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): January 18, 2000
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 23219
RICHMOND, VIRGINIA (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code:
(804) 643-1761
CORNERSTONE REALTY INCOME TRUST, INC.
FORM 8-K
Index
Item 5. Other Events
2
Item 5. Other Events
Cornerstone Realty Income Trust, Inc. has prepared and files
herewith the accompanying Unaudited Pro Forma Condensed Combined Statements of
Operations for the Year Ended December 31, 1998 and for the Nine Months Ended
September 30, 1999.
3
Cornerstone Realty Income Trust, Inc.
Unaudited Pro Forma Condensed Combined Statements of Operations
For the Year Ended December 31, 1998 and For the Nine Months
Ended September 30, 1999
Basis of Presentation
The unaudited pro forma condensed combined statement of operations for the year
ended December 31, 1998 and the nine months ended September 30, 1999, are
presented as if the merger with Apple Residential Income Trust, Inc., ("Apple"),
6 property acquisitions by Cornerstone during 1998, and 16 and 3 property
acquisitions made by Apple in 1998 and 1999, respectively, were made at the
beginning of each period presented. The Unaudited Pro Forma 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 periods 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 periods presented if the
transactions described above had occurred at the beginning of the periods
presented, nor does it purport to be indicative of the results of operations in
future periods. The Unaudited Pro Forma Statement of Operations should be read
in conjunction with, and is qualified in its entirety by, the Company's
respective historical financial statements and notes thereto.
4
CORNERSTONE REALTY INCOME TRUST, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
1998
1998 Cornerstone
Cornerstone Cornerstone Acquisition Cornerstone Apple
Historical (A) Acquisitions Adjustments Pro Forma Historical
-----------------------------------------------------------------------------------
Revenue:
Rental income $ 88,752,254 $ 4,281,696 $ -- $ 93,033,950 $ 30,764,904
Other income 4,885,694 -- -- 4,885,694 --
Expenses:
Property and maintenance 24,641,642 1,809,238 -- 26,450,880 8,819,809
Taxes and insurance 6,986,245 281,848 -- 7,268,093 4,453,177
Property management 2,169,552 -- -- 2,169,552 --
Property management fee -- -- -- -- 1,685,713
General and administrative 1,681,810 -- -- 1,681,810 799,732
Amortization expense and other depreciation 47,703 -- -- 47,703 38,758
Depreciation of rental property 20,741,130 -- 873,029 (B) 21,614,159 5,788,476
Other 1,968,591 -- -- 1,968,591 --
-- -- -- -- --
-- -- -- -- --
-----------------------------------------------------------------------------------
Total expenses 58,236,673 2,091,086 873,029 61,200,788 21,585,665
-----------------------------------------------------------------------------------
Income before interest income (expense) and
minority interest in operating partnership 35,401,275 2,190,609 (873,029) 36,718,855 9,179,239
Interest and investment income 411,957 -- -- 411,957 1,638,544
Interest expense (12,587,897) -- (1,526,024)(C) (14,113,921) (737,875)
-----------------------------------------------------------------------------------
Income before minority interest in operating
partnership 23,225,335 2,190,609 (2,399,052) 23,016,892 10,079,908
Minority interest of unitholders in operating
partnership (14,693) -- -- (14,693) --
-----------------------------------------------------------------------------------
Net income 23,210,642 2,190,609 (2,399,052) 23,002,199 10,079,908
Distributions to preferred shareholders -- -- -- -- --
-----------------------------------------------------------------------------------
Net income available to common shareholders $ 23,210,642 $ 2,190,609 $ (2,399,052) $ 23,002,199 $ 10,079,908
===================================================================================
Earnings per common share:
Basic and Diluted $ 0.62 $ 0.61
Weighted average common shares outstanding 37,630,546 309,917(D) 37,940,463
1998 and 1999 Cornerstone Cornerstone
1998 and 1999 Apple Apple Apple
Apple Acquisition Apple Merger Pro Forma
(E) Acquisitions Adjustments Pro Forma Adjustments Combined
-----------------------------------------------------------------------------------
Revenue:
Rental income $ 16,614,950 -- $ 47,379,854 -- $140,413,804
Other income -- -- -- $(4,885,694)(J) --
Expenses:
Property and maintenance 5,637,999 -- 14,457,808 -- 40,908,688
Taxes and insurance 2,254,428 -- 6,707,605 -- 13,975,698
Property management -- -- -- 747,529 (K) 2,917,081
Property management fee -- $ 906,790 (F) 2,592,503 (2,592,503)(J) --
General and administrative -- 190,676 (G) 990,408 (716,474)(J) 1,955,744
(250,000)(L)
Amortization expense and other depreciation -- -- 38,758 (38,758)(M) 47,703
Depreciation of rental property -- 2,993,004 (B) 8,781,480 647,945 (N) 31,043,584
Other -- -- -- (1,054,470)(O) 128,559
-- -- -- (747,529)(K)
-- -- -- (38,033)(P)
-----------------------------------------------------------------------------------
Total expenses 7,892,426 4,090,470 33,568,561 (4,042,293) 90,977,056
-----------------------------------------------------------------------------------
Income before interest income (expense) and
minority interest in operating partnership 8,722,524 (4,090,470) 13,811,293 (843,401) 49,686,747
Interest and investment income -- (1,323,544)(H) 315,000 (340,483)(Q) 71,474
(315,000)(R)
Interest expense -- (1,302,208)(I) (2,040,083) -- (16,154,004)
-----------------------------------------------------------------------------------
Income before minority interest in operating
partnership 8,722,524 (6,716,222) 12,086,210 (1,498,884) 33,604,218
Minority interest of unitholders in operating
partnership -- -- -- -- (14,693)
-----------------------------------------------------------------------------------
Net income 8,722,524 (6,716,222) 12,086,210 (1,498,884) 33,589,525
Distributions to preferred shareholders -- (24,965,260)(S)(24,965,260)
Net income available to common shareholders $ 8,722,524 $ (6,716,222) $ 12,086,210 $ (26,464,144) $8,624,264
===================================================================================
Earnings per common share:
Basic and Diluted $ 0.23
Weighted average common shares outstanding 37,940,463
See accompanying notes
- ------------------------------------------------------------------------------------------------------------------------------------
5
CORNERSTONE REALTY INCOME TRUST, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
1998 and
1999
Cornerstone Apple Apple
Historical Historical (E) Acquisitions
-------------------------------------------------------
REVENUE:
Rental income $ 82,309,910 $ 26,409,134 $ 876,591
Other income 3,954,604 -- --
EXPENSES:
Property and maintenance 22,495,898 9,373,808 244,487
Taxes and insurance 7,291,159 4,584,549 152,424
Property management 1,722,673 -- --
Property management fee -- 1,456,993 --
General and administrative 2,667,834 20,969,949 --
Amortization expense 55,657 126,544 --
Other depreciation 17,228 -- --
Depreciation of rental property 19,851,494 5,893,349 --
Other 752,414 -- --
--------------------------------------------------
Total expenses 54,854,357 42,405,192 396,911
--------------------------------------------------
Income before interest income (expense) and
minority interest in operating partnership 31,410,157 (15,996,058) 479,680
Interest and investment income 323,203 872,595 --
Interest expense (10,876,360) (1,135,416) --
--------------------------------------------------
Income before minority interest in operating
partnership 20,857,000 (16,258,879) 479,680
Minority interest of unitholders in operating
partnership (73,907) -- --
--------------------------------------------------
Net income 20,783,093 (16,258,879) 479,680
Distributions to preferred shareholders (4,923,280) -- --
Net income available to common shareholders $ 15,859,813 $ (16,258,879) $ 479,680
==================================================
Earnings per common share:
Basic and Diluted $ 0.40
Weighted average common shares outstanding 39,304,761
1998 and Cornerstone Cornerstone
1999 Apple Apple
Apple Apple Merger Pro Forma
Adjustments Pro Forma Adjustments Combined
--------------------------------------------------------------------------------
REVENUE:
Rental income $ -- $ 27,285,725 -- $ 109,595,635
Other income -- -- (3,954,604)(J) --
EXPENSES:
Property and maintenance -- 9,618,295 -- 32,114,193
Taxes and insurance -- 4,736,973 -- 12,028,132
Property management -- -- 370,821 (K) 2,093,494
Property management fee 46,830 (F) 1,503,823 (1,503,823)(J) --
General and administrative 13,410 (G) 20,983,359 (436,036)(J) 1,617,466
(138,356)(L)
(13,266,400)(T)
(1,500,000)(T)
(5,435,475)(T)
(1,257,460)(T)
Amortization expense -- 126,544 (126,544)(M) 55,657
Other depreciation -- -- 17,228
Depreciation of rental property 195,583 (B) 6,088,932 377,968 (N) 26,318,394
Other -- (241,438)(O) 71,201
(68,954)(P)
(370,821)(K)
---------------------------------------------------------------------------
Total expenses 255,823 43,057,926 (23,596,518) 74,315,766
Income before interest income (expense) and
minority interest in operating partnership (255,823) (15,772,201) 19,641,914 35,279,869
Interest and investment income (268,206)(H) 604,389 (194,580)(Q) 496,762
(236,250)(R)
Interest expense (37,907)(I) (1,173,323) -- (12,049,683)
---------------------------------------------------------------------------
Income before minority interest in operating
partnership (561,936) (16,341,135) 19,211,084 23,726,949
Minority interest of unitholders in operating
partnership -- -- -- (73,907)
---------------------------------------------------------------------------
Net income (561,936) (16,341,135) 19,211,084 23,653,042
Distributions to preferred shareholders -- -- (17,278,604)(S) (22,201,884)
---------------------------------------------------------------------------
Net income available to common shareholders $ (561,936) $ (16,341,135) $ 1,932,481 $ 1,451,158
===========================================================================
Earnings per common share:
Basic and Diluted $ 0.04
Weighted average common shares outstanding 39,304,761
See accompanying notes.
- ------------------------------------------------------------------------------------------------------------------------------------
6
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1999 AND YEAR ENDED DECEMBER 31, 1999
(A) Represents the income and expenses of the six properties acquired by
Cornerstone for a total purchase price of approximately $64 million for the
respective periods in 1998 prior to acquisition.
(B) Represents the depreciation expense of the properties acquired by
Cornerstone and Apple based on the purchase price, excluding amounts allocated
to land, for the period of time not owned by the companies. The weighted average
life of the property depreciated was 27.5 years.
(C) Represents the interest expense for 5 of the 6 properties purchased using
Cornerstone's line of credit for the period in which the properties were not
owned. Interest was computed under Cornerstone's line of credit at the time of
the respective acquisitions (interest rates range from 6.6%- 7%),
(D) Represents additional common shares used to purchase property at a cost of
$8.1 million.
(E) Represents the income and expenses of the 16 properties acquired in 1998 and
3 in 1999 by Apple for a total purchase price of approximately $161 million for
the respective periods in 1998 prior to acqusition.
(F) Represents property management fees based on 5% of rental income and
processing costs equal to $2.50 per apartment per month charged by Cornerstone
for management of the properties for the period not owned by Apple.
(G) Represents advisory fees of .25% of accumulated capital contributions
invested in properties under the "best efforts" offering for the period of time
the properties were not owned by Apple.
(H) Represents reduction of interest income recorded by Apple assuming $27
million of cash which was used to purchase properties at an interest rate of 5%.
(I) Represents expense for mortgage interest for 5 of the 1998 property
acquisitions and 1 of the 1999 property acquisitions of Apple for the period in
which the properties were not owned. Interest was computed based on market
interest rates of 6.5% on the mortgage debt of $31.2 million that was assumed at
acquisition.
(J) Represents the elimination of property management and advisory fees
Cornerstone received for services provided to Apple as follows:
12/31/1998 9-30-99
-------------------------------------------
Fee income earned by Cornerstone $ 4,885,694 $ 3,954,604
Property management fee incurred by Apple $ 2,592,503 $ 1,503,823
Advisory fee incurred by Apple $ 716,474 $ 436,036
Contract Modification payment $ -- $ 1,500,000
The balance represents broker fee income capitalized by Apple as investment in
rental property and the effects of other pro forma fees.
(K) Represents Cornerstone's expenses incurred related to providing property
management services to Apple. The expenses have been reclassified from other
property management.
(L) Reduction of Apple expenses to operate as a public company eliminated as
result of the merger.
(M) Represents the elimination of the amortization of Apple's organization cost
that would be written off as a result of the merger.
(N) Represents additional depreciation expense on the increased fair market
value of Apple's depreciable real estate using a weighted average life of 27.5
years.
(O) Represents the elimination of Cornerstone's amortization of the acquired
Apple brokerage contract.
7
(P) Represents other expenses incurred by Cornerstone to provide services to
Apple which will be eliminated as result of the merger.
(Q) Represents the elimination of Cornerstone investment income previously
recognized on Apple common shares owned by Cornerstone.
(R) Represents a reduction to interest income resulting from the use of cash for
the payment of transaction costs as a result of the merger at an interest rate
of 5%.
(S) Represents distributions on Series A Convertible Preferred Shares including
imputed distributions on the increasing rate preferred stock as follows:
12-31-99 9-30-99
Apple historical weighted average shares o\s at end of
respective period 19,910,408 30,495,186
Pro forma Apple common shares added for acq. made
with proceeds from the sale of common stock for the
period not owned by the respective period 5,595,439 --
Less: Dissenters shares (12,362) (12,362)
Less: Apple shares owned by Cornerstone (417,778) (417,778)
---------------------------------
Adjusted pro forma Apple common shares prior to
conversion 25,075,707 30,065,046
Conversion ratio (1) 0.40 0.40
---------------------------------
Cornerstone Series A Convertible Preferred Shares issued for
adjusted pro forma Apple common shares 10,030,283 12,026,018
Add: Preferred shares issued for Apple Class B Convertible
Shares (2) 640,000 640,000
---------------------------------
10,670,283 12,666,018
Distribution rate (3) $ 2.1250 $ 1.5938
---------------------------------
Cash distribution 22,674,351 20,186,467
Imputed distributions on increasing rate preferred stock (4) 2,290,910 2,015,417
---------------------------------
Total distributions $ 24,965,260 $ 22,201,884
=================================
(1) Computed based on the exchange ratio under the terms of the merger of 2.5 Apple common shares converting to 1
share of Cornerstone Series A Convertible Preferred Shares.
(2) The conversion of the Apple Class B Convertible Shares into Cornerstone Series A Convertible Preferred Shares.
(3) Equals stated distribution rate for each share of Cornerstone preferred stock for the first year after the
merger.
(4) Imputed dividends calculated as the present value of the difference between the perpetual preferred stock
distribution and the stated distribution rate.
(T) Represents the elimination of Apple merger expenses (stock conversion of the
Class B, contract modification payment, and merger costs).
Stock conversion of Class B $ 13,266,400
Contract modification payment $ 1,500,000
Merger costs $ 5,435,475
Bonuses $ 1,257,460
8
SIGNATURE
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: January 18, 2000 By: /s/ Stanley J. Olander, Jr.
-------------------------------------
Stanley J. Olander, Jr.,
Chief Financial Officer
Cornerstone Realty Income Trust, Inc.
9