UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2 TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Original Report: June 15, 2001
APPLE SUITES, INC.
(Exact name of registrant as specified in its charter)
Virginia 000-30491 54-1933472
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification Number)
10 South Third Street, Richmond, VA 23219
(Address of principal executive offices) (Zip Code)
(804) 344-8121
(Registrant's telephone number, including area code)
Apple Suites, Inc. hereby amends Item 7 of its Current Report on Form 8-K
dated June 15 (originally filed July 2, 2001) for the purpose of filing certain
exhibits (including material contracts, as amended) with respect to its
properties.
Item 7. Financial Statements and Exhibits
a. Financial Statements of Businesses Acquired (previously filed as part
of Current Report on Form 8-K/A (amendment no. 1) on September 4, 2001)
Hotel in Buckhead, Georgia
Independent Auditors' Report
Balance Sheet - December 31, 2000
Statement of Members' Equity - Year Ended December 31, 2000
Statement of Income - Year Ended December 31, 2000
Statement of Cash Flows - Year Ended December 31, 2000
Notes to the Financial Statements
Independent Accountants' Compilation Report
Balance Sheet (unaudited) - March 31, 2000
Statement of Members' Equity (unaudited) - January 1, 2001 through
March 31, 2001
Statement of Income (unaudited) - January 1, 2001 through March 31,
2001
Statement of Cash Flows (unaudited) - January 1, 2001 through March
31, 2001
Notes to the Financial Statements (unaudited)
Hotel in Chesterfiled, Missouri and Hotel in Beaverton, Oregon
Independent Auditors' Report
Combined Balance Sheet - December 31, 2000
Combined Statement of Shareholders' Equity - Year Ended
December 31, 2000
Combined Statement of Operations - Year Ended December 31, 2000
Combined Statement of Cash Flows - Year Ended December 31, 2000
Notes to the Combined Financial Statements
Independent Accountants' Compilation Report
Combined Balance Sheet (unaudited) - May 31, 2000
Combined Statement of Shareholders' Equity (unaudited) - January 1,
2001 through May 31, 2001
Combined Statement of Income (unaudited) - January 1, 2001 through
May 31, 2001
Combined Statement of Cash Flows (unaudited) - January 1, 2001 through
May 31, 2001
Notes to the Financial Statements (unaudited)
b. Pro Forma Financial Information (for Apple Suites, Inc.)
Pro Forma Condensed Consolidated Statements of Operations (unaudited)
- Year Ended December 31, 2000 and the Six Months Ended June 30,
2001
Notes to Pro Forma Financial Statements (unaudited)
-2-
[LETTERHEAD OF L.P. MARTIN & COMPANY]
Independent Auditors' Report
----------------------------
Apple Suites, Inc.
Richmond, Virginia
We have audited the accompanying balance sheet of the Homewood Suites Hotel
at Buckhead (described in Note 1) as of December 31, 2000, and the related
statements of income, members' equity and cash flows for the year then ended.
These financial statements are the responsibility of the management of the
hotel. Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 audit provides 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 Hotel at
Buckhead.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Homewood Suites Hotel at
Buckhead as of December 31, 2000, and the results of their operations and their
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States.
/s/ L.P. Martin & Co, P.C.
June 25, 2001
-3-
HOMEWOOD SUITES HOTEL AT BUCKHEAD
---------------------------------
BALANCE SHEET
-------------
DECEMBER 31, 2000
-----------------
ASSETS
======
CURRENT ASSETS
- --------------
Cash $ 310,612
Accounts Receivable - Trade 28,637
Prepaids and Other 14,352
-----------
TOTAL CURRENT ASSETS 353,601
-----------
INVESTMENT IN HOTEL PROPERTIES
- ------------------------------
Land and Improvements 1,995,980
Buildings and Improvements 5,474,583
Furniture, Fixtures and Equipment 1,410,725
-----------
TOTAL 8,881,288
Less: Accumulated Depreciation (896,468)
-----------
NET INVESTMENT IN HOTEL PROPERTIES 7,984,820
-----------
OTHER ASSETS
- ------------
Loan Costs, Net 371
Other 479
-----------
TOTAL OTHER ASSETS 850
-----------
TOTAL ASSETS $ 8,339,271
===========
The accompanying notes are an integral part of this financial statement.
-4-
LIABILITIES AND MEMBERS' EQUITY
-------------------------------
CURRENT LIABILITIES
- -------------------
Mortgage Payable $ 7,620,863
Note Payable 6,833
Accounts Payable 94,925
Accrued Interest 61,170
Accrued Expenses - Other 25,205
Due to Affiliate 30,250
-----------
TOTAL CURRENT LIABILITIES 7,839,246
-----------
MEMBERS' EQUITY 500,025
-----------
TOTAL LIABILITIES AND MEMBERS' EQUITY $ 8,339,271
===========
The accompanying notes are an integral part of this financial statement.
-5-
HOMEWOOD SUITES HOTEL AT BUCKHEAD
---------------------------------
STATEMENT OF MEMBERS' EQUITY
----------------------------
YEAR ENDED DECEMBER 31, 2000
----------------------------
Balance, January 1, 2000 $ 446,502
Net Income 353,523
Equity Distributions (300,000)
---------
Balance, December 31, 2000 $ 500,025
=========
The accompanying notes are an integral part of this financial statement.
-6-
HOMEWOOD SUITES HOTEL AT BUCKHEAD
---------------------------------
STATEMENT OF INCOME
-------------------
YEAR ENDED DECEMBER 31, 2000
----------------------------
GROSS OPERATING REVENUE
- -----------------------
Suite Revenue $ 3,053,234
Other Customer Revenue 92,704
-----------
TOTAL REVENUE 3,145,938
-----------
EXPENSES
- --------
Property and Operating 1,107,095
General and Administrative 65,871
Advertising and Promotion 142,114
Utilities 103,308
Real Estate and Personal Property Taxes,
and Property Insurance 146,659
Depreciation and Amortization 282,101
Franchise and Management Fees 256,705
Mortgage Interest 688,562
-----------
TOTAL EXPENSES 2,792,415
-----------
NET INCOME $ 353,523
===========
The accompanying notes are an integral part of this financial statement.
-7-
HOMEWOOD SUITES HOTEL AT BUCKHEAD
---------------------------------
STATEMENT OF CASH FLOWS
-----------------------
YEAR ENDED DECEMBER 31, 2000
----------------------------
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
- -----------------------------------------
Net Income $ 353,523
---------
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 279,625
Amortization 2,476
Change In:
Accounts Receivable - Trade (19,941)
Prepaids and Other Current Assets (10,736)
Accounts Payable 33,833
Due to Affiliate 30,250
Accrued Expenses - Other (10,571)
---------
Net Adjustments 304,936
---------
NET CASH FLOWS FROM OPERATING
ACTIVITIES 658,459
---------
CASH FLOWS TO INVESTING ACTIVITIES
- ----------------------------------
Purchase of Furniture, Fixtures and Equipment (96,191)
---------
CASH FLOWS TO FINANCING ACTIVITIES
- ----------------------------------
Equity Distributions (300,000)
Mortgage Principal Curtailment (163,976)
Note Payable Principal Curtailment (7,483)
---------
NET CASH FLOWS TO FINANCING ACTIVITIES (471,459)
---------
NET INCREASE IN CASH 90,809
CASH, BEGINNING OF YEAR 219,803
---------
CASH, END OF YEAR $ 310,612
=========
SUPPLEMENTAL DISCLOSURES:
- ------------------------
Interest Paid $ 687,564
=========
The accompanying notes are an integral part of this financial statement.
-8-
HOMEWOOD SUITES HOTEL AT BUCKHEAD
---------------------------------
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
DECEMBER 31, 2000
-----------------
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
- -----------------------------------------------
The Homewood Suites Hotel at Buckhead is a 92 suite hotel located at 3566
Piedmont Road in Atlanta, Georgia. The Hotel, which has been in operation since
1997, was owned by NSM - Buckhead Hotel, L.L.C., a Georgia limited liability
company, during the financial statement period.
The Hotel specializes 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, a 24 hour on-site convenience
store and grocery shopping services.
Economic conditions in Atlanta impact the Hotel's revenues and ability to
collect accounts receivable.
On April 26, 2001, the Hotel was sold to Apple Suites, Inc. Apple Suites, Inc.
is a real estate investment trust established to acquire equity interests in
hotel properties. The financial 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.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
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.
Property - The Hotel property is recorded at cost. Depreciation has been
- --------
recorded by the straight-line method using the following lives:
Buildings and Improvements 40 Years
Furniture, Fixtures and Equipment 5-10 Years
Major renewals, betterments and improvements are capitalized, while ongoing
maintenance and repairs are expensed as incurred. Building costs include
interest, financing costs and real estate taxes capitalized during the
construction period.
(Continued)
-9-
HOMEWOOD SUITES HOTEL AT BUCKHEAD
---------------------------------
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
DECEMBER 31, 2000
-----------------
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES, (Continued)
- ----------------------------------------
Annually, management reviews the carrying values and remaining depreciable lives
of the Hotel property and related assets. Adjustments are made to reduce
carrying values to net realizable amounts if so indicated.
Accounts Receivable - Management believes all accounts receivable - trade are
- -------------------
fully collectable. Accordingly, an allowance for doubtful accounts has not been
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 Hotel maintains 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.
Loan Costs - Loan costs are amortized by the straight-line method over the terms
- ----------
of the applicable loans.
NOTE 3 - RELATED PARTY TRANSACTIONS
- -----------------------------------
During 2000, the following licensor and owner affiliate fees were expensed.
Total
Fee Type Basis for Determination Expense
- -------- ----------------------- -------
Accounting Fees $350 per month $ 4,200
Corporate Advertising, Training
and Reservations 4% of Net Suite Revenue 125,379
Franchise Fees 4% of Net Suite Revenue 130,183
Management Fees 4% of Total Revenue 126,522
The due to affiliate balance represents various insurance premiums paid on
behalf of the Hotel by Noble Investment Group. The advances are non interest
bearing and are expected to be repaid in the current year.
(Continued)
-10-
HOMEWOOD SUITES HOTEL AT BUCKHEAD
---------------------------------
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
DECEMBER 31, 2000
-----------------
NOTE 4 - CONCENTRATIONS OF CREDIT RISK
- --------------------------------------
At December 31, 2000, financial instruments that subject the Hotel to
concentrations of credit risk consist of cash deposits in a single financial
institution which exceed maximum amounts insurable by FDIC by $298,353.
NOTE 5 - MORTGAGE AND NOTE PAYABLE
- ----------------------------------
The original construction loan was refinanced with a permanent loan from
Wachovia Bank on March 10, 1998. The note in the face principal amount of
$9,000,000, of which advances were limited to $8,000,000, initially required
monthly payments of interest only through August 1998. Commencing September 1,
1998 and continuing through the first day of the calendar month in which
maturity occurred, the note required monthly payments based on a 240 month
amortization period in an amount sufficient to fully amortize the debt assuming
on interest rate of 8 1/2%. The note bore interest at a rate of 2.5% above the
monthly libor interest rate (9.3213% at December 31, 2000).
The note was secured by a deed of trust on the Hotel's real estate and by the
personal guarantees of the limited liability company members.
The note was schedule to mature on February 20, 2001. The maturity date was
extended until April 26, 2001 when the outstanding balance was paid with
proceeds form the sale of the Hotel property.
At December 31, 2000, the Hotel also had an installment note payable to Wachovia
Bank in the amount of $6,833. The note bore interest at 6.5 percent and was
payable in 36 installments of $624. The note was secured by a vehicle. The
entire balance was paid in January, 2001.
NOTE 6 - INCOME TAXES
- ---------------------
The owner operates as a limited liability company. Income and losses of a
limited liability company are passed through to the owners and taxed on their
individual income tax returns. Accordingly, the financial statements do not
reflect an income tax provision.
NOTE 7 - PROFIT SHARING PLAN
- -----------------------------
The owner maintains a deferred profit sharing plan covering substantially all
employees who have attained an age of 18 and at least one half year of service.
Participants are fully vested after 5 years of service. Participants may make
elective deferrals of up to fifteen percent of eligible compensation. The owner
can make a discretionary match. Expense associated with the plan totaled $2,306
in 2000.
-11-
[LETTERHEAD OF L.P. MARTIN & COMPANY]
Independent Accountants' Compilation Report
-------------------------------------------
Apple Suites, Inc.
Richmond, Virginia
We have compiled the accompanying balance sheet of the Homewood Suites
Hotel at Buckhead (described in Note 1) as of March 31, 2001, and the related
statements of income, members' equity and cash flows for the period January 1,
2001 through March 31, 2001, in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants. 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 Hotel at
Buckhead.
A compilation is limited to presenting in the form of financial
statements information that is the representation of management. We have not
audited or reviewed the accompanying financial statements and, accordingly, do
not express an opinion or any other form of assurance on them.
/s/ L.P. Martin & Co, P.C.
June 25, 2001
-12-
HOMEWOOD SUITES HOTEL AT BUCKHEAD
---------------------------------
BALANCE SHEET (UNAUDITED)
------------------------
MARCH 31, 2001
--------------
(See Independent Accountants' Compilation Report)
ASSETS
======
CURRENT ASSETS
- --------------
Cash $ 399,497
Accounts Receivable - Trade 19,171
Prepaids and Other 9,256
----------
TOTAL CURRENT ASSETS 427,924
----------
INVESTMENT IN HOTEL PROPERTIES
- ------------------------------
Land and Improvements 1,995,980
Buildings and Improvements 5,474,583
Furniture, Fixtures and Equipment 1,414,930
----------
TOTAL 8,885,493
Less: Accumulated Depreciation (944,204)
----------
NET INVESTMENT IN HOTEL PROPERTIES 7,941,289
----------
OTHER ASSETS 417
----------
TOTAL ASSETS $8,369,630
==========
The accompanying notes are an integral part of this financial statement.
-13-
LIABILITIES AND MEMBERS' EQUITY
-------------------------------
CURRENT LIABILITIES
- -------------------
Mortgage Payable $ 7,594,521
Accounts Payable 80,606
Accrued Interest 28,603
Accrued Expenses - Other 63,520
------------
TOTAL CURRENT LIABILITIES 7,767,250
------------
MEMBERS' EQUITY 602,380
------------
TOTAL LIABILITIES AND MEMBERS'
EQUITY $ 8,369,630
============
The accompanying notes are an integral part of this financial statement.
HOMEWOOD SUITES HOTEL AT BUCKHEAD
---------------------------------
STATEMENT OF MEMBERS' EQUITY (UNAUDITED)
----------------------------------------
FOR THE PERIOD JANUARY 1, 2001 THROUGH MARCH 31,2001
----------------------------------------------------
(See Independent Accountants' Compilation Report)
Balance, January 1, 2001 $ 500,025
Net Income 132,355
Equity Distributions (30,000)
---------
Balance, March 31, 2001 $ 602,380
=========
The accompanying notes are an integral part of this financial statement.
-14-
HOMEWOOD SUITES HOTEL AT BUCKHEAD
---------------------------------
STATEMENT OF INCOME (UNAUDITED)
-------------------------------
FOR THE PERIOD JANUARY 1, 2001 THROUGH MARCH 31, 2001
-----------------------------------------------------
(See Independent Accountants' Compilation Report)
GROSS OPERATING REVENUE
- -----------------------
Suite Revenue $727,963
Other Customer Revenue 28,298
--------
TOTAL REVENUE 756,261
--------
EXPENSES
- --------
Property and Operating 278,447
General and Administrative 15,615
Advertising and Promotion 15,550
Utilities 25,447
Real Estate and Personal Property Taxes,
and Property Insurance 37,880
Depreciation and Amortization 48,169
Franchise and Management Fees 61,497
Mortgage Interest 141,301
--------
TOTAL EXPENSES 623,906
--------
NET INCOME $132,355
========
The accompanying notes are an integral part of this financial statement.
-15-
HOMEWOOD SUITES HOTEL AT BUCKHEAD
---------------------------------
STATEMENT OF CASH FLOWS (UNAUDITED)
-----------------------------------
FOR THE PERIOD JANUARY 1, 2001 THROUGH MARCH 31, 2001
-----------------------------------------------------
(See Independent Accountants' Compilation Report)
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
- -----------------------------------------
Net Income $ 132,355
---------
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 47,736
Amortization 433
Change In:
Accounts Receivable 9,466
Prepaids and Other Current Assets 5,096
Accounts Payable (14,319)
Accrued Interest (32,567)
Accrued Expenses - Other 38,315
Due to Affiliate (30,250)
---------
Net Adjustments 23,910
---------
NET CASH FLOWS FROM OPERATING
ACTIVITIES 156,265
---------
CASH FLOWS TO INVESTING ACTIVITIES
- ----------------------------------
Purchase of Furniture, Fixtures and Equipment (4,205)
---------
CASH FLOWS TO FINANCING ACTIVITIES
- ----------------------------------
Equity Distributions (30,000)
Mortgage Principal Curtailment (26,342)
Note Principal Curtailment (6,833)
---------
NET CASH FLOWS TO FINANCING ACTIVITIES (63,175)
---------
NET INCREASE IN CASH 88,885
CASH, JANUARY 1, 2001 310,612
---------
CASH, MARCH 31, 2001 $ 399,497
=========
SUPPLEMENTAL DISCLOSURES:
- ------------------------
Interest Paid $ 173,868
=========
The accompanying notes are an integral part of this financial statement.
-16-
HOMEWOOD SUITES HOTEL AT BUCKHEAD
---------------------------------
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------
MARCH 31, 2001
--------------
(See Independent Accountants' Compilation Report)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
- -----------------------------------------------
The Homewood Suites Hotel at Buckhead is a 92 suite hotel located at 3566
Piedmont Road in Atlanta, Georgia. The Hotel, which has been in operation since
1997, was owned by NSM - Buckhead, Hotel L.L.C., a Georgia limited liability
company, during the financial statement period.
The Hotel specializes 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, a 24 hour on-site convenience
store and grocery shopping services.
Economic conditions in Atlanta impact the Hotel's revenues and ability to
collect accounts receivable.
On April 26, 2001, the Hotel was sold to Apple Suites, Inc. Apple Suites, Inc.
is a real estate investment trust established to acquire equity interests in
hotel properties. The financial 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.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
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.
Property - The Hotel property is recorded at cost. Depreciation has been
- --------
recorded by the straight-line method using the following lives:
Buildings and Improvements 40 Years
Furniture, Fixtures and Equipment 5-10 Years
Major renewals, betterments and improvements are capitalized, while ongoing
maintenance and repairs are expensed as incurred. Building costs include
interest, financing costs and real estate taxes capitalized during the
construction period.
(Continued)
-17-
HOMEWOOD SUITES HOTEL AT BUCKHEAD
---------------------------------
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
MARCH 31, 2001
--------------
(See Independent Accountants' Compilation Report)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES, Continued
- ---------------------------------------------------
Annually, management reviews the carrying values and remaining depreciable lives
of the Hotel property and related assets. Adjustments are made to reduce
carrying values to net realizable amounts if so indicated.
In February, 2001, the owner identified the hotel property as held for disposal.
In accordance with Statement of Financial Accounting Standards Number 121,
management discontinued depreciating the Hotel's assets at this time.
Accordingly, the current period financial statements only include two months
depreciation expense. Sales proceeds received from the sale of this hotel on
April 26, 2001 exceed the net carrying value of the hotel property as shown in
these financial statements.
Accounts Receivable - Management believes all accounts receivable - trade are
- -------------------
fully collectable. Accordingly, an allowance for doubtful accounts has not been
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 Hotel maintains 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.
Loan Costs - Loan costs are amortized by the straight-line method over the terms
- ----------
of the applicable loans.
NOTE 3 - RELATED PARTY TRANSACTIONS
- -----------------------------------
During the three month period ended March 31, 2001, the following licensor and
owner affiliate fees were expensed.
Total
Fee Type Basis for Determination Expense
- -------- ----------------------- -------
Accounting Fees $350 per month $ 1,050
Corporate Advertising,
Training and
Reservations Percentage of Net Suite Revenue $12,459
Franchise Fees 4% of Net Suite Revenue $31,093
Management Fees 4% of Total Revenue $30,404
(Continued)
-18-
HOMEWOOD SUITES HOTEL AT BUCKHEAD
---------------------------------
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
MARCH 31, 2001
--------------
(See Independent Accountants' Compilation Report)
NOTE 4 - CONCENTRATIONS OF CREDIT RISK
- --------------------------------------
At December 31, 2000, financial instruments that subject the Hotel to
concentrations of credit risk consist of cash deposits in a single financial
institution which exceed maximum amounts insurable by FDIC by $297,297.
NOTE 5 - MORTGAGE AND NOTE PAYABLE
- ----------------------------------
The original construction loan was refinanced with a permanent loan from
Wachovia Bank on March 10, 1998. The note in the face principal amount of
$9,000,000 of which advances were limited to $8,000,000, initially required
monthly payments of interest only through August 1998. Commencing September 1,
1998 and continuing through the first day of the calendar month in which
maturity occurred, the note required monthly payments based on a 240-month
amortization period in an amount sufficient to fully amortize the debt assuming
an interest rate of 8 1/2%. The note bore interest of a rate of 2.5% above the
monthly libor interest rate (9.3213% at December 31, 2000).
The note was secured by a deed of trust on the Hotel's real estate and by the
personal guarantees of the limited liability company members.
The note was scheduled to mature on February 20, 2001. The maturity date was
extended until April 26, 2001 when the outstanding balance was paid with
proceeds from the sale of the hotel property.
NOTE 6 - INCOME TAXES
- ---------------------
The owner operates as a limited liability company. Income and losses of a
limited liability company are passed through to the owners and taxed on their
individual income tax returns. Accordingly, the financial statements do not
reflect an income tax provision.
NOTE 7 - PROFIT SHARING PLAN
- ----------------------------
The owner maintains a deferred profit sharing plan covering substantially all
employees who have attained an age of 18 and at least one half year of service.
Participants are fully vested after 5 years of service. Participants may make
elective deferrals of up to fifteen percent of eligible compensation. The owner
can make a discretionary match. Expense associated with the plan totaled $480
during the period January 1, 2001 through March 31, 2001.
-19-
[LETTERHEAD OF L.P. MARTIN & COMPANY]
Independent Auditors' Report
Apple Suites, Inc.
Richmond, Virginia
We have audited the accompanying combined balance sheet of the Homewood
Suites Acquisition Hotels (described in Note 1) as of December 31, 2000, and the
related combined statements of operations, shareholders' equity and cash flows
for the year 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 audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 audit provides 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, 2000, and the combined
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States.
/s/ L.P. Martin & Co, P.C.
July 12, 2001
-20-
HOMEWOOD SUITES ACQUISITION HOTELS
----------------------------------
COMBINED BALANCE SHEET
----------------------
DECEMBER 31, 2000
-----------------
ASSETS
======
CURRENT ASSETS
- --------------
Cash $ 117,014
Accounts Receivable, Net 170,324
Prepaids and Other 24,526
-----------
TOTAL CURRENT ASSETS 311,864
-----------
INVESTMENT IN HOTEL PROPERTIES
- ------------------------------
Land and Improvements 3,334,342
Buildings and Improvements 16,769,931
Furniture, Fixtures and Equipment 2,984,725
-----------
TOTAL 23,088,998
Less: Accumulated Depreciation (1,445,976)
-----------
NET INVESTMENT IN HOTEL PROPERTIES 21,643,022
-----------
TOTAL ASSETS $21,954,886
===========
The accompanying notes are an integral part of this financial statement.
-21-
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Accounts Payable $ 8,324
Accrued Taxes 65,046
Accrued Expenses - Other 103,963
-----------
TOTAL CURRENT LIABILITIES 177,333
-----------
SHAREHOLDERS' EQUITY
- --------------------
Contributed Capital 23,458,911
Accumulated Deficit (1,681,358)
-----------
TOTAL SHAREHOLDERS' EQUITY 21,777,553
-----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $21,954,886
===========
The accompanying notes are an integral part of this financial statement.
-22-
HOMEWOOD SUITES ACQUISITION HOTELS
----------------------------------
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
------------------------------------------
YEAR ENDED DECEMBER 31, 2000
----------------------------
Total
Contributed Accumulated Shareholders'
Capital Deficit Equity
--------------- --------------- ---------------
Balances, January 1, 2000 $12,111,066 $ 107,909 $12,218,975
Net Loss - (1,789,267) (1,789,267)
Capital Contributions, Net 11,347,845 - 11,347,845
----------- ----------- -----------
Balances, December 31, 2000 $23,458,911 $(1,681,358) $21,777,553
=========== =========== ===========
The accompanying notes are an integral part of this financial statement.
-23-
HOMEWOOD SUITES ACQUISITION HOTELS
----------------------------------
COMBINED STATEMENT OF OPERATIONS
--------------------------------
YEAR ENDED DECEMBER 31, 2000
----------------------------
GROSS OPERATING REVENUE
- -----------------------
Suite Revenue $ 4,970,354
Other Customer Revenue 415,745
-----------
TOTAL REVENUE 5,386,099
-----------
EXPENSES
- --------
Property and Operating 2,336,736
General and Administrative 119,867
Advertising and Promotion 301,270
Utilities 194,202
Real Estate and Personal Property Taxes,
and Property Insurance 331,794
Depreciation 1,197,441
Franchise and Management Fees 360,397
Pre-Opening Expenses 322,525
Loss on Impairment of Hotel Property 2,011,134
-----------
TOTAL EXPENSES 7,175,366
-----------
NET LOSS $(1,789,267)
===========
The accompanying notes are an integral part of this financial statement.
-24-
HOMEWOOD SUITES ACQUISITION HOTELS
----------------------------------
COMBINED STATEMENT OF CASH FLOWS
--------------------------------
YEAR ENDED DECEMBER 31, 2000
----------------------------
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
- -----------------------------------------
Net Loss $(1,789,267)
-----------
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operating Activities:
Depreciation 1,197,441
Loss on Impairment of Hotel Property 2,011,134
Change In:
Accounts Receivable (89,917)
Prepaids and Other Current Assets (10,526)
Accounts Payable (11,648)
Accrued Taxes 47,795
Accrued Expenses - Other 71,098
-----------
Net Adjustments 3,215,377
-----------
NET CASH FLOWS FROM OPERATING
ACTIVITIES 1,426,110
CASH FLOWS TO FINANCING ACTIVITIES
- ----------------------------------
Capital Contributions, Net (1,359,484)
-----------
NET INCREASE IN CASH 66,626
CASH, BEGINNING OF YEAR 50,388
-----------
CASH, END OF YEAR $ 117,014
===========
SUPPLEMENTAL DISCLOSURES:
- ------------------------
NONCASH FINANCING AND INVESTING ACTIVITIES
------------------------------------------
Investments in hotel properties in the amount of $12,707,329 were financed
with capital contributions.
Deposits in the amount of $1,375,000 were applied toward the purchase of
hotel property.
The accompanying notes are an integral part of this financial statement.
-25-
HOMEWOOD SUITES ACQUISITION HOTELS
----------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS
------------------------------------------
YEAR ENDED DECEMBER 31, 2000
----------------------------
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
- -----------------------------------------------
The Homewood Suites Acquisition Hotels (the Hotels) consist of the following:
Hotel Location Date Opened # of Suites
- -------------- ----------- -----------
Beaverton, Oregon July 1998 123
Chesterfield, Missouri March 2000 145
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.
Economic conditions in the localities in which the individual Hotels are located
impact revenues and the ability to collect accounts receivable.
The Hotels were originally owned and managed by Promus Hotels, Inc. Hilton
Hotels Corporation merged with Promus Hotels, Inc. in November 1999. No
adjustment to the carrying value of the investment in Hotel property has been
recorded as a result of this transaction. The Accumulated Deficit has been
adjusted to reflect the results of operations from the merger date forward. Net
income and losses prior to the merger date have been reclassed to contributed
capital.
The accompanying combined financial statements of the Hotels have been presented
on a combined basis because the Owner sold the Hotels to an affiliate of Apple
Suites, Inc. on June 15, 2001. 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.
(Continued)
-26-
HOMEWOOD SUITES ACQUISITION HOTELS
----------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS
------------------------------------------
YEAR ENDED DECEMBER 31, 2000
----------------------------
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
Estimates - The preparation of financial statements in accordance with
- ---------
accounting principles generally accepted in the United States 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.
Property - 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.
The Beaverton Hotel property is recorded at cost. Statement of Financial
Accounting Standards No. 121 requires an entity to review long-lived assets for
impairment and to recognize an impairment loss in determining net income
whenever facts and circumstances indicate that the carrying value of the assets
may not be recoverable. Management believes that the undepreciated historical
cost of the Chesterfield Hotel property substantially exceeded the fair market
value of the assets. Accordingly, effective December 31, 2000, a $2,011,134 loss
on impairment of Hotel property has been reflected in the statement of income
and the basis of the hotel property has been decreased by a corresponding
amount. The fair market value of the Hotel property has been determined based on
the subsequent sales price to the affiliate of Apple Suites, Inc.
Depreciation expense through December 31, 2000 has been recorded on both Hotel
properties straight line using the following lives:
Building and Improvements 30-35 Years
Furniture, Fixtures and Equipment 3-10 Years
At December 31, 2000, accumulated depreciation on the Chesterfield property was
eliminated and historical cost was adjusted to fair market value. The fair
market value of the Chesterfield assets will continue to be depreciated over the
remaining portion of the original lives established.
Accounts Receivable - 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.
- -----------
(Continued)
-27-
HOMEWOOD SUITES ACQUISITION HOTELS
----------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS
------------------------------------------
YEAR ENDED DECEMBER 31, 2000
----------------------------
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES, Continued
- ----------------------------------------
Pre-Opening Expenses - Pre-opening expenses represent operating expenses
- --------------------
incurred prior to initial opening of the Chesterfield Hotel in March 2000. In
2000, pre-opening expenses of $322,525 were expensed as 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.
NOTE 3 - RELATED PARTY TRANSACTIONS
- -----------------------------------
During the year ended December 31, 2000, the following owner related fees were
expensed.
Fee Type Basis for Determination Total Expense
- -------- ----------------------- -------------
Accounting Fees $1,000 per hotel per month $ 21,500
Corporate Advertising,
Training and Reservations 4% of Net Suite Revenue $198,814
Franchise Fees 4% of Net Suite Revenue $198,814
Management Fees 3% of Total Revenue $161,583
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 $643,291 in 2000.
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 2000 intercompany/intracompany transfers
being reflected as net capital contributions.
-28-
[LETTERHEAD OF L.P. MARTIN & COMPANY]
Independent Accountants' Compilation Report
-------------------------------------------
Apple Suites, Inc.
Richmond, Virginia
We have compiled the accompanying combined balance sheet of the Homewood
Suites Acquisition Hotels (described in Note 1) as of May 31, 2001, and the
related combined statements of income, shareholders' equity and cash flows for
the period January 1, 2001 through May 31, 2001, in accordance with Statements
on Standards for Accounting and Review Services issued by the American Institute
of Certified Public Accountants. 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.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
/s/ L.P. Martin & Co, P.C.
July 17, 2001
-29-
HOMEWOOD SUITES ACQUISITION HOTELS
----------------------------------
COMBINED BALANCE SHEET (UNAUDITED)
----------------------------------
MAY 31, 2000
------------
ASSETS
======
(See Independent Accountants' Compilation Report)
CURRENT ASSETS
- --------------
Cash $ 111,557
Accounts Receivable, Net 248,455
-----------
TOTAL CURRENT ASSETS 360,012
-----------
INVESTMENT IN HOTEL PROPERTIES
- ------------------------------
Land and Improvements 3,334,342
Buildings and Improvements 16,769,931
Furniture, Fixtures and Equipment 2,984,469
-----------
TOTAL 23,088,742
Less: Accumulated Depreciation (1,854,010)
-----------
NET INVESTMENT IN HOTEL PROPERTIES 21,234,732
-----------
TOTAL ASSETS $21,594,744
===========
See accompanying notes are an integral part of this financial statement.
-30-
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Accounts Payable $ 547
Accrued Taxes 239,046
Accrued Expenses - Other 94,274
-----------
TOTAL CURRENT LIABILITIES 333,867
-----------
SHAREHOLDERS' EQUITY
- --------------------
Contributed Capital 22,539,228
Accumulated Deficit (1,278,351)
-----------
TOTAL SHAREHOLDERS' EQUITY 21,260,877
-----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $21,594,744
===========
The accompanying notes are an integral part of this financial statement.
-31-
HOMEWOOD SUITES ACQUISITION HOTELS
----------------------------------
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
------------------------------------------------------
FOR THE PERIOD JANUARY 1, 2001 THROUGH MAY 31, 2001
---------------------------------------------------
(See Independent Accountants' Compilation Report)
Total
Contributed Accumulated Shareholders'
Capital Deficit Equity
--------------- --------------- ---------------
Balances, January 1, 2001 $23,458,911 $(1,681,358) $21,777,553
Net Income - 403,007 403,007
Capital Distributions, Net (919,683) - (919,683)
----------- ----------- -----------
Balances, May 31, 2001 $22,539,228 $(1,278,351) $21,260,877
=========== =========== ===========
The accompanying notes are an integral part of this financial statement.
-32-
HOMEWOOD SUITES ACQUISITION HOTELS
----------------------------------
COMBINED STATEMENT OF INCOME (UNAUDITED)
----------------------------------------
FOR THE PERIOD JANUARY 1, 2001 THROUGH MAY 31, 2001
---------------------------------------------------
(See Independent Accountants' Compilation Report)
GROSS OPERATING REVENUE
- -----------------------
Suite Revenue $2,286,842
Other Customer Revenue 125,264
----------
TOTAL REVENUE 2,412,106
----------
EXPENSES
- --------
Property and Operating 1,024,795
General and Administrative 27,706
Advertising and Promotion 121,254
Utilities 89,107
Real Estate and Personal Property Taxes,
and Property Insurance 170,771
Depreciation 408,034
Franchise and Management Fees 167,432
----------
TOTAL EXPENSES 2,009,099
----------
NET INCOME $ 403,007
==========
The accompanying notes are an integral part of this financial statement.
-33-
HOMEWOOD SUITES ACQUISITION HOTELS
----------------------------------
COMBINED STATEMENT OF CASH FLOWS (UNAUDITED)
--------------------------------------------
FOR THE PERIOD JANUARY 1, 2001 THROUGH MAY 31, 2001
---------------------------------------------------
(See Independent Accountants' Compilation Report)
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
- -----------------------------------------
Net Income $ 403,007
---------
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 408,034
Change In:
Accounts Receivable (78,131)
Prepaids and Other Current Assets 24,526
Accounts Payable (7,521)
Accrued Taxes 174,000
Accrued Expenses - Other (9,689)
---------
Net Adjustments 511,219
---------
NET CASH FLOWS FROM OPERATING
ACTIVITIES 914,226
CASH FLOWS TO FINANCING ACTIVITIES
- ----------------------------------
Net Equity Distributions (919,683)
---------
NET DECREASE IN CASH (5,457)
CASH, JANUARY 1, 2001 117,014
---------
CASH, MAY 31, 2001 $ 111,557
=========
The accompanying notes are an integral part of this financial statement.
-34-
HOMEWOOD SUITES ACQUISITION HOTELS
----------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
FOR THE PERIOD JANUARY 1, 2001 THROUGH MAY 31, 2001
---------------------------------------------------
(See Independent Accountants' Compilation Report)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
- -----------------------------------------------
The Homewood Suites Acquisition Hotels (the Hotels) consist of the following:
Hotel Location Date Opened # of Suites
- -------------- ----------- -----------
Beaverton, Oregon July 1998 123
Chesterfield, Missouri March 2000 145
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.
Economic conditions in the localities in which the individual Hotels are located
impact revenues and the ability to collect accounts receivable.
The Hotels were originally owned and managed by Promus Hotels, Inc. Hilton
Hotels Corporation merged with Promus Hotels, Inc. in November 1999. No
adjustment to the carrying value of the investment in Hotel property has been
recorded as a result of this transaction. The Accumulated Deficit has been
adjusted to reflect the results of operations from the merger date forward. Net
income and losses prior to the merger date have been reclassed to contributed
capital.
The accompanying combined financial statements of the Hotels have been presented
on a combined basis because the Owner sold the Hotels to an affiliate of Apple
Suites, Inc. on June 15, 2001. 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.
(Continued)
-35-
HOMEWOOD SUITES ACQUISITION HOTELS
----------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS
------------------------------------------
FOR THE PERIOD JANUARY 1, 2001 THROUGH MAY 31, 2001
---------------------------------------------------
(See Independent Accountants' Compilation Report)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
Estimates - The preparation of financial statements in accordance with
- ---------
accounting principles generally accepted in the United States 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.
Property - 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.
The Beaverton Hotel property is recorded at cost. Statement of Financial
Accounting Standards No.121 requires an entity to review long-lived assets for
impairment and to recognize an impairment loss in determining net income
whenever facts and circumstances indicate that the carrying value of the assets
may not be recoverable. Management believes that the undepreciated historical
cost of the Chesterfield Hotel property substantially exceeded the fair market
value of the assets. Accordingly, effective December 31, 2000, management wrote
down the basis of the Chesterfield Hotel property assets to fair market value.
The fair market value of the Hotel property has been determined based on the
subsequent sales price to the affiliate of Apple Suites, Inc.
Depreciation expense through April 30, 2001 has been recorded on both Hotel
properties straight- line using the following lives:
Building and Improvements 30-35 Years
Furniture, Fixtures and Equipment 3-10 Years
In May 2001, the finance committee approved the sale of the Hotel properties. In
accordance with SFAS 121, the Owner discontinued recording depreciation at this
time.
Accounts Receivable - 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.
- -----------
(Continued)
-36-
HOMEWOOD SUITES ACQUISITION HOTELS
----------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS
------------------------------------------
FOR THE PERIOD JANUARY 1, 2001 THROUGH MAY 31, 2001
---------------------------------------------------
(See Independent Accountants' Compilation Report)
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 period January 1, 2001 through May 31, 2001, the following owner
related fees were expensed.
Fee Type Basis for Determination Total Expense
- -------- ----------------------- --------------
Accounting Fees $1,000 per hotel per month $10,000
Corporate Advertising,
Training and Reservations 4% of Net Suite Revenue $93,270
Franchise Fees 4% of Net Suite Revenue $93,270
Management Fees 3% of Total Revenue $74,162
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.
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 2000 intercompany/intracompany transfers
being reflected as net capital distributions.
-37-
Apple Suites, Inc.
Pro Forma Condensed Consolidated Statements of Operations
For the year ended December 31, 2000 and the six months ended June 30, 2001
(unaudited)
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations of Apple Suites, Inc. (the "Company") are presented as if the Company
acquired Apple Suites Management, Inc. and certain Homewood Suites (R) by
Hilton (R) hotels (in Malvern, Boulder, Buckhead, Portland and St. Louis) 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 master hotel lease
agreements. Contractual arrangements for management of the hotels are materially
consistent with historical arrangements. The Malvern and Boulder hotels were
purchased on May 8, 2000 and June 30, 2000, respectively, for a total of $30.4
million. The Buckhead hotel was purchased on April 26, 2001 for $12.8 million.
The Portland and St. Louis hotels were purchased on June 15, 2001 for a total of
$22 million. (The Portland and St. Louis hotels are also known as the Beaverton
and Chesterfield hotels, respectively). The Company acquired the Lessee on
January 1, 2001 for $900,000 cash and assumption of net liabilities of
approximately $513,520. The Lessee is now a wholly owned subsidiary of the
Company and and subject to federal and state income taxes. The pro forma
statements also assume that the proceeds from the refinancings discussed above
(which paid off the notes executed in 1999) and the additional $10.7 million
loan refinancing had occurred at the beginning of the periods presented for the
respective periods prior to acquisition by the Company.
Such pro forma information is based in part upon the Consolidated Statements of
Operations of the Company, the historical 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 St. Louis hotel opened in March 2000 and pro
forma results only reflect operations from its opening date.
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. Applicaton of these agreements
to periods prior to the acquisition may not be meaningful. Year 2000 results of
operations for St. Louis are not indicative of future results as the hotel
opened in March 2000 and was in lease-up.
For the year ended December 31, 2000 (unaudited)
Company Historical
Historical Historical Historical Portland &
Historical Statement of Malvern & Boulder Buckhead St Louis
Statement of Operations Statement of Statement of Statement of
Operations Suites Mgmt Operations Operations Operations
-------------------------------------------------------------------------------
Revenue:
Suite revenue -- $ 35,260,255 $ 3,376,883 $ 3,053,234 $ 4,970,354
Lease revenue $ 15,807,258 -- -- -- --
Other income -- 1,942,290 170,775 92,704 415,745
Interest income and other revenue 395,671 23,288 -- -- --
------------------------------------------------------------------------------
Total revenue 16,202,929 37,225,833 3,547,658 3,145,938 5,386,099
Expenses:
Operating expenses -- 10,956,373 1,161,002 1,107,095 2,336,736
Hotel administrative expenses -- 3,116,571 61,026 65,871 119,867
Advertising and promotion -- 3,287,187 151,765 142,114 301,270
Utilities -- 1,465,163 119,829 103,308 194,202
Franchise fees -- 1,406,639 135,075 130,183 198,814
Management fees -- 1,390,268 106,431 126,522 161,583
Rent expense-Apple Suites, Inc. -- 15,807,258 -- -- --
Taxes, insurance and other 2,018,747 -- 217,406 146,659 331,794
General and administrative 1,048,212 -- -- -- --
Depreciation of real estate owned 2,990,381 -- -- 282,101 1,197,441
Interest 6,611,716 125,460 -- 688,562 --
Pre-opening expenses -- -- -- -- 322,525
Loss on impairment of hotel property -- -- -- -- 2,011,134
Grounds lease 64,786 -- 35,214 -- --
------------------------------------------------------------------------------
Total expenses 12,733,842 37,554,919 1,987,747 2,792,415 7,175,366
Income tax expense -- -- -- -- --
------------------------------------------------------------------------------
Net income $ 3,469,087 $ (329,086) $ 1,559,911 $ 353,523 $ (1,789,267)
==============================================================================
Earnings per common share:
Basic and Diluted $ 0.66
============
Basic weighted average common shares outstanding 5,274,633
============
Diluted weighted average common shares outstanding 5,276,833
============
Pro Forma Total
Adjustments Pro Forma
-------------------------------------
Revenue:
Suite revenue -- $ 46,660,726
Lease revenue $ (15,807,258) (A) --
Other income -- 2,621,514
Interest income and other revenue (125,460) (A) 293,499
--------------------------------------
Total revenue (15,932,718) 49,575,739
Expenses:
Operating expenses -- 15,561,206
Hotel administrative expenses -- 3,363,335
Advertising and promotion -- 3,882,336
Utilities -- 1,882,502
Franchise fees -- 1,870,711
Management fees -- 1,784,804
Rent expense-Apple Suites, Inc. (15,807,258) (A) --
Taxes, insurance and other -- 2,714,606
General and administrative 177,921 (B) 1,226,133
Depreciation of real estate owned (1,479,542) (L)
889,918 (D) 3,880,299
Interest 1,589,503 (E)
(125,460) (A)
(6,611,716) (F)
5,656,838 (G)
(688,562) (C)
214,982 (H) 7,461,323
Pre-opening expenses (322,525) (N) --
Loss on impairment of hotel property (2,011,134) (M) --
Grounds lease 100,000
--------------------------------------
Total expenses (18,517,035) 43,727,254
Income tax expense -- (J) --
--------------------------------------
Net income $ 2,584,317 $ 5,848,485
======================================
Earnings per common share:
Basic and Diluted $ 0.61
=============
Basic weighted average common shares outstanding 4,240,726 (I) 9,515,359
=============
Diluted weighted average common shares outstanding 4,240,726 (I) 9,517,559
=============
-38-
Apple Suites, Inc.
Pro Forma Condensed Consolidated Statements of Operations (continued)
For the six months ended June 30, 2001 (unaudited)
Historical Historical
Homewood Homewood
Company Suites Suites
Historical Statement of Statement of
Statement of Operations Operations Pro Forma Total
Operations Buckhead St Louis & Portland Adjustments Pro Forma
-----------------------------------------------------------------------------------------
Revenue:
Suite revenue $ 20,919,569 $ 1,455,926 $ 2,744,210 -- $ 25,119,705
Other revenue 1,019,711 56,596 150,317 -- 1,226,624
Interest income 308,440 -- -- -- 308,440
----------------------------------------------------------------------------------
Total revenue 22,247,720 1,512,522 2,894,527 -- 26,654,768
Expenses:
Operating expenses 6,255,114 556,894 1,229,754 -- 8,041,762
Hotel administrative expenses 1,653,452 31,230 33,247 -- 1,717,929
Advertising and promotion 1,946,376 31,100 145,505 -- 2,122,981
Utilities 843,675 50,894 106,928 -- 1,001,497
Franchise fees 832,683 62,186 111,924 -- 1,006,793
Management fees 823,556 60,808 88,994 -- 973,358
Rent expense-Apple Suites, Inc. -- -- -- -- --
Taxes, insurance and other 885,774 75,760 204,925 -- 1,166,459
General and administrative 507,507 -- -- 14,228 (B) 521,735
Depreciation of real estate owned 2,146,695 96,338 489,641 (585,979) (L)
273,821 (D) 2,420,516
Interest 2,419,026 282,602 -- (282,602) (C)
642,813 (E)
366,666 (G) 3,428,505
Grounds lease 50,000 -- -- -- 50,000
Management termination fees 1,413,520 -- -- (1,413,520) (K) --
----------------------------------------------------------------------------------
Total expenses 19,777,378 1,247,812 2,410,918 (984,573) 22,451,535
Income tax expense -- -- -- -- (J) --
----------------------------------------------------------------------------------
Net income $ 2,470,342 $ 264,710 $ 483,609 984,572 $ 4,203,234
==================================================================================
Earnings per common share:
Basic and Diluted $ 0.23 $ 0.33
============== ============
Basic weighted average common shares outstanding 10,861,590 1,731,104 (I) $ 12,592,694
============== ============
Diluted weighted average common shares
outstanding 10,863,790 1,731,104 (I) $ 12,594,894
============== ============
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Notes to Pro Forma Condensed Consolidated Statements of Operations (Unaudited)
(A) Represents the elimination of the Company's income and the Lessee's expenses
as a result of the Company's acquisition of the Lessee.
(B) Represents the advisory fee of 0.25% of accumulated capital contributions
under the "best efforts" offering for the period of time not owned by the
Company for the periods presented.
(C) Represents the elimination of the interest expense recorded by the prior
owner since the related debt was not assumed.
(D) Represents the depreciation on the hotels acquired based on the purchase
price, excluding amounts allocated to land, for the period of time not owned by
the Company. The weighted average life of the of the depreciable assets was 39
years.
(E) 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 incurred at acquisition.
(F) Represents the elimination of the historical interest expense which was
replaced with the refinancings discussed in note G.
(G) Represents the interest expense on the Company's long-term refinancings of
$50 million at an interest rate of 9% and $10.7 million at an interest rate of
8.15% and a portion of the $10 million short-term financing ($6,569,500) at an
interest rate of one month LIBOR plus 200 basis points (8.67%) for the term of
the financing (6 months) for the periods presented.
(H) Represents amortization of deferred financing costs of $1.4 million
associated with the debt incurred in note G.
(I) Represents additional common shares assuming the properties and the Lessee
were acquired at the beginning of the periods presented with the net proceeds
from the "best efforts" offering of $10 per share (net $8.95 per share) for the
remainder, and an increase in common shares as a result of paydown of debt
associated with the refinancing.
(J) No income tax benefit was assumed as the lessee had a pro forma for loss for
the periods presented. No income tax effect was assumed for the six months ended
June 30, 2001 in which the lessee had a pro forma loss.
(K) Management termination fees have been eliminated in 2001, since they are
directly attributable to the acquisition of the lessee and will not have an on-
going impact.
(L) Represents the elimination of depreciation expense recorded by the prior
owner.
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[Page Intentionally Left Blank]
c. Exhibits.
Exhibit
Number Description
- ------- -----------
4.1 Note dated June 15, 2001 in the principal amount of $7,875,000 made payable
by Apple Suites, Inc. to Promus Hotels, Inc., with respect to the Homewood
Suites(R) by Hilton hotel in Beaverton, Oregon.
4.2 Fee and Leasehold Deed of Trust, Assignment of Leases and Rents and
Security Agreement dated as of June 15, 2001 from Apple Suites, Inc. as
Borrower and Apple Suites Management, Inc. as Lessee to Transnation Title
Insurance Company as Trustee for the benefit of Promus Hotels, Inc. as
Beneficiary, with respect to the Homewood Suites(R) by Hilton hotel in
Beaverton, Oregon.
4.3 Assignment and Assumption Agreement (Leases and Agreements) dated as of
June 15, 2001 from Hilton Hospitality, Inc. as Assignor to Apple Suites
Management, Inc. as Assignee with respect to the Homewood Suites(R) by
Hilton hotel in Beaverton, Oregon.
4.4 Assignment and Assumption Agreement (Warranties, Licenses, Advance
Deposits) dated as of June 15, 2001 from Hilton Hospitality, Inc. as
Assignor to Apple Suites, Inc. as Assignee with respect to the Homewood
Suites(R) by Hilton hotel in Beaverton, Oregon.
4.5 Comfort Letter dated as of June 15, 2001 from Promus Hotels, Inc. to Apple
Suites, Inc. with respect to the Homewood Suites(R) by Hilton hotel in
Beaverton, Oregon.
4.6 Note dated June 15, 2001 in the principal amount of $8,625,000 made payable
by Apple Suites-MO, LLC and Apple Suites, Inc. to Promus Hotels, Inc., with
respect to the Homewood Suites(R) by Hilton hotel in Chesterfield,
Missouri.
4.7 Fee and Leasehold Deed of Trust, Assignment of Leases and Rents and
Security Agreement dated as of June 15, 2001 from Apple Suites-MO, LLC as
Borrower and Apple Suites Management, Inc. as Lessee to William P. Foley as
Trustee for the benefit of Promus Hotels, Inc. as Beneficiary, with respect
to the Homewood Suites(R) by Hilton hotel in Chesterfield, Missouri.
4.8 Assignment and Assumption Agreement (Leases and Agreements) dated as of
June 15, 2001 from Chesterfield Village Hotel, LLC as Assignor to Apple
Suites Management, Inc. as Assignee with respect to the Homewood Suites(R)
by Hilton hotel in Chesterfield, Missouri.
4.9 Assignment and Assumption Agreement (Warranties, Licenses, Advance
Deposits) dated as of June 15, 2001 from Chesterfield Village Hotel, LLC as
Assignor to Apple Suites-MO, LLC as Assignee with respect to the Homewood
Suites(R) by Hilton hotel in Chesterfield, Missouri.
4.10 Comfort Letter dated as of June 15, 2001 from Promus Hotels, Inc. to Apple
Suites, Inc. with respect to the Homewood Suites(R) by Hilton hotel in
Chesterfield, Missouri.
4.11 Assignment and Assumption of Agreement of Sale dated as of June 15, 2001
from Apple Suites, Inc. as Assignor to Apple Suites-MO, LLC as Assignee,
with respect to the Homewood Suites(R) by Hilton hotel in Chesterfield,
Missouri.
10.1 Amended and Restated Operating Agreement of Apple Suites-MO, LLC dated as
of December 20, 2001.
-42-
10.2 Management Agreement dated as of June 15, 2001 between Apple Suites
Management, Inc. and Promus Hotels, Inc. with respect to Homewood
Suites(R) by Hilton hotel in Beaverton, Oregon.
10.3 Franchise License Agreement dated as of June 15, 2001 between Promus
Hotels, Inc. and Apple Suites Management, Inc. with respect to Homewood
Suites(R) by Hilton hotel in Beaverton, Oregon.
10.4 Guarantee of Franchise License Agreement dated as of June 15, 2001 by
Apple Suites, Inc. as Guarantor to Promus Hotels, Inc. as Licensor with
respect to Homewood Suites(R) by Hilton hotel in Beaverton, Oregon.
10.5 Amended and Restated Hotel Lease Agreement dated as of December 28, 2001
between Apple Suites SPE V, Inc. (as lessor) and Apple Suites Management,
Inc. (as lessee) with respect Homewood Suites(R) by Hilton hotel in
Beaverton, Oregon.
10.6 Management Agreement dated as of June 15, 2001 between Apple Suites
Management, Inc. and Promus Hotels, Inc. with respect to Homewood
Suites(R) by Hilton hotel in Chesterfield, Missouri.
10.7 Franchise License Agreement dated as of June 15, 2001 between Promus
Hotels, Inc. and Apple Suites Management, Inc. with respect to Homewood
Suites(R) by Hilton hotel in Chesterfield, Missouri.
10.8 Guarantee of Franchise License Agreement dated as of June 15, 2001 by
Apple Suites, Inc. as Guarantor to Promus Hotels, Inc. as Licensor with
respect to Homewood Suites(R) by Hilton hotel in Chesterfield, Missouri.
10.9 Schedule setting forth information on two substantially identical Hotel
Lease Agreements (with respect to Exhibit 10.5 herein).
10.10 Management Agreement dated as of June 15, 2001 between Apple Suites
Management, Inc. and Promus Hotels, Inc. with respect to Homewood
Suites(R) by Hilton hotel in Herndon, Virginia.
10.11 Franchise License Agreement dated as of June 15, 2001 between Promus
Hotels, Inc. and Apple Suites Management, Inc. with respect to Homewood
Suites(R) by Hilton hotel in Herndon, Virginia.
10.12 Guarantee of Franchise License Agreement dated as of June 15, 2001 by
Apple Suites, Inc. as Guarantor to Promus Hotels, Inc. as Licensor with
respect to Homewood Suites(R) by Hilton hotel in Herndon, Virginia.
-43-
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.
By: /s/ Glade M. Knight
----------------------------
Glade M. Knight, President
April 1, 2002
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