UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
June 23, 2006
CORNERSTONE CORE PROPERTIES REIT, INC.
(Exact name of registrant as specified in its charter)
Maryland | | 333-121238 | | 33-0827161 |
(State or other jurisdiction
of incorporation) | | (Commission
File Number) | | (IRS Employer
Identification No.) |
1920 Main Street, Suite 400
Irvine, California 92614
(Address of principal executive offices)
(949) 852-1007
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions.
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14d-2(b)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)
Section 1 — Registrant’s Business and Operations
Item 1.01 Entry into a Material Definitive Agreement
We have entered into a definitive agreement (the “Agreement”) to purchase an existing multi-tenant industrial property known as the Shoemaker Industrial Buildings from First Industrial Harrisburg, LP, a non-related party, for a purchase price of $2.4 million. As of June 23, 2006, our right to terminate the agreement without penalty expired and our initial deposit became non refundable.
The property consists of approximately 18,921 square feet of leasable space in three single-story buildings located on approximately 1 acre of land in Santa Fe Springs, California. The property is currently 100% leased at an average annual rent of $8.91 per square foot to 4 tenants whose spaces range in size from approximately 4,600 square feet to 5,121 square feet. These tenants operate varying businesses including a service-related business, a light manufacturer, a distribution facility and a light assembly operation. The property includes private, fenced yards, an attractive amenity for industrial tenants in this size range.
The Shoemaker Industrial Buildings are situated in the Mid-Counties industrial sub-market that serves both Los Angeles and Orange County, California. The buildings provide immediate access the major traffic arteries servicing the Los Angeles and Long Beach ports and Los Angeles International Airport. According to Voit Commercial and Colliers International, nine million square feet of industrial space were absorbed in the overall Los Angeles County industrial market in 2005, with year end vacancy rates at approximately 3%. Colliers International reported that tight market conditions in the last 12 months have led to overall rental rate increases of 10% to 15%.
In connection with the Agreement, we paid a $150,000 deposit to an escrow, and under the terms of the Agreement, we are obligated to pay certain closing costs, including, but not limited to attorney fees, certain title insurance premiums, survey costs, recording costs and one-half of the escrow charges. The Agreement closing date is June 28, 2006.
Item 2.01 Completion of Acquisition or Disposition of Assets
On June 28, 2006, we closed the purchase of the property described in Item 1.01 above. The information reported in Item 1.01 is incorporated into this Item 2.01 by reference. The acquisition price was $2.4 million plus approximately $2,800 of closing costs (which are not fully determinable at this time). This equates to approximately $127 per square foot of leasable space. We purchased this property for all cash, without debt financing.
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Each of the four tenants occupy over 10% of the rentable square footage of the property. The following table sets forth lease expiration information for the next ten years:
Year Ending
Dec 31 | | No of
Leases
Expiring | | Approx
Amount of
Expiring Leases
(Sq. Feet) | | Base Rent of Expiring
Leases
(Annual $) | | Percent of
Total Leaseable
Area Expiring
% | | Percent of
Total
Annual Base
Rent Expiring |
| | | | | | | | | | |
2006 | | 1 | | 4,600 | | 49,680 | | 24.3 | | 29.4 |
2007 | | 0 | | — | | — | | — | | — |
2008 | | 1 | | 4,600 | | 38,088 | | 24.3 | | 22.6 |
2009 | | 1 | | 4,600 | | 38,088 | | 24.3 | | 22.6 |
2010 | | 1 | | 5,121 | | 42,760 | | 27.1 | | 25.4 |
Average annual lease rates and occupancy percentages for the last five years are as set forth below:
Year Ending
Dec 31 | | Average Lease Rate
Per Square Foot
(Annual $) | | Average Annual
Occupancy
(%) |
| | | | |
2005 | | 8.88 | | 100.0 |
2004 | | 7.40 | | 93.9 |
2003 | | 7.13 | | 87.9 |
2002 | | 6.83 | | 100.0 |
2001 | | 6.62 | | 100.0 |
In evaluating this property as a potential acquisition and determining the appropriate amount of consideration to be paid for the property, we considered a variety of factors including overall valuation of net rental income, location, demographics, physical condition, tenant mix, quality of tenants, length of leases, price per square foot, occupancy and analyzed how the property compares to comparable properties in its market.
For federal income tax purposes, the depreciable basis of the property is estimated at approximately $1.6 million which is subject to final adjustment. The depreciation expense will be calculated using the straight-line method, based upon an estimated useful life of 39 years for the building improvement costs and the related lease term for the tenant improvements. Leasing commissions will be amortized over the initial term of the related leases. The real estate tax rate is 1.25%, and annual real estate taxes are projected to be approximately $30,000 for the initial year subsequent to the purchase.
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Section 9 — Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits
(a) Financial statements of businesses acquired. We will file financial statements relating to the acquisition of Shoemaker Industrial Buildings by amendment to this Current Report.
(b) Pro forma financial information. We will file unaudited pro forma financial statements relating to the acquisition of the Shoemaker Industrial Buildings by amendment to this Current Report.
(d) Exhibits.
99.1 Purchase and Sale Agreement by and between Cornerstone Operating Partnership, L.P. and First Industrial Harrisburg, LP., dated June 16, 2006
99.2 Amendment to Agreement of Purchase and Sale by and between Cornerstone Operating Partnership, L.P. and First Industrial Harrisburg, LP., dated June 19, 2006.
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