Section 1 — Registrant’s Business and Operations
Item 2.01 Completion of Acquisition or Disposition of Assets
As reported in our Current Report on Form 8-K dated June 1, 2006, we purchased an existing multi-tenant industrial park known as 2111 South Industrial Park, a 26,800 square foot industrial building located in a master planned business park environment in the North Tempe submarket of Phoenix. The acquisition price was $1,975,000 plus approximately $5,800 of closing costs. This equates to approximately $73.91 per square foot of leasable space. The property is currently 94% leased at an average annual rent of $7.17 per square foot to 14 tenants whose spaces range in size from approximately 1,600 square feet to 2,800 square feet.
This Amendment No. 1 to Current Report on Form 8-K dated June 1, 2006 is being filed to include the financial statements and pro forma financial information under Item 9.01 below relating to the acquisition of the 2111 South Industrial as described in such Current Report.
We are not aware of any material factors relating to 2111 South Industrial Park other than those discussed in our Current Report on Form 8-K dated June 1, 2006 that would cause the historical financial information presented in Item 9.01 to not be necessarily indicative of future results.
Section 9 — Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits
(a) Financial statements of businesses acquired. The following financial statements relating to the 2111 South Industrial Park are included at the end of this Amendment No. 1 to Current Report on Form 8-K dated June 1, 2006 and are filed herewith and incorporated herein by reference.
2111 South Industrial Park
| Report of Independent Registered Public Accounting Firm | | 4 |
| Statements of Revenues and Certain Expenses for the Year Ended December 31, 2005 and the Three Months Ended March 31, 2006 (Unaudited) | | 5 |
| Notes to Statements of Revenues and Certain Expenses | | 6 |
(b) Pro Forma Financial Information. The following unaudited pro forma financial statements of Cornerstone Core Properties REIT, Inc. relating to the acquisition of 2111 South Industrial Park are included at the end of this Amendment No. 1 to Current Report on Form 8-K dated June 1, 2006 and are filed herewith and incorporated herein by reference.
Cornerstone Core Properties REIT, Inc
| Summary of Unaudited Pro Forma Financial Information | | 8 |
| Unaudited Pro Forma Condensed Balance Sheet as of March 31, 2006 | | 9 |
| Unaudited Pro Forma Condensed Statement of Operations for the Year Ended December 31, 2005 | | 10 |
| Unaudited Pro Forma Condensed Statement of Operations for the Three Months Ended March 31, 2006 | | 11 |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
CORNERSTONE CORE PROPERTIES REIT, INC |
| | |
| | |
| By: | /s/ TERRY G. ROUSSEL |
| | Terry G. Roussel, President |
| | |
Dated: August 10, 2006 | | |
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| | |
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Cornerstone Core Properties REIT, Inc.
Irvine, California
We have audited the accompanying statement of revenues and certain expenses, (the “Historical Summary”) of 2111 South Industrial Park, Phoenix (the “Property”) for the year ended December 31, 2005. This statement of revenues and certain expenses is the responsibility of the Property’s management. Our responsibility is to express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission (for inclusion in the current report on Form 8-K/A of Cornerstone Core Properties REIT, Inc.) as described in Note 1 to the Historical Summary and is not intended to be a complete presentation of the Property’s revenue and expenses.
In our opinion, the statement of revenues and certain expenses of the Property presents fairly, in all material respects, the revenues and certain expenses described in Note 1 to the Historical Summary of the property located at 2111 South Industrial Park, Phoenix for the year ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP | | |
|
Costa Mesa, California |
August 10, 2006 |
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2111 SOUTH INDUSTRIAL PARK
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
For the Year Ended December 31, 2005 and for the
Three Months ended March 31, 2006 (Unaudited)
| | Year ended
December 31, 2005 | | Three months ended
March 31, 2006 | |
| | | | (Unaudited) | |
| | | | | |
Revenues | | | | | |
Rental revenue | | $ | 160,444 | | $ | 43,736 | |
Tenant reimbursements | | 4,752 | | 1,177 | |
Other | | 4,854 | | 621 | |
Total revenues | | 170,050 | | 45,534 | |
| | | | | |
Certain Expenses | | | | | |
Property operating and maintenance | | 43,108 | | 13,190 | |
Property taxes | | 25,325 | | 6,331 | |
Insurance | | 4,709 | | 1,268 | |
Total certain expenses | | 73,142 | | 20,789 | |
| | | | | |
Revenues in excess of certain expenses | | $ | 96,908 | | $ | 24,745 | |
See accompanying notes to statements of revenues and certain expenses.
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2111 SOUTH INDUSTRIAL PARK
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
1. Organization and Summary of Significant Accounting Policies
Organization
The accompanying statements of revenues and certain expenses include the operations of 2111 South Industrial Park (the “Property”) located in Phoenix, Arizona, which was acquired by Cornerstone Core Properties REIT, Inc (the “Company”), from a nonaffiliated third party. The Property was acquired on June 1, 2006 for $1,975,000 and has 26,800 leasable square feet on approximately 1.5 acres of land (unaudited).
Basis of Presentation
The statements of revenues and certain operating expenses (the “Historical Summary”) have been prepared for the purpose of complying with the provisions of Article 3-14 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”), which requires certain information with respect to real estate operations to be included with certain filings with the SEC. The Historical Summary includes the historical revenues and certain operating expenses of the 2111 South Industrial Park property, exclusive of items which may not be comparable to the proposed future operations of the Property. Material amounts that would not be directly attributable to future operating results of the Property are excluded, and the Historical Summary is not intended to be a complete presentation of the 2111 South Industrial Park property’s revenues and expenses. Items excluded consist of depreciation, interest expense and federal and state income taxes.
The accompanying statements are not representative of the actual operations for the periods 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. The statement of revenues and certain expenses for the three months ended March 31, 2006 is unaudited and reflects all adjustments (consisting only of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of the operating results for the interim period presented. The results of operations for the three months ended March 31, 2006 (unaudited) are not necessarily indicative of the results for the entire fiscal year ending December 31, 2006.
Revenue Recognition
Rental revenue is recognized on an accrual basis as it is earned over the lives of the respective tenant leases on a straight-line basis. Rental receivables are periodically evaluated for collectibility.
Repairs and Maintenance
Expenditures for repairs and maintenance are expensed as incurred.
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Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of revenues and certain expenses during the reporting period. Actual results could differ materially from the estimates in the near term.
2. Leases
The aggregate annual future minimum lease payments to be received under existing operating leases as of December 31, 2005, are as follows:
2006 | | $ | 57,452 | |
2007 | | 49,810 | |
2008 | | 1,857 | |
| | $ | 109,119 | |
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. The above future minimum lease payments do not include specified payments for tenant reimbursements of operating expenses.
3. Commitments and Contingencies
Litigation
The 2111 South Industrial Park property may be subject to legal claims in the ordinary course of business as a property owner. The Company believes that the ultimate settlement of any potential claims will not have a material impact on the 2111 South Industrial Park property’s results of operations.
Environmental Matters
In connection with the ownership and operation of real estate, the 2111 South Industrial Park property may be potentially liable for costs and damages related to environmental matters. The 2111 South Industrial Park property has not been notified by any governmental authority of any non-compliance, liability or other claim, and the Company is not aware of any other environmental condition that they believe will have a material adverse effect on the 2111 South Industrial Park property’s results of operations.
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CORNERSTONE CORE PROPERTIES REIT, INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Statements of Operations of Cornerstone Core Properties REIT, Inc (the “Company”) for the year ended December 31, 2005 and for the three months ended March 31, 2006 have been prepared as if the acquisition of 2111 South Industrial Park had occurred as of the beginning of each period presented and Unaudited Condensed Balance Sheet of the Fund as of March 31, 2006 has been prepared as if the acquisition of 2111 South Industrial Park had occurred on March 31, 2006.
Such Unaudited Pro Forma Financial Information is based in part upon (i) the Audited Financial Statements of the Company for the year ended December 31, 2005 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005; (ii) the Unaudited Financial Statements of the Company as of and for the three months ended March 31, 2006 included in the Company’s Quarterly Report on Form 10-Q the three months ended March 31, 2006; and (iii) the Historical Statements of Revenues and Certain Expenses of 2111 South Industrial Park for the year ended December 31, 2005 and for the three months ended March 31, 2006 (unaudited) filed herewith.
The Unaudited 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 Company that would have occurred if the acquisition of 2111 South Industrial Park had been completed on the dates indicated, nor does it purport to be indicative of future financial position or results of operations. In the opinion of the Company’s management, all material adjustments necessary to reflect the effect of this transaction have been made.
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CORNERSTONE CORE PROPERTIES REIT, INC
(a Maryland corporation)
UNAUDITED PROFORMA CONDENSED BALANCE SHEET
As of March 31, 2006
ASSETS
| |
March 31,
2006 (A)
(unaudited)
| |
Recent
Acquisition (B)
(unaudited)
| |
Proforma
March 31, 2006
(unaudited)
| |
| | | | | | | |
Assets: | | | | | | | |
Cash and cash equivalents | | $ | 2,235,150 | | $ | (1,955,510 | ) | $ | 279,640 | |
Subscriptions receivable | | 579,408 | | | | 579,408 | |
Land | | — | | 590,000 | | 590,000 | |
Accounts received from related parties | | 8,500 | | — | | 8,500 | |
Buildings and improvements | | | | 1,465,222 | | 1,465,222 | |
Identified intangible assets | | 12,308 | | 12,308 | | | |
Other assets, net | | 223,399 | | (63,099 | ) | 160,300 | |
Total assets | | $ | 3,046,457 | | $ | 48,921 | | $ | 3,095,378 | |
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY
Liabilities: | | | | | | | |
Accounts payable and accrued liabilities | | $ | 110,459 | | $ | 23,282 | | $ | 133,741 | |
Dividends payable | | 14,245 | | — | | 14,245 | |
Security deposits | | — | | 14,725 | | 14,725 | |
Identified intangible liabilities | | — | | 10,914 | | 10,914 | |
Accounts payable to related parties | | 1,810,037 | | — | | 1,810,037 | |
Total liabilities | | 1,934,741 | | 48,921 | | 1,983,662 | |
Minority interest | | 196,391 | | — | | 196,391 | |
Stockholders’ equity: | | | | | | | |
Common stock $.01 par value; 290,000 shares authorized; 418,580 and 125 shares issued and outstanding at March 31, 2006 and December 31, 2005 respectively | | 419 | | — | | 419 | |
Additional paid-in capital | | 1,319,725 | | — | | 1,319,725 | |
Accumulated deficit | | (404,819 | ) | — | | (404,819 | ) |
Total stockholder’s equity | | 915,325 | | — | | 915,325 | |
Total liabilities, minority interest and stockholder’s equity | | $ | 3,046,457 | | $ | 48,921 | | $ | 3,095,378 | |
(A) Derived from the unaudited financial statements as of March 31, 2006.
(B) Represents adjustment for the acquisition of the 2111 South Industrial Park, based on historical operating results. The purchase price has been allocated to land ($590,000), buildings ($1,465,222), in-place leases ($12,308) and below market rent ($10,914). The Company obtained an independent, third-party appraisal as the basis for this allocation in accordance with Financial Accounting Standards Board Statement No. 141, Business Combinations (“FAS 141”). Under FAS 141, the purchase price is allocated to a property’s tangible (primarily land and building) and intangible assets at its estimated fair value.
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CORNERSTONE CORE PROPERTIES REIT, INC
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2005
| | Historical (A) | | Recent Acquisition (B) | | Pro Forma | |
| | | | | | | |
Revenues | | | | | | | |
Rental revenue | | $ | — | | $ | 160,444 | | $ | 160,444 | |
Amortization of below (above) market leases | | — | | 7,774, | | 7,774 | |
Tenant reimbursements | | — | | 4,752 | | 4,752 | |
Other | | — | | 4,854 | | 4,854 | |
Total revenues | | — | | 177,824 | | 177,824 | |
Expenses | | — | | | | | |
Property operating and maintenance | | — | | 43,108 | | 43,108 | |
Property taxes | | — | | 25,325 | | 25,325 | |
General and administrative | | 95,134 | | 4,709 | | 99,843 | |
Depreciation and amortization | | — | | 45,409 | | 45,409 | |
| | 95,134 | | 118,551 | | 213,685 | |
Operating income (loss) | | (95,134 | ) | 59,273 | | (35,861 | ) |
Other income | | | | | | | |
Interest income | | 1,154 | | — | | 1,154 | |
Income (loss) before minority interest | | (93,980 | ) | 59,273 | | (34,707 | ) |
Minority interest | | (350 | ) | (5,341 | ) | (5,691 | ) |
Net Income (loss) | | $ | (94,330 | ) | $ | 53,932 | | $ | (40,398 | ) |
Income (loss) per share —basic and diluted | | $ | (755 | ) | $ | 0.18 | | $ | (0.14 | ) |
Weighted average number of common shares | | 125 | | 293,402 | | 293,527 | |
(A) Represents the historical results of operations of the Company for the year ended December 31, 2005.
(B) Represents adjustment for the acquisition of the 2111 South Industrial Park, based on historical operating results. Depreciation is based on an allocation of the purchase price to land ($590,000) and buildings ($1,465,222) with buildings depreciated on a straight-line method over a 39-year period. The amortization of in-place leases is based on an allocation of $12,308 to in-place leases, and the amortization of below market rent is based on an allocation of $10,914 to below market rent, both of which are amortized through a portion of 2008. The Company obtained an independent, third-party appraisal as the basis for this allocation in accordance with Financial Accounting Standards Board Statement No. 141, Business Combinations (“FAS 141”). Under FAS 141, the purchase price is allocated to a property’s tangible (primarily land and building) and intangible assets at its estimated fair value. The adjustment to the weighted average number of common shares outstanding represents the purchase of 2111 South Industrial Park.
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CORNERSTONE CORE PROPERTIES REIT, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2006
| | Historical (A) | | Recent Acquisition (B) | | Pro Forma | |
Revenues | | | | | | | |
Rental revenue | | $ | — | | $ | 43,736 | | $ | 43,736 | |
Amortization of below (above) market leases | | — | | 2,541 | | 2,541 | |
Tenant reimbursements | | | | 1,177 | | 1,177 | |
Other | | — | | 621 | | 621 | |
Total revenues | | — | | 48,075 | | 48,075 | |
Expenses | | | | | | | |
Property operating and maintenance | | — | | 13,190 | | 13,190 | |
Property taxes | | — | | 6,331 | | 6,331 | |
General and administrative | | 315,842 | | 1,268 | | 317,110 | |
Depreciation and amortization | | — | | 11,899 | | 11,899 | |
| | 315,842 | | 32,688 | | 348,530 | |
Operating income (loss) | | (315,842 | ) | 15,387 | | (300,455 | ) |
Other income | | | | | | | |
Interest income | | 1,394 | | — | | 1,394 | |
Income (loss) before minority interest | | (314,448 | ) | 15,387 | | (299,061 | ) |
Minority interest | | (3,959 | ) | (971 | ) | (2,988 | ) |
Net income (loss) | | $ | (310,489 | ) | 14,416 | | $ | (296,073 | ) |
Per share amounts: | | | | | | | |
Income (loss) per share basic and diluted | | $ | (3.29 | ) | $ | 0.05 | | $ | (0.72 | ) |
Weighted average number of common shares | | 94,396 | | 293,402 | | 412,260 | |
| | | | | | | |
(A) Represents the historical unaudited results of operations of the Company for the three months ended March 31, 2006.
(B) Represents adjustment for the acquisition of the 2111 South Industrial Park, based on historical operating results. Depreciation is based on an allocation of the purchase price to land ($590,000) and buildings ($1,465,222) with buildings depreciated on a straight-line method over a 39-year period. The amortization of in-place leases is based on an allocation of $12,308 to in-place leases and the amortization of below market rent is based on an allocation of $10,914 to below market rent, both of which are amortized through a portion of 2008. The Company obtained an independent, third-party appraisal as the basis for this allocation in accordance with Financial Accounting Standards Board Statement No. 141, Business Combinations (“FAS 141”). Under FAS 141, the purchase price is allocated to a property’s tangible (primarily land and building) and intangible assets at its estimated fair value. The adjustment to the weighted average number of common shares outstanding represents the purchase of 2111 South Industrial Park.
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