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: May 14, 1997
CORNERSTONE REALTY INCOME TRUST, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 0-23954 54-1589139
(State of (Commission (IRS Employer
incorporation) File Number) Identification No.)
306 East Main Street
Richmond, Virginia 23219
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code:
(804) 643-1761
CORNERSTONE REALTY INCOME TRUST, INC.
FORM 8-K
Index
Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
a. Independent Auditors' Report
(Charleston Place Apartments)
Historical Statement of Income and
Direct Operating Expenses
(Charleston Place Apartments)
Note to Historical Statement of
Income and Direct Operating
Expenses (Charleston Place Apartments)
b. Independent Auditors' Report
(Dunwoody Springs Apartments)*
Historical Statement of Income and
Direct Operating Expenses
(Dunwoody Springs Apartments)*
Note to Historical Statement of
Income and Direct Operating
Expenses (Dunwoody Springs Apartments)*
c. Pro Forma Statement of Operations for
the Six Months ended June 30, 1997
(unaudited)*
Pro Forma Balance Sheet as of
June 30, 1997 (unaudited)*
Pro Forma Statement of Operations
for the Year ended December 31, 1996
(unaudited)*
* To be filed by amendment.
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d. Exhibits
10.1 Purchase Contract for Charleston Place Apartments
10.2 Purchase Contract for Dunwoody Springs Apartments
23.1 Consent of Independent Auditors
23.2 Consent of Independent Auditors*
* To be filed by amendment.
3
Item 2. Acquisition or Disposition of Assets
CHARLESTON PLACE APARTMENTS
Charlotte, North Carolina
On May 14, 1997, the Company purchased the Summit Charleston
Apartments, a 214-unit apartment complex located at 1700 Charleston Place Lane,
Charlotte, North Carolina (the "Property"). The Company has renamed the Property
the "Charleston Place Apartments."
The Company purchased the Property from a seller unaffiliated with the
Company and its affiliates. The purchase price was $9,475,000, all of which was
borrowed by the Company under the Company's unsecured line of credit. Title to
the Property was conveyed to the Company by limited warranty deed.
Location. The Property is located in the southeastern part of
Charlotte, North Carolina, within Mecklenburg County. The following information
is based in part upon information provided by the greater Charlotte Chamber of
Commerce.
Based in part upon its fast rate of growth and a diversified economy,
Charlotte has in recent years come to national attention as an attractive
location for business and residential growth. According to the August 1995, Site
Selection magazine, Charlotte's corporate popularity ranked second nationally
only to Dallas during the period between 1990 and 1994, being the site of 474
significant new and expanded facilities.
Charlotte has developed into a major financial, distribution and
transportation center, with a metropolitan population of approximately 1.3
million and a population of approximately 5.6 million within a 100-mile radius.
Charlotte's growth is also attributable to its favorable year-round climate, a
moderate cost of living, excellent quality of life, educated work force,
probusiness political climate, extensive transportation network, and strategic
geographic location.
According to the Charlotte Chamber of Commerce, during the first six
months of 1995, approximately 530 firms announced new or expanded businesses
which will provide approximately 6,200 new jobs in the area. Charlotte is home
to major offices of more than 225 of the Fortune 500 industrial firms and
approximately 300 of the Fortune 500 service firms.
Charlotte is the leading financial center of the Southeast, serving as
corporate headquarters to NationsBank and First Union, with assets of
approximately $170 billion and $124 billion, respectively. The growth of
Charlotte's banking and financial communities has had a positive effect on the
growth of its
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supporting industries, such as insurance, accounting, legal
services, and real estate.
The city of Charlotte is located near the border of North Carolina and
South Carolina within Mecklenburg County. It is located at the intersection of
Interstates 77 and 85, the major north/south and each/west thoroughfares in the
region, which provide convenient access to all other regional areas.
The Property is located on Monroe Road adjacent to McAlpine Greenway
Park. The immediate area surrounding the Property consists of commercial and
retail development, other multi-family housing, and single family housing. The
Property is in close proximity to several major employment centers, including
the McAlpine Business Center, Crownpoint Business Center, Matthews Township and
the Charlotte central business district. The Property has ready access to
shopping, dining and entertainment and to the Charlotte/Douglass International
Airport.
Description of the Property. The Property consists of 214 garden style
apartment units in 11 two- and three-story buildings on approximately 15 acres
of land. The Property was built in 1986.
The Company believes that the Property is generally in very good
condition and has been well maintained. The Company has budgeted approximately
$107,000 for certain improvements, including renovation of the clubhouse and
painting.
The Property offers five unit types. The unit mix and rents currently
being charged new tenants are as follows:
Approximate
Interior Square Monthly
Quantity Type Footage Rental
- -------- ---- ------- ------
31 One bedroom/one bath 550 $530-$560
31 One bedroom/one bath 650 550-580
31 One bedroom/one bath 710 600-635
31 One bedroom/one
bath/den 815 660-690
90 Two bedrooms/two 977 690-750
baths
The variation in monthly rental among units is based upon floor level
and amenities such as washer/dryer connections,
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fireplace, picture windows, vaulted ceilings and built-in
shelving.
The apartments provide a combined total of approximately 172,000 square
feet of net rentable area.
Leases at the Property are generally for terms of one year or less.
Average rental rates for the past five years have generally increased. As an
example, a one-bedroom, one-bath apartment unit (710 square feet) rented for
$385 in 1992, $441 in 1993, $505 in 1994, $540 in 1995 and $550 in 1996. The
average effective annual rental per square foot at the Property for 1992, 1993,
1994, 1995 and 1996 was $6.04, $6.91, $7.92, $8.47 and $8.62, respectively.
The buildings are wood-frame construction on concrete slabs. Exteriors
are a combination of brick veneer and vinyl siding. The buildings have pitched
roofs covered with gabled fiberglass shingles over pre-engineered roof trusses.
Each apartment unit has wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath. Each apartment unit has a cable television
hook-up and an individually controlled heating and air conditioning unit. Each
apartment unit also includes miniblinds, vertical blinds, pantry and linen space
and outside storage. Each kitchen has a refrigerator/freezer with icemaker,
electric range and oven, microwave, dishwasher and garbage disposal. The owner
of the Property supplies cold water, sewer service and trash removal. The
tenants pay for their electricity, which includes air conditioning, heating,
cooking, hot water and lights.
The Property has an outdoor swimming pool, a lighted tennis court, an
exercise/fitness center overlooking the swimming pool, a sand volleyball court,
two gazebos with gas grills and picnic areas, a laundry room, and a car care
area. The Property also has winding walkways with access to McAlpine Greenway
Park. The Property has a large clubhouse/leasing office with an entertainment
area, fully-equipped kitchen, library and fireplace. There is ample paved
parking for tenants.
There are at least five apartment properties in the area that compete
with the Property. All offer similar amenities and have rents that generally are
comparable to those of the Property. Based on a recent telephone survey, the
Company estimates that occupancy in nearby competing properties now averages
approximately 92%.
According to information provided by the seller, physical occupancy at
the Property averaged approximately 92% in 1992, 94% in 1993, 94% in 1994, 95%
in 1995 and 94% in 1996. On May 5, 1997, the Property was 93% occupied.
6
Most of the tenants at the Property are white-collar workers.
The combined 1996 real estate tax rate imposed on the Property by the
City of Charlotte and Mecklenburg County was $1.2550. The assessed value was
$6,215,720. The taxes were calculated as $85,069 (including a solid waste tax of
$7,062).
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $5,238,890) will be depreciated over 27.5
years on a straight-line basis. The basis of the personal property portion will
be depreciated in accordance with the modified accelerated cost recovery system
of the Code. Amounts to be spent by the Company on repairs and improvements will
be treated for tax purposes as permitted by the Code based on the nature of the
expenditures.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Company to be relevant in evaluating the Property for
acquisition by the Company included the following:
1. The Company believes that the Charlotte, North Carolina area will
experience continued strong economic development and steady population increase,
and that such development and increase will support stable occupancy rates and
reasonable increases in rents at the Property.
2. Based upon an engineering report and its own inspections, the
Company believes that the Property is in very good condition.
3. The Property is conveniently located and proximate to major
employers and shopping.
4. The Company is very familiar with the Charlotte rental market. The
Company already owns several other apartment complexes in the Charlotte area,
which may provide certain economies and efficiency in operation.
The Company is not aware of any material adverse factors relating to
the Property not set forth in this report that would cause the financial
information contained in this report not to be indicative of future operating
results.
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DUNWOODY SPRINGS APARTMENTS
Dunwoody, Georgia
On July 25, 1997, the Company purchased the Dunwoody Springs
Apartments, a 350-unit apartment complex located at 8800 Dunwoody Place,
Dunwoody, Georgia (the "Property").
The Company purchased the Property from a seller unaffiliated with the
Company and its affiliates. The purchase price was $15,200,000, all of which was
borrowed by the Company under the Company's unsecured line of credit. Title to
the Property was conveyed to the Company by limited warranty deed.
Location. The Property is in Dunwoody, Fulton County, just north of
Atlanta, Georgia. The following information is based in part upon information
provided by the greater Atlanta Chamber of Commerce.
The economy of the greater Atlanta area is diverse, and includes as
significant sectors manufacturing, transportation, distribution, retailing,
wholesaling, finance, government, research, education and medicine. More than
80% of the Fortune 500 industrial companies and over 1,800 local manufacturing
firms have operations in the area. Atlanta is the national headquarters of
Coca-Cola, Cable News Network, Delta Air Lines, United Parcel Service, Home
Depot and Holiday Inn Worldwide. The city is also headquarters for the Sixth
District Federal Reserve Bank.
The convention and visitor trade is also one of Atlanta's primary
industries and has an important impact on the overall economy of the city.
Atlanta's hosting of the 1996 Centennial Olympic Games furthered its visibility
as an important city internationally.
Atlanta sits at the junction of three major Interstate Highways (I-20,
I-75 and I-85), and I-285 (Perimeter Highway) encircles the city. There are
several airports in the area, but the principal airport is Hartsfield-Atlanta
International Airport, which had over 60,000 flights and over 4.5 million
passengers in 1994. Atlanta also has a rapid rail transit system (known as the
Metropolitan Atlanta Rapid Transit Authority, or "MARTA").
Fulton County is the most densely developed and populated county in the
metropolitan Atlanta area. With nearly 40% of the total number of jobs in the
greater metropolitan area, the county also has the largest employment base, with
downtown, midtown, Buckhead and Perimeter Center office districts all located in
Fulton County.
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The 1996 population of Fulton County was approximately 745,000. The
Atlanta Regional Commission projects that Fulton County's population will reach
approximately 773,500 by 2005, and the County's current employment base of
approximately 616,000 is projected to increase by approximately 8,000 jobs
annually over the next ten years. Since 1980, county-wide employment has
increased by an average of approximately 11,000 jobs per year.
The Property is located on Dunwoody Place off of Northridge Road. The
immediate area surrounding the Property consists of other multi-family and
single-family housing, and commercial and retail development. The Property is
located at the apex of metropolitan Atlanta's largest and fastest growing
commercial area, the Perimeter Center/Georgia Highway 400 corridor. The Property
is near businesses, major shopping, entertainment, schools and churches.
The Property is located approximately 16 miles from the Atlanta central
business district, approximately five miles north of Interstate 285 and less
than one mile from both Georgia Highway 400 and Roswell Road.
Description of the Property. The Property consists of 350 garden and
loft style apartment units in 25 two- and three-story buildings on approximately
33 acres of land. The Property was built in 1981.
The Company believes that the Property is generally in very good
condition and has been well maintained. According to the seller, since October
of 1993, the seller has completed approximately $432,000 in capital
improvements, including installation of new appliances, roof repairs, paving,
concrete repairs, floor covering installation, window treatments and HVAC repair
and replacements. In addition, the exterior of the Property was painted in March
1997, which included exterior wood replacement where necessary. The Company has
budgeted $612,500 for additional renovations to the Property, including
construction of a clubhouse, re-siding of the entire Property and appliance
replacements.
The Property offers eight unit types. The unit mix and rents currently
being charged new tenants are as follows:
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Approximate
Interior Monthly
Quantity Type Square Footage Rental
-------- ---- -------------- ------
56 One bedroom/one bath 544 $545
(executive)
60 One bedroom/one bath 776 600
(screened porch)
68 One bedroom/one bath 972 645
(loft)
80 One bedroom/one bath 1,000 655
(sun room)
20 Two bedrooms/two 1,121 740
baths (roommate,
screened porch)
28 Two bedrooms/two 1,254 770
baths (screened
porch)
24 Two bedrooms/two 1,308 830
baths (den)
14 Two bedrooms/two 1,400 890
baths (sun room)
The apartments provide a combined total of approximately 331,600 square
feet of net rentable area.
Leases at the Property are generally for terms of one year or less.
Average rental rates for the past five years have both increased and decreased.
As an example, a one-bedroom, one-bath apartment unit (972 square feet) rented
for $519 in 1992, $573 in 1993, $584 in 1994, $540 in 1995 and $625 in 1996. The
average effective annual rental per square foot at the Property for 1992, 1993,
1994, 1995 and 1996 was $6.71, $7.40, $7.54, $6.97 and $8.07, respectively.
The buildings are wood-frame construction on concrete slabs, and the
exteriors are painted hardboard batten-style siding. Roofs are pitched and
covered with composition shingles and have metal gutters and downspouts.
Each apartment unit has wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath. Each apartment unit has a cable television
hook-up and individually controlled utilities. Each apartment unit, other than
the smallest one-bedroom unit, has individually metered utilities. The owner of
10
the property supplies cold water, sewer service and trash removal. Each tenant
is responsible for his or her own electricity usage, which includes air
conditioning and lights, and each tenant also pays for gas usage that provides
heat and hot water, except that the owner of the Property is responsible for gas
usage in the smallest one-bedroom apartment units, which are in four buildings,
each of which is served by one central gas-fired boiler that provides hot water.
Each unit, except the smallest one-bedroom unit, includes washer/dryer
connections for full-sized appliances, mini and vertical blinds and a patio or
balcony. There is a wood-burning fireplace in 241 apartment units and certain
units include built-in bookshelves, a screened porch or sun room. Each kitchen
is equipped with a refrigerator/freezer with icemaker, gas range and oven,
dishwasher and garbage disposal.
The Property has two swimming pools, a sun-deck with dressing rooms and
showers, a pool-side cabana, two lighted tennis courts, a park area with gazebo,
picnic tables and gas grills, a fitness center, a laundry facility and a car
wash area. There is ample paved parking for tenants.
There are at least seven apartment properties in the area that compete
with the Property. All offer similar amenities and have rents that generally are
comparable when compared with those of the Property. Based on a recent telephone
survey, the Company estimates that occupancy in nearby competing properties now
averages approximately 90%.
According to information provided by the seller, physical occupancy at
the Property averaged approximately 93% in 1992, 94% in 1993, 95% in 1994, 94%
in 1995, and 96% in 1996. On July 21, 1997, the Property was 95% occupied.
As of July 1997, approximately 80% of the Property's tenants were
single, with an average age of approximately 23. Tenants consist principally of
service-level and mid-management level employees of local businesses, including
MCI and Coca-Cola. The average household income is approximately $32,000.
For 1996, Fulton County specified an assessed value for the Property
equal to $11,797,800. The taxable value is equal to 40% of the assessed value,
or $4,719,120. The tax rate was $0.04028, and the total real estate taxes were
calculated as $190,086.
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $8,970,500) will be depreciated over 27.5
years on a straight-line basis. The basis of the personal property portion will
be depreciated in accordance with the modified accelerated cost recovery system
of the Code. Amounts to be spent by the Property on repairs and
11
improvements will be treated for tax purposes as permitted by the Code based on
the nature of the expenditures.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Company to be relevant in evaluating the Property for
acquisition by the Company included the following.
1. The Company believes that the greater Atlanta, Georgia metropolitan
area will continue to enjoy steady population increase and steady economic
development and that such increase and development will support stable occupancy
rates and reasonable increases in rents at the Property. In particular, the
Company believes that the Property is located in a particularly desirable part
of the Atlanta metropolitan area.
2. Based upon an engineering report and its own inspections, the
Company believes that the Property is in very good condition. The Company
particularly believes that the Property benefited from a significant renovation
completed by the former owner in 1993, and will similarly benefit from
additional renovations to be undertaken by the Company.
3. The Property has an advantageous location near the
Perimeter Center/Georgia Highway 400 corridor, Atlanta's largest and fastest
growing commercial area.
The Company is not aware of any material adverse factors relating to
the Property not set forth in this report that would cause the financial
information contained in this report not to be indicative of future operating
results.
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ITEM 7.a.
[L.P. MARTIN & COMPANY LETTERHEAD]
L.P. MARTIN & COMPANY
A PROFESSIONAL CORPORATION
CERTIFIED PUBLIC ACCOUNTANTS
4132 INNSLAKE DRIVE
GLEN ALLEN, VA 23060
PHONE: (804) 346-2626
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Cornerstone Realty Income Trust, Inc.
Richmond, Virginia
We have audited the accompanying statement of income and direct
operating expenses exclusive of items not comparable to the proposed future
operations of the property Summit Charleston Apartments located in Charlotte,
North Carolina for the twelve month period ended April 30, 1997. This
statement is the responsibility of the management of Summit Charleston
Apartments. Our responsibility is to express an opinion on this statement
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
statement. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying statement was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in a filing by Cornerstone Realty Income Trust, Inc.)
and excludes material expenses, described in Note 2 to the statement, that
would not be comparable to those resulting from the proposed future
operations of the property.
In our opinion, the statement referred to above presents fairly, in
all material respects, the income and direct operating expenses of Summit
Charleston Apartments (as defined above) for the twelve month period
ended April 30, 1997, in conformity with generally accepted accounting
principles.
/s/ L.P. Martin & Co., P.C.
Richmond, Virginia
July 18, 1997
SUMMIT CHARLESTON APARTMENTS
STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES EXCLUSIVE OF
ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY
TWELVE MONTH PERIOD ENDED APRIL 30, 1997
INCOME
- ------
Rental and Other Income $1,429,893
----------
DIRECT OPERATING EXPENSES
- -------------------------
Administrative and Other 194,849
Insurance 16,121
Repairs and Maintenance 201,408
Taxes, Property 77,178
Utilities 56,563
--------
TOTAL DIRECT OPERATING EXPENSES 546,119
-------
Operating income exclusive of items not
comparable to the proposed future
operations of the property $ 883,774
==========
See accompanying notes to the financial statement.
SUMMIT CHARLESTON APARTMENTS
NOTES TO THE STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES
EXCLUSIVE OF ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY
TWELVE MONTH PERIOD ENDED APRIL 30, 1997
NOTE 1 - ORGANIZATION
- ---------------------
Summit Charleston Apartments is a 214 unit garden style apartment complex
located on 14.95 acres in Charlotte, North Carolina. The assets comprising the
property were owned by an entity unaffiliated with Cornerstone Realty Income
Trust, Inc. during the financial statement period. Cornerstone Realty Income
Trust, Inc. subsequently purchased the property.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Revenue and Expense Recognition - The accompanying statement of rental
operations has been prepared using the accrual method of accounting. In
accordance with Rule 3-14 of Regulation S-X of the Securities and Exchange
Commission, the statement of income and direct operating expenses excludes
interest and non rent related income and expenses not considered comparable to
those resulting from the proposed future operations of the property. Excluded
expenses are mortgage interest, property depreciation, amortization,
professional fees and management fees.
Estimates - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Repairs and Maintenance - Repairs and maintenance costs are expensed as
incurred, while significant improvements, renovations and replacements are
capitalized.
Advertising - Advertising costs are expensed in the period incurred.
ITEM 7.b.*
* To be filed by amendment. It is impracticable to include herein the required
financial statements for the Property. The required financial statements will be
filed as an amendment to this report as soon as possible, but in no event more
than 60 days after the date of filing of this report.
ITEM 7.c.*
* To be filed by amendment. It is impracticable to include herein the required
pro forma financial information. The required pro forma financial information
will be filed as an amendment to this report as soon as possible, but in no
event more than 60 days after the date of filing of this report.
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.
Cornerstone Realty Income Trust, Inc.
Date: August 7, 1997 By:/s/ Stanley J. Olander, Jr.
---------------------------
Stanley J. Olander, Jr.,
Chief Financial Officer
of Cornerstone Realty
Income Trust, Inc.
EXHIBIT INDEX
Cornerstone Realty Income Trust
Form 8-K dated May 14, 1997
Exhibit Number Exhibit Page Number
- -------------- ------- -----------
10.1 Purchase Contract for
Charleston Place Apartments
Apartments
10.2 Purchase Contract for
Dunwoody Springs Apartments
23.1 Consent of Independent Auditors
23.2 Consent of Independent Auditors*
* To be filed by amendment.