Ceilings
10 One Bedroom/One Bathroom/Den 875 740
w/Drybar
20 One Bedroom/One Bathroom/Den 875 745
w/Fireplace
10 One Bedroom/One 963 785
Bathroom/Den/Sunroom
w/Fireplace
8 Two Bedrooms/Two Bathrooms 967 815
w/Drybar
16 Two Bedrooms/Two Bathrooms 967 825
w/Fireplace
8 Two Bedrooms/Two 1053 875
Bathrooms/Sunroom
w/Fireplace/Vaulted Ceilings
2 Two Bedrooms/Two Bathrooms TH 1141 955
w/Fireplace
</TABLE>
The apartments provide a total of approximately 187,000 square feet of
net rentable area.
-5-
<PAGE>
The Company believes that the Property has generally been well
maintained and is in good condition. However, the Company has budgeted
approximately $181,500 for repairs and capital improvements to the Property.
These repairs and improvements will include clubhouse renovations, exterior
painting and interior upgrades.
The following information is provided by the seller. Physical occupancy
at the property averaged approximately 95% in 1995, 92% in 1996, 93% in 1997,
and 93.2% during the first nine months of 1998. Leases at the property are
generally for terms of one year or less. Physical occupancy averages for earlier
time periods are not available. Average rental rates for the past five years
have generally increased. As an example, a one bedroom, one bathroom apartment
with a fire place and vaulted ceilings (639 square feet) rented for $475 in
1993, $485 in 1994, $504 in 1995, $514 in 1996 and $524 in 1997. The average
effective annual rental per square foot at the property for 1993, 1994, 1995,
1996 and 1997 was $8.25, 8.43, 8.76, 8.93, and 9.10 , respectively.
The Property has an outdoor swimming pool, deck and cabana, heated spa,
fitness center with men's and women's locker rooms with showers and dry saunas,
two open grills and picnic areas, a laundry facility, gazebos, covered parking
and a controlled access gate with fountains. There is also a clubhouse with a
leasing office.
The buildings are wood-frame construction with a combination of brick
veneer, painted wood siding and stucco on concrete slab foundations. Roofs are
pitched and covered with asphalt shingles on plywood sheathing.
Each apartment unit has wall-to-wall carpeting in the living area 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 with icemaker, electric range and oven,
dishwasher and garbage disposal. All of the units include nine foot ceilings,
miniblinds, vertical blinds, ceiling fans and washer/dryer connections. The
owner of the property pays for cold water, sewer charges, gas (for hot water)
and trash removal. The tenants pay for electricity service, which includes
cooking, lighting, heating and air-conditioning.
There are at least 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 at nearby competing properties averaged
approximately 93% at November 1, 1998.
As of November 17, 1998, the Property was approximately 96% occupied.
-6-
<PAGE>
The following table sets forth the 1998 real estate tax information on
the Property:
<TABLE>
<CAPTION>
Assessed
Jurisdiction Value Rate Tax
------------ ----- ---- ---
<S> <C> <C> <C>
County of Collin $9,203,807.00 $1.88805 $173,772.48
City of Dallas 9,169,400.00 0.64910 59,518.58
- -------------- ---------
Total $233,291.06
</TABLE>
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $9,207,124) 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.
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 Dallas/Fort Worth area generally and the specific area in which
the Property is located were perceived as being characterized by a diverse,
stable and steadily growing economy. Accordingly, it was believed that such
economy and its anticipated growth and development would support stable
occupancy rates and reasonable increases in rents at the Property.
2. Based upon an engineering report and its own inspections, the
Advisor believes that the Property has been well maintained and is generally in
good condition, although the Advisor believes that the planned repairs and
improvements will allow an increase in rents at the Property.
3. The Property has an advantageous location and is located in a
rapidly-growing area proximate to centers of employment and retail development.
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 Apple Residential Management
Group, Inc. a property acquisition fee equal to 2% of the purchase price of the
property, or $230,000. Apple Residential Management Group, Inc. will serve as
property manager for the Property and for its services will be paid by the
Company a monthly management fee equal to 5% of the gross revenues of the
Property plus reimbursement of certain expenses.
-7-
<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.
-8-
