SUMMARY OF SUPPLEMENT TO PROSPECTUS
(SEE THE SUPPLEMENT FOR ADDITIONAL INFORMATION):
Supplement No. 9 dated June 17, 1996 (incorporating and superseding
information from prior Supplements No. 1, 2, 3, 4, 5, 6, 7 and 8):
(1) Reports on the acquisition by the Company of twenty-one (21) apartment
complexes.
(2) Reports on results of 1995 Annual Meeting of Shareholders and 1996 Annual
Meeting of Shareholders.
(3) Contains financial statements and management's discussion and analysis of
financial condition and results of operation for the year ended December 31,
1995 and the quarter ended March 31, 1996, and related financial and statistical
data.
As of May 28, 1996, the Company had closed the sale to investors of
13,457,133 Shares in the offering under the Prospectus, representing aggregate
gross proceeds to the Company of $148,028,463 and proceeds net of selling
commissions of $133,225,617. The Company endeavors continually to invest
proceeds in the acquisition of additional apartment communities as promptly as
practicable after the receipt of such proceeds. As of May 28, 1996,
substantially all of the proceeds of the offering available for investment in
properties had been so invested.
Cornerstone Advisors, Inc. and its Affiliates have received and are expected
to continue to receive fees and expense reimbursements in connection with the
Company's acquisitions and the management of the properties and the Company. See
"Additional Information Concerning the Company -- Compensation to Advisor and
Affiliates" in Supplement No. 9. In connection with the 21 property acquisitions
described in this Supplement, Cornerstone Realty Group, Inc., an Affiliate of
the Advisor, will receive property acquisition fees totaling $3,070,044. As of
June 28, 1996, the Company had paid $2,443,531 of such amount. During 1995, the
Advisor earned $219,930 for managing the Company. For managing the Company's
properties, in 1995 Cornerstone Management Group, Inc., an Affiliate of the
Advisor, was paid $1,022,998 in management fees and $1,663,206 in expense
reimbursements.
1
<PAGE>
SUPPLEMENT NO. 9 DATED JUNE 17, 1996
TO PROSPECTUS DATED NOVEMBER 4, 1994
CORNERSTONE REALTY INCOME TRUST, INC.
The following information supplements and is part of the Prospectus of
Cornerstone Realty Income Trust, Inc. dated November 4, 1994 (the "Prospectus").
This supplement consolidates the information previously set forth in Supplement
No. 4 dated August 28, 1995, Supplement No. 5 dated November 30, 1995,
Supplement No. 6 dated March 20, 1996 (including Version No. 2 thereof),
Supplement No. 7 dated April 24, 1996 and Supplement No. 8 dated May 21, 1996.
Supplement No. 4 had previously consolidated and superseded Supplements No. 1,
No. 2 and No. 3. Thus, this Supplement effectively incorporates and supersedes
Supplements No. 1, No. 2, No. 3, No. 4, No. 5, No. 6 (including Version No. 2
thereof), No. 7 and No. 8. Prospective investors should carefully review both
the Prospectus and this Supplement. The information set forth in this Supplement
is current as of June 17, 1996, except as otherwise noted.
* * *
TABLE OF CONTENTS TO SUPPLEMENT NO. 9
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
NEW DEVELOPMENTS.................................................................... 1
MOST RECENT PROPERTY ACQUISITIONS.................................................. 1
STATUS OF THE OFFERING.............................................................. 2
ADDITIONAL PROPERTY ACQUISITIONS.................................................... 2
THE TRESTLES APARTMENTS............................................................ 4
WIND LAKE APARTMENTS............................................................... 7
MAGNOLIA RUN APARTMENTS ........................................................... 8
BRECKINRIDGE APARTMENTS ........................................................... 10
BAY WATCH POINTE APARTMENTS ....................................................... 12
HANOVER LANDING APARTMENTS......................................................... 13
MILL CREEK APARTMENTS.............................................................. 15
GLEN EAGLES APARTMENTS............................................................. 17
OSPREY LANDING APARTMENTS.......................................................... 19
TRADEWINDS APARTMENTS.............................................................. 20
SAILBOAT BAY APARTMENTS............................................................ 23
THE MEADOWS APARTMENTS............................................................. 24
WEST EAGLE GREENS APARTMENTS....................................................... 26
ASHLEY PARK APARTMENTS............................................................. 28
ARBOR TRACE APARTMENTS............................................................. 30
LONGMEADOW APARTMENTS.............................................................. 31
TROPHY CHASE APARTMENTS............................................................ 33
BEACON HILL APARTMENTS............................................................. 35
MEADOW CREEK APARTMENTS............................................................ 36
SUMMER WALK APARTMENTS............................................................. 38
WILLOW CREEK APARTMENTS............................................................ 40
1995 ANNUAL MEETING OF SHAREHOLDERS................................................. 44
1996 ANNUAL MEETING OF SHAREHOLDERS................................................. 46
ADDITIONAL INFORMATION CONCERNING THE COMPANY....................................... 47
Compensation to Advisor and Affiliates............................................. 47
Principal and Management Shareholders.............................................. 48
Stock Option and Incentive Share Grants............................................ 48
Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................ 50
Selected Financial Data............................................................ 54
EXPERTS............................................................................. 55
NEW FORM OF SUBSCRIPTION AGREEMENT.................................................. 55
INDEX TO FINANCIAL STATEMENTS ...................................................... 56
</TABLE>
* * *
<PAGE>
NEW DEVELOPMENTS
1. MOST RECENT PROPERTY ACQUISITIONS. Since the date of the previous
Supplement (May 21, 1996), the Company has acquired four additional Properties.
Detailed information on these Properties is set forth on pages 35 through 42 of
this Supplement No. 9. Financial statements of, and pro forma financial
information reflecting, the four additional Properties are not yet available,
but will be included in a subsequent Supplement as soon as they are available.
The four additional Properties are:
<TABLE>
<CAPTION>
EFFECTIVE
NUMBER OF DATE OF OCCUPANCY
NAME OF APARTMENT ACQUISITION AS OF
PROPERTY LOCATION UNITS BY COMPANY JUNE, 1996
- ---------------- --------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Beacon Hill..... Charlotte, NC 349 05-01-96 90%
Meadow Creek ... Pineville, NC 250 06-01-96 97%
Summer Walk..... Concord, NC 160 05-01-96 90%
Willow Creek ... Durham, NC 200 05-01-96 89%
</TABLE>
Each of the above Properties is managed by Cornerstone Management Group, Inc.
under a property management agreement requiring payment by the Company of a
monthly management fee equal to five percent (5%) of the gross revenues of the
Property. In addition, the Company will pay to Cornerstone Realty Group, Inc. a
property acquisition fee of two percent (2%) of the purchase price of each
Property, as follows:
<TABLE>
<CAPTION>
TOTAL ACQUISITION FEE
NAME OF ACQUISITION PAID
PROPERTY FEE PAYABLE AT 06-28-96
- ---------------- ----------------- --------------------
<S> <C> <C>
Beacon Hill..... $266,000 $266,000
Meadow Creek ... 222,000 0
Summer Walk..... 113,200 29,687
Willow Creek ... 166,900 0
</TABLE>
2. POTENTIAL ADDITIONAL PROPERTY ACQUISITION. The Company has entered into a
contract to purchase the Lexington Towers Apartments, a 197-unit high-rise
apartment building in Richmond, Virginia. See pages 42 through 44 in this
Supplement No. 9 for a description of this property. The Company has not yet
closed on this acquisition, and there is no assurance such closing will occur,
although it is scheduled for June 30, 1996.
3. CONSIDERATION OF SELF-ADMINISTRATION. The Company is an
"externally-advised" or "externally-managed" REIT. As described herein, the
Advisor (Cornerstone Advisors, Inc.) oversees the ordinary business of the
Company pursuant to the Advisory Agreement. In addition, Cornerstone Management
Group, Inc. and Cornerstone Realty Group, Inc. (both Affiliates of the Advisor)
provide Property management services and Property acquisition and disposition
services to the Company. In exchange for their services, the Advisor,
Cornerstone Management Group, Inc. and Cornerstone Realty Group, Inc. all
receive certain fees and expense reimbursements from the Company. See
"Compensation" in the Prospectus.
The officers and Directors of the Company have undertaken an evaluation of
whether it would be in the best interests of the Company and the Shareholders to
convert the Company into a "self-administered" or "self-managed" REIT. This
conversion, if undertaken, would involve transferring some or all of the
management and other services now being provided by other companies to employees
of the Company. If such conversion were implemented, the Company would no longer
pay fees to other companies for services transferred to employees of the
Company, but would itself bear the costs thereof (including salaries and wages
to such employees). Any such conversion would likely involve the payment of
consideration, either in Shares, cash or other Property, from the Company to the
entities whose contracts with the Company were being terminated in connection
with such conversion, in recognition of such companies agreeing to the
termination of their agreements. Material developments, if any, pertaining to
the possible conversion of the Company to "self-administered" or "self-managed"
status will be reported in supplements to this Prospectus or in appropriate
filings under the Securities Exchange Act of 1934.
1
<PAGE>
STATUS OF THE OFFERING. As of May 28, 1996, the Company had closed the sale
to investors of 13,457,133 Shares in the offering under the Prospectus,
representing aggregate gross proceeds to the Company of $148,028,463, and net
proceeds (net of selling commissions) of $133,225,617.
In its previous Share offering, the Company sold 4,664,799 Shares,
representing aggregate gross proceeds to the Company of approximately $50
million, and net proceeds (after deducting selling commissions) of approximately
$45 million. Thus, as of May 28, 1996, the gross and net proceeds to the Company
from sales of its Shares in offerings since 1992 totalled approximately $198
million and $178 million, respectively.
As of July 31, 1995, the Company had closed the sale to investors of
3,461,545 Shares in the Offering under the Prospectus, representing aggregate
gross proceeds to the Company of $38,077,003, and net proceeds (net of selling
of commissions) of $34,269,303. On March 31, 1995, June 2, 1995, September 5,
1995, September 14, 1995 and October 6, 1995, the Company filed with the
Securities and Exchange Commission post-effective amendments (containing the
Company's audited financial statements for the year ended December 31, 1994) to
the registration statement which had been declared effective November 4, 1994.
Each of the post-effective amendments was filed pursuant to the Company's
undertaking to file at least once every three months a post-effective amendment
to consolidate all supplements theretofore used in connection with the Offering
and to file any prospectus required by section 10(a)(3) of the Securities Act of
1933 in a post-effective amendment. Subsequent to July 31, 1995, the Company
continued the offering and sale of Shares and, in August, 1995, closed the sale
to investors of approximately 668,728 Shares, representing aggregate gross
proceeds to the Company of approximately $7,756,010, and net proceeds (net of
selling commissions) of approximately $6,818,409. All of the post-effective
amendments were declared effective on October 6, 1995.
ADDITIONAL PROPERTY ACQUISITIONS. Since the date of the Prospectus, the
Company has purchased the following properties:
<TABLE>
<CAPTION>
EFFECTIVE
NUMBER OF DATE OF OCCUPANCY
APARTMENT ACQUISITION AS OF
NAME OF PROPERTY LOCATION UNITS BY COMPANY MARCH, 1996
- ------------------------------------- -------------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
The Trestles......................... Raleigh, NC 280 12-30-94 91%
Wind Lake (formerly Sterling
Pointe).............................. Greensboro, NC 299 04-01-95 85%
Magnolia Run (formerly Edgewood) .... Greenville, SC 212 06-01-95 95%
Breckinridge......................... Greenville, SC 236 06-21-95 90%
Bay Watch Pointe (formerly Broad
Meadows)............................. Virginia Beach, VA 160 07-18-95 83%
Hanover Landing (formerly Lemon
Tree)................................ Charlotte, NC 192 08-22-95 94%
Mill Creek........................... Winston-Salem, NC 220 09-01-95 92%
Glen Eagles.......................... Winston-Salem, NC 166 10-01-95 92%
Osprey Landing (formerly Summer
Hill)................................ Wilmington, NC 176 11-01-95 90%
Tradewinds........................... Hampton, VA 284 11-01-95 90%
Sailboat Bay (formerly The Lake) .... Charlotte, NC 358 11-01-95 75%
Meadows.............................. Asheville, NC 176 01-31-96 93%
West Eagle Greens (formerly Scarlett
Oaks)................................ Augusta, GA 165 03-01-96 92%
Ashley Park.......................... Richmond, VA 272 03-01-96 96%
Arbor Trace (formerly Colonial
Ridge)............................... Virginia Beach, VA 148 03-01-96 85%
Longmeadow........................... Charlotte, NC 120 04-01-96 97% (May)
Trophy Chase (formerly Westfield) ... Charlottesville, VA 185 04-01-96 90% (May)
Beacon Hill.......................... Charlotte, NC 349 05-01-96 90% (June)
Meadow Creek......................... Pineville, NC 250 06-01-96 97% (June)
Summer Walk (formerly Lakewood) ..... Concord, NC 160 05-01-96 90% (June)
Willow Creek......................... Durham, NC 200 05-01-96 89% (June)
</TABLE>
2
<PAGE>
Additional information on these Properties and the markets in which they are
located is provided below. As of the date of this Supplement, there is no
mortgage debt encumbering the Company's real properties. The Company believes
that each of the Company's properties is and will continue to be adequately
covered by property and liability insurance.
The Company owns more than one Property in several cities. Generally, the
Company may acquire multiple properties in cities, particularly where the cities
involved are perceived as being favorable rental markets. The ownership of
multiple properties within a given city or rental market may offer some
operational economies for the Company. However, Properties located within the
same city or rental market area may, to a certain extent, compete with one
another for tenants. The Company does not plan to acquire multiple properties in
any city or rental market if the Company believes that the Properties would be
engaged in competition with each other which could adversely affect the
operations of any Property.
Each Property described below is managed by Cornerstone Management Group,
Inc. under a property management agreement requiring payment by the Company of a
monthly management fee equal to five percent (5%) of the gross revenues of the
Property. For information on the amount of property management fees and expense
reimbursements received by Cornerstone Management Group, Inc. from the Company,
see "Additional Information Concerning the Company -- Compensation to Advisor
and Affiliates" in this Supplement. In addition, in consideration of services
rendered to the Company in connection with the selection and acquisition of each
Property, the Company paid to Cornerstone Realty Group, Inc. a property
acquisition fee of two percent (2%) of the purchase price of each Property, as
follows:
<TABLE>
<CAPTION>
NAME OF PROPERTY ACQUISITION FEE
- ----------------- ----------------
<S> <C>
The Trestles..... $ 207,000
Wind Lake ....... 175,500
Magnolia Run ... 110,000
Breckinridge ... 112,000
Bay Watch Pointe 67,500
Hanover Landing 114,500
Mill Creek ...... 171,000
Glen Eagles ..... 146,000
Osprey Landing . 87,500
Tradewinds ...... 204,000
Sailboat Bay ... 182,000
Meadows ......... 124,000
West Eagle Greens 80,000
Ashley Park...... 244,100 *
Arbor Trace...... 100,000
Longmeadow....... 100,500
Trophy Chase..... 74,200
Beacon Hill...... 268,144
Meadow Creek..... 222,000 *
Summer Walk...... 113,200 *
Willow Creek..... 166,900 *
Total.......... $3,070,044
</TABLE>
______________________
* As of June 28, 1996 $90,000 of the fee attributable to Ashley Park had been
paid, $29,687 of the fee attributable to Summer Walk had been paid, and none of
the fees attributable to Meadow Creek or Willow Creek had been paid. The unpaid
amounts are payable if and when financing incurred to purchase the properties is
repaid with proceeds of the Offering.
Under a Unanimous Consent of Directors of the Company dated October 27, 1995
(the "Unanimous Consent"), the Company's Board of Directors authorized the
Company's officers to cause the
3
<PAGE>
Company to borrow up to $30 million principal amount from time to time
outstanding, on prevailing commercial terms from suitable commercial lenders
(and on either an unsecured or secured basis), to permit property acquisitions
by the Company, as long as the offering and sale of Shares is continuing and it
is anticipated by the Company's officers that proceeds from future sales of
Shares will be sufficient to repay the amount of the borrowing. This borrowing
authorization is in substitution for, and not in addition to, earlier similar
borrowing authorizations. The borrowings authorized by the Unanimous Consent are
authorized by the Company's Bylaws. In addition, the limitations on the
borrowings adopted in the Unanimous Consent should not be construed as limiting
any of the Company's rights and powers generally provided for in its Bylaws.
The Company believes that a line of credit facilitates the timely acquisition
of properties by the Company and improves the regularity with which closings of
sales of Shares can be effected, without changing the Company's overall business
objective and policy of operating on an unleveraged or "debt-free" basis. The
Company believes that the rate at which Shares are sold is not necessarily
consistent with the manner in which prospective attractive real property
acquisitions become available to the Company. The use of interim borrowings,
which are designed to be repaid with subsequent sales of Shares, may permit the
Company to acquire properties thought by management to be desirable, before
Shares representing the full purchase price of a particular property have been
sold. Also, the use of such interim debt may have the effect of reducing the
period of time during which the investors' funds are held in escrow pending
disbursement to the Company, since the Company is no longer required to match
exactly proceeds from Share sales with property purchase prices.
Pursuant to the authority granted by the Company's Board of Directors, in
November, 1995, the Company obtained a $20 million unsecured line of credit (the
"Unsecured Line of Credit") from First Union National Bank of Virginia. Under
the Unsecured Line of Credit, the Company could borrow up to $20 million,
principal amount from time to time outstanding, on an unsecured basis. The line
of credit matured, and any outstanding balance remaining unpaid thereunder was
due, on March 31, 1996, unless extended by the parties thereto. Pursuant to a
Unanimous Consent of Directors of the Company dated as of April 11, 1996, the
Company's Board of Directors authorized the Company's officers to increase the
amount of the Company's unsecured borrowings to up to $60 million (principal
amount from time to time outstanding). Pursuant to such authority the Company's
officers have renewed the Unsecured Line of Credit from First Union National
Bank of Virginia with an increased credit limit of $50 million (principal amount
from time to time outstanding). The terms of such renewed unsecured line of
credit (as so renewed, the "Unsecured Line of Credit") are the same as before,
except that the expiration date is March 31, 1997, unless extended by agreement
of the lender and the Company. The interest rate on the Unsecured Line of Credit
is one-month LIBOR plus 160 basis points. The conditions, limitations and risks
associated with the Company's utilization of the renewed line of credit are the
same as with the Unsecured Line of Credit which matured on March 31, 1996.
The Company presently intends to utilize such interim borrowings only if, and
to the extent that, it is anticipated that future sales of Shares will provide
funds necessary to repay such borrowings. However, there can be no assurance
that any such borrowings will, in fact, be repaid from future sales of Shares.
To the extent that Share sales are insufficient to repay any such borrowings,
the Company will have a remaining outstanding loan, which would entail the types
of risks and investment considerations described under "Risk Factors - Possible
Borrowing; Debt Financing May Reduce Cash Flow and Increase Risk of Default" and
"Investment Objectives and Policies - Borrowing Policies" in the Prospectus. The
Company would have a variety of potential means of addressing any such loan
remaining outstanding, including the repayment of such borrowing with cash from
operations or refinancing such borrowing with other debt, but such repayment
and/or refinancing would entail the types of effects on investors and the risks
described in such sections of the Prospectus.
As of June 17, 1996, the outstanding principal balance under the Unsecured
Line of Credit was $32,705,000.
4
<PAGE>
THE TRESTLES APARTMENTS
RALEIGH, NORTH CAROLINA
On December 30, 1994, the Company purchased The Trestles Apartments, a
280-unit apartment complex having an address of 3008 Calvary Drive, Raleigh,
N.C. (the "Property"). The Company purchased the Property from a seller which is
unaffiliated with the Company, the Advisor and their Affiliates. The purchase
price was $10,350,000. On an interim basis, $5,000,000 of the total funds needed
to acquire the property were borrowed funds. The borrowing was repaid in
February, 1995 with proceeds from the sale of Shares. The balance of the amount
required for the purchase of the Property came from the closing of the sale of
Shares. Title to the Property was conveyed to the Company by limited warranty
deed.
Location. The following is based in part on information provided by the
Raleigh Chamber of Commerce. Raleigh is the state capital of North Carolina and
the seat of Wake County. The city is located approximately 150 miles southwest
of Richmond, Virginia, 140 miles east of Charlotte, North Carolina and 260 miles
south of Washington, D.C. Raleigh had a population of 235,000 in 1995, while the
total population of Wake County was 494,000.
The economy of the Raleigh area is diversified. According to the Raleigh
Chamber of Commerce, Raleigh's largest employer is the State of North Carolina,
which employs over 18,000 persons, and other major employers include IBM with
10,000 employees, and the Wake County Public Schools with approximately 9,000
employed. A contributing factor to Raleigh's growth has been the Research
Triangle, a 5,800 acre research and development center that employs more than
15,000 people in over 30 government and industrial firms. These firms are
complemented by the resources of the three major universities that form the
Triangle: Duke University in Durham, the University of North Carolina in Chapel
Hill, and North Carolina State University in Raleigh. Raleigh was ranked by
Forbes magazine in 1992 as the sixth best city in the country in which to do
business. According to The Triangle Apartment Association, Raleigh has an
overall apartment vacancy rate of approximately 2%.
The Property is located on the south side of Calvary Drive in northeast
Raleigh. The primary thoroughfare in the area is Capital Boulevard (U.S. Highway
1) which intersects with Calvary Drive two-tenths of one mile east of the
Property. Capital Boulevard provides quick access to major east/west corridors
and to the Raleigh Beltline (I-440) three miles south of the Property. Downtown
Raleigh is six miles and a ten minute drive on Capital Boulevard. The Raleigh
Beltline and Interstate 40 form Raleigh's belt loop providing convenient access
to other key thoroughfares, the Raleigh/Durham Airport, and the Research
Triangle Park.
The neighborhood immediately surrounding the Property consists of a
combination of single family housing, apartment communities, neighborhood
shopping centers, and commercial businesses. According to the Raleigh News and
Observer, a 65 acre shopping area, which will reportedly contain 534,000 square
feet of shopping space, is currently being developed directly across Calvary
Drive from the Property, and, in addition, another 123 acres are being developed
into a 1.2 million square foot regional shopping mall within one mile of the
Property. The estimated cost of this development is $123 million and it is
anticipated to open in late 1997.
Description of the Property. The Property consists of 280 garden style
apartments in 15 two- and three-story buildings situated on approximately 14.8
acres. The Company believes that since its construction in 1987, the complex has
been well-maintained and is in good condition. The Company has expended
approximately $485,000 in the completion of certain improvements to the
Property, including renovation of the clubhouse, some landscaping and other
minor refurbishments.
5
<PAGE>
The Property offers four unit sizes to accommodate a variety of family sizes.
The unit mix and rents currently being charged new tenants are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- ---------- -------------------- -------------- -----------
<S> <C> <C> <C>
96 1 bedroom/1 bath 600 $488-504
64 1 bedroom/1 bath 740 541-562
80 2 bedrooms/1.5 baths 880 604-640
40 2 bedrooms/2 baths 1,049 667-682
</TABLE>
The units provide for a combined total of 217,320 square feet of net rentable
area.
Leases at the Property generally are for terms of one year or less. Average
rental rates for the last five years have increased gradually, with the last
increase occurring in January of 1996. As a typical example, a one bedroom unit
rented for $340 in 1990, $350 in 1991, $385 in 1992, $400 in 1993, $485 in 1994,
and $485 in 1995. The average effective annual rental per square foot at the
Property for 1990, 1991, 1992, 1993, 1994, and 1995 was $6.22, $6.31, $6.47,
$6.86, $7.74, and $8.20, respectively.
All buildings are wood frame with a combination of brick veneer and cedar
siding. The buildings are slab on grade with second and third floor units having
plywood covered with lightweight concrete floors. Access to the upper floor
units is by metal pan exterior stairs leading to a lightweight concrete
deck-walkway. Balconies are constructed of pressure treated wood. Roofs are
A-frame construction with composition shingles. The parking lot is asphalt and
walkways are concrete. All units have either a patio or balcony.
The Property features two outdoor swimming pools, a tennis court, a jacuzzi,
a three-acre lake with a picnic area, and a combination office/clubhouse. There
are two laundry facilities on the Property. There are a total of approximately
424 parking spaces in a lighted parking lot. The Property is well landscaped
with trees and shrubs.
All apartments have wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen. All kitchens are equipped with a double stainless steel
sink, garbage disposal, frost-free refrigerator, electric range and dishwasher.
Bathrooms have full ceramic tile tubs. Each apartment is equipped with
mini-blinds, a cable television hook-up, an individually controlled electric
forced warm air furnace with central air conditioning and an electric hot water
heater.
There are a number of variations in the interior finish of the units. All of
the 104 upper level units feature a vaulted ceiling. Approximately 26% of the
units have washer and dryer connections. Fireplaces are contained in
approximately 21% of the units. Each of these additional amenities carries a
premium to the basic rental rates. Additional rent is also obtained from those
units which feature a pool or lake view. The owner of the Property supplies cold
water, sewer, common-area electric service and trash collection. The tenants pay
for their electric service and cable television.
Competition for the Property includes other garden apartment properties in
the area. There are at least six apartment complexes in the neighborhood of the
Property which will compete directly with the Property for tenants. Many of the
competing properties enjoy high occupancy rates and offer locations or amenities
equal or superior to those of the Property. Rents at the competing properties
are generally equivalent to those at the Property. Based on a recent telephone
survey, Cornerstone Management Group, Inc. estimates that occupancy in nearby
competing projects now averages approximately 93%.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 90% in 1990, 92% in 1991, 94% in 1992, 95% in
1993, and 96% in 1994. Physical occupancy averaged 95% during 1995. On March 21,
1996, the Property was 91% occupied. Two of the occupied units are furnished to
members of the on-site staff at reduced rental rates and one unit is used as a
maintenance shop.
6
<PAGE>
The Company believes that the Property historically has been generally well
run. The Company purchased the Property from a lender that obtained the Property
through foreclosure. The Company believes that the cash flow difficulties
experienced by the prior owner were attributable to the nature of the prior
owner's debt service obligations, and that these factors will have no
application to the Company and its proposed operation of the Property.
The 1995 real estate tax rate applicable to the Property was approximately
$1.174 per $100 of assessed value, and the real estate taxes for 1995 were
calculated to be $89,909 (including an additional charge of $15 per apartment
unit under a community waste reduction program). The assessed value was
$7,300,604. The basis of the depreciable residential real property portion of
the Property (approximately $7,659,000) 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 Internal Revenue Code (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 upon the nature of the expenditures.
WIND LAKE APARTMENTS
GREENSBORO, NORTH CAROLINA
On April 7, 1995, effective April 1, 1995, the Company purchased the Sterling
Pointe Apartments, a 299-unit apartment complex having an address of 3822 Mizell
Road, Greensboro, North Carolina (the "Property"). The Company has changed the
name of the Property to "Wind Lake Apartments."
The Company purchased the Property from a seller which is unaffiliated with
the Company, the Advisor and their Affiliates. The purchase price was $8,775,000
(including $15,000 of the seller's closing costs), all of which was ultimately
paid from the proceeds of the Offering. On an interim basis, $4,500,000 of the
total funds needed to acquire the property was borrowed under an unsecured line
of credit. The borrowed amount was repaid in April, 1995 from proceeds from
sales of Shares. Title to the Property was conveyed to the Company by limited
warranty deed.
Location. The following is based in part on information provided by the
Greensboro Chamber of Commerce. The Greensboro-Winston/Salem-Highpoint MSA, a
seven county area, currently has a population in excess of 1.1 million people
and has grown in excess of 19% over the past 10 years. Steady growth in
population is expected through 2010.
In 1994, 1,453 jobs were created by firms new to Greensboro while 1,235 jobs
were created by existing firms which expanded their operations. Recently, job
growth has increased significantly in the services sector, although
manufacturing continues to represent the largest proportion of employment, at
29%. The unemployment rate is currently approximately 3.5%, which is below the
national average. Principal employers in the area are R.J. Reynolds, Bauman Gray
Baptist Hospital, Sara Lee, Sears, US Air and Cone Mills.
Description of the Property. The Property consists of 299 studio and one and
two bedroom garden style apartments in 16 buildings situated on approximately
23.7 acres of land. Since its construction in 1985, the interiors and exteriors
of the apartments have been reasonably well maintained. The Company has expended
approximately $180,000 in the completion of certain improvements, including
swimming pool repair and hallway renovation. The Company believes that the
Property is in good condition.
7
<PAGE>
The Property offers three unit sizes to accommodate a variety of family
sizes. The unit mix and rents currently being charged new tenants are as
follows:
<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- ---------- --------------------------------- -------------- ----------
<S> <C> <C> <C>
13 studio 479 $425
50 1 bedroom, 1 bath 617 465
50 1 bedroom, 1 bath, FP 617 475
15 1 bedroom, 1 bath lake view 617 475
15 1 bedroom, 1 bath, FP, lake view 617 475
63 2 bedrooms, 1 bath 824 540
13 2 bedrooms, 1 bath, FP 824 565
15 2 bedrooms, 1 bath, lake view 824 575
50 2 bedrooms, 1 bath, FP 824 575
15 2 bedrooms, 1 bath, FP, lake view 824 575
</TABLE>
The units provide a combined total of 217,477 square feet of net rentable
area.
Leases at the Property generally are for terms of one year or less. Average
rental rates for the last five years have both increased and decreased, with the
last increase occurring in November of 1995. As a typical example, a two bedroom
unit rented for $430 in 1990, $440 in 1991, $420 in 1992, $430 in 1993, $455 in
1994, and $540 in 1995. The average effective annual rental per square foot at
the Property for 1990, 1991, 1992, 1993, 1994, and 1995 was $6.54, $6.66, $6.74,
$6.89, $7.26, and $8.10, respectively.
The buildings are wood frame with vinyl siding and are built on concrete
slabs. Roofs are pitched with asphalt shingles. Windows are metal frame and
double pane. All units have either a patio or balcony.
The Property features an indoor swimming pool, fitness center, jacuzzi, two
lighted tennis courts, an enclosed racquetball court and an office/clubhouse.
The Property also has laundry facilities in each building.
All apartments have wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen and bath. All kitchens are equipped with a
refrigerator/freezer, electric range/oven, dishwasher and garbage disposal. Each
apartment is equipped with a smoke detector, cable television hook-up and
individually controlled forced-air heating and central air conditioning unit.
Nearly half of the units have a fireplace. The owner of the Property supplies
cold water, sewer and common area electric service. The tenants pay for all
other utilities, including electricity for heating/cooling, cooking and lights.
Competition for the Property includes other garden apartment properties in
the area. There are at least eight apartment complexes in the neighborhood of
the Property which will compete directly with the Property for tenants. Many of
the competing properties enjoy high occupancy rates and offer locations or
amenities equal or superior to those of the Property. Rents at the competing
properties are generally higher than those at the Property. Based on a recent
telephone survey, Cornerstone Management Group, Inc. estimates that occupancy in
nearby competing projects now averages approximately 94%.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 86% in 1990, 85% in 1991, 85% in 1992, 90% in
1993, and 91% in 1994. Physical occupancy averaged 90% during 1995 (based in
part on information provided by the seller). On March 21, 1996, the Property was
85% occupied. A majority of the residents are students or employed in a
combination of blue and white collar positions.
The 1995 real estate tax rate applicable to the Property was approximately
$1.174 per $100 of assessed value, and the real estate taxes for 1994 were
calculated to be $85,709. The assessed value was $8,698,310. The basis of the
depreciable residential real property portion of the Property (approximately
8
<PAGE>
$7,708,800) 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 upon the nature of the expenditures.
MAGNOLIA RUN APARTMENTS
GREENVILLE, SOUTH CAROLINA
On June 29, 1995, effective June 1, 1995, the Company purchased the Edgewood
Apartments, a 212-unit apartment complex having an address of 151 Century Drive,
Greenville, South Carolina (the "Property"). The Company has changed the name of
the Property to "Magnolia Run Apartments." A description of Greenville can be
found on page 37 of the Prospectus, under the heading "Polo Club Apartments."
The Company purchased the Property from a seller which is unaffiliated with
the Company, the Advisor and their Affiliates. The purchase price was
$5,500,000, which the Company paid entirely from the proceeds of the Offering,
and title to the Property was conveyed to the Company by limited warranty deed.
Location. The Property is centrally located within the northeastern quadrant
of Greenville. The immediate area surrounding the Property consists of single
family and multifamily development and office/mixed use. The property has direct
access to I-385 within one mile of the site and is convenient to major
employers, shopping and downtown. I-85 is readily accessible from I-385.
Description of the Property. The Property consists of 212 garden and
townhouse apartment units in 16 three-story buildings situated on approximately
12 acres.
Since its construction in 1972, the interiors of the apartments have been
reasonably well maintained. Approximately half of the appliances are original
but are in good repair. Most of the appliances which have not been replaced have
been repainted. The Company anticipates that it will replace the majority of the
appliances in the next three years, as needed.
The Company has repaved the parking lot and improved the landscaping. About
half of the roofs and some exterior trim needed replacement and have been
replaced, while the vinyl siding is in good condition. The Company has repaired
and upgraded the leasing office and club facility for residents. Other minor
improvements designed to improve the Property's appeal to prospective tenants
have been completed. The Company has spent approximately $582,000 for the
foregoing improvements. The Company believes that the Property is in good
condition.
The Property offers five unit sizes to accommodate a variety of family sizes.
The unit mix and rents currently being charged new tenants are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- ---------- ----------------------------- -------------- ----------
<S> <C> <C> <C>
72 1 bedroom, 1 bath 788 $420
44 2 bedrooms, 2 baths TH 1,050 515
64 2 bedrooms, 2 baths 1,131 595
24 2 bedrooms, 2.5 baths TH 1,280 595
8 3 bedrooms, 2.5 baths, FP, TH 1,550 695
</TABLE>
The units provide for a combined total of 210,440 square feet of net rentable
area.
Leases at the Property generally are for terms of one year or less. Average
rental rates for the last five years have increased gradually, with the last
increase occurring in February of 1996. As a typical example, a one bedroom unit
rented for $340 in 1991, $340 in 1992, $350 in 1993, $350 in 1994, and $390 in
1995. The average effective annual rental per square foot at the Property for
1990, 1991, 1992, 1993, 1994, and 1995 was $4.86, $5.09, $5.26, $5.52, $5.70,
and $6.32, respectively.
9
<PAGE>
The buildings are wood frame on block foundation with crawl space. The
exteriors are covered with vinyl siding, and roofs are pitched with asphalt
shingles. Windows are single hung with aluminum frames. The parking lot is
asphalt and walkways are concrete. All units have either a patio or balcony.
The Property features an outdoor swimming pool, two tennis courts and a
combination office/clubhouse. The Property also has centralized laundry
facilities in addition to washer/dryer hookups in the larger units. There are a
total of approximately 252 parking spaces in a lighted parking lot. The property
is adequately landscaped with mature trees and shrubs.
All apartments have wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen and bath. All kitchens are equipped with a
refrigerator/freezer, electric range and oven, dishwasher and garbage disposal.
Each apartment is equipped with a smoke detector and individually controlled
forced-air heating and central air conditioning unit. Eight of the units contain
fireplaces and 64 contain built-in china cabinets. The owner of the Property
supplies cold water, sewer and common-area electric service. The tenants pay for
their electric service, including heat, air conditioning, hot water, cooking and
lights.
Competition for the Property includes other garden apartment properties in
the area. There is one apartment complex in the immediate neighborhood of the
Property which will compete directly with the Property for tenants, and many
others within one mile. Many of the competing properties enjoy high occupancy
rates and offer locations or amenities equal or superior to those of the
Property. Rents at the competing properties are generally higher than those at
the Property. Based on a recent telephone survey, Cornerstone Management Group,
Inc. estimates that occupancy in nearby competing projects now averages
approximately 92%.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 91% in 1990, 91% in 1991, 91% in 1992, 92% in
1993, and 92% in 1994. Physical occupancy averaged 99% during 1995 (based in
part on information provided by the seller). On March 21, 1996, the Property was
95% occupied. A majority of the residents are employed in a combination of blue
and white collar positions. Due to the larger size of the units the majority of
the tenants are families or multi-tenant households.
The Company believes that, except for the deferred maintenance, the Property
historically has been generally well run, and that the Property's good location
combined with the improvements to its appearance give the Property good
potential for rent increases.
The 1995 real estate tax rate applicable to the Property was approximately
$1.78 per $100 of assessed value, and the real estate taxes for 1995 are
expected to be $83,532. The assessed value was $4,473,000. The basis of the
depreciable residential real property portion of the Property (approximately
$5,005,000) 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 upon the nature of the expenditures.
BRECKINRIDGE APARTMENTS
GREENVILLE, SOUTH CAROLINA
On June 21, 1995, the Company purchased the Breckinridge Apartments, a
236-unit apartment complex having an address of 230 Pelham Road, Greenville,
South Carolina (the "Property"). A description of Greenville can be found on
page 37 of the Prospectus, under the heading "Polo Club Apartments."
The Company purchased the Property from a seller which is unaffiliated with
the Company, the Advisor and their Affiliates. The purchase price was
$5,600,000, which the Company paid entirely from the proceeds of the Offering,
and title to the Property was conveyed to the Company by limited warranty deed.
10
<PAGE>
Location. The Property is centrally located within the northeastern quadrant
of Greenville. The immediate area surrounding the Property consists of
multifamily development, office/mixed use and convenience shopping. The Property
has direct access to I-385 within one mile of the site and is convenient to
major employers, shopping and downtown. I-85 is readily accessible from I-385.
Description of the Property. Constructed in 1973, the Property consists of
236 garden style apartments in 16 two-story buildings situated on approximately
12 acres. The Property has been substantially rehabilitated in the past three
years with over $800,000 spent on improvements by prior owners. Completed
exterior renovations include wood replacement as needed, exterior painting and
replacement of all except two roofs. New signs have been installed, the grounds
have been relandscaped and the parking lot has been repaved. Generally, the
Property has excellent visibility and curb appeal.
The interiors of the apartments have been reasonably well maintained and are
in relatively good condition. Within the last three years over half of the
carpets have been replaced, over $50,000 has been expended on wallpaper
replacement, approximately $17,000 has been spent on appliance replacement, and
at least $115,000 has been expended on additional interior replacements. The
Company has spent approximately $350,000 in the completion of improvements at
the Property, including replacement of one roof, minor interior renovations to
the clubhouse, and other minor improvements. The Company believes that the
Property is in good condition.
The Property offers four unit sizes to accommodate a variety of family sizes.
The unit mix and rents currently being charged new tenants are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- ---------- ------------------- -------------- ----------
<S> <C> <C> <C>
96 1 bedroom, 1 bath 530 $420
80 1 bedroom, 1 bath 720 465
28 2 bedrooms, 1 bath 1,020 580
32 2 bedrooms, 2 baths 1,075 599
</TABLE>
The units provide for a combined total of approximately 171,440 square feet
of net rentable area.
Leases at the Property generally are for terms of one year or less. Average
rental rates for the last five years have increased gradually, with the last
increase occurring in January of 1996. As a typical example, a two bedroom unit
that rented for $335 in 1991, rented for $389 in 1992, $425 in 1993, $450 in
1994, and $580 in 1995. The average effective annual rental per square foot at
the Property for 1990, 1991, 1992, 1993, 1994, and 1995 was $4.94, $5.78, $5.83,
$5.88, $6.73, and $6.90, respectively. The Company and Cornerstone Management
Group, Inc. believe that the substantial rental rate increases implemented
following the Company's acquisition of the Property are reasonable and
appropriate in light of the improvements made to the Property, more effective
Property management and improved marketing of the Property. However, there can
be no assurance that increased rental rates will not result in increased vacancy
rates.
The buildings are wood frame on a concrete slab foundation. The exteriors are
covered with a combination of brick veneer and wood siding, and roofs are
pitched with asphalt shingles. Windows are single hung with aluminum frames. The
parking lot is asphalt and walkways are concrete. All units have an exterior
entrance and a small porch.
The Property features a large clubhouse, exercise room with two saunas, a
swimming pool, two tennis courts and a rental office. The Property also has
centralized laundry facilities in addition to washer/dryer hookups in the larger
units. There are a total of approximately 327 parking spaces in a lighted
parking lot.
All apartments have wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen and bath. All kitchens are equipped with a
refrigerator/freezer, electric range and oven, dishwasher and garbage disposal.
Each apartment is equipped with a smoke detector and individually controlled
forced-
11
<PAGE>
air heating and central air conditioning unit. The owner of the Property
supplies cold water, sewer and common area electric service. The tenants pay for
their electric service, including heat, air conditioning, hot water, cooking and
lights.
Competition for the Property includes other garden apartment properties in
the area. There are at least 10 apartment complexes in the neighborhood of the
Property which will compete directly with the Property for tenants. Many of the
competing properties enjoy high occupancy rates and offer locations or amenities
equal or superior to those of the Property. Rents at the competing properties
are generally lower than those at the Property. Based on a recent telephone
survey, Cornerstone Management Group, Inc. estimates that occupancy in nearby
competing projects now averages approximately 95%.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 83% in 1990, 78% in 1991, 65% in 1992, 75% in
1993, and 93% in 1994. Physical occupancy averaged 95% during 1995 (based in
part on information provided by the seller). On March 21, 1996, the Property was
approximately 90% occupied. A majority of the residents are employed in a
combination of blue and white collar positions.
The Company believes that the Property historically has been generally well
run since a foreclosure in 1992. The Company purchased the Property from a
lender that obtained the Property through foreclosure in 1992. The Company
believes that the cash flow difficulties experienced by the prior owner were
attributable to the nature of the debt service obligations, and that these
factors will have no application to the Company and its proposed operation of
the Property.
The 1995 real estate tax rate applicable to the Property was approximately
$1.78 per $100 of assessed value, and the real estate taxes for 1995 are
calculated to be $59,498. The assessed value was $3,344,000. The basis of the
depreciable residential real property portion of the Property (approximately
$4,088,000) 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 upon the nature of the expenditures.
BAY WATCH POINTE APARTMENTS
VIRGINIA BEACH, VIRGINIA
On July 18, 1995, the Company purchased the Broad Meadows Apartments, a
160-unit apartment complex having an address of 5414 Catina Arch, in Virginia
Beach, Virginia (the "Property"). The Company has changed the name of the
Property to "Bay Watch Pointe Apartments." A description of Virginia Beach can
be found on Page 39 of the Prospectus, under the heading "Mayflower Seaside
Apartments."
The Company purchased the Property from a seller which is unaffiliated with
the Company, the Advisor and their Affiliates. The purchase price was
$3,372,525, which the Company paid entirely from the proceeds of the Offering,
and title to the Property was conveyed to the Company by a limited warranty
deed.
Location. The Property is located in the northern portion of the City of
Virginia Beach, off of Wesleyan Drive. The immediate neighborhood consists of
other multi-family housing developments, commercial and retail development and
some single-family housing. The Property is near Cypress Pointe, which is a
planned development under construction which will contain shopping centers,
single-family housing and an 18-hole golf course. The Property is readily
accessible from Interstate 64 and Route 44, which is the metropolitan Virginia
Beach area primary limited access corridor. The Norfolk International Airport is
an approximately five-minute drive from the Property.
Description of the Property. The Property was built in 1972, and consists of
160 garden and townhouse style apartments located in 20 buildings on 11.7 acres.
12
<PAGE>
The Company believes that the Property has generally been well maintained and
is in good condition, although, at the time of the purchase by the Company,
there was substantial deferred maintenance which required attention. The Company
has spent approximately $750,000 in the completion of certain improvements to
the Property, including new exterior siding, painting, new patio design and the
renovation of the clubhouse.
The unit mix and rents currently being charged to new tenants at the Property
are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- ---------- --------------------- -------------- ----------
<S> <C> <C> <C>
20 1 bedroom, 1 bath 587 $480
96 2 bedrooms, 1.5 baths 860 560
32 3 bedrooms, 1.5 baths 1,147 675
12 4 bedrooms, 1.5 baths 1,229 775
</TABLE>
The apartment units provide for a combined total of approximately 145,752
square feet of net rentable space.
Leases at the Property generally are for terms of one year or less. Average
rental rates for the last five years have increased gradually with the last
increase occurring in August of 1995. As a typical example, a two bedroom unit
that rented for $471 in 1991, rented for $486 in 1992, $500 in 1993, $510 in
1994, and $560 in 1995. The average effective annual rental per square foot at
the Property for 1990, 1991, 1992, 1993, 1994, and 1995 was $6.53, $6.60, $6.79,
$6.92, $7.03, and $7.22, respectively.
The buildings are wood frame on a concrete slab foundation. The exteriors are
a combination of brick veneer and wood siding. Roofs are pitched and covered
with asphalt composition shingles. Windows are single hung with aluminum frames.
The parking lot is paved and walkways are concrete. Units have an exterior
entrance.
The Property has an outdoor swimming pool, centralized laundry facilities and
a rental office. There are approximately 330 parking spaces.
All apartments have wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen and bath. All kitchens are equipped with a
refrigerator/freezer, electric range and oven, dishwasher and garbage disposal.
Apartment units have cable television hook-ups and individually-controlled
heating and air conditioning units. The owner of the Property supplies hot and
cold water, gas heat and sewer service. The tenant pays for electricity for air
conditioning, cooking and lights.
Competition for the Property includes numerous other apartment properties in
the area. There are at least five apartment complexes in the neighborhood of the
Property which will compete directly with the Property for tenants. Many of the
competing properties enjoy high occupancy rates and offer locations or amenities
equal or superior to those of the Property. Rents at the competing properties
are generally lower than those at the Property. Based on a recent telephone
survey, Cornerstone Management Group, Inc. estimates that occupancy in nearby
competing projects now averages approximately 90%.
Based in part on information provided by the seller, physical occupancy at
the Property averaged 89% during 1995. Information with respect to earlier
periods is not available. On March 21, 1996, the Property was 83% occupied. The
tenants of the Property are employed in a variety of white-collar, blue-collar
and military positions.
The Company purchased the Property from the Federal Deposit Insurance
Corporation (the "FDIC"), which acquired the property through foreclosure in May
of 1994. The Company believes that the operational difficulties experienced by
the owner which lost the Property in foreclosure were attributable to the nature
of such owner's debt service obligations. Because the Company intends to own the
Property on a debt-free basis, the Company believes that these factors will have
no application to the Company's proposed operation of the Property.
13
<PAGE>
The 1995 real estate tax rate applicable to the Property was approximately
$1.18 per $100 of assessed value, and the real estate taxes for 1995 are
calculated to be $42,860. The assessed value was $3,632,256. The basis of the
depreciable residential real property portion of the Property (approximately
$2,596,845) 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 upon the nature of the expenditures.
HANOVER LANDING APARTMENTS
CHARLOTTE, NORTH CAROLINA
On August 22, 1995, the Company purchased the Lemon Tree Apartments, a
192-unit apartment complex having an address of 5920 Monroe Road, in Charlotte,
North Carolina (the "Property"). The Company has changed the name of the
Property to "Hanover Landing Apartments." The Company purchased the Property
from a seller which is unaffiliated with the Company, the Advisor and their
Affiliates. The purchase price was $5,725,000, which the Company paid entirely
from the proceeds of the Offering, and title to the Property was conveyed to the
Company by limited warranty deed.
Location. The following information was obtained from the Mecklenburg County
Chamber of Commerce. Charlotte is the most populous city in North Carolina and
the county seat of Mecklenburg County. It is located 225 miles northeast of
Atlanta, Georgia and 350 miles southwest of Washington, D.C. As of 1995,
Charlotte and Mecklenburg County had an aggregate population in excess of
442,750, and the greater Charlotte trading area, known as Metrolina, had a
population in excess of 1.3 million.
The area holds the largest supply of business capital between Philadelphia
and Dallas, with $43 billion in assets held by banks headquartered in Charlotte.
Charlotte is the third largest financial center in the U.S. (behind New York and
San Francisco) with two of the nation's 10 largest banks. First Union and
NationsBank have their executive headquarters in Charlotte. One reason for
Charlotte's high employment rate is the continued attraction of new business to
Charlotte. Although distribution and finance are the primary areas of activity
and growth, there are more than 950 manufacturing firms in Mecklenburg County.
Charlotte's geographic location and diversified economic base have accounted
for its growth as a distribution and transportation hub. The Charlotte area is
served by Interstate Highways I-85 and I-77 and U.S. Highways 21, 29 and 74.
Additionally, plans are underway for construction of I-285 and the Independence
Expressway, which will connect the major expressways. There are 10 major
commercial airlines serving the area, with 184 flights to and from Charlotte
daily. The Charlotte/Douglas International Airport is the nation's 23rd largest
airport in terms of passenger boardings, and provides direct and non-stop
service to over 100 cities daily.
The Charlotte area is home to an extensive higher education system. Charlotte
is the location of one branch of the University of North Carolina and there are
25 other colleges and universities within the Metrolina area. They collectively
represent an enrollment of over 90,000 persons.
The immediate area surrounding the Property consists of other multi-family
housing, commercial and retail development, and single-family housing. The
Property is convenient to shopping areas. The Property is readily accessible
from Interstates 85 and 77, which are the principal interstate highways in the
area.
Description of the Property. The Property was built in 1972, and consists of
192 garden style apartments located in 16 buildings arranged in four courtyards
on approximately 14 acres.
The Company believes that the Property has generally been well maintained and
is in good condition, although, at the time of purchase by the Company, there
was some deferred maintenance which required attention. Between 1993 and the
date of the Company's purchase of the Property, approximately 85% of the
apartment interiors were renovated with the installation of new carpet, new
vinyl and new appliances, as needed. The Company has spent approximately
$390,000 in the completion of improvements to the Property, including roof
replacement, exterior wood repair, exterior painting, mansard repair and
clubhouse renovation.
14
<PAGE>
The unit mix and rents currently being charged to new tenants at the Property
are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- ---------- --------------------- -------------- ----------
<S> <C> <C> <C>
80 1 bedroom, 1 bath 689 $450
48 2 bedrooms, 1.5 baths 860 510
48 2 bedrooms, 1.5 baths 954 540
16 3 bedrooms, 2 baths 1,095 600
</TABLE>
The apartment units provide for a combined total of approximately 159,712
square feet of net rentable area.
Leases at the Property generally are for terms of one-year or less. Average
rental rates for the last five years have increased gradually with the last
increase occurring in March, 1996. As a typical example, a 2-bedroom unit that
rented for $390 in 1991, rented for $405 in 1992, $405 in 1993, $435 in 1994,
and $500 in 1995. The average effective annual rental per square foot at the
Property for 1990, 1991, 1992, 1993, 1994, and 1995 was $5.39, $5.39, $5.63,
$5.63, $5.63, and $6.78, respectively. The Company and Cornerstone Management
Group, Inc. believe that the substantial rental rate increases implemented
following the Company's acquisition of the Property are reasonable and
appropriate in light of the improvements made to the Property, more effective
Property management and improved marketing of the Property. However, there can
be no assurance that increased rental rates will not result in increased vacancy
rates.
The buildings are wood frame with flat roofs and mansards covered with cedar
shake shingles. Exteriors are a combination of brick veneer and wood siding.
Windows are single-pane aluminum frame. The parking lot is asphalt and walkways
are concrete.
The Property has an outdoor swimming pool and four laundry facilities, each
consisting of four coin-operated washers and four coin-operated dryers. There is
a rental office.
All apartments have wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen and bath. All kitchens are equipped with a
refrigerator/freezer, electric range and oven, dishwasher and garbage disposal.
Apartment units have cable television hook-ups and individually-controlled
heating and air conditioning units. The owner of the Property supplies hot and
cold water, gas heat and sewer service. The tenant pays for electricity for air
conditioning, cooking and lights.
Competition for the Property includes numerous other apartment properties in
the area. There are at least five apartment complexes in the neighborhood of the
Property which will compete directly with the Property for tenants. Many of the
competing properties enjoy high occupancy rates and offer locations or amenities
equal or superior to those of the Property. Rents at the competing properties
are generally higher than those at the Property. Based on a recent telephone
survey, Cornerstone Management Group, Inc. estimates that occupancy in nearby
competing projects now averages approximately 94%.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 80% in 1990, 70% in 1991, 70% in 1992, 70% in
1993, and 80% in 1994. Physical occupancy averaged 95% during 1995 (based in
part on information provided by the seller). The Company believes that the low
occupancy in 1993 was largely due to numerous units being unavailable for rent
because of renovations being made throughout the year. On March 21, 1996, the
Property was 94% occupied. The tenants of the Property primarily are students or
employed in a variety of white-collar and blue-collar positions.
The Company purchased the Property from a former lender which acquired the
Property by deed in lieu of foreclosure in 1993. The Company believes that the
operational difficulties experienced by the owner which conveyed the Property by
deed in lieu of foreclosure were attributable to the nature of
15
<PAGE>
such owner's debt service obligations. Because the Company intends to own the
Property on a debt-free basis, the Company believes that these factors will have
no application to the Company's proposed operation of the Property.
The 1995 real estate tax rate applicable to the Property was approximately
$1.233 per $100 of assessed value, and the real estate taxes for 1995 are
calculated to be $55,503. The assessed value was $4,501,470. The basis of the
depreciable residential real property portion of the Property (approximately
$4,923,500) 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 Company on repairs and improvements will be treated for tax purposes as
permitted by the Code based upon the nature of the expenditures.
MILL CREEK APARTMENTS
WINSTON-SALEM, NORTH CAROLINA
On September 22, 1995, effective September 1, 1995, the Company purchased the
Mill Creek Apartments, a 220-unit apartment complex having an address of 5771
Stone Mill Drive, Winston-Salem, North Carolina (the "Property"). The Company
purchased the Property from a seller which is unaffiliated with the Company, the
Advisor and their Affiliates. The purchase price was $8,550,000, all of which
was ultimately paid entirely from the proceeds of the Offering. On an interim
basis, $5,500,000 of the total funds needed to acquire the Property were
borrowed funds obtained from a line of credit, and were repaid from sales of
Shares in October, 1995. Title to the Property was conveyed to the Company by
limited warranty deed.
Location. The following is based in part on information provided by the
Winston-Salem Chamber of Commerce. The Greensboro/Winston-Salem/High Point MSA,
a seven county area, currently has a population in excess of 1.1 million people
and has grown in excess of 19% over the past 10 years. Steady growth in
population is expected through 2010.
The Greensboro/Winston-Salem/High Point MSA is the second most populous MSA
in North Carolina. Winston-Salem is the fourth most populous city in North
Carolina. The MSA is located roughly between Atlanta and Washington, D.C., along
Interstate 85. Winston-Salem is in Forsyth County, which is approximately 25
miles west of Greensboro and 20 miles northwest of High Point.
Principal employers in the area are RJR/Nabisco, Bauman Gray Hospital,
Baptist Hospital, Sara Lee, USAir and Wachovia Corporation.
The general area surrounding the Property consists of other multi-family
housing, commercial and retail development and single family housing. The
neighborhood includes the Madison Park office park, in which are located offices
of the USAir Reservations Center and several Sara Lee divisions. More than 2,000
employees work in the office park.
The Property is located in the northwest section of Winston-Salem. Owing to a
large number of major employment centers in the area, the area has recently been
one of the faster growing parts of the city. There are many shopping and dining
establishments within two miles of the Property, including notably the Super
K-Mart Center, located approximately one mile from the Property, which is a
combination retail goods, grocery store and fast food development.
The Property is readily accessible from Interstates 40 and 77, as well as
State Highway 52, which are the major thoroughfares in the area. The downtown
area and the Piedmont/Triad International Airport are each approximately five
miles from the Property.
Description of the Property. The Property consists of 220 one, two and three
bedroom garden style apartments in 25 buildings situated on approximately 17
acres of land. The Property was constructed in 1984.
The Company believes that the Property is in good condition. The Company has
expended approximately $81,000 for minor improvements, including carpet and
appliance replacement and clubhouse renovation.
16
<PAGE>
The Property offers three unit types to accommodate a variety of family
sizes. The unit mix and rents currently being charged new tenants are as
follows:
<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- ---------- ------------------- -------------- ----------
<S> <C> <C> <C>
60 1 bedroom, 1 bath 710 $497
128 2 bedrooms, 2 baths 940 584
32 3 bedrooms, 3 baths 1,075 656
</TABLE>
The apartment units provide a combined total of 197,320 square feet of net
rentable area.
Leases at the Property generally are for terms of one year or less. Average
rental rates for the last five years have generally increased, with the last
increase occurring in September of 1995. As an example, a one bedroom apartment
rented for $365 in 1992, $390 in 1993, $440 in 1994, and $497 in 1995. The
average effective annual rental per square foot at the Property for 1990, 1991,
1992, 1993, 1994, and 1995 was $6.36, $6.36, $6.12, $6.60, $7.44, and $7.64,
respectively.
The buildings are wood frame and brick construction. Roofs are "A" type and
consist of plywood sheathing beneath tar felt and asphalt/fiberglass shingles.
Windows are double pane, double glazed with aluminum frames and screens.
The Property's common areas include a clubhouse and leasing office, laundry
room, maintenance office, swimming pool, tennis courts, play area and ample
paved parking.
All apartments have wall-to-wall carpeting in the dining room, living room,
bedrooms and hallways, and vinyl floors in the kitchen, laundry room, bathrooms
and the foyer of the main entrance. All units have washer/dryer connections, and
are equipped with smoke detectors, cable television hook-ups, and individually
controlled forced-air heating and central air conditioning units. Each kitchen
has a refrigerator/freezer, electric range and oven, dishwasher and garbage
disposal. The owner of the Property supplies cold water, sewer service and trash
removal. The tenants pay for all of their utilities, including electricity for
heating/cooling, cooking, hot water and lights.
There are at least 12 apartment properties in the area that compete with Mill
Creek. All offer similar amenities and have rents that are equal to or in excess
of those at the Property. Based on a recent telephone survey, Cornerstone
Management Group, Inc. estimates that occupancy in nearby competing projects now
averages approximately 92%.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 90% in 1991, 90% in 1992, 90% in 1993, and 90%
in 1994. Physical occupancy averaged 92% during 1995 (based in part on
information provided by the seller). On March 21, 1996, the Property was 92%
occupied. A majority of the residents are employed in white collar positions and
the major employers of the Property's residents are Sara Lee Corporation, US
Air, RJR/Nabisco and Baptist Hospital.
The 1995 real estate tax rate applicable to the Property was approximately
$1.32 per $100 of assessed value, and the real estate taxes for 1995 were
calculated to be $84,665. The assessed value was $6,431,600. The basis of the
depreciable residential real property portion of the Property (currently
estimated at approximately $7,182,000) 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 Internal Revenue Code (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 upon the nature of the expenditures.
GLEN EAGLES APARTMENTS
WINSTON-SALEM, NORTH CAROLINA
On October 26, 1995, effective October 1, 1995, the Company purchased the
Glen Eagles Apartments, a 166-unit apartment complex having an address of 700
Braehill Boulevard, Winston-Salem, North Carolina (the "Property"). The Company
purchased the Property from a seller which is unaffili-
17
<PAGE>
ated with the Company, the Advisor and their Affiliates. The purchase price was
$7,300,000, all of which, less $2,300,000, was paid from the proceeds of the
offering. At the request of the seller, $2,300,000 of the purchase price was
represented by an unsecured interest-free promissory note which was due and paid
in full on January 3, 1996 using proceeds of the offering. Title to the Property
was conveyed to the Company by limited warranty deed.
Location. For a description of the Winston-Salem area, see above under
"Mill Creek Apartments."
The immediate neighborhood surrounding the property consists of single family
and multifamily developments. The Property is located in the northwest section
of Winston-Salem. There are many shopping and dining establishments within two
miles of the Property. The Property is readily accessible from Interstates 40
and 77, as well as State Highway 52.
Description of the Property. The Property consists of 166 one, two and three
bedroom garden style apartments in 15 buildings situated on approximately 17
acres of land. The Property was built in two phases. The first phase consists of
74 units which were constructed in 1986. The second phase consists of 92 units
constructed in 1990.
The Company believes that the property is in good condition. Approximately
$80,000 has been budgeted by the Company for minor repairs including
refurbishing of the clubhouse and power washing the stairwells. To date,
approximately $29,000 of the budgeted amount has been spent.
The Property offers nine unit types to accommodate a variety of family sizes.
The unit mix and rents currently being charged new tenants are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- ---------- ------------------------- -------------- ----------
<S> <C> <C> <C>
24 1 bedroom, FP 630 $495
12 1 bedroom, W/D 725 545
24 2 bedrooms, standard 976 615
32 2 bedrooms, split 1,010 640
8 2 bedrooms, standard 1,030 640
8 2 bedrooms, split 1,030 640
12 2 bedrooms, split w/FP 1,030 665
22 2 bedrooms, standard w/FP 1,030 665
24 3 bedrooms 1,176 745
</TABLE>
The apartment units provide a combined total of 158,028 square feet of net
rentable area.
Leases at the Property generally are for terms of one year or less. Average
rental rates for the last five years have gradually increased, with the last
increase occurring in April of 1995. As an example, rent on a two bedroom
standard unit was $520 in 1992, $570 in 1993, $575 in 1994 and $640 in 1995. The
average effective annual rental per square foot at the Property for 1990, 1991,
1992, 1993, 1994, and 1995 was $6.24, $6.24, $6.36, $6.96, $7.08, and $7.55,
respectively. The Company and Cornerstone Management Group, Inc. believe that
the substantial rental rate increases implemented following the Company's
acquisition of the Property are reasonable and appropriate in light of more
effective Property management and improved marketing of the Property. The
Company also believes that the completion of its planned repairs may also help
support the rent increases. However, there can be no assurance that increased
rental rates will not result in increased vacancy rates.
The buildings are of wood frame construction. Roofs are "A" type and consist
of plywood sheathing beneath tar, felt and fiberglass shingles. All buildings
have gutters and downspouts. The exteriors are either wood or masonite lapboard
siding. Windows are double pane, doubled glazed with aluminum frames and
screens.
The Property's common areas include a clubhouse and leasing office, a laundry
room, a swimming pool and two tennis courts. There is ample paved parking.
18
<PAGE>
All apartments have wall-to-wall carpeting in the dining room, living room,
bedrooms and hallways, and vinyl floors in the kitchen and bathrooms. Each
apartment unit is equipped with a smoke detector, cable television hook-up, and
individually controlled heating and air conditioning unit. There are 58 units
with fireplaces. All kitchens are equipped with a refrigerator/freezer, electric
range and oven, a dishwasher and garbage disposal. The owner of the Property
provides cold water, sewer service and trash removal. The tenants pay for all of
their utilities, including electricity for heating/cooling, cooking, hot water
and lights.
There are at least eight properties in the area which compete with Glen
Eagles. All of these properties are of similar age and construction. Rents are
generally at the same level as or above those at Glen Eagles. Based on a recent
telephone survey, Cornerstone Management Group, Inc. estimates that occupancy in
nearby competing projects now averages approximately 95%.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 90% in 1990, 90% in 1991, 90% in 1992, 91% in
1993, and 93% in 1994. Physical occupancy averaged 97% during 1995 (based in
part on information provided by the seller). On March 21, 1996, the Property was
92% occupied. A majority of the residents are employed in white collar positions
and the major employers of the Property's residents are the Bauman Gray School
of Medicine, Wachovia, US Air and Baptist Hospital.
The 1995 real estate tax rate applicable to the Property was approximately
$1.32 per $100 of assessed value, and the real estate taxes for 1995 were
calculated to be $74,898. The assessed value was $5,689,100. The basis of the
depreciable residential real property portion of the Property (currently
estimated at approximately $6,205,000) 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 upon the nature of the
expenditures.
OSPREY LANDING APARTMENTS
WILMINGTON, NORTH CAROLINA
On November 9, 1995, effective November 1, 1995, the Company purchased the
Summer Hill Apartments, a 176-unit apartment complex having an address of 2019-E
Fall Drive, Wilmington, North Carolina (the "Property"). The Company has changed
the name of the Property to "Osprey Landing Apartments." The Company purchased
the Property from a seller which is unaffiliated with the Company, the Advisor
and their Affiliates. The purchase price was $4,375,000, all of which was
ultimately paid with proceeds of the Offering. Title to the Property was
conveyed to the Company by limited warranty deed.
Location. For a description of the greater Wilmington, North Carolina area,
see "Wimbledon Chase Apartments" on pages 44 and 45 of the Prospectus.
The Property is centrally located within the city limits of Wilmington. The
immediate area surrounding the Property consists principally of single family
and multi-family development. The Property is readily accessible from Interstate
40 and from other major traffic arteries in the area. The Property provides easy
access to major shopping centers in the area, such as Long Leaf Mall and
Independence Mall, and to downtown Wilmington and Carolina Beach.
The Property is located directly across the street from Greenfield Lake. This
location offers a degree of privacy and seclusion as a result of the natural
park areas and jogging trails surrounding the lake. The Property is located less
than two miles from the New Hanover Regional Medical Center and numerous medical
office facilities in the area. The Property also is in close proximity to many
employment centers.
Description of the Property. The Property consists of 176 one, two and three
bedroom townhouse apartments in 24 two-story buildings situated on approximately
13 acres of land. The Property was constructed in 1973.
19
<PAGE>
The Company believes that the Property is generally in good condition.
Approximately $528,000 has been budgeted by the Company for repairs and
improvements, including paving, roof replacement, siding replacement, interior
upgrading and clubhouse renovation. To date, the Company has expended
approximately $278,000 of the budgeted amount.
The Property offers three unit types. The unit mix and rents currently being
charged new tenants are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- ---------- --------------------- -------------- ----------
<S> <C> <C> <C>
32 1 bedroom, 1 bath 770 $480
96 2 bedrooms, 1.5 baths 940 530
48 3 bedrooms, 2.5 baths 1,205 630
</TABLE>
The apartment units provide a combined total of 172,720 square feet of net
rentable area.
Leases at the Property generally are for terms of one year or less. Average
rental rates for the last five years have generally increased, with the last
increase occurring in February of 1996. As an example, a two bedroom apartment
rented for $330 in 1990, $335 in 1991, $355 in 1992, $375 in 1993, $382 in 1994,
and $500 in 1995. The average effective annual rental per square foot at the
Property for 1990, 1991, 1992, 1993, 1994, and 1995 was $4.02, $4.07, $4.32,
$4.56, $4.68, and $5.47, respectively. The Company believes that rental rates at
the Property can be increased significantly over historical levels because of
more efficient management and the contemplated completion of significant planned
repairs and improvements at the Property. However, there can be no assurance
that increased rental rates will not result in increased vacancy rates.
The buildings are all two-story townhouses with wood frame construction on
concrete slabs. The exteriors are covered with T-111 plywood siding. The
majority of the roofs are pitched with asphalt shingles. All of the roofs at the
Property were originally flat and covered with tar and gravel. As these roofs
began to leak, they were replaced with a pitched truss roof system. All of this
work has been done in the past three years. There remain four roofs to be
completed, at a cost of approximately $13,000 per roof, which is included in the
Company's repair and improvement budget referred to above.
The Property's common areas include an outdoor swimming pool, playground,
laundry facilities, an office/clubhouse and ample paved parking. The clubhouse
is in need of renovation and is not currently being used. The cost of renovation
is also included in the Company's repair and improvement budget.
All apartments have wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen and baths. All kitchens are equipped with a
refrigerator/freezer, electric range and oven, dishwasher and garbage disposal.
There are blinds for all windows and all units have cable television hookups.
Each apartment has an individually controlled heating and air conditioning unit.
One and three bedroom units are equipped with a pass-through serving bar. The
owner of the Property supplies cold water, sewer and trash removal. The tenants
pay for all of their utilities including electricity for heating/cooling,
cooking, hot water and lights.
There are at least six apartment properties in the area that compete with the
Property. All offer similar amenities and have rents that are generally higher
when compared to those of the Property. Based on a recent telephone survey,
Cornerstone Management Group, Inc. estimates that occupancy in nearby competing
projects new averages approximately 90%.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 90% in 1991, 91% in 1992, 90% in 1993, and 91%
in 1994. Physical occupancy averaged 92% during 1995 (based in part on
information provided by the seller). On March 25, 1996, the Property was 90%
occupied. The tenants are a mix of blue collar and white collar workers.
The 1995 real estate tax rate applicable to the Property was approximately
$1.21 per $100 of assessed value, and the real estate taxes for 1995 were
calculated to be $57,804. The assessed value was $4,777,218. The basis of the
depreciable residential real property portion of the Property (currently
20
<PAGE>
estimated at about $3,981,250) 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.
TRADEWINDS APARTMENTS
HAMPTON, VIRGINIA
On November 10, 1995, effective November 1, 1995, the Company purchased the
Tradewinds Apartments, a 284-unit apartment complex having an address of 2
Tradewinds Quay, Hampton, Virginia (the "Property"). The Company purchased the
Property from a seller which is unaffiliated with the Company, the Advisor and
their Affiliates. The purchase price was $10,200,000. The purchase price was
borrowed on an interim basis under the Unsecured Line of Credit. The borrowed
amount was subsequently repaid with proceeds of the Offering in November, 1995
and January, 1996. Title to the Property was conveyed to the Company by limited
warranty deed.
Location. The following information is based in part upon information
provided by the Hampton Roads Chamber of Commerce. The Hampton Roads area of
southeast Virginia is defined generally by twelve jurisdictions included in the
Norfolk/Virginia Beach/Newport News metropolitan statistical area. The area
comprises approximately 18,000 square miles and includes approximately 1.4
million people, which represents over 22% of the total population of the
Commonwealth of Virginia. According to the Chamber of Commerce, the area is the
27th largest population area in the United States.
The region is served by a major airport, three major rail lines, an
interstate highway system and the nation's largest port, making the region
accessible to all parts of the United States and overseas markets. Interstate 64
is the major traffic artery in the area. Richmond, the capital of the
Commonwealth of Virginia, is approximately 100 miles west of Hampton Roads. The
area's airport, Norfolk International Airport, is the largest airport in the
region, with 200 direct flights to and from 40 major cities, serving 2.5 million
passengers a year. There is also a second airport on the peninsula known as the
Newport News/ Williamsburg International Airport.
The overall economy of the region is diversified, with major economic
activity in the shipbuilding and port-related areas. Other major employment
activities include agribusiness, defense contracting, distribution,
manufacturing and research and development. The federal government provides a
stimulus of approximately $5 billion per year into the local economy through
military spending and ancillary business activities. Direct military spending
through the four major branches of the armed services, the Coast Guard and NASA
greatly impacts the region, as do the activities of defense contractors,
engineers, scientists, technicians and research and development firms serving
the military complex. The region's largest employer is the federal government,
with 265,000 workers.
The region has generally benefitted from the recent military base closings,
as personnel from other installations have been relocated to the region. Army,
Navy and Air Force bases employ more than 140,000 military personnel and 56,000
civilians. The military accounts for approximately 17% of area employment.
The Property is located off of Newton Road in Hampton, Virginia. The general
area consists of other multi-family housing, commercial and retail development
and single family housing. The immediate area surrounding the Property is
occupied by Langley Research and Development Park and Hampton Roads Business
Center. The Hampton Roads Business Center is the proposed future home to Gateway
2000, a national computer company with approximately 800 employees. This company
is expected to move its headquarters to Hampton in 1996.
The Property is convenient to many employment centers, shopping facilities,
schools and transportation. The Property is within a mile and a half of Langley
Air Force Base and within a mile of NASA's Research Center. It is also near the
new Sentara Medical Facility. The Property is readily accessible from Interstate
64. The Property is generally located in a transitional area between the densely
populated older section of Hampton and new bedroom communities just to the north
in Poquoson County and York County.
21
<PAGE>
Description of the Property. The Property consists of 284 garden style
apartments in 16 three-story buildings situated on approximately 13 acres of
land. The Property was constructed in 1988.
The Company believes that the Property is generally in good condition.
Approximately $71,000 has been budgeted by the Company for repairs and
improvements, including clubhouse redecoration and paving repair. To date, the
Company has expended approximately $27,000 of the budgeted amount.
The Property offers three unit types. The unit mix and rents currently being
charged new tenants are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- ---------- ------------------- -------------- ----------
<S> <C> <C> <C>
96 1 bedroom, 1 bath 772 $479-499
132 2 bedrooms, 2 baths 942 560-580
56 3 bedrooms, 2 baths 1,169 670-698
</TABLE>
The apartments provide a combined total of 264,000 square feet of net
rentable area.
Leases at the Property generally are for terms of one year or less. Average
rental rates for the last five years have generally increased, with the last
increase occurring in June of 1995. As an example, a two bedroom apartment
rented for $455 in 1990, $480 in 1991, $525 in 1992, $525 in 1993, $525 in 1994,
and $570 in 1995. The average effective annual rental per square foot at the
Property for 1990, 1991, 1992, 1993, 1994, and 1995 was $6.12, $6.24, $6.60,
$6.84, $6.84, and $7.15, respectively.
The buildings are wood frame construction on concrete slabs. Roofs are
pitched and covered with asphalt shingles. Exteriors are covered with vinyl
siding and drivit. Windows are dual-paned and double glazed with aluminum frames
and screens.
The Property's common areas include a clubhouse/leasing office, laundry
facility, maintenance office, outdoor swimming pool, exercise room, indoor
jacuzzi, tennis courts and ample paved parking.
All apartments have wall-to-wall carpeting in the living areas, and vinyl
floors in the kitchen, laundry room, bathrooms and the foyer of the main
entrance. There are washer/dryer connections in all units. Each unit is equipped
with a cable television hookup, and individually controlled heating and air
conditioning unit. All kitchens have a refrigerator/freezer, electric range and
oven, dishwasher and garbage disposal. The owner of the Property supplies cold
water, sewer service and trash removal. The tenants pay for all of their
utilities, including electricity for heating/cooling, cooking, hot water and
lights.
There are at least nine apartment properties in the area which compete with
the Property. All offer similar amenities and have rents that are generally
higher when compared with those of the Property. Based on a recent telephone
survey, Cornerstone Management Group, Inc. estimates that occupancy in nearby
competing projects now averages approximately 94%.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 92% in 1991, 93% in 1992, 92% in 1993, and 87%
in 1994. Physical occupancy averaged 89% during 1995 (based in part on
information provided by the seller). On March 25, 1996, the Property was 90%
occupied. The majority of the tenants are employed in military positions. The
major employers include the United States Navy, the United States Air Force and
NASA/Langley Research Center. Another significant employer is Virginia Power.
The 1995 real estate tax rate applicable to the Property was approximately
$1.23 per $100 of assessed value, and the real estate taxes for 1995 were
calculated to be $123,369. The assessed value was $10,030,000. The basis of the
depreciable residential real property portion of the Property (currently
estimated at about $8,772,000) 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 repair and improvements will be
treated for tax purposes as permitted by the Code based upon the nature of the
expenditures.
22
<PAGE>
SAILBOAT BAY APARTMENTS
CHARLOTTE, NORTH CAROLINA
On November 9, 1995, effective November 1, 1995, the Company purchased The
Lake Apartments, a 358-unit apartment complex having an address of 5417
Albemarle Road, Charlotte, North Carolina (the "Property"). The Company has
changed the name of the Property to "Sailboat Bay Apartments." The Company
purchased the Property from a seller which is unaffiliated with the Company, the
Advisor and their Affiliates. The purchase price was $9,100,000. Of such amount,
$2,850,000 was paid in cash at closing from the proceeds of the Offering. The
balance of $6,250,000 was borrowed funds obtained on an interim basis under the
Company's Unsecured Line of Credit. This borrowed amount was subsequently repaid
in November, 1995 with proceeds of the Offering. Title to the Property was
conveyed to the Company by limited warranty deed.
Location. For description of the Charlotte, North Carolina area, see "Hanover
Landing Apartments" in this Supplement.
The neighborhood surrounding the Property includes other multi-family
housing, commercial and retail development, and single-family housing. The
Property is convenient to major shopping areas. The Property is readily
accessible from Interstates 85 and 77. The downtown area is approximately 4.5
miles from the Property and Charlotte/Douglas International Airport is
approximately six miles from the Property.
Description of the Property. The Property consists of 358 studio and one and
two bedroom garden style apartments in 24 buildings situated on approximately 27
acres of land. The Property was constructed during 1972 and 1973.
The Company believes that the Property is generally in good condition.
Approximately $1,645,000 has been budgeted by the Company for improvements and
repairs including clubhouse renovation, exterior siding, stairway replacement,
roof replacement and perimeter fencing. To date, the Company has expended
approximately $755,000 of the budgeted amount.
The Property offers a wide variety of studio, one bedroom and two bedroom
unit types. The unit mix and rents currently being charged new tenants are as
follows:
<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- ---------- --------------------------- -------------- ----------
<S> <C> <C> <C>
9 Studio 610 $435
12 Studio 635 450
28 Studio 635 450
12 One bedroom, one bath 815 485
28 One bedroom, one bath 815 485
13 One bedroom, one bath 835 495
28 One bedroom, one bath 835 495
6. One bedroom, one bath 880 490
14 One bedroom, one bath 880 490
20 Two bedrooms, one bath 890 530
72 Two bedrooms, one bath 955 550
10 Two bedrooms, one bath, FP 1,045 590
40 Two bedrooms, two baths 1,010 575
36 Two bedrooms, two baths 1,030 585
10 Two bedrooms, two baths,FP 1,155 635
20 Two bedrooms, two baths,FP 1,155 650
</TABLE>
The apartment units provide a combined total of 324,465 square feet of net
rentable area.
Leases at the Property generally are for terms of one year or less. Average
rental rates for the last five years have generally remained constant or
decreased, until the Company acquired the Property and increased the rent in
December of 1995. As an example, a studio apartment rented for $365 in 1990,
23
<PAGE>
$365 in 1991, $365 in 1992, $299 in 1993, $299 in 1994, and $425 in 1995. The
average effective annual rental per square foot at the Property for 1990, 1991,
1992, 1993, 1994, and 1995 was $5.63, $5.90, $5.90, $5.69, $5.68, and $6.67,
respectively. The average rental rates declined in 1994 and 1995 as a result of
deferred maintenance at the Property and general market conditions in the area.
The Company believes that rental rates at the Property can be increased
significantly over historical levels because of more efficient management,
contemplated completion of significant planned repairs and improvements at the
Property and improved market conditions. However, there can be no assurance that
increased rental rates will not result in increased vacancy rates.
The buildings are wood frame on concrete slabs. Roofs are pitched and covered
with composition shingles. Exteriors are a combination of brick veneer and wood
siding.
The Property's common areas include an outdoor swimming pool, sand volleyball
court, tennis courts, laundry facilities and a spacious clubhouse with a
racquetball court, exercise room and rental office. There is also a small lake
on site. There is ample paved parking.
All apartments have wall-to-wall carpeting in the living areas, and vinyl
floors in the kitchen and baths. All units have cable television hookups and
individually controlled heating and air conditioning systems. All kitchens are
equipped with a refrigerator/freezer, electric range and oven, dishwasher and
garbage disposal. The owner of the Property supplies cold water, sewer service
and trash removal. The tenants pay for all of their utilities, including
electricity for heating/cooling, cooking, hot water and lights.
Within approximately the last two years, the former owners partially
renovated 26 units. The renovations included new dishwashers, ranges and
refrigerators. In addition, 46 units received new appliances, new carpet and
reconditioned cabinets. The total expenditures by the former owner were
approximately $150,000.
There are at least six apartment properties in the area which compete with
the Property. All offer similar amenities and have rents that are generally
equal to or above those of the Property. Based on a recent telephone survey,
Cornerstone Management Group, Inc. estimates that occupancy in nearby competing
projects now averages approximately 93%.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 92% in 1991, 90% in 1992, 81% in 1993, and 84%
in 1994. Physical occupancy averaged 85% during 1995 (based in part on
information provided by the seller). On March 21, 1996, the Property was 75%
occupied. The Company believes that the recent decrease in the Company's
occupancy is temporary in nature, and due to a combination of an elimination of
tenants deemed unqualified and the need to relocate tenants as improvements are
made to apartment units. The residents at the Property are a mixture of white
collar and blue collar workers and students.
The 1995 real estate tax rate applicable to the Property was approximately
$1.34 per $100 of assessed value, and the real estate taxes for 1995 were
calculated to be $108,057. The assessed value was $8,094,110. The basis of
depreciable residential real property portion of the Property (currently
estimated at about $7,098,000) 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 upon the nature of the
expenditures.
THE MEADOWS APARTMENTS
ASHEVILLE, NORTH CAROLINA
On January 31, 1996, the Company purchased the Meadows Apartments, a 176-unit
apartment complex having an address of 13 Ascension Court, Asheville, North
Carolina (the "Property"). The Company purchased the Property from a seller
which is unaffiliated with the Company, the Advisor and their Affiliates. The
purchase price was $6,200,000. At closing $900,000 of the purchase price was
paid in
24
<PAGE>
cash from the proceeds of the Offering, and the balance was borrowed on an
interim basis under the Unsecured Line of Credit. This borrowing was
subsequently repaid in February, 1996 with proceeds of the Offering. Title to
the Property was conveyed to the Company by limited warranty deed.
Location. The following information is based in part upon information
provided by the Asheville Chamber of Commerce. The Property is located in North
Carolina, in the City of Asheville and Buncombe County, which collectively have
a population of approximately 250,000. Asheville is located approximately 115
miles from Charlotte, North Carolina, and 65 miles from Greenville, South
Carolina.
The City of Asheville and Buncombe County are served by a number of
nationally recognized companies and organizations in the health care, education
and manufacturing sectors. Some of the major employers in the area include
Champion International (a manufacturer of paper and paperboard), GE Lighting
Systems, Westinghouse Electric and ITT Automotive. In addition, Memorial Mission
Hospital and St. Joseph Hospital are major area employers.
The major highways serving the area are Interstates 40, 26 and 240. The
Asheville Regional Airport is centrally located within the metropolitan area and
approximately five miles from the Property. Also, Asheville is home to the
University of North Carolina at Asheville, with enrollment of approximately
3,200 students.
The property is located on Leicester Highway, in the west side of Asheville,
within the city limits. The area surrounding the Property is well-developed,
with various retail centers as well as single-family residences. The Property is
located approximately two miles from the city's central business district, and
is convenient to employment centers, shops and restaurants located there.
Description of the Property. The Property consists of 176 garden-style
apartments in 16 two-story and three-story buildings located on approximately 18
acres of land. The Property was constructed in 1974.
The Company believes that the Property is generally in good condition.
However, approximately $88,000 has been budgeted by the Company for repairs and
improvements, including powerwashing the exterior siding and clubhouse
renovation.
The Property offers five unit types. The unit mix and rents currently being
charged new tenants are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- ---------- ------------------------- -------------- ----------
<S> <C> <C> <C>
36 1 bedroom, 1 bath 728 $495
50 2 bedrooms, 1.5 baths 1,001 590
10 2 bedrooms, 1.5 baths, FP 1,001 615
70 3 bedrooms, 2 baths 1,267 690
10 3 bedrooms, 2 baths, FP 1,267 715
</TABLE>
The apartments provide a combined total of 188,000 square feet of net
rentable area. The apartment units are generally very spacious. Almost half of
the apartment units are three-bedroom apartments, making the Property especially
suitable for families.
Leases at the Property generally are for terms of one year or less. Average
rental rates for the past five years have generally increased. As an example, a
three bedroom apartment rented for $495 in 1991, $520 in 1992, $515 in 1993,
$535 in 1994, $560 in 1995, and now rents for $690. The average effective annual
rental per square foot at the Property for 1991, 1992, 1993, 1994, and 1995 was
$5.25, $5.45, $5.49, $5.98, and $5.99 respectively. The Company and Cornerstone
Management Group, Inc. believe that the substantial rental rate increases
implemented following the Company's acquisition of the Property are reasonable
and appropriate because of more effective Property management and improved
marketing of the Property. In addition, Cornerstone Management Group, Inc.
believes that a substantial rental rate increase is possible for the
three-bedroom units because of a strong demand for units of that size in the
area.
25
<PAGE>
The buildings are wood frame on concrete slabs. Exteriors have vinyl siding
and pitched roofs covered with composition shingles. New siding was installed
and all roofs were replaced by the previous owner within the last three years.
The Property's common areas include an outdoor swimming pool, two tennis
courts, a playground area, outdoor grills, a clubhouse and rental office and
ample paved parking.
All apartment units have wall-to-wall carpeting in the living areas, and
vinyl floors in the kitchen and baths. Each apartment unit has a cable
television hook-up, washer/dryer connections and an individually controlled
heating and air conditioning unit. Each kitchen is equipped with a
refrigerator/freezer, electric range and oven, dishwasher and garbage disposal.
The owner of the Property supplies cold water, sewer service and trash removal.
The tenants pay for their own electric usage, which covers heat, air
conditioning, cooking, hot water and lights. Over the last three years, the
former owners replaced approximately 50% of the dishwashers, ranges and
refrigerators, representing an expenditure of approximately $85,000.
There are at least three apartment properties in the area which compete with
the Property. All offer similar amenities and have rents that are generally the
same as or higher than those of the Property. Based on a recent telephone
survey, Cornerstone Management Group, Inc. estimates that occupancy in nearby
competing projects now averages approximately 94%.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 94% in 1991, 95% in 1992, 97% in 1993, 89% in
1994, and 88% in 1995. On March 1, 1996, the Property was 93% occupied. The
current residents at the Property are employed in a variety of white-collar and
blue-collar jobs, and there are also student residents. There is no predominant
employer.
The 1995 real estate tax rate applicable to the Property was approximately
$1.30 per $100 of assessed value, and the real estate taxes for 1995 were
calculated to be $57,111. The assessed value was $4,393,200. The basis of the
depreciable residential real property portion of the Property (currently
estimated at about $6,000,000) 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.
WEST EAGLE GREENS APARTMENTS
AUGUSTA, GEORGIA
On March 21, 1996, effective March 1, 1996, the Company purchased the
Scarlett Oaks Apartments, a 165-unit apartment complex having an address of 249
Boy Scout Road in Augusta, Georgia (the "Property"). The Company purchased the
Property from a seller which is unaffiliated with the Company, the Advisor and
their Affiliates. The Company has changed the name of the Property to "West
Eagle Greens Apartments." The purchase price was $4,000,000. At closing, the
entire purchase price was paid in cash from the proceeds of the Offering. Title
to the Property was conveyed to the Company by limited warranty deed.
Location. The following information is based in part upon information
provided by the Augusta Chamber of Commerce. The Property is located in Richmond
County in Augusta, Georgia. As of 1990, Richmond County had a population of
approximately 190,000, with approximately 45,000 of such total residing within
the city limits. Augusta is an approximately 2 hour drive from Atlanta and an
approximately 2 1/2 hour drive from Charlotte, North Carolina.
There are two major employers within the greater metropolitan area: Fort
Gordon, a military installation, and the medical community, which centers around
the Medical College of Georgia and University Hospital. The Medical College of
Georgia employs approximately 7,000 persons and University Hospital employs
approximately 3,500 persons. There are also a number of Fortune 500 companies
26
<PAGE>
with a significant presence in the metropolitan Augusta area. These include
Allied Signal, Archer Daniels Midland, Borden, Proctor & Gamble, Sunbeam and
Philip Morris. There are two major colleges in the area: Augusta College with an
enrollment of approximately 5,700 and the Medical College of Georgia, with
approximately 5,300.
The major highways serving the area are Interstate 20 and Interstate 520.
There is a municipal airport approximately five miles from the Property.
The immediate neighborhood surrounding the Property is focused on the
intersection of Washington Road and Interstate 20. There are numerous retail
centers, restaurants and businesses in this area. The Property is approximately
5 miles from the central business district of Augusta via Washington Road. The
central business district of Augusta is similar to that of other older southern
towns being characterized by governmental offices and banks, with some newer
businesses. The Property is convenient to shopping areas, fast food restaurants,
motels and other business establishments via Washington Street.
Description of the Property. The Property consists of 165 garden-style
apartments in 15 two-story and three-story buildings located on approximately
11.5 acres of land. The Property was constructed in 1974.
The Company believes the Property has generally been well maintained and is
generally in good condition. However, the Company has budgeted approximately
$370,000 for repairs and improvements, including re-siding of the entire
Property, re-roofing of five buildings and renovation of the clubhouse.
The Property offers five unit types. The unit mix and rents currently being
charged new tenants are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- ---------- -------------------------- ------------- ---------
<S> <C> <C> <C>
29 1 bedroom, 1 bath 609 $365
37 1 bedroom, 1 bath (large) 684 375
13 2 bedrooms, 1 bath 865 415
28 2 bedrooms, 1 bath 865 425
49 2 bedrooms, 1 bath (large) 886 440
9 3 bedrooms, 1 bath 1063 515
</TABLE>
The apartments provide a combined total of 131,400 square feet of net
rentable area.
Leases at the Property are for terms of one year or less. Average rental
rates for the past five years have generally been steady or gradually increased.
As an example, a two bedroom (large) apartment rented for $415 in 1991, $430 in
1992, $440 in 1993, $440 in 1994 and $440 in 1995. The average effective annual
rental per square foot at the Property for 1991, 1992, 1993, 1994, and 1995 was
$5.88, $6.09, $6.20, $6.20 and $6.20, respectively.
The buildings feature stone and wood siding over wood frames on concrete
slabs. Roofs are pitched and covered with composition shingles over plywood
decking. Approximately half of the roofs have been replaced within the last five
years.
The common areas include an outdoor swimming pool, two tennis courts, a
laundry room, clubhouse and rental office. There is ample paved parking for
residents.
All apartment units have wall-to-wall carpeting in the living area and vinyl
floors in the kitchen and bath. Each unit has a cable television hook-up, and an
individually controlled heating and air-conditioning unit. There are
washer/dryer connections in the two and three-bedroom units. Each kitchen is
equipped with a refrigerator/freezer, electric range and oven, dishwasher and
garbage disposal. The owner of the Property supplies cold water, sewer service
and trash removal. The tenants pay for their own electricity usage which covers
heat, air conditioning, cooking, hot water and lights. Approximately 60% of the
heating and air-conditioning units have been replaced within the last three
years.
27
<PAGE>
Some of the apartment units have a patio or balcony and some of the larger
units include vaulted ceilings, skylights and ceiling fans.
There are at least seven apartment properties in the area which compete with
the Property. All offer similar amenities and have rents that are generally
higher when compared with those of the Property.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 90% in 1991, 89% in 1992, 85% in 1993, 81% in
1994 and 85% in 1995. On March 25, 1996, the Property was 92% occupied. The
residents are a mix of white-collar, blue-collar and military workers, with some
students. There is no predominant employer.
The 1995 real estate tax rate applicable to the Property was approximately
$1.09 per $100 of assessed value, and the real estate taxes for 1995 were
calculated to be $40,910. The assessed value was $3,761,000. The basis of the
depreciable residential real property portion of the Property (currently
estimated at about $3.5 million) 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.
ASHLEY PARK APARTMENTS
RICHMOND, VIRGINIA
On March 29, 1996, effective March 1, 1996, the Company purchased the Ashley
Park Apartments, a 272-unit apartment complex having an address of 6901 Marlowe
Road in Richmond, Virginia (the "Property"). The Company purchased the Property
from a seller which is unaffiliated with the Company, the Advisor and their
Affiliates. The purchase price was $12,205,000. At closing the entire purchase
price was borrowed on an interim basis under the Unsecured Line of Credit. As of
June 17, 1996, $4.5 million of such amount had been repaid. Title to the
Property was conveyed to the Company by limited warranty deed.
Location. The following information is based in part upon information
provided by the Richmond Chamber of Commerce. The Property is located in
Virginia, within the City of Richmond, in close proximity to Chesterfield
County. The current population of Richmond is approximately 202,000 and the
current population of the Metropolitan Statistical area including the City of
Richmond is approximately 930,000. Richmond is located centrally within the
Commonwealth of Virginia, approximately midway between Washington, D.C. and
Raleigh, North Carolina.
The greater Richmond area is served by the Richmond International Airport,
and is situated at the intersection of Interstates 95 and 64. In addition to
being the capital of Virginia, Richmond is also home to numerous Fortune 500
companies. Some of the larger employers in the area are Philip Morris, state
government, AT&T, Dupont, and NationsBank. In addition, the area is the site of
a number of institutions of higher education, including Virginia Commonwealth
University, the Medical College of Virginia, the University of Richmond, and
Virginia State University.
The Property is located off of Jahnke Road in south Richmond. The immediate
area consists of other multi-family housing, commercial and retail development
and single family housing. The Property is convenient to a number of major
shopping areas, including Cloverleaf Mall, restaurants, and other businesses.
The Property is located less than one-half mile from Chippenham Parkway and the
Powhite Parkway, which provide ready access to Interstates 95 and 64. The
Property is an approximately fifteen minute drive from downtown Richmond and an
approximately 30 minute drive from Richmond International Airport. The Property
is located a few hundred feet from Chippenham Hospital, which is a major
hospital and medical office complex in the area.
Description of the Property. The Property consists of 272 luxury garden-style
apartments in 14 two-story and three-story buildings located on approximately 27
acres of land. The Property was constructed in 1988.
28
<PAGE>
The Company believes that the Property has been well maintained and is
generally in good condition. However, the Company has budgeted approximately
$80,000 for repairs and improvements, including parking lot repair and enhanced
landscaping.
The Property offers five unit types. The unit mix and rents currently being
charged new tenants are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- ---------- --------------------- ------------- ----------
<S> <C> <C> <C>
48 1 bedroom, 1 bath 510-550 $470-485
96 1 bedroom, 1 bath 624-674 500-515
32 1 bedroom, 1 bath 710-750 560-600
32 2 bedrooms, 1.5 baths 860-900 635-675
64 2 bedrooms, 2 baths 935-975 660-685
</TABLE>
The apartments provide a combined total of 208,000 square feet of net
rentable area.
Leases at the Property are for terms of one year or less. Average rental
rates for the past five years have generally increased. As an example, a two
bedroom apartment rented for $570 in 1991, $580 in 1992, $595 in 1993, $630 in
1994, and $660 in 1995. The average effective annual rental per square foot at
the Property for 1991, 1992, 1993, 1994, and 1995, was $7.70, $7.83, $8.03,
$8.51, and $8.81, respectively.
The buildings are wood siding and brick on concrete slabs. Roofs are pitched
and covered with composition shingles over plywood decking. Windows are aluminum
frame with dual panes. The Property was recently repainted and all of the roofs
are in good condition.
The Property is located in a wooded park-like setting with two fresh water
ponds. The amenities include an outdoor swimming pool with tanning deck, a
Jacuzzi, two lighted tennis courts, a fitness center, laundry room, car wash
area, storage areas, private balconies, clubhouse, and rental office. Ample
paved parking is available.
All apartment units have wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen and bath. All units have draperies or mini-blinds, cable
television hook-ups and individually controlled heating and air conditioning
units. Most apartment units also include washer/dryer hook-ups, vaulted
ceilings, a fireplace, and a built-in entertainment center. Some units are
equipped with a washer and dryer. Each kitchen is equipped with a
refrigerator/freezer with ice maker, electric range and oven, dishwasher and
garbage disposal. The owner of the Property supplies cold water, sewer service
and trash removal. The tenants pay for their own electricity usage, which covers
heat, air conditioning, cooking, hot water and lights.
There are at least five apartment properties in the area which compete with
the Property. All offer similar amenities and those comparable in age to the
Property have rents that are generally higher when compared with those of the
Property. Based on a recent telephone survey, Cornerstone Management Group, Inc.
estimates that occupancy in nearby competing projects now averages approximately
95%.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 95% in 1991, 95% in 1992, 94% in 1993, 94% in
1994, and 96% in 1995. On March 25, 1996, the Property was 96% occupied. A
majority of the current residents at the Property are employed in white-collar
positions. According to tenant files, almost a third of the residents have
household incomes in excess of $40,000.
The 1995 real estate tax rate applicable to the Property was approximately
$1.445 per $100 of assessed value, and the real estate taxes for 1995 were
calculated to be $146,465. The assessed value was $10,136,000. The basis of the
depreciable residential real property portion of the Property (currently
estimated at about $8.9 million) 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.
29
<PAGE>
ARBOR TRACE APARTMENTS
VIRGINIA BEACH, VIRGINIA
On March 29, 1996, effective March 1, 1996, the Company purchased the
Colonial Ridge Apartments, a 148-unit apartment complex having an address of 624
Suhtai Court, Virginia Beach, Virginia (the "Property"). The Company has changed
the name of the Property to "Arbor Trace Apartments." A description of Virginia
Beach can be found on Page 39 of the Prospectus, under the heading "Mayflower
Seaside Apartments."
The Company purchased the Property from a seller which is unaffiliated with
the Company, the Advisor, and their Affiliates. The purchase price was
$5,000,000. At closing, the entire purchase price was paid in cash from the
proceeds of the Offering. Title to the Property was conveyed to the Company by
limited warranty deed.
Location. The Property is located off of Laskin Road in the City of Virginia
Beach. The Property is approximately four miles from the Atlantic Ocean via
Laskin Road. The immediate area surrounding the Property consists of other
multi-family housing, commercial and retail development and single-family homes.
The Property is convenient to major shopping areas, restaurants and other
business establishments and can be readily assessed from Interstate 64 and Route
44. The Norfolk International Airport is an approximately 15 minute drive from
the Property via Route 44.
Description of the Property. The Property consists of 148 two-bedroom
garden-style apartments in 13 three-story buildings located on approximately
7.75 acres of land. The Property was constructed in 1985.
All of the apartment units are essentially identical, and include two
bedrooms and one bath and comprise approximately 850 square feet of interior
space. The monthly rent currently being charged new tenants is $530.
The Company believes that the Property has generally been well maintained and
is generally in good condition. However, the Company has budgeted approximately
$74,000 for repairs and improvements, including carpet replacement and
renovation of interior hallways.
The apartments provide a combined total of approximately 125,800 square feet
of net rentable area. The common areas include an outdoor pool, grill and picnic
area, a laundry room in each building and a rental office. There is ample paved
parking.
Leases at the Property are for terms of one year or less. Average rental
rates for the past five years have been generally increased. As an example, a
unit rented for $430 in 1991, $450 in 1992, $480 in 1993, $495 in 1994, and $530
in 1995. The average effective annual rental per square foot at the Property for
1991, 1992, 1993, 1994, and 1995 was $6.07, $6.35, $6.78, $6.99, and $7.48,
respectively.
The buildings are wood frame and brick veneer on concrete slabs. Roofs are
pitched and covered with composition shingles over plywood decking. Windows are
aluminum framed with dual panes. Each apartment unit has a balcony or patio.
Each apartment unit has wall-to-wall carpeting in the living area and vinyl
floors in the kitchen and bath, as well as mini-blinds, cable television
hook-ups, and an individually controlled heating and air conditioning unit. Each
unit has a full-sized laundry room with a washer/dryer connection. Each kitchen
is equipped with a refrigerator/freezer with ice maker, electric range and oven,
dishwasher and garbage disposal. The owner of the Property supplies cold water,
sewer service and trash removal. The tenants pay for their own electric service,
which includes heat, air conditioning, cooking, hot water and lights.
There are at least five apartment properties in the area which compete with
the Property. All offer similar amenities and have rents that are generally
higher when compared with those of the Property. Based on a recent telephone
survey, Cornerstone Management Group, Inc. estimates that occupancy in nearby
competing projects now averages approximately 95%.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 90% in 1991, 90% in 1992, 89% in 1993, 92% in
1994, and 85% in 1995. On March 25, 1996, the Property was 85% occupied.
30
<PAGE>
The seller was an investment group based in Richmond, Virginia which acquired
the Property after the predecessor owning partnership declared bankruptcy. The
Property was previously managed by a management company unaffiliated with the
owners. This management company maintained the Property but was not aggressive
in marketing the Property or seeking rental increases. In addition, a number of
tenants with marginal credit moved into the Property over the last 18 months,
causing higher than normal rental delinquencies. To remedy this situation, the
seller elected to evict all of the 20 marginal tenants in February of 1996,
which resulted in a substantial decline in occupancy. The Company and
Cornerstone Management Group, Inc. believe that the Property will enjoy
substantially increased occupancy in a relatively short period of time as a
result of measures they plan to implement. These measures include an active
marketing program for the Property, a more careful tenant selection process, and
the completion of planned repairs and improvements at the Property.
The current residents at the Property are a mix of students, military
personnel and persons employed in various white-collar and blue-collar jobs.
Approximately half of the current tenants have positions in the military.
The 1995 real estate tax rate applicable to the Property was approximately
$1.188 per $100 of assessed value, and the real estate taxes for 1995 were
calculated to be $58,224. The assessed value was $4,900,999. The basis of the
depreciable residential real property portion of the Property (currently
estimated at about $3.9 million) 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. Property are a mix of students, military personnel and persons.
LONGMEADOW APARTMENTS
CHARLOTTE, NORTH CAROLINA
On April 30, 1996, effective April 1, 1996, the Company purchased the
Longmeadow Apartments, a 120-unit apartment complex having an address of 6017
Williams Road in Charlotte, North Carolina (the "Property"). The Company
purchased the Property from a seller which is unaffiliated with the Company, the
Advisor and their Affiliates. The purchase price was $5,025,000. At closing, the
Company paid the entire purchase price in cash with the proceeds of the
Offering. Title to the Property was conveyed to the Company by limited warranty
deed.
Location. For a description of the Charlotte, North Carolina area, see
"Hanover Landing Apartments" in this Supplement.
The Property is located on Williams Road off of Harris Boulevard in the City
of Charlotte. The immediate area consists of other multi-family housing,
commercial and retail development and single-family housing. The Property is
convenient to area shopping centers. The Property is readily accessible from
Interstates 85 and 77. The downtown area and Charlotte/Douglass International
Airport are easily accessible from the Property via Interstate 77.
Description of the Property. The Property consists of 120 garden style
apartments located in 13 buildings on approximately seven acres of land. The
Property was constructed in 1986.
The Company believes that the Property has been well maintained and is
generally in good condition. However, the Company has budgeted approximately
$60,000 for repairs and improvements, including painting and exterior
renovations.
31
<PAGE>
The unit mix and rents currently being charged new tenants are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
QUANTITY TYPE SQUARE FOOTAGE MONTHLY RENTAL
- ---------- ------------------- ---------------- ----------------
<S> <C> <C> <C>
3 studio 568 $ 465
3 studio-deluxe 596 485
12 1 bedroom, 1 bath 624 490
6 1 bedroom, 1 bath 648 510
18 1 bedroom, 1 bath 672-690 505-525
72 2 bedrooms, 2 baths 958-995 605-635
6 3 bedrooms, 2 baths 1,115 750
</TABLE>
The apartments provide a combined total of 104,000 square feet of net
rentable area.
Leases at the Property are for terms of one year or less. Average rental
rates for the past five years have generally remained constant, with some recent
increase. As an example, a two bedroom, two bath apartment rented for $520 in
1991, $520 in 1992, $520 in 1993, $520 in 1994, and $570 in 1995. The average
effective annual rental per square foot at the Property for 1991, 1992, 1993,
1994, and 1995, was $7.44, $7.44, $7.44, $7.44, and $8.16, respectively.
The buildings are wood frame construction on concrete slabs. Roofs are
pitched and covered with composition shingles. Windows are aluminum with dual
panes.
The amenities at the Property include an outdoor swimming pool, playground,
laundry facilities and a combined clubhouse and rental office. There is ample
paved parking.
All apartment units have wall-to wall carpeting in the living areas and vinyl
floors in the kitchen and bath. Each unit has a cable television hook-up, washer
and dryer connection, miniblinds and an individually controlled heating and
air-conditioning unit. Most of the apartment units include fireplaces, vaulted
ceilings, bay windows and room-sized decks. Each kitchen is equipped with a
refrigerator/freezer, electric range and oven, dishwasher and garbage disposal.
The owner of the Property supplies cold water, sewer service and trash removal.
The tenants pay for their own electricity usage, which covers heat,
air-conditioning, cooking, hot water and lights.
There are at least five apartment properties in the area which compete with
the Property. All offer similar amenities and have rents that are generally
higher when compared with those of the Property. Based on a recent telephone
survey, Cornerstone Management Group, Inc. estimates that occupancy in nearby
competing projects now averages approximately 95%.
The seller is a limited partnership which originally built the Property in
1986. Approximately two years ago, the seller filed for protection under Chapter
11 of the Bankruptcy Code. In the opinion of the Company and Cornerstone
Management Group, Inc., the operating difficulties encountered by the Seller are
attributable to excessive mortgage debt and the absence of needed partnership
capital. Since the Company expects to own the Property on a debt-free basis and
plans to improve management and marketing activities, the Company and
Cornerstone Management Group, Inc. believe that the difficulties encountered by
the seller will not be similarly encountered by the Company.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 95% in 1991, 95% in 1992, 96% in 1993, 96% in
1994, and 97% in 1995. On May 21, 1996, the Property was 97% occupied. The
tenants are a mix of white-collar and blue-collar workers and students. Major
employers of tenants include IBM and the University of North Carolina at
Charlotte.
The 1995 real estate tax rate applicable to the Property was approximately
$1.233 per $100 of assessed value, and the real estate taxes for 1995 were
calculated to be $47,315. The assessed value was $3,600,510. The basis of the
depreciable residential real property portion of the Property (currently
estimated at about $4,230,000) will be depreciated over 27.5 years on a straight
line basis. The basis of
32
<PAGE>
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.
TROPHY CHASE APARTMENTS
CHARLOTTESVILLE, VIRGINIA
On April 30, 1996, effective April 1, 1996, the Company purchased the
Westfield Apartments, a 185-unit apartment complex having an address of 2704
Peyton Drive outside of Charlottesville, Virginia (the "Property"). The Company
has renamed the Property the "Trophy Chase Apartments." The purchase price was
$3,710,000. At closing, the entire purchase price was paid in cash using the
proceeds of the Offering. Title of the Property was conveyed to the Company by
limited warranty deed.
The Company purchased the Property from a limited partnership in which Glade
M. Knight, an Affiliate of the Advisor, served as a co-general partner. The
other general partner is an affiliate of a major investment banking firm. A
company owned and controlled by Mr. Knight also managed the Property since 1983.
All of the distributable cash received from the Company as a result of the
purchase will be distributed to the limited partners of the seller as a partial
return of their equity. Mr. Knight, in his capacity as a general partner of the
seller, will not receive any cash from the proceeds of the sale. The other
general partner, which effectively represents the interests of the limited
partners of the seller, had reached a business decision to terminate its
activities in the real estate industry. In addition, the other general partner
had determined that, as a result of the Tax Reform Act of 1986, the limited
partners of the seller had maximized the value of their investment in the
Property.
Pursuant to the Bylaws of the Company, the purchase from an Affiliate must be
approved by a majority of the Company's Independent Directors. The purchase was
approved by unanimous vote of such Independent Directors. The Company also
obtained an independent appraisal and engineering report in accordance with its
standard practice and Bylaws. The appraised value was in excess of the purchase
price of the Property.
Location. The following information is based in part upon information
provided by the Charlottesville Chamber of Commerce. The Property is located in
Virginia, within Albemarle County, in close proximity to the City of
Charlottesville. The greater Charlottesville metropolitan area has a population
of approximately 130,000. Growth has been steady since the 1970's, and steady
growth is expected to continue throughout the 1990's. Charlottesville is located
approximately 70 miles northwest of Richmond, Virginia and approximately 95
miles southwest of Washington, D.C.
The Charlottesville area has a diverse economy. However, the largest employer
in the area is the University of Virginia, which has approximately 10,500
employees. The University of Virginia was designed by Thomas Jefferson in 1815
and has grown into one of the largest colleges in Virginia, with an
undergraduate program as well as graduate schools in law, business, medicine,
engineering, commerce and education. There are over 20,000 students at the
school. The University of Virginia was responsible for bringing close to 480,000
visitors to the area during 1992, whose spending totaled almost $44 million.
The Property is located in the northern portion of the metropolitan area. The
immediate area consists of extensive commercial and retail development. The
Property is readily accessible from U.S. Route 29, which provides access to
Interstate 64, the major interstate highway in the area.
Description of the Property. The Property consists of 185 garden-style
apartments in 9 buildings on approximately 7.5 acres of land. The Property was
constructed in two phases in 1969 and 1970.
Management believes that the Property has been well maintained and is in
generally good condition. However, the Company has budgeted approximately
$552,000 for repairs and improvements, including office renovation, siding
replacement and interior renovations.
33
<PAGE>
The Property offers numerous unit types. The unit mix and rents currently
being charged new tenants are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
QUANTITY TYPE SQUARE FOOTAGE MONTHLY RENTAL
- ---------- -------------------------------- ---------------- ----------------
<S> <C> <C> <C>
35 1 bedroom, 1 bath (breakfast bar) 659 $420
24 1 bedroom, 1 bath (den) 843 455
31 1 bedroom, 1 bath 659 420
22 1 bedroom, 1 bath (tudor) 659 435
16 2 bedrooms, 1 bath 799 460
16 2 bedrooms, 1 bath (den) 1,064 510
19 2 bedrooms, 1 bath (tudor) 922 480
12 2 bedrooms, 2 baths 922 485
10 3 bedrooms, 2 baths 1,197 560
</TABLE>
The apartments provide a combined total of 148,500 square feet of net
rentable area.
Leases at the Property are for terms of one year or less. Average rental
rates for the last five years have generally been constant. As an example, a one
bedroom, one bath apartment rented for $420 in 1991, $420 in 1992, $420 in 1993,
$420 in 1994, and $420 in 1995. The average effective annual rental per square
foot at the Property for 1991, 1992, 1993, 1994, and 1995, was $6.84, $6.84,
$6.84, $6.84, and $6.84, respectively.
The buildings are of wood frame construction, with a combination of brick
veneer and white aluminum siding on either concrete slabs or concrete and block
foundations. In one phase, roofs are pitched and covered with fiberglass
shingles, and in the other phase are flat with rubber membrane surfacing.
Windows are single pane with aluminum frames.
The amenities at the Property include two outdoors swimming pools, a
sunbathing area, a clubhouse and laundry facilities.
All apartment units have wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen and bath. Each unit has a cable television hook-up and an
individually controlled heating and air-conditioning unit. All kitchens are
equipped with a refrigerator/freezer, electric range and oven, and garbage
disposal. Some, but not all, units have dishwashers. The owner of the Property
supplies cold water, sewer service and trash removal. The tenants pay for their
own electricity usage, which covers heat, air-conditioning, cooking, hot water
and lights.
There are at least seven apartment properties which compete with the
Property. All offer similar amenities and have rents that are generally higher
when compared with those of the Property. Based on a recent telephone survey,
Cornerstone Management Group, estimates that occupancy at nearby competing
projects now averages approximately 94%.
Physical occupancy at the Property averaged approximately 90% in 1991, 90% in
1992, 90% in 1993, 90% in 1994, and 90% in 1995. On May 21, 1996, the Property
was 90% occupied. Most of the tenants are blue-collar workers. Approximately 25%
are white-collar workers and 5% of the tenants are graduate students.
The 1995 real estate tax rate applicable to the Property was approximately
$0.72 per $100 of assessed value, and the real estate taxes for 1995 were
calculated to be $36,226. The assessed value was $5,031,500. The basis of the
depreciable residential real property portion of the Property (currently
estimated at about $2,770,000) 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.
34
<PAGE>
BEACON HILL APARTMENTS
CHARLOTTE, NORTH CAROLINA
On May 30, 1996, effective May 1, 1996, the Company purchased the Beacon Hill
Apartments, a 349-unit apartment complex having an address of 5625 South
Boulevard, Charlotte, North Carolina (the "Property").
The Company purchased the Property from a seller which is unaffiliated with
the Company, the Advisor and their Affiliates. The purchase price was
$13,407,200. At closing, the entire purchase price was paid in cash from the
proceeds of the Offering. Title to the Property was conveyed to the Company by
limited warranty deed.
Location. A description of Charlotte, North Carolina appears under "Hanover
Landing Apartments" in this Supplement. The Property is located on South
Boulevard at Tyvola Road in Charlotte, North Carolina. The immediate area
consists of other multi-family housing, commercial and retail development and
single-family housing. The Property is located close to major shopping, dining
and entertainment. The Property has convenient access to Interstate 77 and
Interstate 85, the Charlotte-area interstates. The downtown area and
Charlotte/Douglas International Airport are readily accessible from the Property
via Interstate 77.
Description of the Property. The Property consists of 349 garden-style
apartments in 14 buildings located on approximately 14.2 acres of land. The
Property was constructed in 1985.
The Company believes that the Property is generally in good condition.
However, the Company has budgeted approximately $60,000 for repairs and
improvements, to include clubhouse renovation and parking lot repair.
The Property offers a number of unit types. The unit mix and rents currently
being charged new tenants are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
QUANTITY TYPE SQUARE FOOTAGE MONTHLY RENTAL
- ---------- ----------------------------- ---------------- ----------------
<S> <C> <C> <C>
69 1 bedroom, 1 bath 530 $ 460
112 1 bedroom, 1 bath 652 480-500
31 1 bedroom, 1 bath w/sun room 745 520-540
39 1 bedroom, 1 bath 748 545-570
28 2 bedrooms, 1.5 baths 826 605-640
16 2 bedrooms, 2 baths 892 660-680
12 2 bedrooms, 2 baths w/sun room 958 685-690
42 2 bedrooms, 2 baths 1,079 705-725
</TABLE>
The apartments provide a combined total of 256,000 square feet of net
rentable area.
Leases at the Property are for terms of one year or less. Average rental
rates for the past five years have generally remained constant or increased. As
an example, a one bedroom apartment rented for $395 in 1991, $395 in 1992, $395
in 1993, $405 in 1994, and $430 in 1995. The average effective annual rental per
square foot at the Property for 1991, 1992, and 1993, 1994, and 1995 was $7.79,
$7.79, $7.79, $7.92, and $8.47, respectively.
The buildings are wood frame construction on concrete slab. Roofs are pitched
and covered with composition shingles. Exteriors are brick veneer and hardboard
siding. The windows are aluminum with dual panes. All of the siding was
repainted by the former owner in April 1996 at a cost of approximately $50,000.
The Property has two outdoor swimming pools, two hot tubs, two laundry
facilities, a car wash area and a clubhouse with a rental office. There is ample
paved parking for residents.
All apartment units have wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen and bath, as well as cable television hook-ups, and
individually controlled heating and air conditioning units. Most apartment units
include such amenities as a fireplace, ceiling fans, an over-sized patio or
balcony
35
<PAGE>
and washer/dryer connections. All kitchens have a refrigerator/freezer, electric
range and oven, dishwasher and garbage disposal. The owner of the Property
supplies cold and hot water, sewer service and trash removal. The tenants pay
for their own electricity usage which covers heat, air conditioning, cooking,
and lights.
There are at least seven apartment properties in the area which compete with
the Property. All offer similar amenities and have rents that are generally
higher when compared with those of the Property. Based on a recent telephone
survey, Cornerstone Management Group, Inc. estimates that occupancy in nearby
competing projects now averages approximately 93%.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 92% in 1991, 92% in 1992, 96% in 1993, 94% in
1994, and 93% in 1995. On June 7, 1996, the Property was 90% occupied. Most of
the tenants are employed as professionals or white-collar workers and only a
small percentage of the residents are employed in blue-collar jobs. According to
information and tenant files, at the time of the Company's acquisition of the
Property, approximately one quarter of the tenants had household incomes in
excess of $35,000. The major employers of the tenants include USAir, Microsoft
and Carolina Medical.
The 1995 real estate tax rate applicable to the Property was approximately
$1.233 per $100 of assessed value, and the real estate taxes for 1995 were
calculated to be $145,319. The assessed value was $11,134,740. The basis of the
depreciable residential real property portion of the Property (currently
estimated at about $8,738,000) 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.
MEADOW CREEK APARTMENTS
PINEVILLE, NORTH CAROLINA
On May 31, 1996, effective June 1, 1996, the Company purchased the Meadow
Creek Apartments, a 250-unit apartment complex having an address of 12821 Meadow
Creek Lane in Pineville, North Carolina (the "Property").
The Company purchased the Property from a seller which is unaffiliated with
the Company, the Advisor, and their Affiliates. The purchase price was
$11,100,000. At closing, the entire purchase price was borrowed on an interim
basis under the Unsecured Line of Credit. Title to the Property was conveyed to
the Company by limited warranty deed.
Location. Pineville is a suburb located southeast of Charlotte, North
Carolina. For a description of the greater Charlotte, North Carolina area, see
"Hanover Landing Apartments" in this Supplement.
Southeast Charlotte is one of the more popular residential locations in the
Charlotte area. Historically, most growth in the Charlotte area has been to the
south of the city. At one time, Highway 51 represented a southern boundary for
growth. However, in the last ten years, growth has continued beyond Highway 51.
Such growth has been encouraged by substantial major road improvements in the
area, including widening of Highway 51 to a four-lane highway, and the partial
completion of Interstate 485, the Charlotte Beltway.
One of the more significant economic elements in the growth in the southern
area of Charlotte was the construction of Carolina Place Mall, which comprises
1,200,000 square feet. This mall, completed in 1991, has Belk's, JCPenney,
Dillard's and Hecht's as its anchors. The mall is located approximately five
miles from the Property.
Residential growth in the area has also been vigorous. The area southeast of
Charlotte has the largest number of new apartments under construction, as well
as some of the more affluent neighborhoods in the region, including Piper Glen,
Providence Country Club and Ballantyne. Ballantyne is an approximately
2,000-acre mixed used development including high-end single-family housing, a
country club, and retail and corporate office sites. There is an entrance to
Ballantyne approximately 1.5 miles from the Property.
36
<PAGE>
The immediate area surrounding the Property consists of other multi-family
housing, commercial and retail development and single-family housing. The
Property is located near major shopping, dining and entertainment. The Property
is approximately one mile from Interstate 485.
Description of the Property. The Property consists of 250 garden-style
apartments in 12 two-story and three-story buildings on approximately 21.8 acres
of land. The Property was constructed in 1984.
The Company believes that the Property has been well maintained and is
generally in good condition. However, the Company has budgeted approximately
$150,000 for repairs and improvements, including roof replacement and clubhouse
renovation.
The Property offers three unit types. The unit mix and rents currently being
charged new tenants are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
QUANTITY TYPE SQUARE FOOTAGE MONTHLY RENTAL
- ---------- ------------------- ---------------- ----------------
<S> <C> <C> <C>
110 1 bedroom, 1 bath 696 $520
120 2 bedrooms, 2 baths 958 625
20 3 bedrooms, 2 baths 1,170 740
</TABLE>
The apartments provide a combined total of 215,000 square feet of net
rentable area.
Leases at the Property are for terms of one year or less. Average rental
rates for the past five years have generally increased. As an example, a two
bedroom apartment rented for $490 in 1991, $495 in 1992, $515 in 1993, $555 in
1994, and $575 in 1995. The average effective annual rental per square foot at
the Property for 1991, 1992, 1993, 1994, 1995 was $7.12, $7.12, $7.41, $7.98,
and $8.27, respectively.
The buildings are wood frame construction with pitched roofs covered with
asphalt shingles. There are mostly poured concrete foundations, but some
buildings are constructed on a crawl space. The exteriors are a combination of
hardboard and brick siding. The windows are double-paned and insulated. Over the
past 18 months, 230 of the 250 apartments have had the individual heating and
air conditioning units replaced. In addition, the Property was repainted less
than two years ago and the pool area was recently reconditioned. Also, over the
last 18 months, the former owner expended approximately $98,000 in exterior
improvements including roof replacement. About half of the roofs are new or in
otherwise excellent condition.
The Property features an outdoor swimming pool with jacuzzi, two lighted
tennis courts, a children's playground, a sauna and weight room, and a
designated car wash area. There is also a clubhouse with a rental office. There
is ample paved parking for residents and, at the back of the Property, a
designated parking area for recreational vehicles.
All apartments have wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen, bath and utility closets. Each unit has a cable
television hook-up and an individually controlled heating and air conditioning
unit. Each unit has a fireplace and washer/dryer connections, and some apartment
units feature a bay window, full size pantry and large walk-in closets. Each
kitchen is equipped with a refrigerator/freezer, electric range and oven,
dishwasher and garbage disposal. The owner of the Property provides cold water,
sewer service and trash removal. The tenants pay for their own electricity usage
which covers heat, air conditioning, cooking, hot water, and lights. The prior
owner states that it spent approximately $79,000 in carpet replacement and
$10,000 in appliance replacement over the last 18 months.
There are at least six apartment properties in the area which compete with
the Property. All offer similar amenities and have rents that are generally
higher when compared with those of the Property. Based on a recent telephone
survey, Cornerstone Management Group, Inc. estimates that occupancy in nearby
competing projects now averages approximately 94%. There are a number of
competing projects now under construction, and additional construction of
competing projects in the future is likely.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 86% in 1991, 88% in 1992, 94% in 1993, 94% in
1994, and 94% in 1995. On June 7, 1996,
37
<PAGE>
the Property was 97% occupied. The tenants are employed in a mix of white-collar
and blue-collar jobs. According to tenant files, approximately one quarter of
the residents had household incomes in excess of $40,000 as of the date of the
Company's purchase of the Property.
The 1995 real estate tax rate applicable to the Property was approximately
$0.995 per $100 of assessed value, the real estate taxes for 1995 were
calculated to be $79,324. The assessed value was $7,392,080. The basis of the
depreciable residential real property portion of the Property (currently
estimated at about $6,631,350) 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.
SUMMER WALK APARTMENTS
CONCORD, NORTH CAROLINA
On May 31, 1996, effective May 1, 1996, the Company purchased the Lakewood
Apartments, a 160-unit apartment complex having an address of 500 Summerlake
Drive, in Concord, North Carolina (the "Property"). The Company has changed the
name of the Property to "Summer Walk."
The Company purchased the Property from a seller which is unaffiliated with
the Company, the Advisor, and their Affiliates. The purchase price was
$5,660,000. At closing, the entire purchase price was borrowed on an interim
basis under the Unsecured Line of Credit. Title to the Property was conveyed to
the Company by limited warranty deed.
Location. Concord is a suburb of Charlotte, North Carolina. For a description
of the greater Charlotte, North Carolina area, see "Hanover Landing Apartments"
in this Supplement.
Concord is approximately 20 miles east of Charlotte, and is located within
Cabarras County. The population of Cabarras County is approximately 157,000.
Concord is the home of Charlotte Motor Speedway, as well as many
manufacturing plants for companies such as Philip Morris, Fieldcrest Cannon,
Perdue Farms, S&D Coffee and Willis Hosiery Mills. The area is served by
Interstate Highways 85 and 77, and U.S. Highways 21, 29 and 74.
The immediate neighborhood surrounding the Property is characterized by
various retail centers, restaurants and businesses.
Description of the Property. The Property consists of 160 garden-style
apartments in 14 buildings located on approximately 27 acres of land. The
Property was constructed in 1983.
The Company believes that the Property has been well maintained and is
generally in good condition. However, the Company has budgeted approximately
$320,000 for repairs and improvements including roof and siding replacement and
clubhouse renovation.
The Property offers a variety of unit types. The unit mix and rents currently
being charged new tenants are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
QUANTITY TYPE SQUARE FOOTAGE MONTHLY RENTAL
- ---------- ----------------------------------------- ---------------- ----------------
<S> <C> <C> <C>
10 1 bedroom, 1 bath 700 $445
12 1 bedroom, 1 bath w/FP 700 450
10 1 bedroom, 1 bath, FP, cathedral ceiling 700 450
6 1 bedroom, 1 bath, handicapped 700 445
2 1 bedroom, 1 bath, handicapped w/FP 700 450
20 2 bedrooms, 1 bath 1,000 530
14 2 bedrooms, 1 bath w/FP 1,000 540
6 2 bedrooms, 1 bath, FP, cathedral ceiling 1,000 550
16 2 bedrooms, 2 baths 1,000 550
30 2 bedrooms, 2 baths w/FP 1,000 560
38
<PAGE>
APPROXIMATE
INTERIOR
QUANTITY TYPE SQUARE FOOTAGE MONTHLY RENTAL
- ---------- ----------------------------------------- ---------------- ----------------
14 2 bedrooms, 2 baths, FP, cathedral ceiling 1,000 570
8 3 bedrooms, 2 baths 1,300 640
12 3 bedrooms, 2 baths w/FP 1,300 650
</TABLE>
The apartments provide a combined total of 154,000 square feet of net
rentable area.
The Property is subject to a Housing Assistance Payments (HAP) Contract with
HUD, under which the owner receives rent subsidies in exchange for maintaining
certain rent-restricted apartment units. Under the HAP Contract, the Property
must make available 32 apartment units. These currently consist of 12
one-bedroom, one-bath units (current rent of $427), and 20 two-bedroom, one-bath
units (current rent of $497). The current rents are $23 and $33, respectively,
below market rents for similar units. The HAP Contract expires on January 31,
1998, and the Company does not plan to seek its renewal.
Leases at the Property are for terms of one year or less. Average rental
rates for the past five years have generally increased. However, rental rates
decreased in 1995. The Company and Cornerstone Management Group, Inc. believe
that such decrease was attributable to inadequate attention by the former
management company and the lack of capital, while the Property was in
bankruptcy, properly to maintain the Property. As an example, a one bedroom
apartment (with fireplace) rented for $383 in 1991, $393 in 1992, $425 in 1993,
$467 in 1994, and $413 in 1995. The average effective annual rental per square
foot at the Property for 1991, 1992, 1993, 1994, 1995 was $6.20, $6.36, $6.88,
$7.56, and $6.63, respectively.
The buildings are wood frame construction on concrete slab or crawl space.
Roofs are pitched and covered with composition shingles. The windows are
aluminum with dual panes. The exteriors are a combination of brick and masonite
siding.
The Property has an outdoor swimming pool, two tennis courts, a fishing lake,
hiking trails, a laundry room and a clubhouse with a rental office. There is
ample paved parking for residents.
All apartments have 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 are individually controlled heating and air conditioning unit. Each
apartment unit has a washer/dryer connection and 150 apartment units include
microwaves. Each kitchen has a refrigerator/freezer, electric range and oven,
dishwasher and garbage disposal. The owner of the Property supplies cold water,
sewer service and trash removal. The tenants pay for their own electricity
usage, which includes heat, air conditioning, cooking, hot water and lights.
There are at least four apartment properties in the area which compete with
the Property. All offer similar amenities and have rents that are generally
higher when compared with those of the Property. Based on a recent telephone
survey, Cornerstone Management Group, Inc. estimates that occupancy in nearby
competing projects now averages approximately 93%.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 88% in 1991, 86% in 1992, 91% in 1993, 85% in
1994, and 90% in 1995. On June 7, 1996, the Property was 90% occupied. The
tenants are a mix of white-collar and blue-collar workers and students.
According to tenant files, at the time of the Company's acquisition of the
Property, over 40% of the tenants' household incomes were in excess of $35,000.
The major employers of the tenants include Philip Morris, UNC Charlotte and
Cabarras Memorial Hospital.
The seller was a North Carolina limited partnership which originally built
the Property. The seller filed for protection under Chapter 11 of the Bankruptcy
Code approximately two years ago. During the bankruptcy period, the Property was
managed by at least three different management companies. In the opinion of
Cornerstone Management Group, Inc., the management by these companies was
substandard. However, Cornerstone Management Group, Inc. does not believe that
any problems associated with the operation of the Property cannot be remedied by
new management. In addition, the Company and Cornerstone Management Group, Inc.
believe that the prior bankruptcy was largely a result of excessive debt
encumbering the Property and the lack of partnership capital of the seller.
Since the
39
<PAGE>
Company intends to own and operate the Property on a debt-free basis,
Cornerstone Management Group, Inc. and the Company do not believe that these
factors will be relevant to the Company's proposed ownership and operation of
the Property.
The 1995 real estate tax rate applicable to the Property was approximately
$1.005 per $100 of assessed value, and the real estate taxes for 1995 were
calculated to be $34,307. The assessed value was $3,413,680. The basis of the
depreciable residential real property portion of the Property (currently
estimated at about $2,480,000) 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.
WILLOW CREEK APARTMENTS
DURHAM, NORTH CAROLINA
On May 31, 1996, effective May 1, 1996, the Company purchased the Willow
Creek Apartments, a 200-unit apartment complex having an address of 18 Weather
Hill Circle, Durham, North Carolina (the "Property").
The Company purchased the Property from a seller which is unaffiliated with
the Company, the Advisor and their Affiliates. The purchase price was
$8,345,000. At closing, the entire purchase price was borrowed on an interim
basis under the Unsecured Line of Credit. Title to the Property was conveyed to
the Company by limited warranty deed.
Location. Durham, North Carolina is located in the North Central portion of
North Carolina, approximately equidistant between Atlanta and New York. The Blue
Ridge Mountains are approximately 150 miles to the west and the Atlantic Coast
is approximately 150 miles to the east. As of 1992, Durham was the fifth largest
city in the state of North Carolina, with a population of 144,000. Durham County
had a population of 189,000 in 1992.
Durham is home to Duke University, and its nationally known medical center,
which are located within 10 miles of the Property. Research Triangle Park is
approximately 20 miles from the Property. Both the Durham Regional Hospital and
Northgate Mall are in the same general area as the Property.
The immediate neighborhood surrounding the Property is characterized by
various retail centers, restaurants, and businesses. The Property is within
walking distance of a strip shopping center which has two grocery stores, a
state employees' credit union, Willow Dale Spa and Willow Dale Cinemas. The
movie theater houses ten theaters and the spa is frequently used by residents of
the Property. The Raleigh/Durham International Airport is accessible from
Interstate 85, which is within three miles of the Property.
Description of the Property. The Property consists of 200 garden-style
apartments in 12 buildings on approximately 21 acres of land. The Property was
constructed in 1984.
The Company believes that the Property has been well maintained and is
generally in good condition. However the Company has budgeted approximately
$400,000 for repairs and improvements, including siding replacement and
clubhouse renovation.
40
<PAGE>
The Property offers seven unit types. The unit mix and rents currently being
charged new tenants are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
QUANTITY TYPE SQUARE FOOTAGE MONTHLY RENTAL
- ---------- ------------------------------- ---------------- ----------------
<S> <C> <C> <C>
26 1 bedroom, 1 bath 750 $550-560
32 1 bedroom, 1 bath w/FP 750 550-560
10 1 bedroom, 1 bath, handicapped 750 550-560
24 2 bedrooms, 2 baths 1,000 630-640
16 2 bedroom, 2 baths, w/FP 1,000 630-640
48 2 bedrooms, 2 baths (split) 1,100 645-655
44 2 bedrooms, 2 baths (split) w/FP 1,100 645-655
</TABLE>
The apartments provide a combined total of 192,000 square feet of net
rentable area.
Leases at the Property are for terms of one year or less. Average rental
rates for the past five years have generally increased. As an example, a two
bedroom apartment rented for $487 in 1991, $510 in 1992, $565 in 1993, $640 in
1994, and $655 in 1995. The average effective annual rental per square foot at
the Property for 1991, 1992, 1993, 1994, 1995 was $6.39, $6.69, $7.41, $8.40,
and $8.59, respectively.
The buildings are wood frame construction on concrete slab or crawl space.
Roofs are pitched and covered with composition shingles. The windows are
aluminum with dual panes. The exteriors are a combination of brick and masonite
siding. The Property has an outdoor swimming pool, two tennis courts, a
playground, a laundry room and a clubhouse with a rental office. There is ample
paved parking for residents.
All apartment units have wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen and bath. Each unit has a fire extinguisher, cable
television hook-up, and an individually controlling heating and air conditioning
unit. All top-floor units have a fireplace. All apartment units have
washer-dryer connections, mini blinds, vertical blinds, and a patio or balcony.
Each kitchen is equipped with a microwave, refrigerator/freezer, electric range
and oven, dishwasher and garbage disposal. The owner of the Property supplies
cold water, sewer service and trash removal. The tenants pay for their own
electricity usage, which includes, heat, air conditioning, cooking, hot water
and lights.
There are at least four apartment properties in the area which compete with
the Property. All offer similar amenities and have rents that are generally
slightly higher when compared with those of the Property. Based on a recent
telephone survey, Cornerstone Management Group, Inc. estimates that occupancy in
nearby competing projects now averages approximately 94%.
According to information provided by the Seller, physical occupancy at the
Property averaged approximately 96% in 1991, 95% 1992, 94% 1993, 98% 1994, and
93% in 1995. On June 7, 1996, the Property was 89% occupied. The tenants are a
mix of white collar and blue collar workers and students. According to tenant
files, at the time of the Company's acquisition of the Property, over half of
the tenants' household incomes were in excess $40,000.
The seller was a North Carolina limited partnership which originally built
the Property. The seller filed for protection under Chapter 11 of the Bankruptcy
Code approximately two years ago. During the bankruptcy period, the Property was
managed by at least three different management companies. In the opinion of
Cornerstone Management Group, Inc., the management by these companies was
substandard. However, Cornerstone Management Group, Inc. does not believe that
any problems associated with the operation of the Property cannot be remedied by
new management. In addition, the Company and Cornerstone Management Group, Inc.
believe that the prior bankruptcy was largely a result of excessive debt
encumbering the Property and the lack of partnership capital of the seller.
Since the Company intends to own and operate the Property on a debt-free basis,
Cornerstone Management Group, Inc. and the Company do not believe that these
factors will be relevant to the Company's proposed ownership and operation of
the Property.
41
<PAGE>
The 1995 real estate tax rate applicable to the Property was approximately
$1.6227 per $100 of assessed value, and the real estate taxes for 1995 were
calculated to be $108,883. The assessed value was $6,818,200. The basis of the
depreciable residential real property portion of the Property (currently
estimated at about $5,982,000) 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. (1029)A:/BEACON2.WPD
LEXINGTON TOWERS APARTMENTS
RICHMOND, VIRGINIA
The Company has entered into a contract to purchase the Lexington Towers
Apartments, a 197-unit high-rise apartment building having an address of 102
North Fifth Street, Richmond, Virginia (the "Property"). Closing is tentatively
scheduled for June 30, 1996. Closing has not occurred as of the date of this
Supplement No. 9 and there is no assurance that such closing will occur. A
description of Richmond, Virginia appears under "Ashley Park Apartments" in this
Supplement.
The seller is unaffiliated with the Company, the Advisor and their
Affiliates. The purchase price is $6,000,000. At closing, the Company will pay
$500,000 in cash from the proceeds of the Offering. The balance of $5.5 million
will be evidenced by a promissory note bearing interest at 5.65%. The principal
amount of the promissory note and all accrued interest is due three years after
closing. The note will be secured with a letter of credit which will cost the
Company approximately 1% per year. The note will not be secured by the Property.
Title to the Property will be conveyed to the Company by limited warranty deed.
Location. The Property is located in downtown Richmond, Virginia. The
immediate area consists of other multi-family housing, commercial development
and retail development. The Property is in close proximity to Virginia
Commonwealth University, and is near to the two established commercial areas
known as Carytown and Shockoe Slip.
The Property is in close proximity to Virginia's 23-acre Biotechnology
Research Park, which is under development. The Park is being sponsored and
master-leased by Virginia Commonwealth University to provide a common site for
public and private medical-oriented biotechnology research and development
facilities. Phase I, consisting of approximately 100,000 square feet, was
recently completed and is fully leased. The second and third phases are under
construction and are expected to be completed in late 1996. The facility, which
is adjacent to the Medical College of Virginia campus of Virginia Commonwealth
University, is expected to impact the demand for rental housing in the area.
The Property is only a few blocks from the Richmond Downtown Expressway,
which provides ready access to Interstates 95 and 64. The Richmond International
Airport is approximately 15 minutes from the Property.
Description of the Property. The Property consists of 197 apartment units in
a single 17-story apartment building in the central business district. The
Property was built in 1965.
The Company believes that the Property is generally in good condition.
However, the Company plans to budget approximately $517,500 for various repairs
and improvements, including interior renovations of apartment units, carpet and
appliance replacement, pool renovation, and renovation of the fitness facility
and common areas.
42
<PAGE>
The Property offers 4 unit types. The unit mix and rents currently being
charged new tenants are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
QUANTITY TYPE SQUARE FOOTAGE MONTHLY RENTAL
- ---------- ------------------- ---------------- ----------------
<S> <C> <C> <C>
42 efficiency 365 $375-450
94 junior executive 480 395-500
1 executive suite 690 550
54 1 bedroom, 1 bath 678-937 525-700
6 2 bedrooms, 2 baths 912-1,035 775-875
</TABLE>
The apartments provide a combined total of 107,000 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 gradually increased. As an example, a
junior executive apartment rented for $370 in 1991, $380 in 1992, $380 in 1993,
$390 in 1994, and $390 in 1995. The average effective annual rental per square
foot at the Property for 1991, 1992, 1993, 1994, and 1995 was $10.21, $10.49,
$10.49, $10.78, and $10.78, respectively.
The Property has an outdoor swimming pool, a clubhouse and exercise room
(located on the 16th floor), a meeting/game room, a restaurant leased to an
operator, laundry facilities on each floor, and an attached parking garage, with
approximately 111 parking spaces which can be reconfigured to accommodate
approximately 138 vehicles. There is also 24-hour security at the Property.
The Company is planning to convert approximately 7,500 square feet of
unoccupied office space on the first floor and approximately 17,500 square feet
on the 16th floor that is now being used as a clubhouse and exercise facility
into new apartments. The Company believes that an additional 10 apartment units
can be added using these spaces.
The building is brick veneer over steel frame. There are concrete floor
decks. The roof is flat with a modified bitumen rubber sheathing, and was
replaced within the last 12 months. Windows are single stainless steel frames.
All apartment units have wall-to-wall carpeting or parquet flooring in the
living area, and vinyl flooring in the kitchen. Each apartment unit has a cable
television hook-up and an individually controlled heating and air-conditioning
unit. Each kitchen is equipped with a refrigerator/freezer, electric range and
oven, dishwasher and garbage disposal. The owner of the Property provides all
utilities. The tenants pay for their phone and cable services.
There are at least four apartment properties in the area which compete with
the Property. All offer similar amenities and have rents that are generally
slightly higher when compared with those of the Property. Based on a recent
telephone survey, Cornerstone Management Group, Inc. estimates that occupancy in
nearby competing projects now averages approximately 97%.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 43% in 1991, 41% in 1992, 41% in 1993, 42% in
1994, and 63% in 1995. On June 1, 1996, the Property was 95% occupied. The
tenants are a mix of white-collar and blue-collar workers and students. Many of
the current tenants have resided at the Property for many years, and detailed
information on them and their status is not available. A large number of the
residents are foreign intern students at the Medical Collage of Virginia. Many
of the tenants on which current information is available are employed in
professional positions in engineering, medicine and education.
The Property has been managed by its original owner since construction.
According to the owner, the Property historically enjoyed an excellent occupancy
rate until the owner decided to convert it to condominiums approximately four
years ago. Following such decision, the occupancy at the Property decreased to
approximately 50%. The owner subsequently reversed its decision to convert to
condominiums and thereafter continued to run the building as an apartment
complex. However, the occupancy at
43
<PAGE>
the Property remained at approximately 50% until the fall of 1995. Cornerstone
Management Company, Inc. believes that the failure to increase occupancy was
attributable to a passive management style and insufficient on-site staff. In
the fall of 1995, the owner restaffed the Property and occupancy began to
improve.
The 1995 real estate tax rate applicable to the Property was approximately
$1.445 per $100 of assessed value, and the real estate taxes for 1995 were
calculated to be $53,393. The assessed value was $3,695,000. The basis of the
depreciable residential real property portion of the Property (currently
estimated at about $2,710,000) 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.
* * *
1995 ANNUAL MEETING OF SHAREHOLDERS. At the Annual Meeting of Shareholders
held on April 26, 1995, each person previously serving as a Director was
reelected for an additional one-year term. In addition, the Shareholders
approved amendments to the Company's Amended and Restated Articles of
Incorporation and Bylaws that would provide for the election of Directors to
staggered terms of office beginning with the election of Directors at the 1996
Annual Meeting of Shareholders; approved amendments to the Company's Bylaws that
would reduce the vote required to elect Directors to a plurality of the votes
cast by the Shares entitled to vote in the election at a meeting at which a
quorum is present; and approved amendments to the Company's Bylaws that would
establish certain procedures to be followed by Shareholders when (i) bringing
business before the Annual Meeting of Shareholders and (ii) nominating
candidates for election to the Board of Directors. Additional information on
these matters is provided below.
Staggered Terms for Directors. Beginning at the 1996 Annual Meeting of
Shareholders, the Board of Directors will be divided into three staggered terms
of office.
The adoption of staggered terms for the Directors is evidenced by a new
Article VII in the Company's Amended and Restated Articles of Incorporation
which reads as follows:
ARTICLE VII
BOARD OF DIRECTORS
Commencing with the 1996 Annual Meeting of Shareholders, the Board of
Directors will be divided into three classes, denominated as Class I, Class II
and Class III, each as nearly equal in number to the other two as possible. At
the 1996 Annual Meeting of Shareholders, directors of Class I shall be elected
to hold office for a term expiring at the 1997 Annual Meeting of Shareholders;
directors of Class II shall be elected to hold office for a term expiring at the
1998 Annual Meeting of Shareholders; and directors of Class III shall be elected
to hold office for a term expiring at the 1999 Annual Meeting of Shareholders.
At each Annual Meeting of Shareholders after 1996, the successors to the class
of directors whose terms shall then expire shall be identified as being of the
same class of directors they succeed and shall be elected to hold office for a
term expiring at the third succeeding Annual Meeting of Shareholders. When the
number of directors is changed, any newly created directorships or any decrease
in directorships shall be so apportioned among the classes by the Board of
Directors as to make all classes as nearly equal in number as possible.
In addition to the foregoing addition to the Company's Amended and Restated
Articles of Incorporation, an essentially identical provision was added to the
Company's Bylaws.
These additions to the Amended and Restated Articles of Incorporation and the
Bylaws make it more difficult to change the composition of the Board of
Directors and therefore help to assure the continuity and stability of the
Company's management and policies. A Board of Directors upon which
44
<PAGE>
Directors serve staggered three-year terms requires at least two annual
Shareholder meetings in order to effect a change in the control of the Board.
Currently, a change in control of the Board of Directors could be effected in
one Shareholder meeting.
By stabilizing the composition of the Board of Directors, the amendment is
designed to encourage any person who might seek to acquire control of the
Company to consult first with the Company's Board of Directors and to negotiate
the terms of any proposed business combination or tender offer. The Board of
Directors believes that any takeover attempt or business combination in which
the Company is involved should be thoroughly studied by the Board of Directors
to assure that all of the Company's Shareholders are treated fairly.
Although neither the Board of Directors nor the management of the Company is
aware of any actual or threatened change in control of the Company, the
amendment serves to reduce the vulnerability of the Company to an unsolicited
proposal for the takeover of the Company that does not contemplate the
acquisition of all of the Company's outstanding Shares at a fair price, or an
unsolicited proposal for the restructuring or sale of all or part of the
Company.
The staggered Board provisions will apply to every election of Directors,
whether or not a change in the entire Board might arguably be beneficial to the
Company and its Shareholders and whether or not a majority of the Company's
Shareholders believes that such a change might be desirable. However, the
Company believes that the amendments are necessary to protect the continuity and
stability of the Company's management and policies. In addition, the Company
believes that the amendments will aid the Board in any attempt to negotiate more
favorable terms with a potential acquiror, because the acquiror would be faced
with possible delay in attaining effective control of the Company and because of
the economic penalties which would be a normal consequence of such delay.
The staggering of the terms of the members of the Board of Directors may have
the effect of "entrenching" current management by making a change in control of
the Company more difficult, since at least two Annual Meetings of Shareholders
will be required to replace a majority of the Board of Directors, unless the
size of the Board is changed. The Company believes that the provision in the
Company's Bylaws prohibiting any person from acquiring or holding, directly or
indirectly, ownership of more than 9.8% of all of the outstanding Shares already
imposes a substantial impediment to attempted change in control of the Company.
However, prospective Shareholders should consider the staggered terms of the
Company's Board of Directors, and its potential effect of "entrenching" current
management, in making a decision whether or not to purchase Shares.
Vote Required to Elect Directors. Pursuant to a proposal adopted at the 1995
Annual Meeting of Shareholders, the vote required to elect Directors was reduced
from a majority of outstanding Shares to a plurality of the votes cast by the
Shares entitled to vote in the election at a meeting at which a quorum is
present. This change was accomplished by amending relevant provisions of the
Company's Bylaws.
The amendments are intended to improve efficiency and reduce costs and delays
associated with the annual election of directors. The Company's management
believes that the vote required for the election of Directors pursuant to these
amendments is customary among similar corporations as evidenced by proxy
statements, annual reports and similar corporate filings made by other "public"
corporations.
Procedures for Bringing Business and Nominating Candidates for Director
Positions. At the 1995 Annual Meeting of Shareholders, the Shareholders also
approved certain procedures to be followed by Shareholders when bringing
business before the Annual Meeting of Shareholders and nominating candidates for
election to the Board of Directors. These procedures are described in new
provisions added to the Company's Bylaws.
The new provisions in the Bylaws state that a Shareholder who wishes to bring
business before an Annual Meeting of Shareholders or to nominate a candidate for
election to the Board of Directors must provide written notice of his intention
to the Company. The notice must be timely and must contain certain specific
information pertaining to the Shareholder's proposal.
The precise and detailed provisions dealing with these matters, which are
contained in the Bylaws, are available without charge upon request of any
Shareholder from the Company's secretary, S.J. Olander, 306 East Main Street,
Richmond, Virginia 23219 (804-643-1761), and any Shareholder contem-
45
<PAGE>
plating bringing business before an Annual Meeting of Shareholders or nominating
a candidate for election to the Board of Directors should refer to the relevant
Bylaws provisions (Sections 4.2 and 5.3 thereof). In addition, a copy of the
Company Bylaws, as amended, is filed as an exhibit to the Company's registration
statement, which can be inspected and copied as described under "Additional
Information" in the Company's Prospectus.
In general, the new Bylaws provisions require that a Shareholder provide to
the Company written notice of proposed business or of a proposed candidate for
election to the Board of Directors so that it is received by the Company (i) on
or after February 1 and before March 1 of the year in which the meeting will be
held, if the meeting is held in May, or (ii) not less than 60 days before the
meeting if the date of the meeting is earlier than May 1 or later than May 31 in
such year. In the case of proposed business (other than the nomination of a
candidate for election as a Director), the notice must contain certain
information concerning the proposing Shareholder and the proposed business. In
the case of the nomination of a candidate for election as a Director, the notice
must contain certain information concerning the proposing Shareholder and the
proposed candidate for election, and such notice must be accompanied by a
written consent of the proposed nominee to serve as a Director if elected and a
statement from the proposed nominee to the effect that the information about him
in the notice is correct.
The amendments which were adopted are intended to provide standardized and
orderly procedures for Company governance. The amendments require Shareholders
who desire to bring business before the Company or to nominate candidates for
election to the Board of Directors to provide timely notice of their intentions
together with certain information concerning such business or such candidates.
The Shareholders who fail to follow any of such procedures will not have their
business or candidate brought before the Shareholders for consideration.
The Company proposed and recommended adoption of such procedures in light of
the substantial number of Company Shareholders, as well as the substantial
number of Shareholders who actually attended the Company's 1994 Annual Meeting
of Shareholders. The procedures are designed to promote regularity and
orderliness in the bringing of business before the Company. However, since a
Shareholder who fails to comply with procedures will not have requested business
brought before the Company, such procedures could also have the effect of
preventing proposals which might otherwise be meritorious from coming before the
Shareholders for consideration. Prospective Shareholders should consider this
potential effect in evaluating their potential acquisition of Shares.
1996 ANNUAL MEETING OF SHAREHOLDERS. The 1996 Annual Meeting of Shareholders
of the Company was held at Terrace on the Park, 52-11 111th Street, Queens, New
York 11368 on Tuesday, April 23, 1996, commencing at 7:00 P.M., for the purpose
of electing seven Directors to serve for the ensuing year(s) and to transact
such other business as might properly come before the meeting.
At a meeting of the Board of Directors on January 25, 1996, the Board
unanimously approved (Messrs. Kirkpatrick, Graham and Marcus abstaining
therefrom) to reduce the size of the Board to seven members and to nominate for
election at the 1996 Annual Meeting of Shareholders the following persons, all
currently serving as directors: Glenn W. Bunting, Jr., Leslie A. Grandis, Glade
M. Knight, Penelope W. Kyle, Stanley J. Olander, Jr., Harry S. Taubenfeld and
Martin Zuckerbrod. The reduction in the size of the Board was based upon a
desire to increase the efficiency with which the Board operates and generally to
conform the size of the Board with the size of the boards of directors of other
real estate investment trusts, as determined by the Board. The reduction in size
of the Board from 10 members to seven members was effective upon the election of
the Board at the 1996 Annual Meeting of Shareholders and did not affect or
shorten the remaining term of any Director. However, in anticipation of the
reduction in the size of the Board and to permit the Company to begin
functioning with the smaller Board as soon as possible, Mr. Kirkpatrick resigned
as a Director effective January 25, 1996. As stated under "New Developments --
Board of Directors" in this Supplement No. 7, Messrs. Graham and Marcus resigned
effective March 28, 1996 and April 8, 1996, respectively.
Effective January 25, 1996, the Board of Directors modified the compositions
of two of its three standing committees. The Executive Committee consists of
Messrs. Bunting, Knight and Zuckerbrod,
46
<PAGE>
and the Audit Committee consists of Messrs. Olander and Taubenfeld and Ms. Kyle.
The Compensation Committee continues to consist of Mr. Grandis and Ms. Kyle. The
powers, rights and duties of the respective committees have not been changed.
At the 1996 Annual Meeting of Shareholders, Messrs. Zuckerbrod and Olander
were nominated for election as Directors to serve until the 1997 Annual Meeting
of Shareholders, Mr. Taubenfeld and Ms. Kyle were nominated for election as
Directors to serve until the 1998 Annual Meeting of Shareholders, and Messrs.
Bunting, Grandis and Knight were nominated for election as Directors to serve
until the 1999 Annual Meeting of Shareholders. At the 1996 Annual Meeting of
Shareholders, each person so nominated as a Director was duly elected as a
Director. The division of the Board of Directors into three classes represents
the initial implementation of "staggered" terms for Directors as approved at the
1995 Annual Meeting of Shareholders.
ADDITIONAL INFORMATION CONCERNING THE COMPANY.
1. Compensation to Advisor and Affiliates.
The Company has entered into certain agreements with Cornerstone Advisors,
Inc., Cornerstone Realty Group, Inc. and Cornerstone Management Group, Inc.
(collectively, the "Cornerstone Companies"), under which those entities have
agreed to provide certain administrative, real estate brokerage and management
services to the Company or its properties in exchange for compensation from the
Company. See "Compensation" and "The Advisor and its Affiliates" in the
Prospectus. Mr. Knight owns all of the stock of Cornerstone Advisors, Inc.,
Cornerstone Realty Group, Inc. and Cornerstone Management Group, Inc. and is the
sole director of those entities. Mr. Olander serves as an executive officer of
Cornerstone Advisors, Inc., Cornerstone Realty Group, Inc. and Cornerstone
Management Group, Inc.
Cornerstone Advisors, Inc. earned an Asset Management Fee of $219,930 in
1995. Cornerstone Realty Group, Inc. earned real estate commissions aggregating
$1,302,550 during 1995. Cornerstone Management Group, Inc. was paid property
management fees aggregating $1,022,998 in 1995. In addition, the Cornerstone
Companies were paid expense reimbursements aggregating $1,663,206 during 1995,
most of which were for salary reimbursements for persons employed to manage,
lease and maintain the Company's various properties. Cornerstone Advisors, Inc.,
by Glade M. Knight, its sole shareholder, agreed to waive its asset management
fee and any related expenses for 1994 in partial consideration for the Shares
that were distributed to Mr. Knight by Cornerstone Realty Advisors, Inc. in
connection with the termination of the prior advisory agreement. See
"Compensation" in the Prospectus. Cornerstone Realty Group, Inc. earned real
estate commissions aggregating $349,880 during 1994. Cornerstone Management
Group, Inc. was paid property management fees aggregating $581,520 in 1994. In
addition, the Cornerstone Companies were paid expense reimbursements aggregating
$864,296 during 1994, most of which were for salary reimbursements for persons
employed to manage, lease and maintain the Company's properties.
The staffs of the individual properties owned by the Company were employees
of Cornerstone Management Group, Inc. through December 31, 1995. These employees
perform the leasing, collection and maintenance functions to run the properties
on a day-to-day basis. Effective January 1, 1996, these employees were directly
employed by the Company, and not Cornerstone Management Group, Inc., and there
will no longer be reimbursement for salary expenses of these employees. Instead,
such salaries will be paid directly by the Company.
Messrs. Zuckerbrod and Taubenfeld, Directors of the Company, are principals
in the law firm of Zuckerbrod & Taubenfeld of Cedarhurst, New York, which has
acted as counsel to the Company in connection with the Company's acquisition of
its real properties since the Company began operations. This law firm will
render additional such services to the Company in 1996 and will receive
compensation for such services.
Mr. Grandis, who is a Director of the Company, is a Partner in the law firm
of McGuire, Woods, Battle & Boothe, L.L.P., which serves as general counsel to
the Company and certain of its Affiliates. Such representation is expected to
continue in 1996.
47
<PAGE>
2. Principal and Management Shareholders.
Beneficial ownership of Shares, and options to purchase Shares (exercisable
currently or within 60 days), held by Directors and executive officers of the
Company and former Directors who served in 1995, as of February 24, 1996 (the
Record Date for the 1996 Annual Meeting of Shareholders), are indicated in the
table below. Each person named in the table and included in the Director/Officer
group has sole voting and investment powers as to such Shares, or shares such
powers with his or her spouse and minor children, if any.
As of February 24, 1996 there are no shareholders known to the Company who
own beneficially more than 5% of the outstanding shares of the Company's common
stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED PERCENT OF
NAME (1) (2) CLASS
- ----------------------------------------------- -------------------- ------------
<S> <C> <C>
Glenn W. Bunting, Jr........................... 8,138 *
Leslie A. Grandis.............................. 8,749 *
Glade M. Knight(3)............................. 63,316 *
Penelope W. Kyle............................... 8,735 *
Stanley J. Olander, Jr.(4)..................... 27,724 *
Harry S. Taubenfeld............................ 27,063 *
Martin Zuckerbrod.............................. 25,123 *
William Graham................................. 15,861 *
Philip Kirkpatrick............................. 16,479 *
Edward L. Marcus............................... 16,468 *
-------
All directors and executive officers as group 217,656 1.59%
======= =====
</TABLE>
___________________
* Less than one percent of outstanding Shares
(1)The first seven listed individuals are Directors of the Company. The
remaining three individuals are former Directors who did not stand for
reelection at such Annual Meeting. See "1996 Annual Meeting of Shareholders"
in this Supplement No. 9. Messrs. Knight and Olander are also executive
officers of the Company.
(2)Includes Shares which may be acquired upon the exercise of stock options, as
follows: Messrs. Bunting and Grandis and Ms. Kyle -- 8,138 Shares; Mr. Knight
-- 41,176 Shares; Mr. Olander -- 22,224 Shares, Messrs. Taubenfeld and
Zuckerbrod -- 14,589 Shares; and Messrs. Graham, Kirkpatrick and Marcus --
15,861 Shares.
(3)Number of Shares beneficially owned by Glade M. Knight includes (i) 5,000
restricted Shares issued in 1995 under the Incentive Plan (as defined below)
and (ii) 616 Shares owned by a corporation wholly owned by him.
(4)Number of Shares beneficially owned by Stanley J. Olander includes 2,500
restricted Shares issued in 1995 under the Incentive Plan (as defined below).
3. Stock Option and Incentive Share Grants.
The Company has adopted two stock incentive plans that apply to certain
employees (the "Incentive Plan") and Directors (the "Directors' Plan"). See
"Management -- Stock Incentive Plans" in the Prospectus. Under the Incentive
Plan, incentive awards may be granted to certain employees (including officers
and directors who are employees) of the Company, or of Cornerstone Management
Group, Inc., Cornerstone Realty Group, Inc. or Cornerstone Advisors, Inc. The
Directors' Plan applies to Directors of the Company who are not employees of the
Company, Cornerstone Management Group, Inc., Cornerstone Realty Group, Inc. or
Cornerstone Advisors, Inc. Cornerstone Management Group, Inc., Cornerstone
Realty Group, Inc. and Cornerstone Advisors, Inc. are sometimes referred to
collectively as the "Cornerstone Companies."
Pursuant to the Incentive Plan or the Directors' Plan, as applicable, the
following persons have received the following options to purchase Shares and
restricted Shares as of February 24, 1996:
48
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
UNDERLYING OPTIONS UNDERLYING OPTIONS TOTAL NUMBER
(EXERCISE PRICE OF (EXERCISE PRICE OF OF SHARES
$10 $11 UNDERLYING RESTRICTED
NAME OF PERSON PER SHARE) PER SHARE) OPTIONS SHARES (5)
- ----------------------------- --------------------- --------------------- -------------- ------------
<S> <C> <C> <C> <C>
Glenn W. Bunting, Jr.(1) .... 539 7,599 8,138 --
Leslie A. Grandis(1)......... 539 7,599 8,138 --
Penelope W. Kyle(1).......... 539 7,599 8,138 --
Martin Zuckerbrod(1)(6) ..... -- 14,589 34,220 --
Harry S. Taubenfeld(1)(6) ... -- 14,589 34,220 --
Glade M. Knight(2)(6)........ -- 41,176 80,438 5,000
Stanley L. Olander, Jr.(2)(6) -- 22,224 44,309 2,500
Debra A. Jones(3)(6)......... -- 22,224 44,309 2,500
William P. Graham (4)........ 539 15,322 15,861 --
Philip H. Kirkpatrick (4) ... 539 15,322 15,861 --
Edward L. Marcus (4)......... 539 15,322 15,861 --
- ----------------------
</TABLE>
(1) Director participating in Directors' Plan.
(2) Director participating in Incentive Plan.
(3) Employee of the Advisor, Cornerstone Realty Group, Inc. and Cornerstone
Management Group, Inc. participating in Incentive Plan.
(4) Former Director formerly participating in Directors' Plan. Each of these
Directors received a special award of an option to purchase 7,723 Shares at
a meeting of the Board of Directors on January 25, 1996.
(5) The Restricted Shares were issued on July 1, 1995. The Restricted Shares
vest in equal 1/5 portions on July 1 of each year from 1995 through 1999,
inclusive. If the grantee ceases to be an "Employee," as defined below, for
any reason other than death or permanent disability, the unvested
Restricted Shares will revert to the Company. For this purpose, a person
will be deemed to be an "Employee" if such person (1) is an officer or
employee of the Company, or (2) is an officer or employee of Cornerstone
Advisors, Inc. (so long as it serves as the Advisor), or is an officer or
employee of Cornerstone Management Group, Inc. (so long as it serves as the
Company's principal management company). Distributions are payable to the
grantees on all of the Restricted Shares, both vested and unvested.
(6) The "Total Number of Shares Underlying Options" figures include certain
options awarded but not yet issued. Some of the options awarded to the
persons who were formerly or are participating in the Incentive Plan will
be issued in five equal portions on September 8 of each year from 1994
through 1998, inclusive. The balance of the options awarded to the persons
participating in the Incentive Plan are already issued in full. The
issuance of deferred portions is not subject to any other conditions,
including any requirement that the recipient remains a Director or officer
of the Company or of the Cornerstone Companies. The exercise price for the
two initial portions of the options granted to such persons is $11 per
Share. The exercise price for the subsequent portions of the options to be
issued will be the fair market value of the underlying Shares at the times
of issuance of the options. The following table shows the grantees of
options under the Incentive Plan as of February 24, 1996, the number of
Shares covered by the options granted or awarded, and the manner in which
such options are issued:
INCENTIVE PLAN GRANTS
<TABLE>
<CAPTION>
TOTAL
NUMBER OF SHARES NUMBER OF SHARES NUMBER OF
UNDERLYING OPTIONS UNDERLYING SHARES
- OPTIONS UNDERLYING
NAME FIRST GRANT (B) SECOND GRANT (C) OPTIONS
- ----------------------- -------------------- ------------------ ------------
<S> <C> <C> <C>
Glade M. Knight........ 65,438 15,000 80,438
Stanley J. Olander, Jr. 36,809 7,500 44,309
Martin Zuckerbrod(A) .. 32,719 0 32,719
Harry S. Taubenfeld(A). 32,719 0 32,719
Debra A. Jones......... 36,809 7,500 44,309
</TABLE>
(A) On April 26, 1995, Messrs. Zuckerbrod and Taubenfeld ceased to participate
in the Incentive Plan and began to participate in the Directors' Plan. On
June 1, 1995, each of Mr. Zuckerbrod and Mr. Taubenfeld received, under the
Directors' Plan, an option to purchase 1,501 shares at $11 per Share. These
grants are not included in the above table within this note (6).
(B) These options are issued in five equal portions on September 8 of each year
from 1994 through 1998, inclusive.
49
<PAGE>
(C) These options were issued in full on July 1, 1995.
None of the foregoing options has been exercised.
4. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following is management's discussion and analysis of the Company's
financial condition and results of operations, reflecting the financial
condition at, and the results of operations for, the calendar year ended
December 31, 1995 and the three months ended March 31, 1996.
The Company invests primarily in existing residential apartment communities
located in the mid-Atlantic and southeastern United States. The Company is
operated and has elected to be treated as a real investment trust ("REIT") under
the Code for federal income tax purposes, and intends to qualify as a REIT on a
continuing basis. The Company began operations on June 1, 1993 and completed its
first full calendar year of operations in 1994. Changes in the Company's
liquidity and capital resources reflect periodic closings of sales of Shares to
investors and periodic acquisitions of properties by the Company. Similarly,
changes in results from operations reflect increases in the rental income of the
Company's properties and the addition of properties to its asset base.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995
There was a significant change in the Company's liquidity during the year
ended December 31, 1995 as the Company continued to grow. During 1995, the
Company sold 7,285,683 Shares to its investors bringing the total number of
Shares outstanding to 12,754,331. The total gross proceeds from the Shares sold
in 1995 were $80,142,516 which netted $71,771,027 to the Company after the
payment of selling commissions and other Offering expenses. This raised the
total gross capitalization of the Company from $58,264,830 at December 31, 1994
to $138,407,346 at December 31, 1995. Shares were sold directly through David
Lerner Associates, Inc. on a "best efforts" basis and through the Additional
Share Option whereby Shareholders elect to purchase additional Shares with their
dividends.
Using proceeds from the sale of Shares and supplemented by short-term
borrowings when necessary, the Company acquired 2,303 apartment units in 10
residential rental communities during 1995, as follows:
<TABLE>
<CAPTION>
INITIAL
ACQUISITION NUMBER
DESCRIPTION LOCATION COST OF UNITS ACQUIRED
- ---------------- ------------------ -------------- ---------- -----------------
<S> <C> <C> <C> <C>
Wind Lake....... Greensboro, NC $ 8,760,000 299 April 1, 1995
Magnolia Run ... Greenville, SC 5,500,000 212 June 1, 1995
Breckinridge ... Greenville, SC 5,600,000 236 June 21, 1995
Bay Watch Pointe Virginia Beach, VA 3,372,525 160 July 18, 1995
Hanover Landing. Charlotte, NC 5,725,000 192 August 22, 1995
Mill Creek...... Winston-Salem, NC 8,550,000 220 September 1,1995
Glen Eagles..... Winston-Salem, NC 7,300,000 166 October 1, 1995
Sailboat Bay ... Charlotte, NC 9,100,000 358 November 1, 1995
Tradewinds...... Hampton, VA 10,200,000 284 November 1, 1995
Osprey Landing . Wilmington, NC 4,375,000 176 November 1, 1995
----------- -----
$68,482,525 2,303
=========== =====
</TABLE>
These acquisitions brought the total number of apartment units owned at
year-end to 4,388. The Company continues to renovate the properties it has
acquired since its inception in 1993. In connection with these renovations, the
Company capitalized improvements of $7,106,564 in 1995, $6,063,568 in 1994 and
$2,290,646 in 1993. Approximately $4 million of additional capital improvements
are budgeted for 1996 on the existing property portfolio which will be funded
through the sale of Shares and dividend reinvestment.
50
<PAGE>
The Company intends to hold all of its properties on a totally unleveraged
basis. However, the Company will continue to use its unsecured line of credit
with a commercial bank to facilitate the timely acquisition of properties if
proceeds from the Offering are not immediately available. In these cases, the
line of credit is used to fund the acquisition on a short-term basis and is
subsequently repaid, generally within 60 days, with proceeds from the Offering.
It is anticipated that any borrowings will be curtailed through the sale of
additional Shares although there can be no assurance that such sales will be
sufficient to repay such borrowings. If the future sale proceeds were
insufficient, the Company could seek to extend the maturity dates or pay the
balance of the loans due from its rental operations or cash reserves.
At year-end, the Company had an outstanding balance of $6,000,000 on the line
of credit. In addition, the Company carried a $2,300,000 non-interest-bearing
purchase money promissory note. In January 1996, the Company repaid all
outstanding notes payable with proceeds from the Offering.
Cash and cash equivalents totaled $7,073,147 and $4,288,438 at December 31,
1995 and 1994, respectively. During the year the Company distributed $6,316,185
to the Shareholders of which $3,906,276 was reinvested in additional Shares
under the terms of the Company's Additional Share Option. The reinvested funds
netted the Company $3,515,644 after payment of selling commissions. Of the
amounts distributed for the years ended December 31, 1995 and 1994, 17% and 21%,
respectively, represented a return of capital.
The Company is operated as, and annually elects to be taxed as, a real estate
investment trust under the Code. Since inception, the Company distributed more
than 95% of its REIT taxable income and met the requirements of the election. As
a result, the Company has no provision for income taxes and thus, there is no
effect on the Company's liquidity from liability for income taxes.
Approximately 62% of the Shareholders were participating in the Additional
Share Option as of December 31, 1995. The Company intends to maintain a cash
reserve equal to 0.5% of the gross proceeds from the sale of the Shares which,
in addition to cash flow from operations, is expected to be sufficient to
satisfy general liquidity requirements. The Company is expecting to continue
with significant growth during 1996. The Company plans to have monthly equity
closings in 1996, until the Offering is fully funded or until such time as the
Company may opt to discontinue it. It is anticipated that the equity funds will
be invested in additional apartment communities.
At March 31, 1996
There was a significant change in the Company's liquidity during the quarter
ended March 31, 1996. During the quarter, the Company closed the sale to
investors of 2,814,852 shares at $11 per Share representing gross proceeds to
the Company of $30,963,372 and net proceeds after payment of selling commissions
of $27,844,244. The Company capitalized $2,769,660 of improvements to its
various properties during the quarter. It is anticipated that some $2,000,000 in
additional capital improvements will be completed during the next year on the
current portfolio. The source to fund these improvements is from equity raised
and set aside specifically for the improvements and from the expected sale of
additional Shares.
Since December 31, 1995, the Company made six acquisitions of residential
rental properties. On January 31, 1996, the Company acquired The Meadows
Apartments, a 176-unit apartment community located in Asheville, North Carolina
for $6,200,000. On March 20, 1996, effective March 1, 1996, the Company acquired
West Eagle Green Apartments (formerly known as Scarlett Oaks), a 165-unit
apartment community located in Augusta, Georgia for $4,000,000. On March 29,
1996, effective March 1, 1996, the Company acquired Ashley Park Apartments, a
272-unit apartment community located in Richmond, Virginia for $12,205,000. On
March 29, 1996, effective March 1, 1996, the Company acquired Arbor Trace
Apartments (formerly Colonial Ridge), a 148-unit apartment community located in
Virginia Beach, Virginia for $5,000,000. In April 1996, the Company made two
acquisitions as discussed in Note 5 to the unaudited financial statements for
the quarter ended March 31, 1996. These acquisitions brought the total number of
apartment units owned by the Company to 5,454.
The Company borrowed $12,205,000 against the line of credit in conjunction
with the purchase of Ashley Park Apartments. The Company has repaid $4,500,000
of the balance of the debt as of May 6, 1996 and expects to repay the balance
within sixty days through the additional sale of Shares. This is
51
<PAGE>
consistent with the Company's long term business objective to hold its
properties on an unleveraged basis. As of April 1, 1996, the interest rate on
the Company's unsecured line of credit is one-month LIBOR plus 160 basis points.
Cash and cash equivalents totaled $8,694,171 at March 31, 1996. During
January 1996, the Company distributed $2,728,443 (24.75 cents per Share) to its
Shareholders of which $1,622,082 was reinvested in additional Shares per the
terms of the Company's Additional Share Option. The reinvested funds netted the
Company $1,459,874 after payment of selling commissions.
While the Company is always assessing potential acquisitions, no material
commitments existed on May 1, 1996 for the purchase of additional properties.
The Company's only on-going commitment for capital expenditures is to the
renovation of its existing portfolio. Equity funds are raised in conjunction
with the acquisition of properties to fund these capital expenditures. In
addition, the Company will acquire new properties as funds are available.
The Company has short-term cash flow needs to conduct the operation of its
properties. The rental income generated from the properties supplies sufficient
cash to provide for the payment of these operating expenses.
The Company's capital resources are expected to grow with the continued sale
of its Shares and through operations.
RESULTS OF OPERATIONS
Year Ended December 31, 1995
The results of the Company's property operations for the year ended December
31, 1995 include the results of operations for the pre-1995 acquisitions and
from the 10 properties acquired in 1995 since their respective acquisition
dates. The increased rental income, expenses and net income for the year ended
December 31, 1995, over the year ended December 31, 1994, is primarily due to a
full year of operation in 1995 of the 1994 acquisitions as well as the
incremental effect of the 1995 acquisitions.
Similarly, the increased rental income, expenses and net income noted in 1994
is due to the full year of operations from the properties acquired in 1993 (the
Company commenced operations in June 1993) as well as the incremental effect of
the 1994 acquisitions since their respective acquisition dates. Since operations
began in mid-1993, comparison between 1993 and subsequent full years of
operations are not meaningful.
Substantially all of the Company's revenue is from the rental operation of
its apartment communities. Rental income increased to $16,300,821 in 1995 from
$8,177,576 in 1994 and $1,784,868 in 1993 due to the factors described above.
Rental income is expected to increase from the impact of planned improvements
which are being made in an effort to improve the properties' marketability,
improve occupancies and increase rental rates.
The properties acquired prior to 1995 provided 71% of the Company's 1995
rental income. These properties had an average occupancy of 94% during 1995 and
93% in 1994. For properties acquired before 1995, approximately 25% of the
revenue increase in 1995 was attributable to an increase in occupancy, and about
75% of the increase was attributable to increased rental rates. On a comparative
basis, the five properties owned during all of 1995 and 1994 (properties
acquired in 1993) provided rental and operating income of $6,681,120 and
$3,567,290, respectively, in 1995 and $6,175,925 and $3,202,454 in 1994. This
represents an increase from 1994 to 1995 of 8% and 11%, respectively. The
properties acquired in 1995 provided 29% of the Company's 1995 rental income and
had an average occupancy of 94% during 1995.
The properties acquired prior to 1994 provided 76% of the Company's 1994
rental income. These properties had an average occupancy of 93% in 1994 and
1993. As previously stated, a comparison of results from 1994 to 1993 is not
meaningful as the Company began operations in mid-1993.
Overall, average monthly rental rates for the portfolio increased from $390
in 1993, to $454 in 1994, to $482 in 1995. This increase is due to a combination
of increased rental rates and the acquisition of properties with higher average
rental rates.
52
<PAGE>
Total expenses increased to $11,049,541 in 1995 from $5,901,759 in 1994 and
$1,334,855 in 1993 due largely to the acquisitions noted above. The operating
expense ratio (the ratio of rental expenses, excluding general and
administrative expense, amortization and depreciation, to rental income) was 47%
in 1995, 48% in 1994 and 47% in 1993.
General and administrative expenses totaled 4% of revenues in 1995, 9% in
1994 and 12% in 1993. These expenses represent the administrative expenses of
the Company as distinguished from the operations of the Company's properties.
This percentage is expected to further decrease as the Company's operations
grow.
The Company's other source of income is from the investment of its cash
reserves. Interest income was $226,555 in 1995, $110,486 in 1994 and $46,633 in
1993. This growth is consistent with the growth in the Company's cash reserves.
The Company incurred $248,120 of interest expense in 1995 associated with
short-term borrowings under its line of credit. The year 1995 was the first year
that the Company used unsecured borrowings to acquire properties. As previously
noted, these borrowings are typically for periods of 60 days or less and were
repaid in January 1996 from the issuance of Shares.
In 1995, the Company was able to reduce the Advisor fee from 1% of total
funds raised to .25% through the acquisition of the assets of its previous
advisor and the negotiation of a contract with a new advisor. The fee is a part
of the above-referenced general and administrative expenses. Based on the old
arrangement, the fee for 1995 would have been $879,720, as opposed to the actual
cost of $219,930, under the new arrangement. This represents a savings of
$659,790, or eight cents per Share as a result of the renegotiation of this
contract. (See Note 6 of the financial statements for additional details.)
THREE MONTHS ENDED MARCH 31, 1996
The Company's property operations for the three months ended March 31, 1996
reflect the operations of the Company's pre-1996 acquisitions, The Meadows since
February 1996, and West Eagle Green, Ashley Park and Arbor Trace since March
1996. The results of operations for the three months ended March 31, 1995
reflect the operations of the 1993 and 1994 acquisitions. The increase in income
and expenses for the three months ended March 31, 1996 over 1995 is mainly due
to a full three months of operation in 1996 of all of the 1995 acquisitions. As
of March 31, 1996, and March 31, 1995 rental income for the 1993 and 1994
acquisitions was $2,927,230 and $2,745,013, respectively which represents a 7%
increase.
The occupancy levels for the Company's properties averaged 91% and 93% at the
end of the three months ended March 31, 1996 and 1995, respectively. The
decrease in occupancy is primarily due to the vacancy at three of the 1995
acquisitions which are currently under renovation. Overall, average rental rates
for the portfolio increased from $467 to $504 per month.
The Company's revenue is primarily from rental operation of its apartment
communities. Rental income for the first three months increased to $6,552,688 in
1996 from $2,745,012 in 1995. The increase is due to a combination of rental
increases and property acquisitions. Rental income is expected to increase
further as a result of planned improvements, higher occupancies and increased
rental rates. The Company's other source of income is the investment of its cash
and cash reserves. Interest income for the three months ended March 31, 1996 and
1995 was $76,338 and $29,162, respectively.
Total expenses for the first three months increased to $4,410,259 in 1996
from $1,829,260 in 1995. The operating expense ratio (the ratio of rental
expenses, excluding general and administrative, amortization and depreciation
expense, to rental income) was 45% for the three months ended March 31, 1996 and
1995. In addition, the Company incurred interest expense of $46,880 and $42,082
during the first three months of 1996 and 1995, respectively, which related to
the short-term borrowings on property acquisitions.
General and administrative expenses totaled 3% of total rental income for the
three months ended March 31, 1996 and 4% for the same period in 1995. This
percentage is expected to further decrease as the Company's asset base and
rental income grow. These expenses represent the administrative expenses of the
Company as distinguished from the operations of the Company's properties.
53
<PAGE>
IMPACT OF INFLATION
The Company does not believe that inflation had any significant impact on the
operation of the Company in 1995 or during the three months ended March 31,
1996. Future inflation, if any, would likely cause increased operating expenses,
but the Company believes that increases in expenses would be more than offset by
increases in rental revenues. Continued inflation may also cause capital
appreciation of the Company's properties over time, as rental rates and
replacement costs increase.
5. Selected Financial Data.
The following selected financial data should be read in conjunction with all
of the financial statements contained elsewhere in this Supplement.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------- THREE MONTHS THREE MONTHS
ENDED ENDED
1995 1994 1993(B) MARCH 31, 1996 MARCH 31, 1995
- --------------------------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Operating Results
Rental Income................... $ 16,300,821 $ 8,177,576 $ 1,784,868 $ 6,552,688 $ 2,745,012
Net Income...................... 5,229,715 2,386,303 496,646 2,171,887 902,832
Distributions Declared and Paid. 6,316,185 2,977,136 359,427 2,728,443 1,086,210
Per Share
Net Income...................... $ 0.64 $ 0.60 $ 0.30 $ .16 $ .16
Distributions................... $ 0.96 $ 0.89 $ 0.27 $ .25 $ .23
Distributions Representing
Return of Capital.............. 17 % 21 % -- Not Available Not Available
Weighted Average Shares
Outstanding.................... 8,176,803 4,000,558 1,662,944 13,944,419 5,681,330
Balance Sheet Data
Investment in Rental Property... $129,696,447 $ 54,107,358 $ 25,549,790 $159,871,107 $55,161,173
Total Assets.................... $133,181,032 $ 57,257,950 $ 29,199,079 $164,077,826 $61,225,538
Shareholders' Equity............ $122,154,420 $ 51,436,863 $ 28,090,912 $149,451,275 $59,950,083
Shares Outstanding.............. 12,754,331 5,458,648 2,995,210 15,569,183 6,339,635
Other Data
Cash Flows from:
Operating Activities............ $ 9,618,956 $ 3,718,086 $ 1,670,406 $ 2,774,883 $ 1,842,593
Investing Activities............ (75,589,089) (28,557,568) (25,549,790) (30,174,660) (1,053,815)
Financing Activities............ 68,754,842 25,519,648 27,487,556 29,020,801 2,610,388
Number of Properties Owned at
Period-End...................... 19 9 5 23 9
Funds from Operations Calculation
Net Income...................... $ 5,229,715 $ 2,386,303 $ 496,646 $ 2,171,887 $ 902,832
Amortization................... 30,564 30,628 17,832 7,641 7,641
Depreciation................... 2,788,818 1,210,818 255,338 1,238,249 459,175
------------ ------------ ----------- ------------ ----------
Funds from Operations (a)....... 8,049,097 3,627,749 769,816 3,417,777 1,369,648
============ ============ =========== ============ ==========
</TABLE>
(a) "Funds from operations" is defined as net income adjusted for depreciation
and amortization. The Company considers funds from operations in evaluating
property acquisitions and its operating performance, and believes that
funds from operations should be considered along with, but not as an
alternative to, net income and cash flows as a measure of the Company's
operating performance and liquidity. Funds from operations, which may not
be comparable to other similarly titled measures of other REITs, does not
represent cash generated from operating activities in accordance with
generally accepted accounting principles and is not necessarily indicative
of cash available to fund cash needs.
(b) The Company did not purchase its first property until June 1993 and did not
have any operations in 1992.
54
<PAGE>
EXPERTS
The financial statements of Cornerstone Realty Income Trust, Inc. at December
31, 1995 and December 31, 1994, and for the years then ended appearing in this
Prospectus and the Registration Statement have been audited by Ernst & Young,
LLP, independent auditors, as set forth in their report thereon, appearing
elsewhere herein and in the Registration Statement, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The statements of operations, shareholders' equity and cash flows of
Cornerstone Realty Income Trust, Inc. for the year ended December 31, 1993 and
the historical summary of operating revenue and expenses of Ashley Park
Apartments for the year ended December 31, 1995 included herein and in the
Registration Statement, have been included herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
auditors, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
Certain Statements of Income and Direct Operating Expenses of Properties
included in the Company's Prospectus (including Supplements thereto) and the
Company's Registration Statement have been examined by L. P. Martin & Company,
independent certified public accountants, for the periods indicated in their
reports thereon. The financial statements examined by L. P. Martin & Company
have been included in reliance upon their reports on their authority as experts
in accounting and auditing.
NEW FORM OF SUBSCRIPTION AGREEMENT
Attached hereto as Exhibit A to this Supplement No. 9 is a new form of
Subscription Agreement to be used in connection with the purchase of Shares.
55
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Company Financial Statements:
Balance Sheets as of December 31, 1995 and December 31, 1994.......................... F-1
Statement of Operations for Years Ended December 31, 1995, December 31, 1994 and
December 31, 1993 (as restated, see Note 6).......................................... F-2
Statements of Shareholders' Equity for Years Ended December 31, 1993 (as restated, see
note 6), December 31, 1994 and December 31, 1995..................................... F-3
Statements of Cash Flows for Years Ended December 31, 1995, December 31, 1994 and
December 31, 1993 (as restated, see Note 6).......................................... F-4
Notes to Financial Statements......................................................... F-5
Independent Auditors' Reports:
Ernst & Young LLP..................................................................... F-10
KPMG Peat Marwick LLP................................................................. F-11
Schedule III -- Real Estate and Accumulated Depreciation.............................. F-12
Interim Financial Statements (Unaudited):
Balance Sheets - March 31, 1996 and December 31, 1995................................. F-14
Statements of Operations - Three Months ended March 31, 1996 and 1995................. F-15
Statements of Shareholders' Equity - Three Months ended March 31, 1996 and Year ended
December 31, 1995.................................................................... F-16
Statements of Cash Flows - Three Months ended March 31, 1996 and 1995................. F-17
Notes to Financial Statements......................................................... F-18
Historical Statements of Operations:
Independent Auditors' Report for The Trestles Apartments.............................. F-20
Statement of Income and Direct Operating Expenses for Twelve Months Ended September
30, 1994 for The Trestles Apartments................................................. F-21
Independent Auditors' Report for Sterling Pointe (Wind Lake) Apartments............... F-22
Statement of Income and Direct Operating Expenses for Twelve Months Ended February 28,
1995 for Sterling Pointe (Wind Lake) Apartments...................................... F-23
Independent Auditors' Report for Breckinridge Apartments.............................. F-24
Statement of Income and Direct Operating Expenses for Twelve Months Ended April 30,
1995 for Breckinridge Apartments..................................................... F-25
Independent Auditors' Report for Edgewood (Magnolia Run) Apartments................... F-26
Statement of Income and Direct Operating Expenses for Twelve Months Ended April 30,
1995 for Edgewood (Magnolia Run) Apartments.......................................... F-27
Independent Auditors' Report for Broad Meadows (Bay Watch Pointe) Apartments.......... F-28
Statement of Income and Direct Operating Expenses for Twelve Months Ended April 30,
1995 for Broad Meadows (Bay Watch Pointe) Apartments................................. F-29
56
<PAGE>
PAGE
-------
Independent Auditors' Report for Lemon Tree (Hanover Landing) Apartments.............. F-30
Statement of Income and Direct Operating Expenses for Twelve Months Ended June 30,
1995 for Lemon Tree (Hanover Landing) Apartments..................................... F-31
Independent Auditors' Report for Mill Creek Apartments................................ F-32
Statement of Income and Direct Operating Expenses for Twelve Months Ended July 31,
1995 for Mill Creek Apartments....................................................... F-33
Independent Auditors' Report for Glen Eagles Apartments............................... F-34
Statement of Income and Direct Operating Expenses for Twelve Months Ended July 31,
1995 for Glen Eagles Apartments...................................................... F-35
Independent Auditor's Report for Summer Hill (Osprey Landing) Apartments.............. F-36
Statement of Income and Direct Operating Expenses for Twelve Months Ended September
30, 1995 for Summer Hill (Osprey Landing) Apartments................................. F-37
Independent Auditors' Report for Tradewinds Apartments................................ F-38
Statement of Income and Direct Operating Expenses for Twelve Months Ended September
30, 1995 for Tradewinds Apartments................................................... F-39
Independent Auditors' Report for The Lake (Sailboat Bay) Apartments................... F-40
Statement of Income and Direct Operating Expenses for Twelve Months Ended September
30, 1995 for The Lake (Sailboat Bay) Apartments...................................... F-41
Independent Auditors' Report for The Meadows Apartments............................... F-42
Statement of Income and Direct Operating Expenses for Year Ended December 31, 1995 for
The Meadows Apartments............................................................... F-43
Independent Auditors' Report for Scarlett Oaks (West Eagle Greens) Apartments......... F-44
Statement of Income and Direct Operating Expenses for Twelve Months Ended January 31,
1996 for Scarlett Oaks (West Eagle Greens) Apartments................................ F-45
Independent Auditors' Report for Ashley Park Apartments............................... F-46
Statement of Income and Direct Operating Expenses for Year Ended December 31, 1995 for
Ashley Park Apartments............................................................... F-47
Independent Auditors' Report for Colonial Ridge Apartments............................ F-48
Statement of Income and Direct Operating Expenses for Year Ended December 31, 1995 for
Colonial Ridge Apartments............................................................ F-49
Company Pro Forma Financial Statements (Unaudited):
Pro Forma Balance Sheet (Unaudited) at December 31, 1995.............................. F-50
Pro Forma Statement of Operations (Unaudited) for Year ended December 31, 1995........ F-51
</TABLE>
57
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------
1995 1994
-------------- -----------
<S> <C> <C>
ASSETS
Investment in rental property
Land.................................................... $ 19,852,544 $ 8,824,723
Building................................................ 96,862,036 37,718,928
Property improvements................................... 10,627,687 6,132,911
Furniture and fixtures.................................. 2,354,180 1,430,796
-------------- -----------
129,696,447 54,107,358
Less accumulated depreciation........................... (4,254,974) (1,466,156)
-------------- -----------
125,441,473 52,641,202
-------------- -----------
Cash and cash equivalents................................ 7,073,147 4,288,438
Prepaid expenses......................................... 167,152 103,558
Other assets............................................. 499,260 224,752
-------------- -----------
7,739,559 4,616,748
-------------- -----------
Total Assets............................................. $133,181,032 $57,257,950
============== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable............................................ $ 8,300,000 $ 5,000,000
Accounts payable......................................... 555,691 213,398
Accrued expenses......................................... 1,257,231 230,817
Rents received in advance................................ 129,648 66,137
Tenant security deposits................................. 784,042 310,735
-------------- -----------
11,026,612 5,821,087
Shareholders' equity
Common stock, no par value, authorized 50,000,000
shares; issued and outstanding 12,754,331 shares and
5,458,648 shares, respectively.......................... 123,771,504 51,890,477
Deferred compensation.................................... (77,000) --
Distributions greater than net income.................... (1,540,084) (453,614)
-------------- -----------
122,154,420 51,436,863
-------------- -----------
Total Liabilities and Shareholders' Equity............... $133,181,032 $57,257,950
============== ===========
</TABLE>
See accompany notes to financial statements.
F-1
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
------------- ------------ ----------
(AS RESTATED,
SEE NOTE 6)
<S> <C> <C> <C>
REVENUE
Rental income................................ $16,300,821 $8,177,576 $1,784,868
EXPENSES
Utility expenses............................ 1,676,938 925,075 181,676
Repairs and maintenance..................... 2,042,819 971,376 222,033
Taxes and insurance......................... 1,342,427 730,263 150,387
Property management......................... 896,521 455,650 101,295
Advertising................................. 378,089 189,111 45,951
General and administrative.................. 609,969 717,049 218,832
Amortization expense........................ 30,564 30,628 17,832
Depreciation of rental property............. 2,788,818 1,210,818 255,338
Other....................................... 1,283,396 671,789 141,511
------------- ------------ ----------
Total expenses............................... 11,049,541 5,901,759 1,334,855
------------- ------------ ----------
Income before interest income (expense) ..... 5,251,280 2,275,817 450,013
Interest income.............................. 226,555 110,486 46,633
Interest expense............................. (248,120) -- --
------------- ------------ ----------
Net income................................... $ 5,229,715 $2,386,303 $ 496,646
============= ============ ==========
Net income per share......................... $ 0.64 $ 0.60 $ 0.30
============= ============ ==========
Weighted average number of shares
outstanding................................. 8,176,803 4,000,558 1,662,944
============= ============ ==========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
DISTRIBUTION
--------------------------- (GREATER) TOTAL
NUMBER DEFERRED LESS THAN SHAREHOLDERS'
OF SHARES AMOUNT COMPENSATION NET INCOME EQUITY
----------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992.................... 10 $ 100 $ -- $ -- $ 100
Net proceeds from the sale of shares............ 2,974,782 27,622,382 -- -- 27,622,382
Net income...................................... -- -- -- 496,646 496,646
Capital contribution............................ -- 106,610 -- -- 106,610
Cash distributions paid to shareholders ($.273
per share).................................... -- -- -- (359,427) (359,427)
Shares issued through Additional Share Option .. 20,418 224,601 -- -- 224,601
----------- ------------- ------------- ------------- ------------
Balance at December 31, 1993 (as restated, see
note 6)...................................... 2,995,210 27,953,693 -- 137,219 28,090,912
Net proceeds from the sale of shares............ 2,294,773 22,223,000 -- -- 22,223,000
Net income...................................... -- -- -- 2,386,303 2,386,303
Shares issued to Cornerstone Realty Advisors,
Inc........................................... 40,000 440,000 -- -- 440,000
Cash distributions paid to shareholders ($.8855
per share).................................... -- -- -- (2,977,136) (2,977,136)
Shares issued through Additional Share Option .. 128,665 1,273,784 -- -- 1,273,784
----------- ------------- ------------- ------------- ------------
Balance at December 31, 1994.................... 5,458,648 51,890,477 -- (453,614) 51,436,863
Net proceeds from the sale of shares............ 6,930,567 68,255,383 -- -- 68,255,383
Net income...................................... -- -- -- 5,229,715 5,229,715
Cash distributions paid to shareholders ($.9575
per share).................................... -- -- -- (6,316,185) (6,316,185)
Restricted stock grant.......................... 10,000 110,000 (110,000) -- --
Amortization of deferred compensation........... -- -- 33,000 -- 33,000
Shares issued through Additional Share Option .. 355,116 3,515,644 -- -- 3,515,644
----------- ------------- ------------- ------------- ------------
Balance at December 31, 1995 ................... 12,754,331 $123,771,504 $ (77,000) $(1,540,084) $122,154,420
=========== ============= ============= ============= ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
----------- ------------- -------------
AS RESTATED,
SEE NOTE 6)
<S> <C> <C> <C>
FROM OPERATING ACTIVITIES
Net income..................................... $ 5,229,715 $ 2,386,303 $ 496,646
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization ................ 2,819,382 1,241,446 273,170
Amortization of deferred compensation......... 33,000 -- --
Advisor fee................................... -- 440,000 106,610
Organization costs............................ -- -- (152,847)
Changes in operating assets and liabilities:
Prepaid expenses............................. (63,594) (39,377) (64,181)
Other assets................................. (305,072) (23,206) (97,159)
Accounts payable............................. 342,293 42,025 171,373
Accrued expenses............................. 1,026,414 (387,720) 618,537
Rent received in advance..................... 63,511 (55,156) 121,293
Tenant security deposits..................... 473,307 113,771 196,964
------------ ------------ --------------
Net cash provided by operating activities... 9,618,956 3,718,086 1,670,406
FROM INVESTING ACTIVITIES
Acquisitions of rental property................ (68,482,525) (22,494,000) (23,259,144)
Capital improvements........................... (7,106,564) (6,063,568) (2,290,646)
------------ ------------- -------------
Net cash used in investing activities....... (75,589,089) (28,557,568) (25,549,790)
FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings............ 38,300,000 5,000,000 --
Repayments of short-term borrowings............ (35,000,000) -- --
Net proceeds from issuance of shares........... 71,771,027 23,496,784 27,846,983
Cash distributions paid to shareholders........ (6,316,185) (2,977,136) (359,427)
------------ ------------- -------------
Net cash provided by financing activities... 68,754,842 25,519,648 27,487,556
Increase in cash and cash equivalents....... 2,784,709 680,166 3,608,172
Cash and cash equivalents, beginning of period . 4,288,438 3,608,272 100
------------ ------------- -------------
Cash and cash equivalents, end of period ....... $ 7,073,147 $ 4,288,438 $ 3,608,272
============ ============= =============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 -- GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Business: Cornerstone Realty Income Trust, Inc. (the "Company"), an externally
advised real estate investment trust, is a Virginia corporation formed in 1992
to invest primarily in residential apartment communities in the southeastern
region of the United States. Operations of rental property commenced on June 1,
1993. The company currently anticipates that it will hold its investment
properties for an indefinite length of time.
Cash and Cash Equivalents: Cash equivalents include highly liquid investments
with original maturities of three months or less. The fair market value of cash
and cash equivalents approximates their carrying value.
Investment in Rental Property: The investment in rental property is recorded at
the lower of depreciated cost or fair value and includes real estate brokerage
commissions paid to Cornerstone Realty Group, a related party (see Note 6). The
company records impairment losses on rental property used in operations if
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by the respective properties are less than their carrying
amount. The company will adopt SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," in the first
quarter of 1996 and, based on current circumstances, does not believe the effect
of adoption will be material.
Repairs and maintenance costs are expensed as incurred while significant
improvements, renovation, and replacements are capitalized. Depreciation is
computed on a straight-line basis over the estimated useful lives of the related
assets which are 27.5 years for buildings and major improvements and a range
from five to seven years for furniture and fixtures.
Income Recognition: Rental, interest and other income are recorded on an accrual
basis. The company's properties are leased under leases that, typically, have
terms that do not exceed one year.
Use of Estimates: The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect amounts reported in the financial
statements and accompanying footnotes. Actual results may differ from those
estimates.
Stock Incentive Plans: The company accounts for stock option grants under the
Directors Plan and Incentive Plan (see additional details included in Note 5) in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
and accordingly recognizes no compensation expense for stock option grants
priced at fair market value.
Advertising Costs: Cost incurred for the production and distribution of
advertising are expensed as incurred.
Income Per Share: Net income per share is computed based upon the weighted
average number of shares outstanding during the year. Unexercised stock options
are not included since their inclusion would not materially dilute net income
per share.
Federal Income Taxes: The company is operated as, and annually elects to be
taxed as, a real estate investment trust under the Internal Revenue Code of
1986, as amended (the "Code"). Generally, a real estate investment trust which
complies with the provisions of the Code and distributes at least 95% of its
taxable income to its shareholders does not pay federal income taxes on its
distributed income. Accordingly, no provision has been made for federal income
taxes.
F-5
<PAGE>
For income tax purposes, distributions paid to shareholders consist of ordinary
income and return of capital or a combination thereof. Distributions per share
were 95.75 cents, 88.55 cents and 27.30 cents in the years ended December 31,
1995, 1994 and 1993, respectively. In 1995, of the total distribution, 83% was
taxable as ordinary income and 17% was a non-taxable return of capital. In 1994,
79% was taxable as ordinary income and 21% was a non-taxable return of capital.
All distributions in 1993 were taxable as ordinary income.
Reclassifications: Certain previously reported amounts have been reclassified to
conform with the current financial statement presentation.
NOTE 2 -- INVESTMENT IN RENTAL PROPERTY
The following is a summary of rental property owned at December 31, 1995.
<TABLE>
<CAPTION>
INITIAL
ACQUISITION ACCUMULATED DATE
DESCRIPTION COST COST DEPRECIATION ACQUIRED
- ----------------- ---------------- -------------- -------------- ------------------
<S> <C> <C> <C> <C>
The Hollows...... $ 4,200,000 $ 5,288,688 $ 375,794 June 1, 1993
Polo Club........ 4,300,000 6,427,607 642,401 June 3, 1993
Mayflower
Seaside......... 7,634,144 8,819,334 516,607 October 26, 1993
County Green..... 3,800,000 4,921,858 324,186 December 1, 1993
Stone Ridge...... 3,325,000 5,340,562 379,073 December 8, 1993
Wimbledon Chase . 3,300,000 5,084,166 314,897 February 1, 1994
Harbour Club..... 5,250,000 5,672,670 282,393 May 1, 1994
Chase Mooring ... 3,594,000 4,586,234 208,802 August 1, 1994
The Trestles..... 10,350,000 11,021,668 357,460 December 30, 1994
Wind Lake........ 8,760,000 9,197,665 220,640 April 1, 1995
Magnolia Run..... 5,500,000 6,135,797 117,594 June 1, 1995
Breckinridge..... 5,600,000 5,989,522 92,200 June 21, 1995
Bay Watch
Pointe.......... 3,372,525 4,074,141 57,292 July 18, 1995
Hanover Landing . 5,725,000 6,197,069 79,502 August 22, 1995
Mill Creek....... 8,550,000 8,795,664 89,817 September 1, 1995
Glen Eagles...... 7,300,000 7,490,073 64,476 October 1, 1995
Sailboat Bay..... 9,100,000 9,777,821 45,895 November 1, 1995
Tradewinds....... 10,200,000 10,407,351 58,946 November 1, 1995
Osprey Landing .. 4,375,000 4,468,557 26,999 November 1, 1995
---------------- -------------- --------------
$114,235,669 $129,696,447 $4,254,974
================ ============== ==============
</TABLE>
The following is a reconciliation of the carrying amount of real estate owned:
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ------------- -----------
<S> <C> <C> <C>
Balance at January 1............ $ 54,107,358 $25,549,790 $ --
Real estate purchased.......... 68,482,525 22,494,000 23,259,144
Improvements.................... 7,106,564 6,063,568 2,290,646
-------------- ------------- -----------
Balance at December 31.......... $129,696,447 $54,107,358 $25,549,790
============== ============= ===========
</TABLE>
The following is a reconciliation of accumulated depreciation:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ --------
<S> <C> <C> <C>
Balance at January 1............ $1,466,156 $ 255,338 $ --
Depreciation expense for the
year .......................... 2,788,818 1,210,818 255,338
------------ ------------ --------
Balance at December 31.......... $4,254,974 $1,466,156 $255,338
============ ============ ========
</TABLE>
F-6
<PAGE>
NOTE 3 -- SHORT-TERM NOTES PAYABLE
In October 1995, the company purchased Glen Eagles Apartments for $7,300,000
with $5,000,000 in proceeds from the offering. At the request of the seller, an
unsecured non-interest-bearing promissory note was executed for the remaining
amount of $2,300,000. The note was repaid in full in January 1996 using proceeds
from the sale of additional shares.
In March 1995, the company entered into an agreement with a commercial bank for
a $10 million unsecured revolving line of credit which was subsequently
increased to $20 million in November 1995. This line of credit currently expires
in March 1996, but is renewable annually by mutual agreement between the company
and bank. This agreement allows the company to finance a portion of the purchase
price of future acquisitions. Borrowings under the current agreement are
evidenced by an unsecured promissory note and bear interest at the one-month
LIBOR plus 175 basis points. Borrowings under the agreement of $6,000,000 at
December 31, 1995 were repaid in full in January 1996 using proceeds from the
sale of additional shares.
In December 1994, the company entered into an agreement with a commercial bank
to facilitate the short-term financing of the acquisition of The Trestles. The
company repaid the full balance of the debt in February 1995 through the sale of
additional shares.
The average interest rate incurred under the line of credit was 7.8% in 1995.
The fair market value of the borrowings approximates the recorded amounts. No
interest was capitalized in 1995, 1994 or 1993.
NOTE 4 -- COMMON STOCK
The company is raising capital through an offering of shares. The company
received gross proceeds of $80,142,516, $26,630,317 and $31,634,513 from the
sale of 7,285,683, 2,423,438 and 2,995,210 shares for the years ended December
31, 1995, 1994 and 1993, respectively. David Lerner Associates, Inc. receives
selling commissions and a marketing expense allowance equal to 7.5% and 2.5%,
respectively, of the gross proceeds of shares sold. During 1995, 1994 and 1993,
David Lerner Associates, Inc. earned $8,014,252, $2,663,032 and $3,163,451,
respectively. The net proceeds of the offering, after deducting selling
commissions and other offering expenses, were $71,771,027 in 1995, $23,496,786
in 1994 and $27,846,983 in 1993.
The company provides an Additional Share Option which allows shareholders to
reinvest distributions in the purchase of additional shares of the company. Of
the total proceeds raised during the years ended December 31, 1995, 1994 and
1993, respectively, $3,906,276, $1,415,328 and $224,601 were provided through
the Additional Share Option.
NOTE 5 -- STOCK INCENTIVE PLANS
In December 1992, the shareholders approved a Directors Stock Option Plan which
provides automatic stock option grants to Directors who are not employees of the
company or "Cornerstone Companies" (see Note 6). Also in December 1992, the
shareholders approved an Incentive Plan whereby awards may be granted to certain
employees of the company or the "Cornerstone Companies." Both the Directors Plan
and Incentive Plan were amended by shareholder approval in July 1994.
Under the amended Directors Plan, the number of stock options to be granted is
equal to 45,000 plus 1.8% of the number of shares sold in excess of 1,000,000.
As of December 31, 1995, options to purchase 3,773 shares at $10 per share and
51,627 shares at $11 per share had been granted and 256,577 shares had been
reserved for issuance. All granted options have a term of 10 years, become
exercisable six months after the date of the grant, were distributed equally
among the eligible directors and were priced at fair market value at the time of
the grant.
Under the original Incentive Plan, the number of shares to be issued is equal to
35,000 plus 4.625% of the number of shares sold in excess of 1,000,000 in the
company's initial public offering of $50 million. In addition, the Incentive
Plan, as amended, provides for additional awards of 4.4% of the total number of
shares sold in excess of the initial public offering. As of December 31, 1995,
560,435 shares had been reserved for issuance under the Incentive Plan. During
1994, options to purchase 204,495 shares were granted with a 10-year term that
become exercisable in equal installments over a five-year period. These options
will be priced at fair market value when they become exercisable.
F-7
<PAGE>
During 1995, options to purchase 40,000 shares at $11.00 per share were granted.
The 1995 options have a 10-year term and were immediately exercisable.
At December 31, 1995, all options awarded under the Directors Plan were
exercisable and 111,798 shares awarded under the Incentive Plan were exercisable
at $11.00 per share. None of the stock options awarded under these plans had
been exercised at December 31, 1995.
Effective July 1, 1995, the company granted 10,000 shares of restricted stock to
certain officers of the company under the Incentive Plan. The restricted stock
awards vest over a four-year period.
NOTE 6 -- RELATED-PARTY TRANSACTIONS
Since inception, the company has had no paid employees, and certain services are
provided by the "Cornerstone Companies" as described below. The "Cornerstone
Companies," all of which are wholly owned by Glade M. Knight, a Director of the
company, include Cornerstone Advisors, Inc., Cornerstone Management Group, Inc.
and Cornerstone Realty Group, Inc.
Cornerstone Advisors, Inc. (the "Advisor") is the advisor to the company and
provides its day-to-day management. The Advisor earns a quarterly fee not to
exceed .25% of the company's assets, based on the company's financial
performance as defined in the agreement with the Advisor, which expires in June
1996. During 1995, the Advisor earned $219,930 under the terms of the agreement.
During 1994, the company terminated its former advisory arrangement with
Cornerstone Realty Advisors, Inc. (the "Old Advisor"). Under the former
arrangement, the fee for management services was 1% of the company's assets, as
defined in the agreement. In August 1994, the company purchased the assets of
the Old Advisor in exchange for 40,000 of the company's shares, with a market
value of $440,000, which were distributed to the beneficial owners of the Old
Advisor, all of whom were either Directors and/or officers of affiliates of the
company. The $440,000 market value of the shares issued was expensed in 1994.
The Old Advisor also waived its fee of $106,610 for 1993. Subsequently,
management of the company determined that the waiver of this fee should be
reflected in the financial statements as an expense and corresponding
contribution to shareholders' equity. Accordingly, the 1993 financial statements
were restated to reflect this contribution of services by the Old Advisor to the
company.
As properties are acquired, the company enters into agreements to manage the
properties with Cornerstone Management Group, Inc. (the "Management Company").
The Management Company earns a management fee equal to 5% of rental income and
is entitled to be reimbursed for certain expenses, including the salaries and
expenses for personnel employed to lease and maintain the company's properties.
For the respective years of 1995, 1994 and 1993, the Management Company was paid
$1,022,998, $581,520, and $240,615 for its management fee and certain
reimbursable items, exclusive of salary reimbursement for the staffs of the
company properties.
The staffs of the individual properties owned by the company were employees of
the Management Company through December 31, 1995. These employees perform the
leasing, collection and maintenance functions to run the properties on a
day-to-day basis. In 1995, 1994 and 1993 respectively, the Management Company
was reimbursed $1,663,206, $864,296, and $190,153 for the salary expenses of
these employees as a direct reimbursement of the actual salary expense.
Effective January 1, 1996, these employees were directly employed by the
company, and not the Management Company, and there will no longer be
reimbursement for these costs.
The company has contracted with Cornerstone Realty Group, Inc. to acquire and
dispose of the real estate assets held by the company for a fee of 2% of the
purchase or sale price of the property. The company paid $1,302,550, $349,880
and $465,183 for the years of 1995, 1994 and 1993, respectively, under the terms
of this contract. The company also paid $166,000 to Cornerstone Realty Group,
Inc. in January 1996, relating to commissions earned on 1995 property
acquisitions, upon the January 1996 repayment of short-term borrowings as
described in Note 3.
F-8
<PAGE>
NOTE 7 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly results of operations for the years
ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
------------------------------------------------- ------------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rental income................ $2,745,012 $3,410,692 $4,383,403 $5,761,714 $1,558,564 $1,940,806 $2,233,247 $2,444,959
Income before interest
income/expense............. 915,752 1,027,628 1,473,164 1,834,736 431,722 499,328 481,825 862,942
Net income................... 902,832 1,034,183 1,527,978 1,764,722 456,395 515,247 502,570 912,091
Net income per share......... .16 .15 .17 .16 .15 .14 .12 .19
Distributions per share...... $ .23 $ .24 $ .2425 $ .245 $ .2205 $ .2210 $ .2215 $ .2225
</TABLE>
NOTE 8 -- PRO FORMA INFORMATION (UNAUDITED)
The following unaudited pro forma information for the years ended December 31,
1995 and 1994 is presented as if (a) the company had owned all the properties on
January 1, 1994; (b) the company had qualified as a REIT, distributed all of its
taxable income and, therefore, incurred no federal income tax expense during the
period; and (c) the company had used proceeds from its best efforts offering to
acquire the properties. The pro forma information does not purport to represent
what the company's results of operations would actually have been if such
transactions, in fact had occurred on January 1, 1994 nor does it purport to
represent the results of operations for future periods.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA TOTALS
---------------------------
1995 1994
------------- -------------
<S> <C> <C>
Rental Income....... $24,078,845 $22,813,874
Net Income.......... 7,705,165 7,211,637
Net Income Per
Share............... $ .61 $ .58
</TABLE>
The pro forma information reflects adjustments for the actual rental income and
rental expenses of Wimbledon Chase, Harbour Club, Chase Mooring, The Trestles,
Wind Lake, Breckinridge, Magnolia Run, Bay Watch Pointe, Hanover Landing, Mill
Creek, Glen Eagles, Sailboat Bay, Tradewinds and Osprey Landing, for the
respective periods in 1995 and 1994 prior to acquisition by the company. Net
income has been adjusted as follows: (1) Property management and advisory
expenses have been adjusted based on the company's contractual arrangements; and
(2) Depreciation has been adjusted based on the company's basis in the
properties. The pro forma weighted average number of shares used to calculate
net income per share includes the number of shares necessary to provide proceeds
adequate to finance the purchase price of the acquired properties.
NOTE 9 -- SUBSEQUENT EVENTS
In January 1996, the company declared and paid a cash distribution to
shareholders of $2,728,444 of which $1,622,083 was reinvested in the Additional
Share Option. During January and February 1996, the company closed the sale to
investors of 1,724,299 shares at $11 per share representing net proceeds after
the payment of brokerage fees to the company of $18,530,429. These proceeds were
used primarily to repay the outstanding borrowings at December 31, 1995 and fund
the property acquisition, described below.
On January 31, 1996, the company purchased The Meadows Apartments in Asheville,
North Carolina. The 176-unit apartment community was purchased for $6,200,000.
The company borrowed $5,300,000 in conjunction with this purchase which was
repaid in full in February 1996 using proceeds from the sale of additional
shares as discussed above.
F-9
<PAGE>
REPORT OF INDEPENDENT AUDITORS, ERNST & YOUNG LLP
The Board of Directors and Shareholders
Cornerstone Realty Income Trust, Inc.
We have audited the accompanying balance sheets of Cornerstone Realty Income
Trust, Inc. as of December 31, 1995 and 1994, and the related statements of
operations, shareholders' equity, and cash flows for each of the two years in
the period ended December 1, 1995. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cornerstone Realty Income
Trust, Inc. at December 31, 1995 and 1994 and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 1995,
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the financial statements as a whole, presents fairly in all material respects
the information set forth therein.
Ernst & Young LLP
Richmond, Virginia
February 6, 1996, except for Note 9,
as to which the date is February 22, 1996
F-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Cornerstone Realty Income Trust, Inc.:
We have audited the accompanying statements (as restated, see note 6) of
operations, shareholders' equity and cash flows for the year ended December 31,
1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Cornerstone
Realty Income Trust, Inc. for the year ended December 31, 1993 in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Richmond, Virginia
March 7, 1994, except as to note 6,
which is as of October 25, 1994
F-11
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
(AS OF DECEMBER 31, 1995)
<TABLE>
<CAPTION>
PURCHASE PRICE SUBSEQUENTLY GROSS AMOUNT CARRIED
--------------------- CAPITALIZED ------------------------------------- DATE OF
DESCRIPTION LAND BLDG.& IMPR. CAP. COSTS LAND BLDG.& IMPR. TOTAL ACC.DEP. CONST.
- --------------------- ----------- ---------- ---------- ---------- ---------- ----------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1) Polo Club
Greenville, SC
Multi-family housing. $ 264,698 $4,035,302 $2,127,607 $ 264,698 $6,162,909 $ 6,427,607 $642,401 1972
2) The Hollows
Raleigh, NC
Multi-family
housing.............. $1,374,840 $2,825,160 $1,088,688 $1,388,546 $3,900,142 $ 5,288,688 $375,794 1974
3) Mayflower Seaside
Virginia Beach, Va
Multi-family housing
Retail shops......... $2,258,169 $5,375,975 $1,185,190 $2,258,169 $6,561,165 $ 8,819,334 $516,607 1950
4) River Ridge
Columbia, SC
Multi-family
housing.............. $ 374,271 $2,950,729 $2,015,562 $ 374,271 $4,966,291 $ 5,340,562 $379,073 1975
5) County Green
Lynchburg, Va
Multi-family
housing.............. $ 319,250 $3,480,750 $1,121,858 $ 319,250 $4,602,608 $ 4,921,858 $324,186 1976
6) Wimbledon Chase
Wilmington, NC
Multi-family
housing.............. $ 304,590 $2,995,410 $1,784,166 $ 304,815 $4,779,351 $ 5,084,166 $314,897 1976
7) Harbour Club
Virginia Beach, VA
Multi-family
housing.............. $1,019,895 $4,230,105 $ 422,670 $1,020,275 $4,652,395 $ 5,672,670 $282,393 1988
8) Chase Mooring
Wilmington, NC
Multi-family housing $ 258,126 $3,335,874 $ 992,234 $ 258,210 $4,328,024 $ 4,586,234 $208,802 1968
9) The Trestles
Raleigh, NC
Multi-family housing $2,650,884 $7,699,116 $ 671,668 $2,686,004 $8,335,664 $11,021,668 $357,460 1987
10) Wind Lake
Greensboro, NC
Multi-family
housing.............. $1,051,200 $7,708,800 $ 437,665 $1,088,780 $8,108,885 $ 9,197,665 $220,640 1985
</TABLE>
<TABLE>
<CAPTION>
DATE
DESCRIPTION ACQUIRED DEP. LIFE
- --------------------- ------------ --------
<S> <C> <C>
1) Polo Club
Greenville, SC
Multi-family housing. June 3, 1993 27.5 yrs.
2) The Hollows
Raleigh, NC
Multi-family
housing.............. June 1, 1993 27.5 yrs.
3) Mayflower Seaside
Virginia Beach, Va
Multi-family housing
Retail shops......... Oct. 26, 1993 27.5 yrs.
4) River Ridge
Columbia, SC
Multi-family
housing.............. Dec. 8, 1993 27.5 yrs.
5) County Green
Lynchburg, Va
Multi-family
housing.............. Dec. 1, 1993 27.5 yrs.
6) Wimbledon Chase
Wilmington, NC
Multi-family
housing.............. Feb. 1, 1994 27.5 yrs,
7) Harbour Club
Virginia Beach, VA
Multi-family
housing.............. May 1, 1994 27.5 yrs.
8) Chase Mooring
Wilmington, NC
Multi-family housing Aug. 1, 1994 27.5 yrs,
9) The Trestles
Raleigh, NC
Multi-family housing Dec. 30, 1994 27.5 yrs.
10) Wind Lake
Greensboro, NC
Multi-family
housing.............. April 1, 1995 27.5 yrs.
F-12
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PURCHASE PRICE SUBSEQUENTLY GROSS AMOUNT CARRIED
--------------------- CAPITALIZED ------------------------------------- DATE OF
DESCRIPTION LAND BLDG.& IMPR. CAP. COSTS LAND BLDG.& IMPR. TOTAL ACC.DEP. CONST.
- --------------------- ----------- ---------- ---------- ---------- ---------- ----------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
11) Magnolia Run
Greenville, SC
Multi-family
housing.............. $ 495,000 $ 5,005,000 $ 635,797 $ 509,001 $ 5,626,796 $ 6,135,797 $ 117,594 1972
12) Breckinridge
Greenville, SC
Multi-family
housing.............. $ 1,512,000 $ 4,088,000 $ 389,522 $ 1,558,060 $ 4,431,462 $ 5,989,522 $ 92,200 1973
13) Bay Watch Pointe
Virginia Beach, VA
Multi-family housing $ 775,680 $ 2,596,845 $ 701,616 $ 813,935 $ 3,260,206 $ 4,074,141 $ 57,292 1972
14) Hanover Landing
Charlotte, NC
Multi-family
housing.............. $ 801,500 $ 4,923,500 $ 472,069 $ 822,006 $ 5,375,063 $ 6,197,069 $ 79,502 1972
15) Mill Creek
Winston-Salem, NC
Multi-family
housing.............. $ 1,368,000 $ 7,182,000 $ 245,664 $ 1,417,593 $ 7,378,071 $ 8,795,664 $ 89,817 1984
16) Glen Eagles
Winston-Salem, NC
Multi-family
housing.............. $ 1,095,000 $ 6,205,000 $ 190,073 $ 875,840 $ 6,614,233 $ 7,490,073 $ 64,476 1990
17) Sailboat Bay
Charlotte, NC
Multi-family
housing.............. $ 2,002,000 $ 7,098,000 $ 677,821 $ 2,065,456 $ 7,712,365 $ 9,777,821 $ 45,895 1972
18) Trandwinds
Hampton, VA
Multi-family
housing.............. $ 1,428,000 $ 8,772,000 $ 207,351 $ 1,430,310 $ 8,977,041 $ 10,407,351 $ 58,946 1988
19) Osprey Landing
Wilmington, NC
Multi-family
housing.............. $ 393,750 $ 3,981,250 $ 93,557 $ 397,325 $ 4,071,232 $ 4,468,557 $ 26,999 1973
Totals............. $19,746,853 94,488,816 $15,460,778 $19,852,544 $109,843,903 $129,696,447(1) $4,254,974
=========== ============= ============ =========== ============= =============== ===========
</TABLE>
<TABLE>
<CAPTION>
DATE
DESCRIPTION ACQUIRED DEP. LIFE
- --------------------- ------------ --------
<S> <C> <C>
11) Magnolia Run
Greenville, SC
Multi-family
housing.............. June 1, 1995 27.5 yrs.
12) Breckinridge
Greenville, SC
Multi-family
housing.............. June 21, 1995 27.5 yrs.
13) Bay Watch Pointe
Virginia Beach, VA
Multi-family housing July 18. 1995 27.5 yrs.
14) Hanover Landing
Charlotte, NC
Multi-family
housing.............. Aug. 22, 1995 27.5 yrs.
15) Mill Creek
Winston-Salem, NC
Multi-family
housing.............. Sept. 1, 1995 27.5 yrs.
16) Glen Eagles
Winston-Salem, NC
Multi-family
housing.............. Oct. 1, 1995 27.5 yrs.
17) Sailboat Bay
Charlotte, NC
Multi-family
housing.............. Nov. 1, 1995 27.5 yrs.
18) Trandwinds
Hampton, VA
Multi-family
housing.............. Nov. 1, 1995 27.5 yrs.
19) Osprey Landing
Wilmington, NC
Multi-family
housing.............. Nov. 1, 1995 27.5 yrs.
</TABLE>
_________________
(1) Represents the aggregate cost for Federal income tax purposes.
F-13
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
-------------- ------------
<S> <C> <C>
ASSETS
Investment in Rental Property
Land ................................................ $ 23,094,078 $ 19,852,544
Building ............................................ 121,605,544 96,862,036
Property improvements ............................... 12,627,797 10,627,687
Furniture and fixtures .............................. 2,543,688 2,354,180
-------------- ------------
159,871,107 129,696,447
Less accumulated depreciation ....................... (5,490,668) (4,254,974)
-------------- ------------
154,380,439 125,441,473
Cash and cash equivalents ........................... 8,694,171 7,073,147
Prepaid expenses .................................... 382,221 167,152
Other assets ........................................ 620,995 499,260
-------------- ------------
9,697,387 7,739,559
-------------- ------------
$164,077,826 $133,181,032
============== ============
LIABILITIES and SHAREHOLDERS' EQUITY
Liabilities
Short-term notes payable ............................ $ 12,205,000 $ 8,300,000
Accounts payable .................................... 403,072 555,691
Accrued expenses .................................... 1,063,026 1,257,231
Rents received in advance ........................... 98,659 129,648
Tenant security deposits ............................ 856,794 784,042
-------------- ------------
14,626,551 11,026,612
Shareholders' equity
Common stock, no par value, authorized 50,000,000
shares; issued and outstanding 15,569,183 shares and
12,754,331 shares, respectively ................... 151,615,748 123,771,504
Deferred compensation ............................... (67,833) (77,000)
Distributions greater than net income ............... (2,096,640) (1,540,084)
-------------- ------------
149,451,275 122,154,420
-------------- ------------
$164,077,826 $133,181,032
============== ============
</TABLE>
See accompanying notes to financial statements.
F-14
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995
------------------- --------------
<S> <C> <C>
REVENUE:
Rental income .............................. $ 6,552,688 $2,745,012
EXPENSES:
Utility expenses ........................... 610,146 277,680
Repairs and maintenance .................... 720,876 312,209
Taxes and insurance ........................ 580,250 238,545
Property management ........................ 349,665 159,506
Advertising ................................ 144,819 64,992
General and administrative ................. 217,912 113,922
Amortization expense ....................... 7,641 7,641
Depreciation of rental property ............ 1,238,249 459,175
Other ...................................... 540,701 195,590
------------------- ----------
Total expenses ........................... 4,410,259 1,829,260
------------------- ----------
Income before interest income (expense) .... 2,142,429 915,752
Interest income ............................ 76,338 29,162
Interest expense ........................... (46,880) (42,082)
------------------- ----------
Net income ................................. $ 2,171,887 $ 902,832
=================== ==========
Net income per share ........................ $ 0.16 $ 0.16
=================== ==========
Weighted average number of shares
outstanding................................. 13,944,419 5,681,330
=================== ==========
</TABLE>
See accompanying notes to financial statements.
F-15
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
DISTRIBUTIONS
(GREATER) TOTAL
NUMBER DEFERRED LESS THAN SHAREHOLDERS'
OF SHARES AMOUNT COMPENSATION NET INCOME EQUITY
------------ --------------- -------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 ........... 5,458,648 $ 51,890,477 -- $ (453,614) $ 51,436,863
Net proceeds from the sale of shares .. 6,930,567 68,255,383 -- -- 68,255,383
Net income ............................. -- -- -- 5,229,715 5,229,715
Cash distributions paid to shareholders
($.9575 per share) ................... -- -- -- (6,316,185) (6,316,185)
Restricted stock grant ................. 10,000 110,000 $(110,000) -- --
Amortization of deferred compensation . -- -- 33,000 -- 33,000
Shares issued through Additional Share
Option ................................. 355,116 3,515,644 -- -- 3,515,644
------------ --------------- -------------- --------------- ------------
Balance at December 31, 1995 ........... 12,754,331 $123,771,504 $ (77,000) $(1,540,084) $122,154,420
Net proceeds from the sale of shares .. 2,667,390 26,384,370 -- -- 26,384,370
Net income ............................. -- -- -- 2,171,887 2,171,887
Cash distributions paid to shareholders
($.2475 per share) ................... -- -- -- (2,728,443) (2,728,443)
Amortization of deferred compensation . -- -- 9,167 -- 9,167
Shares issued through Additional Share
Option ............................... 147,462 1,459,874 -- -- 1,459,874
------------ --------------- -------------- --------------- ------------
Balance at March 31, 1996 .............. 15,569,183 $151,615,748 $ (67,833) ($2,096,640) $149,451,275
============ =============== ============== =============== ============
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1996 1995
--------------- -----------
<S> <C> <C>
Cash flow from operating activities:
Net income .............................................. $ 2,171,887 $ 902,832
Adjustments to reconcile net income to net cash provided
by
operating activities
Depreciation and amortization .......................... 1,245,890 466,816
Amortization of deferred compensation .................. 9,167 --
Changes in operating assets and liabilities:
Prepaid expenses ...................................... (215,069) 44,551
Other assets .......................................... (131,931) (25,974)
Accounts payable ...................................... (152,619) (54,582)
Accrued expenses ...................................... (194,205) 528,513
Rent received in advance .............................. (30,989) (33,176)
Tenant security deposits .............................. 72,752 13,613
--------------- -----------
Net cash provided by operating activities ............ 2,774,883 1,842,593
Cash flow from investing activities:
Acquisitions of rental property ......................... (27,405,000) --
Capital improvements .................................... (2,769,660) (1,053,815)
--------------- -----------
Net cash used in investing activities ................ (30,174,660) (1,053,815)
Cash flow from financing activities:
Proceeds from short-term borrowings ..................... 17,505,000 --
Repayments of short-term borrowings ..................... (13,600,000) (5,000,000)
Net proceeds from issuance of shares .................... 27,844,244 8,696,598
Cash distributions paid to shareholders ................. (2,728,443) (1,086,210)
--------------- -----------
Net cash provided by financing activities ............ 29,020,801 2,610,388
Increase in cash and cash equivalents ................ 1,621,024 3,399,166
Cash and cash equivalents, beginning of year ............. 7,073,147 4,288,438
--------------- -----------
Cash and cash equivalents, end of period ............. $ 8,694,171 $ 7,687,604
=============== ===========
</TABLE>
See accompanying notes to financial statements
F-17
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with the instructions for Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information required by generally
accepted accounting principles. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three months ended
March 31, 1996 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996. These financial statements should
be read in conjunction with the Company's December 31, 1995 Form 10-K.
NOTE 2 -- SHORT-TERM NOTE PAYABLE
In April 1996, the Company renewed its unsecured line of credit with an
increased credit limit of $50 million. The terms of the renewed line are
unchanged except that the expiration is March 31, 1997.
The Company borrowed $12,205,000 against the line of credit in March 1996, in
conjunction with the purchase of Ashley Park Apartments. As of May 6, 1996, the
Company had repaid $4,500,000 of the balance of the debt through the sale of
additional shares.
NOTE 3 -- COMMON STOCK
During 1996, David Lerner Associates, Inc. has earned a total of $3,096,396 in
connection with the offering of the Company's shares. The Company provides an
Additional Share Option to the shareholders to reinvest distributions in the
purchase of additional shares of the Company. During 1996, approximately
$1,622,082 ($1,459,874 net of underwriter fees) has been invested in additional
shares of the Company through the Additional Share Option.
During January 1996, the Company paid distributions of $2,728,443 (24.75 cents
per share) to shareholders.
NOTE 4 -- RELATED PARTIES
As properties are acquired, the Company enters into agreements to manage the
properties with Cornerstone Management Group, Inc. (The "Management Company").
The Management Company earns a management fee equal to 5% of rental income and
is entitled to be reimbursed for certain expenses. Effective January 1, 1996,
the staffs of the individual properties owned by the Company were directly
employed by the Company, and not the Management Company, and there will no
longer be reimbursements for those costs. The Management Company was paid
$368,931 and $172,293 for the three months ended March 31, 1996 and 1995
respectively, for its management fee and certain reimbursable items, exclusive
of salary reimbursement for the staffs of the Company's properties.
The Company has contracted with Cornerstone Realty Group, Inc. to acquire the
real estate assets held by the Company for a fee of 2% of the purchase price of
the property. The Company was paid $392,082 and $147,000 for the three months
ended March 31, 1996 and 1995, respectively.
Cornerstone Advisors, Inc. (the "Advisor") is the advisor to the Company and
provides its day-to-day management. The Advisor is paid a quarterly fee not the
exceed .25% of the Company's assets as defined in the agreement with the
Advisor. The Company's agreement with the Advisor which was to expire in June
1995 has been extended by approval of the Board of Directors for an additional
one year term under terms consistent with the expiring agreement. As of March
31, 1996 and 1995, the Advisor had earned a fee of approximately $93,616 and
$37,974, respectively.
NOTE 5 -- SUBSEQUENT EVENTS
In April, 1996, the Company distributed to its shareholders approximately
$3,393,770 (24.8 cents per share) of which approximately $2,023,408 was
reinvested in the purchase of additional shares through the Additional Share
Option.
F-18
<PAGE>
On April 30, 1996, effective April 1, 1996, the Company acquired two apartment
communities. Longmeadow Apartments, a 120-unit apartment community located in,
Charlotte, North Carolina, was purchased for $5,025,000. Trophy Chase Apartments
(formally Westfield Apartments), a 185-unit apartment community located in
Charlottesville, Virginia, was purchased for $3,710,000. Both properties were
purchased with proceeds from the offering.
NOTE 6 -- ACQUISITIONS (UNAUDITED)
The following unaudited pro forma information for the three months ended March
31, 1996 and 1995 is presented as if (a) the Company had owned the properties
listed below on January 1, 1995, (b) the Company had qualified as a REIT,
distributed all of its taxable income and, therefore, incurred no federal income
tax expense during the period, and (c) the Company had used proceeds from its
best efforts offering to acquire the properties. The pro forma information does
not purport to represent what the Company's results of operations would actually
have been if such transactions, in fact, had occurred on January 1, 1995 nor
does it purport to represent the results of operations for future periods.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
3/31/96 3/31/95
-------------- -----------
<S> <C> <C>
Rental income....... $7,054,398 $6,031,996
Net Income.......... $2,341,981 $2,123,528
Net income per
share............... $ .15 $ .14
</TABLE>
The pro forma information reflects adjustments for the actual rental income and
rental expenses of Wind Lake, Breckinridge, Magnolia Run, Bay Watch, Hanover
Landing, Mill Creek, Glen Eagles, Sailboat Bay, Tradewinds, Osprey Landing, The
Meadows, Scarlett Oaks and Ashley Park Apartments for the respective periods in
1996 and 1995 prior to acquisition by the Company. Net income has been adjusted
as follows: (1) property management and advisory expenses have been adjusted
based on the Company's contractual arrangements, and (2) depreciation has been
adjusted based on the Company's basis in the properties. The pro forma weighted
average number of shares used to calculate net income per share includes the
number of shares necessary to provide proceeds adequate to finance the purchase
price of the acquired properties.
F-19
<PAGE>
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 The Trestles Apartments located in Raleigh, North Carolina for the
twelve month period ended September 30, 1994. This statement is the
responsibility of the management of The Trestles 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 1 to the statements, 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 The Trestles Apartments
(as defined above) for the twelve month period ended September 30, 1994, in
conformity with generally accepted accounting principles.
L.P. Martin & Co., P.C.
Richmond, Virginia
December 6, 1994
F-20
<PAGE>
THE TRESTLES APARTMENTS
RALEIGH, NORTH CAROLINA
STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES EXCLUSIVE OF
ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY
TWELVE MONTHS ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
<S> <C>
INCOME
Rental and Other Income................................. $1,629,779
----------
DIRECT OPERATING EXPENSES
Administrative and Other................................ 192,599
Insurance............................................... 20,759
Repairs and Maintenance................................. 232,685
Taxes, Property......................................... 98,536
Utilities............................................... 116,662
----------
TOTAL DIRECT OPERATING EXPENSES....................... 661,241
----------
Operating income exclusive of items not comparable to
the proposed future operations of the property....... $ 968,538
==========
</TABLE>
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
The Trestles Apartments is a 280 unit residential garden style apartment complex
located on 14.8 acres in Raleigh, North Carolina. Living space totals 217,320
square feet.
The assets comprising the property are owned by MXM Mortgage Corporation.
Cornerstone Realty Income Trust, Inc. has a contract to purchase the property
and is scheduled to close December, 1994.
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, legal fees, accounting fees,
management fees, interest expense and other debt related expenses.
F-21
<PAGE>
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 Pointe Apartments located in Greensboro, North Carolina
for the twelve month period ended February 28, 1995. This statement is the
responsibility of the management of Sterling Pointe 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 1 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
aspects, the income and direct operating expenses of Sterling Pointe Apartments
(as defined above) for the twelve month period ended February 28, 1995, in
conformity with generally accepted accounting principles.
L.P. Martin & Co., P.C.
Richmond, Virginia
April 11, 1995
F-22
<PAGE>
STERLING POINTE APARTMENTS
STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES EXCLUSIVE OF
ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY
TWELVE MONTHS ENDED FEBRUARY 28, 1995
<TABLE>
<CAPTION>
<S> <C>
INCOME
Rental and Other Income............................................ $1,499,760
----------
DIRECT OPERATING EXPENSES
Administrative and Other........................................... 189,705
Insurance.......................................................... 27,932
Repairs and Maintenance............................................ 224,187
Taxes, Property.................................................... 127,541
Utilities.......................................................... 70,727
----------
TOTAL DIRECT OPERATING EXPENSES................................... 640,092
----------
Operating income exclusive of items not comparable to the proposed
future operations of the property................................ $ 859,668
==========
</TABLE>
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
Sterling Pointe Apartments is a 299 unit residential garden style apartment
complex located on 23.7 acres in Greensboro, North Carolina. Living space totals
217,477 square feet.
The assets comprising the property are owned by Walden Residential Properties,
Inc. Cornerstone Realty Income Trust, Inc. has a contract to purchase the
property and is scheduled to close April, 1995.
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, legal fees and accounting fees.
F-23
<PAGE>
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 Breckinridge Apartments located in Greenville, South Carolina for
the twelve month period ended April 30, 1995. This statement is the
responsibility of the management of Breckinridge 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 1 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 Breckinridge Apartments
(as defined above) for the twelve month period ended April 30, 1995, in
conformity with generally accepted accounting principles.
L.P. Martin & Co., P.C.
Richmond, Virginia
June 9, 1995
F-24
<PAGE>
BRECKINRIDGE APARTMENTS
STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES EXCLUSIVE OF
ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY
TWELVE MONTHS ENDED APRIL 30, 1995
<TABLE>
<CAPTION>
<S> <C>
INCOME
Rental and Other Income.......................................... $974,334
--------
DIRECT OPERATING EXPENSES
Administrative and Other......................................... 108,067
Insurance........................................................ 31,351
Repairs and Maintenance.......................................... 224,087
Taxes, Property.................................................. 59,499
Utilities........................................................ 71,924
--------
TOTAL DIRECT OPERATING EXPENSES................................. 494,928
--------
Operating income exclusive of items not comparable to the
proposed future operations of the property..................... $479,406
========
</TABLE>
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
Breckinridge Apartments is a 236 unit residential garden style apartment
complex located at 12.0 acres in Greenville, South Carolina. Living space totals
171,444 square feet.
The assets comprising the property are owned by Breckinridge Associates
Limited Partnership. Cornerstone Realty Income Trust, Inc. has a contract to
purchase the property and is scheduled to close June, 1995.
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, interest expense, legal, management and
accounting fees.
F-25
<PAGE>
INDEPENDENT AUDITOR'S 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 Edgewood Apartments located in Greenville, South Carolina for the
twelve month period ended April 30, 1995. This statement is the responsibility
of the management of Edgewood 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 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 1 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 Edgewood
Apartments (as defined above) for the twelve month period ended April 30, 1995,
in conformity with generally accepted accounting principles.
L.P. Martin & Co., P.C.
Richmond , Virginia
May 23, 1995
F-26
<PAGE>
EDGEWOOD APARTMENTS
STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES EXCLUSIVE OF
ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY
TWELVE MONTHS ENDED APRIL 30, 1995
<TABLE>
<CAPTION>
<S> <C>
INCOME
Rental and Other Income.......................................... $1,031,088
----------
DIRECT OPERATING EXPENSES
Administrative and Other......................................... 83,834
Insurance ....................................................... 26,574
Repairs and Maintenance.......................................... 223,795
Taxes, Property.................................................. 86,035
Utilities........................................................ 72,693
----------
TOTAL DIRECT OPERATING EXPENSES................................. 502,931
----------
Operating income exclusive of items not comparable to the
proposed future operations of the property..................... $ 528,157
==========
</TABLE>
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
Edgewood Apartments is a 212 unit residential garden style apartment complex
located on 12.0 acres in Greenville, South Carolina. Living space totals 179,988
square feet.
The assets comprising the property are owned by Reedy River Development
Corporation. Cornerstone Realty Income Trust, Inc. has a contract to purchase
the property and is scheduled to close May, 1995.
In accordance with Rule 3-14 of Regulation S-X of the Securities and Exchange
Commission, the statement of income and direct operating expense excludes
interest and non rent related income and expenses not considered comparable to
those resulting from the proposed future operations of the property. Excluded
expense are property depreciation, amortization, mortgage interest expense,
legal, accounting and management fees.
F-27
<PAGE>
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 Board Meadows Apartments located in Virginia Beach, Virginia for
the twelve month period ended April 30, 1995. This statement is the
responsibility of the management of Broad Meadows 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 1 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 Broad Meadows
Apartments (as defined above) for the twelve month period ended April 30, 1995,
in conformity with generally accepted accounting principles.
L.P. Martin & Co., P.C.
Richmond, Virginia
July 13, 1995
F-28
<PAGE>
BROAD MEADOWS APARTMENTS
STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES EXCLUSIVE OF
ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY
TWELVE MONTHS ENDED APRIL 30, 1995
<TABLE>
<CAPTION>
<S> <C>
INCOME
Rental and Other Income.......................................... $966,209
--------
DIRECT OPERATING EXPENSES
Administrative and Other......................................... 126,271
Insurance........................................................ 5,139
Repairs and Maintenance.......................................... 171,222
Taxes, Property.................................................. 50,670
Utilities ....................................................... 142,607
--------
TOTAL DIRECT OPERATING EXPENSES ................................ 495,909
--------
Operating income exclusive of items not comparable to the
proposed future operations of the property..................... $470,300
========
</TABLE>
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
Broad Meadows Apartments is a 160 unit residential garden style apartment
complex located on 11.97 acres in Virginia Beach, Virginia. Living space totals
145,752 square feet.
The assets comprising the property are owned by the Federal Deposit Insurance
Corporation and were managed by Republic Management, Inc. throughout the period
of the financial statements. Cornerstone Realty Income Trust, Inc. has a
contract to purchase the property and is scheduled to close July 1995.
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, legal, accounting and management fees.
F-29
<PAGE>
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 Lemon Tree Apartments located in Charlotte, North Carolina for the
twelve month period ended June 30, 1995. This statement is the responsibility of
the management of Lemon Tree 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 1 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 Lemon Tree Apartments (as
defined above) for the twelve month period ended June 30, 1995, in conformity
with generally accepted accounting principles.
L. P. Martin & Co., P.C.
Richmond, Virginia
August 21, 1995
F-30
<PAGE>
LEMON TREE APARTMENTS
STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES EXCLUSIVE OF
ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY
TWELVE MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
<S> <C>
INCOME
Rental and Other Income.......................................... $954,240
--------
DIRECT OPERATING EXPENSES
Administrative and Other......................................... 85,615
Insurance........................................................ 13,761
Repairs and Maintenance.......................................... 177,299
Taxes, Property.................................................. 57,270
Utilities........................................................ 67,474
--------
TOTAL DIRECT OPERATING EXPENSES................................. 401,419
--------
Operating income exclusive of items not comparable to the
proposed future operations of the property..................... $552,821
========
</TABLE>
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
Lemon Tree Apartments is a 192 unit residential garden style apartment
complex located on 14.05 acres in Charlotte, North Carolina. Living space totals
159,712 square feet.
The assets comprising the property are owned by Lemon Tree Limited
Partnership. Cornerstone Realty Income Trust, Inc. has a contract to purchase
the property and is scheduled to close August, 1995.
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, mortgage interest, loan costs, legal fees,
accounting fees and management fees.
F-31
<PAGE>
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 Mill Creek Apartments located in Winston Salem, North Carolina for
the twelve month-period ended July 31, 1995. This statement is the
responsibility of the management of Mill Creek 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 1 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 Mill Creek Apartments (as
defined above) for the twelve month period ended July 31, 1995, in conformity
with generally accepted accounting principles.
L.P. Martin & Co., P.C.
Richmond, Virginia
September 20, 1995
F-32
<PAGE>
MILL CREEK APARTMENTS
STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES EXCLUSIVE OF
ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY
TWELVE MONTHS ENDED JULY 31, 1995
<TABLE>
<CAPTION>
<S> <C>
INCOME
Rental and Other Income.................................... $1,208,746
----------
DIRECT OPERATING EXPENSES
Administrative and Other................................... 96,596
Insurance.................................................. 37,954
Repairs and Maintenance.................................... 175,091
Taxes, Property............................................ 85,296
Utilities.................................................. 46,648
----------
TOTAL DIRECT OPERATING EXPENSES.......................... 441,585
----------
Operating income exclusive of items not comparable to the
proposed future operations of the property.............. $ 767,161
==========
</TABLE>
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
Mill Creek Apartments is a 220 unit residential garden style apartment complex
located on 17.17 acres in Winston Salem, North Carolina. Living space totals
197,320 square feet.
The assets comprising the property are owned by MBL Life Assurance Corporation.
Cornerstone Realty Income Trust, Inc. has a contract to purchase the property
and is scheduled to close September, 1995.
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, legal fees, accounting fees and management
fees.
F-33
<PAGE>
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 Glen Eagles Apartments located in Winston Salem, North Carolina for
the twelve month period ended July 31, 1995. This statement is the
responsibility of the management of Glen Eagles 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
income and expenses, described in Note 1 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 Glen Eagles Apartments (as
defined above) for the twelve month period ended July 31, 1995, in conformity
with generally accepted accounting principles.
L.P. Martin & Co., P.C.
Richmond, Virginia
October 18, 1995
F-34
<PAGE>
GLEN EAGLES APARTMENTS
STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES EXCLUSIVE OF
ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY
TWELVE MONTHS ENDED JULY 31, 1995
<TABLE>
<CAPTION>
<S> <C>
INCOME
Rental and Other Income.......................................... $1,073,164
----------
DIRECT OPERATING EXPENSES
Administrative and Other......................................... 86,204
Insurance........................................................ 15,692
Repairs and Maintenance.......................................... 183,309
Taxes, Property.................................................. 84,535
Utilities........................................................ 42,085
----------
TOTAL DIRECT OPERATING EXPENSES................................ 411,825
----------
Operating income exclusive of items not comparable to the
proposed future operations of the property.................... $ 661,339
==========
</TABLE>
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
Glen Eagles Apartments is a 166 unit residential garden style apartment complex
located on approximately 17.159 acres in Winston Salem North Carolina. Living
space totals 158,028 square feet.
The assets comprising the property are owned by Braehill Way Limited
Partnership. Cornerstone Realty Income Trust, Inc. has a contract to purchase
the property and is scheduled to close October, 1995.
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, mortgage interest, legal fees,
accounting fees and management fees.
F-35
<PAGE>
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 Summer Hill Apartments located in Wilmington, North Carolina for
the twelve month period ended September 30, 1995. This statement is the
responsibility of the management of Summer Hill 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 1 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 Summer Hill Apartments (as
defined above) for the twelve month period ended September 30, 1995, in
conformity with generally accepted accounting principles.
L.P. Martin & Co., P.C.
Richmond, Virginia
November 13, 1995
F-36
<PAGE>
SUMMER HILL APARTMENTS
STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES EXCLUSIVE OF
ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY
TWELVE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
<S> <C>
INCOME
Rental and Other Income.......................................... $885,049
--------
DIRECT OPERATING EXPENSES
Administrative and Other......................................... 48,040
Insurance........................................................ 11,676
Repairs and Maintenance.......................................... 213,346
Taxes, Property.................................................. 59,368
Utilities........................................................ 96,187
--------
TOTAL DIRECT OPERATING EXPENSES................................ 428,617
--------
Operating income exclusive of items not comparable to the
proposed future operations of the property ................... $456,432
========
</TABLE>
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
Summer Hill Apartments is a 176 unit residential garden style apartment complex
located on 13.00 acres in Wilmington, North Carolina. Living space totals
172,720 square feet.
The assets comprising the property are owned by Summer Hill Associates Limited
Partnership. Cornerstone Realty Income Trust, Inc. has a contract to purchase
the property and is scheduled to close November, 1995.
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, legal fees, accounting
fees and management fees.
F-37
<PAGE>
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 Tradewinds Apartments located in Hampton, Virginia for the twelve
month period ended September 30, 1995. This statement is the responsibility of
the management of Tradewinds 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 1 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 Tradewinds Apartments (as
defined above) for the twelve month period ended September 30, 1995, in
conformity with generally accepted accounting principles.
L.P. Martin & Co., P.C.
Richmond, Virginia
November 8, 1995
F-38
<PAGE>
TRADEWINDS APARTMENTS
STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES EXCLUSIVE OF
ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY
TWELVE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
<S> <C>
INCOME
Rental and Other Income.......................................... $1,620,964
----------
DIRECT OPERATING EXPENSES
Administrative and Other......................................... 158,217
Insurance........................................................ 14,415
Repairs and Maintenance.......................................... 227,914
Taxes, Property.................................................. 129,365
Utilities........................................................ 123,128
----------
TOTAL DIRECT OPERATING EXPENSES................................ 653,039
----------
Operating income exclusive of items not comparable to the
proposed future operations of the property ................... $ 967,925
==========
</TABLE>
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
Tradewinds Apartments is a 284 unit residential garden style apartment complex
located on 12.925 acres in Hampton, Virgina. Living space totals 263,920 square
feet.
The assets comprising the property are owned by Tradewinds Associates.
Cornerstone Realty Income Trust, Inc. has a contract to purchase the property
and is scheduled to close November, 1995.
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, legal fees, accounting
fees and penalties.
F-39
<PAGE>
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 The Lake Apartments located in Charlotte, North Carolina for the
twelve month period ended September 30, 1995. This statement is the
responsibility of the management of The Lake 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
income and expenses, described in Note 1 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 The Lake Apartments (as
defined above) for the twelve month period ended September 30, 1995, in
conformity with generally accepted accounting principles.
L.P. Martin & Co., P.C.
Richmond, Virginia
November 28 , 1995
F-40
<PAGE>
THE LAKE APARTMENTS
STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES EXCLUSIVE OF
ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY
TWELVE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
<S> <C>
INCOME
Rental and Other Income.......................................... $1,784,084
----------
DIRECT OPERATING EXPENSES
Administrative and Other......................................... 176,967
Insurance........................................................ 37,826
Repairs and Maintenance.......................................... 387,019
Taxes, Property.................................................. 105,729
Utilities........................................................ 139,296
----------
TOTAL DIRECT OPERATING EXPENSES................................ 846,837
----------
Operating income exclusive of items not comparable to the
proposed future operations of the property.................... $ 937,247
==========
</TABLE>
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
The Lake Apartments is a 358 unit residential garden style apartment complex
located on 27.13 acres in Charlotte, North Carolina. Living space totals 324,465
square feet.
The assets comprising the property are owned by EQR-Lake Vista, Inc. during the
financial statement period. Cornerstone Realty Income Trust, Inc. purchased the
property in November, 1995.
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 and management fees.
F-41
<PAGE>
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 The Meadows Apartments located in Asheville, North Carolina for the
year ended December 31, 1995. This statement is the responsibility of the
management of The Meadows 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 company 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 1 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 The Meadows Apartments (as
defined above) for the year ended December 31, 1995, in conformity with
generally accepted accounting principles.
L.P. Martin & Co., P.C.
Richmond, Virginia
March 9, 1996
F-42
<PAGE>
THE MEADOWS APARTMENTS
STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES EXCLUSIVE OF
ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
INCOME
Rental and Other Income................................. $1,080,070
----------
DIRECT OPERATING EXPENSES
Administrative and Other................................ 71,233
Insurance............................................... 8,679
Repairs and Maintenance................................. 174,632
Taxes, Property......................................... 54,602
Utilities............................................... 94,834
----------
TOTAL DIRECT OPERATING EXPENSES....................... 403,980
----------
Operating income exclusive of items not comparable to
the proposed future operations of the property....... $ 676,090
==========
</TABLE>
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
The Meadows Apartments is a 176 unit residential garden style apartment complex
located on 18.31 acres in Asheville, North Carolina. Living space totals 187,628
square feet.
The assets comprising the property were owned by Forest Properties throughout
1995. Cornerstone Realty Income Trust, Inc. purchased the property in February
1996.
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, legal fees, accounting
fees and management fees.
F-43
<PAGE>
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 Scarlett Oaks Apartments located in Augusta, Georgia for the twelve
month period ended January 31, 1996. This statement is the responsibility of the
management of Scarlett Oaks 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 1 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 Scarlett Oaks Apartments
(as defined above) for the twelve month period ended January 31, 1996, in
conformity with generally accepted accounting principles.
Richmond, Virginia L.P. Martin & Co., P.C.
April 24, 1996
F-44
<PAGE>
SCARLETT OAKS APARTMENTS
STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES EXCLUSIVE OF
ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY
TWELVE MONTHS ENDED JANUARY 31, 1996
<TABLE>
<CAPTION>
<S> <C>
INCOME...................................................
Rental and Other Income................................. $763,810
--------
DIRECT OPERATING EXPENSES................................
Administrative and Other................................ 73,586
Insurance............................................... 17,657
Repairs and Maintenance................................. 136,915
Taxes, Property......................................... 41,000
Utilities............................................... 43,960
------
TOTAL DIRECT OPERATING EXPENSES....................... 313,118
-------
Operating income exclusive of items not comparable to
the proposed future operations of the property....... $450,692
========
</TABLE>
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
Scarlett Oaks Apartments is a 165 unit residential garden style apartment
complex located in Augusta, Georgia. Living space totals 131,340 square feet.
During the financial statement period, the assets comprising the property were
owned by Scarlett Oaks of Augusta, L.L.C. Cornerstone Realty Income Trust, Inc.
purchased the property in April, 1996.
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, legal fees, accounting
fees and management fees.
F-45
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Cornerstone Realty Income Trust, Inc.:
We have audited the accompanying historical summary of operating revenue and
expenses, as defined in note 1, of Ashley Park Apartments for the year ended
December 31, 1995. This historical summary is the responsibility of the
Company's management. Our responsibility is to express an opinion on the
historical summary 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 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 and is
not intended to be a complete presentation of the revenue and expenses of Ashley
Park Apartments.
In our opinion, the historical summary referred to above presents fairly, in all
material respects, the operating revenue and expenses described in note 1 of
Ashley Park Apartments for the year ended December 31, 1995, in conformity with
generally accepted accounting principles.
L.P. Martin & Co., P.C.
Richmond, Virginia
April 25, 1996
F-46
<PAGE>
ASHLEY PARK APARTMENTS
HISTORICAL SUMMARY OF OPERATING REVENUE AND EXPENSES (NOTE 1)
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
OPERATING REVEUNE --
Rental and other income............... $1,706,415
OPERATING EXPENSES:
Repairs and maintenance............... 147,125
Salaries, wages and payroll taxes..... 170,663
Insurance............................. 18,509
Utilities............................. 100,612
Advertising........................... 19,275
Real estate taxes..................... 146,465
Other................................. 27,629
Total Operating Expenses............. 630,278
OPERATING REVENUE IN EXCESS OF
OPERATING
EXPENSES.............................. $1,076,137
</TABLE>
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE PROPERTY
Ashley Park Apartments is a 272 unit residential garden style apartment complex
located on approximately 27 acres of land on the southside of Richmond,
Virginia. The buildings were completed in 1988 and contain total living space of
approximately 208,000 square feet.
BASIS OF PRESENTATION
The accompanying historical summary of operating revenue and expenses is not
representative of the actual operations for the period presented as certain
revenues and expenses, which may not be comparable to those expected to be
incurred by Cornerstone Realty Income Trust, Inc. in the proposed future
operations of the apartments have been excluded. Interest and non-rent related
income have been excluded from revenue, and mortgage interest, management fees,
property depreciation and amortization and other costs not directly related to
the future operations of Ashley Park Apartments have been excluded from
expenses. Management is not aware of any material factors relating to Ashley
Park Apartments that would cause the historical summary of operating revenue and
expenses to not be indicative of future operating results of the apartments.
(2) ACQUISITION TRANSACTION
Cornerstone Realty Income Trust, Inc. acquired Ashley Park Apartments on March
29, 1996, effective March 1, 1996.
F-47
<PAGE>
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 Colonial Ridge Apartments located in Virginia Beach, Virginia for
the twelve month period ended December 31, 1995. This statement is the
responsibility of the management of Colonial Ridge 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 1 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 Colonial Ridge Apartments
(as defined above) for the twelve month period ended December 31, 1995, in
conformity with generally accepted accounting principles.
L.P. Martin & Co., P.C.
Richmond, Virginia
June 4, 1996
F-48
<PAGE>
COLONIAL RIDGE APARTMENTS
STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES EXCLUSIVE OF
ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY
TWELVE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
INCOME...................................................
Rental and Other Income................................. $832,771
--------
DIRECT OPERATING EXPENSES................................
Administrative and Other................................ 77,159
Insurance............................................... 6,690
Repairs and Maintenance................................. 118,212
Taxes, Property......................................... 58,224
Utilities............................................... 89,092
--------
TOTAL DIRECT OPERATING EXPENSES....................... 349,377
--------
Operating income exclusive of items not comparable to
the proposed future operations of the property....... $483,394
========
</TABLE>
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
Colonial Ridge Apartments is a 148 unit residential garden style apartment
complex located on 7.75 acres in Virginia Beach, Virginia. Living space totals
125,800 square feet.
The assets comprising the property were owned by Colonial Ridge, L.C. during the
financial statement period. Cornerstone Realty Income Trust, Inc. purchased the
property in April 1996.
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, loan amortization, property depreciation, legal
fees, management fees and accounting fees.
F-49
<PAGE>
Pro Forma Balance Sheet as of December 31, 1995 (unaudited)
The accompanying unaudited Pro Forma Balance Sheet as of December 31, 1995 is
presented as if the Company had owned the following properties on December 31,
1995. The unaudited Pro Forma Balance Sheet does not purport to represent what
the Company's financial position would actually had been if the transactions, in
fact, had occurred on December 31, 1995. The Pro Forma column assumes the
Company used the proceeds from its offering to acquire the properties.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
--------------------------------------------------------------------------
HISTORICAL MEADOWS SCARLETT OAKS ASHLEY PARK
BALANCE PRO FORMA PRO FORMA PRO FORMA TOTAL
SHEET ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA
-------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in Rental Property
Land ......................... $ 19,852,544 $ 186,000 $ 306,400 $ 1,586,650 $ 21,931,594
Building...................... 107,489,723 6,014,000 3,693,600 10,618,350 127,815,673
Furniture and fixtures........ 2,354,180 -- -- -- 2,354,180
-------------- ------------- --------------- ------------- ------------
129,696,447 6,200,000 4,000,000 12,205,000 152,101,447
Less accumulated depreciation. (4,254,974) -- -- -- (4,254,974)
-------------- ------------- --------------- ------------- ------------
125,441,473 6,200,000 4,000,000 12,205,000 147,846,473
Cash and cash equivalents ..... 7,073,147 -- -- -- 7,073,147
Prepaid expenses............... 167,152 -- -- -- 167,152
Other assets................... 499,260 -- -- -- 499,260
-------------- ------------- --------------- ------------- ------------
7,739,559 -- -- -- 7,739,559
-------------- ------------- --------------- ------------- ------------
$133,181,032 $6,200,000 $4,000,000 $12,205,000 $155,586,032
============== ============= =============== ============= ============
LIABILITIES AND SHAREHOLDERS'
EQUITY
Liabilities
Notes payable ................ $ 8,300,000 -- -- -- $ 8,300,000
Accounts payable.............. 555,691 -- -- -- 555,691
Accrued expenses.............. 1,257,231 -- -- -- 1,257,231
Rents received in advance..... 129,648 -- -- -- 129,648
Tenants security deposits..... 784,042 -- -- -- 784,042
-------------- ------------- --------------- ------------- ------------
11,026,612 -- -- -- 11,026,612
Shareholders' equity
Common stock ................. 123,771,504 $6,200,000 $4,000,000 $12,205,000 146,176,504
Deferred compensation......... (77,000) -- -- -- (77,000)
Distributions in excess of net
income....................... (1,540,084) -- -- -- (1,540,084)
-------------- ------------- --------------- ------------- ------------
122,154,420 6,200,000 4,000,000 $12,205,000 144,559,420
-------------- ------------- --------------- ------------- ------------
$133,181,032 $6,200,000 $4,000,000 $12,205,000 $155,586,032
-------------- ------------- --------------- ------------- ------------
</TABLE>
F-50
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
The accompanying unaudited Pro Forma Statement of Operations for the year ended
December 31, 1995 is presented as if (a) the Company had owned the acquired
properties shown below on January 1, 1995, (b) the Company had qualified as a
REIT, distributed all of its taxable income and, therefore, incurred no federal
income tax expense during the year, and (c) the Company had used proceeds from
its offering to acquire the properties. The unadjusted Pro Forma Statement of
Operations does not purport to represent what the Company's results of
operations would actually have been if such transactions, in fact, had occurred
on January 1, 1995, nor does it purport to represent the results of operations
for future periods.
<TABLE>
<CAPTION>
HISTORICAL 1995 MEADOWS SCARLETT OAKS ASHLEY PARK 1996
STATEMENT OF 1995 PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA
OPERATIONS ACQUISITIONS(3)ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS
----------- ------------- ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Date of Acquisition................. -- -- -- 1/31/96 3/1/96 3/1/96 --
Revenues from rental properties .... $16,300,821 $7,778,024 -- $1,080,070 $ 763,810 $ 1,706,415 --
Rental expenses:
Utilities......................... 1,676,938 577,495 -- 94,834 43,960 100,612 --
Repairs and maintenance........... 2,042,819 1,442,619 -- 174,632 136,915 234,163 --
Taxes and insurance............... 1,342,427 677,381 -- 63,281 58,657 164,974 --
Property management............... 896,521 -- $ 451,856 -- -- -- $ 195,905
Advertising....................... 378,089 180,896 -- 17,808 18,397 19,275 --
General and administrative........ 609,969 -- 112,858 -- -- -- 56,012
Amortization...................... 30,564 -- -- -- -- -- --
Depreciation of rental property... 2,788,818 -- 1,316,783 -- -- -- 739,125
Other............................. 1,283,396 542,686 -- 53,425 55,189 111,254 --
----------- ---------- ----------- ---------- --------- ----------- ---------
11,049,541 3,421,077 1,881,497 403,980 313,118 630,278 991,042
----------- ---------- ----------- ---------- --------- ----------- ---------
Income before interest income
(expense).......................... 5,251,280 4,356,947 (1,881,497) 676,090 450,692 1,076,137 (991,042)
Interest income .................... 226,555 -- -- -- -- -- --
Interest expense.................... (248,120) -- -- -- -- -- --
----------- ---------- ----------- ---------- --------- ----------- ---------
Net income.......................... $ 5,229,715 $4,356,947 $(1,881,497) $ 676,090 $ 450,692 $ 1,076,137 $(991,042)
Net income per share................ $ 0.64
-----------
Wgt. avg. number of shares
outstanding........................ 8,176,803
==========
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PRO FORMA
-----------
<S> <C>
Date of Acquisition................. --
Revenues from rental properties .... $27,629,140
Rental expenses:
Utilities......................... 2,493,839
Repairs and maintenance........... 4,031,148
Taxes and insurance............... 2,306,720
Property management............... 1,544,282
Advertising....................... 614,465
General and administrative........ 778,839
Amortization...................... 30,564
Depreciation of rental property... 1,844,726
Other............................. 2,045,950
-----------
18,690,533
-----------
Income before interest income
(expense).......................... 8,938,607
Interest income .................... 226,555
Interest expense.................... (248,120)
-----------
Net income.......................... $ 8,917,042
Net income per share................ $ 0.60
Wgt. avg. number of shares -----------
outstanding........................ 14,879,219
===========
</TABLE>
The pro forma adjustments give effect to the actual rental income and expenses
for the properties for the period in 1995 prior to their acquisition by the
Company. Notes to the Pro Forma Statement of Operations are as follows: (1)
property management expense has been adjusted based on the Company's contractual
arrangements. (2) depreciation has been adjusted based on the Company's
depreciable basis of the acquired properties of $77,886,345, a 27.5 year life
and the respective periods prior to their acquisition. The pro forma rental
income and expenses of each property are based on the annual financial results
of each respective property as obtained in an audit by an independent auditor.
Management believes these results are representative of the actual results of
operations for the periods in which the Company did not own the properties. The
Company financed part of the purchase price of certain acquisitions with short
term borrowings, which were subsequently retired with proceeds of the Company's
on-going best efforts offering within approximately 60 days of acquisition. The
pro forma weighted average number of shares includes the number of shares
necessary to provide proceeds adequate to finance the purchase price. (3) See
F-44 for detail of 1995 acquisitions.
F-51
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED) -- NOTE 3
The following schedule provides detail of 1995 acquisitions by property included
in the Pro Forma Statement of Operations for the year ended December 31, 1995
(See F-39)
<TABLE>
<CAPTION>
STERLING
POINTE BRECKINRIDGE MAGNOLIA BAY WATCH HANOVER MILL CREEK GLEN EAGLES
PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS
----------- ------------ ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
DATE OF ACQUISITION 4/1/95 6/21/85 6/1/95 7/18/95 8/22/95 9/22/95 10/26/95
Property Operations
Revenues from rental
properties................... $ 374,940 $487,168 $429,620 $563,622 $636,160 $906,560 $804,873
Rental expenses:
Utilities .................. 17,682 35,962 30,289 83,187 44,983 34,986 31,564
Repairs and maintanance .... 56,047 112,044 97,415 99,880 118,199 131,318 137,482
Taxes and insurance ........ 38,868 45,426 46,920 32,555 47,354 92,438 75,170
Property management ........ -- -- -- -- -- -- --
Advertising ................ 11,857 13,508 8,733 18,415 14,269 18,112 16,163
General and administrative . -- -- -- -- -- -- --
Amortization ............... -- -- -- -- -- -- --
Depreciation of rental
property................... -- -- -- -- -- -- --
Other ...................... 35,570 40,526 26,198 55,244 42,808 54,335 48,490
------------- ------------ ----------- ----------- ----------- ------------- --------
160,024 247,466 209,555 289,281 267,613 331,189 308,869
------------- ------------ ----------- ----------- ----------- ------------- --------
Income before interest income 214,916 239,702 220,065 274,341 368,547 575,371 496,004
Interest income ............... -- -- -- -- -- -- --
Interest expense............... -- -- -- -- -- -- --
------------- ------------ ----------- ----------- ----------- ------------- --------
Net income .................... $ 214,916 $239,702 $220,065 $274,341 $368,547 $575,371 $496,004
============= ============ =========== =========== =========== ============= ========
</TABLE>
<TABLE>
<CAPTION>
SAILBOAT TRADEWINDS OSPREY 1995
PRO FORMA PRO FORMA PRO FORMA ACQUISITION
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
DATE OF ACQUISITION 11/1/95 11/9/95 11/16/95
Property Operations
Revenues from rental
properties................... $1,486,737 $1,350,803 $737,541 $7,778,024
Rental expenses: 116,080 102,607 80,155 577,495
Utilities .................. 322,516 189,926 177,192 1,442,619
Repairs and maintanance .... 119,629 119,817 59,204 677,381
Taxes and insurance ........ -- -- -- --
Property management ........ 36,868 32,962 10,009 180,896
Advertising ................ -- -- -- --
General and administrative . -- -- -- --
Amortization ............... -- -- --
Depreciation of rental 110,604 98,888 30,023 542,686
property................... ------------ ------------ ------------ ------------
Other ...................... 705,697 544,200 357,183 3,421,077
------------ ------------ ------------ ------------
Income before interest income 781,040 806,603 380,358 4,356,947
Interest income ............... -- -- -- --
Interest expense............... -- -- --
------------ ------------ ------------ ------------
Net income .................... $ 781,040 $ 806,603 $380,358 $4,356,947
============ ============ ============ ============
</TABLE>
F-52
<PAGE>
[SPECIMEN]
EXHIBIT A
SUBSCRIPTION AGREEMENT
To: Cornerstone Realty Income Trust, Inc.
306 East Main Street
Richmond, VA 23219
Gentlemen:
By executing or having executed on my (our) behalf this Subscription
Agreement and submitting payment, I (we) hereby subscribe for the number of
shares of stock set forth on the reverse hereof in Cornerstone Realty Income
Trust, Inc. ("REIT") at a purchase price of Eleven and 00/100 Dollars ($11.00)
per Share. By executing or having executed on my (our) behalf this Subscription
Agreement and submitting payment, I (we) further:
(a) acknowledge receipt of a copy of the Prospectus of Cornerstone Realty
Income Trust, Inc., of which this Subscription Agreement is a part, and
understand that the shares being acquired will be governed by the terms of such
Prospectus and any amendments and supplements thereto;
(b) represent that I am (we are) of majority age;
(c) represent that I (we) have adequate means of providing for my (our)
current needs and personal contingencies; have no need for liquidity from this
investment; and through employment experience, educational level attained,
access to advice from qualified advisors, prior experience with similar
investments, or a combination thereof, understand the financial risks and lack
of liquidity of an investment in the REIT;
(d) represent that I (we) have either: (i) a net worth (excluding home, home
furnishings and automobiles) of at least $50,000 and estimate that (without
regard to investment in the REIT) I (we) will have gross income during the
current year of $50,000, or (ii) a net worth (excluding home, home furnishings
and automobiles) of at least $100,000 ($150,000 in the case of North Carolina
purchasers); and, in either event, further represent that the purchase amount is
10% or less of my (our) net worth as defined above;
(e) represent (if purchasing in a fiduciary or other representative capacity)
that I (we) have due authority to execute the Subscription Agreement and to
thereby legally bind the trust or other entity of which I am (we are)
trustee(s), legal representative(s) or authorized agent(s); and agree to fully
indemnify and hold the REIT, its officers and directors, its affiliates and
employees, harmless from any and all claims, actions and causes of action
whatsoever which may result by a breach or an alleged breach of the
representations contained in this paragraph;
(f) certify, under penalties of perjury, (i) that the taxpayer identification
number shown on the signature page of this Subscription Agreement is true,
correct and complete (or I am (we are) waiting for a number to be issued to me
(us)), and (ii) that I am (we are) not subject to backup withholding either
because (a) I am (we are) exempt from backup withholding, or (b) I (we) have not
been notified by the Internal Revenue Service that I am (we are) subject to
backup withholding as a result of a failure to report all interest or
distributions, or (c) the Internal Revenue Service has notified me (us) that I
am (we are) no longer subject to backup withholding; and
(g) represent that I (we) have due authority to execute (or cause to be
executed on my (or our) behalf) the signature page hereto and to thereby legally
bind myself (ourselves) or the entity of which I am (we are) authorized
agent(s).
It is understood that the REIT shall have the right to accept or reject this
subscription in whole or in part in its sole and absolute discretion and that,
to the extent permitted by applicable law, the REIT intends to assert the
foregoing representations as a defense to any claim based on factual assertions
contrary to those set forth above.
(h) PRE-DISPUTE ARBITRATION CLAUSE. REGULATORY AUTHORITIES REQUIRE THAT ANY
BROKERAGE AGREEMENT CONTAINING A PRE-DISPUTE ARBITRATION AGREEMENT DISCLOSE THE
FOLLOWING:
1. ARBITRATION IS FINAL AND BINDING BETWEEN THE PARTIES.
2. THE PARTIES ARE WAIVING THEIR RIGHT TO SEEK REMEDIES IN COURT, INCLUDING
THE RIGHT TO JURY TRIAL.
3. PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED THAN AND DIFFERENT
FROM COURT PROCEEDINGS.
4. THE ARBITRATOR'S AWARD IS NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR
LEGAL REASONING AND ANY PARTY'S RIGHT TO APPEAL OR SEEK MODIFICATION OR
RULINGS BY THE ARBITRATORS IS STRICTLY LIMITED.
5. THE PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF ARBITRATORS
WHO WERE OR ARE AFFILIATED WITH THE SECURITIES INDUSTRY.
6. NO PERSON SHALL BRING A PUTATIVE OR CERTIFIED CLASS ACTION TO ARBITRATION,
NOR SEEK TO ENFORCE ANY PRE-DISPUTE ARBITRATION AGREEMENT AGAINST ANY
PERSON WHO HAS INITIATED IN COURT A PUTATIVE CLASS ACTION, OR WHO IS A
MEMBER OF A PUTATIVE CLASS ACTION WHO HAS OPTED OUT OF THE CLASS WITH
RESPECT TO ANY CLAIMS ENCOMPASSED BY THE PUTATIVE CLASS ACTION UNTIL: (1)
THE CLASS CERTIFICATION IS DENIED; OR (II) THE CLASS IS DECERTIFIED; OR
(III) THE CUSTOMER IS EXCLUDED FROM THE CLASS BY THE COURT. SUCH
FORBEARANCE TO ENFORCE AN AGREEMENT TO ARBITRATE SHALL NOT CONSTITUTE A
WAIVER OF ANY RIGHTS UNDER THIS AGREEMENT EXCEPT TO THE EXTENT STATED
HEREIN.
THE CUSTOMER AGREES TO SETTLE BY ARBITRATION ANY CONTROVERSY BETWEEN HIM/HER
AND THE BROKER CONCERNING THIS AGREEMENT, HIS/HER ACCOUNTS(S), OR ACCOUNT
TRANSACTIONS, OR IN ANY WAY ARISING FROM HIS/HER RELATIONSHIP WITH BROKER
WHETHER ENTERED INTO PRIOR, ON OR SUBSEQUENT TO THIS DATE. SUCH ARBITRATION WILL
BE CONDUCTED BEFORE AND ACCORDING TO THE ARBITRATION RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. (NASD) OR ANY OTHER SELF-REGULATORY
ORGANIZATION OF WHICH BROKER IS A MEMBER. EITHER THE BROKER OR THE CUSTOMER MAY
INITIATE ARBITRATION BY MAILING A WRITTEN NOTICE. IF THE CUSTOMER DOES NOT
DESIGNATE THE ARBITRATION FORUM IN HIS/HER NOTICE, OR RESPOND IN WRITING WITHIN
5 DAYS AFTER RECEIPT OF BROKER'S NOTICE, CUSTOMER AUTHORIZES BROKER TO DESIGNATE
THE ARBITRATION FORUM ON CUSTOMER'S BEHALF. JUDGMENT ON ANY ARBITRATION AWARD
MAY BE ENTERED IN ANY COURT HAVING JURISDICTION, AND CUSTOMER SUBMITS
HIMSELF/HERSELF AND PERSONAL REPRESENTATIVES TO THE JURISDICTION OF SUCH COURT.
1
<PAGE>
[SPECIMEN]
EXHIBIT A
CORNERSTONE REALTY INCOME TRUST, INC.
SIGNATURE PAGE OF THE SUBSCRIPTION AGREEMENT
1. Social Security Number(s)____________________________________________________
Tax ID Number(s)_____________________________________________________________
Account # (If applicable)
2. Name(s) in which shares are to be registered:
________________________________________________________________________________
________________________________________________________________________________
3. Manner in which title is to be held (Please check one).
<TABLE>
<CAPTION>
<S> <C> <C> <C>
[] Individual []Joint Tenants WROS [] Corporation [] Community Property
[] Tenants in Common []Partnership [] Trust
</TABLE>
[] As Custodian for_____________________________________________________________
[] For Estate of________________________________________________________________
[] Other________________________________________________________________________
4. Address for correspondence___________________________________________________
________________________________________________________________________________
5. Are you a non-resident alien individual (other than a non-resident alien who
has elected to be taxed as a resident), a foreign corporation, a foreign
partnership, a foreign trust, a foreign estate, or otherwise not qualified as
a United States person? If so, transaction will not be executed without a
completed W-8 Form. [] Yes [] No
6. Amount of Investment $___________ for _____________ Shares (Investment must
be for a minimum of $5,000 in Shares or $2,000 in Shares for qualified
plans). Make check payable to: First Union National Bank, Escrow Agent (or as
otherwise instructed). [] Liquidate funds from money market [] Check enclosed
7. Instructions for cash distributions [] Deposit to money market [] Reinvest in
additional Shares
8. I (WE) UNDERSTAND THAT THIS AGREEMENT CONTAINS A PRE-DISPUTE ARBITRATION
CLAUSE AT PARAGRAPH (h).
9. Signature(s) of Investor(s) (Please sign in same manner in which Shares are
to be registered. Read Subscription Agreement, an important legal document,
before signing.)
x_____________________________________________________________________________
Signature Date
x_____________________________________________________________________________
Signature Date
10. Broker/Dealer Information:
________________________________ ___________________________________________
Registered Representative's Name Second Registered Representative's Name
________________________________ ___________________________________________
Broker/Dealer Firm Registered Representative's Office Address
________________________________ ___________________________________________
City/State/Zip Telephone Number
11.To substantiate compliance with Appendix F to Article III, Section 34 of the
NASD's Rules of Fair Practice, the undersigned Registered Representative
hereby certifies: I have reasonable grounds to believe, based on information
obtained from the investor(s) concerning investment objectives, other
investments, financial situation and needs and any other information known by
me, that investment in the REIT is suitable for such investor(s) in light of
financial position, net worth and other suitability characteristics.
_____________________________________________________________________________
Registered Representative Date
_____________________________________________________________________________
General Securities Principal Date
_____________________________________________________________________________
Cornerstone Use Only
This Subscription Agreement and Signature page will not be an effective
agreement until it is signed by a duly authorized agent of Cornerstone Realty
Income Trust, Inc.
Agreed and accepted by:
Cornerstone Realty Income Trust, Inc.
By__________________________________________________
Date________________________________________________
<PAGE>
SUBSCRIPTION AGREEMENT
To: Cornerstone Realty Income Trust, Inc.
306 East Main Street
Richmond, VA 23219
Gentlemen:
By executing or having executed on my (our) behalf this Subscription
Agreement and submitting payment, I (we) hereby subscribe for the number of
shares of stock set forth on the reverse hereof in Cornerstone Realty Income
Trust, Inc. ("REIT") at a purchase price of Eleven and 00/100 Dollars ($11.00)
per Share. By executing or having executed on my (our) behalf this Subscription
Agreement and submitting payment, I (we) further:
(a) acknowledge receipt of a copy of the Prospectus of Cornerstone Realty
Income Trust, Inc., of which this Subscription Agreement is a part, and
understand that the shares being acquired will be governed by the terms of such
Prospectus and any amendments and supplements thereto;
(b) represent that I am (we are) of majority age;
(c) represent that I (we) have adequate means of providing for my (our)
current needs and personal contingencies; have no need for liquidity from this
investment; and through employment experience, educational level attained,
access to advice from qualified advisors, prior experience with similar
investments, or a combination thereof, understand the financial risks and lack
of liquidity of an investment in the REIT;
(d) represent that I (we) have either: (i) a net worth (excluding home, home
furnishings and automobiles) of at least $50,000 and estimate that (without
regard to investment in the REIT) I (we) will have gross income during the
current year of $50,000, or (ii) a net worth (excluding home, home furnishings
and automobiles) of at least $100,000 ($150,000 in the case of North Carolina
purchasers); and, in either event, further represent that the purchase amount is
10% or less of my (our) net worth as defined above;
(e) represent (if purchasing in a fiduciary or other representative capacity)
that I (we) have due authority to execute the Subscription Agreement and to
thereby legally bind the trust or other entity of which I am (we are)
trustee(s), legal representative(s) or authorized agent(s); and agree to fully
indemnify and hold the REIT, its officers and directors, its affiliates and
employees, harmless from any and all claims, actions and causes of action
whatsoever which may result by a breach or an alleged breach of the
representations contained in this paragraph;
(f) certify, under penalties of perjury, (i) that the taxpayer identification
number shown on the signature page of this Subscription Agreement is true,
correct and complete (or I am (we are) waiting for a number to be issued to me
(us)), and (ii) that I am (we are) not subject to backup withholding either
because (a) I am (we are) exempt from backup withholding, or (b) I (we) have not
been notified by the Internal Revenue Service that I am (we are) subject to
backup withholding as a result of a failure to report all interest or
distributions, or (c) the Internal Revenue Service has notified me (us) that I
am (we are) no longer subject to backup withholding; and
(g) represent that I (we) have due authority to execute (or cause to be
executed on my (or our) behalf) the signature page hereto and to thereby legally
bind myself (ourselves) or the entity of which I am (we are) authorized
agent(s).
It is understood that the REIT shall have the right to accept or reject this
subscription in whole or in part in its sole and absolute discretion and that,
to the extent permitted by applicable law, the REIT intends to assert the
foregoing representations as a defense to any claim based on factual assertions
contrary to those set forth above.
(h) PRE-DISPUTE ARBITRATION CLAUSE. REGULATORY AUTHORITIES REQUIRE THAT ANY
BROKERAGE AGREEMENT CONTAINING A PRE-DISPUTE ARBITRATION AGREEMENT DISCLOSE THE
FOLLOWING:
1. ARBITRATION IS FINAL AND BINDING BETWEEN THE PARTIES.
2. THE PARTIES ARE WAIVING THEIR RIGHT TO SEEK REMEDIES IN COURT, INCLUDING
THE RIGHT TO JURY TRIAL.
3. PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED THAN AND DIFFERENT
FROM COURT PROCEEDINGS.
4. THE ARBITRATOR'S AWARD IS NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR
LEGAL REASONING AND ANY PARTY'S RIGHT TO APPEAL OR SEEK MODIFICATION OR
RULINGS BY THE ARBITRATORS IS STRICTLY LIMITED.
5. THE PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF ARBITRATORS
WHO WERE OR ARE AFFILIATED WITH THE SECURITIES INDUSTRY.
6. NO PERSON SHALL BRING A PUTATIVE OR CERTIFIED CLASS ACTION TO ARBITRATION,
NOR SEEK TO ENFORCE ANY PRE-DISPUTE ARBITRATION AGREEMENT AGAINST ANY
PERSON WHO HAS INITIATED IN COURT A PUTATIVE CLASS ACTION, OR WHO IS A
MEMBER OF A PUTATIVE CLASS ACTION WHO HAS OPTED OUT OF THE CLASS WITH
RESPECT TO ANY CLAIMS ENCOMPASSED BY THE PUTATIVE CLASS ACTION UNTIL: (1)
THE CLASS CERTIFICATION IS DENIED; OR (II) THE CLASS IS DECERTIFIED; OR
(III) THE CUSTOMER IS EXCLUDED FROM THE CLASS BY THE COURT. SUCH
FORBEARANCE TO ENFORCE AN AGREEMENT TO ARBITRATE SHALL NOT CONSTITUTE A
WAIVER OF ANY RIGHTS UNDER THIS AGREEMENT EXCEPT TO THE EXTENT STATED
HEREIN.
THE CUSTOMER AGREES TO SETTLE BY ARBITRATION ANY CONTROVERSY BETWEEN HIM/HER
AND THE BROKER CONCERNING THIS AGREEMENT, HIS/HER ACCOUNTS(S), OR ACCOUNT
TRANSACTIONS, OR IN ANY WAY ARISING FROM HIS/HER RELATIONSHIP WITH BROKER
WHETHER ENTERED INTO PRIOR, ON OR SUBSEQUENT TO THIS DATE. SUCH ARBITRATION WILL
BE CONDUCTED BEFORE AND ACCORDING TO THE ARBITRATION RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. (NASD) OR ANY OTHER SELF-REGULATORY
ORGANIZATION OF WHICH BROKER IS A MEMBER. EITHER THE BROKER OR THE CUSTOMER MAY
INITIATE ARBITRATION BY MAILING A WRITTEN NOTICE. IF THE CUSTOMER DOES NOT
DESIGNATE THE ARBITRATION FORUM IN HIS/HER NOTICE, OR RESPOND IN WRITING WITHIN
5 DAYS AFTER RECEIPT OF BROKER'S NOTICE, CUSTOMER AUTHORIZES BROKER TO DESIGNATE
THE ARBITRATION FORUM ON CUSTOMER'S BEHALF. JUDGMENT ON ANY ARBITRATION AWARD
MAY BE ENTERED IN ANY COURT HAVING JURISDICTION, AND CUSTOMER SUBMITS
HIMSELF/HERSELF AND PERSONAL REPRESENTATIVES TO THE JURISDICTION OF SUCH COURT.
1
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
SIGNATURE PAGE OF THE SUBSCRIPTION AGREEMENT
1. Social Security Number(s)____________________________________________________
Tax ID Number(s)_____________________________________________________________
Account # (If applicable)
2. Name(s) in which shares are to be registered:
________________________________________________________________________________
________________________________________________________________________________
3. Manner in which title is to be held (Please check one).
<TABLE>
<CAPTION>
<S> <C> <C> <C>
[] Individual []Joint Tenants WROS [] Corporation [] Community Property
[] Tenants in Common []Partnership [] Trust
</TABLE>
[] As Custodian for_____________________________________________________________
[] For Estate of________________________________________________________________
[] Other________________________________________________________________________
4. Address for correspondence___________________________________________________
________________________________________________________________________________
5. Are you a non-resident alien individual (other than a non-resident alien who
has elected to be taxed as a resident), a foreign corporation, a foreign
partnership, a foreign trust, a foreign estate, or otherwise not qualified as
a United States person? If so, transaction will not be executed without a
completed W-8 Form. [] Yes [] No
6. Amount of Investment $___________ for _____________ Shares (Investment must
be for a minimum of $5,000 in Shares or $2,000 in Shares for qualified
plans). Make check payable to: First Union National Bank, Escrow Agent (or as
otherwise instructed). [] Liquidate funds from money market [] Check enclosed
7. Instructions for cash distributions [] Deposit to money market [] Reinvest in
additional Shares
8. I (WE) UNDERSTAND THAT THIS AGREEMENT CONTAINS A PRE-DISPUTE ARBITRATION
CLAUSE AT PARAGRAPH (h).
9. Signature(s) of Investor(s) (Please sign in same manner in which Shares are
to be registered. Read Subscription Agreement, an important legal document,
before signing.)
x_____________________________________________________________________________
Signature Date
x_____________________________________________________________________________
Signature Date
10. Broker/Dealer Information:
________________________________ ___________________________________________
Registered Representative's Name Second Registered Representative's Name
________________________________ ___________________________________________
Broker/Dealer Firm Registered Representative's Office Address
________________________________ ___________________________________________
City/State/Zip Telephone Number
11.To substantiate compliance with Appendix F to Article III, Section 34 of the
NASD's Rules of Fair Practice, the undersigned Registered Representative
hereby certifies: I have reasonable grounds to believe, based on information
obtained from the investor(s) concerning investment objectives, other
investments, financial situation and needs and any other information known by
me, that investment in the REIT is suitable for such investor(s) in light of
financial position, net worth and other suitability characteristics.
_____________________________________________________________________________
Registered Representative Date
_____________________________________________________________________________
General Securities Principal Date
_____________________________________________________________________________
Cornerstone Use Only
This Subscription Agreement and Signature page will not be an effective
agreement until it is signed by a duly authorized agent of Cornerstone Realty
Income Trust, Inc.
Agreed and accepted by:
Cornerstone Realty Income Trust, Inc.
By__________________________________________________
Date________________________________________________
