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 September 30, 1997
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 November 1, 1997, there were outstanding 35,510,327 shares of
common stock, no par value, of the registrant.
<PAGE>
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CORNERSTONE REALTY INCOME TRUST, INC.
FORM 10-Q
<S> <C>
INDEX
Page Number
---------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - 3
September 30, 1997
and December 31, 1996
Statements of Operations - 4
Three months ended September 30, 1997
and September 30, 1996
Nine months ended September 30, 1997
and September 30, 1996
Statements of Shareholders'Equity - 5
Nine months ended September 30, 1997
Statements of Cash Flows - 6
Nine months ended September 30, 1997
and September 30, 1996
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis 11
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 15
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<CAPTION>
BALANCE SHEETS (UNAUDITED)
CORNERSTONE REALTY INCOME TRUST, INC.
<S> <C>
September 30, December 31,
1997 1996
-------------------- ----------------------
ASSETS
Investment in Rental Property
Land $71,036,623 $46,980,280
Building 335,213,546 250,705,667
Property improvements 41,001,548 26,640,085
Furniture and fixtures 9,371,445 5,389,821
-------------------- ----------------------
456,623,162 329,715,853
Less accumulated depreciation (23,166,762) (12,323,037)
-------------------- ----------------------
433,456,400 317,392,816
Cash and cash equivalents 4,449,850 3,182,651
Prepaid expenses 360,794 557,544
Other assets 7,025,480 1,737,563
-------------------- ----------------------
11,836,124 5,477,758
-------------------- ----------------------
$445,292,524 $322,870,574
==================== ======================
LIABILITIES and SHAREHOLDERS' EQUITY
Liabilities
Notes payable $123,290,147 $55,403,000
Accrued payable-related party - 7,297,093
Accounts payable 891,385 2,087,673
Accrued expenses 3,190,719 1,366,853
Rents received in advance 237,034 491,928
Tenant security deposits 1,878,969 1,654,322
-------------------- ----------------------
129,488,254 68,300,869
Shareholders' equity
Common stock, no par value, authorized 50,000,000
shares; issued and outstanding 35,250,151 shares
and 28,141,509 shares, respectively 346,306,618 276,269,539
Deferred compensation (38,503) (55,000)
Distributions greater than net income (30,463,845) (21,644,834)
-------------------- ----------------------
315,804,270 254,569,705
-------------------- ----------------------
$445,292,524 $322,870,574
==================== ======================
See accompanying notes to financial statements.
</TABLE>
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<CAPTION>
CORNERSTONE REALTY INCOME TRUST, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
<S> <C>
Three Months Ended
September 30, September 30,
1997 1996
------------------------------------------
REVENUE:
Rental income $18,354,354 11,495,302
Other income 573,335 -
EXPENSES:
Utilities 1,625,542 1,129,869
Repairs and maintenance 1,985,245 1,421,862
Taxes and insurance 1,555,647 960,371
Property management 1,547,383 1,217,194
Advertising 500,010 376,436
General and administrative 404,663 315,135
Amortization and other depreciation 24,751 7,641
Depreciation of rental property 3,834,463 2,451,036
Other operating 130,227 144,429
Management contract termination 141,754 -
------------------------------------------
Total expenses 11,749,685 8,023,973
------------------------------------------
Income before interest income (expense) 7,178,004 3,471,329
Interest and investment income 106,107 46,438
Interest expense (1,947,265) (211,559)
------------------------------------------
Net income $5,336,846 $3,306,208
==========================================
Net income per share $0.15 $0.15
==========================================
Weighted average number of shares outstanding 34,480,183 22,542,727
==========================================
Distributions declared per share $ 0.25 $ 0.248
==========================================
</TABLE>
<TABLE>
<CAPTION>
CORNERSTONE REALTY INCOME TRUST, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
<S> <C>
Nine Months Ended
September 30, September 30,
1997 1996
------------------------------------
REVENUE:
Rental income $50,231,191 $26,714,877
Other income 1,476,041 -
EXPENSES:
Utilities 4,473,112 2,587,552
Repairs and maintenance 5,219,198 3,119,215
Taxes and insurance 4,390,206 2,351,444
Property management 4,119,974 2,961,518
Advertising 1,414,648 766,021
General and administrative 1,252,892 833,084
Amortization and other depreciation 58,216 22,923
Depreciation of rental property 10,791,653 5,155,108
Other operating 1,075,247 373,484
Management contract termination 413,752 -
------------------------------------
Total expenses 33,208,898 18,170,349
------------------------------------
Income before interest income (expense) 18,498,334 8,544,528
Interest and investment income 209,947 237,651
Interest expense (4,840,391) (554,648)
------------------------------------
Net income $13,867,890 $8,227,531
====================================
Net income per share $0.44 $0.46
====================================
Weighted average number of shares outstanding 31,672,928 17,696,096
====================================
Distributions declared per share $ 0.75 $ 0.74
====================================
</TABLE>
See accompanying notes to financial statements.
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<TABLE>
<CAPTION>
STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
CORNERSTONE REALTY INCOME TRUST, INC.
Number Deferred
of Shares Amount Compensation
--------------------------------------------------------------
<S> <C>
Balance at December 31, 1996 28,141,509 $276,269,539 ($55,000)
Net proceeds from the sale of shares 5,177,772 49,437,926 -
Net income - - -
Cash distributions declared to shareholders ($.75 per share) - - -
Shares issued for purchase of Apple Realty Group, Inc. contracts 150,000 1,650,000 -
Shares issued in connection with management termination contract 700,000 7,700,000 -
Amortization of deferred compensation - - 16,497
Shares issued through dividend reinvestment plan 1,080,870 11,249,153 -
--------------------------------------------------------------
Balance at September 30, 1997 35,250,151 $346,306,618 ($38,503)
==============================================================
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
CORNERSTONE REALTY INCOME TRUST, INC.
Distributions
(Greater) Total
Less than Shareholders'
Net Income Equity
-------------------------------------
<S> <C>
Balance at December 31, 1996 ($21,644,834) $254,569,705
Net proceeds from the sale of shares - 49,437,926
Net income 13,867,890 13,867,890
Cash distributions declared to shareholders ($.75 per share) (22,686,901) (22,686,901)
Shares issued for purchase of Apple Realty Group, Inc. contracts - 1,650,000
Shares issued in connection with management termination contract - 7,700,000
Amortization of deferred compensation - 16,497
Shares issued through dividend reinvestment plan - 11,249,153
-------------------------------------
Balance at September 30, 1997 ($30,463,845) $315,804,270
=====================================
</TABLE>
See accompanying notes to financial statements.
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<CAPTION>
CORNERSTONE REALTY INCOME TRUST, INC.
STATEMENT OF CASH FLOWS (UNAUDITED)
<S> <C>
Nine Months Ended
September 30,
1997 1996
-----------------------------------------------------
Cash flow from operating activities:
Net income $13,867,890 $8,227,531
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 10,849,869 5,178,031
Amortization of deferred compensation 16,497 16,500
Amortization of Apple Realty Group contract purchase 626,000
Management contract termination 402,907
Changes in operating assets and liabilities:
Prepaid expenses 196,750 (460,067)
Other assets (160,061) (718,133)
Accounts payable (1,196,288) 122,654
Accrued expenses 1,823,866 1,304,402
Rent received in advance (254,894) 102,236
Tenant security deposits 224,647 737,891
--------------------- -----------------
Net cash provided by operating activities 26,397,183 14,511,045
Cash flow from investing activities:
Acquisitions of rental property (108,564,222) (152,147,269)
Capital improvements (18,343,087) (13,772,619)
Purchase of Apple Realty Group contract (350,000) -
Purchase of Apple Residential Income Trust, Inc. common stock (3,760,000) -
--------------------- -----------------
Net cash used in investing activities (131,017,309) (165,919,888)
Cash flow from financing activities:
Proceeds from short-term borrowings 209,187,294 122,112,144
Repayments of short-term borrowings (141,300,147) (103,812,144)
Net proceeds from issuance of shares 60,687,079 140,550,493
Increase (decrease) in commissions payable to underwriters - (6,787)
Cash distributions paid to shareholders (22,686,901) (10,314,239)
--------------------- -----------------
Net cash provided by financing activities 105,887,325 148,529,467
Increase in cash and cash equivalents 1,267,199 (2,879,376)
Cash and cash equivalents, beginning of year 3,182,651 7,073,147
--------------------- -----------------
Cash and cash equivalents,
end of period $4,449,850 $4,193,771
===================== =================
</TABLE>
See accompanying notes to financial statements
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC
Notes to Financial Statements (Unaudited)
September 30, 1997
(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 and nine months ended September 30,
1997 are not necessarily indicative of the results that may be expected
for the year ended December 31, 1997. These financial statements should
be read in conjunction with the Company's December 31, 1996 Form 10-K.
During the first quarter of 1997, the Financial Accounting Standards
Board issued a new statement on the calculation of earnings per share
which is effective beginning in the 4th quarter of 1997 and early
adoption is prohibited. Under the new statement, primary and fully
dilutive earnings per share are replaced with basic and diluted
earnings per share. The Company's basic earnings per share for the nine
month period ended September 30, 1997, according to the new statement,
would not change materially from the reported amounts.
In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments
of an Enterprise and Related Information." The Company will adopt SFAS
No. 131 in 1998. SFAS No. 131 will not have any impact on the financial
results or financial condition of the Company, but will result in
certain changes in required disclosures of segment reporting.
Certain previously reported amounts have been reclassified to conform
with the current financial statement presentation.
(2) Notes Payable
In January 1997, the Company increased its unsecured line of credit to
$85 million. In February 1997, the Company obtained a $100 million
unsecured line of credit from a consortium of three banks to fund
property acquisitions. The unsecured line of credit was used to repay
the outstanding balance of approximately $75 million on the existing
line of credit. The new line of credit bears interest at the one-month
LIBOR plus 160 basis points. In addition, the Company is obligated to
pay the lenders a quarterly commitment fee equal to .25% per annum of
the unused portion of the line. The entire balance is due on March 31,
1998. The Company also obtained a $5 million unsecured line of credit
for general corporate purposes. This line of credit also bears interest
at LIBOR plus 160 basis points and is due on March 31, 1998. The
Company obtained a temporary $30 million unsecured line of credit to
fund property acquisitions which bears the same terms as the $100
million unsecured line of credit and expires on November 1, 1997. At
September 30, 1997, borrowings under these agreements were $118
million.
<PAGE>
In October, 1997, the Company obtained a $175 million unsecured line of
credit from a consortium of six banks to fund property acquisitions.
The unsecured line of credit was used to repay the outstanding balance
of approximately $118. The new line of credit bears interest at the
LIBOR plus 120 basis points. In addition, the Company is obligated to
pay lenders a quarterly commitment fee equal to .20% per annum of the
unsecured portion of the line. The entire balance is due on October 30,
2000. As of November 1, 1997, the outstanding balance on the new line
of credit was $144 million.
As of September 30, 1997, the interest rate on the $100 million
unsecured line of credit was 7.2562% and the outstanding balance was
approximately $80.8 million. The outstanding balance at September 30,
1997 on the $5 million unsecured line of credit was approximately $1.3
million.
(3) Related Parties
Prior to September 30, 1996, the Company operated as an externally
advised and externally-managed REIT. Cornerstone Advisors, Inc., served
as the advisor, Cornerstone Management Group, Inc. served as the
property manager, and property acquisition services were provided by
Cornerstone Realty Group, Inc. Glade M. Knight, Chairman and Chief
Executive Officer of the Company, held all of the stock of Cornerstone
Advisors, Inc., Cornerstone Management Group, Inc. and Cornerstone
Realty Group, Inc. (collectively, the External Companies). By agreement
Mr. Knight held part of the stock of the External Companies for the
account and interest of each of Stanley J. Olander, Jr. (the Company's
Chief Financial Officer) and Debra A. Jones (the Company's Chief
Operating Officer).
As of October 1, 1996, the Company entered into a series of related
party transactions with the External Companies, the effect of which was
to convert the Company into a self-administered and self-managed REIT.
The transactions were unanimously approved by the independent members
of the Board of Directors.
The Company during the nine months ended September 30,1996 paid
Cornerstone Management Group $ 1,226,873, Cornerstone Realty Group,
Inc., $1,957,624, And Cornerstone Advisors, Inc. $295,759. Due to the
Company's conversion from "externally advised" and "externally managed"
REIT, these expenses do not exist for the quarter ended September 30,
1997. As a result of this conversion, officers are now employees of the
Company and their salaries are included in property management and
general and administrative expenses.
In August 1996, Mr. Knight organized Apple Residential Income Trust,
Inc. (Apple) for the purpose of acquiring apartment communities in
Texas. On March 1, 1997, the company, with Apple's approval, entered
into subcontract agreements with the entities that provide advisory and
property management services whereby the Company will provide advisory
and property management services to Apple in exchange for fees and
expense reimbursement. The Company is entitled to a property management
fee of 5% of the monthly gross revenues of the Apple properties and an
advisory fee equal to .1% to 25% of total contributions received by
Apple.
<PAGE>
During March 1997, the Company acquired all the assets of Apple Realty
Group, Inc. which provided the service of acquiring and disposing of
real estate assets held by Apple . The sole asset of the company was
the acquisition\disposition agreement with Apple. The Company paid
$350,000 in cash and issued common shares valued at $1,650,000. The
Company is entitled to a real estate commission equal to 2% of the
gross purchase price of Apple's properties. The purchase price of the
contract is being amortized over the remaining term of the contract as
fees are collected.
As of September 30, 1997, the Company had earned approximately
$1,476,041 for all of the subcontracted and acquisition related
services.
Apple granted the Company a continuing right to own up to 9.8% of the
common shares of Apple at the market price, net of selling commissions.
In April, the Company committed to purchase shares of Apple for
approximately $3.76 million which represented approximately 9.5% or
417,778 of the total common shares of Apple outstanding as of March 1,
1997. The Company may with the approval of the board of directors, if
the board of directors determine it is in the best interests of the
Company and its shareholders, purchase additional common shares of
Apple as of the end of each calendar quarter in order to maintain its
ownership of approximately 9.5% of the outstanding common shares of
Apple. The Board will evaluate the feasibility of offering to purchase
Apple from time to time.
(4) Subsequent Events
In October, 1997, the Company distributed to its shareholders
approximately $8,637,969 (25 cents per share) of which approximately
$2,942,602 was reinvested in the purchase of additional shares of the
Company.
During October 1997, the Company purchased Sterling Place Apartments, a
136-unit apartment community and Sterling Arbor Apartments, 180-unit
apartment community . Both properties are located in Raleigh, North
Carolina. Their purchase prices were $7.9 million and $9.8 million,
respectively. In addition, the Company purchased Barrington Parc
Apartments, a 188-unit apartment community located in Gwinnett County,
Georgia (a suburb of Atlanta) for a purchase price of $7.85 million.
.
(5) Acquisitions (unaudited)
<PAGE>
The following unaudited pro forma information for the nine months ended
September 30, 1997 and 1996 assumes the property acquisitions made
during 1996 and 1997 were made by the Company on January 1, 1996, and
is presented as if (a) 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 (b) the Company had used proceeds from
its best efforts offering for properties acquired before the completion
of the offering in July 1996. Properties acquired after the completion
of the offering were assumed to be acquired using the Company's line of
credit or from proceeds of an equity offering completed in April 1997.
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, 1996 nor does it
purport to represent the results of operations for future periods.
<PAGE>
Nine Months Nine Months
Ended Ended
9/30/97 9/30/96
Rental income $55,685,686 $47,231,712
Net income $15,247,311 $11,098,486
Net income per share $.44 $.38
The pro forma information reflects adjustments for the actual rental
income and rental expenses of 20 of 21 1996 acquisitions and 7 of 10
1997 acquisitions for the respective periods in 1997 and 1996 prior to
acquisition by the Company. Net income has been adjusted as follows:
(1) property management expenses equal to 5% of rental income plus
$2.50 per apartment per unit per month have been adjusted based on the
Company's contractual arrangements until such arrangements were
terminated in October 1996; (2) advisory fee equal to .25% of
accumulated capital contributions has been adjusted based on
contractual arrangements until such time the arrangement was terminated
in October 1996; (3) depreciation expense has been adjusted based on
the Company's basis in depreciable assets for the period not owned by
the Company using a 27.5 year useful life
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
INCOME AND OCCUPANCY The Company's property operations for the three
and nine months ended September 30, 1997 reflect the operations from
the 40 properties acquired before 1997 and from the 10 properties
acquired in 1997 from their respective acquisition dates. The increase
in rental income and operating expenses from third quarter 1996 to
third quarter 1997 is primarily due to a full quarter of operation of
the 1996 acquisitions as well as the incremental effect of the 1997
acquisitions.
Substantially all of the Company's income is from the rental operation
of apartment communities. Rental income for the first nine months
increased to $50,231,191 in 1997 from $26,714,877 in 1996. Rental
income for the quarter ended September 30, increased from $11,495,302
in 1996 to $18,354,354 in 1997. The increase is due to a combination of
rental increases and property acquisitions with the latter having the
most significant impact. 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 and investment income for the nine
months ended September 30, 1997 and 1996 was $209,947 and $237,651,
respectively and $106,107 and $46,438 for the three months ended
September 30, 1997 and 1996, respectively. For the three months and
nine months ended September 30, 1997, the Company received
approximately $573,335 and $1,476,041, respectively, for all of the
subcontracted and acquisition related services from Apple Residential
Income Trust, Inc. (see Note 3).
The economic occupancy levels for the Company's properties averaged 93%
and 92% at the end of the nine months ended September 30, 1997 and
1996, respectively and 94% and 93% for the three months ended September
30, 1997 and 1996, respectively. Overall, average rental rates for the
portfolio increased from $517 to $529 per month for the nine months
ended September 30, 1997 and 1996, respectively. For the three months
ended September 30, 1997 and 1996, the average rental rates increased
from $533 to $564.
COMPARABLE PROPERTY OPERATIONS
On a comparative basis, the nineteen properties acquired prior to 1996
provided rental and operating income of $7,003,573 and $4,225,595,
respectively during the quarter ended September 30, 1997 and $6,596,781
and $3,658,228 in 1996 for the same period. This represents an increase
from the quarter ended September 30, 1996 to the quarter ended
September 30, 1997 of 6% and 16%, respectively. For the nine months
ended September 30, 1997, these properties provided rental and
operating income of $20,439,105 and $12,408,649, respectively, and
$18,940,090 and $10,583,064 in 1996 for the same period. This
represents an increase from the nine months ended September 30, 1996 to
the nine months ended September 30, 1997 of 8% and 9%, respectively.
The conversion to "self-management" took place in October 1996.
Therefore, the actual results for property operations contained nine
months of management expense in 1996. In order to make a meaningful
comparison of operating income for these properties between the three
and nine months ended September 30, 1997 and 1996 property management
expenses need to be eliminated from 1996. This adjustment allows for a
comparison on a "self-administered" and "self-managed" basis. As
adjusted, the properties provided operating income of $4,225,595 and
$3,898,009 for the quarter ended September 30, 1997 and 1996,
respectively, and $12,408,649 and $11,406,884 for the nine months ended
September 30, 1997 and 1996, respectively. This represents an increase
in operating income of 8.4 % and 8.8% for the quarter and nine months
ended, respectively. The eliminated expenses included property
management fees of $239,781 for the quarter September 30, 1996 and
$932,820 for the nine months ended September 30, 1996.
EXPENSES Total expenses for the first nine months increased to
$33,208,898 in 1997 from $18,170,349 in 1996 and for the three months
ended increased to $11,749,685 in 1997 from $8,023,973 in 1996. The
increases are due largely to the acquisition of properties. The
operating expense ratio (the ratio of rental expenses, excluding
management contract termination, general and administrative,
amortization and depreciation expense, to rental income) was 41% and
46% for the nine months ended September 30, 1997 and 1996,
respectively, and 40%and 46% for the quarter ended September 30, 1997
and 1996, respectively. In addition, the Company incurred interest
expense of $4,840,391 and $554,648 during the first nine months of 1997
and 1996, respectively, and $1,947,265 and $211,559 during the three
months ended September 30, 1997, respectively, which related to
borrowings for property acquisitions and improvements. The increase in
interest expense is primarily attributable to increases in average
borrowings.
Depreciation expense for the first nine months has increased to
$10,791,653 in 1997 from $5,155,108 in 1996. The increase is due to the
1997 acquisitions and a full nine months of depreciation for 1996
acquisitions. For the quarter ended September 30, 1997 and 1996,
depreciation expense has increased from $2,451,036 to $3,834,463 for
the same reasons.
<PAGE>
General and administrative expenses totaled 2% of the total rental
income for the three months ended and nine months ended September 30,
1997 and 3% for the same period in 1996. This percentage is expected to
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.
Liquidity and Capital Resources
GENERAL There was a significant change in the Company's liquidity
during the nine months ended ended September 30, 1997 as the Company
continued to acquire properties. Using the proceeds from its line of
credit, the Company acquired 2,385 apartment units in eight residential
rental communities during the nine months ended September 30, 1997.
These acquisitions brought the total number of residential communities
to 48 and the total apartment units owned at September 30, 1997 to
11,418.
<PAGE>
<TABLE>
<CAPTION>
The following is a summary of the properties acquired during 1997:
Property Name Date Acquired Units Purchase Price Location
<S> <C>
The Arbors at Windsor Lake
Apartments January 1997 228 $10,875,000 Columbia, SC
Westchase Apartments January 1997 352 $11,000,000 Charleston, SC
Paces Arbor Apartments March 1997 101 $ 5,588,219 Raleigh, NC
Paces Forest Apartments March 1997 117 $ 6,473,481 Raleigh, NC
Ashley Run Apartments April 1997 348 $18,000,000 Norcross, GA
Carlyle Apartments April 1997 243 $11,580,000 Lawrence, GA
Charleston Place Apartments May 1997 214 $ 9,475,000 Charlotte, NC
Italian Village Apartments August 1997 204 $ 7,425,000 Charlotte, NC
Dunwoody Springs Apartments July 1997 350 $15,200,000 Dunwoody, GA
Clarion Crossing Apartments September 1997 228 $10,600,000 Raleigh, NC
</TABLE>
NOTES PAYABLE The Company continued to acquire property and finance
improvements during the quarter using its unsecured lines of credit
with the consortium of banks. The balance on the line of credit as of
June 30, 1997 was $82.1 million. During the quarter ended September 30,
1997 the Company borrowed an additional $44.6 million against the lines
of credit in conjunction with property acquisitions and improvements
and operating purposes and repaid $9 million of the balance. As of
September 30, 1997, the outstanding debt balance included approximately
$117.8 million on the lines of credit and the $5,500,000 unsecured note
as discussed in Note 2 to the financial statements.
CAPITAL REQUIREMENTS The Company has an ongoing commitment to fund its
renovation program for recently acquired property. In addition, the
Company is always assessing potential acquisitions and intends to
acquire additional properties during 1997. However, no material
commitments existed on November 1, 1997 for the purchase of additional
properties. The source to fund the improvements and acquisitions is
from a variety of sources including additional equity generated from
the reinvestment of shareholder dividends, cash reserves and debt
provided by its line of credit.
The Company capitalized $18.3 million of improvements to its various
properties during the year. It is anticipated that some $13 million
additional capital improvements will be completed during the next year
on the current portfolio.
The Company has a continuing right to own up to 9.8% of the common
shares of Apple at the market price, net of selling commissions. The
Company purchased 417,778 shares of Apple for approximately $3.76
million which represents 5% of the total common shares of Apple
outstanding as of September 30, 1997.
During May 1997, the Company issued 5,175,000 shares in a public market
offering which represented net proceeds to the Company after
underwriting discounts and commissions of $49,580,778. Concurrent with
the offering, the Company became listed on the New York Stock Exchange.
The Company has short-term cash flow needs in order 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 and distributions.
Capital resources are expected to grow with the future sale of its
shares and from cash flow from operations. In general, the Company's
liquidity and capital resources are expected to be adequate to meet its
cash requirements in 1997.
INFLATION The Company does not believe that inflation had any
significant impact on the operation of the Company during the nine
months ended September 30, 1997. 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.
Inflation may also cause capital appreciation of the Company's
properties over time, as rental rates and replacement costs increase.
<PAGE>
Part II, Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
The following table lists the reports on Form 8-K filed by the Company
during the quarter ended September 30, 1997, the items reported and the
financial statements included in such filings.
<TABLE>
<CAPTION>
Type and Date
of Reports Items Reported Financial Statements Filed
<S> <C>
Form 8-K dated May 14, 1997 2, 7(a), (d) Historical Statement of Income and Direct
Operating Expenses of Charleston Place
Apartments for the twelve months ended
April 30, 1997.
Form 8-K/A (date of 7(b), (c), (d) Historical Statement of Income and Direct
Original Report: Operating Expenses of Dunwoody
May 14, 1997) Apartments for the twelve months ended
June 30, 1997.
Form 8-K/A (date of 7(c) None
Original Report:
(March 27, 1997)
Form 8-K dated 2 None
August 28, 1997
</TABLE>
<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: 11/11/97 BY: /s/ Stanley J. Olander
----------------------
Stanley J. Olander
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 4,449,850
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 456,623,162
<DEPRECIATION> 23,166,762
<TOTAL-ASSETS> 445,292,524
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 346,306,618
<OTHER-SE> (30,502,348)
<TOTAL-LIABILITY-AND-EQUITY> 445,292,524
<SALES> 0<F2>
<TOTAL-REVENUES> 50,231,191
<CGS> 0
<TOTAL-COSTS> 33,208,898
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,840,391
<INCOME-PRETAX> 13,867,890
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,867,890
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,867,890
<EPS-PRIMARY> 0.44
<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>
