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 00000 Xxxxx Xxxx xx Xxxxx Xxxxxx, Xxxxx (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 Xxxxx 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, X.X.
Xxxxxx, NationsBank and Xxxxxx Aircraft Company.
The Metroplex is also an established transportation center for the
nation. The Dallas/Fort Worth International Airport occupies approximately
17,600 acres of land between the two cities. It is the second largest commercial
airport in the United States in terms of land area, and is the second busiest
airport in the world, with more than 2,500 daily arrivals and departures.
The area also has a well-established system of interstate highways and
supporting secondary routes. The Metroplex is located at the hub of Interstates
35, 45, 20 and 30. Two outer loops, Interstate 635 in Dallas and Interstate 820
in Fort Worth, surround the respective cities.
The many institutions of higher learning in the area include Southern
Methodist University, the University of Texas at Dallas, the University of Texas
at Arlington, the University of North Texas, and Texas Christian University.
The 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.
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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.
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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
Xxxxxxxxxx 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
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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.
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