CORNERSTONE REALTY FUND, LLC
SUPPLEMENT NO. 4
DATED MARCH 10, 2003
TO THE PROSPECTUS DATED MAY 7, 2002
OF CORNERSTONE REALTY FUND, LLC
This Supplement No. 4 supplements, modifies or supersedes certain information contained in the prospectus of Cornerstone Realty Fund, LLC, dated May 7, 2002, and must be read in conjunction with our prospectus, and Supplement Nos. 2 and 3 dated December 13, 2002 and January 7, 2003 respectively.
The purpose of this Supplement No. 4 is to:
The offering of units in Cornerstone Realty Fund, LLC pursuant to the prospectus commenced in August 2001. As of December 5, 2001, the dealer manager sold the minimum number of securities offered (6,000 units). As of March 7, 2003, the fund has raised $9,713,000 in gross offering proceeds (19,426 units). The offering will end on August 6, 2003.
The following financial statement relating to the Sky Harbor Business Park is included in this Supplement:
| 3170-3190 MacArthur Boulevard | |||
| Report of Independent Auditors | F-1 | ||
| Statement of Revenue and Certain Expenses for the year ended December 31, 2002 | F-2 | ||
| Notes to Statement of Revenue and Certain Expenses | F-3 | ||
The following unaudited pro forma financial statements relating to the Sky Harbor Business Park are included in this Supplement.
| Cornerstone Realty Fund, LLC | |||
| Summary of Pro Forma Financial Information | F-4 | ||
| Pro Forma Condensed Statement of Operations for the Year | |||
| Ended December 31, 2001 (unaudited) | F-5 | ||
| Pro Forma Condensed Statement of Operations for the Nine Months | |||
| Ended September 30, 2002 (unaudited) | F-6 | ||
Report of Independent Auditors
To the Members
Cornerstone Realty Fund, LLC
We have audited the accompanying statement of revenue and certain expenses of 3170-3190 MacArthur Boulevard for the year ended December 31, 2002. This statement of revenue and certain expenses is the responsibility of the management of Sky Harbor Business Park. Our responsibility is to express an opinion on the statement of revenue and certain expenses 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 statement of revenue and certain expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. 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 statement of revenue and certain expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission. Certain expenses (described in Note 1) that would not be comparable to those resulting from the proposed future operations of the property are excluded and the statement is not intended to be a complete presentation of the revenue and expenses of the property.
In our opinion, the statement of revenue and certain expenses of 3170-3190 MacArthur Boulevard presents fairly, in all material respects, the revenue and certain expenses, as defined above, of 3170-3190 MacArthur Boulevard for the year ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.
| /s/ ERNST & YOUNG LLP | ||
| Irvine, California February 14, 2003 |
F-1
3170-3190 MACARTHUR BOULEVARD
STATEMENT OF REVENUE AND CERTAIN EXPENSES
For the Year Ended December 31, 2002
| Revenue | ||||
| Rental revenue | $ | 282,233 | ||
| Tenant reimbursements | 119,445 | |||
| Other | 4,167 | |||
| Total revenue | 405,845 | |||
| Certain Expenses | ||||
| Property operating and maintenance | 50,391 | |||
| Property taxes | 104,654 | |||
| Insurance | 1,668 | |||
| Total certain expenses | 156,713 | |||
| Excess of revenue over certain expenses | $ | 249,132 | ||
See accompanying notes to statement of revenue and certain expenses.
F-2
3170-3190 MACARTHUR BOULEVARD
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 2002
1. Organization and Summary of Significant Accounting Policies
Organization
The accompanying statement of revenue and certain expenses includes the operations of 3170-3190 MacArthur Boulevard, otherwise known as Sky Harbor Business Park (the "Property") located in Northbrook, Illinois, which was acquired by Cornerstone Realty Fund, LLC (the "Fund"), from a nonaffiliated third party. The Property was acquired for $2,553,996 and has 41,422 leasable square feet.
Basis of Presentation
The accompanying statement has been prepared to comply with rules and regulations of the Securities and Exchange Commission.
The accompanying statement is not representative of the actual operations for the period presented, as certain expenses that may not be comparable to the expenses expected to be incurred by the Company in the future operations of the Property have been excluded. Excluded expenses consist of interest, depreciation and amortization not directly comparable to the future operation of the Property.
Revenue Recognition
Rental revenue is recognized on a straight-line basis over the terms of the related leases.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from the estimates in the near term.
2. Industrial Property
The future minimum lease payments to be received under existing operating leases as of December 31, 2002, are as follows:
| 2003 | $ | 256,713 | |
| 2004 | 123,346 | ||
| 2005 | 46,692 | ||
| 2006 | 34,377 | ||
| 2007 | 8,730 | ||
| $ | 469,858 | ||
The above future minimum lease payments do not include specified payments for tenant reimbursements of operating expenses.
Industrial space in the Property is generally leased to tenants under lease terms which provide for the tenants to pay increases in operating expenses in excess of specified amounts.
F-3
CORNERSTONE REALTY FUND, LLC
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following Pro Forma Condensed Statements of Operations of the Fund for the year ended December 31, 2001 and for the nine months ended September 30, 2002 have been prepared as if the acquisition of 3170 - 3190 MacArthur Boulevard ("Sky Harbor Business Park") had occurred as of January 1, 2001.
Such Pro Forma Financial Information is based in part upon (i) the Financial Statements of the Fund for the year ended December 31, 2001 included in the Fund's Annual Report on Form 10-K for the year ended December 31, 2001; (ii) the Financial Statements of the Fund for the nine months ended September 30, 2002 included in the Fund's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002; and (iii) the Historical Summary of 3170 - 3190 MacArthur Boulevard for the year ended December 31, 2002 filed with the Fund's Current Report on Form 8-K/A, dated March 7, 2003.
The Pro Forma Financial Information is presented for information purposes only and is not necessarily indicative of the financial position or results of operations of the Fund that would have occurred if the acquisition of Sky Harbor Business Park had been completed on the date indicated, nor does it purport to be indicative of future financial position or results of operations. In the opinion of the Fund's managing member, all material adjustments necessary to reflect the effect of this transaction have been made.
F-4
CORNERSTONE REALTY FUND, LLC
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2001
(Unaudited)
| | Cornerstone Realty Fund, LLC Historical (A) | Recent Transactions (B) | Cornerstone Realty Fund, LLC Pro Forma | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Revenues | ||||||||||
| Rental revenue | $ | — | $ | 292,485 | $ | 292,485 | ||||
| Tenant reimbursements | — | 73,032 | 73,032 | |||||||
| Interest, dividends and other | 8,319 | 9,242 | 17,561 | |||||||
| 8,319 | 374,759 | 383,078 | ||||||||
| Expenses | ||||||||||
| Property operating and maintenance | — | 52,001 | 52,001 | |||||||
| Property taxes | — | 78,390 | 78,390 | |||||||
| General and administrative expenses | 125,049 | — | 125,049 | |||||||
| Interest expense on advances payable to managing member | 68,687 | — | 68,687 | |||||||
| Depreciation | 663 | 54,747 | 55,410 | |||||||
| 194,399 | 185,138 | 379,537 | ||||||||
| Net (loss) income | $ | (186,080 | ) | $ | 189,621 | $ | 3,541 | |||
| Net (loss) income allocable to managing member | $ | (18,608 | ) | $ | 354 | |||||
| Net (loss) income allocable to unitholders | $ | (167,472 | ) | $ | 3,187 | |||||
| Per share amounts: | ||||||||||
| Basic and diluted (loss) income allocable to unitholders | $ | (27.37 | ) | $ | 0.52 | |||||
| Basic and diluted weighted average units outstanding | 6,119 | 6,119 | ||||||||
F-5
CORNERSTONE REALTY FUND, LLC
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2002
(Unaudited)
| | Cornerstone Realty Fund, LLC Historical (A) | Recent Transactions (B) | Cornerstone Realty Fund, LLC Pro Forma | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Revenues | ||||||||||
| Rental revenue | $ | 4,353 | $ | 208,807 | $ | 213,160 | ||||
| Tenant reimbursements | — | 66,312 | 66,312 | |||||||
| Interest, dividends and other | 45,022 | 3,028 | 48,050 | |||||||
| 49,375 | 278,147 | 327,522 | ||||||||
| Expenses | ||||||||||
| Property operating and maintenance | — | 33,292 | 33,292 | |||||||
| Property taxes | 391 | 78,490 | 78,881 | |||||||
| General and administrative expenses | 132,454 | — | 132,454 | |||||||
| Interest expense on advances payable to managing member | 32,192 | — | 32,192 | |||||||
| Depreciation | 426 | 41,060 | 41,486 | |||||||
| 165,463 | 152,842 | 318,305 | ||||||||
| Net (loss) income | $ | (116,088 | ) | $ | 125,305 | $ | 9,217 | |||
| Net (loss) income allocable to managing member | $ | (11,609 | ) | $ | 922 | |||||
| Net (loss) income allocable to unitholders | $ | (104,479 | ) | $ | 8,295 | |||||
| Per share amounts: | ||||||||||
| Basic and diluted (loss) income allocable to unitholders | $ | (10.32 | ) | $ | 0.82 | |||||
| Basic and diluted weighted average units outstanding | 10,125 | 10,125 | ||||||||
F-6
