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): September 29, 1999
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
Item 7. Financial Statements and Exhibits
Financial Statements:
None.
Exhibits:
4.1 Promissory Note dated September 27, 1999 in the principal amount
of $50,550,000 made payable by Cornerstone Realty Income Trust,
Inc. to the order of The Prudential Insurance Company of America.
4.2 Promissory Note dated September 27, 1999 in the principal amount
of $22,950,000 made payable by CRIT-NC, LLC to the order of The
Prudential Insurance Company of America.
4.3 Mortgage and Security Agreement dated as of September 27, 1999
from Cornerstone Realty Income Trust, Inc., as borrower, to The
Prudential Insurance Company of America, as lender, pertaining to
the Hampton Pointe and Westchase properties.
4.4 Mortgage and Security Agreement dated as of September 27, 1999
from Cornerstone Realty Income Trust, Inc., as borrower, to The
Prudential Insurance Company of America, as lender, pertaining to
the Arbors at Windsor Lake property.
4.5 Deed of Trust and Security Agreement dated as of September 27,
1999 made by CRIT-NC, LLC, as borrower, for the benefit of The
Prudential Insurance Company of America, as lender, pertaining to
the Charleston Place and Stone Point properties.
4.6 Deed of Trust and Security Agreement dated as of September 27,
1999 made by CRIT-NC, LLC, as borrower, for the benefit of The
Prudential Insurance Company of America, as lender, pertaining to
the St. Regis and Remington Place properties.
4.7 Deed To Secure Debt and Security Agreement by Cornerstone Realty
Income Trust, Inc., as borrower, to The Prudential Insurance
Company of America, as lender, pertaining to the Ashley Run, Stone
Brook and Spring Lake properties.
4.8 Assignment of Leases and Rents dated as of September 27, 1999, by
Cornerstone Realty Income Trust, Inc. to The Prudential Insurance
Company of America (Charleston County, South Carolina).
4.9 Assignment of Leases and Rents dated as of September 27, 1999, by
Cornerstone Realty Income Trust, Inc. to The Prudential Insurance
Company of America (Richland County, South Carolina).
4.10 Assignment of Leases and Rents dated as of September 27, 1999, by
CRIT-NC, LLC to The Prudential Insurance Company of America
(Mecklenburg County, North Carolina).
4.11 Assignment of Leases and Rents dated as of September 27, 1999, by
Cornerstone Realty Income Trust, Inc. to The Prudential Insurance
Company of America (Clayton County, Georgia).
4.12 Assignment of Leases and Rents dated as of September 27, 1999, by
Cornerstone Realty Income Trust, Inc. to The Prudential Insurance
Company of America (Gwinnett County, Georgia).
4.13 Assignment of Leases and Rents dated as of September 27, 1999, by
CRIT-NC, LLC to The Prudential Insurance Company of America (Wake
County, North Carolina).
10.1 Environmental Indemnity Agreement dated as of September 27, 1999
by Cornerstone Realty Income Trust, Inc. in favor of The
Prudential Insurance Company of America referring to the
$50,550,000 Promissory Note.
10.2 Environmental Indemnity Agreement dated as of September 27, 1999
by CRIT-NC, LLC and Cornerstone Realty IncomeTrust, Inc. in favor
of The Prudential Insurance Company of America referring to the
$22,950,000 Note.
10.3 Unconditional and Irrevocable Guaranty of Payment and Performance
(Recourse Carveouts) dated as of September 27, 1999 made by
Cornerstone Realty Income Trust, Inc. in favor of The Prudential
Insurance Company of America pertaining to the $22,950,000
Promissory Note.
10.4 Unconditional and Irrevocable Guaranty of Payment and Performance
(Cross-Collateralization) dated as of September 27, 1999 made by
Cornerstone Realty Income Trust, Inc. in favor of The Prudential
Insurance Company of America pertaining to the $22,950,000
Promissory Note.
10.5 Unconditional and Irrevocable Guaranty of Payment and Performance
(Cross-Collateralization) dated as of September 27, 1999 made by
CRIT-NC, LLC in favor of The Prudential Insurance Company of
America pertaining to the $50,550,000 Promissory Note.
Item 5. Other Events
As stated in a press release dated October 4, 1999, Cornerstone Realty
Income Trust, Inc. ("Cornerstone") borrowed $50,550,000 from The Prudential
Insurance Company of America ("Lender") on September 29, 1999 ("Cornerstone
Loan") and evidenced the Cornerstone Loan by executing a promissory note in that
amount ("Cornerstone Note"). Our subsidiary, CRIT-NC, LLC (our "Subsidiary")
also borrowed $22,950,000 from the Lender at the same time ("Subsidiary Loan")
and evidenced the Subsidiary Loan by executing a promissory note in that amount
("Subsidiary Note" and, together with the Cornerstone Note, the "Notes").
The Notes are each payable interest only at the rate of 7.29% per annum
("Note Rate") maturing on October 15, 2006 ("Maturity"). However, in the event
that either the debt service coverage ratio for the entire Portfolio (as
hereinafter defined) is less than 1.30 to 1.0, or we and our Subsidiary have not
spent at least $2,400,000, in the aggregate, in the manner required by the
Lender for the entire Portfolio for repairs, capital improvements and
replacements before January 1, 2001 ("Repair Amount"), then effective on the
first monthly payment which is due following either of such events, we will be
obligated to make monthly payments on the Notes equal to their then outstanding
principal balances multiplied by 8.705% based on a 25 year amortization (which
shall continue until such time as the debt service coverage ratio for the entire
Portfolio is equal to or greater than 1.80 to 1.0 or the Lender determines that
we and our Subsidiary have spent the Repair Amount).
The Notes each incur a 10% per annum daily charge ("Daily Charge") for
late payments and, if not fully paid by the 14th day following its due date, a
4% late charge assessment ("Late Charge"). The Late Charge shall be payable in
lieu of any Daily Charge that may have accrued. Upon an Event of Default (as
hereinafter defined) or at Maturity, the Notes shall bear interest at the lesser
of (i) the maximum rate allowed by law or (ii) the greater of (a) the Note Rate
plus five percent (5%) or (b) five percent (5%) plus the prime rate for
corporate loans at large United States Money Center Commercial Banks.
The Notes may be prepaid after thirty (30) days written notice and
payment of a prepayment premium ("Prepayment Premium") equal to the greater of
(a) one percent (1%) of the principal amount being prepaid multiplied by the
quotient of the number of full months remaining until Maturity divided by the
number of full months comprising the term of the Notes, or (b) based on the
present value of the Notes which are determined by discounting at a stated
treasury rate all scheduled payments remaining to Maturity attributable to the
amount being prepaid. No Prepayment Premium shall be due if the Notes are
prepaid during the last fourteen (14) days prior to Maturity. However, any
prepayment on either of the Notes will require a proportionate prepayment of the
other Note; that is, if 5% of either the Cornerstone Note or the Subsidiary Note
is prepaid, 5% of the other note must also be prepaid.
Although the Notes have limited recourse liability for certain matters,
we and our Subsidiary do have liability for other matters (such as, for example,
accrued or payable taxes and assessments, security deposits due tenants,
insurance proceeds or condemnation awards not turned over to the Lender, and
waste of the property comprising the Portfolio), and we and our Subsidiary also
have full liability for indemnifications or in the event there is any breach or
violation of the sale or encumbrance prohibitions (the so-called due-on-sale or
encumbrance provisions) of the Security Instruments (as hereinafter defined),
fraud, material misrepresentation, or bankruptcy.
Each of the apartment communities financed from the Cornerstone Loan,
comprising three in Georgia (Ashley Run, Spring Lake and Stone Brook) and three
in South Carolina (The Arbors at Windsor Lake, Hampton Pointe and Westchase),
and the four apartment communities in North Carolina (Charleston Place,
Remington Place, Stone Point and St. Regis) financed from the Subsidiary Loan
(collectively, the "Portfolio"), are encumbered by either a Deed to Secure Debt,
Mortgage or Deed of Trust (collectively, the "Security Instruments") and the
Security Instruments secure the Notes. We and our Subsidiary are subject to
various requirements under each Security Instrument. For instance, we must
maintain adequate insurance on the Portfolio, there must be maintenance of
certain records and reports, and there must be maintenance of the Portfolio in
good order, repair and operating condition.
In addition, each Security Instrument defines certain events of default
("Events of Default"). For each Security Instrument, Events of Default include
any default under either of the Notes, any default under any Security
Instrument, any default under any other loan documents (including the
Environmental Indemnity Agreements, as hereinafter defined), any breach or
default of certain representations, warranties and covenants, and any sale or
encumbrance of the Portfolio or further assignment of leases and rents therein,
without the prior consent of the Lender. In addition, we have guaranteed
("Guaranty") the Subsidiary's recourse obligations under the Subsidiary Note. A
default under such Guaranty is likewise a default under the Cornerstone Note.
The Notes and the Security Instruments are cross-collateralized and cross-
defaulted.
Upon any Event of Default, various remedies are available to the
Lender. Those remedies include, for example (1) declaring the entire principal
balance under the Notes, and all accrued and unpaid interest, to be due and
payable immediately along with the Prepayment Premium; (2) taking possession of
the Portfolio; and (3) collecting rental payments from tenants and/or
foreclosing the lien of the Security Instruments and selling the Portfolio to
satisfy unpaid amounts due under either of the Notes, the Security Instruments,
the Environmental Indemnity Agreements or other loan documents. Each Security
Instrument requires payment of any costs that may be incurred by the Lender and
the trustee, if applicable, in exercising such remedies. There are also certain
indemnifications (including the Environmental Indemnity Agreements) which
survive the payoff of the Cornerstone Loan and the Subsidiary Loan.
Both the Cornerstone Portfolio and the Subsidiary Portfolio are subject
to separate Environmental Indemnity Agreements (collectively, the "Environmental
Indemnity Agreements"). The indemnities protect the Lender for losses (broadly
defined) in the event that any Hazardous Materials (also broadly defined), which
includes, for example, asbestos, lead based paint and other toxic materials, are
found in, on, or under any of the properties within the Portfolio.
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: November 2, 1999 By: /s/ Stanley J. Olander, Jr.
------------------------------
Stanley J. Olander, Jr.,
Chief Financial Officer
Cornerstone Realty Income
Trust, Inc.
Index to Exhibits
Exhibit No. Exhibit
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4.1 Promissory Note dated September 27, 1999 in the principal amount
of $50,550,000 made payable by Cornerstone Realty Income Trust,
Inc. to the order of The Prudential Insurance Company of America.
4.2 Promissory Note dated September 27, 1999 in the principal amount
of $22,950,000 made payable by CRIT-NC, LLC to the order of The
Prudential Insurance Company of America.
4.3 Mortgage and Security Agreement dated as of September 27, 1999
from Cornerstone Realty Income Trust, Inc., as borrower, to The
Prudential Insurance Company of America, as lender, pertaining to
the Hampton Pointe and Westchase properties.
4.4 Mortgage and Security Agreement dated as of September 27, 1999
from Cornerstone Realty Income Trust, Inc., as borrower, to The
Prudential Insurance Company of America, as lender, pertaining to
the Arbors at Windsor Lake property.
4.5 Deed of Trust and Security Agreement dated as of September 27,
1999 made by CRIT-NC, LLC, as borrower, for the benefit of The
Prudential Insurance Company of America, as lender, pertaining to
the Charleston Place and Stone Point properties.
4.6 Deed of Trust and Security Agreement dated as of September 27,
1999 made by CRIT-NC, LLC, as borrower, for the benefit of The
Prudential Insurance Company of America, as lender, pertaining to
the St. Regis and Remington Place properties.
4.7 Deed To Secure Debt and Security Agreement by Cornerstone Realty
Income Trust, Inc., as borrower, to The Prudential Insurance
Company of America, as lender, pertaining to the Ashley Run,
Stone Brook and Spring Lake properties.
4.8 Assignment of Leases and Rents dated as of September 27, 1999, by
Cornerstone Realty Income Trust, Inc. to The Prudential Insurance
Company of America (Charleston County, South Carolina).
4.9 Assignment of Leases and Rents dated as of September 27, 1999, by
Cornerstone Realty Income Trust, Inc. to The Prudential Insurance
Company of America (Richland County, South Carolina).
4.10 Assignment of Leases and Rents dated as of September 27, 1999, by
CRIT-NC, LLC to The Prudential Insurance Company of America
(Mecklenburg County, North Carolina).
4.11 Assignment of Leases and Rents dated as of September 27, 1999, by
Cornerstone Realty Income Trust, Inc. to The Prudential Insurance
Company of America (Clayton County, Georgia).
4.12 Assignment of Leases and Rents dated as of September 27, 1999, by
Cornerstone Realty Income Trust, Inc. to The Prudential Insurance
Company of America (Gwinnett County, Georgia).
4.13 Assignment of Leases and Rents dated as of September 27, 1999, by
CRIT-NC, LLC to The Prudential Insurance Company of America (Wake
County, North Carolina).
10.1 Environmental Indemnity Agreement dated as of September 27, 1999
by Cornerstone Realty Income Trust, Inc. in favor of The
Prudential Insurance Company of America referring to the
$50,550,000 Promissory Note.
10.2 Environmental Indemnity Agreement dated as of September 27, 1999
by CRIT-NC, LLC and Cornerstone Realty Income Trust, Inc. in
favor of The Prudential Insurance Company of America referring to
the $22,950,000 Note.
10.3 Unconditional and Irrevocable Guaranty of Payment and Performance
(Recourse Carveouts) dated as of September 27, 1999 made by
Cornerstone Realty Income Trust, Inc. in favor of The Prudential
Insurance Company of America pertaining to the $22,950,000
Promissory Note.
10.4 Unconditional and Irrevocable Guaranty of Payment and Performance
(Cross-Collateralization) dated as of September 27, 1999 made by
Cornerstone Realty Income Trust, Inc. in favor of The Prudential
Insurance Company of America pertaining to the $22,950,000
Promissory Note.
10.5 Unconditional and Irrevocable Guaranty of Payment and Performance
(Cross-Collateralization) dated as of September 27, 1999 made by
CRIT-NC, LLC in favor of The Prudential Insurance Company of
America pertaining to the $50,550,000 Promissory Note.