SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO.1
TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Original Report: May 8, 2000
APPLE SUITES, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 000-30491 54-1933472
(State of (Commission (IRS Employer
incorporation) File Number) Identification No.)
9 NORTH THIRD STREET
RICHMOND, VIRGINIA 23219
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code:
(804) 643-1761
<PAGE>
APPLE SUITES, INC.
FORM 8-K
Index
<TABLE>
<CAPTION>
<S> <C> <C>
Page Number
-----------
Item 7. Financial Statements and Exhibits
a. Financial Statements
Malvern, Pennsylvania Homewood Suites(R) by Hilton hotel
Boulder, Colorado Homewood Suites(R) by Hilton hotel
1. Property Financial Statements
Independent Auditors' Report 4
Combined Balance Sheets - December 31, 1999 and December 31, 1998 5
Combined Statements of Shareholders' Equity - Years ended
December 31, 1999 and December 31, 1998 6
Combined Income Statements - Years ended December 31, 1999 and
December 31, 1998 6
Combined Statements of Cash Flows - Years ended December 31, 1999
and December 31, 1998 7
Notes to the Combined Financial Statements - December 31, 1999 and
December 31, 1998 8
* * *
Combined Balance Sheet - March 31, 2000 (unaudited) 12
Combined Statement of Shareholders' Equity - For the Period
January 1, 2000 through March 31, 2000 (unaudited) 13
Combined Income Statement - For the Period January 1, 2000
through March 31, 2000 (unaudited) 13
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Combined Statement of Cash Flows - For the Period January 1, 2000
through March 31, 2000 (unaudited) 14
Notes to the Combined Financial Statements - For the Period
January 1, 2000 through March 31, 2000 (unaudited) ` 15
2. Pro Forma Financial Statements (unaudited)
Apple Suites, Inc.
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2000 19
Notes to Pro Forma Condensed Consolidated Balance Sheet 20
Pro Forma Condensed Consolidated Statements of Operations for the Year
Ended December 31, 1999 and the Three Months Ended March 31, 2000 21
Notes to Pro Forma Condensed Consolidated Statements of Operations 23
Apple Suites Management, Inc.
Pro Forma Condensed Consolidated Statements of Operations for the Year
Ended December 31, 1999 and the Three Months Ended March 31, 2000 24
Notes to Pro Forma Condensed Consolidated Statements of Operations 26
b. Exhibits
24 Consent of Independent Auditors
</TABLE>
-3-
<PAGE>
ITEM 7.a.1
<TABLE>
<S> <C> <C>
L.P. MARTIN & COMPANY
A PROFESSIONAL CORPORATION
MEMBERS CERTIFIED PUBLIC ACCOUNTANTS MEMBERS
VIRGINIA SOCIETY OF 4132 INNSLAKE DRIVE AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS GLEN ALLEN, VIRGINIA 23060 CERTIFIED PUBLIC ACCOUNTANTS
LEE P. MARTIN, JR., C.P.A. PHONE: (804) 345-2626 ROBERT C. JOHNSON, C.P.A.
WILLIAM L. GRAHAM, C.P.A. FAX: (804) 346-9311 LEE P. MARTIN, C.P.A. (1948-76)
BERNARD G. KINZIE, C.P.A.
W. BARCLAY BRADSHAW, C.P.A.
</TABLE>
INDEPENDENT AUDITORS' REPORT
Apple Suites, Inc.
Richmond, Virginia
We have audited the accompanying combined balance sheets of the Homewood
Suites Acquisition Hotels (described in Note 1) as of December 31, 1999 and
1998, and the related combined statements of income, shareholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the management of the hotels. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. The accompanying financial statements were prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission as described in Note 1 to the financial statements and are
not intended to be a complete presentation of the Homewood Suites Acquisition
Hotels.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Homewood
Suites Acquisition Hotels as of December 31, 1999 and 1998, and the combined
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ L.P. Martin & Co, P.C.
Richmond, Virginia
May 31, 2000
-4-
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------- ------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash ................................................. $ 231,297 $ 142,363
Accounts Receivable, Net ............................. 207,653 157,754
Prepaids and Other ................................... 85,403 15,751
------------ ------------
Total Current Assets ............................... 524,353 315,868
------------ ------------
INVESTMENT IN HOTEL PROPERTIES
Land and Improvements ................................ 1,911,918 1,911,918
Buildings and Improvements ........................... 13,078,590 13,078,407
Furniture, Fixtures and Equipment .................... 4,362,527 4,091,364
------------ ------------
Total .............................................. 19,353,035 19,081,689
Less: Accumulated Depreciation ....................... (4,170,565) (3,473,189)
------------ ------------
Net Investment in Hotel Properties ................. 15,182,470 15,608,500
------------ ------------
Total Assets ....................................... $ 15,706,823 $ 15,924,368
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable ..................................... $ 17,104 $ 44,353
Accrued Taxes ........................................ 277,595 358,676
Accrued Expenses - Other ............................. 105,781 109,590
------------ ------------
Total Current Liabilities .......................... 400,480 512,619
------------ ------------
SHAREHOLDERS' EQUITY
Contributed Capital .................................. 2,364,469 5,303,463
Retained Earnings .................................... 12,941,874 10,108,286
------------ ------------
Total Shareholders' Equity ......................... 15,306,343 15,411,749
------------ ------------
Total Liabilities and Shareholders' Equity ......... $ 15,706,823 $ 15,924,368
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
CONTRIBUTED RETAINED SHAREHOLDERS'
CAPITAL EARNINGS EQUITY
--------------- ------------- --------------
<S> <C> <C> <C>
Balances, January 1, 1998 ........... $ 6,640,591 $ 7,475,355 $ 14,115,946
Net Income .......................... -- 2,632,931 2,632,931
Capital Distributions, Net .......... (1,337,128) -- (1,337,128)
------------ ----------- ------------
Balances, December 31, 1998 ......... 5,303,463 10,108,286 15,411,749
Net Income .......................... -- 2,833,588 2,833,588
Capital Distributions, Net .......... (2,938,994) -- (2,938,994)
------------ ----------- ------------
Balances, December 31, 1999 ......... $ 2,364,469 $12,941,874 $ 15,306,343
============ =========== ============
</TABLE>
COMBINED INCOME STATEMENTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1999 1998
------------- -------------
<S> <C> <C>
GROSS OPERATING REVENUE
Suite Revenue ........................................................... $7,419,101 $7,173,338
Other Customer Revenue .................................................. 398,812 437,197
---------- ----------
Total Revenue ......................................................... 7,817,913 7,610,535
---------- ----------
EXPENSES
Property and Operating .................................................. 2,491,119 2,400,823
General and Administrative .............................................. 105,719 95,694
Advertising and Promotion ............................................... 328,070 325,398
Utilities ............................................................... 270,080 291,153
Real Estate and Personal Property Taxes, and Property Insurance ......... 444,162 338,054
Land Rent ............................................................... 100,000 100,000
Depreciation Expense .................................................... 714,411 1,003,928
Franchise and Management Fees ........................................... 530,764 286,933
Pre-Opening Expenses .................................................... -- 135,621
---------- ----------
Total Expenses ........................................................ 4,984,325 4,977,604
---------- ----------
Net Income ............................................................ $2,833,588 $2,632,931
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Net Income .......................................... $ 2,833,588 $ 2,632,931
------------ ------------
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation ...................................... 714,411 1,003,928
Change In:
Accounts receivable .............................. (49,899) (96,807)
Prepaids and other current assets ................ (69,652) (15,751)
Accounts payable ................................. (27,249) (491,258)
Accrued taxes .................................... (81,081) 158,299
Accrued expenses - other ......................... (3,809) 46,124
------------ ------------
Net adjustments ...................................... 482,721 604,535
------------ ------------
Net cash flows from operating activities ....... 3,316,309 3,237,466
------------ ------------
CASH FLOWS TO FINANCING ACTIVITIES
Capital distributions, net .......................... (3,227,375) (3,139,575)
------------ ------------
Net increase in cash .............................. 88,934 97,891
Cash, beginning of year ........................... 142,363 44,472
------------ ------------
Cash, end of year ................................. $ 231,297 $ 142,363
============ ============
</TABLE>
SUPPLEMENTAL DISCLOSURES:
NONCASH FINANCING AND INVESTING ACTIVITIES
Year Ended December 31, 1999
Investments in hotel properties in the amount of $288,381 were financed
with capital contributions.
Year Ended December 31, 1998
Investments in hotel properties in the amount of $1,802,447 were financed
with capital contributions.
Construction in progress in the amount of $7,510,072 was reclassified to
investment in hotel properties.
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
The Homewood Suites Acquisition Hotels (the Hotels) consist of the
following:
<TABLE>
<CAPTION>
PROPERTY HOTEL LOCATION DATE OPENED # OF SUITES
------------------------------ ----------------------- --------------- ------------
<S> <C> <C> <C>
Boulder Boulder, Colorado January, 1991 112
Philadelphia/Great Valley Malvern, Pennsylvania January, 1998 123
</TABLE>
Economic conditions in the localities in which the individual hotels are
located impact revenues and the ability to collect accounts receivable.
The Hotels specialize in providing extended stay lodging to business or
leisure travelers. While customers may rent rooms for a night, terms of up to a
month or longer are available. Services offered, which are particularly
attractive to the extended stay traveler, include laundry services, 24 hour
on-site convenience stores and grocery shopping services.
The Hotels were owned and managed by affiliates of Promus Hotels, Inc.
(the Owner) through November 30, 1999. Promus Hotels, Inc. and the affiliated
entities owning the Hotels were acquired by Hilton Hotels Corporation effective
November 30, 1999. Hilton Hotels Corporation has managed the Hotels since that
date. The accompanying combined financial statements of the Hotels have been
presented on a combined basis because the Owner sold the Philadelphia/Great
Valley Hotel to an affiliate of Apple Suites, Inc. on May 8, 2000 and has a
contract pending to sell the Boulder Hotel property to an affiliate of Apple
Suites, Inc. Apple Suites, Inc., is a real estate investment trust established
to acquire equity interests in hotel properties. The statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission for inclusion in a filing by Apple Suites, Inc.
The corporate owner pays income taxes on taxable income of the company as
a whole and does not allocate income taxes to individual properties.
Accordingly, the combined financial statements have been presented on a pretax
basis.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
Property -- The Hotel properties are recorded at cost. Depreciation
through August 1999 has been recorded straight-line using the following lives:
<TABLE>
<CAPTION>
LIFE
------------
<S> <C>
Land Improvements .......................... 5-12 Years
Buildings and Improvements ................. 15-35 Years
Furniture, Fixtures and Equipment .......... 3-10 Years
</TABLE>
Major renewals, betterments and improvements are capitalized, while
ongoing maintenance and repairs are expensed as incurred. Building costs
include interest capitalized during the construction period. Construction in
progress represents Hotel
-8-
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998 - (CONTINUED)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
properties under construction. At the point construction is completed and the
Hotels are ready to be placed in service, the costs are reclassified to
investment in Hotel properties for financial statement presentation.
Estimates -- The preparation of financial statements in accordance with
generally accepted accounting principals requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and disclosures related thereto. Actual results could
differ from those estimates.
Annually, management of the hotels reviews the carrying value and
remaining depreciable lives of the Hotel properties and related assets. During
1999, the Owner identified the Philadelphia/Great Valley and Boulder Hotel
properties as held for disposal. In accordance with Statement of Financial
Accounting Standards number 121, management discontinued depreciating the
assets at this time. Accordingly, the 1999 income statement includes only eight
months depreciation. Sales proceeds received from the sale of the
Philadelphia/Great Valley property on May 8, 2000 and anticipated sales
proceeds for the pending sale of the Boulder Hotel property both exceed the net
carrying values of the properties reflected in these financial statements.
Accounts receivable are recorded net of an allowance for doubtful accounts
based on management's historical experience in estimating credit losses. Actual
uncollectible balances written off may be more or less than the allowance
recorded.
Cash -- Cash includes all highly liquid investments with a maturity date
of three months or less when purchased.
Advertising -- Advertising costs are expensed in the period incurred.
Pre-Opening Expenses -- Pre-opening expenses represent operating expenses
incurred prior to initial opening of the hotels. In 1998, pre-opening expenses
of $135,621 were expensed as incurred for the Philadelphia/Great Valley hotel.
Inventories -- The Hotels maintain supplies of room linens and food and
beverages. However, due to the ongoing routine replacement of these items and
the difficulty in establishing market values, management has chosen to expense
these items at point of purchase.
NOTE 3 -- RELATED PARTY TRANSACTIONS
During the years ended December 31, 1999 and 1998, the following owner
related fees were expensed.
-9-
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998 - (CONTINUED)
NOTE 3 -- RELATED PARTY TRANSACTIONS - (CONTINUED)
<TABLE>
<CAPTION>
TOTAL EXPENSE
-----------------------
FEE TYPE BASIS FOR DETERMINATION 1999 1998
------------------------------------ ---------------------------- ---------- ----------
<S> <C> <C> <C>
Accounting Fees .................... $1,000 per hotel per month $ 24,000 $ 24,000
Corporate Advertising,
Training and Reservations ......... 4% of Net Suite Revenue $296,764 $286,934
Franchise Fees ..................... 4% of Net Suite Revenue $296,764 $286,933
Management Fees .................... 3% of Total Revenue $234,000 $ --
</TABLE>
The acquisition cost of the properties and related furnishings and
equipment was financed by the Owner. The Owner allocated interest to each
property on monies advanced to fund the construction costs. The interest costs
have been capitalized and depreciated in accordance with the Hotels' normal
depreciation policy. Interest capitalized and included in the cost basis of the
hotels totaled $242,065 in 1998.
On most property and equipment purchases, excluding base hotel
construction contracts, the following fees paid to the Owner have been
capitalized:
Purchase Fee -- 3.0% to 4.0% of Asset Cost
Project Management Fee -- 4.0% to 4.5% of labor portion of capitalized
asset costs
Each Hotel maintains a depository bank account into which customer
revenues have been deposited. The bulk of each Hotel's operating expenditures
are paid through the Owner's corporate accounts. Funds are transferred from the
Hotel's depository bank accounts to the Owner periodically. The transfers to
the Owner and expenditures made on behalf of the Hotels by the Owner are
accounted for through various intercompany accounts. No interest has been
charged on these intercompany advances from ongoing operations. There is no
intention to repay any advances to or from the Owner. Accordingly, the net
amounts have been included in shareholders' equity with 1999 and 1998
intercompany/intracompany transfers being reflected as net capital
distributions.
NOTE 4 -- LAND LEASE
The land on which the Philadelphia/ Great Valley hotel is located is
leased. The lease is for a 30 year term beginning May 1, 1997 and includes
three 10 year renewal options. Scheduled rent is $100,000 annually, payable in
monthly installments. Rent can be increased but not decreased, every 5 years by
the CPI change, not to exceed 15%.
Below are scheduled minimum lease payments for each of the next 5 years.
<TABLE>
<S> <C>
2000 ................. $100,000
2001 ................. 100,000
2002 ................. 100,000
2003 ................. 100,000
2004 ................. 100,000
--------
$500,000
========
</TABLE>
-10-
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998 - (CONTINUED)
NOTE 4 -- LAND LEASE - (CONTINUED)
Rent expense for each of the years ended December 31, totaled $100,000.
NOTE 5 -- CONCENTRATIONS OF CREDIT RISK
At December 31, 1999, financial instruments that subject the Company to
concentrations of credit risk consist of cash deposits in a single financial
institution which exceed maximum amounts insurable by FDIC by $52,977.
-11-
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
COMBINED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 2000
---------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash ................................................. $ 154,617
Accounts receivable, net ............................. 334,193
Prepaids and other ................................... 37,509
------------
Total current assets ............................... 526,319
------------
INVESTMENT IN HOTEL PROPERTIES
Land and improvements ................................ 1,911,918
Buildings and Improvements ........................... 13,078,590
Furniture, fixtures and equipment .................... 4,362,527
------------
Total .............................................. 19,353,035
Less: Accumulated depreciation ....................... (4,170,565)
------------
Net investment in hotel properties ................. 15,182,470
------------
Total assets ....................................... $ 15,708,789
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ..................................... $ 1,679
Accrued taxes ........................................ 223,311
Accrued expenses -- Other ............................ 101,583
------------
Total current liabilities .......................... 326,573
------------
SHAREHOLDERS' EQUITY
Contributed capital ................................... 1,595,274
Retained earnings .................................... 13,786,942
------------
Total Shareholders' Equity ......................... 15,382,216
------------
Total Liabilities and Shareholders' Equity ......... $ 15,708,789
============
</TABLE>
The accompanying notes are an integral part of this financial statement.
-12-
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
CONTRIBUTED RETAINED SHAREHOLDERS'
CAPITAL EARNINGS EQUITY
------------- -------------- --------------
<S> <C> <C> <C>
Balances, January 1, 2000 .......... $2,364,469 $12,941,874 $15,306,343
Net Income ......................... -- 845,068 845,068
Capital Distributions, Net ......... (769,195) -- (769,195)
---------- ----------- -----------
Balances, March 31, 2000 ........... $1,595,274 $13,786,942 $15,382,216
========== =========== ===========
</TABLE>
COMBINED INCOME STATEMENT
FOR THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED)
<TABLE>
<S> <C>
GROSS OPERATING REVENUE
Suite Revenue ........................................................... $1,841,936
Other Customer Revenue .................................................. 93,150
----------
Total Revenue ......................................................... 1,935,086
----------
EXPENSES
Property and Operating .................................................. 633,274
General and Administrative .............................................. 33,287
Advertising and Promotion ............................................... 82,781
Utilities ............................................................... 65,361
Real Estate and Personal Property Taxes, and Property Insurance ......... 118,585
Land Rent ............................................................... 25,000
Franchise and Management Fees ........................................... 131,730
----------
Total Expenses ........................................................ 1,090,018
----------
Net Income ............................................................ $ 845,068
==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
-13-
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
COMBINED STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED)
<TABLE>
<S> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Net Income ...................................................................... $ 845,068
----------
Adjustments to reconcile net income to net cash provided by operating activities:
Change in:
Accounts receivable .......................................................... (126,540)
Prepaids and other current assets ............................................ 47,894
Accounts payable ............................................................. (15,425)
Accrued taxes ................................................................ (54,284)
Accrued expenses - other ..................................................... (4,198)
----------
Net Adjustments .................................................................. (152,553)
----------
Net cash flows from operating activities ..................................... 692,515
CASH FLOWS TO FINANCING ACTIVITIES:
Net equity distributions ........................................................ (769,195)
----------
Net decrease in cash ......................................................... (76,680)
Cash, January 1, 2000 ........................................................ 231,297
----------
Cash, March 31, 2000 ......................................................... $ 154,617
==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
-14-
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED)
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
The Homewood Suites Acquisition Hotels (the Hotels) consist of the
following:
<TABLE>
<CAPTION>
PROPERTY HOTEL LOCATION DATE OPENED # OF SUITES
-------------------------------- ----------------------- --------------- ------------
<S> <C> <C> <C>
Boulder Boulder, Colorado January, 1991 112
Philadelphia/Great Valley Malvern, Pennsylvania January, 1998 123
</TABLE>
Economic conditions in the localities in which the individual hotels are
located impact revenues and the ability to collect accounts receivable.
The Hotels specialize in providing extended stay lodging to business or
leisure travelers. While customers may rent rooms for a night, terms of up to a
month or longer are available. Services offered, which are particularly
attractive to the extended stay traveler, include laundry services, 24 hour
on-site convenience stores and grocery shopping services.
The Hotels have been owned and managed by Hilton Hotels Corporation (the
Owner) throughout the financial statement period. The accompanying combined
financial statements of the Hotels have been presented on a combined basis
because the Owner sold the Philadelphia/Great Valley Hotel to an affiliate of
Apple Suites, Inc. on May 8, 2000 and has a contract pending to sell the
Boulder Hotel property to an affiliate of Apple Suites, Inc. Apple Suites, Inc.
is a real estate investment trust established to acquire equity interests in
hotel properties. The statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission for inclusion in a filing
by Apple Suites, Inc.
The corporate owner pays income taxes on taxable income of the company as
a whole and does not allocate income taxes to individual properties.
Accordingly, the combined financial statements have been presented on a pretax
basis.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
Property -- The Hotel properties are recorded at cost. Depreciation
through August, 1999 has been recorded straight-line using the following lives:
<TABLE>
<CAPTION>
LIFE
------------
<S> <C>
Land Improvements .......................... 5-12 Years
Buildings and Improvements ................. 15-35 Years
Furniture, Fixtures and Equipment .......... 3-10 Years
</TABLE>
-15-
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED) - (CONTINUED)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Major renewals, betterments and improvements are capitalized, while
ongoing maintenance and repairs are expensed as incurred. Building costs
include interest capitalized during the construction period.
Estimates -- The preparation of financial statements in accordance with
generally accepted accounting principals requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and disclosures related thereto. Actual results could
differ from those estimates.
Annually, management of the hotels reviews the carrying value and
remaining depreciable lives of the Hotel properties and related assets. During
1999, the Owner identified the Philadelphia/Great Valley and Boulder Hotel
properties as held for disposal. In accordance with Statement of Financial
Accounting Standards number 121, management discontinued depreciating the
assets at this time. Accordingly, the January 1, 2000 through March 31, 2000
income statement does not include depreciation expense. Sales proceeds received
from the sale of the Philadelphia/Great Valley property on May 8, 2000 and
anticipated sales proceeds for the pending sale of the Boulder Hotel property
both exceed the net carrying values of the properties reflected in these
financial statements.
Accounts receivable are recorded net of an allowance for doubtful accounts
based on management's historical experience in estimating credit losses. Actual
uncollectible balances written off may be more or less than the allowance
recorded.
Cash -- Cash includes all highly liquid investments with a maturity date
of three months or less when purchased.
Advertising -- Advertising costs are expensed in the period incurred.
Inventories -- The Hotels maintain supplies of room linens and food and
beverages. However, due to the ongoing routine replacement of these items and
the difficulty in establishing market values, management has chosen to expense
these items at point of purchase.
-16-
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED) - (CONTINUED)
NOTE 3 -- RELATED PARTY TRANSACTIONS
During the period January 1, 2000 through March 31, 2000, the following
Owner related fees were expensed.
<TABLE>
<CAPTION>
FEE TYPE BASIS FOR DETERMINATION TOTAL EXPENSE
------------------------------- ---------------------------- --------------
<S> <C> <C>
Accounting Fees ............... $1,000 per hotel per month $ 6,000
Corporate Advertising, Training
and Reservations ............. 4% of net suite revenue 73,677
Franchise Fees ................ 4% of net suite revenue 73,677
Management Fees ............... 3% of net suite revenue 58,053
</TABLE>
The acquisition cost of the properties and related furnishings and
equipment was financed by the Owner. The Owner allocated interest to each
property on monies advanced to fund the construction costs. The interest costs
have been capitalized and depreciated in accordance with the Hotels' normal
depreciation policy.
On most property and equipment purchases, excluding base hotel
construction contracts, the following fees paid to Hilton Hotels Corporation
have been capitalized:
Purchase Fee -- 4% of Asset Cost
Project Management Fee -- 4.0 % to 4.5% of labor portion of capitalized
asset costs
Each Hotel maintains a depository bank account into which customer
revenues have been deposited. The bulk of each Hotel's operating expenditures
are paid through the Owner's corporate accounts. Funds are transferred from the
Hotel's depository bank accounts to the Owner periodically. The transfers to
the Owner and expenditures made on behalf of the Hotels by the Owner are
accounted for through various intercompany accounts. No interest has been
charged on these intercompany advances from ongoing operations. There is no
intention to repay any advances to or from the Owner. Accordingly, the net
amounts have been included in shareholders' equity with
intercompany/intracompany transfers being reflected as net capital
distributions.
-17-
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED) - (CONTINUED)
NOTE 4 -- LAND LEASE
The land on which the Philadelphia/Great Valley hotel is located is
leased. The lease is for a 30 year term beginning May 1, 1997 and includes
three 10 year renewal options. Scheduled rent is $100,000 annually, payable in
monthly installments. Rent can be increased but not decreased, every 5 years by
the CPI change, not be exceed 15%.
Below are scheduled minimum lease payments for each of the next 5 years.
<TABLE>
<S> <C>
2000 ................. $100,000
2001 ................. 100,000
2002 ................. 100,000
2003 ................. 100,000
2004 ................. 100,000
--------
$500,000
========
</TABLE>
Rent expense for the period January 1, 2000 through March 31, 2000 totaled
$25,000.
-18-
<PAGE>
ITEM 7.a.2
APPLE SUITES, INC.
PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET AS OF MARCH 31, 2000 (UNAUDITED)
The following unaudited Pro Forma Condensed Consolidated Balance Sheet of
Apple Suites, Inc. (the "Company") is presented as if the acquisition of the
Homewood Suites -- Malvern, PA hotel on May 8, 2000 and the acquisition of the
Homewood Suites -- Boulder, CO hotel on June 30, 2000 from Promus Hotels, Inc.
or its affiliates ("Promus"), which is now a wholly-owned subsidiary of Hilton
Hotels Corporation, had occurred on March 31, 2000. See Note A for individual
hotel details. Such information is based in part upon the historical
Consolidated Balance Sheet of the Company as of March 31, 2000. In management's
opinion, all adjustments necessary to reflect the effects of these transactions
have been made.
The following unaudited Pro Forma Condensed Consolidated Balance Sheet is
not necessarily indicative of what the actual financial position would have
been assuming such transactions had been completed as of March 31, 2000, nor
does it purport to represent the future financial position of the Company.
<TABLE>
<CAPTION>
HOMEWOOD
SUITES
HISTORICAL ACQUISITION
BALANCE (A IV) TOTAL
SHEET ADJUSTMENTS PRO FORMA
---------------- ---------------------- ---------------
<S> <C> <C> <C>
ASSETS
Investment in hotel properties ......................... $ 93,450,963 $ 30,981,480 (A) $124,432,443
Cash and cash equivalents .............................. 3,781,922 (2,772,886)(D) 1,009,036
Restricted cash ........................................ 696,869 -- 696,869
Rent receivable from Apple Suites Management, Inc. ..... 2,641,141 -- 2,641,141
Notes and other receivable from Apple Suites
Management, Inc. ..................................... 694,766 -- 694,766
Capital improvement reserve ............................ 753,927 -- 753,927
Prepaid expenses ....................................... 263,781 -- 263,781
Other assets ........................................... 531,470 -- 531,470
------------ ------------- ------------
Total Assets ......................................... $102,814,839 $ 28,208,594 $131,023,433
============ ============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Notes payable-secured .................................. $ 68,569,500 $ 22,780,500 (B) $ 91,350,000
Accounts payable ....................................... 161,258 -- 161,258
Accounts payable-affiliate ............................. 531,285 -- 531,285
Distributions payable .................................. -- -- --
Accrued expenses ....................................... 554,977 -- 554,977
------------ ------------- ------------
Total Liabilities .................................... 69,817,020 22,780,500 92,597,520
SHAREHOLDERS' EQUITY
Common stock, no par value, authorized 200,000,000
shares; issued and outstanding 3,922,923 shares ...... 32,985,016 5,428,094 (C) 38,413,110
Class B convertible stock, no par value, authorized
240,000 shares; issued and outstanding 240,000 shares. 24,000 -- 24,000
Distributions greater than net income .................. (11,197) -- (11,197)
------------ ------------- ------------
Total Shareholders' Equity ........................... 32,997,819 5,428,094 38,425,913
------------ ------------- ------------
Total Liabilities and Shareholders' Equity ........... $102,814,839 $ 28,208,594 $131,023,433
============ ============= ============
</TABLE>
-19-
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(A) Increase represents the purchase of 2 hotels, including the 2% acquisition
fee payable to Apple Suites Realty Group, Inc. The hotels acquired are as
follows:
<TABLE>
<CAPTION>
DATE
COMMENCED
PROPERTY OPERATIONS
----------------------------------------- --------------
<S> <C> <C>
IV Homewood Suites -- Malvern, PA .......... January 1998
IV Homewood Suites -- Boulder, CO .......... January 1991
--------------------------------------------------------------
<CAPTION>
2%
DATE PURCHASE ACQUISITION DEBT
ACQUIRED PRICE FEE TOTAL INCURRED
------------- -------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
IV May 8, 2000 15,489,000 309,780 15,798,780 11,616,750
IV June 30, 2000 14,885,000 297,700 15,182,700 11,163,750
------------------------------------------------------------------------------
Total $30,374,000 $607,480 $30,981,480 $22,780,500
</TABLE>
(B) Represents the debt incurred at acquisition. The notes bear interest of
8.5% per annum. The maturity date for the one note in the amount of
$11,616,750 is May, 2001, the maturity date for the second note in the
amount of $11,163,750 will be one year from the date of purchase.
(C) Increase to common stock to reflect the net proceeds from the sale of
606,491 common shares from the Company's continuous offering, issued
subsequent to March 31, 2000.
(D) Reflects the use of cash on hand to purchase the hotels.
-20-
<PAGE>
APPLE SUITES, INC.
PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations of the Company are presented as if the acquisition and pending
acquisition of the Homewood Suites hotels from Promus Hotels, Inc. or its
affiliates ("Promus"), which is now a wholly-owned subsidiary of Hilton Hotels
Corporation, had occurred at the beginning of the periods presented for the
respective periods prior to acquisition by the Company, and all of the hotels
had been leased to Apple Suites Management, Inc. or its subsidiary (the
"Lessee") pursuant to the master hotel lease agreements. Such pro forma
information is based in part upon the Consolidated Statements of Operations of
the Company, the Pro Forma Statements of Operations of the Lessee and the
historical Statements of Operations of the acquired hotels. In management's
opinion, all adjustments necessary to reflect the effects of these transactions
have been made.
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations for the periods presented are not necessarily indicative of what
actual results of operations of the Company would have been assuming such
transactions had been completed as of the beginning of the periods presented,
nor does it purport to represent the results of operations for future periods.
The lease agreements between the Company and the Lessee were based on economic
conditions existing at the time of acquisition. Application of these agreements
to periods prior to the acquisition may not be meaningful.
The Company's historical Statement of Operations for the year ended
December 31, 1999 reflect only four months of operations, as the first four
hotels were purchased on September 1, 1999.
FOR THE YEAR ENDED DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
STATEMENT OF
OPERATIONS
--------------
<S> <C>
Revenue:
Lease revenue ...................... $ 2,518,031
Interest income and other
revenue ........................... 169,086
Expenses:
Taxes, insurance and other ......... 426,592
General and administrative ......... 153,807
Depreciation of real estate
owned ............................. 496,209
Interest ........................... 1,245,044
Rent expense ....................... --
-----------
Total expenses ...................... 2,321,652
-----------
Net income .......................... $ 365,465
===========
Earnings per common share:
Basic and Diluted ................... $ 0.14
===========
Basic and diluted weighted average
common shares outstanding .......... 2,648,196
===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------------------------------------------------------
HOMEWOOD HOMEWOOD HOMEWOOD HOMEWOOD
SUITES SUITES SUITES SUITES
ACQUISITION ACQUISITION ACQUISITION ACQUISITION
(A I) (A II) (A III) (A IV)
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Revenue:
Lease revenue ...................... $ 4,162,371(B) $ 5,480,272(B) $ 1,035,841(B) $ 3,487,608(B)
Interest income and other
revenue ........................... -- -- -- --
Expenses:
Taxes, insurance and other ......... 822,599(C) 647,225(C) 93,884(C) 444,162(C)
General and administrative ......... 247,028(D) 251,015(D) 230,037(D) 246,594(D)
Depreciation of real estate
owned ............................. 656,623(E) 821,580(E) 140,664(E) 688,654(E)
Interest ........................... 1,977,313(F) 2,353,863(F) 372,683(F) 1,936,343(F)
Rent expense ....................... -- -- -- 100,000(H)
------------ ------------ ------------ ------------
Total expenses ...................... 3,703,563 4,073,683 837,268 3,415,753
------------ ------------ ------------ ------------
Net income .......................... 458,808 1,406,589 198,573 71,855
============ ============ ============ ============
Earnings per common share:
Basic and Diluted ...................
Basic and diluted weighted average
common shares outstanding .......... --(G) 604,857(G) 176,360(G) 916,311(G)
<CAPTION>
TOTAL
PRO FORMA
----------------
<S> <C>
Revenue:
Lease revenue ...................... $ 16,684,123
Interest income and other
revenue ........................... 169,086
Expenses:
Taxes, insurance and other ......... 2,434,462
General and administrative ......... 1,128,481
Depreciation of real estate
owned ............................. 2,803,730
Interest ........................... 7,885,246
Rent expense ....................... 100,000
------------
Total expenses ...................... 14,351,919
------------
Net income .......................... 2,501,290
============
Earnings per common share:
Basic and Diluted ................... $ 0.58
============
Basic and diluted weighted average
common shares outstanding .......... 4,345,724
============
</TABLE>
-21-
<PAGE>
APPLE SUITES, INC.
PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS -- (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------
HOMEWOOD
HISTORICAL SUITES
STATEMENT OF ACQUISITION TOTAL
OPERATIONS (A IV) PRO FORMA
-------------- ---------------------- ---------------
<S> <C> <C> <C>
Revenue:
Lease revenue ............................. $ 3,406,678 $ 861,236 (B) $ 4,267,914
Interest income and other revenue ......... 48,007 (19,919) (I) 28,088
Expenses:
Taxes, insurance and other ................ 691,575 118,585 (C) 810,160
General and administrative ................ 254,736 5,126 (D) 259,862
Depreciation of real estate owned ......... 549,201 244,159 (E) 793,360
Interest .................................. 1,453,110 484,086 (F) 1,937,196
Rent expense .............................. -- 25,000 (H) 25,000
----------- ----------- -----------
Total expenses ............................. 2,948,622 876,956 3,825,578
Net income ................................. $ 506,063 (35,639) $ 470,424
=========== =========== ===========
Earnings per common share:
Basic and Diluted .......................... $ 0.14 $ 0.11
=========== ===========
Basic and diluted weighted average common
shares outstanding ........................ 3,607,458 738,266 (G) 4,345,724
=========== =========== ===========
</TABLE>
-22-
<PAGE>
APPLE SUITES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(A) Represents results of operations for the hotels acquired on a pro forma
basis as if the hotels were owned by the Company at the beginning of the
periods presented for the respective periods prior to acquisition by the
Company. See below.
<TABLE>
<CAPTION>
DATE COMMENCED DATE
PROPERTY OPERATIONS ACQUIRED
--------------------------------------------- ---------------- ------------------
<S> <C> <C> <C>
I Homewood Suites -- Dallas, TX ............... 1990 September 1, 1999
I Homewood Suites -- Las Colinas, TX .......... 1990 September 1, 1999
I Homewood Suites -- Plano, TX ................ 1997 September 1, 1999
I Homewood Suites -- Richmond, VA ............. May 1998 September 1, 1999
I Homewood Suites -- Atlanta, GA .............. 1990 October 1, 1999
---------------------------------------------------------------------------------------
II Homewood Suites -- Clearwater, FL ........... February 1998 November 24, 1999
II Homewood Suites -- Salt Lake, UT ............ 1996 November 24, 1999
II Homewood Suites -- Atlanta, GA .............. 1990 November 24, 1999
II Homewood Suites -- Detroit, MI .............. 1990 November 24, 1999
II Homewood Suites -- Baltimore, MD ............ March 1998 November 24, 1999
---------------------------------------------------------------------------------------
III Homewood Suites -- Jackson, MS .............. February 1997 December 22, 1999
---------------------------------------------------------------------------------------
IV Homewood Suites -- Malvern, PA .............. January 1998 May 8, 2000
IV Homewood Suites -- Boulder, CO .............. January 1991 June 30, 2000
</TABLE>
(B) Represents lease payment from the Lessee to the Company calculated on a pro
forma basis by applying the rent provisions in the master hotel lease
agreement to the historical room revenue of the hotels as if the beginning
of the period was the beginning of the lease year. The base rent and the
percentage rent will be calculated and paid based on the terms of the
lease agreement.
(C) Represents historical real estate and personal property taxes and insurance
which will be paid by the Company pursuant to the master hotel lease
agreement. Such amounts are the historical amounts paid by the respective
hotels.
(D) Represents the advisory fee of .25% of accumulated capital contributions
under the "best efforts" offering for the period of time not owned by the
Company (for the year ended December 31, 1999 and the three months ended
March 31, 2000) plus and anticipated legal and accounting fees, employee
costs, salaries and other costs of operating as a public company (for the
year ended December 31, 1999).
(E) Represents the depreciation on the hotels acquired based on the purchase
price, excluding amounts allocated to land, of $37,450,320 for the first
acquisition group, $34,954,481 for the second acquisition group,
$5,485,886 for the third acquisition group, and $30,500,611 for the fourth
acquisition group for the period of time not owned by the Company. The
weighted average life of the depreciable assets was 39 years. The
estimated useful lives are based on management's knowledge of the
properties and the hotel industry in general.
(F) Represents the interest expense for the hotel acquisitions for the period
in which the hotels were not owned. Interest was computed using the
interest rates of 8.5% on mortgage debt that was incurred at acquisition
of $33,975,000 for the first acquisition group, $30,210,000 for the second
acquisition group, $4,384,500 for the third acquisition group, and
$22,780,500 for the fourth acquisition group.
(G) Represents additional common shares assuming the properties were acquired
at the beginning of the periods presented with the net proceeds from the
"best efforts" offering of $9 per share (net $8.06 per share) for the
first $15,000,000 and $10 per share (net $8.95 per share) for the
remainder.
(H) Represents rent expense on the land lease at the Malvern, PA hotel. The
Company accounts for the land lease as a operating lease.
(I) Represents reduction in interest income associated with the $1.6 million
of cash used to purchase hotels at an interest rate of 5%.
-23-
<PAGE>
APPLE SUITES MANAGEMENT, INC.
PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
AND THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations of Apple Suites Management, Inc. (the "Lessee") are presented as if
the hotels purchased or to be purchased from Promus Hotels, Inc. or its
affiliates ("Promus"), which is now a wholly-owned subsidiary of Hilton Hotels
Corporation, had been leased from Apple Suites, Inc. (the "Company") pursuant
to the master hotel lease agreements from the beginning of periods presented
for the respective periods prior to acquisition by the Company. Further, the
results of operations reflect the Management Agreement and License Agreement
entered into between Promus and the Lessee or an affiliate to operate the
acquired hotels. The lease agreements between the Company and the Lessee were
based on economic conditions existing at the time of acquisition. Application
of these agreements to periods prior to the acquisition may not be meaningful.
Such pro forma information is based in part upon the historical Consolidated
Statements of Operations of the Lessee and the Homewood Suites Hotels and
should be read in conjunction with such financials statement. In management's
opinion, all adjustments necessary to reflect the effects of these transactions
have been made.
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations are not necessarily indicative of what the actual results of
operations of the Lessee would have been assuming such transactions had been
completed as of the beginning of the periods presented, nor do they purport to
represent the results of operations for future periods.
FOR THE YEAR ENDED DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
HOMEWOOD HOMEWOOD
HISTORICAL SUITES SUITES
STATEMENT OF ACQUISITIONS ACQUISITIONS
OPERATIONS (A I) (A II)
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Suite revenue ...................... $5,335,925 $9,818,797 $12,082,374
Other income ....................... 335,150 560,096 709,240
Expenses:
Operating expenses ................. 1,656,540 3,794,204 4,870,096
General and administrative ......... 494,377 250,317 300,399
Advertising and promotion .......... 472,787 438,985 580,564
Utilities .......................... 199,907 354,113 551,359
Taxes and insurance ................ -- 822,599 647,225
Depreciation expense ............... -- 1,783,021 2,217,128
Franchise fees ..................... 213,437 392,757 483,295
Management fees .................... 226,136 311,275 383,599
Rent expense-Apple Suites, Inc. 2,518,031 -- --
Other .............................. 30,964 -- --
---------- ---------- -----------
Total expenses ...................... 5,812,179 8,147,271 10,033,665
Income before income tax ............ (141,104) 2,231,622 2,757,949
Income tax expense .................. -- -- --
---------- ---------- -----------
Net income .......................... $ (141,104) $2,231,622 $ 2,757,949
========== ========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HOMEWOOD HOMEWOOD
SUITES SUITES
ACQUISITION ACQUISITION PRO FORMA TOTAL
(A III) (A IV) ADJUSTMENTS PRO FORMA
------------- ------------- ----------------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Suite revenue ...................... $2,230,952 $7,419,101 -- $36,887,149
Other income ....................... 168,438 398,812 -- 2,171,736
Expenses:
Operating expenses ................. 954,102 2,491,119 -- 13,766,061
General and administrative ......... 77,381 105,719 $ (131,000)(B)
50,000 (C) 1,147,193
Advertising and promotion .......... 112,902 328,070 (1,262,049)(D)
1,262,049 (E) 1,933,308
Utilities .......................... 75,639 270,079 -- 1,451,097
Taxes and insurance ................ 93,884 444,161 (2,007,869) (F) --
Depreciation expense ............... 426,986 714,411 (5,141,546)(G) --
Franchise fees ..................... 89,238 296,764 (1,262,049)(H)
1,262,049 (I) 1,475,491
Management fees .................... 71,982 234,000 (1,000,856)(J)
1,467,512 (K) 1,693,648
Rent expense-Apple Suites, Inc. -- -- 14,166,092 (L) 16,684,123
Other .............................. -- 100,000 (100,000)(M) 30,964
---------- ---------- --------------- -----------
Total expenses ...................... 1,902,114 4,984,323 7,302,333 38,181,885
Income before income tax ............ 497,276 2,833,590 (7,302,333) 877,000
Income tax expense .................. -- -- 350,800 (N) 350,800
---------- ---------- --------------- -----------
Net income .......................... $ 497,276 $2,833,590 $ (7,653,133) $ 526,200
========== ========== =============== ===========
</TABLE>
-24-
<PAGE>
APPLE SUITES MANAGEMENT, INC.
PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS -- (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
HOMEWOOD
HISTORICAL SUITES
STATEMENT OF ACQUISITION PRO FORMA TOTAL
OPERATIONS (A IV) ADJUSTMENTS PRO FORMA
-------------- ------------- ------------------ -------------
<S> <C> <C> <C> <C>
Revenues:
Suite revenue ........................... $7,682,355 $1,841,936 -- $9,524,291
Other income ............................ 420,816 93,150 -- 513,966
Expenses:
Operating expenses ...................... 2,295,392 633,274 -- 2,928,666
General and administrative .............. 670,943 33,287 $ (6,000)(B)
12,500 (C) 710,730
Advertising and promotion ............... 662,647 82,781 (73,677)(D)
73,677 (E) 745,428
Utilities ............................... 283,263 65,361 -- 348,624
Taxes and insurance ..................... -- 118,585 (118,585)(F) --
Franchise fees .......................... 307,294 73,677 (73,677)(H)
73,677 (I) 380,971
Management fees ......................... 322,766 58,053 (58,053)(J)
83,403 (K) 406,169
Rent expense-Apple Suites, Inc. ......... 3,406,678 -- 861,236 (L) 4,267,914
Interest expense ........................ 15,275 -- -- 15,275
Other ................................... 96,212 25,000 (25,000)(M) 96,212
---------- ---------- ----------- ----------
Total expenses ........................... 8,060,470 1,090,018 749,501 9,899,989
Income before income tax ................. 42,701 845,068 (749,501) 138,268
Income tax expense ....................... -- -- 55,307 (N) 55,307
---------- ---------- ----------- ----------
Net income ............................... $ 42,701 $ 845,068 $ (804,808) $ 82,961
========== ========== =========== ==========
</TABLE>
-25-
<PAGE>
APPLE SUITES MANAGEMENT, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(A) Represents results of operations for the hotels acquired on a pro forma
basis as if the hotels were leased and operated by the Lessee at the
beginning of the periods presented for the respective periods prior to
acquisition by the Company. See below.
<TABLE>
<CAPTION>
DATE COMMENCED DATE
PROPERTY OPERATIONS ACQUIRED
--------------------------------------------- ---------------- ------------------
<S> <C> <C> <C>
I Homewood Suites -- Dallas, TX ............... 1990 September 1, 1999
I Homewood Suites -- Las Colinas, TX .......... 1990 September 1, 1999
I Homewood Suites -- Plano, TX ................ 1997 September 1, 1999
I Homewood Suites -- Richmond. VA ............. May 1998 September 1, 1999
I Homewood Suites -- Atlanta, GA .............. 1990 October 1, 1999
--------------------------------------------------------------------------------
II Homewood Suites -- Clearwater, FL ........... February 1998 November 24, 1999
II Homewood Suites -- Salt Lake, UT ............ 1996 November 24, 1999
II Homewood Suites -- Atlanta, GA .............. 1990 November 24, 1999
II Homewood Suites -- Detroit, MI .............. 1990 November 24, 1999
II Homewood Suites -- Baltimore, MD ............ March 1998 November 24, 1999
--------------------------------------------------------------------------------
III Homewood Suites -- Jackson, MS .............. February 1997 December 22, 1999
--------------------------------------------------------------------------------
IV Homewood Suites -- Malvern, PA .............. January 1998 May 8, 2000
IV Homewood Suites -- Boulder, CO .............. January 1991 June 30, 2000
</TABLE>
(B) Represents the elimination of the historical accounting fee allocated to
the hotels by the prior owner.
(C) Represents the addition of the anticipated legal and accounting and other
expenses to operate as a stand alone company.
(D) Represents the elimination of the historical advertising, training and
reservation fee allocated to the hotels by the prior owner.
(E) Represents the addition of the marketing fee to be incurred under the new
license agreements. The marketing fee is calculated based on the terms of
the license agreements which is 4% of suite revenue.
(F) Represents the elimination of the taxes and insurance. Under the terms of
the lease these expenses will be incurred by the Company and, accordingly,
are reflected in the Company's Pro Forma Condensed Consolidated Statement
of Operations.
(G) Represents the elimination of the depreciation expense. This expense will
be reflected in the Company's Pro Forma Condensed Consolidated Statement of
Operations.
(H) Represents the elimination of the historical franchise fee allocated to the
hotels by the prior owner.
(I) Represents the addition of franchise fees to be incurred under the new
license agreements. The franchise fees are calculated based on the terms of
the agreement , which is 4% of suite revenue.
(J) Represents the elimination of the historical management fees allocated to
the hotels by the prior owner.
(K) Represents the addition of the management fees of 4% of suite and other
revenue and the accounting fee $1,000 per hotel per month to be incurred
under the new management agreements for the period presented.
(L) Represents lease payments from the Lessee to the Company calculated on a
pro forma basis by applying the rent provisions in the Percentage Leases to
the historical room revenue of the hotels as if the beginning of the period
was the beginning of the lease year. The base rent and the percentage rent
will be calculated and paid based on the terms of the lease agreement.
(M) Represents the elimination of rent expense for the land lease. The rent
expense related to the land lease will be reflected on the Company's Pro
Forma Condensed Consolidated Statement of Operations.
(N) Represents the combined state and federal income tax expense estimated on a
combined rate of 40%.
-26-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Apple Suites, Inc.
Date: July 18, 2000 By: /s/ Glade M. Knight
--------------------------------
Glade M. Knight,
Chief Executive Officer
of Apple Suites, Inc.
-27-
