UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-23954
CORNERSTONE REALTY INCOME TRUST, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1589139
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
306 EAST MAIN STREET
RICHMOND, VIRGINIA 23219
(Address of principal executive offices) (Zip Code)
(804) 643-1761
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address, and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No At May 1, 1996, there were
outstanding 16,455,192 shares of common stock of the registrant.
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
FORM 10-Q
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - March 31, 1996 3
and December 31, 1995
Statements of Operations - 4
Three months ended March 31, 1996
and March 31, 1995
Statements of Shareholders' Equity- 5
Three months ended March 31, 1996
and Year ended December 31, 1995
Statements of Cash Flows - 6
Three months ended March 31, 1996
and March 31, 1995
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis 10
of Financial Condition and Results of
Operations
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings (not applicable).
Item 2. Changes in Securities (not applicable).
Item 3. Defaults Upon Senior Securities
(not applicable).
Item 4. Submission of matters to a Vote of
Security Holders (not applicable).
Item 5. Other Information (not applicable)
Item 6. Exhibits and Reports on Form 8-K 13
<PAGE>
2
CORNERSTONE REALTY INCOME TRUST, INC.
BALANCE SHEET (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.
3
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
STATEMENT 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.
4
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
STATEMENT 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.
5
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
STATEMENT 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
6
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC
Notes to Financial Statements (Unaudited)
March 31, 1996
(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.
(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.
(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 has paid distributions of $2,728,443
(24.75 cents per share) to shareholders.
(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 January1, 1996, the staffs of the individual properties owned
by the Company were
7
<PAGE>
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 to 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.
(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.
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.
(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.
8
<PAGE>
Three Months Three Months
Ended Ended
3/31/96 3/31/95
Rental income $7,054,398 $6,031,996
Net Income $2,341,981 $2,123,528
Net income per share $.15 $.14
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.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
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 underwriter fees 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 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 the Note 5. 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 consistent with the
Company's long term business objective to hold its properties on an unleveraged
basis.
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 underwriter fees.
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.
10
<PAGE>
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
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.
11
<PAGE>
The Company does not believe that inflation had any significant impact on the
operation of the Company 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 offset by increases in
rental income. Continued inflation may also cause capital appreciation of the
Company's properties over time, as rental rates and replacement costs increase.
12
<PAGE>
Part II, Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
There were no Form 8-Ks filed during the quarter ended
March 31, 1996.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cornerstone Realty Income Trust, Inc.
(Registrant)
DATE: 5/14/96 BY: /s/ Stanley J. Olander
Stanley J. Olander
Vice President and Treasurer
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 8,694,171
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 159,871,107
<DEPRECIATION> 5,490,668
<TOTAL-ASSETS> 164,077,826
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 151,615,748
<OTHER-SE> (2,164,473)
<TOTAL-LIABILITY-AND-EQUITY> 164,077,826
<SALES> 0
<TOTAL-REVENUES> 6,552,688
<CGS> 0
<TOTAL-COSTS> 4,410,259
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,880
<INCOME-PRETAX> 2,171,887
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,171,887
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,171,887
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0
<FN>
<F1>Current Assets and Current Liabilities are not separated to
conform with industry standards.
<F2>Income is from rental income. There are no Sales or Cost of
Goods Sold.
</FN>
</TABLE>
