SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
Amendment No. 1 to
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Original Report: January 15, 1998
CORNERSTONE REALTY INCOME TRUST, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 1-12875 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/A
Index
Page No.
--------
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
a. Independent Auditors' Report
(Stone Point Apartments (formerly Sterling Point))
Historical Statement of Income
and Direct Operating Expenses
(Stone Point Apartments (formerly Sterling Point))
Note to Historical Statement of Income
and Direct Operating Expenses
(Stone Point Apartments (formerly Sterling Point))
b. Pro Forma Balance Sheet as of December 31, 1997
(unaudited)
Pro Forma Statement of Operations
for the year ended December 31, 1997
(unaudited)
c. Exhibit
23.1 Consent of Independent Auditors
(Stone Point Apartments (formerly Sterling Point))
The Company hereby amends Items 7.a, 7.b and 7.c, of its Current Report
on Form 8-K dated January 15, 1998 as follows:
ITEM 7.a.
[L.P. Martin & Company Letterhead]
A PROFESSIONAL CORPORATION
CERTIFIED PUBLIC ACCOUNTANTS
4132 INNSLAKE DRIVE
GLEN ALLEN, VIRGINIA 23060
PHONE: (804) 346-2626
FAX: (804) 346-9311
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 Sterling Point Apartments located in Charlotte, North
Carolina for the twelve month period ended December 31, 1997. This statement is
the responsibility of the management of Sterling Point 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 Sterling Point
Apartments (as defined above) for the twelve month period ended December 31,
1997, in conformity with generally accepted accounting principles.
Richmond, Virginia
February 5, 1998 /s/ L.P. Martin & Co., P.C.
STERLING POINT 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 DECEMBER 31, 1997
INCOME
- ------
Rental and Other Income $ 1,346,251
DIRECT OPERATING EXPENSES
- -------------------------
Administrative and Other 114,801
Insurance 6,131
Repairs and Maintenance 203,373
Taxes, Property 93,573
Utilities 61,524
-------
TOTAL DIRECT OPERATING EXPENSES 479,402
-------
Operating income exclusive of items not
comparable to the proposed future operations
of the property $ 866,849
============
See accompanying notes to the financial statement.
STERLING POINT 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 DECEMBER 31, 1997
NOTE 1 - ORGANIZATION
Sterling Point Apartments is a 192 unit garden style apartment complex located
on 19.67 acres in Charlotte, North Carolina. The assets comprising the property
were owned by Sterling Apartments, LLC, 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 POLICES
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 property depreciation, amortization and management fees.
Estimates - The preparation of financial statements in conformity with generally
accepted accounting principles requires management of 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.
Pro Forma Consolidated Balance Sheet as of December 31, 1997 (unaudited)
The Unaudited Pro Forma Consolidated Balance Sheet gives effect to the property
acquisition in January 1998 as having occurred on January 1, 1997, using the
Company's line of credit.
The Unaudited Pro Forma Consolidated Balance Sheet is presented for comparative
purposes only and is not necessarily indicative of what the actual financial
position of the Company would have been at December 31, 1997, nor does it
purport to represent the future financial position of the Company. This
Unaudited Pro Forma Consolidated Balance Sheet should be read in conjunction
with, and is qualified in its entirety by, the respective historical financial
statements and notes thereto of the Company.
Historical Stone Point
Balance Pro Forma Total
Sheet Adjustments Pro Forma
--------------------------------------------------------
Date of acquisition 1/15/98
ASSETS
Investment in rental property
Land 76,812,953 1,164,000 77,976,953
Building and improvements 402,545,094 8,536,000 411,081,094
Furniture and fixtures 8,217,149 - 8,217,149
--------------------------------------------------------
487,575,196 9,700,000 497,275,196
Less accumulated depreciation (27,486,630) - (27,486,630)
--------------------------------------------------------
460,088,566 9,700,000 469,788,566
Cash and cash equivalents 4,513,986 - 4,513,986
Prepaid expenses 797,484 - 797,484
Other assets 8,786,414 - 8,786,414
--------------------------------------------------------
14,097,884 0 14,097,884
--------------------------------------------------------
474,186,450 9,700,000 483,886,450
========================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Notes payable 151,569,147 9,700,000 161,269,147
Accounts payable 3,812,578 - 3,812,578
Accrued expenses 1,158,014 - 1,158,014
Rents received in advance 463,997 - 463,997
Tenant security deposits 1,854,462 - 1,854,462
--------------------------------------------------------
158,858,198 9,700,000 168,558,198
Shareholders' equity
Common stock 349,135,379 - 349,135,379
Deferred compensation (62,976) - (62,976)
Distributions greater than net income (33,744,151) - (33,744,151)
--------------------------------------------------------
315,328,252 0 315,328,252
--------------------------------------------------------
474,186,450 9,700,000 483,886,450
========================================================
Pro Forma Consolidated Statement of Operations for the year ended December 31,
1997 (unaudited)
The Unaudited Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1997 is presented as if 11 of the 13 Property acquisitions during
1997and the 1998 property acquisition had occurred on January 1, 1997. The
Unaudited Pro Forma Consolidated Statement of Operations assumes the Company
qualifying as a REIT, distributing at least 95% of its taxable income, and,
therefore, incurred no federal income tax liability for the period presented. In
the opinion of management, all adjustments necessary to reflect the effects of
these transactions have been made.
The Unaudited Pro Forma Consolidated Statement of Operations is presented for
comparative purposes only and is not necessarily indicative of what the actual
results of the Company would have been for the year ended December 31, 1997 if
the acquisitions had occurred at the beginning of the period presented, nor does
it purport to be indicative of the results of operations in future periods. The
Unaudited Pro Forma Consolidated Statement of Operations should be read in
conjunction with, and is qualified in its entirety by, the respective historical
financial statements and notes thereto of the Company.
Historical 1997 Pro Forma Stone Point
Statement of Acquisitions Pro Forma Before 1998 Pro Forma
Operations Adjustments Adjustments Acquisition Adjustments
--------------------------------------------------------------------------
Date of Acquisition - - - - 1/15/98
Rental and other income $71,970,624 8,176,747 - $80,147,371 $ 1,346,251
Rental expenses:
Property and maintenance 19,494,692 2,524,622 - 22,019,314 379,698
Taxes and insurance 6,075,991 608,815 - 6,684,806 99,704
Property management 1,769,272 - - 1,769,272 -
General and administrative 1,351,667 - - 1,351,667 -
Amortization and other depreciation 56,075 - - 56,075 -
Depreciation of rental property 15,163,593 - 1,514,811(A) 16,678,404 -
Other 1,200,669 - - 1,200,669 -
Management contract termination 402,907 - - 402,907 -
--------------------------------------------------------------------------
Total Expenses 45,514,866 3,133,437 1,514,811 50,163,114 479,402
Income before interest income (expense) 26,455,758 5,043,310 (1,514,811) 29,984,257 866,849
Interest income 331,114 - - 331,114 -
Interest expense (7,561,319) - (2,411,653)(B) (9,972,972) -
--------------------------------------------------------------------------
Net Income $19,225,553 5,043,310 ($3,926,464) $20,342,399 $866,849
Net income per share $0.59
==========
Wgt. avg. number of shares outstanding 32,617,823 2,041,545(C) 34,659,368
========== =========== ==========
Pro Forma Total
Adjustments Pro Forma
-------------------------------
Date of Acquisition - -
Rental and other income - $81,493,622
Rental expenses:
Property and maintenance - 22,399,012
Taxes and insurance - 6,784,510
Property management - 1,769,272
General and administrative - 1,351,667
Amortization and other depreciation - 56,075
Depreciation of rental property 310,400(A) 16,988,804
Other - 1,200,669
Management contract termination - 402,907
-------------------------------
Total Expenses 310,400 50,952,916
Income before interest income (expense) (310,400) 30,540,706
Interest income - 331,114
Interest expense (660,570)(B) (10,633,542)
------------------------------
Net Income ($970,970) $20,238,278
Net income per share $0.58
===========
Wgt. avg. number of shares outstanding - 34,659,368
========= ==========
(A) Represents the depreciation expense of the properties acquired based on the
purchase price, excluding amounts allocated to land, of the properties for the
period of time not owned by the Company. The weighted average life of the
property depreciated was 27.5 years.
(B) Represents the interest expense for the properties purchased with the
Company's unsecured line of credit or other unsecured financing. Total purchase
price of $63,851,388 for 1997 acquisitions (8 properties) and total purchase
price of $9,700,000 for the 1998 acquisition for the period in which properties
were not owned for the year ended December 31, 1997. Interest was computed based
on interest rates under the Company's line of credit in effect at the time of
the respective acquisition.
(C) Represents additional common shares used to purchase Ashley Run, Carlyle,
Charleston Place and a portion of Dunwoody based upon purchase prices of
$18,000,000, $11,580,000, $9,475,000 and $10,560,312 (total purchase price of
Dunwoody was $15,200,000), respectively and common shares issued in April, 1997
with net proceeds of $9.5875 per share to the Company.
Pro Forma Consolidated Statement of Operations for the year ended December 31,
1997 (unaudited)
The following schedule provides detail of 1997 acquisitions by property included
in the Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1997.
Westchase Paces Arbor Paces Forest Ashley Run Carlyle Club
Pro Forma Pro Forma Pro Forma Pro Forma Pro Forma
Adjustments Adjustments Adjustments Adjustments Adjustments
----------- ------------ ------------ ----------- ------------
Date of Acquisition 1/15/97 3/1/97 3/1/97 4/30/97 4/30/97
Property operations
Revenues from rental properties $166,656 $128,993 $154,702 $916,820 $637,842
Rental expenses:
Property management 54,436 35,902 37,110 246,537 205,723
Taxes and insurance 16,024 8,094 9,108 69,240 46,970
General and administrative - - - - -
Amortization - - - - -
Depreciation of rental property - - - - -
Other - - - - -
---------------------------------------------------------------------
70,460 43,996 46,218 315,777 252,693
Income before interest income (expense) 96,196 84,997 108,484 601,043 385,149
Interest income - - - - -
Interest expense - - - - -
---------------------------------------------------------------------
Net Income $96,196 $84,997 $108,484 $601,043 $385,149
=====================================================================
Remington
Charleston Dunwoody Clarion St. Regis Place
Pro Forma Pro Forma Pro Forma Pro Forma Pro Forma
Adjustments Adjustments Adjustments Adjustments Adjustments
------------ ----------- ----------- ----------- -----------
Date of Acquisition 5/13/97 7/25/97 9/30/97 10/31/97 10/31/97
Property operations
Revenues from rental properties $536,210 $1,437,230 $1,141,473 $1,100,453 $918,833
Rental expenses:
Property management 169,807 451,935 442,582 294,153 262,938
Taxes and insurance 34,987 144,766 59,664 64,195 60,505
General and administrative - - - - -
Amortization - - - - -
Depreciation of rental property - - - - -
Other - - - - -
---------------------------------------------------------------------------
204,794 596,701 502,246 358,348 323,443
Income before interest income (expense) 331,416 840,529 639,227 742,105 595,390
Interest income - - - - -
Interest expense - - - - -
---------------------------------------------------------------------------
Net Income $331,416 $840,529 $639,227 $742,105 $595,390
===========================================================================
Stone Brooke 1997
Pro Forma Acquisition
Adjustments Adjustments
----------- ------------
Date of Acquisition 10/31/97
Property operations
Revenues from rental properties $1,037,535 $8,176,747
Rental expenses: -
Property management 323,499 2,524,622
Taxes and insurance 95,262 608,815
General and administrative - -
Amortization - -
Depreciation of rental property - -
Other - -
------------------------------------------
418,761 3,133,437
Income before interest income (expense) 618,774 5,043,310
Interest income - -
Interest expense - -
------------------------------------------
Net Income $618,774 $5,043,310
==========================================
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report on Form 8-K/A to be signed on its behalf
by the undersigned hereunto duly authorized.
CORNERSTONE REALTY INCOME TRUST, INC.
Date: March , 1998 By:/s/ Stanley J. Olander, Jr.
----------------------------
Stanley J. Olander, Jr.
Chief Financial Officer
of Cornerstone Realty Income
Trust, Inc.
ITEM 7.c.
EXHIBIT INDEX
Cornerstone Realty Income Trust, Inc.
Form 8-K/A to Form 8-K dated January 15,1998
Exhibit Number Exhibit Page Number
- -------------- ------- -----------
23.1 Consent of Independent Auditors
(Stone Point Apartments (formerly Sterling Point))
[L.P. Martin & Company Letterhead]
A PROFESSIONAL CORPORATION
CERTIFIED PUBLIC ACCOUNTANTS
4132 INNSLAKE DRIVE
GLEN ALLEN, VIRGINIA 23060
PHONE: (804) 346-2626
FAX: (804) 346-9311
Consent of Independent Auditors'
The Board of Directors
Cornerstone Realty Income Trust, Inc.
Richmond, Virginia
We consent to the use of our report dated February 5, 1998 with respect
to the statement of income and direct operating expenses exclusive of items not
comparable to the proposed future operations of the property Sterling Point
apartments for the twelve month period ended December 31, 1997, for inclusion in
the following registration statements of Cornerstone Realty Income Trust, Inc.
Registration Statement Number Description
333-24871 Form S-8, pertaining to the Company's
1992 Non-Employee Directors Stock
Option Plan, Special Non-Employee
Directors Stock Option Plan and Non-
Employee Directors Fees Plan
333-24875 Form S-8, pertaining to the Company's 1992
Incentive Plan
333-34441 Form S-3, Shelf Registration Statement,
pertaining to the registration of $200 million
of Common Stock, Preferred Stock and
Debt Securities
333-19187 Form S-3, pertaining to the Company's
Dividend Reinvestment and Stock Option
Plan
Richmond, Virginia /s/ L.P. Martin & Co., P.C.
March 24, 1998