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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File Number
December 31, 1997 1-12875
CORNERSTONE REALTY INCOME TRUST, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1589139
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
306 EAST MAIN STREET
RICHMOND, VA 23219
(Address of principal executive offices) (Zip Code)
(804) 643-1761
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED:
- ------------------- --------------------------------------
Common shares, no par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Common shares, no par value
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 [ ]
Based on the closing sales price of March 1, 1998, the aggregate market value of
the voting common equity held by non-affiliates of the registrant on such date
was $429,495,753*.
On March 1, 1998, there were approximately 35,750,753 common shares outstanding.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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* In determining this figure, the Company has assumed that all of its officers
and directors, and persons known to the Company to be beneficial owners of
more than 5% of the Company's common shares, are affiliates. Such assumptions
should not be deemed conclusive for any other purpose.
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DOCUMENTS INCORPORATED BY REFERENCE
The portions of the registrant's current report on Form 8-K dated October 31,
1996 referred to in Part I.
The portions of the registrant's current report on Form 8-K dated March 27, 1997
referred to in Part I.
The portions of the registrant's current report on Form 8-K dated May 14, 1997
referred to in Part I.
The portions of the registrant's current report on Form 8-K dated August 28,
1997 referred to in Part I.
The portions of the registrant's current report on Form 8-K dated September 30,
1997 referred to in Part I.
The portions of the registrant's current report on Form 8-K dated October 31,
1997 referred to in Part I.
The portions of the registrant's annual report to security holders for the
fiscal year ended December 31, 1997 referred to in Part II.
The registrant's Proxy Statement dated April 3, 1998, referred to in Part III.
INTRODUCTION
This Annual Report contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1993, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such forward-looking statements
include, without limitation, statements concerning anticipated lower expenses
from the Company's conversion to self-administration, anticipated improvements
in financial operations from completed and planned property renovations, and
expected benefits from the Company's ownership of stock in Apple Residential
Income Trust, Inc. ("Apple") and the acquisition, advisory and property
management services provided to Apple. Such statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievement of the Company to be materially different from the
results of operations or plans expressed or implied by such forward-looking
statements. Such factors include, among other things, unanticipated adverse
business developments affecting the Company, the properties or Apple, as the
case may be, adverse changes in the real estate markets and general and local
economies and business conditions. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore there can
be no assurance that such statements included in this Annual Report will prove
to be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the results or conditions described in such statements or the objectives
and plans of the Company will be achieved. In addition, the Company's continued
qualification as a real estate investment trust ("REIT") involves the
application of highly technical and complex provisions of the Internal Revenue
Code. Readers should carefully review the Company's financial statements and the
notes thereto, as well as the risk factors described in the Company's filings
with the Securities and Exchange Commission.
PART I
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ITEM 1. BUSINESS
Cornerstone Realty Income Trust, Inc. (together with its subsidiary, the
"Company"), a Virginia corporation, was incorporated in August 1989. Initial
capitalization occurred on August 18, 1992. Operations of rental property
commenced on June 1, 1993. The business of the Company is to acquire and operate
existing residential apartment complexes located in the mid-Atlantic and
southeastern United States. The Company owned fifty-one properties comprising
11,922 apartment units within that region as of December 31, 1997. The Company's
property acquisitions are described in Item 2 of this report, which is hereby
incorporated herein by reference. Currently, Cornerstone Realty Income Trust,
Inc. owns directly all of its properties other than those in North Carolina, and
those in North Carolina are owned by CRIT-NC, LLC, a Virginia limited liability
company organized in December 1997 that is wholly-owned by Cornerstone Realty
Income Trust, Inc.
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The Company, a self-administered and self-managed equity REIT headquartered
in Richmond, Virginia, is a fully integrated real estate organization with
expertise in the management, acquisition and renovation of apartment
communities.The Company maintains an intense focus on the operations of its
properties to generate consistent, sustained growth in net operating income
("NOI"), which it believes is the key to growing funds from operations per
common share. The Company believes that successful implementation of this
strategy will allow it to continue to increase its NOI from its apartment
portfolio. Through renovation and enhanced property management of the apartment
communities, the Company strives to increase cash flows, thereby adding value to
the underlying real estate.
The Company's objective is to increase distributable cash flow and common share
value by:
- - Increasing rental rates, maintaining high economic occupancy rates, and
controlling costs at the properties; and
- - Acquiring additional properties at attractive prices that provide the
opportunity to improve operating performance through the application of the
Company's management, marketing and renovation programs.
The Company has seven regional property management offices, located in
Blacksburg and Virginia Beach, Virginia; Raleigh, Charlotte and Wilmington,
North Carolina; Columbia, South Carolina; and Atlanta, Georgia. The Company
currently has approximately 400 employees, including specialists in acquisition,
management, marketing, leasing, development, accounting and information systems.
The Company's executive officers have substantial experience with apartment
properties, having been responsible for the management, acquisition and
renovation of more than 20,000 apartment units over the last 24 years using the
strategies and techniques described below. The Company's top three executive
officers have an average of approximately 16 years each in the management,
acquisition and renovation of residential apartment communities.
GROWTH THROUGH MANAGEMENT AND LEASING
The Company seeks to increase net operating income through active property
management, which includes keeping rental rates at or above market levels,
maintaining high economic occupancy through tenant retention, creating a
property identity and effectively marketing each property, and controlling
operating expenses at the property level.
Management develops the overall management and leasing strategy, including
goals and budgets, for each property. In order to achieve each property's
objectives, management delegates significant decision-making responsibility to
regional and on-site employees, thereby instilling in its employees a sense of
ownership of their property. Management believes that this strategy is an
effective way to maximize each property's potential. In order to achieve desired
results, the Company emphasizes training for its on-site employees as well as
raising rents to be at or above the market for comparable properties. The
Company also ties on-site employees' bonuses to both net operating income
targets established for their respective properties and the Company's overall
financial performance.
Management believes that tenant retention is critical to generating net
operating income growth. Tenant retention maintains or increases economic
occupancy and minimizes the costs associated with preparing apartments for new
occupants. The Company employs one person at each property who has a primary
focus on tenant retention. The tenant retention specialist's objective is to
make tenants feel at home in the community through personal attention, which
includes organizing social functions and activities as well as responding
promptly to any tenant problems that may arise in conjunction with the apartment
or community. The Company's philosophy is to market its properties continually
to existing tenants in order to achieve a low turnover rate. The Company
believes that the turnover rate of its properties is below the average turnover
rate for comparable apartment communities.
The Company seeks to create a unique identity for each property by
emphasizing curb appeal, signage, and attractive common area facilities, such as
clubhouses and swimming pools. The Company has upgraded or renovated many of the
properties' common area facilities after acquisition. Each property is marketed
as a "Cornerstone Community" but typically has an individual property name tied
to a
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local theme. Each property has a dedicated on-site marketing person whose
responsibility is to position and market the property within the local community
through such activities as media advertising, on-site promotional events and
personal calls to local businesses.
Operating expenses are controlled at each property by setting budgets at
the corporate level and requiring that any expense over budget at a property be
approved by management. Purchase discounts are sought at both the corporate
level and locally in those areas where the Company has a significant presence.
All contracts for goods and services are re-bid annually to ensure competitive
pricing. The Company has a preventive maintenance program and the ability to
perform work using in-house personnel, which helps the Company to reduce
expenses at the properties. For example, the maintenance manager at each
property is qualified to perform HVAC and plumbing work which otherwise would be
contracted outside the Company.
GROWTH THROUGH ACQUISITIONS, RENOVATIONS AND EXPANSION
The Company seeks to generate growth in net operating income through
acquisitions by: (i) acquiring under-performing assets at less than replacement
cost; (ii) correcting operational problems; (iii) making selected renovations;
(iv) increasing economic occupancy; (v) raising rental rates; (vi) implementing
cost controls; and (vii) providing enhanced property and centralized management.
In markets that it targets for acquisition opportunities, the Company attempts
to gain a significant local presence in order to achieve operating efficiencies.
In analyzing acquisition opportunities, the Company considers acquisitions of
property portfolios as well as individual properties.
The Company has demonstrated an ability to grow through acquisitions. The
Company's first two properties were acquired in June of 1993. At December 31,
1997, the Company owned and operated 51 apartment communities.
The Company analyzes specific criteria in connection with a proposed
acquisition. These criteria include: (i) the market in which a property is
located and whether it has a diversified economy, stable employment base and
increasing average household income; (ii) the property's current and projected
cash flow and the ability to increase net operating income; (iii) the condition
and design of the property and whether the property can benefit from
renovations; (iv) historical and projected occupancy rates; (v) geographic
location in light of the Company's diversification objectives; and (vi) the
purchase price of the property as it relates to the cost of new construction.
The Company believes it has been and will be able to purchase properties at
less than replacement cost because of the presence of deferred maintenance,
management neglect, or prior owner's financial distress. Upon acquisition, the
Company seeks to improve both operating results and property identity through a
24-month renovation policy that includes selective renovations such as new
roofs, new exterior siding, exterior painting, clubhouse renovation and
construction, and interior refurbishment. The Company has invested in
renovations to its properties approximately $23 million in 1997, approximately
$19.0 million in 1996, approximately $7.1 million in 1995, and approximately
$6.1 million in 1994. To date, these actions have permitted the Company to
increase rental rates and improve economic occupancy rates at the properties.
Because the Company has grown and plans to continue to grow through
property acquisitions, management has created a system establishing "Takeover
Teams" to provide immediate transitional management and leasing services to
newly-acquired properties and to implement quickly the Company's operational
programs and policies. A Takeover Team consists of senior property management
personnel as well as marketing and maintenance specialists from other
communities owned by the Company. The Takeover Team remains at a property until
the Company's management and leasing programs have been installed and the new
on-site team is fully operational. Typically, this process takes two to four
weeks to complete.
The Company has made, and may in the future make, acquisitions of
established apartment communities involved in foreclosure proceedings. In this
situation, the Company seeks properties that have below market-rate leases,
correctable vacancy problems or inefficient property management. The Company
also may make acquisitions of properties from over-leveraged owners of
properties, governmental regulatory authorities, lending institutions that have
taken control of such properties, mortgagees-in-possession and, possibly,
through bankruptcy reorganization proceedings.
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If sufficient tenant demand exists and suitable land is available, the
Company may construct additional apartment units on land adjacent to certain
properties. The Company believes that its successful experience with large-scale
property renovation will also permit strategic and cost-effective property
expansion. It is the Company's policy to acquire such additional apartment units
on a "turn-key" basis from a third party contractor, thereby minimizing the
risks normally associated with development and lease-up.
Currently, the Company has planned expansion projects for two existing
properties: Glen Eagles and The Meadows. Glen Eagles is a 166-unit apartment
community located in Winston-Salem, North Carolina. The land adjacent to the
community will accommodate approximately 220 additional apartment units that can
be served by existing amenities. At The Meadows, a 176-unit community in
Asheville, North Carolina, there is additional land for approximately 250
additional apartment units. The Company has acquired these parcels and
transferred them to a developer for construction and lease-up of the additional
apartment units with the agreement that the developer will transfer the
completed apartment units back to the Company. The Company does not have
interests in any land adjacent to any other properties it now owns, but may
acquire land or options to acquire land of this type adjacent to other
properties it may acquire in the future.
FINANCING POLICY
The Company's objective is to seek capital as needed at the lowest possible
cost. In addition to obtaining capital from future sales of common shares (or
preferred shares, if authorized in the future), the Company may obtain lines of
credit or other unsecured borrowings. The Company is also not precluded from
engaging in secured borrowings, although its current policy is to hold its
properties on an unmortgaged basis, and as of December 31 1997, it had no
secured debt. The Company may also seek eventually to issue investment-grade
debt, although there is no assurance that this will occur.
In April 1997, the Company issued 5,175,000 common shares at $10.50 per
common share, which resulted in proceeds to the Company after underwriting
discounts and other offering costs of $49.3 million, which was used by the
Company to repay debt. On April 18, 1997, the Company's common shares were
listed and began trading on the New York Stock Exchange.
The Company uses an unsecured line of credit for interim financing to
assist in property acquisitions. Historically, the Company has drawn on its
unsecured lines of credit to accomplish in a timely manner property acquisitions
deemed desirable by management, and has thereafter curtailed the outstanding
balances on the lines of credit with proceeds from the sale of common shares.
The Company currently expects to continue to use this strategy.
The Company's current unsecured line of credit (the "Unsecured Line of
Credit") is in a principal amount of up to $175 million. The lenders are a
syndicate of banks with First Union National Bank as agent. The Unsecured Line
of Credit currently bears interest equal to one-month LIBOR plus 1.20%. The
interest rate is adjusted monthly and the formula for determination of the
interest rate can change based on changes in financial condition and debt level
of the Company.
The entire balance of the Unsecured Line of Credit is due on October 30,
2000. On December 31, 1997, the outstanding balance on the Unsecured Line of
Credit was $144 million. In negotiating and closing the Unsecured Line of
Credit, the Company was able to increase the amount of and reduce the interest
rate on its prior unsecured borrowings.
The Company has also obtained from First Union National Bank of Virginia a
$5.0 million unsecured line of credit for general corporate purposes. This line
of credit bears interest at LIBOR plus 1.60%, adjusted monthly, and is due on
March 31, 1999. On December 31, 1997, the outstanding balance on this loan was
approximately $2.5 million.
The Company intends to maintain a debt policy (the "Debt Limitation")
limiting the Company's total combined indebtedness plus its pro rata share of
indebtedness of any unconsolidated investments ("Joint Venture Debt") to 40% of
the Company's total equity market capitalization plus its combined indebtedness
(including its pro rata share of Joint Venture Debt).
4
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COMPANY HISTORY
The Company began operations in 1993 to continue and expand the apartment
community acquisition, renovation and management strategies of Glade M. Knight,
the Company's Chairman, Chief Executive Officer and President. During his
career, Mr. Knight has been involved in the ownership and management of over
20,000 apartment units, mainly located in the mid-Atlantic region of the United
States. Senior management of the Company, which consists of Mr. Knight, Debra A.
Jones, Chief Operating Officer, and Stanley J. Olander, Jr., Chief Financial
Officer, has worked together, in the same business as the Company, for more than
16 years. Management believes that its long-term operating experience is
invaluable in enabling the Company to operate its properties efficiently and to
identify and act upon acquisition opportunities.
APPLE RESIDENTIAL INCOME TRUST
In August 1996, Mr. Knight organized Apple Residential Income Trust, Inc.
("Apple") for the purpose of acquiring apartment communities in Texas. Apple has
elected to be taxed as a REIT. Mr. Knight is Apple's Chairman and Chief
Executive Officer. The Company will participate in Apple's growth through its
direct or indirect receipt of acquisition, disposition, management and advisory
fees, ownership of Apple common shares and possible future acquisition of Apple.
As of December 31, 1997, Apple had raised gross proceeds of $121,633,733 in an
ongoing best-efforts equity offering and had acquired 11 properties in the
Dallas, Texas area.
The Company has a continuing right to acquire and own up to 9.8% of the
common shares of Apple. The purchase price under the option equals the public
offering price for the common shares of Apple (currently $10.00 per common
share) less the related selling commissions (currently $1.00 per common share).
On April 25, 1997, the Company purchased sufficient common shares of Apple so
that it owned approximately 9.5% of the total common shares of Apple outstanding
as of March 1, 1997. As of December 31, 1997, the Company owned 417,778 common
shares of Apple, representing approximately 3% of the total common shares of
Apple outstanding as of that date.
The Company also has a right of first refusal to purchase the properties
and business of Apple. In addition to this right of first refusal to purchase
the properties and business of Apple, the Company intends from time to time, as
deemed prudent by Company management, to evaluate the possible acquisition of
Apple. Any decision to combine the Company and Apple can be made only by the
respective boards of directors, and depending on the structure of the
transaction, the respective shareholders, of the two companies. It is the
current intent of Mr. Knight and the board of directors of the Company to seek
to acquire Apple and expand the geographic diversity and size of the Company's
portfolio of properties if the board of directors of the Company determines that
such an acquisition is in the best interests of the Company. Early in 1997, the
Company stated its intention to evaluate the possible acquisition of Apple by
the end of 1997. The Company, with the assistance of certain professional
advisors, evaluated the desirability to the Company and its shareholders of a
proposal to acquire Apple in 1997. Based upon its analysis, including relevant
financial evaluations, the Company determined that it was not then in the best
interests of the Company and its shareholders to seek to acquire Apple. However,
the Company expects to reevaluate the desirability of seeking to acquire Apple
from time to time in the future.
The Company provides advisory, property management and real estate
brokerage services to Apple in exchange for fees and expense reimbursements
under a contract with Apple and subcontracts with Apple Residential Advisors,
Inc. ("ARA") and Apple Residential Management Group, Inc. ("ARMG"), the
companies that originally contracted with Apple for such services. The Company
also owns all of the nonvoting preferred shares of ARA and ARMG, which entitle
it to 95% of the economic benefits of such corporations.
ENVIRONMENTAL MATTERS
In connection with each of its property acquisitions, the Company obtains a
Phase I Environment Report, and such additional environmental reports and
surveys as are necessitated by such preliminary report. Based on such reports,
the Company is not aware of any environmental situations requiring remediation
at its properties which have not been or are not currently being remediated as
necessary.
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PROPERTY ACQUISITIONS IN 1997
The following is a summary of the 13 property acquisitions made by the
Company during 1997.
On January 14, 1997, the Company purchased The Arbors at Windsor Lake
Apartments in Columbia, South Carolina. Information with respect to this
property is hereby incorporated herein by reference from pages 19 through 22 of
the Company's Report on Form 8-K dated October 31, 1996.
On January 15, 1997, the Company acquired the Westchase Apartments in
Charleston, South Carolina. Information with respect to this property is hereby
incorporated herein by reference from pages 22 through 27 of the Company's
Report on Form 8-K dated October 31, 1996.
On March 27, 1997, the Company acquired Paces Arbor and Paces Forest
Apartments in Raleigh, North Carolina. Information with respect to these
properties is hereby incorporated herein by reference from pages 5 through 10 of
the Company's Report on Form 8-K dated March 27, 1997.
On April 30, 1997, the Company acquired Carlyle Club Apartments and Ashley
Run Apartments in Atlanta, Georgia. Information with respect to these properties
is hereby incorporated herein by reference from pages 10 through 18 of the
Company's Report on Form 8-K dated March 27, 1997.
On May 14, 1997, the Company acquired Summit Charleston Apartments (which
was subsequently renamed "Charleston Place"), in Charlotte, North Carolina.
Information with respect to this property is hereby incorporated herein by
reference from pages 4 through 7 of the Company's Report on Form 8-K dated May
14, 1997.
On July 25, 1997, the Company acquired Dunwoody Springs Apartments in
Atlanta, Georgia. Information with respect to this property is hereby
incorporated herein by reference from pages 8 through 12 of the Company's Report
on Form 8-K dated May 14, 1997.
On August 28, 1997, the Company acquired Italian Village and Villa Marina
Apartments in Charlotte, North Carolina. These properties were integrated into
and are operated as part of the Company's Heatherwood Apartments. Information
with respect to these properties is hereby incorporated herein by reference from
pages 4 through 10 of the Company's Report on Form 8-K dated August 28, 1997.
On September 30, 1997, the Company acquired Clarion Crossing Apartments in
Raleigh, North Carolina. Information with respect to this property is hereby
incorporated herein by reference from pages 3 through 7 of the Company's Report
on Form 8-K dated September 30, 1997.
On October 31, 1997, the Company acquired Barrington Parc Apartments (which
was subsequently renamed "Stone Brooke"), in Atlanta, Georgia, and Sterling
Arbors Apartments (which was subsequently renamed "St. Regis") and Sterling
Place Apartments (which was subsequently renamed "Remington Place") in Raleigh,
North Carolina. Information with respect to these properties is hereby
incorporated herein by reference from pages 4 through 15 of the Company's Report
on Form 8-K dated October 31, 1997
RECENT DEVELOPMENT
On January 15, 1998, the Company purchased Sterling Point Apartments (which
was renamed "Stone Point Apartments"), a 192-unit apartment complex in
Charlotte, North Carolina for a purchase price of $9,700,000.
ITEM 2. PROPERTIES
As of December 31, 1997, the Company owned 51 apartment communities
comprising 11,922 apartment units. The properties are located in North Carolina
(28 communities), Virginia (11 communities), South Carolina (6 communities) and
Georgia (6 communities).
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The following table sets forth specific information regarding the properties:
<TABLE>
<CAPTION>
INITIAL
YEAR DATE OF ACQUISITION
PROPERTY LOCATION COMPLETED ACQUISITION COST
- ------------------------------ --------------- ----------- ----------------- -------------
<S> <C> <C> <C> <C>
GEORGIA
Ashley Run ................... Atlanta 1987 April 1997 $18,000,000
Carlyle Club ................. Atlanta 1974 April 1997 11,580,000
Dunwoody Springs ............. Atlanta 1981 July 1997 15,200,000
Stone Brook .................. Atlanta 1986 October 1997 7,850,000
Savannah West ................ Augusta 1968 July 1996 9,843,620
West Eagle Greens ............ Augusta 1974 March 1996 4,020,000
NORTH CAROLINA
The Meadows .................. Asheville 1974 January 1996 6,200,000
Beacon Hill .................. Charlotte 1985 May 1996 13,579,203
Bridgetown Bay ............... Charlotte 1986 April 1996 5,025,000
Charleston Place ............. Charlotte 1986 May 1997 9,475,000
Hanover Landing .............. Charlotte 1972 August 1995 5,725,000
Heatherwood .................. Charlotte (3) (3) 17,630,457
Meadow Creek ................. Charlotte 1984 May 1996 11,100,000
Paces Glen ................... Charlotte 1986 July 1996 7,425,000
Sailboat Bay ................. Charlotte 1973 November 1995 9,100,000
Summerwalk ................... Concord 1983 May 1996 5,660,000
Deerfield .................... Durham 1985 November 1996 10,675,000
The Landing .................. Durham 1984 May 1996 8,345,000
Parkside at Woodlake ......... Durham 1996 September 1996 14,663,886
Wind Lake .................... Greensboro 1985 April 1995 8,760,000
Signature Place .............. Greenville 1981 August 1996 5,462,948
Clarion Crossing ............. Raleigh 1972 September 1997 10,600,000
Highland Hills ............... Raleigh 1987 September 1996 12,100,000
The Hollows .................. Raleigh 1974 June 1993 4,200,000
Paces Arbor .................. Raleigh 1986 March 1997 5,588,219
Paces Forest ................. Raleigh 1986 March 1997 6,473,481
Remington Place .............. Raleigh 1985 October 1997 7,900,000
St. Regis .................... Raleigh 1986 October 1997 9,800,000
The Trestles ................. Raleigh 1987 December 1994 10,350,000
Chase Mooring ................ Wilmington 1968 August 1994 3,594,000
Osprey Landing ............... Wilmington 1974 November 1995 4,375,000
Wimbledon Chase .............. Wilmington 1976 February 1994 3,300,000
Glen Eagles .................. Winston Salem 1986 October 1995 7,300,000
Mill Creek ................... Winston Salem 1984 September 1995 8,550,000
</TABLE>
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<TABLE>
<CAPTION>
DECEMBER
AVERAGE YEAR-TO-DATE
TOTAL AVERAGE RENT PER ECONOMIC
TOTAL INVESTMENT UNIT SIZE MONTH(5) OCCUPANCY
INVESTMENT AT NUMBER PER UNIT AT (SQUARE ---------------- ---------------
PROPERTY 12-31-97(1) OF UNITS 12-31-97 FEET) 1996(2) 1997 1996(2) 1997
- ------------------------------ --------------- ---------- ------------- ---------- --------- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GEORGIA
Ashley Run ................... 18,684,443 348 53,691 1150 -- 704 -- 91%
Carlyle Club ................. 12,237,864 243 50,362 1089 -- 705 -- 88%
Dunwoody Springs ............. 16,594,594 350 47,413 948 -- 643 -- 91%
Stone Brook .................. 7,953,881 188 42,308 937 -- 633 -- 85%
Savannah West ................ 12,501,309 456 27,415 877 420 470 85% 85%
West Eagle Greens ............ 6,056,355 165 36,705 796 425 455 85% 85%
NORTH CAROLINA
The Meadows .................. 7,460,262 176 42,388 1068 587 601 91% 96%
Beacon Hill .................. 14,517,795 349 41,598 734 554 552 93% 92%
Bridgetown Bay ............... 5,763,770 120 48,031 867 579 602 94% 95%
Charleston Place ............. 10,007,406 214 46,764 806 -- 585 -- 94%
Hanover Landing .............. 7,264,857 192 37,838 832 528 513 92% 93%
Heatherwood .................. 18,903,942 476 39,714 1186 307 578 94% 91%
Meadow Creek ................. 12,295,434 250 49,182 860 591 476 95% 94%
Paces Glen ................... 8,027,477 172 46,671 907 617 626 95% 94%
Sailboat Bay ................. 13,198,131 358 36,866 906 514 550 76% 87%
Summerwalk ................... 7,139,674 160 44,623 963 528 575 97% 96%
Deerfield .................... 11,095,295 204 54,389 888 739 751 89% 94%
The Landing .................. 9,827,290 200 49,136 960 578 748 96% 97%
Parkside at Woodlake ......... 14,929,908 266 56,127 865 721 694 96% 90%
Wind Lake .................... 9,817,050 299 32,833 727 504 490 88% 89%
Signature Place .............. 6,727,435 171 39,342 1037 481 497 94% 94%
Clarion Crossing ............. 10,812,429 228 47,423 769 -- 603 -- 93%
Highland Hills ............... 13,901,839 264 52,658 1000 683 718 97% 97%
The Hollows .................. 5,862,730 176 33,311 903 601 630 97% 94%
Paces Arbor .................. 5,836,534 101 57,787 899 -- 658 -- 94%
Paces Forest ................. 6,793,400 117 58,063 883 -- 656 -- 94%
Remington Place .............. 7,982,291 136 58,693 1098 -- 741 -- 96%
St. Regis .................... 9,887,449 180 54,930 840 -- 658 -- 94%
The Trestles ................. 11,345,191 280 40,518 776 562 582 93% 92%
Chase Mooring ................ 5,174,122 224 23,099 867 513 547 86% 89%
Osprey Landing ............... 6,842,954 176 38,880 981 526 591 89% 92%
Wimbledon Chase .............. 5,461,662 192 28,446 818 532 561 93% 97%
Glen Eagles .................. 8,863,487 166 53,394 952 622 650 93% 95%
Mill Creek ................... 9,395,861 220 42,708 897 553 557 91% 91%
</TABLE>
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<TABLE>
<CAPTION>
INITIAL
YEAR DATE OF ACQUISITION
PROPERTY LOCATION COMPLETED ACQUISITION COST
- ------------------------------------ ----------------- -------------- ------------------ ---------------
<S> <C> <C> <C> <C>
SOUTH CAROLINA
Westchase .......................... Charleston 1985 January 1997 $ 11,000,000
The Arbors at Windsor Lake ......... Columbia 1991 January 1997 10,875,000
Stone Ridge ........................ Columbia 1975 December 1993 3,325,000
Breckinridge ....................... Greenville 1973 June 1995 5,600,000
Magnolia Run ....................... Greenville 1972 June 1995 5,500,000
Polo Club .......................... Greenville 1972 June 1993 4,300,000
VIRGINIA
Trophy Chase ....................... Charlottesville 1970 April 1996 3,710,000
Greenbrier ......................... Fredericksburg 1970/1990 October 1996 11,099,525
Tradewinds ......................... Hampton 1988 November 1995 10,200,000
County Green ....................... Lynchburg 1976 December 1993 3,800,000
Ashley Park ........................ Richmond 1988 March 1996 12,205,000
Hampton Glen ....................... Richmond 1986 August 1996 11,599,931
Trolley Square ..................... Richmond (4) (4) 10,242,575
Arbor Trace ........................ Virginia Beach 1985 March 1996 5,000,000
Bay Watch Pointe ................... Virginia Beach 1972 July 1995 3,372,525
Harbour Club ....................... Virginia Beach 1988 May 1994 5,250,000
Mayflower Seaside .................. Virginia Beach 1950 October 1993 7,634,144
------------
TOTAL/AVERAGE $424,164,514
============
<CAPTION>
DECEMBER
AVERAGE
TOTAL AVERAGE RENT PER YEAR-TO-DATE
TOTAL INVESTMENT UNIT SIZE MONTH(5) ECONOMIC OCCUPANCY
INVESTMENT AT NUMBER PER UNIT AT (SQUARE ---------------- ------------------
PROPERTY 12-31-97(1) OF UNITS 12-31-97 FEET) 1996(2) 1997 1996(2) 1997
- ------------------------------------ --------------- ---------- ------------- ---------- --------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SOUTH CAROLINA
Westchase .......................... 12,199,764 352 34,658 706 -- 521 -- 95%
The Arbors at Windsor Lake ......... 11,339,651 228 49,735 966 -- 626 -- 92%
Stone Ridge ........................ 5,612,592 191 29,385 1047 508 506 90% 92%
Breckinridge ....................... 6,896,124 236 29,221 726 415 436 87% 91%
Magnolia Run ....................... 6,750,125 212 31,840 993 506 527 96% 94%
Polo Club .......................... 6,904,635 365 18,917 807 397 406 92% 88%
VIRGINIA
Trophy Chase ....................... 6,481,964 185 35,038 803 481 511 83% 90%
Greenbrier ......................... 11,813,814 258 45,790 851 590 611 95% 95%
Tradewinds ......................... 10,889,492 284 38,343 930 560 590 90% 91%
County Green ....................... 5,203,820 180 28,910 1000 491 512 91% 96%
Ashley Park ........................ 12,942,802 272 47,584 765 562 583 96% 95%
Hampton Glen ....................... 12,457,501 232 53,696 788 644 669 96% 96%
Trolley Square ..................... 12,547,009 325 38,606 589 300 526 94% 96%
Arbor Trace ........................ 5,867,816 148 39,647 850 526 563 96% 96%
Bay Watch Pointe ................... 4,881,908 160 30,512 911 574 590 88% 93%
Harbour Club ....................... 6,104,145 214 28,524 813 522 565 87% 91%
Mayflower Seaside .................. 9,517,913 263 36,190 698 664 681 94% 95%
---------- --- ------ ---- --- --- -- --
TOTAL/AVERAGE $487,575,196 11,922 $40,897 889 $549 $582 91% 92%
============ ====== ======= ==== ==== ==== == ==
</TABLE>
<PAGE>
- ------
Notes to Table of Properties:
(1) "Total Investment" includes the purchase price of the property plus real
estate commissions, closing costs and improvements capitalized since the
date of acquisition.
(2) An open item denotes that the Company did not own the property during the
period indicated.
(3) Heatherwood Apartments is comprised of Heatherwood (completed in 1980) and
Italian Village and Villa Marina Apartments (completed in 1980), acquired
in September 1996 and August 1997, respectively, at a cost of $10,205,457
and $7,425,000. They are adjoining properties and are operated as one
apartment community.
(4) Trolley Square Apartments is comprised of Trolley Square East Apartments
(completed in 1964) and Trolley Square West Apartments (completed in 1965)
acquired in June 1996 and December 1996, respectively, at a cost of
$6,000,000 and $4,242,575. They are adjacent properties and are operated as
one apartment community.
(5) Average rent per month reflects December's monthly gross potential rent
less concessions divided by the property's number of units.
8
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its apartment properties is presently
subject to any material litigation nor, to the Company's knowledge, is any
litigation threatened against the Company or any of the properties, other than
routine actions arising in the ordinary course of business, some of which are
expected to be covered by liability insurance and all of which collectively are
not expected to have a material adverse effect on the business or financial
condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common shares are traded on the New York Stock Exchange
("NYSE"). The common shares were listed on the NYSE under the symbol "TCR" on
April 18, 1997. Before that date, there was no active trading market for the
common shares. The following table sets forth the high and low sale prices on
the NYSE for the common shares (as reported by the NYSE) and the cash
distributions declared and paid for each quarterly period indicated. On March 1,
1998, the last reported sale price on the NYSE was $12.69 per common share.
<TABLE>
<CAPTION>
CASH DISTRIBUTION
1996 HIGH LOW PER COMMON SHARE
- ---- ---- --- ----------------
<S> <C> <C> <C>
First Quarter .......... -- -- $ 0.2475
Second Quarter ......... -- -- 0.2480
Third Quarter .......... -- -- 0.2485
Fourth Quarter ......... 0.2490
1997
- ----
First Quarter .......... -- -- $ 0.2500
Second Quarter ......... $ 11.25 $ 10.25 0.2500
Third Quarter .......... 12.50 10.625 0.2500
Fourth Quarter ......... 12.4375 10.125 0.2500
</TABLE>
Distributions of $31,324,870 and $15,934,901 were made to the shareholders
during 1997 and 1996, respectively.
The timing and amounts of distributions to shareholders are within the
discretion of the Company's board of directors. Future distributions will depend
on the Company's results of operations, cash flow from operations, economic
conditions and other factors, such as working capital, cash requirements to fund
investing and financing activities, capital expenditure requirements, including
improvements to and expansions of properties and the acquisition of additional
properties, as well as the distribution requirements under federal income tax
provisions for qualification as a REIT.
For federal income tax purposes, distributions paid to shareholders may
consist of ordinary income, capital gains distributions, non-taxable return of
capital, or a combination thereof. Distributions constitute ordinary income to
the extent of the Company's current and accumulated earnings and profits.
Distributions which exceed the Company's current and accumulated earnings and
profits constitute a return of capital rather than a dividend to the extent of a
shareholder's basis in his common shares and reduce the shareholder's basis in
the common shares. To the extent that a distribution exceeds both the Company's
current and accumulated earnings and profits and the shareholder's basis in his
common shares, it is generally treated as gain from the sale or exchange of that
shareholder's common shares. The Company notifies shareholders annually as to
the taxability of distributions paid during the preceding year. In 1997,
approximately 23% of distributions represented a return of capital, and the
balance represented ordinary income.
9
<PAGE>
The Company has adopted a Dividend Reinvestment and Share Purchase Plan
under which any record holder of common shares may reinvest cash dividends and
may invest additional cash payments of up to $15,000 per quarter in common
shares.
The agreement pertaining to the Company's Unsecured Line of Credit contains
certain covenants that, among other things, require maintenance of certain
financial ratios, and include restrictions on the Company's ability to make
distributions to its shareholders over certain amounts.
On March 1, 1998, there were 19,683 shareholders of record of the Company's
common shares.
As of March 1, 1997, the Company acquired all of the assets of Apple Realty
Group, Inc. (consisting of a property acquisition and disposition agreement with
Apple Residential Income Trust, Inc.) for $350,000 in cash plus 150,000 common
shares (valued at $11.00 per common share, for total consideration of
$2,000,000). The common shares were distributed to Glade M. Knight as the sole
shareholder of Apple Realty Group, Inc. The common shares so issued by the
Company were issued in a transaction not involving a public offering within the
meaning of Section 4(2) of the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA
For the information called for by this item, see the information in Exhibit
13, 1997 Annual Report, under the caption "Selected Financial Data" on page 21
thereof, which information is hereby incorporated by reference herein.
The selected financial data should be read in conjunction with the
financial statements and related notes of the Company included under Item 8 of
this Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
For the information called for by this item, see the information in Exhibit
13, 1997 Annual Report, under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" on pages 22 through 26
thereof, which information is hereby incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company and report of independent auditors
required to be included in this item are set forth in Item 14 of this report and
are hereby incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
10
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information with respect to the Company's directors and director
nominees see the information under "Ownership of Equity Securities" and
"Election of Directors" in the Company's Proxy Statement dated April 3, 1998,
which information is hereby incorporated herein by reference. For information
with respect to the Company's executive officers see "Executive Officers" in the
Company's Proxy Statement dated April 3, 1998, which information is hereby
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
For information with respect to compensation of the Company's executive
officers and directors, see the information under "Compensation of Executive
Officers" and "Compensation of Directors" in the Company's Proxy Statement dated
April 3, 1998, which information is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the information under "Ownership of Equity Securities" in the Company's
Proxy Statement dated April 3, 1998, which information is hereby incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information on certain relationships and related transactions, see the
information under "Certain Relationships and Agreements" in the Company's Proxy
Statement dated April 3, 1998, which information is hereby incorporated herein
by reference.
11
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of the report
1. Financial Statements
The following consolidated financial statements of the registrant are
included in Item 8 and incorporated by reference from pages 27 through 38 of
Exhibit 13, 1997 Annual Report.
Independent Auditors' Report -- Ernst & Young LLP
Consolidated Balance Sheets -- December 31, 1997 and 1996
Consolidated Statements of Operations -- Years Ended December 31, 1997,
1996 and 1995
Consolidated Statements of Shareholders' Equity -- Years ended December
31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows -- Years ended December 31, 1997,
1996 and 1995
Notes to Consolidated Financial Statements
2. Financial Statement Schedule
Schedule III -- Real Estate and Accumulated Depreciation (Included on
pages 14 through 17 of this Form 10-K Report)
All other financial statement schedules have been omitted because they are
not applicable or not required or because the required information is included
elsewhere in the financial statements or notes thereto.
3. Exhibits
Incorporated herein by reference are the exhibits listed under "Exhibits
Index" on pages 19 through 22 of this Form 10-K Report.
(b) Reports on Form 8-K
During the last quarter of 1997, the Company filed the following Current
Reports on Form 8-K:
On October 6, 1997, the Company filed a Report on Form 8-K/A to a Report on
Form 8-K dated May 14, 1997. The item reported was Item 7. The financial
statement filed was a Statement of Income and Direct Operating Expenses
(exclusive of certain items) for Dunwoody Springs Apartments for the twelve
months ended June 30, 1997. Also included were a Pro Forma Statement of
Operations for the six months ended June 30, 1997, a Pro Forma Balance Sheet as
of June 30, 1997, and a Pro Forma Statement of Operations for the year ended
December 31, 1996.
On October 15, 1997, the Company filed a Report on Form 8-K. The item
reported was Item 2 (the acquisition of the Clarion Crossing Apartments).
On November 10, 1997, the Company filed a Report on Form 8-K/A to a Report
on Form 8-K dated August 28, 1997. The item reported was Item 7. The financial
statement filed was a compiled (unaudited) Statement of Income and Direct
Operating Expenses (exclusive of certain items) for Italian Village Apartments,
trading as Italian Village and Villa Marina Apartments, for the twelve months
ended July 31, 1997.
On November 17, 1997, the Company filed a Report on Form 8-K. The item
reported was Item 2 (the acquisition of the Stone Brook (formerly Barrington
Parc), St. Regis (formerly Sterling Arbor) and Remington Place (formerly
Sterling Place) Apartments.
12
<PAGE>
On December 12, 1997, the Company filed a Report on Form 8-K/A to a Report
on Form 8-K dated September 30, 1997. The item reported was Item 7. The
financial statement filed was a Statement of Income and Direct Operating
Expenses (exclusive of certain items) for Clarion Crossing for the twelve months
ended August 31, 1997. Also included were a Pro Forma Statement of Operations
for the nine months ended September 30, 1997, and Pro Forma Statement of
Operations for the year ended December 31, 1996.
13
<PAGE>
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION (AS OF DECEMBER 31, 1997)
<TABLE>
<CAPTION>
INITIAL COST SUBSEQUENTLY CAPITALIZED GROSS AMOUNT CARRIED
-------------- ----------------------------- -----------------------------
ENCUM-
DESCRIPTION BRANCES LAND BLDG. & IMPR. IMPR. LAND BLDG. & IMPR.
- ----------------------- --------- -------------- --------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1) Polo Club $0 $ 264,698 $4,035,302 $2,604,635 $ 264,698 $6,639,937
* Greenville, SC
* Multi-family housing
2) The Hollows $0 $1,374,840 $2,825,160 $1,662,730 $1,390,646 $4,472,084
* Raleigh, NC
* Multi-family housing
3) Mayflower Seaside $0 $2,258,169 $5,375,975 $1,883,769 $2,258,248 $7,259,665
* Virginia Beach, VA
* Multi-family housing
* Retail shops
4) Stone Ridge $0 $ 374,271 $2,950,729 $2,287,592 $ 374,292 $5,238,300
* Columbia, SC
* Multi-family housing
5) County Green $0 $ 319,250 $3,480,750 $1,403,820 $ 327,484 $4,876,336
* Lynchburg, VA
* Multi-family housing
6) Wimbledon Chase $0 $ 304,590 $2,995,410 $2,161,662 $ 304,815 $5,156,847
* Wilmington, NC
* Multi-family housing
7) Harbour Club $0 $1,019,895 $4,230,105 $ 854,145 $1,020,274 $5,083,871
* Virginia Beach, VA
* Multi-family housing
8) Chase Mooring $0 $ 258,126 $3,335,874 $1,580,122 $ 258,210 $4,915,912
* Wilmington, NC
* Multi-family housing
9) The Trestles $0 $2,650,884 $7,699,116 $ 995,191 $2,686,006 $8,659,185
* Raleigh, NC
* Multi-family housing
10) Wind Lake $0 $1,051,200 $7,708,800 $1,057,050 $1,088,780 $8,728,270
* Greensboro, NC
* Multi-family housing
11) Magnolia Run $0 $ 495,000 $5,005,000 $1,250,125 $ 509,001 $6,241,124
* Greenville, SC
* Multi-family housing
12) Breckinridge $0 $1,512,000 $4,088,000 $1,296,124 $1,558,060 $5,338,064
* Greenville, SC
* Multi-family housing
13) Bay Watch Pointe $0 $ 775,680 $2,596,845 $1,509,383 $ 813,935 $4,067,973
* Virginia Beach, VA
* Multi-family housing
<CAPTION>
<PAGE>
DATE OF DATE
DESCRIPTION TOTAL ACC. DEP. CONST. ACQUIRED DEP. LIFE
- ----------------------- ------------- ------------- --------- --------------- ----------
<S> <C> <C> <C> <C> <C>
1) Polo Club $ 6,904,635 $1,348,765 1972 June 3, 1993 27.5 yrs.
* Greenville, SC
* Multi-family housing
2) The Hollows $ 5,862,730 $ 803,937 1974 June 1, 1993 27.5 yrs.
* Raleigh, NC
* Multi-family housing
3) Mayflower Seaside $ 9,517,913 $1,103,186 1950 Oct. 26, 1993 27.5 yrs.
* Virginia Beach, VA
* Multi-family housing
* Retail shops
4) Stone Ridge $ 5,612,592 $ 910,979 1975 Dec. 8, 1993 27.5 yrs.
* Columbia, SC
* Multi-family housing
5) County Green $ 5,203,820 $ 777,966 1976 Dec. 1, 1993 27.5 yrs.
* Lynchburg, VA
* Multi-family housing
6) Wimbledon Chase $ 5,461,662 $ 767,403 1976 Feb. 1, 1994 27.5 yrs.
* Wilmington, NC
* Multi-family housing
7) Harbour Club $ 6,104,145 $ 682,749 1988 May 1, 1994 27.5 yrs.
* Virginia Beach, VA
* Multi-family housing
8) Chase Mooring $ 5,174,122 $ 617,969 1968 Aug. 1, 1994 27.5 yrs.
* Wilmington, NC
* Multi-family housing
9) The Trestles $11,345,191 $1,109,837 1987 Dec. 30, 1994 27.5 yrs.
* Raleigh, NC
* Multi-family housing
10) Wind Lake $ 9,817,050 $ 899,238 1985 April 1, 1995 27.5 yrs.
* Greensboro, NC
* Multi-family housing
11) Magnolia Run $ 6,750,125 $ 633,948 1972 June 1, 1995 27.5 yrs.
* Greenville, SC
* Multi-family housing
12) Breckinridge $ 6,896,124 $ 517,880 1973 June 21, 1995 27.5 yrs.
* Greenville, SC
* Multi-family housing
13) Bay Watch Pointe $ 4,881,908 $ 408,201 1972 July 18, 1995 27.5 yrs.
* Virginia Beach, VA
* Multi-family housing
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
INITIAL COST SUBSEQUENTLY CAPITALIZED GROSS AMOUNT CARRIED
-------------- ----------------------------- -----------------------------
ENCUM-
DESCRIPTION BRANCES LAND BLDG. & IMPR. IMPR. LAND BLDG. & IMPR.
- ----------------------- --------- -------------- --------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
14) Hanover Landing $0 $ 801,500 $ 4,923,500 $1,539,857 $ 822,286 $ 6,442,571
* Charlotte, NC
* Multi-family housing
15) Mill Creek $0 $1,368,000 $ 7,182,000 $ 845,861 $1,417,614 $ 7,978,247
* Winston-Salem, NC
* Multi-family housing
16) Glen Eagles $0 $1,095,000 $ 6,205,000 $1,563,487 $1,595,456 $ 7,268,031
* Winston-Salem, NC
* Multi-family housing
17) Sailboat Bay $0 $2,002,000 $ 7,098,000 $4,098,131 $2,153,610 $11,044,521
* Charlotte, NC
* Multi-family housing
18) Tradewinds $0 $1,428,000 $ 8,772,000 $ 689,492 $1,436,890 $ 9,452,602
* Hampton, VA
* Multi-family housing
19) Osprey Landing $0 $ 393,750 $ 3,981,250 $2,467,954 $ 403,842 $ 6,439,112
* Wilmington, NC
* Multi-family housing
20) The Meadows $0 $ 186,000 $ 6,014,000 $1,260,262 $ 384,556 $ 7,075,706
* Asheville, NC
* Multi-family housing
21) West Eagle Green $0 $ 326,400 $ 3,693,600 $2,036,355 $ 316,095 $ 5,740,260
* Augusta, GA
* Multi-family housing
22) Ashley Park $0 $1,586,650 $10,618,350 $ 737,802 $1,589,262 $11,353,540
* Richmond, vA
* Multi-family housing
23) Arbor Trace $0 $1,100,000 $ 3,900,000 $ 867,816 $1,130,750 $ 4,737,066
* Virginia Beach, VA
* Multi-family housing
24) Bridgetown Bay $0 $ 603,000 $ 4,422,000 $ 738,770 $ 624,169 $ 5,139,601
* Charlotte, NC
* Multi-family housing
25) Trophy Chase $0 $ 853,300 $ 2,856,700 $2,771,964 $ 880,843 $ 5,601,121
* Charlottesville, VA
* Multi-family housing
26) Beacon Hill $0 $3,121,587 $10,457,616 $ 938,592 $3,075,705 $11,442,090
* Charlotte, NC
* Multi-family housing
27) Summerwalk $0 $1,528,200 $ 4,131,800 $1,479,674 $1,565,050 $ 5,574,624
* Concord, NC
* Multi-family housing
<CAPTION>
<PAGE>
DATE OF DATE
DESCRIPTION TOTAL ACC. DEP. CONST. ACQUIRED DEP. LIFE
- ----------------------- ------------- ------------- --------- --------------- ----------
<S> <C> <C> <C> <C> <C>
14) Hanover Landing $ 7,264,857 $ 550,759 1972 Aug. 22, 1995 27.5 yrs.
* Charlotte, NC
* Multi-family housing
15) Mill Creek $ 9,395,861 $ 677,900 1984 Sept. 1, 1995 27.5 yrs.
* Winston-Salem, NC
* Multi-family housing
16) Glen Eagles $ 8,863,487 $ 627,144 1990 Oct. 1, 1995 27.5 yrs.
* Winston-Salem, NC
* Multi-family housing
17) Sailboat Bay $13,198,131 $1,132,932 1972 Nov. 1, 1995 27.5 yrs.
* Charlotte, NC
* Multi-family housing
18) Tradewinds $10,889,492 $ 811,294 1988 Nov. 1, 1995 27.5 yrs.
* Hampton, VA
* Multi-family housing
19) Osprey Landing $ 6,842,954 $ 510,604 1973 Nov. 1, 1995 27.5 yrs.
* Wilmington, NC
* Multi-family housing
20) The Meadows $ 7,460,262 $ 536,888 1974 Jan. 31, 1996 27.5 yrs.
* Asheville, NC
* Multi-family housing
21) West Eagle Green $ 6,056,355 $ 394,366 1974 March 1, 1996 27.5 yrs.
* Augusta, GA
* Multi-family housing
22) Ashley Park $12,942,802 $ 823,302 1988 March 1, 1996 27.5 yrs.
* Richmond, vA
* Multi-family housing
23) Arbor Trace $ 5,867,816 $ 336,766 1985 March 1, 1996 27.5 yrs.
* Virginia Beach, VA
* Multi-family housing
24) Bridgetown Bay $ 5,763,770 $ 340,018 1986 April 1, 1996 27.5 yrs.
* Charlotte, NC
* Multi-family housing
25) Trophy Chase $ 6,481,964 $ 367,546 1970 April 1, 1996 27.5 yrs.
* Charlottesville, VA
* Multi-family housing
26) Beacon Hill $14,517,795 $ 705,777 1985 May 1, 1996 27.5 yrs.
* Charlotte, NC
* Multi-family housing
27) Summerwalk $ 7,139,674 $ 338,188 1983 May 1, 1996 27.5 yrs.
* Concord, NC
* Multi-family housing
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
INITIAL COST SUBSEQUENTLY CAPITALIZED GROSS AMOUNT CARRIED
-------------- ----------------------------- -----------------------------
ENCUM-
DESCRIPTION BRANCES LAND BLDG. & IMPR. IMPR. LAND BLDG. & IMPR.
- -------------------------------- --------- -------------- --------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
28) The Landing $0 $1,001,400 $ 7,343,600 $1,482,290 $1,023,951 $ 8,803,339
* Raleigh, NC
* Multi-family housing
29) Meadowcreek $0 $1,110,000 $ 9,990,000 $1,195,434 $1,134,435 $11,160,999
* Pineville, NC
* Multi-family housing
30) Trolley Square East $0 $1,620,000 $ 4,380,000 $2,304,434 $2,817,604 $ 9,729,405
Trolley Square West $1,145,495 $ 3,097,080
* Richmond, VA
* Multi-family housing
31) Savannah West $0 $ 627,860 $ 9,215,760 $2,657,689 $1,161,211 $11,340,098
* Augusta, GA
* Multi-family housing
32) Paces Glen $0 $2,153,250 $ 5,271,750 $ 602,477 $2,226,400 $ 5,801,077
* Charlotte, NC
* Multi-family housing
33) Signature Place $0 $ 491,665 $ 4,971,283 $1,264,487 $ 502,648 $ 6,224,787
* Greenville, NC
* Multi-family housing
34) Hampton Glen $0 $1,391,992 $10,207,939 $ 857,570 $1,414,093 $11,043,408
* Richmond, VA
* Multi-family housing
35) Heatherwood $0 $2,449,310 $ 7,756,147 $1,273,485 $4,184,116 $14,719,826
Italian Village/Villa Marina $1,707,750 $ 5,717,250
* Charlotte, NC
* Multi-family housing
36) Highland Hills $0 $1,210,000 $10,890,000 $1,801,839 $1,198,724 $12,703,115
* Carrboro, NC
* Multi-family housing
37) Parkside at Woodlake $0 $2,932,778 $11,731,108 $ 266,022 $2,884,355 $12,045,553
* Durham, NC
* Multi-family housing
38) Greenbrier $0 $ 998,957 $10,100,568 $ 714,289 $1,009,699 $10,804,115
* Fredericksburg, VA
* Multi-family housing
39) Deerfield $0 $ 427,000 $10,248,000 $ 420,295 $ 430,416 $10,664,879
* Durham, NC
* Multi-family housing
40) The Arbors at Windsor Lake $0 $ 978,750 $ 9,896,250 $ 464,651 $ 994,336 $10,345,315
* Columbia, SC
* Multi-family housing
41) Westchase $0 $1,980,000 $ 9,020,000 $1,199,764 $2,012,148 $10,187,616
* Charleston, SC
* Multi-family housing
<CAPTION>
<PAGE>
DATE OF DATE
DESCRIPTION TOTAL ACC. DEP. CONST. ACQUIRED DEP. LIFE
- -------------------------------- ------------- ----------- --------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
28) The Landing $ 9,827,290 $532,052 1984 May 1, 1996 27.5 yrs.
* Raleigh, NC
* Multi-family housing
29) Meadowcreek $12,295,434 $692,927 1984 May 31, 1996 27.5 yrs.
* Pineville, NC
* Multi-family housing
30) Trolley Square East $12,547,009 $523,667 1968 June 25, 1996 27.5 yrs.
Trolley Square West 1964 Dec. 31, 1996 27.5 yrs.
* Richmond, VA
* Multi-family housing
31) Savannah West $12,501,309 $626,284 1976 July 1, 1996 27.5 yrs.
* Augusta, GA
* Multi-family housing
32) Paces Glen $ 8,027,477 $317,033 1986 July 19, 1996 27.5 yrs.
* Charlotte, NC
* Multi-family housing
33) Signature Place $ 6,727,435 $340,582 1981 August 1, 1996 27.5 yrs.
* Greenville, NC
* Multi-family housing
34) Hampton Glen $12,457,501 $591,866 1986 August 1, 1996 27.5 yrs.
* Richmond, VA
* Multi-family housing
35) Heatherwood $18,903,942 $507,135 1980 Sept. 1, 1996 27.5 yrs.
Italian Village/Villa Marina 1980 Aug. 29, 1997
* Charlotte, NC
* Multi-family housing
36) Highland Hills $13,901,839 $656,581 1987 Sept. 27, 1996 27.5 yrs.
* Carrboro, NC
* Multi-family housing
37) Parkside at Woodlake $14,929,908 $619,610 1996 Aug. 31, 1996 27.5 yrs.
* Durham, NC
* Multi-family housing
38) Greenbrier $11,813,814 $506,348 1980 Oct. 1, 1996 27.5 yrs.
* Fredericksburg, VA
* Multi-family housing
39) Deerfield $11,095,295 $456,364 1985 Nov. 1, 1996 27.5 yrs.
* Durham, NC
* Multi-family housing
40) The Arbors at Windsor Lake $11,339,651 $388,602 1991 Jan. 1, 1997 27.5 yrs.
* Columbia, SC
* Multi-family housing
41) Westchase $12,199,764 $371,620 1985 Jan. 15, 1997 27.5 yrs.
* Charleston, SC
* Multi-family housing
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
INITIAL COST SUBSEQUENTLY CAPITALIZED GROSS AMOUNT CARRIED
-------------- ----------------------------- -----------------------------
ENCUM-
DESCRIPTION BRANCES LAND BLDG. & IMPR. IMPR. LAND BLDG. & IMPR.
- ----------------------- --------- -------------- --------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
42) Paces Arbor $0 $ 1,173,526 $ 4,414,693 $ 248,315 $ 1,180,955 $ 4,655,579
* Raleigh, NC
* Multi-family housing
43) Paces Forest $0 $ 1,359,431 $ 5,114,050 $ 319,919 $ 1,370,380 $ 5,423,020
* Raleigh, NC
* Multi-family housing
44) Carlyle Club $0 $ 3,589,800 $ 7,990,200 $ 657,864 $ 3,606,716 $ 8,631,148
* Lawrenceville, GA
* Multi-family housing
45) Ashley Run $0 $ 3,780,000 $ 14,220,000 $ 684,443 $ 3,793,411 $ 14,891,032
* Norcross, GA
* Multi-family housing
46) Charleston Place $0 $ 1,516,000 $ 7,959,000 $ 532,406 $ 1,534,433 $ 8,472,973
* Charlotte, NC
* Multi-family housing
47) Dunwoody Springs $0 $ 3,648,000 $ 11,552,000 $ 1,394,594 $ 3,665,666 $ 12,928,928
* Dunwoody, GA
* Multi-family housing
48) Clarion Crossing $0 $ 3,180,000 $ 7,420,000 $ 212,429 $ 3,233,066 $ 7,579,363
* Raleigh, NC
* Multi-family housing
49) Stone Brook $0 $ 1,570,000 $ 6,280,000 $ 103,881 $ 1,581,203 $ 6,372,678
* Norcross, GA
* Multi-family housing
50) St. Regis $0 $ 2,156,000 $ 7,644,000 $ 87,449 $ 2,169,166 $ 7,718,283
* Raleigh, NC
* Multi-family housing
51) Remington Place $0 $ 1,422,000 $ 6,478,000 $ 82,291 $ 1,433,244 $ 6,549,047
* Raleigh, NC
* Multi-family housing
$74,672,954 $349,491,560 $63,410,682 $76,812,953 $410,762,243
=========== ============ =========== =========== ============
<CAPTION>
<PAGE>
DATE OF DATE
DESCRIPTION TOTAL ACC. DEP. CONST. ACQUIRED DEP. LIFE
- ----------------------- ----------------------- -------------- --------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
42) Paces Arbor $ 5,836,534 $ 142,901 1986 March 1, 1997 27.5 yrs.
* Raleigh, NC
* Multi-family housing
43) Paces Forest $ 6,793,400 $ 167,343 1986 March 1, 1997 27.5 yrs.
* Raleigh, NC
* Multi-family housing
44) Carlyle Club $ 12,237,864 $ 242,599 1974 Apr. 30, 1997 27.5 yrs.
* Lawrenceville, GA
* Multi-family housing
45) Ashley Run $ 18,684,443 $ 410,263 1987 Apr. 30, 1997 27.5 yrs.
* Norcross, GA
* Multi-family housing
46) Charleston Place $ 10,007,406 $ 211,614 1986 May 13, 1997 27.5 yrs.
* Charlotte, NC
* Multi-family housing
47) Dunwoody Springs $ 16,594,594 $ 227,872 1981 July 25, 1997 27.5 yrs.
* Dunwoody, GA
* Multi-family housing
48) Clarion Crossing $ 10,812,429 $ 92,074 1972 Sept. 30, 1997 27.5 yrs.
* Raleigh, NC
* Multi-family housing
49) Stone Brook $ 7,953,881 $ 38,965 1986 Oct. 31, 1997 27.5 yrs.
* Norcross, GA
* Multi-family housing
50) St. Regis $ 9,887,449 $ 46,995 1986 Oct. 31, 1997 27.5 yrs.
* Raleigh, NC
* Multi-family housing
51) Remington Place $ 7,982,291 $ 39,791 1985 Oct. 31, 1997 27.5 yrs.
* Raleigh, NC
* Multi-family housing
$ 487,575,196 (1) $27,486,630
============== ===========
</TABLE>
- ------
(1) Represents the aggregate cost for Federal Income tax purposes.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, this 30th day of
March, 1998.
CORNERSTONE REALTY INCOME TRUST, INC.
By: /s/ Glade M. Knight
----------------------------------------
Glade M. Knight,
Chairman of the Board, Chief Executive
Officer and President
Pursuant to the requirements of the Securities Exchange Act 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------- ----------------------------------- ---------------
<S> <C> <C>
/s/ GLADE M. KNIGHT Director, Chief Executive March 30, 1998
- --------------------------- Officer and President
Glade M. Knight
/s/ STANLEY J. OLANDER, JR. Director, Chief Financial Officer March 30, 1998
- --------------------------- and Principal Accounting Officer
Stanley J. Olander, Jr.
/s/ MARTIN ZUCKERBROD Director March 30, 1998
- ---------------------------
Martin Zuckerbrod
/s/ HARRY S. TAUBENFELD Director March 30, 1998
- ---------------------------
Harry S. Taubenfeld
/s/ LESLIE A. GRANDIS Director March 30, 1998
- ---------------------------
Leslie A. Grandis
/s/ GLENN W. BUNTING, JR. Director March 30, 1998
- ---------------------------
Glenn W. Bunting, Jr.
/s/ PENELOPE W. KYLE Director March 30, 1998
- ---------------------------
Penelope W. Kyle
</TABLE>
18
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
3.1 Amended and Restated Articles of Incorporation of Cornerstone Realty
Income Trust, Inc., as amended (Incorporated by reference to Exhibit
3.1 included in the Company's Report on Form 10-Q for the Quarter
ended June 30, 1995; File No. 0-23954).
3.2 Bylaws of Cornerstone Realty Income Trust, Inc. (Amended Through
March 31, 1997) (Incorporated by reference to Exhibit 4.2 included
in the Company's Registration Statement on Form S-3; File No.
333-23693).
4.1 Credit Agreement dated as of October 30, 1997, by and among
Cornerstone Realty Income Trust, Inc., and any Additional Borrowers
party thereto, as Borrowers, the Lenders referred to therein, and
First Union National Bank, as Agent (Incorporated by reference to
Exhibit 4.1 included in the Registrant's Report on Form 8-K dated
December 30, 1997; File No. 0-23954).
4.2 Joinder Agreement dated as of December 31, 1997 to the Credit
Agreement dated as of October 30, 1997, by and Among Cornerstone
Realty Income Trust, Inc., each Additional Borrower party thereto,
CRIT-NC, LLC, the lenders party thereto, and First Union National
Bank, as Agent (Incorporated by reference to Exhibit 4.2 included in
the Registrant's Report on Form 8-K dated December 30, 1997; File
No. 0-23954).
4.3 (1) Amended and Restated Revolving Credit Note dated December 31,
1997 in the principal amount of up to $65,000,000 made payable by
Cornerstone Realty Income Trust, Inc. and CRIT-NC, LLC to the order
of First Union National Bank, and (2) Amended and Restated Revolving
Credit Note dated December 31, 1997 in the principal amount of up to
$35,000,000 made payable by Cornerstone Realty Income Trust, Inc.
and CRIT-NC, LLC to the order of AmSouth Bank, and (3) Amended and
Restated Revolving Credit Note dated December 31, 1997 in the
principal amount of up to $25,000,000 made payable by Cornerstone
Realty Income Trust, Inc. and CRIT-NC, LLC to the order of Crestar
Bank, and (4) Amended and Restated Revolving Credit Note dated
December 31, 1997 in the principal amount of up to $20,000,000 made
payable by Cornerstone Realty Income Trust, Inc. and CRIT-NC, LLC to
the order of Fleet National Bank, and (5) Amended and Restated
Revolving Credit Note dated December 31, 1997 in the principal
amount of up to $30,000,000 made payable by Cornerstone Realty
Income Trust, Inc. and CRIT-NC, LLC to the order of Guaranty Federal
Bank, F.S.B. (Incorporated by reference to Exhibit 4.3 included in
the Registrant's Report on Form 8-K dated December 30, 1997; File
No. 0-23954).
</TABLE>
The Company agrees to furnish the Commission on request a copy of any
instrument with respect to long-term debt of the Company or its subsidiaries the
total amount of securities authorized under which does not exceed 10% of the
total assets of the Company and its subsidiaries on a consolidated basis.
19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.1 Amendment and Restatement of Cornerstone Realty Income Trust, Inc.
1992 Incentive Plan. (Exhibit 10.14)(1) This is a management contract
or compensatory plan or arrangement required to be filed as an
exhibit pursuant to Item 14(c) of Form 10-K.
10.2 Amendment and Restatement of Cornerstone Realty Income Trust, Inc.
1992 Non-Employee Directors Stock Option Plan. (Exhibit 10.15)(1)
This is a management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14 (c) of Form
10-K.
10.3 Agreement for Appointment of Transfer Agent and Registrar between the
Company and First Union National Bank of North Carolina (Incorporated
by reference to Exhibit 10.19 to the Company's Report on Form 10-K
for the Year Ended December 31, 1994; File No. 0-23954).
10.4 Agreement and Bill of Transfer and Assignment dated October 1, 1996
between Cornerstone Management Group, Inc. and Cornerstone Realty
Income Trust, Inc.(2)
10.5 Agreement and Bill of Transfer and Assignment dated October 1, 1996
between Cornerstone Advisors, Inc. and Cornerstone Realty Income
Trust, Inc.(2)
10.6 Agreement and Bill of Transfer and Assignment dated October 1, 1996
between Cornerstone Realty Group, Inc. and Cornerstone Realty Income
Trust, Inc. (Acquisition/Disposition Agreement).(2)
10.7 Agreement and Bill of Transfer and Assignment dated October 1, 1996
between Cornerstone Realty Group, Inc. and Cornerstone Realty Income
Trust, Inc. (Personal Property). (2)
10.8 Employment Agreement dated September 1, 1996 between Cornerstone
Realty Income Trust, Inc. and Glade M. Knight. This is a management
contract or compensatory plan or arrangement required to be filed as
an exhibit pursuant to Item 14 (c) of Form 10-K. FILED HEREWITH.
10.9 Employment Agreement dated September 1, 1996 between Cornerstone
Realty Income Trust, Inc. and Debra A. Jones. This is a management
contract or compensatory plan or arrangement required to be filed as
an exhibit pursuant to Item 14 (c) of Form 10-K. (2)
10.10 Employment Agreement dated September 1, 1996 between Cornerstone
Realty Income Trust, Inc. and Stanley J. Olander, Jr . This is a
management contract or compensatory plan or arrangement required to
be filed as an exhibit pursuant to Item 14 (c) of Form 10-K. (2)
10.11 Advisory Agreement between Apple Residential Income Trust, Inc. and
Apple Residential Advisors, Inc. (Incorporated herein by reference to
Exhibit 10.1 of Amendment No. 2 to Form S-11 of Apple Residential
Income Trust, Inc. (File No. 333-10635) filed on November 14, 1996).
10.12 Form of Property Management Agreement between Apple Residential
Income Trust, Inc. and Apple Residential Management Group, Inc.
(Incorporated herein by reference to Exhibit 10.2 of Form S-11 of
Apple Residential Income Trust, Inc. (File No. 333-10635) filed on
August 22, 1996).
10.13 Property Acquisition/Disposition Agreement between Apple Residential
Income Trust, Inc. and Apple Realty Group, Inc. (Incorporated herein
by reference to Exhibit 10.3 of Amendment No. 2 to Form S-11 of Apple
Residential Income Trust, Inc. (File No. 333-10635) filed on November
14, 1996).
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.14 Advisory Agreement Subcontract among Apple Residential Income Trust,
Inc., Apple Residential Advisors, Inc. and Cornerstone Realty Income
Trust, Inc. FILED HEREWITH.
10.15 Property Management Agreement Subcontract among Apple Residential
Income Trust, Inc., Apple Residential Management Group, Inc., and
Cornerstone Realty Income Trust, Inc. FILED HEREWITH.
10.16 Agreement and Bill of Transfer and Assignment among Apple Residential
In- come Trust, Inc., Apple Realty Group, Inc. and Cornerstone Realty
Income Trust, Inc. FILED HEREWITH.
10.17 Right of First Refusal Agreement between Apple Residential Income
Trust, Inc. and Cornerstone Realty Income Trust, Inc. (Incorporated
herein by reference to Exhibit 10.7 of Amendment No. 2 to Form S-11
of Apple Residential Income Trust, Inc. (File No. 333-10635) filed on
November 14, 1996).
10.18 Common Share Purchase Option Agreement between Apple Residential
Income Trust, Inc. and Cornerstone Realty Income Trust, Inc. FILED
HEREWITH.
10.19 Assignment Relating to Property Management Agreements among Apple
Resi- dential Income Trust, Inc., Apple Residential Management Group,
Inc., Apple REIT Limited Partnership and Cornerstone Realty Income
Trust, Inc. FILED HEREWITH.
10.20 Underwriting Agreement dated April 18, 1997 among Cornerstone Realty
Income Trust, Inc. and the several Underwriters named therein. FILED
HEREWITH.
10.21 Articles of Organization of CRIT-NC, LLC (Incorporated by reference
to Exhibit 10.1 included in the Company's Current Report on Form 8-K
dated December 30, 1997; File No. 0-23954).
10.22 Operating Agreement of CRIT-NC, LLC dated as of December 9, 1997
(Incorporated by reference to Exhibit 10.2 included in the Company's
Current Report on Form 8-K dated December 30, 1997; File No.
0-23954).
10.23 Form of Property Management Agreement between Apple REIT Limited
Part- nership and Apple Residential Income Trust, Inc. FILED
HEREWITH.
10.24 First Amendment to the Cornerstone Realty Income Trust, Inc. 1992
Incentive Plan. This is a management contract or compensatory plan or
arrangement re- quired to be filed as an exhibit pursuant to Item 14
(c) of Form 10-K. FILED HEREWITH.
10.25 First Amendment to the 1992 Incentive Plan Nonstatutory Stock Option
Agree- ment between Cornerstone Realty Income Trust, Inc. and Martin
Zuckerbrod. This is a management contract or compensatory plan or
arrangement required to be filed as an exhibit pursuant to Item 14
(c) of Form 10-K. FILED HEREWITH.
10.26 First Amendment to the 1992 Incentive Plan Nonstatutory Stock Option
Agree- ment between Cornerstone Realty Income Trust, Inc. and Harry
S. Taubenfeld. This is a management contract or compensatory plan or
arrangement required to be filed as an exhibit pursuant to Item 14
(c) of Form 10-K. FILED HEREWITH.
12 Statement regarding computation of Ratio of Earnings to Fixed
Charges. FILED HEREWITH.
13 1997 Annual Report (with the exception of the information
incorporated by reference in Items 6, 7, and 14 of this Form 10-K
Report, no other information appearing in the 1997 Annual Report is
to be deemed filed as a part of this Form 10-K Report). FILED
HEREWITH.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
21 Subsidiaries of Cornerstone Realty Income Trust, Inc. FILED HEREWITH.
23 Consent of Independent Auditors. FILED HEREWITH.
27 Financial Data Schedule. FILED HEREWITH.
99.1 Pages 19 through 27 of the Current Report on Form 8-K of Cornerstone
Realty Income Trust, Inc.dated October 31, 1996. FILED HEREWITH.
99.2 Pages 5 through 18 of the Current Report on Form 8-K of Cornerstone
Realty Income Trust, Inc. dated March 27, 1997. FILED HEREWITH.
99.3 Pages 4 through 12 of the Current Report on Form 8-K of Cornerstone
Realty Income Trust, Inc. dated May 14 , 1997. FILED HEREWITH.
99.4 Pages 4 through 10 of the Current Report on Form 8-K of Cornerstone
Realty Income Trust, Inc. dated August 28, 1997. FILED HEREWITH.
99.5 Pages 3 through 7 of the Current Report on Form 8-K of Cornerstone
Realty Income Trust, Inc. dated September 30, 1997. FILED HEREWITH.
99.6 Pages 4 through 15 of the Current Report on Form 8-K of Cornerstone
Realty Income Trust, Inc. dated October 31, 1997. FILED HEREWITH.
</TABLE>
- ----------
(1) Incorporated herein by reference to the Exhibit referred to in parentheses
which was filed as an Exhibit to the Company's Post-Effective Amendment No.
5 to its Registration Statement on Form S-11 (File No. 33-51296), as filed
with the Securities and Exchange Commission on April 28, 1994.
(2) Incorporated herein by reference to the Exhibit of the same number filed as
an Exhibit to the Company's Report on Form 8-K dated September 26, 1996
(File No. 0-23954).
22
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made as of September 1, 1996,
between CORNERSTONE REALTY INCOME TRUST INC.,(the "Company"), and GLADE M.
KNIGHT (the "Employee").
RECITALS
A. The Company is in the business of buying and managing commercial and
residential real estate properties.
B. The Employee has extensive knowledge in various aspects of this
business, and has been employed by the Company for some time.
C. The Company wishes to continue its relationship with the Employee, and
both parties desire to reduce their agreement concerning employment to writing.
NOW, THEREFORE, in consideration of the foregoing and the agreements
contained herein, the parties hereto agree as follows:
1. Employment. The Company hereby employs the Employee as Chief Executive
Officer, and the Employee hereby accepts such employment for a period of one (1)
year beginning on September 1, 1996 and terminating on August 31, 1997 or unless
terminated sooner as provided herein. By notice sent to the Employee before the
expiration of this Agreement, the Company may extend the term of this Agreement
for up to four (4) additional one(1)-year terms.
2. Duties. During his employment the Employee shall hold such positions and
perform such services as may be assigned to him from time to time by the
Chairman of the Board or the Board of Directors of the Company. The Employee
shall report to the Board of Directors or such other officer as may be
designated from time to time by the Board of Directors. The Employee shall
devote as much of his attention and energies to the business of the Company as
is reasonably required in his judgment and that of the Board of Directors.
3. Compensation.
(a) The Employee shall be compensated on the basis of an annual salary
of $210,000, which shall be payable in monthly or more frequent installments in
accordance with the Company's standard payroll practices. The Company shall
review the Employee's performance at the end of each fiscal year of the Company
and, in its sole discretion and based on the Employee's performance and/or the
financial condition of the Company, may either maintain or increase his salary.
Any such change in the salary of the Employee shall
<PAGE>
not affect the other terms and conditions of this Agreement, which shall remain
in full force and effect.
(b) In addition to the salary set forth in Section 3(a), the Employee
shall be eligible to receive an annual bonus to be determined by the Board of
Directors in accordance with the incentive compensation program or stock award
or stock option program as may be in effect from time to time during the term of
the Employee's employment for which he is eligible.
4. Benefits. The Company shall provide the Employee with vacation, group
life insurance, group medical insurance and other such benefits as may be
consistent with the Company's policies applicable to those employees of similar
rank and position. The Company may from time to time add to, reduce, eliminate
or otherwise modify those benefits at its discretion as provided by law.
5. Business Expenses. The Company shall reimburse the Employee for
reasonable and necessary business expenses, ancillary expenses for travel and
similar items, incurred or expended by the Employee in the performance of his
duties hereunder. Such reimbursement shall be in accordance with the Company's
policy and procedures governing reimbursement of such expenses, which may be
altered or modified from time to time in the Company's sole discretion.
6. Covenant Not to Compete or Interfere.
(a) The Employee agrees that during the term of his employment and for
a period of one (1) year thereafter if the Employee terminates his employment,
he will not:
(i) directly or indirectly, in the same or a similar capacity as
that with the Company, be employed by, affiliated with, direct the business of,
or act on behalf of, a business that competes with the Company in Virginia,
North Carolina, or South Carolina.
(ii) solicit, sell or attempt to sell any product involved in the
Company's business to any customer or prospect of the Company with whom the
Employee had dealings or material contact during the course of his employment
with the Company; or
(iii) solicit, induce or attempt to solicit or induce, any person
employed by the Company to leave such employment for employment with a competing
business.
(b) It is the intention of the parties that this Agreement provide the
Company the maximum protection possible in the geographic areas in which the
Company does business and therefore has legitimate business interests. However,
the parties in no way intend to include a provision which contravenes the public
policy of any state. If, at the time of enforcement of this paragraph, a court
should hold the duration, scope or area of restriction
2
<PAGE>
stated herein unreasonable under the circumstances then existing, the parties
agree that the court may enforce the restrictive covenant set forth in Section
6(a) to the extent it deems reasonable.
(c) Notwithstanding the above provisions of this Section 6, the
Employee shall have the right to perform his duties as General Partner of
various real estate partnerships in which he is currently a partner as of the
date of this Agreement and to pursue other ventures, including real estate
ventures with David Lerner Associates, Inc. (other than ventures that compete
with the Company in Virginia, North Carolina, or South Carolina).
7. Confidentiality. The Employee agrees that, during the term of his
employment and thereafter, he will not use or allow others to use any
confidential or proprietary information of the Company (in whatever form
received or proposed to be used) in any business or venture if the use would or
could be expected to have any material detrimental effect on the Company or its
business, results of operations, financial condition, reputation or affairs,
whether immediately or at any time in the future.
8. Termination. Unless extended as provided in Section 1, this Agreement
shall terminate automatically on August 31, 1997 and may be sooner terminated as
follows:
(a) The Company may terminate the Employee's employment and its
obligations under this Agreement in the event of the disability of the Employee.
For purposes of this Agreement, "disability" means the inability of the Employee
to perform the essential functions of his position, after reasonable
accommodation in accordance with the Americans with Disabilities Act, because of
a medically determinable physical or mental impairment which can be expected to
result in death or to continue for a period of at least six consecutive months,
or because any such condition has continued for a period of six consecutive
months. The Company shall give the Employee or his representative 30 days prior
written notice of its decision to terminate his employment pursuant to this
provision, and upon any such termination the Company shall pay the Employee or
his representative, as the case may be, an amount equal to his then existing
annual salary in a one time lump sum payment. Thereafter, the Company shall have
no further obligations to the Employee under this Agreement other than for such
benefits as it may be required to provide under an applicable benefits policy.
(b) The Company may terminate the Employee's employment and its
obligations under this Agreement at any time without notice for cause. For
purposes of this Agreement, "cause" means (i) the Employee's continued or
deliberate neglect of his duties;(ii) willful misconduct by the Employee
injurious to the Company, whether monetary or otherwise; (iii) the Employee's
violation of any code or standard of ethics generally applicable to employees of
the Company; (iv) the Employee's active disloyalty to the Company; (v) the
Employee's conviction of a felony; (vi) the Employee's habitual drunkenness or
drug abuse; (vii) the Employee's excessive absenteeism unrelated to a disability
as described above; or (viii) the Employee's breach of this Agreement. If the
Company terminates the Employee's employment pursuant to this provision, it
shall have no further obligation to the Employee
3
<PAGE>
under this Agreement other than for such benefits as it may be required to
provide under an applicable benefits policy.
(c) This Agreement shall terminate automatically upon the Employee's
death. In this event, the Company shall pay the Employee's personal
representative an amount equal to his then existing annual salary in a one-time
lump sum payment within 30 days of his death. The Company shall have no further
obligations to the Employee under this Agreement other than for such benefits as
it may be required to provide under an applicable benefits policy.
9. Survival of Obligations. The obligations of the Employee under Sections
6 and 7 of this Agreement shall survive the termination of his employment and
this Agreement, regardless of the reason for or method of termination. Each of
the provisions in these Sections shall be enforceable independently of every
other provision, and the existence of any claim or cause of action the Employee
may have against the Company, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement of these Sections by the
Company.
10. Enforcement and Severability.
(a) In the event of a breach or threatened breach by the Employee of
any of the provisions of this Agreement, the Company shall be entitled to an
injunction restraining the Employee from breaching the same. Nothing contained
herein shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or threatened breach, including the
recovery of damages from the Employee. The Employee agrees to pay the Company
all its attorney fees incurred in enforcing its rights under this Agreement.
(b) If any provision of this Agreement is deemed void or unenforceable,
such provision shall not be deemed part of this Agreement, which otherwise shall
remain in full force and effect.
(c) A waiver by the Company of a breach of any provision of this
Agreement by the Employee shall not operate or be construed as a waiver of any
subsequent breach by the Employee.
11. GOVERNING LAW, JURISDICTION AND WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA.
(b) THE PARTIES AGREE THAT ANY AND ALL CAUSES OF ACTION ARISING UNDER
THIS AGREEMENT BY AND BETWEEN THEM SHALL ONLY
4
<PAGE>
HAVE JURISDICTION AND VENUE IN THE CIRCUIT COURT OF HENRICO COUNTY, COMMONWEALTH
OF VIRGINIA. THE PARTIES FURTHER CONSENT TO THE JURISDICTION AND VENUE OF THAT
COURT FOR THE RESOLUTION OF SUCH CAUSES OF ACTION UPON PROPER SERVICE OF
PROCESS.
(c) THE PARTIES DESIRE TO AVOID THE ADDITIONAL TIME AND EXPENSE RELATED
TO A JURY TRIAL OF ANY DISPUTES ARISING UNDER THIS AGREEMENT. THEREFORE, THE
PARTIES WAIVE THE RIGHT TO A TRIAL BY JURY OF ANY CLAIM OR COUNTERCLAIM BROUGHT
BY EITHER PARTY AGAINST THE OTHER ARISING OUT OF OR IN ANY WAY CONNECTED WITH
THIS AGREEMENT. THE PARTIES ACKNOWLEDGE AND AGREE THAT THIS WAIVER IS KNOWINGLY,
FREELY AND VOLUNTARILY GIVEN, IS DESIRED BY BOTH PARTIES, AND IS IN THE INTEREST
OF BOTH PARTIES.
12. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and given by telex, fax, telegram,
telecopy, hand-delivery or by first class mail, in the case of the Employee, to
either his office or personal residence, or in the case of the Company, to the
Chief Executive Officer or Chairman.
13. Assignment. This Agreement is personal in nature and may not be
assigned by the Company without the written consent of the Employee. In the
event of the sale to any person, partnership, corporation or other entity of
substantially all the assets of the Company, the Employee may, at his option,
consent to the assignment of this Agreement or receive at closing a lump sum
payment equal to three times his then current annual compensation to terminate
this Agreement.
14. Parachute Tax.
(a) In the event that the Employee would, except for this paragraph, be
subject to a tax pursuant to Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code"), as a result of receiving "parachute payments" (as
defined in Section 280G(b)(2)(A) and (d)(3) of the Code) pursuant to this
Agreement or any other arrangements between the Company and the Employee, or a
deduction would not be allowed to the Company for all or any part of such
payments by reason of Section 280G(a) of the Code, such payments shall be
reduced so that the aggregate "present value" (as defined in Section 280G(d)(4)
of the Code) of such payments is an amount equal to one dollar less than an
amount equal to three times the Employee's "base amount," (as defined in Section
280G(b)(3)(a) and (d)(1) and (2) of the Code). To achieve such required
reduction in aggregate present value, the Employee shall determine which
parachute payments shall be reduced and the amount of each reduction. To enable
the Employee to make such determination, the Company shall provide the Employee
with such information as is reasonably necessary for such determination.
5
<PAGE>
(b) Prior to making any payment under this Section 14, either party may
request a determination as to whether such payment would constitute a "parachute
payment," and, if so, the amount by which the payment must be reduced in
accordance herewith. If such a determination is requested, it shall be made
promptly, at the Company's expense, by independent tax counsel selected by the
Company and approved by the Employee (which approval shall not unreasonably be
withheld). The determination of such tax counsel shall be conclusive and binding
on the parties. The Company shall provide such information as tax counsel may
reasonably request, and such counsel may engage accountants or other experts at
the Company's expense to the extent that they deem necessary or advisable to
enable them to reach a determination.
15. Entire Agreement. This instrument contains the entire agreement of the
parties, supersedes any prior employment or consulting agreement between the
parties and may be changed only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought. Both parties acknowledge that they have read these terms,
have had the opportunity to consult counsel, and fully understand and freely and
voluntarily agree to the provisions set forth herein.
16. Relationship to Other Transactions. This Agreement is entered into in
anticipation of and subject to the completion of certain other transactions
involving the proposed acquisition by the Company of certain assets of
Cornerstone Management Group, Inc., Cornerstone Advisors, Inc. and Cornerstone
Realty Group, Inc., which transactions are designated to permit the Company to
become a "self-administered REIT" (the "Self- Administration Transactions"). If
such Self-Administration Transactions are not closed by October 31, 1996, this
Agreement shall automatically be terminated and of no further force or effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
first above written.
CORNERSTONE REALTY INCOME
TRUST, INC.
By: /s/ Glade M. Knight
Name: Glade M. Knight
Title: Chairman
/s/ Glade M. Knight
Employee
6
EXHIBIT 10.14
ADVISORY AGREEMENT SUBCONTRACT
This Advisory Agreement Subcontract (the "Agreement") is made as of March 1,
1997 by and among Apple Residential Income Trust, Inc., a Virginia corporation
("Apple"), Apple Residential Advisors, Inc., a Virginia corporation (the
"Advisor"), and Cornerstone Realty Income Trust, Inc., a Virginia corporation
("Cornerstone"), and provides:
RECITALS
A. Apple and the Advisor are parties to an Advisory Agreement dated as of
November 1, 1996 (the "Advisory Agreement"), pursuant to which Apple has
engaged the Advisor to provide certain information, advice, assistance and
facilities related to the business of Apple, as more particularly described
in the Advisory Agreement.
B. The Advisor desires to delegate and assign to Cornerstone, and Cornerstone
desires to accept the delegation and assignment from the Advisor of, all of
the Advisor's duties, obligations, rights, powers and benefits under the
Advisory Agreement attributable to the period beginning on the date of this
Agreement, and Apple is willing to consent to such delegation and
assignment, all as more particularly set forth herein.
NOW THEREFORE, in consideration of the foregoing, of the mutual covenants and
agreements contained herein, and other good and valuable consideration, the
parties agree as follows:
1. The Advisor does hereby delegate and assign to Cornerstone all of the
Advisor's duties, obligations, rights, powers and benefits under the
Advisory Agreement attributable to the period beginning on the date of this
Agreement. Cornerstone accepts such delegation and assignment. The intent
of such delegation and assignment is to impose upon Cornerstone all duties
and obligations of the Advisor under the terms of the Advisory Agreement
attributable to the period beginning on the date of this Agreement, and to
confer upon Cornerstone all of the correlative rights, powers and benefits
(including, without limitation, the right to receive all fees and expense
reimbursements) conferred by or provided for in the Advisory Agreement, and
this Agreement shall be interpreted and construed consistently with such
intent. For so long as this Agreement remains in effect, the term
"Advisor," as used in the Advisory Agreement, shall be deemed to refer to
Cornerstone, unless the context clearly requires otherwise.
2. Apple consents to the delegation and assignment referred to in Section 1.
3. This Agreement may be terminated at any time by Cornerstone by written
notice delivered to the Advisor and Apple in the manner and to the
addresses set forth in the Advisory Agreement.
4. Capitalized terms used and not otherwise defined herein shall have the
meanings set forth in the Advisory Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their
duly authorized officers as of the date first written above.
APPLE RESIDENTIAL INCOME TRUST, INC.,
a Virginia corporation
By:/s/ Glade M. Knight
-----------------------------------
Title: Chairman
-------------------------------
APPLE RESIDENTIAL ADVISORS, INC.,
a Virginia corporation
By:/s/ Glade M. Knight
-----------------------------------
Title: Chairman
-------------------------------
CORNERSTONE REALTY INCOME TRUST, INC.,
a Virginia corporation
By:/s/ Glade M. Knight
-----------------------------------
Title: Chairman
-------------------------------
EXHIBIT 10.15
PROPERTY MANAGEMENT AGREEMENT SUBCONTRACT
This Property Management Agreement Subcontract (the "Agreement") is made as
of March 1, 1997 by and among Apple Residential Income Trust, Inc., a Virginia
corporation ("Apple"), Apple Residential Management Group, Inc., a Virginia
corporation ("ARMG"), and Cornerstone Realty Income Trust, Inc., a Virginia
corporation ("Cornerstone") and provides:
RECITALS
A. As of the date of this Agreement, Apple and ARMG are parties to four
Property Management Agreements more particularly described on Exhibit A
hereto pursuant to which ARMG has agree to provide certain property
management services to Apple, as more particularly described in such
agreements. It is anticipated that Apple and ARMG will enter into
additional Property Management Agreements (any such agreement, including
each such agreement listed on Exhibit A, a "Property Management
Agreement"), as and when Apple purchases additional apartment communities.
B. ARMG desires to delegate and assign to Cornerstone, and Cornerstone desires
to accept the delegation and assignment from ARMG of, all of ARMG's duties,
obligations, rights, powers and benefits under the Property Management
Agreements attributable to the period beginning on the date of this
Agreement, and Apple is willing to consent to such delegation and
assignment, as more particularly set forth below.
NOW THEREFORE, in consideration of the foregoing, of the mutual covenants and
agreements contained herein, and other good and valuable consideration, the
parties agree as follows:
1. ARMG does hereby delegate and assign to Cornerstone all of ARMG's duties,
obligations, rights, powers and benefits under each Property Management
Agreement (including any such Property Management Agreement entered into
after the date hereof, but subject to the provisions of Section 3 of this
Agreement) attributable to the period beginning on the date of this
Agreement. Cornerstone accepts such delegation and assignment. The intent
of such delegation and assignment is to impose upon Cornerstone all duties
and obligations of ARMG under the terms of the Property Management
Agreements attributable to the period beginning on the date of this
Agreement, and to confer upon Cornerstone all of the correlative rights,
powers and benefits (including, without limitation, the right to receive
all fees and expense reimbursements) conferred by or provided for in the
Property Management Agreements, and this Agreement shall be interpreted and
construed consistently with such intent. For so long as this Agreement
remains in effect, the term "Manager," as used in any Property Management
Agreement as to which the delegation and assignment described herein is
effective shall be deemed to refer to Cornerstone, unless the context
clearly requires otherwise.
2. Apple consents to the delegation and assignment referred to in Section 1.
3. Cornerstone may, by written notice delivered to ARMG and Apple at 306 East
Main Street, Richmond, Virginia 23219, Attention: Glade M. Knight,
terminate either (i) the delegation and assignment described herein as to
one or more individual Property Management Agreements or (ii) this
Agreement in its entirety. In the event that the delegation and assignment
with respect to one or more but fewer than all of the Property Management
Agreements subject to this Agreement shall be terminated, such delegation
and assignment shall be deemed terminated with respect to the affected
Property Management Agreements but this Agreement shall not be otherwise
affected.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their
duly authorized officers as of the date first written above.
APPLE RESIDENTIAL INCOME TRUST, INC.,
a Virginia corporation
By:/s/ Glade M. Knight
-----------------------------------
Title: Chairman
-------------------------------
APPLE RESIDENTIAL MANAGEMENT GROUP
a Virginia corporation
By:/s/ Glade M. Knight
-----------------------------------
Title: Chairman
-------------------------------
CORNERSTONE REALTY INCOME TRUST, INC.,
a Virginia corporation
By:/s/ Glade M. Knight
-----------------------------------
Title: Chairman
-------------------------------
<PAGE>
EXHIBIT A
LIST OF PROPERTY MANAGEMENT AGREEMENTS
BETWEEN APPLE AND ARMG
AS OF MARCH 1, 1997
1. Property Management Agreement dated as of January 1, 1997 pertaining to
Brookfield Apartments.
2. Property Management Agreement dated as of January 1, 1997 pertaining to
Eagle Crest Apartments
3. Property Management Agreement dated as of January 1, 1997 pertaining to
Tahoe Apartments.
4. Property Management Agreement dated as of January 1, 1997 pertaining to
Mill Crossing Apartments.
EXHIBIT 10.16
AGREEMENT AND
BILL OF TRANSFER AND ASSIGNMENT
This AGREEMENT AND BILL OF TRANSFER AND ASSIGNMENT ("Bill of Transfer") is
made as of the 1st day of March, 1997, among Apple Realty Group, Inc., a
Virginia corporation (the "Company"), Cornerstone Realty Income Trust, Inc., a
Virginia corporation (the "Acquiror") and Apple Residential Income Trust, Inc.,
a Virginia corporation ("Apple").
RECITALS
A. The Company was engaged to render certain property acquisition and
disposition services to Apple under a Property Acquisition/Disposition
Agreement dated as of November 1, 1997 (the "Brokerage Agreement") in
exchange for payment by Apple of certain fees described therein.
B. The Company has agreed to transfer all of the assets of the Company (the
only material assets being its rights in the Brokerage Agreement) to the
Acquiror for certain cash and common shares of the Acquiror, as set forth
herein.
NOW, THEREFORE, in consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged:
1. Transferred Assets. The Company hereby transfers, conveys, assigns and
delivers to the Acquiror all of the material assets of the Company as
follows: All of the Company's rights and interests in, to and under the
Brokerage Agreement (collectively, the "Transferred Assets"). The Company
hereby represents, and the Acquiror hereby acknowledges, that the
Transferred Assets are free of all liens and other encumbrances and
comprise all of the material assets of the Company. The Company represents
and acknowledges that there are no defaults under the Brokerage Agreement.
Further, the Company and the Acquiror acknowledge that the Company is
entitled to acquisition fees under the Brokerage Agreement earned with
respect to property acquisitions of Apple closed during the period
preceding March 1, 1997, and that the Acquiror shall be entitled to all
fees and compensation under the Brokerage Agreement attributable to the
period on and after such date.
2. Consideration for Transfer. In exchange for the Transferred Assets, the
Acquiror agrees to transfer to the Company on the date of this Bill of
Transfer (i) the Agreed-Upon Number of common shares of the Acquiror (the
"REIT Common Shares") plus (ii) cash in the amount of $350,000. The
Agreed-Upon Number of such common shares shall equal (1) $1,650,000 divided
by (2) $11.00 per Share. The REIT Common Shares total 150,000.
3. Assignability. The right to be issued the REIT Common Shares may be
distributed by the Company to its shareholders, but shall not otherwise be
voluntarily assigned or transferred.
4. Registration Rights. Prior to June 1, 1997, the Acquiror shall enter into
with the Company or any subsequent holder of the REIT Common Shares (any
such person, a "Rights Holder") a registration rights agreement
("Registration Rights Agreement") in form and substance agreeable to the
Acquiror and the Rights Holders, providing, among other things, for the
following with respect to the REIT Common Shares:
(a) In the time periods and with the frequency described in Section
4(b) below, the Acquiror shall file and use its best efforts to cause to
become effective, registration statements under the Securities Act of 1933,
and all necessary qualifications or registrations under the securities laws
covering the resale by the Rights Holders of the REIT Common Shares issued
to the Rights Holders hereunder (each, a "Registration Statement").
(b) A Registration Statement shall be filed within 60 days after the
first anniversary of the issuance of the REIT Common Shares hereunder.
<PAGE>
(c) The Acquiror shall use its best efforts to maintain the
effectiveness of each Registration Statement until the earlier of (i) such
time as all of the REIT Common Shares covered thereby have been sold by the
Rights Holders, and (ii) such time as all of the REIT Common Shares covered
thereby may be resold by the Rights Holders without restriction under the
Securities Act.
(d) During any consecutive three month period, the Rights Holders
shall be prohibited, unless the Acquiror shall otherwise consent thereto in
writing, from selling more than 25% of the outstanding REIT Common Shares,
whether pursuant to a Registration Statement or otherwise, except in an
underwritten public offering in which the managing underwriter is one
reasonably acceptable to the Acquiror.
(e) All expenses of such Registration Statement shall be borne by the
Acquiror, other than (i) any underwriting discounts or commissions or
transfer taxes, and (ii) the fees and expenses of all separate counsel for
the Rights Holders in excess of the reasonable fees and expenses of one
separate counsel retained by the Rights Holders to (A) review the
Registration Statement as requested by the Acquiror, (B) review or prepare
information to be provided at the Acquiror's request, and (C) review
documents and instruments to be executed by the Rights Holders at the
request of the Acquiror.
(f)
(i) The Rights Holders shall refrain from the sale of any REIT
Common Shares for one or more periods of not more than sixty (60) days
following written notice from the Acquiror that the relevant
Registration Statement is not then current, due to the existence of
material non-public information disclosure of which would materially
adversely affect the business interests of the Acquiror, and prior to
the Rights Holders' receipt from the Acquiror of written notice that
such Registration Statement is again current, provided that the Rights
Holders shall not be precluded from effecting sales pursuant to this
clause (i) for more than ninety (90) days during any 360-day period.
(ii)Following written notice from the Acquiror that it has filed
and caused to become effective a registration statement including an
offering of common shares for sale by the Acquiror to the public in an
underwritten public offering, the Rights Holders shall enter into
agreements with the underwriters of such public offering,
substantially in the same form and for the same time period as
agreements entered into by the officers and directors of the Acquiror,
precluding the sale of common shares in the Acquiror by Rights Holders
for a period not to exceed one hundred eighty (180) days following
such notice, provided that the Rights Holders were given the
opportunity to include their REIT Common Shares for sale in such
public offering.
(g) With respect to a Registration Statement, the following procedures
shall apply:
(i) The Acquiror will, prior to filing a Registration Statement
or prospectus or any amendment or supplement thereto, furnish to the
Rights Holders and counsel designated by the Rights Holders, copies of
such registration statement or prospectus as proposed to be filed,
together with exhibits thereto, which documents will be subject to
review by the foregoing, and thereafter furnish to the Rights Holders,
such number of copies of such Registration Statement (including each
preliminary prospectus) and such other documents as the Rights Holders
may reasonably request in order to facilitate the disposition of the
REIT Common Shares covered by the Registration Statement.
(ii) The Acquiror will use its best efforts to register or
qualify the REIT Common Shares under such other securities or blue sky
laws of such jurisdictions in the United States as the Rights Holders
reasonably request; provided, that the Acquiror will not be required
to (A) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify, (B) subject itself to
taxation in any such jurisdiction, or (C) consent to general service
of process in any such jurisdiction.
(iii) The Acquiror will immediately notify the Rights Holders at
any time when a prospectus included in a Registration Statement is
required to be delivered under the Securities Act of 1933, of the
occurrence of an event requiring the preparation of a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of such REIT Common Shares, such
<PAGE>
prospectus will not contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and will
promptly make available to the Rights Holders any such supplement or
amendment.
(iv) The Acquiror will otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC.
(v) The Acquiror shall promptly notify the Rights Holders (A)
when the prospectus or any prospectus supplement has been filed, and,
with respect to the Registration Statement or any post-effective
amendment, when the same has been declared effective, (B) of any
request by the SEC for amendments or supplements to the Registration
Statement or the prospectus or for additional information, (C) of the
issuance by the SEC of any stop order suspending the effectiveness of
the Registration Statement or the initiation of any proceedings for
that purpose, and (D) of the receipt by the Acquiror of any
notification with respect to the suspension of the qualification of
the REIT Common Shares for sale in any jurisdiction or the initiation
or threatening of any proceeding for such purpose.
(vi) The Rights Holders and each officer, director and
controlling person of the Rights Holders shall be indemnified by the
Acquiror for all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation) caused by any untrue or
alleged untrue statement or any omission or alleged omission in the
then-current prospectus included in a Registration Statement, unless
based upon information (if any) furnished to the Acquiror by the
Rights Holders expressly for use in a Registration Statement in a
writing signed by or on behalf of the Rights Holders.
(h) The Acquiror and each officer, director and controlling person of
the Acquiror shall be indemnified by the Rights Holders for all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation) caused by any untrue or alleged untrue statement or any
omission or alleged omission in the then-current prospectus included in a
Registration Statement, if based upon information (if any) furnished to the
Acquiror by the Rights Holders expressly for use in a Registration
Statement in a writing signed by or on behalf of the Rights Holders.
(i) The Rights Holders agree to promptly provide information or
execute and deliver documents reasonably determined by the Acquiror to be
necessary to facilitate the preparation or filing of a Registration
Statement.
5. Apple Consent. Apple consents to the assignment by the Company to the
Acquiror of its rights and interests in, to and under the Brokerage
Agreement. The Acquiror shall assume all of the duties and obligations and
shall be entitled to all of the rights, powers and benefits formerly held
by the Company under the Brokerage Agreement.
6. Benefits of Agreement. Except as set forth in Paragraph 7 below, nothing in
this Agreement, express or implied, is intended or shall be construed to
confer upon any person, firm or corporation other than the parties hereto
any remedy or claim.
7. Successors. The provisions of this Agreement are intended to be binding
upon the Company, its successors and permitted assigns, and are for the
benefit of the Acquiror, its successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement and Bill of
Transfer and Assignment as of the date set forth above.
The Company:
APPLE REALTY GROUP, INC.
By:/s/ Glade M. Knight
----------------------------------
Title: Chairman
-------------------------------
<PAGE>
The Acquiror:
CORNERSTONE REALTY INCOME TRUST, INC.
By:/s/ Glade M. Knight
----------------------------------
Title: Chairman
-------------------------------
Apple:
APPLE RESIDENTIAL INCOME TRUST, INC.
By:/s/ Glade M. Knight
----------------------------------
Title: Chairman
-------------------------------
EXHIBIT 10.18
COMMON SHARE PURCHASE OPTION AGREEMENT
THIS COMMON SHARE PURCHASE OPTION AGREEMENT ("Share Purchase Option
Agreement") is made and entered as of this 10th day of February, 1997, by and
between CORNERSTONE REALTY INCOME TRUST, INC. ("Cornerstone"), a Virginia
corporation, and APPLE RESIDENTIAL TRUST, INC. ("Apple"), a Virginia
corporation.
RECITALS
WHEREAS, Cornerstone has stated an intention to own, and has tendered to
Apple an offer to purchase common shares of Apple ("Common Shares"), on the
terms and conditions set forth herein. Apple is willing to give Cornerstone a
right and option to purchase Common Shares on the terms and conditions and for
the purchase price set forth in this Share Purchase Option Agreement.
NOW, THEREFORE, FOR AND IN CONSIDERATION of the mutual promises and
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties do hereby
agree as follows:
1. Terms of Subscription -- Agreement to Purchase and Sell Common Shares.
(a) Option to Purchase Common Shares. Apple does hereby grant to
Cornerstone a right to purchase at any time during the term of this Share
Purchase Option Agreement and from time to time Common Shares subject to
the aggregate subscription limitation set forth below.
(b) Aggregate Subscription Limit. Cornerstone's aggregate holdings of
Common Shares shall not at any time exceed 9.8% of the total number of
Common Shares then outstanding (the "Aggregate Subscription Limit").
2. Purchase Price. The number of Common Shares received by Cornerstone at
each closing of any purchase of Common Shares hereunder shall be equal to
the gross purchase price paid by Cornerstone at such closing divided by,
the then current public offering price of Common Shares set forth on the
Prospectus dated November 19, 1996, as supplemented and amended from time
to time (the "Prospectus"), less all selling commissions and marketing
expense allowances payable in accordance with the Prospectus, (such net
price per Common Share, the "Purchase Price").
3. Purchase Closings. At each closing of the acquisition of Common Shares
hereunder,
(a) Cornerstone shall pay to Apple, by wire transfer or by certified
or bank cashier's check, an amount determined under section 2 above,
subject to the aggregate amount not exceeding the Aggregate Subscription
Limit; and
(b) Apple shall issue to Cornerstone one or more certificates
representing the whole number of issued and outstanding Common Shares equal
to the quotient of (i) the gross amount paid by Cornerstone to Apple under
Section 2 above divided by (ii) the Purchase Price determined under Section
2 above. Apple shall not be required to issue fractional Common Shares in
connection with any purchase by Cornerstone and, in lieu thereof, Apple
shall refund to Cornerstone the cash amount represented by the fractional
share of Common Shares based upon the Purchase Price. In addition to the
legends required by Apple's Articles of Incorporation, each certificate or
instrument representing the Common Shares shall bear a legend in
substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION AND QUALIFICATION
WITHOUT AN OPINION OF COUNSEL FOR THE HOLDER THAT SUCH REGISTRATION AND
QUALIFICATION ARE NOT REQUIRED, WHICH OPINION OF COUNSEL SHALL BE
REASONABLY SATISFACTORY TO APPLE.
<PAGE>
Such legend shall be removed by Apple upon (i) the U.S. Securities and
Exchange Commission ("SEC") declaring effective a Registration Statement
(as defined in Section 7 below) covering such Common Shares or (ii)
delivery to it of an opinion of counsel reasonably satisfactory to Apple
and its counsel that a registration statement under the Securities Act of
1933, as amended (the "Securities Act"), other than a Registration
Statement, is at the time effective with respect to the transfer of the
legended security or that such security can be transferred without such
registration statement being in effect and without the requirements of a
legend on the certificate in the hands of the transferee.
4. Term. Apple's obligations in connection with this Share Purchase
Option Agreement shall terminate upon the termination of the public
offering of Common Shares pursuant to the Registration Statement No.
333-10135 filed with the SEC, as it may be amended from time to time.
5. Representations and Warranties of Cornerstone. Cornerstone hereby
represents and warrants to Apple as follows:
(a) The execution, delivery and performance of this Agreement by
Cornerstone have been duly authorized by all necessary corporate action.
This Agreement constitutes a valid and binding obligation of Cornerstone,
enforceable in accordance with its terms.
(b) Neither the execution, delivery and performance of this Agreement
nor the consummation of the transactions contemplated hereby by Cornerstone
will conflict with or result in a breach or violation of any of the terms
and provisions of, or (with or without the giving of notice or passage of
time or both) constitute a default under, any agreement to which
Cornerstone is a party, the certificate of incorporation or bylaws of
Cornerstone, any indenture, mortgage, deed of trust, loan agreement, note,
lease or other agreement or instrument to which Cornerstone is a party or
to which any of its properties or other assets is subject, or any
applicable statute, judgment, decree, rule or regulation of any court or
governmental agency or body applicable to Cornerstone or its assets, or
result in the creation or imposition of any lien, charge, claim or
encumbrance upon any property or asset of Cornerstone.
(c) No consent, license, permit or filing of or with any governmental
authority or any person is required in connection with Cornerstone'
execution, delivery and performance of this Share Purchase Option Agreement
except as has been obtained by Cornerstone.
(d) No finder, broker, agent, financial advisor or other intermediary
has acted on behalf of Cornerstone in connection with the purchase of the
Common Shares pursuant to this Share Purchase Option Agreement or the
negotiation or consummation hereof.
(e) It is familiar with the business and financial condition of Apple
and is not relying upon any representations made to it by Apple or any of
its officers, directors, employees, partners or agents that are not
contained herein.
(f) It is aware of the risks involved in making an investment in the
Common Shares. It has had an opportunity to ask questions of, and to
receive answers from, Apple, or a person or persons authorized to act on
its behalf, concerning the terms and conditions of any investment in Apple.
Cornerstone confirms that all documents, records and books pertaining to
any investment in Apple that have been requested by it have been made
available or delivered to it prior to the date hereof.
(g) It understands that the Common Shares have not been registered
under the Securities Act, or any state securities acts, and are being
offered and sold to Cornerstone in reliance on an exemption from such
registration requirements. The Common Shares for which Cornerstone hereby
subscribes are being acquired solely for its own account, for investment,
and are not being purchased with a view to, or for resale in connection
with, any distribution, subdivision or fractionalization thereof in
violation of such laws, and Cornerstone has no present intention to enter
into any contract, undertaking, agreement or arrangement with respect to
any such resale.
(h) It is an "accredited investor" as that term is defined in Rule 501
and Regulation D promulgated under the Securities Act.
<PAGE>
The foregoing representations and warranties are true and accurate as
of the date hereof and shall be true and accurate as of the date of each
purchase of Common Shares pursuant to the terms of this Share Purchase
Option Agreement, and shall survive such dates.
6. Representations and Warranties of Apple. Apple hereby represents and
warrants to Cornerstone as follows:
(a) Apple has full legal right, power and authority to enter into this
Share Purchase Option Agreement and the Registration Rights Agreement
referred to in Section 7 hereof, and to consummate the transactions
contemplated herein and therein. This Share Purchase Option Agreement has
been, and the Registration Rights Agreement referred to in Section 7 hereof
will be, duly authorized by all necessary corporate action, and each will
constitute the valid and binding obligation of Apple, enforceable in
accordance with their respective terms.
(b) The Common Shares have been validly authorized and, when issued to
Cornerstone, will be duly and validly issued, fully paid, nonassessable and
free of preemptive or similar rights. Authorized and unissued Common Shares
sufficient to satisfy Apple's obligation to issue such shares to
Cornerstone shall at all times be reserved by Apple.
(c) Assuming the accuracy of the representations of Cornerstone set
forth in Section 5 hereof, (i) the Common Shares will have been issued,
offered and sold to Cornerstone in compliance with all applicable laws
(including, without limitation, federal and state securities laws) and (ii)
each consent, approval, authorization, order, license, certificate, permit,
registration, designation or filing by or with any governmental agency or
body necessary for the valid authorization, issuance, sale and delivery of
any Common Shares to Cornerstone, the execution, delivery and performance
of this Agreement and the Registration Rights Agreement referred to in
Section 7 hereof and the consummation by Apple of the transactions
contemplated hereby and thereby has been made or obtained and is in full
force and effect.
(d) Neither the issuance, sale and delivery to Cornerstone by Apple of
the Common Shares, nor the execution, delivery and performance of this
Agreement and the Registration Rights Agreement referred to in Section 7
hereof, nor the consummation of the transactions contemplated hereby or
thereby by Apple will conflict with or result in a breach or violation of
any of the terms and provisions of, or (with or without the giving of
notice or passage of time or both) constitute a default under, any
agreement to which Apple is a party, the certificate of incorporation,
bylaws of Apple, any indenture, mortgage, deed of trust, loan agreement,
note, lease or other agreement or instrument to which Apple is a party or
to which any of its properties or other assets is subject, or any
applicable statute, judgment, decree, rule or regulation of any court or
governmental agency or body applicable to Apple or its assets, or result in
the creation or imposition of any lien, charge, claim or encumbrance upon
any property or asset of Apple.
(e) No consent, license, permit or filing of or with any governmental
authority or any person is required in connection with Apple's execution,
delivery and performance of this Share Purchase Option Agreement except as
has been obtained by Apple.
(f) No finder, broker, agent, financial advisor or other intermediary
has acted on behalf of Apple in connection with the purchase of the Common
Shares pursuant to this Share Purchase Option Agreement or the negotiation
or consummation hereof.
The foregoing representations and warranties are true and accurate as
of the date hereof, or such other date as of which they are deemed to be
made, and shall be true and accurate as of the date of each purchase of
Common Shares made hereunder, and shall survive such dates.
7. Registration Rights. Prior to June 1, 1997, Apple shall enter into
with Cornerstone a registration rights agreement ("Registration Rights
Agreement") in form and substance agreeable to Cornerstone and Apple,
providing, among other things, for the following with respect to Common
Shares acquired by Cornerstone pursuant to this Share Purchase Option
Agreement:
<PAGE>
(a) In the time periods and with the frequency described in Section
7(b) below, Apple shall file and use its best efforts to cause to become
effective, registration statements under the Securities Act, and all
necessary qualifications or registrations under the securities laws
covering the resale by Cornerstone of Common Shares issued to Cornerstone
hereunder (each, a "Registration Statement").
(b) A Registration Statement shall be filed within 60 days after (i)
the first anniversary of the first purchase of Common Shares of Cornerstone
and (ii) each subsequent anniversary if Cornerstone has acquired Common
Shares which are not covered by a Registration Statement.
(c) Apple shall use its best efforts to maintain the effectiveness of
each Registration Statement until the earlier of (i) such time as all of
the Common Shares covered thereby have been issued to and sold by
Cornerstone and (ii) such time as all of the Common Shares covered thereby
may be resold by Cornerstone without restriction under the Securities Act.
(d) During any consecutive three month period, Cornerstone shall be
prohibited, unless Apple shall otherwise consent thereto in writing, from
selling more than 25% of the outstanding Common Shares, whether pursuant to
a Registration Statement or otherwise, except in an underwritten public
offering in which the managing underwriter is one reasonably acceptable to
Apple.
(e) All expenses of such Registration Statement shall be borne by
Apple, other than (i) any underwriting discounts or commissions or transfer
taxes and (ii) the fees and expenses of all separate counsel for
Cornerstone in excess of the reasonable fees and expenses of one separate
counsel retained by Cornerstone to (A) review the Registration Statement as
requested by Apple, (B) review or prepare information to be provided at
Apple's request and (C) review documents and instruments to be executed by
Cornerstone at the request of Apple.
(f) (i) Cornerstone shall refrain from the sale of any Common Shares
for one or more periods of not more than sixty (60) days following
written notice from Apple that the relevant Registration Statement is
not then current, due to the existence of material non-public
information disclosure of which would materially adversely affect the
business interests of Apple, and prior to Cornerstone' receipt from
Apple of written notice that such Registration Statement is again
current, provided that Cornerstone shall not be precluded from
effecting sales pursuant to this clause (i) for more than ninety (90)
days during any 360-day period.
(ii) Following written notice from Apple that it has filed and
caused to become effective a registration statement including an
offering of Common Shares for sale by Apple to the public in an
underwritten public offering, Cornerstone shall enter into agreements
with the underwriters of such public offering, substantially in the
same form and for the same time period as agreements entered into by
the officers and directors of Apple, precluding the sale of Common
Shares by Cornerstone for a period not to exceed one hundred eighty
(180) days following such notice, provided that Cornerstone was given
the opportunity to include its shares for sale in such public
offering.
(g) With respect to a Registration Statement, the following procedures
shall apply:
(i) Apple will, prior to filing a Registration Statement or
prospectus or any amendment or supplement thereto, furnish to
Cornerstone and counsel designated by Cornerstone, copies of such
registration statement or prospectus as proposed to be filed, together
with exhibits thereto, which documents will be subject to review by
the foregoing, and thereafter furnish to Cornerstone, such number of
copies of such Registration Statement, each amendment and supplement
thereto, the prospectus included in such Registration Statement
(including each preliminary prospectus) and such other documents as
Cornerstone may reasonably request in order to facilitate the
disposition of the Common Shares covered by the Registration
Statement.
(ii) Apple will use its best efforts to register or qualify the
Common Shares under such other securities or blue sky laws of such
jurisdictions in the United States as Cornerstone reasonably requests;
provided, that Apple will not be required to (A) qualify generally to
do business in any jurisdiction where it would not otherwise be
required to qualify, (B) subject itself to taxation in any such
jurisdiction or (C) consent to general service of process in any such
jurisdiction.
<PAGE>
(iii) Apple will immediately notify Cornerstone at any time when
a prospectus included in a Registration Statement is required to be
delivered under the Securities Act, of the occurrence of an event
requiring the preparation of a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Common Shares, such prospectus will not contain an untrue statement of
a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading, and will promptly make available to Cornerstone any such
supplement or amendment.
(iv) Apple will otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC.
(v) Apple shall promptly notify Cornerstone (A) when the
prospectus or any prospectus supplement has been filed, and, with
respect to the Registration Statement or any post-effective amendment,
when the same has been declared effective, (B) of any request by the
SEC for amendments or supplements to the Registration Statement or the
prospectus or for additional information, (C) of the issuance by the
SEC of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose, and
(D) of the receipt by Apple of any notification with respect to the
suspension of the qualification of the Common Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose.
(vi) Cornerstone and each officer, director and controlling
person of Cornerstone shall be indemnified by Apple for all losses,
claims, damages, liabilities and expenses (including reasonable costs
of investigation) caused by any untrue or alleged untrue statement or
any omission or alleged omission in the then-current prospectus
included in a Registration Statement, unless based upon information
(if any) furnished to Apple by Cornerstone expressly for use in a
Registration Statement in a writing signed by or on behalf of
Cornerstone.
(f) Apple and each officer, director and controlling person of Apple
shall be indemnified by Cornerstone for all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation)
caused by any untrue or alleged untrue statement or any omission or alleged
omission in the then-current prospectus included in a Registration
Statement, if based upon information (if any) furnished to Apple by
Cornerstone expressly for use in a Registration Statement in a writing
signed by or on behalf of Cornerstone.
(g) Cornerstone agrees to promptly provide information or execute and
deliver documents reasonably determined by Apple to be necessary to
facilitate the preparation or filing of a Registration Statement.
8. Miscellaneous.
(a) All notices or other communications given or made hereunder shall
be in writing and shall be delivered in person or mailed by registered or
certified mail, return receipt requested, postage prepaid, or by Federal
Express overnight mail, (A) to Cornerstone at 306 East Main Street,
Richmond, Virginia 23219, Attention: Chief Financial Officer, and (B) to
Apple at 306 East Main Street, Richmond, Virginia 23219, Attention:
President.
(b) NOTWITHSTANDING THE PLACE WHERE THIS AGREEMENT MAY BE EXECUTED BY
ANY OF THE PARTIES HERETO, THE PARTIES EXPRESSLY AGREE THAT ALL OF THE
TERMS AND PROVISIONS HEREOF SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE COMMONWEALTH OF VIRGINIA (WITHOUT REGARD TO
CONFLICTS OF LAW PRINCIPLES), APPLICABLE TO AGREEMENTS MADE AND TO BE
WHOLLY PERFORMED THEREIN.
(c) This Agreement (i) supersedes all other agreements or
understandings, by and between Cornerstone and Apple, and (ii) constitutes
the entire agreement between the parties hereto, in each case with respect
to the subscription by Cornerstone for Common Shares of Apple. This
Agreement
<PAGE>
may be amended only by an instrument in writing executed by all parties.
Cornerstone may assign and transfer its rights and obligations hereunder,
and the Common Shares it acquires, to any direct or indirect subsidiary
thereof.
(d) This Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the parties hereto.
(e) All terms used herein shall be deemed to include the masculine and
the feminine and the singular and the plural as the context requires.
Captions herein are for convenience of reference only and shall not alter
or affect the meaning or construction of the paragraphs hereof to which
they relate.
(f) The parties hereto agree to take all actions, including the
entering into of any documents, agreements or instruments, or amendments
thereof, as may be necessary or appropriate to effectuate the intents and
purposes hereof and consummate and make effective the transactions
contemplated hereby.
(g) This Agreement may be executed in two or more counterparts, any
one of which need not contain the signatures of more than one party, but
all such counterparts taken together will constitute one and the same
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Share Purchase
Option Agreement on and as of the date first above written.
CORNERSTONE REALTY INCOME TRUST, INC.,
a Virginia corporation
By:/s/ Glade M. Knight
------------------------------------
Name: Glade M. Knight
----------------------------------
Title: Chairman
---------------------------------
APPLE RESIDENTIAL INCOME TRUST, INC.,
a Virginia corporation
By:/s/ Glade M. Knight
------------------------------------
Name: Glade M. Knight
----------------------------------
Title: Chairman
---------------------------------
EXHIBIT 10.19
ASSIGNMENT RELATING TO
PROPERTY MANAGEMENT AGREEMENTS
This Assignment Relating to Property Management Agreements (this
"Assignment") is made as of December 29, 1997, by and among Apple Residential
Income Trust, Inc., a Virginia corporation ("Apple"), Apple Residential
Management Group, Inc., a Virginia corporation ("ARMG"), Apple REIT Limited
Partnership, a Virginia limited partnership ("Apple LP"), and Cornerstone Realty
Income Trust, Inc., a Virginia corporation ("Cornerstone"), and provides:
RECITALS
A. Apple, ARMG and Cornerstone are parties to a certain Property
Management Agreement Subcontract dated as of March 1, 1997 (the
"Subcontract") pertaining to certain Property Management Agreements,
as defined therein.
B. Effective as of the date of this Assignment, Apple has transferred to
Apple LP the properties that are the subject of the currently-existing
Property Management Agreements and, in connection therewith, desires
to assign and transfer to Apple LP all of its rights and interests in,
to and under the currently-existing Property Management Agreements,
subject to the obligations and limitations contained therein, and
subject to the subcontract arrangement set forth in the Subcontract.
C. ARMG and Cornerstone are willing to consent to the assignment and
transfer referred to in the preceding paragraph, with the result that
Cornerstone will, pursuant to the Subcontract and this Assignment, be
rendering to Apple LP the duties owed by the "Manager" to the "Owner"
under the terms of the currently existing Property Management
Agreements.
D. The parties hereto further desire to amend the Subcontract to provide
that the term "Property Management Agreements," as defined therein,
will include any Property Management Agreements pursuant to which ARMG
has agreed to provide property management services to Apple LP.
NOW THEREFORE, in consideration of the foregoing, of the mutual covenants
and agreements contained herein, and other good and valuable consideration, the
parties hereby agree and consent as follows:
1. Capitalized terms used and not defined herein have the meanings set
forth in the Subcontract.
<PAGE>
2. Apple does hereby assign and transfer to Apple LP all of its rights
and interests in, to and under the Property Management Agreements
existing as of the date hereof, subject to all of its obligations,
responsibilities and liabilities therein, and subject to the
subcontract arrangement set forth in the Subcontract.
3. ARMG and Cornerstone consent to the assignment and transfer referred
to in the preceding Section 2.
4. The term "Property Management Agreements," as used in the Property
Management Agreement Subcontract, shall include, in addition to those
described therein, any Property Management Agreement pursuant to which
ARMG has agreed to provide property management services to Apple LP as
owner of one or more apartment communities acquired by Apple LP.
5. The intent of this Assignment is that Cornerstone shall have all
duties and obligations of ARMG under the terms of the Property
Management Agreements (from and after March 1, 1997 with respect to
Property Management Agreements in effect on such date, and from and
after the date of the respective Property Management Agreement with
respect to any Property Management Agreement entered into after March
1, 1997), and to confer upon Cornerstone all of the correlative
rights, powers and benefits, including, without limitation, the right
to receive all fees and expense reimbursements, conferred by or
provided for in the Property Management Agreements, whether the owner
of the several properties is Apple or Apple LP, and this Agreement
shall be interpreted and construed consistently with such intent.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment by
their duly authorized officers as of the date first written above.
APPLE RESIDENTIAL INCOME TRUST, INC.,
a Virginia corporation
By: /s/ Glade M. Knight
---------------------------------
Title: Chairman
------------------------------
<PAGE>
APPLE RESIDENTIAL MANAGEMENT GROUP, INC.,
a Virginia corporation
By: /s/ Glade M. Knight
---------------------------------
Title: President
-----------------------------
CORNERSTONE REALTY INCOME TRUST, INC.,
a Virginia corporation
By: /s/ Stanley J. Olander, Jr.
---------------------------------
Title: Chief Financial Officer
------------------------------
APPLE REIT LIMITED PARTNERSHIP,
a Virginia limited partnership
By: Apple General, Inc., general partner
By: /s/ Glade M. Knight
---------------------------------
Title: President
------------------------------
EXHIBIT 10.20
4,500,000 Shares
Cornerstone Realty Income Trust, Inc.
Common Shares
(No Par Value)
UNDERWRITING AGREEMENT
April 18, 1997
Alex. Brown & Sons Incorporated
Branch, Cabell & Co., Inc.
Freidman, Billings, Ramsey & Co., Inc.
Interstate/Johnson Lane Corporation
c/o Alex. Brown & Sons Incorporated
135 East Baltimore Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Cornerstone Realty Income Trust, Inc., a Virginia corporation (the
"Company"), subject to the terms and conditions stated herein, proposes to sell
to the several underwriters (the "Underwriters") named in Appendix I hereto an
aggregate of 4,500,000 shares of the Company's Common Shares, no par value (the
"Firm Shares"). The respective amounts of the Firm Shares to be so purchased by
the several Underwriters are set forth opposite their names in Appendix I
hereto. The Company also proposes to sell at the Underwriters' option an
aggregate of up to 675,000 additional shares of the Company's Common Shares (the
"Optional Shares") as set forth below.
You have advised the Company (a) that you are authorized to enter into
this Agreement and (b) that the several Underwriters are acting severally and
not jointly, to purchase the number of Firm Shares set forth opposite their
respective names in Appendix I, plus their pro rata portion of the Optional
Shares if you elect to exercise the over-allotment option in whole or in part
for the accounts of the several Underwriters. The Firm Shares and the Optional
Shares (to the extent the aforementioned option is exercised) are herein
collectively called the "Shares."
<PAGE>
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
---------------------------------------------
The Company represents and warrants to, and agrees with, the
Underwriters that:
(a) A registration statement on Form S-3 (File No. 333-23693)
with respect to the Shares has been carefully prepared by the Company
in conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the Rules and Regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder and has been filed with the Commission. The
Company has complied with the conditions for the use of Form S-3.
Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the
Rules and Regulations) contained therein and the exhibits, financial
statements and schedules, as finally amended and revised, have
heretofore been delivered by the Company to you. Such registration
statement, together with any registration statement filed by the
Company pursuant to Rule 462 (b) of the Act, herein referred to as the
"Registration Statement," which shall be deemed to include all
information omitted therefrom in reliance upon Rule 430A and contained
in the Prospectus referred to below, has become effective under the Act
and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. "Prospectus" means (a) the form
of prospectus first filed with the Commission pursuant to Rule 424(b)
or (b) the last preliminary prospectus included in the Registration
Statement filed prior to the time it becomes effective or filed
pursuant to Rule 424(a) under the Act that is delivered by the Company
to the Underwriters for delivery to purchasers of the Shares, together
with the term sheet or abbreviated term sheet filed with the Commission
pursuant to Rule 424(b)(7) under the Act. Each preliminary prospectus
included in the Registration Statement prior to the time it becomes
effective is herein referred to as a "Preliminary Prospectus." Any
reference herein to the Registration Statement, any Preliminary
Prospectus or to the Prospectus shall be deemed to refer to and include
any documents incorporated by reference therein, and, in the case of
any reference herein to any Prospectus, also shall be deemed to include
any documents incorporated by reference therein, and any supplements or
amendments thereto, filed with the Commission after the date of filing
of the Prospectus under Rules 424(b) or 430A, and prior to the
termination of the offering of the Shares by the Underwriters.
(b) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the
Commonwealth of Virginia, with corporate power and authority to own its
properties and conduct its business as described in the Registration
Statement. Each of the subsidiaries of the Company as
2
<PAGE>
listed in Schedule II hereto (collectively, the "Subsidiaries") has
been duly organized and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, with
corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement. The
Subsidiaries are the only subsidiaries, direct or indirect, of the
Company. The Company and each of the Subsidiaries are duly qualified to
transact business in all jurisdictions in which the conduct of their
business requires such qualification except where the failure to be so
qualified would have a material adverse effect on the financial
position, results of operations or business of the Company and its
subsidiaries taken as a whole ("Material Adverse Effect"). The
outstanding shares of capital stock of each of the Subsidiaries have
been duly authorized and validly issued, are fully paid and
non-assessable and, all Preferred Shares of the Subsidiaries are owned
by the Company and all Common Shares of the Subsidiaries are owned by
the Company and Glade M. Knight, free and clear of all liens,
encumbrances and equities and claims; and except as described in the
Registration Statement, no options, warrants or other rights to
purchase, agreements or other obligations to issue or other rights to
convert any obligations into shares of capital stock or ownership
interests in the Subsidiaries are outstanding. The Company's Preferred
Shares of the Subsidiaries represents 95% of the equity interests in
each Subsidiary and except as required by law have no voting rights.
(c) The Company is organized in conformity with the
requirements for qualification as a real estate investment trust under
the Internal Revenue Code of 1986, as amended (the "Code"), and the
Company's method of operation will enable it to meet the requirements
for taxation as a real estate investment trust under the Code.
(d) The outstanding Common Shares of the Company have been
duly authorized and validly issued and are fully paid and
non-assessable; the Shares to be issued and sold by the Company have
been duly authorized and when issued and paid for as contemplated
herein will be validly issued, fully paid and non-assessable; and no
preemptive rights of stockholders exist with respect to any of the
Shares or the issue and sale thereof. Neither the filing of the
Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement gives rise to any rights, other than
those which have been waived or satisfied, for or relating to the
registration of any Common Shares.
(e) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct. All of the
Shares conform to the description thereof contained in the Registration
Statement. The form of certificates for the Shares conforms to the
corporate law of the jurisdiction of the Company's incorporation.
3
<PAGE>
(f) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering
of the Shares nor instituted proceedings for that purpose. The
Registration Statement contains, and the Prospectus and any amendments
or supplements thereto will contain, all statements which are required
to be stated therein by, and will conform to, the requirements of the
Act and the Rules and Regulations. The documents incorporated by
reference in the Prospectus, at the time filed with the Commission
conformed, in all material respects, to the requirements of the
Securities Exchange Act of 1934 or the Act, as applicable, and the
Rules and Regulations. The Registration Statement and any amendment
thereto do not contain, and will not contain, any untrue statement of a
material fact and do not omit, and will not omit, to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading. The Prospectus and any amendments and
supplements thereto do not contain, and will not contain, any untrue
statement of material fact; and do not omit, and will not omit, to
state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that the
Company makes no representations or warranties as to information
contained in or omitted from the Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon, and
in conformity with, written information furnished to the Company by or
on behalf of any Underwriter through the Representatives, specifically
for use in the preparation thereof.
(g) The consolidated financial statements of the Company,
together with related notes and schedules as set forth or incorporated
by reference in the Registration Statement, present fairly the
financial position and the results of operations and cash flows of the
Company at the indicated dates and for the indicated periods. Such
financial statements and related schedules have been prepared in
accordance with generally accepted accounting principles, consistently
applied throughout the periods involved, except as disclosed therein,
and all adjustments necessary for a fair presentation of results for
such periods have been made. The summary financial and statistical data
included or incorporated by reference in the Registration Statement
presents fairly the information shown therein and such data has been
compiled on a basis consistent with the financial statements presented
therein and the books and records of the Company. The pro forma
financial statements and other pro forma financial information included
in the Registration Statement and the Prospectus present fairly the
information shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements, have been properly compiled on the pro forma bases
described therein, and, in the opinion of the Company, the assumptions
used in the preparation thereof are reasonable and the adjustments used
therein are appropriate to give effect to the transactions or
circumstances referred to therein.
4
<PAGE>
(h) Ernst & Young LLP, KPMG Peat Marwick LLP, L.P. Martin &
Company, P.C. and Dixon, Odom & Co., L.L.P., who have certified certain
of the financial statements filed with the Commission as part of, or
incorporated by reference in, the Registration Statement, are
independent public accountants with respect to the Company as required
by the Act and the Rules and Regulations.
(i) There is no proceeding, action, suit, claim, inquiry or
investigation pending or, to the knowledge of the Company, threatened
against the Company or any of the Subsidiaries before any court or
administrative agency or otherwise which if determined adversely to the
Company or any of its Subsidiaries would result in a Material Adverse
Effect or to prevent the consummation of the transactions contemplated
hereby, except as set forth in the Registration Statement.
(j) The Company will have, at the Closing Date, as hereinafter
defined, good and marketable title in fee simple to all of the
properties described in the Prospectus (the "Properties") free and
clear of all liens, encumbrances, claims, security interests,
restrictions and defects except such as (i) are described in the
Prospectus or (ii) would not have a Material Adverse Effect. All liens,
encumbrances, claims, security interests, restrictions and defects
affecting the Properties which are required to be disclosed in the
Prospectus are disclosed therein. The Company does not own or lease any
material real property, except as described in the Prospectus. No
person has an option or right of first refusal to purchase all or part
of any property or any interest therein. Each of theProperties complies
with all applicable codes, laws and regulations (including, without
limitation, building and zoning codes, laws and regulations and laws
relating to access to the properties), except if and to the extent
disclosed in the Prospectus and except for such failures to comply that
would not individually or in the aggregate have a Material Adverse
Effect. The Company has no knowledge of any pending or threatened
condemnation proceedings, zoning change, or other proceeding or action
that will in any manner affect the size of, use of, improvements on,
construction on or access to any of its property, except such
proceedings or actions that would not have a Material Adverse Effect.
The Company has obtained an owner's title insurance policy or
commitment from a title insurance company to issue such a policy on
each of its Properties with coverage in an amount at least equal to the
cost of acquisition of such property, including the principal amount of
any indebtedness assumed with respect to the property.
(k) The Company and the Subsidiaries have filed all Federal,
State, local and foreign income tax returns which have been required to
be filed and have paid all taxes indicated by said returns and all
assessments received by them or any of them to the extent that such
taxes have become due. All material tax liabilities have been
adequately provided for in the financial statements of the Company.
5
<PAGE>
(l) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or
supplemented, there has not been any material adverse change or any
development involving a prospective material adverse change in or
affecting the earnings, business, management, properties, assets,
rights, operations, condition (financial or otherwise), or prospects of
the Company and its Subsidiaries taken as a whole, whether or not
occurring in the ordinary course of business.
(m) Neither the Company nor any of the Subsidiaries is or with
the giving of notice or lapse of time or both, will be, in violation of
or in default under its Articles of Incorporation or By-Laws or under
any agreement, lease, contract, indenture or other instrument or
obligation to which it is a party or by which it, or any of its
properties, is bound and which violation or default is of material
significance in respect of the business, management, properties,
assets, rights, operations, condition (financial or otherwise) or
prospects of the Company and the Subsidiaries taken as a whole. The
execution and delivery of this Agreement and the consummation of the
transactions herein contemplated and the fulfillment of the terms
hereof will not conflict with or result in a breach of any of the terms
or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust or other agreement or instrument to which the
Company or any Subsidiary is a party, or of the Articles of
Incorporation or By-laws of the Company or any order, rule or
regulation applicable to the Company or any Subsidiary of any court or
of any regulatory body or administrative agency or other governmental
body having jurisdiction and which conflict, breach or default would
have a Material Affect.
(n) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or
other governmental body necessary in connection with the execution and
delivery by the Company of this Agreement and the consummation of the
transactions herein contemplated (except such additional steps as may
be required by the Commission, the National Association of Securities
Dealers, Inc. (the "NASD") or as may be necessary to qualify the Shares
for public offering by the Underwriters under state securities or Blue
Sky laws) has been obtained or made and is in full force and effect.
(o) The Company and each of the Subsidiaries holds all
material licenses, certificates and permits from governmental
authorities which are necessary to the conduct of their businesses; and
neither the Company nor any of the Subsidiaries has infringed any
patents, patent rights, trade names, trademarks or copyrights, which
infringement is material to the business of the Company and the
Subsidiaries taken as a whole. The Company knows of no material
infringement by others of patents, patent rights, trade names,
trademarks or copyrights owned by or licensed to the Company.
6
<PAGE>
(p) Neither the Company, nor to the Company's best knowledge,
any of its officers, directors or other affiliates has taken or may
take, directly or indirectly, any action designed to cause or result
in, or which has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of the
Common Shares to facilitate the sale or resale of the Shares.
(q) Neither the Company nor any Subsidiary is an "investment
company" within the meaning of such term under the Investment Company
Act of 1940 and the rules and regulations of the Commission thereunder.
(r) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(s) The Company and each of its Subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks that the
Company believes is adequate for the conduct of their respective
businesses and the value of their respective properties and as is
customary for companies engaged in similar industries. Except as
otherwise disclosed in the Prospectus, neither the Company, nor, to its
knowledge, any former owner of any of the Properties has authorized or
conducted or has knowledge of the generation, transportation, storage,
presence, use, treatment, disposal, release, or other handling of any
hazardous substance, hazardous waste, hazardous material, hazardous
constituent, toxic substance, pollutant, contaminant, asbestos, radon,
polychlorinated biphenyls ("PCBs"), petroleum product or waste
(including crude oil or any fraction thereof), natural gas, liquefied
gas, synthetic gas or other material defined, regulated, controlled or
potentially subject to any remediation requirement under any
environmental law (collectively, "Hazardous Materials"), on, in, under
or affecting the Properties except in material compliance with
applicable laws; to the knowledge of the Company, the Properties and
the Company's operations with respect to the Properties are in
substantial compliance with all federal, state and local laws,
ordinances, rules, regulations and other governmental requirements
relating to pollution, control of chemicals, management of waste,
discharges of materials into the environment, health, safety, natural
resources, and the environment (collectively, "Environmental Laws"),
and the Company has been, and is, in substantial compliance with all
licenses, permits, registrations and government authorizations
necessary to operate under all applicable Environmental Laws. Except as
otherwise disclosed in the Prospectus, neither the Company nor to
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the knowledge of the Company, any former owner of any of the Properties
has received any written or oral notice from any governmental entity or
any other person and there is no pending or threatened claim,
litigation or anyadministrative agency proceeding that: alleges a
violation of any Environmental Laws by the Company; alleges that the
Company is a liable party or a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. ss. 9601, et seq., or any state superfund law; has resulted
in or could result in the attachment of an environmental lien on any of
the Properties; or alleges that the Company is liable for any
contamination of the environment, contamination of the Properties,
damage to natural resources, property damage, or personal injury based
on their activities or the activities of their predecessors or third
parties (whether at the Real Property or elsewhere) involving Hazardous
Materials, whether arising under the Environmental Laws, common law
principles, or other legal standards.
None of the entities which prepared appraisals of the
Company's properties, nor the entities which prepared Phase I
environmental assessment reports with respect to such properties, was
employed for such purpose on a contingent basis or has any substantial
interest in the Company, and none of their directors, officers or
employees is connected with the Company as a promoter, selling agent,
voting trustee, officer, director or employee.
(t) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event"
(as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which the Company would have any liability;
the Company has not incurred and does not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each
"pension plan" for which the Company would have any liability that is
intended to be qualified under Section 401(a) of the Code is so
qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such
qualification. To the best of the Company's knowledge, no general labor
problem exists or is imminent with the employees of the Company.
(u) The Company has not incurred any liability for a fee,
commission or other compensation on account of the employment of a
broker or finder in connection with the transactions contemplated by
this Agreement other than as contemplated hereby.
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(v) To the knowledge of the executive officers of the Company,
other than the Subsidiaries, except as disclosed in the Prospectus, no
corporation, partnership, limited liability company or any other entity
of which the Company or any of such officers owns a material interest
is providing any services to Apple.
Any certificate signed by any officer of the Company on behalf
of the Company and delivered to you or to counsel for the Underwriters
in connection with the consummation of the offering shall be deemed a
representation and warranty by such entity to each Underwriter as to
the matters covered thereby.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
----------------------------------------------
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, and subject to the terms and
conditions herein set forth, the Company agrees to sell to the
Underwriters and each Underwriter agrees, severally and not jointly, to
purchase, at a price of $9.765 per share, the number of Firm Shares set
forth opposite the name of each Underwriter in Appendix I hereof,
subject to adjustments in accordance with Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be
made in New York Clearing House funds by wire transfer to the order of
the Company against delivery of certificates therefor to the
Underwriters for the several accounts of the Underwriters. Such payment
and delivery are to be made at the offices of Alex. Brown & Sons
Incorporated, 1 South Street, Baltimore, Maryland, at 10:00 a.m.,
Baltimore time, (i) on the third business day after the date of this
Agreement if this Agreement is executed and delivered on or before 4:00
p.m., Eastern Standard time, (ii) on the fourth business day after the
date of this Agreement if this Agreement is executed and delivered on
or after 4:01 p.m. Eastern Standard time or (iii) at such other time
and date not later than five business days thereafter as you and the
Company shall agree upon, such time and date being herein referred to
as the "Closing Date." (As used herein, "business day" means a day on
which the New York Stock Exchange is open for trading and on which
banks in New York are open for business and are not permitted by law or
executive order to be closed.) The certificates for the Firm Shares
will be delivered in such denominations and in such registrations as
the Underwriters request in writing not later than the second full
business day prior to the Closing Date, and will be made available for
inspection by the Underwriters at least one business day prior to the
Closing Date.
(c) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions
herein set forth, the Company hereby grants an option to the several
Underwriters to purchase the Optional Shares at the price per share as
set forth in the first paragraph of this Section 2. The option granted
hereby may be exercised in whole or in part by giving written notice
(i) at
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any time before the Closing Date and (ii) only once thereafter within
30 days after the date of this Agreement, by you, to the Company
setting forth the number of Optional Shares as to which the several
Underwriters are exercising the option, the names and denominations in
which the Optional Shares are to be registered and the time and date at
which such certificates are to be delivered. The time and date at which
certificates for Optional Shares are to be delivered shall be
determined by the Underwriters but shall not be earlier than three nor
later than 10 full business days after the exercise of such option, nor
in any event prior to the Closing Date (such time and date being herein
referred to as the "Option Closing Date"). If the date of exercise of
the option is three or more days before the Closing Date, the notice of
exercise shall set the Closing Date as the Option Closing Date. The
number of Optional Shares to be purchased by each Underwriter shall be
in the same proportion to the total number of Optional Shares being
purchased as the number of Firm Shares being purchased by such
Underwriter bears to the total number of Firm Shares, adjusted by you
in such manner as to avoid fractional shares. The option with respect
to the Optional Shares granted hereunder may be exercised only to cover
over-allotments in the sale of the Firm Shares by the Underwriters. The
Underwriters may cancel such option at any time prior to its expiration
by giving written notice of such cancellation to the Company. To the
extent, if any, that the option is exercised, payment for the Optional
Shares shall be made on the Option Closing Date in New York Clearing
House funds by wire transfer to the order of the Company against
delivery of certificates therefor at the offices of Alex. Brown & Sons
Incorporated, 1 South Street, Baltimore, Maryland.
3. OFFERING BY THE UNDERWRITERS.
----------------------------
It is understood that the several Underwriters are to make a
public offering of the Firm Shares as soon as they deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the
initial public offering price set forth in the Prospectus. The
Underwriters may from time to time thereafter change the public
offering price and other selling terms. To the extent, if at all, that
any Optional Shares are purchased pursuant to Section 2 hereof, the
Underwriters will offer them to the public on the foregoing terms.
It is further understood that you will act as the Underwriters
in the offering and sale of the Shares in accordance with an Agreement
Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY.
------------------------
The Company covenants and agrees with the several Underwriters
that:
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(a) The Company will (i) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule
430A of the Rules and Regulations is followed, to prepare and timely
file with the Commission under Rule 424(b) of the Rules and Regulations
a Prospectus in a form approved by the Underwriters containing
information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Rules and
Regulations, (ii) not file any amendment to the Registration Statement
or supplement to the Prospectus or any document incorporated by
reference therein of which the Underwriters shall not previously have
been advised and furnished with a copy or to which the Underwriters
shall have reasonably objected in writing or which is not in compliance
with the Rules and Regulations and (iii) file on a timely basis all
reports and any definitive proxy or information statements required to
be filed by the Company with the Commission subsequent to the date of
the Prospectus and prior to the termination of the offering of the
Shares by the Underwriters.
(b) The Company will advise the Underwriters promptly (i) when
the Registration Statement or any post-effective amendment thereto
shall have become effective, (ii) of receipt of any comments from the
Commission, (iii) of any request of the Commission for amendment of the
Registration Statement or for supplement to the Prospectus or for any
additional information, and (iv) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration
Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to
prevent the issuance of any such stop order preventing or suspending
the use of the Prospectus and to obtain as soon as possible the lifting
thereof, if issued.
(c) The Company will cooperate with the Underwriters in
endeavoring to qualify the Shares for sale under the securities laws of
such jurisdictions as the Underwriters may reasonably have designated
in writing and will make such applications, file such documents, and
furnish such information as may be reasonably required for that
purpose, provided the Company shall not be required to qualify as a
foreign corporation, to file a general consent to service of process or
to subject itself to taxation in any jurisdiction where it is not now
so qualified, required to file such a consent or so subject to
taxation. The Company will, from time to time, prepare and file such
statements, reports, and other documents, as are or may be required to
continue such qualifications in effect for so long a period as the
Underwriters may reasonably request for distribution of the Shares.
(d) The Company will deliver to, or upon the order of, the
Underwriters, from time to time, as many copies of any Preliminary
Prospectus as the Underwriters may reasonably request. The Company will
deliver to, or upon the order of, the Underwriters during the period
when delivery of a Prospectus is required under the Act, as many copies
of the Prospectus in final form, or as thereafter amended or
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supplemented, as the Underwriters may reasonably request. The Company
will deliver to the Underwriters at or before the Closing Date, four
signed copies of the Registration Statement and all amendments thereto
including all exhibits filed therewith, and will deliver to the
Underwriters such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that
may reasonably be requested), including documents incorporated by
reference therein, and of all amendments thereto, as the Underwriters
may reasonably request.
(e) The Company will comply in all material respects with the
Act and the Rules and Regulations, and the Securities Exchange Act of
1934 (the "Exchange Act"), and the rules and regulations of the
Commission thereunder, so as to permit the completion of the
distribution of the Shares as contemplated in this Agreement and the
Prospectus. If during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur
as a result of which, in the judgment of the Company or in the
reasonable written opinion of the Underwriters, it becomes necessary to
amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances existing at the time the
Prospectus is delivered to a purchaser, not misleading, or, if it is
necessary at any time to amend or supplement the Prospectus to comply
with any law, the Company promptly will either (i) prepare and file
with the Commission an appropriate amendment to the Registration
Statement or supplement to the Prospectus or (ii) prepare and file with
the Commission an appropriate filing under the Securities Exchange Act
of 1934 which shall be incorporated by reference in the Prospectus so
that the Prospectus as so amended or supplemented will not, in the
light of the circumstances when it is so delivered, be misleading, or
so that the Prospectus will comply with the law.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not
later than 15 months after the effective date of the Registration
Statement, an earnings statement (which need not be audited) in
reasonable detail, covering a period of at least 12 consecutive months
beginning after the effective date of the Registration Statement, which
earning statement shall satisfy the requirements of Section 11(a) of
the Act and Rule 158 of the Rules and Regulations and will advise you
in writing when such statement has been so made available.
(g) The Company will, for a period of five years from the
Closing Date, deliver to the Underwriters copies of annual reports and
copies of all other documents, reports and information furnished by the
Company to its stockholders or filed with any securities exchange
pursuant to the requirements of such exchange or with the Commission
pursuant to the Act or the Securities Exchange Act of 1934, as amended.
The Company will deliver to the Underwriters similar reports with
respect
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to significant subsidiaries, as that term is defined in the Rules and
Regulations, which are not consolidated in the Company's financial
statements.
(h) No offering, sale, short sale or other disposition of any
Common Shares of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Shares or derivative
of Common Shares (or agreement for such), except for issuances by the
Company pursuant to the Company's Stock Incentive Plan, Directors' Plan
and Dividend Reinvestment Plan and Stock Purchase and the issuance by
the Company of Common Shares not registered under the Act and not to be
registered under the Act until the first anniversary of the date of
this Agreement that have been issued as consideration for the Company's
acquisition of additional properties, will be made for a period of 12
months after the date of this Agreement, directly or indirectly, by the
Company otherwise than hereunder or with the prior written consent of
Alex. Brown & Sons Incorporated, which consent shall not unreasonably
be withheld.
(i) The Company has caused each officer and director of the
Company to furnish to you, on or prior to the date of this agreement, a
letter or letters, in form and substance satisfactory to the
Underwriters, pursuant to which each such person shall agree not to
offer, sell, sell short or otherwise dispose of any Common Shares of
the Company or other capital stock of the Company, or any other
securities convertible, exchangeable or exercisable for Common Shares
or derivative of Common Shares owned by such person or request the
registration for the offer or sale of any of the foregoing (or as to
which such person has the right to direct the disposition of) for a
period of 12 months after the date of this Agreement, directly or
indirectly, except with the prior written consent of Alex. Brown & Sons
Incorporated ("Lockup Agreements").
(j) The Company will use its best efforts to list, subject to
notice of issuance, the Shares on the New York Stock Exchange.
(k) The Company shall apply the net proceeds of its sale of
the Shares as set forth in the Prospectus.
(l) The Company will use its best efforts to meet the
requirements to qualify as a real estate investment trust under the
Code.
(m) The Company shall not invest, or otherwise use, the
proceeds received by the Company from its sale of the Shares in such a
manner as would require the Company or any of the Subsidiaries to
register as an investment company under the Investment Company Act of
1940, as amended (the "1940 Act").
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(n) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a
registrar for the Common Shares.
(o) The Company will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation
of the price of any securities of the same class or convertible into or
exchangeable for Common Shares.
(p) The Company on or before the Closing Date, shall purchase
the number of common shares of Apple equal to approximately 9.5% of the
issued and outstanding common shares of Apple as of the date of the
initial filing of the Registration Statement and (ii) at each of the
Company's quarterly meetings of its Board of Directors, the Board shall
consider an additional purchase of Apple common shares and the Company
shall purchase the number of Apple common shares necessary to increase
the Company's aggregate holdings of Apple common shares to
approximately 9.5% of the issued and outstanding Apple common shares as
of the date of such Board meeting unless the Board determines that such
purchase is not in the best interest of the Company. Notwithstanding
any other provisions of this paragraph, no purchase of Apple common
shares by the Company shall be required (a) if a majority of the
Company's Board of Directors, including a majority of the Company's
Independent Directors (as defined in the Company's Bylaws) resolves
that the purchase of common shares of Apple is not in the best interest
of the Company.
(q) Between October 1, 1997 and December 31, 1997, the Company
shall (i) call a special meeting of the Board of Directors for the
purpose of the Board considering, or (ii) at any other meeting of the
Board of Directors (provided proper notice of the subject has been
given), cause the Board of Directors to consider, the merits of the
Company proposing to purchase or acquire Apple or its assets.
5. COSTS AND EXPENSES.
------------------
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement,
including, without limiting the generality of the foregoing, the
following: accounting fees of the Company; the fees and disbursements
of counsel for the Company; the cost of printing and delivering to, or
as requested by, the Underwriters copies of the Registration Statement,
Preliminary Prospectuses, the Prospectus, this Agreement, the
Underwriters' Selling Memorandum, the Underwriters' Invitation Letter,
the Listing Application, the Blue Sky Survey and any supplements or
amendments thereto; the filing fees of the Commission; the filing fees
incident to securing any required review by the National Association of
Securities Dealers, Inc. (the "NASD") of the terms of the sale of the
Shares; the Listing Fee of the New York Stock Exchange; and the
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<PAGE>
expenses, including the reasonable fees and disbursements of counsel
for the Underwriters, incurred in connection with the qualification of
the Shares under State securities or Blue Sky laws. The Company shall
not, however, be required to pay for any of the Underwriters' expenses
(other than those related to reviews under NASD regulation and
qualifications under State securities or Blue Sky laws) except that, if
this Agreement shall not be consummated because the conditions in
Section 6 hereof are not satisfied, or because this Agreement is
terminated by the Representatives pursuant to Section 11 hereof, or by
reason of any failure, refusal or inability on the part of the Company
to perform any undertaking or satisfy any condition of this Agreement
or to comply with any of the terms hereof on its part to be performed,
unless such failure to satisfy said condition or to comply with said
terms be due to the default or omission of any Underwriter, then the
Company shall reimburse the several Underwriters for reasonable
out-of-pocket expenses, including reasonable fees and disbursements of
counsel, reasonably incurred in connection with investigating,
marketing and proposing to market the Shares or in contemplation of
performing their obligations hereunder; but the Company shall not in
any event be liable to any of the several Underwriters for damages on
account of loss of anticipated profits from the sale by them of the
Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
---------------------------------------------
The several obligations of the Underwriters to purchase the
Firm Shares on the Closing Date and the Optional Shares, if any, on the
Option Closing Date are subject to the accuracy in all material
respects, as of the Closing Date or the Option Closing Date, as the
case may be, of the representations and warranties of the Company
contained herein, and to the performance by the Company in all material
respects of its covenants and obligations hereunder and to the
following additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and any and all filings
required by Rule 424 and Rule 430A of the Rules and Regulations shall
have been made, and any request of the Commission for additional
information (to be included in the Registration Statement or otherwise)
shall have been disclosed to the Underwriters and complied with to
their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to
time, shall have been issued and no proceedings for that purpose shall
have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission and no injunction, restraining order, or
order of any nature by a Federal or state court of competent
jurisdiction shall have been issued as of the Closing Date which would
prevent the issuance of the Shares.
(b) The Underwriters shall have received on the Closing Date
or the Option Closing Date, as the case may be, the opinion of McGuire,
Woods, Battle &
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Boothe, L.L.P., counsel for the Company, dated the Closing Date or the
Option Closing Date, as the case may be, addressed to the Underwriters
to the effect that:
(i) The Company has been duly organized and is
validly existing as a corporation in good standing under the
laws of the Commonwealth of Virginia, with corporate power and
authority to own, lease and operate its properties and conduct
its business as described in the Registration Statement; each
of the Subsidiaries has been duly organized and is validly
existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, with corporate power
and authority to own or lease its properties and conduct its
business as described in the Registration Statement; the
Company and each of the Subsidiaries are duly qualified to
transact business in all jurisdictions in which the conduct of
their business requires such qualification, or in which the
failure to qualify would have a materially adverse effect upon
the business of the Company and the Subsidiaries taken as a
whole; and the outstanding shares of capital stock of each of
the Subsidiaries have been duly authorized and validly issued
and are fully paid and non-assessable and are owned of record
by the Company or Glade M. Knight; the preferred shares of
each Subsidiary held by the Company represents 95% of the
equity interests in each Company and, except as required by
law, are not entitled to vote on matters before the
shareholders of the Subsidiaries and, to of such counsel's
knowledge, the outstanding shares of capital stock of each of
the Subsidiaries is owned free and clear of all liens,
encumbrances and equities and claims, and no options, warrants
or other rights to purchase, agreements or other obligations
to issue or other rights to convert any obligations into any
shares of capital stock or of ownership interests in the
Subsidiaries are outstanding.
(ii) The Company has authorized capital stock as set
forth under the caption "Capitalization" in the Prospectus;
the Company's outstanding Common Shares have been duly
authorized and validly issued and are fully paid and
non-assessable; the Shares conform to the description thereof
contained in the Prospectus;the certificates for the Shares,
assuming they are in the form filed with the Commission, are
in due and proper form; the Common Shares, including the
Optional Shares, if any, to be sold by the Company pursuant to
this Agreement have been duly authorized and will be validly
issued, fully paid and non-assessable when issued and paid for
as contemplated by this Agreement; and no preemptive rights of
shareholders exist with respect to any of the Shares or the
issue or sale thereof.
(iii) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no
outstanding securities of the Company convertible or
exchangeable into or evidencing the right to purchase or
subscribe for any shares of the Company and there are no
outstanding or
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authorized options, warrants or rights of any character
obligating the Company to issue any shares or any securities
convertible or exchangeable into or evidencing the right to
purchase or subscribe for any shares; and except as described
in the Prospectus, to the knowledge of such counsel, no holder
of any securities of the Company or any other person has the
right, contractual or otherwise, which has not been satisfied
or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the
sale of, any of the Shares or the right to have any Common
Shares or other securities of the Company included in the
Registration Statement or the right, as a result of the filing
of the Registration Statement, to require registration under
the Act of Common Shares or other securities of the Company.
(iv) The Registration Statement has become effective
under the Act and, to the knowledge of such counsel, no stop
order proceedings with respect thereto have been instituted or
are pending or threatened under the Act.
(v) The Registration Statement, the Prospectus and
each amendment or supplement thereto and document incorporated
by reference therein comply as to form in all material
respects with the requirements of the Act or the Securities
Exchange Act of 1934, as applicable, and the applicable rules
and regulations thereunder (except that such counsel need
express no opinion as to the financial statements, financial
schedules and statistical information, including those
incorporated by reference therein). To the knowledge of such
counsel, the conditions for the Company's use of Form S-3 for
the Offering, set forth in the General Instructions thereto,
have been satisfied.
(vi) The statements under the captions "Certain
Transactions," "Federal Income Tax Considerations," and "ERISA
Consideration," in the Prospectus, insofar as such statements
constitute a summary of documents referred to therein or
matters of law, fairly summarize in all material respects the
information called for with respect to such documents and
matters of law.
(vii) Such counsel does not know of any contracts or
documents required to be filed as exhibits to or incorporated
by reference in the Registration Statement or described in the
Registration Statement or the Prospectus that are not so
filed, incorporated by reference or described as required, and
such contracts and documents as are summarized in the
Registration Statement or the Prospectus are fairly summarized
in all material respects.
(viii) Such counsel knows of no material legal or
governmental proceedings, actions, suits, inquiries or
investigations pending or threatened
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<PAGE>
against the Company, or any of its properties, or any of the
Subsidiaries except as set forth in the Prospectus.
(ix) The Company has corporate power and authority to
enter into, deliver and perform this Agreement.
(x) The Company's execution and delivery of this
Agreement and the consummation of the transactions herein
contemplated do not and will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a
default under, the Articles of Incorporation or By-laws of the
Company, or any material agreement or instrument known to such
counsel to which the Company or any of the Subsidiaries is a
party or by which the Company or any of the Subsidiaries may
be bound except for conflicts or breaches which would not have
a Material Adverse Effect.
(xi) To the knowledge of such counsel, neither the
Company nor any of its Subsidiaries is in violation of its
respective Articles of Incorporation or By-laws, as the case
may be, and no material default exists and no event has
occurred which, with notice or after the lapse of time to cure
or both, would constitute a material default in the due
performance and observance of any agreement or instrument
known to such counsel. To the knowledge of such counsel,
neither the Company nor any of its Subsidiaries is in
violation of, or in default with respect to, any statute,
rule, regulation, order, judgment or decree, except as may be
properly described in the Prospectus or such as in the
aggregate do not now have and will not in the future have a
material adverse effect on the financial position, results of
operations or business of the Company.
(xii) This Agreement has been duly authorized,
executed and delivered by the Company.
(xiii) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body is necessary in
connection with the execution and delivery of this Agreement
and the consummation of the transactions herein contemplated
(other than as may be required by the NASD or as required by
State securities and Blue Sky laws as to which such counsel
need express no opinion) except such as have been obtained or
made.
(xiv) The Company is organized in conformity with the
requirements for qualification as a real estate investment
trust pursuant to Sections 856 through 860 of the Code, and
the Company's proposed method of operation
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<PAGE>
will enable it to meet the requirements for qualification and
taxation as a real estate investment trust under the Code.
(xv) The Company is not, and will not be, as a result
of the consummation of the transactions contemplated by this
Agreement and application of the net proceeds therefrom as
described in the Prospectus, required to register as an
investment company under the 1940 Act.
In rendering such opinion, McGuire, Woods, Battle & Boothe,
L.L.P. may rely as to matters governed by the laws of states other than
Virginia or Federal laws on local counsel in such jurisdictions,
provided that in each case McGuire, Woods, Battle & Booth, L.L.P. shall
state that they believe that they and the Underwriters are justified in
relying on such other counsel. In addition to the matters set forth
above, such opinion shall also include a statement to the effect that
nothing has come to the attention of such counsel which leads them to
believe that (i) the Registration Statement, at the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act)and as of the
Closing Date or the Option Closing Date, as the case may be, contained
an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and Regulations
and as of the Closing Date or the Option Closing Date, as the case may
be, contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements, in the
light of the circumstances under which they are made, not misleading
(except that such counsel need express no view as to financial
statements, schedules and statistical information therein). With
respect to such statement, McGuire, Woods, Battle & Booth, L.L.P. may
state that their belief is based upon the procedures set forth therein,
but is without independent check and verification.
(c) The Underwriters shall have received from Hunton &
Williams, counsel for the Underwriters, an opinion dated the Closing
Date or the Option Closing Date, as the case may be, substantially to
the effect specified in subparagraphs (ii), (iii), (iv) and (x) of
Paragraph (b) of this Section 6, and that the Company is a duly
organized and validly existing corporation under the laws of the
Commonwealth of Virginia. In rendering such opinion, Hunton & Williams
may rely as to all matters governed other than by the laws of the State
of Virginia or Federal laws on the opinion of counsel referred to in
Paragraph (b) of this Section 6. In addition to the matters set forth
above, such opinion shall also include a statement to the effect that
nothing has come to the attention of such counsel which leads them to
believe that (i) the Registration Statement, or any amendment thereto,
as of the time it became effective under the Act (but after giving
effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) as of the Closing Date or
19
<PAGE>
the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and Regulations
and as of the Closing Date or the Option Closing Date, as the case may
be, contained an untrue statement of a material fact or omitted to
state a material fact, necessary in order to make the statements, in
the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to
financial statements, schedules and statistical information therein).
With respect to such statement, Hunton & Williams may state that their
belief is based upon the procedures set forth therein, but is without
independent check and verification.
(d) The Underwriters shall have received, on each of the dates
hereof, the Closing Date and the Option Closing Date, as the case may
be, signed letters dated the date hereof, the Closing Date or the
Option Closing Date, as the case may be, in form and substance
satisfactory to you, of Ernst & Young LLP, KPMG Peat Marwick LLP, L.P.
Martin & Company, P.C. and Dixon, Odom & Co., L.L.P., confirming that
they are independent public accountants within the meaning of the Act
and the applicable published Rules and Regulations thereunder and
stating that in their opinion the financial statements and schedules
prepared and examined by them and included in the Registration
Statement comply in form in all material respects with the applicable
accounting requirements of the Act and the related published Rules and
Regulations; and, with regards to the letter from Ernst & Young, LLP,
containing such other statements and information as is ordinarily
included in accountants' "comfort letters" to Underwriters with respect
to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(e) The Underwriters shall have received on the Closing Date
or the Option Closing Date, as the case may be, a certificate or
certificates of the Chief Executive Officer and the Chief Financial
Officer of the Company to the effect that, as of the Closing Date or
the Option Closing Date, as the case may be:
(i) The Registration Statement has become effective
under the Act and no stop order suspending the effectiveness
of the Registration Statement has been issued, and no
proceedings for such purpose have been taken or are, to his
knowledge, contemplated by the Commission;
(ii) The representations and warranties of the
Company contained in Section 1 hereof are true and correct as
of the Closing Date or the Option Closing Date, as the case
may be;
(iii) All filings required to have been made pursuant
to Rules 424 or 430A under the Act have been made;
20
<PAGE>
(iv) He or she has carefully examined the
Registration Statement and the Prospectus and, in his or her
opinion, as of the effective date of the Registration
Statement, the statements contained in the Registration
Statement were true and correct in all material respects, and
such Registration Statement and Prospectus did not omit to
state a material fact required to be stated therein or
necessary in order to make the statements therein not
misleading, and since the effective date of the Registration
Statement, no event has occurred which should have been set
forth in a supplement to or an amendment of the Prospectus
which has not been so set forth in such supplement or
amendment; and
(v) Since the respective dates as of which
information is given in the Registration Statement and
Prospectus, there has not been any material adverse change or
any development that is reasonably likely to result in a
material adverse change in or affecting the condition,
financial or otherwise, of the Company and its Subsidiaries
taken as a whole or the earnings, business, management,
properties, assets, rights, operations, condition (financial
or otherwise) or prospects of the Company and the Subsidiaries
taken as a whole, whether or not arising in the ordinary
course of business.
(f) The Company shall have furnished to the Underwriters such
further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related
matters as the Underwriters may reasonably have requested.
(g) The Shares have been approved for listing, upon official
notice of issuance, on the New York Stock Exchange.
(h) The Lockup Agreements described in Section 4 are in full
force and effect.
The opinions and certificates mentioned in this Agreement
shall be deemed to be in compliance with the provisions hereof only if
they are in all material respects reasonably satisfactory to the
Underwriters and to Hunton & Williams, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this
Section 6 shall not have been fulfilled when and as required by this
Agreement to be fulfilled, the obligations of the Underwriters
hereunder may be terminated by the Underwriters by notifying the
Company of such termination in writing or by telegram at or prior to
the Closing Date or the Option Closing Date, as the case may be.
21
<PAGE>
In such event, the Company and the Underwriters shall not be
under any obligation to each other (except to the extent provided in
Sections 5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
---------------------------------------------
The obligations of the Company to sell and deliver the portion
of the Shares required to be delivered as and when specified in this
Agreement are subject to the conditions that at the Closing Date or the
Option Closing Date, as the case may be, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and
in effect or proceedings therefor initiated or threatened.
8. INDEMNIFICATION.
---------------
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of the Act, against any losses, claims, damages or
liabilities to which such Underwriter or any such controlling person
may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained or incorporated
by reference in the Registration Statement, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto, or (ii) the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter and each such
controlling person upon demand for any legal or other expenses
reasonably incurred by such Underwriter or such controlling person in
connection with investigating or defending any such loss, claim, damage
or liability, action or proceeding or in responding to a subpoena or
governmental inquiry related to the offering of the Shares, whether or
not such Underwriter or controlling person is a party to any action or
proceeding; provided, however, that the Company will not be liable in
any such case to the extent that (i) any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged
untrue statement, or omission or alleged omission made or incorporated
by reference in the Registration Statement, any Preliminary Prospectus,
the Prospectus, or such amendment or supplement, in reliance upon and
in conformity with written information furnished to the Company by or
through the Underwriters specifically for use in the preparation
thereof; (ii) such statement or omission was contained or made in any
Preliminary Prospectus and corrected in the Prospectus and (a) any such
loss, claim,damage or liability suffered or incurred by any Underwriter
(or any person who controls any Underwriter) resulting from an action,
claim or suit by any person who purchased Shares which are the subject
thereof from such Underwriter in the offering of the shares and (b)
such Underwriter failed to deliver or provide a copy of the Prospectus
to such person at or prior to the confirmation of the sale of such
Shares in any case where such delivery is required by the Act. This
22
<PAGE>
indemnity agreement will be in addition to any liability which the
Company may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify
and hold harmless the Company, each of its directors, each of its
officers who have signed the Registration Statement and each person, if
any, who controls the Company within the meaning of the Act, against
any losses, claims, damages or liabilities to which the Company or any
such director, officer, or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of
or are based upon (i) any untrue statement or alleged untrue statement
of any material fact contained or incorporated by reference in the
Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto, or (ii) the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in
the light of the circumstances under which they were made; and will
reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, or controlling person in
connection with investigating or defending any such loss, claim,
damage, liability, action or proceeding; provided, however, that each
Underwriter will be liable in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or
omission or alleged omission has been made in the Registration
Statement, any Preliminary Prospectus, the Prospectus or such amendment
or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Underwriters
specifically for use in the preparation thereof. This indemnity
agreement will be in addition to any liability which such Underwriter
may otherwise have.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to this Section 8, such person
(the "indemnified party") shall promptly notify the person against whom
such indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) shall be available
to any party who shall fail to give notice as provided in this Section
8(c) if the party to whom notice was not given was unaware of the
proceeding to which such notice would have related and was materially
prejudiced by the failure to give such notice, but the failure to give
such notice shall not relieve the indemnifying party or parties from
any liability which it or they may have to the indemnified party for
contribution or otherwise than on account of the provisions of Section
8(a) or (b). In case any such proceeding shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel selected by the indemnifying party and reasonably
satisfactory to such
23
<PAGE>
indemnified party and shall pay as incurred the fees and disbursements
of such counsel related to such proceeding. In any such proceeding, any
indemnified party shall have the right to retain its own counsel at its
own expense. Notwithstanding the foregoing, the indemnifying party
shall pay as incurred the fees and expenses of the counsel retained by
the indemnified party in the event (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such
counsel, (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing
interests between them or (iii) the indemnifying party shall have
failed to assume the defense and employ counsel reasonably acceptable
to the indemnified party within a reasonable period of time after
notice of commencement of the action. It is understood that the
indemnifying party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm for all
such indemnified parties. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written
consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify
the indemnified party from and against any loss or liability by reason
of such settlement or judgment. In addition, the indemnifying party
will not, without the prior written consent of the indemnified party,
settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified
party is an actual or potential party to such claim, action or
proceeding) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability
arising out of such claim, action or proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party
under Section 8(a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof)
referred to therein, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of
such losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Shares. If, however,
the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give
notice required under Section 8(c) above, then each indemnifying party
shall contribute to such amount paid or payable by such indemnified
party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one
hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages
or liabilities, (or actions or proceedings in respect thereof), as well
as any other relevant equitable considerations.
24
<PAGE>
The relative benefits received by the Company on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses)
received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in
the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the Underwriters on the
other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
The Company and the Underwriters agree that it would not be
just and equitable if contributions pursuant to this Section 8(d) were
determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations
referred toabove in this Section 8(d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to
above in this Section 8(d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations in
this Section 8(d) to contribute are several in proportion to their
respective underwriting obligations and not joint.
(e) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or
contribution under this Section 8 shall be paid by the indemnifying
party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred. The indemnity and contribution
agreements contained in this Section 8 and the representations and
warranties of the Company set forth in this Agreement shall remain
operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or
any persons controlling the Company, (ii) acceptance of any Shares and
payment therefor hereunder, and (iii) any termination of this
Agreement. A successor to any Underwriter, or to the Company, its
directors or officers, or any person controlling the Company, shall be
entitled to the benefits of the indemnity, contribution and
reimbursement agreements contained in this Section 8.
25
<PAGE>
9. DEFAULT BY UNDERWRITERS.
-----------------------
If on the Closing Date or the Option Closing Date, as the case
may be, any Underwriter shall fail to purchase and pay for the portion
of the Shares which such Underwriter has agreed to purchase and pay for
on such date (otherwise than by reason of any default on the part of
the Company), you shall use your reasonable efforts to procure within
36 hours thereafter one or more of the other Underwriters, or any
others, to purchase from the Company such amounts as may be agreed upon
and upon the terms set forth herein, the Firm Shares or Optional
Shares, as the case may be, which thedefaulting Underwriter or
Underwriters failed to purchase. If during such 36 hours you shall not
have procured such other Underwriters, or any others, to purchase the
Firm Shares or Optional Shares, as the case may be, agreed to be
purchased by the defaulting Underwriter or Underwriters, then (a) if
the aggregate number of shares with respect to which such default shall
occur does not exceed 10% of the Firm Shares or Optional Shares, as the
case may be, covered hereby, the other Underwriters shall be obligated,
severally, in proportion to the respective numbers of Firm Shares or
Optional Shares, as the case may be, which they are obligated to
purchase hereunder, to purchase the Firm Shares or Optional Shares, as
the case may be, which such defaulting Underwriter or Underwriters
failed to purchase, or (b) if the aggregate number of shares of Firm
Shares or Optional Shares, as the case may be, with respect to which
such default shall occur exceeds 10% of the Firm Shares or Optional
Shares, as the case may be, covered hereby, the Company or you will
have the right, by written notice given within the next 36-hour period
to the parties to this Agreement, to terminate this Agreement without
liability on the part of the non-defaulting Underwriters or of the
Company except to the extent provided in Section 8 hereof. In the event
of a default by any Underwriter or Underwriters, as set forth in this
Section 9, the Closing Date or Option Closing Date, as the case may be,
may be postponed for such period, not exceeding seven days, as you may
determine in order that the required changes in the Registration
Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any
person substituted for a defaulting Underwriter. Any action taken under
this Section 9 shall not relieve any defaulting Underwriter from
liability in respect of any default of such Underwriter under this
Agreement.
10. NOTICES.
-------
All communications hereunder shall be in writing and, except
as otherwise provided herein, will be mailed, delivered or telegraphed
and confirmed as follows:
26
<PAGE>
If to the Underwriters:
Alex. Brown & Sons Incorporated
1 South Street
Baltimore, Maryland 21202-3220
Attention: William G. Byrnes
with a copy to:
Alex. Brown & Sons Incorporated
1 South Street
Baltimore, Maryland 21202-3220
Attention: General Counsel
If to the Company:
Cornerstone Realty Income Trust, Inc.
306 East Main Street
Richmond, Virginia 23219
Attention: Glade M. Knight
with a copy to:
McGuire, Woods, Battle & Booth, L.L.P.
One James Center
901 East Cary Street
Richmond, Virginia 23219
Attention: Leslie A. Grandis, Esq.
11. TERMINATION.
-----------
This Agreement may be terminated by you by notice to the
Company as follows:
(a) at any time prior to the earlier of (i) the time the
Shares are released by you for sale by notice to the Underwriters, or
(ii) 11:30 a.m. on the first business day following the date of this
Agreement;
(b) at any time prior to the Closing Date if any of the
following has occurred: (i) since the respective dates as of which
information is given in the Registration Statement and the Prospectus,
any material adverse change or any development involving a prospective
material adverse change in or affecting the condition, financial or
otherwise, of the Company and its Subsidiaries taken as a
27
<PAGE>
whole or the earnings, business, management, properties, assets,
rights, operations, condition (financial or otherwise) or prospects of
the Company and its Subsidiaries taken as a whole, whether or not
arising in the ordinary course of business, (ii) any outbreak or
escalation of hostilities or declaration of war or national emergency
or other national or international calamity or crisis or change in
economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the
financial markets of the United States would, in your reasonable
judgment, make it impracticable to market the Shares or to enforce
contracts for the sale of the Shares, or (iii) suspension of trading in
securities generally on the New York Stock Exchange or American Stock
Exchange or limitation on prices (other than limitations on hours or
numbers of days of trading) for securities on either such Exchange,
(iv) the enactment, publication, decree or other promulgation of any
statute, regulation, rule or order of any court or other governmental
authority which in your reasonable opinion materially and adversely
affects or that is reasonably likely to materially and adversely affect
the business or operations of the Company, (v) declaration of a banking
moratorium by United States or New York State authorities, (vi) the
suspension of trading of the Common Shares by the Commission on the New
York Stock Exchange or (vii) the taking of any action by any
governmental body or agency in respect of its monetary or fiscal
affairs which in your reasonable opinion has a material adverse effect
on the securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
----------
This Agreement has been and is made solely for the benefit of
the Underwriters and the Company and their respective successors,
executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other
person will have any right or obligation hereunder. No purchaser of any
of the Shares from any Underwriter shall be deemed a successor or
assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
------------------------------------
The Company and the Underwriters acknowledge and agree that
the only information furnished or to be furnished by any Underwriter to
the Company for inclusion in any Prospectus or the Registration
Statement consists of the information set forth in the last paragraph
on the front cover page (insofar as such information relates to the
Underwriters), legends required by Item 502(d) of Regulation S-K under
the Act and the information under the caption "Underwriting" in the
Prospectus.
28
<PAGE>
14. MISCELLANEOUS.
-------------
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any
investigation made by
or on behalf of any Underwriter or controlling person thereof, or by or
on behalf of the Company or its directors or officers and (c) delivery
of and payment for the Shares under this Agreement.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together
shall constitute one and the same instrument.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland.
29
<PAGE>
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
CORNERSTONE REALTY INCOME TRUST, INC.
By: /s/ Glade M. Knight
------------------------------
Its: Chairman
------------------------------
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
ALEX. BROWN & SONS INCORPORATED
BRANCH, CABELL & CO., INC.
FREIDMAN, BILLINGS, RAMSEY & CO., INC.
INTERSTATE/JOHNSON LANE CORPORATION
By: ALEX. BROWN & SONS INCORPORATED
By: /s/ Illegible
---------------------------
Its: Managing Director
--------------------------
30
<PAGE>
APPENDIX I
SCHEDULE OF UNDERWRITERS
Number of Firm Shares
Underwriter to be Purchased
----------- ---------------------
Alex. Brown & Sons Incorporated 750,000
Freidman, Billings, Ramsey & Co., Inc. 750,000
Interstate Johnston Lane Corporation 750,000
Branch Cabell & Company, Inc. 750,000
Dean Witter Reynolds, Inc. 90,000
Donaldson, Lurkin & Jenrette Securities Corporation 90,000
A.G. Edwards & Sons, Inc. 90,000
Goldman, Sachs & Co. 90,000
Leiman Brothers, Inc. 90,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated 90,000
Morgan Stanley & Co. Incorporated 90,000
PaineWebber Incorporated 90,000
Prudential Securities Incorporated 90,000
Smith Barney Inc. 90,000
EVEREN Securities, Inc. 60,000
Jefferies & Company 60,000
Edgar M. Norris & Co., Inc. 60,000
Ormes Capital Markets, Inc. 60,000
Pennsylvania Merchant Group Ltd. 60,000
Raymond James & Associates, Inc. 60,000
Sands Brothers & Co., Ltd. 60,000
Scott & Stringfellow, Inc. 60,000
The Seidler Companies Incorporated 60,000
Tucker Anthony Incorporated 60,000
---------
Total 4,500,000
31
<PAGE>
APPENDIX II
SCHEDULE OF SUBSIDIARIES
1. Apple Residential Advisors, Inc.
2. Apple Residential Management Group, Inc.
32
EXHIBIT 10.23
PROPERTY MANAGEMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the _____ day of
________________, 19__ by and between Apple REIT Limited Partnership, a Virginia
limited partnership (hereinafter referred to as "Owner"), and Apple Residential
Management Group, Inc., a Virginia corporation (hereinafter referred to as
"Manager").
W I T N E S S E T H :
WHEREAS, Owner is the owner of ___________________________ (hereinafter
referred to as the "Property"); and
WHEREAS, Owner and Manager desire to enter into this Agreement for the
purposes herein contained.
NOW, THEREFORE, in consideration of the promises herein contained, and for
other valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. Designation of Manager as Manager for the Property. Owner hereby engages
Manager as sole and exclusive manager to rent, manage and operate the Property,
upon the conditions and for the term and compensation herein set forth. All or a
portion of the services being performed by Manager may be contracted or
subcontracted to another property management company, provided that such company
agrees to be bound by the terms of this Agreement.
2. Term of Agreement; Renewal. This Agreement shall be valid for an initial
term of two (2) years. In the event Owner sells its interest in the Property,
this Agreement will terminate upon the date of such sale. Unless either party by
written notice sent to the other party at least sixty (60) days before the end
of any two-year term hereof elects not to renew this Agreement, this Agreement
shall renew automatically for successive terms of two (2) years on the same
terms as contained herein.
3. Acceptance of Engagement. Manager hereby accepts its engagement as the
manager of the Property and agrees to perform all services necessary for the
care, protection, maintenance and operation of the Property, including the
following:
a. The collection of all rents and other income from the Property,
provided that nothing herein contained shall constitute a guarantee by Manager
of the payment of rent by tenants;
b. The purchase, at the expense of Owner, of all equipment, tools,
appliances, materials, supplies and uniforms necessary for the maintenance or
operation of the Property;
<PAGE>
c. The contracting on behalf of Owner for water, gas, electricity and
other services necessary for the operation and maintenance of the Property;
d. The advertising for the rental of space in the Property, the cost of
which shall be paid or by Owner;
e. The use of all reasonable efforts to keep the Property rented by
procuring tenants for the Property and negotiating and executing on behalf of
Owner all leases for space in the Property;
f. The employment, discharge and payment of all employees or
contractors necessary to be employed in the management and operation of the
Property. Owner agrees that all wages (and federal and state unemployment
insurance and other required charges) of such employees, and all compensation of
such employees and contractors, shall be paid from Owner's funds;
g. The preparation and filing of all returns and other documents (other
than promissory notes, mortgages, deeds of trust or other documents or
instruments which would encumber the Property) required under the Federal
Insurance Contributions Act and the Federal Unemployment Tax Act, or any similar
federal or state legislation. Manager shall also file returns and reports, and
pay from Owner's funds, all sums as may from time to time be required by the
state or locality in which the Property is located;
h. The maintenance of full books of account with correct entries of all
receipts and expenditures, which books of account shall be the property of Owner
and shall at all times be open to the inspection of Owner or any of its
employees or duly authorized agents;
i. The furnishing to Owner of all lenders' annual property inspection
letters regarding repairs necessary to avoid mortgage loan defaults. The
furnishing monthly of a detailed statement of all receipts and disbursements for
that month, such statement to be furnished on or before the 20th day of each
month for the preceding month. Such statement shall show the status of
collections and shall be supported by cancelled checks, vouchers, duplicate
invoices and similar documentation covering all items of income and expense,
which shall be kept in Manager's office and shall be available for inspection by
Owner's representatives at all times. Manager shall also furnish a monthly
operating statement showing the income and expense for the month, and year to
date, and for the same month of the preceding year. The cost of performing the
accounting functions outlined in paragraphs h and i shall be paid for by Owner
pursuant to the terms of this Agreement;
j. The furnishing of annual reports to Owner which shall contain a
composite financial report of the monthly statements provided in accordance with
paragraph i, plus a statement by Manager as to the operations of the Property
during the previous year and
<PAGE>
recommendations, if any, as to necessary policy changes or improvements which
should be implemented in the forthcoming year, which recommendations shall be
accompanied by an estimated budget for such items;
k. The furnishing from time to time, at least semi-annually, of a
tentative budget of expenses;
l. The furnishing from time to time, at least annually, of the
following schedules: (1) forecast of rental and occupancy changes; (2) review of
lease negotiations; (3) annual analysis of leases; and (4) schedule of capital
improvements and method of financing such improvements;
m. The furnishing, on a regular basis, of all forms necessary to
operate and lease the Property and manage the personnel including, but not
limited to, form leases, contracts and management policies; and
n. During the initial term of this Agreement, supervising the
transition from former ownership of the Property and implementing new management
systems with respect to operation of the Property.
4. Deposits of Rent and Other Income. All sums received from rents, tenant
security deposits or other deposits on space in the Property, deposits on keys
and other income from the Property, shall be deposited from time to time as
collected by Manager to the credit of Owner in such bank or banks as may from
time to time be designated by Owner. Such funds shall be disbursed only in
accordance with the terms of each individual lease and in accordance with any
applicable federal, state or local laws, regulations or ordinances.
5. Insurance. Owner shall place all insurance policies with respect to the
Property and its operation. Manager shall be included as an insured in the
policies covering general liability, public liability and workers' compensation
insurance. In the event Manager is authorized by Owner to place insurance
policies, the companies, the general agents, the amounts of coverage and the
risks insured shall be subject to the approval of Owner.
6. Indemnification. Owner hereby agrees to indemnify and hold harmless
Manager against and in respect of any loss, cost or expense (including
reasonable investigative expenses and attorneys' fees), judgment, award, amount
paid in settlement, fine, penalty and liability of any and every kind incurred
by or asserted against Manager by reason of or in connection with the employment
of Manager hereunder, the performance by Manager of the services described
herein or the occurrence or existence of any event or circumstance which results
or is alleged to have resulted in death or injury to any person or destruction
of or damage to any property and any suit, action or proceeding (whether
threatened, initiated or completed) by reason of the foregoing; provided,
however, that no such indemnification of Manager shall be made, and Manager
shall indemnify and hold Owner harmless against, and to the extent of, any loss
that a court of competent jurisdiction shall, by final adjudication,
<PAGE>
determine to have resulted from willful misconduct, gross negligence or fraud by
or on the part of Manager.
7. Compensation of Manager for Managing the Property. Owner shall pay to
Manager a "Property Management Fee" for management of the Property pursuant to
this Agreement in an amount equal to five percent (5%) of the monthly gross
revenues from the Property. The Property Management Fee shall be paid to Manager
on or before the 10th day of each month and shall be based upon the income
received by Owner (for such month) which has been obtained by such date. If
additional gross revenues are received by Owner after the day Manager is paid,
the sum due to Manager on account of such additional income shall be paid to
Manager when Manager is paid its fees for the next succeeding month.
8. Reimbursement of Expenses. Owner shall reimburse Manager for Manager's
expenses, including salaries and related overhead expenses, associated with
bookkeeping, accounting and financial reporting services pertaining to the
Property.
9. Reserves for Capital Items. Owner acknowledges that the budget prepared
by Manager, pursuant to paragraph 3(k), will contain a category labeled "Reserve
for Capital Items." Owner agrees to place rents and other income in a bank
account, or to permit Manager to transfer Owner's funds to such account, in
sufficient amounts to meet the needs reflected in such budget. Such funds shall
be placed in the account on a monthly basis as reflected in the budget.
10. Cash Flow. Owner acknowledges that the budget prepared by Manager,
pursuant to paragraph 3(k), will contain a category labeled "Cash Flow." Owner
agrees, in the event that the budgeted cash flow for the Property is "negative"
in any month covered by the budget, to place sufficient funds in a bank account,
or to permit Manager to transfer Owner's funds to such account, to make up the
budgeted operating deficit. These funds must be placed in such account at least
forty-five (45) days before the budgeted deficit is to occur.
11. Power of Attorney. Owner hereby makes, constitutes and appoints Manager
its true and lawful attorney-in-fact, for it and in its name, place and stead
and for its use and benefit to sign, acknowledge and file all documents and
agreements (other than promissory notes, mortgages, deeds of trust or other
documents or instruments which would encumber the Property) necessary to perform
or effect the duties and obligations of Manager under the terms of this
Agreement. The foregoing power of attorney is a special power of attorney
coupled with an interest. It may only be terminated by cancelling this Agreement
as provided herein.
12. Relationship of Parties. The parties agree and acknowledge that Manager
is and shall operate as an independent contractor in performing its duties under
this Agreement, and shall not be deemed an employee or agent of Owner.
<PAGE>
13. Entire Agreement. This Agreement represents the entire understanding
between the parties hereto with regard to the transactions described herein and
may only be amended by a written instrument signed by the party against whom
enforcement is sought.
14. Governing Law. This Agreement shall be construed in accordance with and
be governed by the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
OWNER:
APPLE REIT LIMITED PARTNERSHIP,
a Virginia limited partnership
By: Apple General, Inc., general partner
By:_____________________________
Title:__________________________
MANAGER:
APPLE RESIDENTIAL MANAGEMENT GROUP, INC.
By:_____________________________
Title:__________________________
EXHIBIT 10.24
FIRST AMENDMENT
TO THE
CORNERSTONE REALTY INCOME TRUST, INC.
1992 INCENTIVE PLAN
FIRST AMENDMENT, dated as of January 29, 1998, to the Cornerstone Realty
Income Trust, Inc. 1992 Incentive Plan, as amended and restated July 8, 1994, by
Cornerstone Realty Income Trust, Inc. (the "Company").
The Company maintains the Cornerstone Realty Income Trust, Inc. 1992
Incentive Plan, as amended and restated effective as of July 8, 1994 (the
"Plan"). The Company's Board of Directors has the authority under Plan Section
11 to amend the Plan and now wishes to do so.
NOW, THEREFORE, the Plan is amended as follows:
I. Plan Section 7(c)(ii) is amended by adding the following sentence after
the second sentence:
Notwithstanding the foregoing, the Committee may at any time, in its sole
discretion, modify the requirements that, in order to be exercisable
thereafter, an Option be exercisable on the date of termination of
employment and/or such Option be exercised within 60 days after the
Participant's termination of employment, provided that the modification is
set forth in the terms and conditions of the award agreement between the
Company and the Participant.
II. This Amendment shall be effective as of January 29, 1998.
III. In all respects not amended, the Plan is hereby ratified and
confirmed.
* * * * * *
To record the adoption of the Amendment as set forth above, the Company has
caused this document to be signed as of the 29th day of January, 1998.
Cornerstone Realty Income Trust, Inc.
By /s/ Stanley J. Olander, Jr.,
-------------------------------
Chief Financial Officer
EXHIBIT 10.25
FIRST AMENDMENT
TO THE
1992 INCENTIVE PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
BETWEEN
CORNERSTONE REALTY INCOME TRUST, INC.
AND
MARTIN ZUCKERBROD
FIRST AMENDMENT, dated as of January 29, 1998, to the 1992 Incentive Plan
Nonstatutory Stock Option Agreement between Cornerstone Realty Income Trust,
Inc. (the "Company") and [name], as amended and restated as of March 1, 1996
(the "Agreement").
The Company maintains the Cornerstone Realty Income Trust, Inc. 1992
Incentive Plan, as amended and restated effective as of July 8, 1994 (the
"Plan"). The Committee has the authority under Plan Section 13(a) to modify the
terms of previously granted Incentive Awards and now wishes to do so.
NOW THEREFORE, the Agreement is amended as follows:
I. The first sentence of Section 2(c) of the Agreement is hereby deleted
and replaced with the following: "Subject to the provisions of Section 3 below,
each Option shall be fully exercisable immediately upon receipt and may be
exercised while Participant is employed by the Employer or while Participant is
a director of the Company and for up to three years following the date he ceases
to be a director of the Company."
<PAGE>
II. The first sentence of Section 3(a) of the Agreement is hereby deleted
and replaced with the following: "In the event of termination of Participant's
employment with the Employer for any reason other than death or Disability, and
before the exercise in full of an Option, the Participant may exercise the
Option at any time while Participant is a director of the Company and for up to
three years following the date he ceases to be a director of the Company for the
number of shares remaining subject to the Option."
III. This Amendment shall be effective as of January 29, 1998.
IV. In all respects not amended, the Agreement is hereby ratified and
confirmed.
To record the adoption of the Amendment as set forth above, the Company has
caused this document to be signed on the 29th day of January, 1998.
Cornerstone Realty Income Trust, Inc.
By: /s/ Stanley J. Olander, Jr.
----------------------------------
Title: Chief Financial Officer
-------------------------------
Agreed to and Accepted:
/s/ Martin Zuckerbrod
- ----------------------
Martin Zuckerbrod, Participant
2
EXHIBIT 10.26
FIRST AMENDMENT
TO THE
1992 INCENTIVE PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
BETWEEN
CORNERSTONE REALTY INCOME TRUST, INC.
AND
HARRY S. TAUBENFELD
FIRST AMENDMENT, dated as of January 29, 1998, to the 1992 Incentive Plan
Nonstatutory Stock Option Agreement between Cornerstone Realty Income Trust,
Inc. (the "Company") and [name], as amended and restated as of March 1, 1996
(the "Agreement").
The Company maintains the Cornerstone Realty Income Trust, Inc. 1992
Incentive Plan, as amended and restated effective as of July 8, 1994 (the
"Plan"). The Committee has the authority under Plan Section 13(a) to modify the
terms of previously granted Incentive Awards and now wishes to do so.
NOW THEREFORE, the Agreement is amended as follows:
I. The first sentence of Section 2(c) of the Agreement is hereby deleted
and replaced with the following: "Subject to the provisions of Section 3 below,
each Option shall be fully exercisable immediately upon receipt and may be
exercised while Participant is employed by the Employer or while Participant is
a director of the Company and for up to three years following the date he ceases
to be a director of the Company."
<PAGE>
II. The first sentence of Section 3(a) of the Agreement is hereby deleted
and replaced with the following: "In the event of termination of Participant's
employment with the Employer for any reason other than death or Disability, and
before the exercise in full of an Option, the Participant may exercise the
Option at any time while Participant is a director of the Company and for up to
three years following the date he ceases to be a director of the Company for the
number of shares remaining subject to the Option."
III. This Amendment shall be effective as of January 29, 1998.
IV. In all respects not amended, the Agreement is hereby ratified and
confirmed. To record the adoption of the Amendment as set forth above, the
Company has caused this document to be signed on the 29th day of January, 1998.
Cornerstone Realty Income Trust, Inc.
By: /s/ Stanley J. Olander, Jr.
----------------------------------
Title: Chief Financial Officer
-------------------------------
Agreed to and Accepted:
/s/ Harry S. Taubenfeld
- --------------------------------
Harry S. Taubenfeld, Participant
2
EXHIBIT 12
<TABLE>
<CAPTION>
Statement Regarding Computation of
Ratio of Earnings to Fixed Charges
CORNERSTONE REALTY INCOME TRUST, INC.
RATIO OF EARNINGS TO FIXED CHARGES
Supplemental Pro Forma
----------------------
Year Ended December 31,
12/31/97 1996 1995 1994 1993 12/31/97 (b)
--------------------------------------------------------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net Income (loss) $ 19,225,553 $(4,169,849) $5,229,715 $2,386,303 $496,646 $ 20,342,399
ADD:
Fixed Charges 7,657,173 1,474,643 314,337 12,737 2,452 10,068,826
--------------------------------------------------------------------- --------------
Earnings 26,882,726 (2,695,206) 5,544,052 2,399,040 499,098 30,411,225
Fixed Charges:
Interest on indebtedness 7,348,517 1,336,419 250,633 - - 9,760,170
Amortization of loan costs 212,802 91,592 43,983 - - 212,802
Portion of rents representaive
of interest factor 95,854 46,632 19,721 12,737 2,452 95,854
Capitalized interest - - - - - -
------------------------------------------------------------------------------------
Fixed Charges 7,657,173 1,474,643 314,337 12,737 2,452 10,068,826
------------------------------------------------------------------------------------
Ratio of Earnings to Fixed Charges 3.51 (a) 17.64 188.36 203.56 3.02
====================================================================================
</TABLE>
(a) Earnings for the year ended December 31, 1996 were inadequate to cover
fixed charges. The amount of coverage deficiency was $4,169,849 for
the year ended December 31, 1996.
(b) To give effect to 11 of the 13 acquisitions in 1997 for the period of
time not owned by the Company.
CORNERSTONE REALTY INCOME TRUST
BUILT ON PERFORMANCE
CONTENTS
1 FINANCIAL HIGHLIGHTS
3 LETTER TO SHAREHOLDERS
6 BUILT ON PERFORMANCE
7 THE PROPERTIES
20 BOARD OF DIRECTORS
21 SELECTED FINANCIAL DATA
22 MANAGEMENT'S DISCUSSION
27 INDEPENDENT AUDITORS' REPORT
28 BALANCE SHEETS
29 STATEMENTS OF OPERATIONS
30 STATEMENTS OF SHAREHOLDERS' EQUITY
31 STATEMENTS OF CASH FLOWS
32 NOTES TO FINANCIAL STATEMENTS
39 INVESTOR INFORMATION
CORPORATE PROFILE
Cornerstone Realty Income Trust, founded in 1993, is a real estate investment
trust which owns and manages apartment communities in 16 distinct markets of the
southeastern United States. We are a fully integrated, self-administered real
estate company headquartered in Richmond, Virginia with regional offices located
throughout our four-state operating territory. Our shares trade on the New York
Stock Exchange under the ticker symbol TCR. Since operations began, we have
provided shareholders with steadily increasing distributions.
Our mission is to achieve growing profits and sustained corporate value for
our sharehlders; provide high-quality, expertly managed rental housing for
residents; and foster an enterpreneurial, results-driven environment for
employees. We specialize in opportunistic acquisitions cost-effective property
repositioning; and expert management to acheive the properties' highest economic
potential.
At December 31, 1997, we owned 51 apartment communities, containing 11,922
apartments, located in Virginia, North Carolina, South Carolina, and Georgia.
FINANCIAL HIGHLIGHTS
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Years Ended December 31, 1997 1996 1995
OPERATING RESULTS Rental Income $ 70,115,678 $ 40,261,674 $ 16,266,610
Net Income (Loss) 19,225,553 (4,169,849) 5,229,715
Funds from Operations (a) 34,792,053 20,424,226 8,018,533
Distributions Declared and Paid 31,324,870 15,934,901 6,316,185
BALANCE SHEET DATA Investment in Rental Property $ 487,575,196 $ 329,715,853 $ 129,696,447
Total Assets $ 474,186,450 $ 322,870,574 $ 133,181,032
Shareholders' Equity $ 315,328,252 $ 254,569,705 $ 122,154,420
Shares Outstanding 35,510,327 28,141,509 12,754,331
</TABLE>
(a) "Funds from operations" is defined as income before gains (losses) on
investments and extraordinary items (computed in accordance with generally
accepted accounting principles) plus real estate depreciation and after
adjustment for significant nonrecurring items, if any. This definition
conforms to the recommendations set forth in a White Paper adopted by the
National Association of Real Estate Investment Trusts (NAREIT). Funds from
operations for years prior to 1996 have been adjusted to conform to the
NAREITdefinition. 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.
<PAGE>
TO OUR SHAREHOLDERS:
It is my great privilege to present the 1997 annual report for Cornerstone
Realty Income Trust.
This year we celebrate the strong performance on which we have built our
company. Since 1993, Cornerstone has grown steadily from a new company into a
publicly traded real estate investment trust with a total market capitalization
exceeding $600 million.
We have met our goals every step of the way--
building a strong portfolio of apartment communities that stretches
over 16 distinct markets in four southeastern states;
achieving steadily growing income from the properties we own;
generating increasing returns to our shareholders;
and, in 1997, culminating the growth of our early years by listing
shares on the New York Stock Exchange as TCR, The Cornerstone REIT.
STRONG OPERATING RESULTS
During 1997, we achieved excellent operating results from our properties. Rental
income grew to $70.1 million, an increase of 74% over the previous year's $40.3
million. This dramatic increase largely reflects growth in the size of our
portfolio over the past two years. Our expertise in repositioning the
properties, through a sophisticated blend of renovations, marketing and
management, will result in significant increases in income.
Funds from operations (FFO) grew to $1.07 per share, a 6% increase over
1996. FFO totaled $34.8 million, up 70% from $20.4 million in 1996. This strong
increase resulted from a combination of internal growth--achieving higher
returns from properties we already own--and external growth through the
acquisition of additional properties.
A look at the performance of those properties owned by Cornerstone for at
least two years demonstrates our success in generating steadily higher returns
from our portfolio over the long term. We call this "same property" operating
results, defining "same property" with reference to the core group of 19
properties we have continuously owned since the end of 1995. Net operating
income from these properties increased by 7.4% in 1997.
BUILDING THE CORNERSTONE PORTFOLIO
In 1997, we continued to find excellent opportunities to acquire apartments for
the Cornerstone portfolio, purchasing 13 properties for a total of 2,889 units
by year's end. We significantly increased our holdings in existing markets while
making inroads into a new primary market for the company, Atlanta. We continued
to acquire properties within our niche--those which can enjoy significantly
higher income streams by bringing them up to Cornerstone's high standards and
repositioning them in the marketplace. But we also continued to diversify our
portfolio with a substantial number of newer communities requiring fewer
renovations.
In Atlanta, we acquired 1,129 apartments in four properties over the course
of the year. With one of the strongest economies of any major urban area in the
United States, Atlanta led the nation in new-job growth during the past four
years. In the last decade, this dynamic southern city increased population by
32%, created nearly a half-million new jobs, and attracted over 400 of the
Fortune 500 industrial firms, and 350 of the Fortune 500 service firms.
We targeted Atlanta because we found opportunities to acquire properties in
excellent locations which could benefit from market repositioning. This is our
specialty -- generating higher income from existing properties through selected
renovations, strategic marketing and focused, results-oriented management. These
properties may not meet our standards when we first acquire them. However,
ensuing renovations and repositioning results in top-of-the-line properties in
great locations. Demand for well-managed apartments remained steady in Atlanta,
despite construction of new properties.
We substantially increased our penetration in both the Raleigh and
Charlotte markets during 1997. In Charlotte, we added two properties to our
portfolio, bringing our total investment in this southeastern financial center
at year-end to 2,291 units in nine apartment communities. In Raleigh,
-3-
<PAGE>
we acquired an additional 762 apartments in five properties. Cornerstone now
owns 11 properties in the Raleigh/Durham area, a total of 2,152 units. This
fastest-growing North Carolina metropolis continued to show very strong
occupancy levels, the highest among our markets. Additionally, we acquired
properties in Columbia and Charleston, South Carolina during the year.
Overall, Cornerstone's markets--selected because of their strong demand for
multifamily housing and potential for growth--continued to perform very well.
Our six primary markets are Raleigh/ Durham, Virginia Beach, Charlotte,
Richmond, Greenville and Atlanta. We also have 10 smaller markets, which include
Wilmington and Asheville in North Carolina; Charleston, South Carolina; and
Lynchburg, Virginia. Many of these smaller markets actually outperformed our
primary markets in 1997.
A NYSE-TRADED COMPANY
On April 18, 1997, three years of growth culminated when Cornerstone's shares
were listed under the symbol TCR (The Cornerstone REIT) on the New York Stock
Exchange. At this historic moment, we achieved our goal to trade shares on a
major stock exchange after reaching initial capitalization through the sale of
approximately 28.1 million shares.
In conjunction with trading, we completed an offering of 4.5 million shares
of Cornerstone stock. Led by a distinguished team of managing underwriting
firms--Alex. Brown & Sons Incorporated; Branch Cabell & Co. Inc.; Friedman,
Billings, Ramsey & Co.; and Interstate Johnson Lane--the offering raised $47.25
million in net proceeds for the company. The proceeds were used to pay down the
company's unsecured line of credit for the financing of property acquisitions.
Demand for TCR shares was so high that the underwriters exercised their
entire greenshoe, or over-allotment option, to purchase an additional 675,000
shares of stock. This brought approximately $6.6 million in additional net
proceeds to the company.
HIGHER RETURNS FOR THE SHAREHOLDERS
During 1997, our shareholders profited from the properties' strong performance
with increases in dividends and share value. Shareholder dividends increased for
the fourth consecutive year, to an annual dividend rate of $1.00 per share paid
on a quarterly basis.
The value of Cornerstone's shares grew approximately 15% from their initial
trading price of $10.50 per share to $12.06 per share by December 31, 1997.
Combining this with growth in dividends gives a total return of 21% to the
shareholders, or an annualized return of approximately 29%.
In January, the company's Board of Directors announced an increase in
per-share dividends to $.26 cents each quarter, which represents an annual yield
of $1.04 per share. Based on the closing price of $12.00 per share on January
12, 1998, the new dividend, when paid, would represent an annual dividend yield
of 8.67%.
We will continue to build on the strong performance of Cornerstone Realty
Income Trust, managing our portfolio with the goal of generating increasing
returns for our shareholders. This internal growth, building revenues from
existing properties, is our primary goal. However, excellent opportunities to
acquire properties which meet our investment criteria continue to arise. It will
be through a combination of internal and external growth that we seek to provide
our shareholders with increasing returns in the coming years.
Sincerely,
/s/ Glade M. Knight
Glade M. Knight
Chairman of the Board
-4-
<PAGE>
HIGHLIGHTS OF PERFORMANCE IN 1997:
CORNERSTONE SHARES BEGAN TRADING ON THE NEW YORK STOCK EXCHANGE,
under the ticker symbol TCR, on April 18, 1997. This culminated three years of
growth and 28.1 million shares issued under a series of best-efforts offerings
by David Lerner Associates.
WE BUILT OUR PORTFOLIO TO 51 APARTMENT COMMUNITIES CONTAINING 11,922 APARTMENTS.
We acquired 13 apartment communities, containing 2,889 units, for $131 million.
Our assets grew over 48%.
FUNDS FROM OPERATIONS (FFO) EQUALED $1.07 PER SHARE, a six-cents-per-share
increase over 1996. FFO totaled $34.8 million for 1997.
RENTAL INCOME GREW TO $70.1 MILLION, an increase of 74%.
SHAREHOLDER DIVIDENDS INCREASED FOR THE FOURTH CONSECUTIVE YEAR.
In 1997, the company had an annual dividend rate of $1.00 per share, payable
quarterly.
"SAME PROPERTY" NET OPERATING INCOME (NOI) INCREASED 7.4%, demonstrating our
ability to steadily build income from the existing portfolio of properties.
"Same property" refers to the core group of 19 properties continuously owned by
the company since January 1, 1996.
ECONOMIC OCCUPANCY OF OUR APARTMENT COMMUNITIES AVERAGED 92%.
WE INVESTED $23 MILLION IN PLANNED RENOVATIONS designed to reposition our newly
acquired properties and generate higher rents.
WE SUCCESSFULLY COMPLETED AN OFFERING OF $4.5 MILLION SHARES OF TCR, RAISING
$47.25 MILLION IN NET PROCEEDS, in conjunction with initial trading on the NYSE.
The underwriters exercised 100% of their over-allotment option to purchase an
additional 675,000 shares of common stock. This brought additional net proceeds
to the company of approximately $6.6 million.
SHARE VALUE OF TCR GREW APPROXIMATELY 15% FROM THE INITIAL TRADING
PRICE of $10.50 per share in April to $12.06 per share at year-end, for a total
return, including dividends, of 21% in less than nine months.
SHAREHOLDERS REINVESTED OVER $14 MILLION in the company through our dividend
reinvestment plan.
WE STRENGTHENED OUR ACQUISITION CAPABILITY BY NEGOTIATING A $175 MILLION,
UNSECURED LINE OF CREDIT AT A FAVORABLE RATE. This enables us to quickly take
advantage of acquisition opportunities at a variable rate of 120 basis points
over LIBOR. With this rate, we achieved an initial reduction of 40 basis points
from our previous line of credit.
WE GENERATED $1.85 MILLION IN ADDITIONAL INCOME FROM MANAGEMENT, ADVISORY AND
ACQUISITION FEES FROM APPLE RESIDENTIAL INCOME TRUST.
Structured like Cornerstone, with the same investment strategy, Apple focuses on
the Dallas/Fort Worth, Texas market.
Cornerstone Realty Income Trust began trading on the New York Stock Exchange
April 18, 1997.
-5-
<PAGE>
BUILT ON PERFORMANCE
The performance of Cornerstone Realty Income Trust is rooted in our fundamental
investment strategy to acquire properties and manage them to achieve the highest
returns possible. This basic strategy remains unchanged.
Our performance is fueled by a combination of opportunistic acquisitions,
cost-effective property repositioning, and expert management to achieve the
properties' highest potential.
Acquisitions begin in the marketplace. Cornerstone acquires properties in
four of the fastest-growing states in the United States--Virginia, North
Carolina, South Carolina and Georgia. The U.S. Census Bureau predicts these
states will grow by more than 7.6 million people from 1995 to 2025.
In this four-state region, we have penetrated 16 distinct markets noted for
their dynamic growth and potential for growth. They offer thriving economies and
rapidly expanding manufacturing, technology, transportation and service
industries. Moreover, the properties we acquire in these markets are targeted to
the single largest sector of the renting public in the U.S.
We acquire properties at well below replacement cost. Cornerstone's
acquisitions average $35,000 per unit, nearly half the $60,000 replacement cost
estimated in our market niche. That's because we have the ability to unearth
excellent acquisition opportunities and move quickly to take advantage of them.
We tend to acquire properties which, for a variety of reasons, have not
performed to their potential. They may suffer from deferred maintenance, poor
management, the financial distress of a previous owner, or a host of other
factors.
We are experts at repositioning properties into high performers. As soon as
we acquire a property we deploy a "takeover team" of property management
executives and specialists in marketing, resident retention and maintenance to
the site. This group brings operating systems up to Cornerstone standards and
remains at the property until a new on-site team is installed and trained.
Meanwhile, our engineering and construction specialists go to work making
cost-effective renovations designed to improve the property's marketability and
generate higher rents. We may re-landscape; design new signs; build a new
clubhouse; add new roofs; or paint. Rents are raised to reflect the property's
enhanced value, and a sophisticated marketing program is launched to attract new
residents at higher rents.
Once a property is repositioned in its marketplace, our management experts
focus on maximizing income by generating the highest rents possible, maintaining
high occupancy rates, and continually seeking ways to reduce operating costs. It
can be a delicate balance. That's why we provide our sites with the most
advanced, high-technology systems available in property management today. It's
why we hire the best people in the industry, train them well, and give them a
workplace that encourages innovation and entrepreneurship.
Which brings us back to performance. When our people perform well, so does
the company. And when the company performs well, we reward our people. BECAUSE
AT CORNERSTONE, PERFORMANCE IS THE STANDARD.
-6-
<PAGE>
BRIDGETOWN BAY
Every new visitor to Bridgetown Bay passes before the striking Palladian windows
fronting the rental office and clubhouse of this luxury apartment community.
Sunlight filters through two-story windows into the front office where leasing
agents meet with prospective residents. In the rear clubhouse, a wide-screen
television and comfortable furniture await residents seeking respite from their
busy lives.
Details like tiled fireplaces, vaulted ceilings, bay windows and room-sized
decks make the 120 apartments of this Charlotte community special. Residents
enjoy a swimming pool, playground and their own private, lighted walkway to the
retail shops of nearby East Town Market.
-7-
<PAGE>
CHARLESTON PLACE
In the elegant clubhouse of Charleston Place, residents can relax by the
fireplace and peruse a book borrowed from the community's own library. If more
actively inclined, they can work out in a state-of-the-art fitness center
overlooking the swimming pool. Or wander the walking trails of this beautifully
landscaped, 214-unit apartment community to Char-lotte's McAlpine Greenway Park.
These apartments have a custom feel, with built-in shelves, vaulted ceilings and
large picture windows.
-8-
<PAGE>
SAVANNAH WEST
In the graceful rooms of the Savannah West clubhouse, the charm of the old South
blends with the comfort of the new. This elegant community of 456 apartment
homes in Augusta, Georgia is located across from the famed Augusta National Golf
Course, not far from the waters of the Savannah River.
-9-
<PAGE>
PARKSIDE AT WOODLAKE
A gorgeous swimming pool is one of many luxuries afforded to residents of
Parkside at Woodlake. They can also enjoy their own private putting green.
Construction of this 266-unit apartment community in Durham was just completed
in 1996. A city park adjacent to the property offers soccer and baseball fields,
picnic areas, a jogging path, tennis courts and playground areas.
-10-
<PAGE>
CARLYLE CLUB
Some may find it hard to distinguish the lush lawns of Carlyle Club from the
beautifully manicured greens of the bordering Northwoods Country Club. This
243-unit community outside Atlanta offers stunning golf course views. Among its
park-like grounds are two small lakes, two swimming pools, a tennis court and
playground. Nine apartment styles provide up to 1600 square feet of space,
accommodating a variety of family sizes.
-11-
<PAGE>
PACES GLEN
Beautiful landscaping is a hallmark of Paces Glen, a community of 172 apartments
in Charlotte, North Carolina. This is a place where picnics are encouraged. The
28-acre property contains a special picnic area, complete with gas grills and a
gazebo. Residents can work off picnic feasts on the tennis court, or in a
private fitness center where they can cycle, lift, tread and step to their
heart's desire.
-12-
<PAGE>
SUMMERWALK
Summerwalk offers suburban living in a rustic and secluded setting convenient to
downtown Charlotte. Residents can fish from their own lake or hike a variety of
trails through the 26-acre grounds. Amenities of the community's 160 apartments
include cathedral ceilings and fireplaces. Two tennis courts and a swimming pool
round out the features of this luxury apartment community.
-13-
<PAGE>
HIGHLAND HILLS
Minutes from the intellectual hives of Research Triangle Park, the University of
North Carolina and Duke University, Highland Hills is a haven among apartment
communities. When not working, residents can recline among the warm, swirling
waters of a Jacuzzi, soak up sun in the privacy of a tanning bed, swim laps or
play tennis. The spacious grounds of Highland Hills contain 45 acres.
-14-
<PAGE>
THE ARBORS AT WINDSOR LAKE
Extraordinary service is an ordinary affair at The Arbors at Windsor Lake. The
people who live here can avail themselves of covered parking, extra storage
spaces or a resident executive center with fax and copy machines. This Columbia,
South Carolina community also contains a swimming pool with spa, two lighted
tennis courts, a fitness center, and 228 apartments with luxuries like natural
gas fireplaces, vaulted ceilings, full-sized washers and dryers, and spacious
walk-in closets.
-15-
<PAGE>
SAILBOAT BAY
The exquisite clubhouse of Sailboat Bay shares lake views with several apartment
buildings on this 358-unit property in Charlotte. Since extensive renovations
were com-pleted, passersby often mistake the 20-year-old community for a newly
constructed one. Sailboat Bay is a gated community, offering a fitness center, a
swimming pool, and courts for racquetball, tennis and volleyball.
-16-
<PAGE>
CLARION CROSSING
Residents can picnic along a tumbling stream in tranquil woods without ever
leaving the grounds of Raleigh's Clarion Crossing. Nor do they have to leave for
a work-out. This community of 228 apartments offers a fully equipped fitness
center, two tennis courts and a swimming pool. And should--after all this
activity--a nap beckon, there is always the huge, sun-drenched deck of the
clubhouse overlooking the swimming pool.
-17-
<PAGE>
DEERFIELD
From the privacy of their screened porches, residents of Deerfield can enjoy
wooded seclusion. This luxury community of 204 apartments is minutes away from
central Durham, yet offers direct access to miles of beautiful trails for
walking, jogging or cycling within the bordering nature preserve of Duke
University. Residents can relax in the property's heated whirlpool, on the
tennis courts or in the pool.
-18-
<PAGE>
PACES ARBOR/PACES FOREST
The lushly landscaped pool areas of Paces Arbor/Paces Forest offer the choice of
napping in sun or shade--on the warm wooden planks of an elevated deck or under
the canopy of a poolside gazebo. Gas grills and a relaxing Jacuzzi complete the
scene. These Raleigh, North Carolina apartment communities contain garden-style
apartments with a choice of amenities like beautiful wooded views, fireplaces,
washers, dryers and vaulted ceilings.
-19-
<PAGE>
BOARD OF DIRECTORS
Glade M. Knight (1) Penelope W. Kyle (2),(3)
Chairman of the Board of Director, Virginia State
Chief Executive Officer Lottery
S.J. Olander, Jr. Harry S. Taubenfeld
Senior Vice President and Real Estate Investor and
Chief Financial Officer Partner, Zuckerbrod &
Taubenfeld, Esqs.
Glenn W. Bunting, Jr. (1),(2)
President, KB Properties, Inc. Martin Zuckerbrod (1)
Real Estate Investor and
Leselie A. Grandis (2)(3) Partner, Zuckerbrod &
Partner, McGuire, Woods, Taubenfeld, Esqs.
Battle & Boothe LLP
(1) Member, Executive Committee
(2) Member Audit Committee
(3) Member, Compensation Committee
-20-
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
As of December 31, 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Rental Income $ 70,115,678 $ 40,261,674 $ 16,266,610 $ 8,158,994 $ 1,778,568
Net Income (Loss) 19,225,553 (4,169,849) 5,229,715 2,386,303 496,646
Distributions Declared and Paid 31,324,870 15,934,901 6,316,185 2,977,136 359,427
- ---------------------------------------------------------------------------------------------------------------------------
PER SHARE
Net Income (Loss) (a) $ .59 $ (0.21) $ 0.64 $ 0.60 $ 0.30
Distributions $ 1.00 $ 0.99 $ 0.96 $ 0.89 $ 0.27
Distributions Representing Return of Capital 23% 14% 17% 21% --
Weighted Average Shares Outstanding 32,617,823 20,210,432 8,176,803 4,000,558 1,662,944
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Investment in Rental Property $ 487,575,196 $ 329,715,853 $ 129,696,447 $ 54,107,358 $ 25,549,790
Total Assets $ 474,186,450 $ 322,870,574 $ 133,181,032 $ 57,257,950 $ 29,199,079
Notes Payable $ 151,569,147 $ 55,403,000 $ 8,300,000 $ 5,000,000 $ --
Shareholders' Equity $ 315,328,252 $ 254,569,705 $ 122,154,420 $ 51,436,863 $ 28,090,912
Shares Outstanding 35,510,327 28,141,509 12,754,331 5,458,648 2,995,210
- ------------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Cash Flows from:
Operating Activities $ 34,973,533 $ 20,162,776 $ 9,618,956 $ 3,718,086 $ 1,670,406
Investing Activities $ (161,969,343) $(194,519,406) $ (75,589,089) $ (28,557,568) $ (25,549,790)
Financing Activities $ 128,327,145 $ 170,466,134 $ 68,754,842 $ 25,519,648 $ 27,487,556
Number of Properties Owned at Year-End 51 40 19 9 5
- ------------------------------------------------------------------------------------------------------------------------------
FUNDS FROM OPERATIONS CALCULATION
Net Income (Loss) $ 19,225,553 $ (4,169,849) $ 5,229,715 $ 2,386,303 $ 496,646
Depreciation of Real Estate 15,163,593 8,068,063 2,788,818 1,210,818 255,338
Management Contract Termination (b) 402,907 16,526,012 -- -- --
-------------------------------------------------------------------------------
Funds from Operations (c) $ 34,792,053 $ 20,424,226 $ 8,018,533 $ 3,597,121 $ 751,984
==============================================================================================================================
</TABLE>
(a) In 1997, the Financial Accounting Standards Board issued Statement No. 128
"Earnings per Shares." All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement No. 128
requirements.
(b) Included in the 1997 and 1996 operating results are $402,907 and
$16,526,012, respectively, of management contract termination expense resulting
from the company's conversion to "self-administered" and "self-managed" status.
See Note 6 to the consolidated financial statements.
(c) "Funds from operations" is defined as income before gains (losses) on
investments and extraordinary items (computed in accordance with generally
accepted accounting principles) plus real estate depreciation and after
adjustment for significant nonrecurring items, if any. This definition conforms
to the recommendations set forth in a White Paper adopted by the National
Association of Real Estate Investment Trusts (NAREIT). Funds from operations for
years prior to 1996 have been adjusted to conform to the NAREITdefinition. 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.
-21-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The company operates in 10 major markets. At December 31, 1997, the company did
not own more than 22% of its apartment communities in any one market. The
following table summarizes the company's major apartment market information.
<TABLE>
<CAPTION>
Number of Percent Average December
Apartment of Total Economic Monthly
Market Communities Cost Apartments Occupancy Rental Rate
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Raleigh/Durham, NC 11 $ 108,274,356 22% 93.8% $ 660
Charlotte, NC 9 97,118,486 20 92.2 572
Atlanta,GA 4 55,470,782 11 89.9 673
Richmond, VA 3 37,947,312 8 95.8 585
Virginia Beach, VA 5 37,261,274 8 93.2 604
Greenville, SC 3 20,550,884 4 90.7 446
Augusta, GA 2 18,557,664 4 84.8 466
Winston-Salem, NC 2 18,259,348 4 92.7 597
Wilmington, NC 3 17,478,738 4 92.2 565
Columbia, SC 2 16,952,243 3 91.8 572
Other 7 59,704,109 12 93.6 533
- ---------------------------------------------------------------------------------------------
Total 51 $ 487,575,196 100% 91.9% $ 582
=============================================================================================
</TABLE>
The following discussion is based on the financial statements of the
company as of December 31, 1997, 1996 and 1995. This information should be read
in conjunction with the selected financial data and the company's consolidated
financial statements included elsewhere in this annual report. The company is
operated and has elected to be treated as a real estate investment trust (REIT)
for federal income tax purposes.
This annual report contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1993, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such forward-looking statements
include, without limitation, statements concerning anticipated lower expenses
from the company's conversion to self-administration, anticipated improvements
in financial operations from completed and planned property renovations, and
expected benefits from the company's ownership of stock in Apple Residential
Income Trust, Inc. (Apple) and the acquisition, advisory and property management
services provided to Apple. Such statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievement of the company to be materially different from the results of
operations or plans expressed or implied by such forward-looking statements.
Such factors include, among other things, unanticipated adverse business
developments affecting the company, the properties or Apple, as the case may be,
adverse changes in the real estate markets and general and local economies and
business conditions. Although the company believes that the assumptions
underlying the forward-looking statements contained herein are reasonable, any
of the assumptions could be inaccurate, and therefore there can be no assurance
that such statements included in this annual report will prove to be accurate.
In light of the significant uncertainties inherent in the forward-looking
statements included herein, the inclusion of such information should not be
regarded as a representation by the company or any other person that the results
or conditions described in such statements or the objectives and plans of the
company will be achieved.
RESULTS OF OPERATIONS COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO
DECEMBER 31, 1996
CONVERSION TO SELF-ADMINISTRATION
Effective October 1, 1996, the company agreed with its affiliated advisor and
management companies on a series of transactions, the effect of which was to
convert the company into a "self-administered" and "self-managed" REIT. The
transactions were unanimously approved by the Board of Directors of the company.
The conversion was approved because it is expected to reduce future operating
expenses compared to what those expenses would have been under the former
"externally managed and advised" arrangements. The net effect of these savings
on earnings basic and diluted per share is partially offset by the issuance of
common shares to effect the transaction as described below.
-22-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Pursuant to this conversion, the company agreed to issue 1,400,000 common
shares, with 700,000 shares issued in October 1996 and 700,000 shares issued on
September 30, 1997, and paid approximately $1,913,000 to the various entities
for several assets and various contracts. This transaction was accounted for as
the termination of management contracts and resulted in an expense of
$16,526,012 in 1996 and $402,907 in 1997. This expense was the primary factor in
the company's net loss of $4,169,849 ($.21 per share) for 1996 versus net income
of $19,225,553 ($.59 per share) in 1997 (See Note 6 to the consolidated
financial statements).
All earnings per share amounts presented have been restated to conform to
the Financial Accounting Standards No. 128 "Earnings Per Share" (See Note 1 to
the consolidated financial statements).
INCOME AND OCCUPANCY
The results of the company's property operations for the year ended
December 31, 1997 include the results of operations from the pre-1997
acquisitions and from the 13 properties acquired in 1997 from their respective
acquisition dates. The company portfolio consisted of 51 properties at December
31, 1997. The increased rental income and operating expenses for the year ended
December 31, 1997, over the year ended December 31, 1996, is primarily due to a
full year of operation in 1997 of the 1996 acquisitions as well as the
incremental effect of the 1997 acquisitions.
Substantially all of the company's revenue is from the rental operation of
its apartment communities. Rental income increased 74% to $70,115,678 in 1997
from $40,261,674 in 1996 due to the factors described above. Rental income is
expected to continue to increase from the impact of planned improvements, which
are being made in an effort to improve the properties' marketability, economic
occupancies and rental rates.
Overall average economic occupancy was 92% in 1997 and 91% in 1996. Rental
rates for the portfolio increased 6% to $582 on December 31, 1997 from $549 on
December 31, 1996. This increase is due to a combination of increased rental
rates from new leases and property renovation and the acquisition of properties
with higher average rental rates. The properties acquired prior to 1997 had an
average economic occupancy of 93% during 1997 and 91% during 1996.
COMPARABLE PROPERTY RESULTS
On a comparative basis, the 19 properties owned during all of 1997 and 1996
provided rental and operating income of $27,476,460 and $16,566,239,
respectively, in 1997 and $25,508,627 and $14,587,654, respectively, in 1996.
This represents an increase from 1996 to 1997 of 7.7% and 13.6%, respectively.
The conversion to "self-administration" took place in October 1996. Therefore,
the actual results for property operations contained a partial year of
management fees in 1996. In order to make a meaningful comparison of operating
income for these properties between 1996 and 1997, property management expense
was eliminated in 1996. This adjustment allows for a comparison on a
"self-administered" and "self-managed" basis. As adjusted, the properties
provided operating income of $15,429,270 in 1996. This represents an operating
increase of 7.4%. The eliminated expenses included property management fees and
expenses of $841,616 in 1996.
EXPENSES
Total property expenses, excluding management contract termination, increased
69% to $45,111,959 in 1997 from $26,764,844 in 1996, due largely to the increase
in the number of apartments. The operating expense ratio (the ratio of operating
expenses, excluding depreciation and amortization, to rental income) was 40% in
1997 and 43% in 1996. The decline in the operating expense ratio is attributable
to the conversion of the company to "self-administered" and "self-managed"
status and increasing economies of scale based on the company's growing
portfolio of properties.
General and administrative expenses totaled 1.9% of revenues in 1997 and
3.2% in 1996. These expenses represent the administrative expenses of the
company as distinguished from the operations of the company's properties. In
1997, the company has continued to expand its internal administrative
infrastructure to keep pace with its growth.
Depreciation of real estate increased to $15,163,593 in 1997 from
$8,068,063 in 1996, and is directly attributable to the acquisition of
additional apartment communities in 1996 and 1997.
-23-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTEREST AND INVESTMENT INCOME AND EXPENSE
The company earned interest income of $77,942 in 1997 and $287,344 in 1996 from
the investment of its cash and cash reserves. The decrease is due to the
company's cash management policy of paying down on the unsecured line of credit
which incurred a higher rate of interest than what the company would have
earned. The company incurred $7,006,182 and $1,272,530 of interest expense in
1997 and 1996, respectively, associated with short-term borrowings under its
line of credit. This is a result of the increased use of its line of credit to
fund acquisitions. The weighted average interest rate on the line of credit
during 1997 and 1996 was 7.2%.
INCOME AND EXPENSE FROM RELATIONSHIP WITH APPLE RESIDENTIAL INCOME TRUST
Property management fees are 5% of monthly gross revenues. Advisory fees are .1%
to .25% of total capital raised by Apple. The company received $822,934 for
advisory and property management services. The company received $1,031,066 in
real estate commissions under separate contract and amortized $546,000 of the
purchase price of this contract. The real estate commissions equal 2% of the
purchase price of the properties Apple acquires. The company incurred
approximately $355,928 in related expenses. Dividend income from the company's
investment in Apple was $253,172 in 1997.(See Note 6 to the consolidated
financial statements).
RESULTS OF OPERATIONS COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 TO
DECEMBER 31, 1995
CHANGES IN ACCOUNTING POLICIES
During the first quarter of 1996, the company adopted the provisions of FASB No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." The adoption of this statement did not have an impact
on the company's financial statements (See Note 1 to the consolidated financial
statements).
INCOME AND OCCUPANCY
The company had increased rental income and operating expenses in 1996 from 1995
due to the full year of operations from the pre-1996 acquisitions and from 21
properties acquired in 1996 from their respective acquisition dates. Rental
income in 1996 increased 148% to $40,261,674, from $16,266,610 in 1995. The
properties had an average economic occupancy of 91% during 1996 and 92% in 1995.
COMPARABLE PROPERTY RESULTS
On a comparative basis, the nine properties owned during all of 1996 and 1995
provided rental and operating income of $12,546,624 and $7,082,130,
respectively, in 1996; and $11,644,096 and $6,226,341 in 1995. This represents
an increase from 1995 to 1996 of 7.9% and 13.7%, respectively. Since the
conversion to "self-management" took place in October 1996, property management
expenses need to be eliminated for the full 1995 year and a partial 1996 year in
order to make a meaningful comparison of operating income for these properties
between 1995 and 1996. This adjustment allows for a comparison on a
"self-administered" and "self-managed" basis. As adjusted, the properties
provided operating income of $7,537,707 in 1996 and $6,928,227 in 1995. This
represents an operating increase of 8.8%. The eliminated expenses included
property management fees of $535,471 in 1995 and $414,505 in 1996. In addition,
expenses related to the property management contracts of $148,322 in 1995 and
$41,072 in 1996 were eliminated.
Overall, rental rates for the portfolio increased 9.8% to $549 at December
31, 1996 from $500 at December 31, 1995. This increase was due to a combination
of increased rental rates from new leases and property renovation and the
acquisition of properties with higher average rental rates.
EXPENSES
Total property expenses, excluding management contract termination expenses,
increased 144% to $26,764,844 in 1996 from $10,968,834 in 1995 due largely to
the increased number of apartments. The operating expense ratio (the ratio of
operating expenses to rental income) was 43% in 1996 and 46% for 1995. General
and administrative expenses totaled 3.2% of revenues in 1996 and 3.7% in
-24-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
1995. This decrease in percentage is attributed to efficiency achieved through
economies of scale. Depreciation of real estate increased to $8,068,063 in 1996
from $2,788,818 in 1995, and is directly attributed to the acquisition of
apartment communities in 1995 and 1996 and a full year of depreciation of
properties acquired in 1995.
INTEREST INCOME AND EXPENSE
Interest income was $287,344 in 1996 and $226,555 in 1995. The company incurred
$1,272,530 and $292,103 of interest expense in 1996 and 1995, respectively,
associated with short-term borrowings under its line of credit.
LIQUIDITY AND CAPITAL RESOURCES
EQUITY
There was a significant change in the company's liquidity during the year ended
December 31, 1997 as the company continued to grow. During 1997, the company
completed an additional public offering of 5,175,000 common shares in
conjunction with the listing of the company's common shares on the New York
Stock Exchange. The total gross proceeds from the offering was $54,337,500,
which netted $49,287,000 to the company after the payment of underwriting
discounts and commissions.
Using the acquisition line of credit, the company acquired 2,889 apartment
units in 13 residential rental communities during 1997. During the year, two
properties were combined and are now operated as one, and one of the 1997
acquisitions became an extension of an existing property. These acquisitions
brought the total number of residential rental communities to 51 and the total
apartment units owned at year-end to 11,922.
The company has a shelf registration in effect which was filed on January
27, 1998 (which amended the original dated August 27, 1996) for $200 million.
The proceeds will be used by the company for general corporate purposes.
NOTES PAYABLE
The company intends to acquire additional properties and may seek to fund these
acquisitions through a combination of equity offerings and unsecured corporate
debt. To meet this objective, the company obtained a $175 million unsecured line
of credit with a consortium of six banks. The line expires on October 30, 2000.
The line currently bears interest at the LIBOR rate plus 120 basis points. The
company anticipates curtailing the line of credit with the proceeds of future
offerings of common shares.
At year-end, the company had an outstanding balance of $144 million on the
acquisition line of credit and $2.5 million on its general corporate line of
credit. In addition, the company had outstanding a $5.5 million unsecured note
bearing an effective interest rate of 6.65% per annum. This debt is to a private
lender and is due in June 1999.
In January 1998, the company acquired Stone Point Apartments, (formerly
Sterling Pointe), a 192-unit apartment community located in Charlotte, North
Carolina, for $9.7 million. The company used its unsecured line of credit to
effect this acquisition. The company has approximately $22 million of currently
available borrowing capacity for future acquisitions.
CAPITAL REQUIREMENTS
The company has an ongoing capital expenditure commitment to fund its renovation
program for recently acquired properties. In addition, the company expects to
acquire new properties during the year. The company anticipates that it will
continue to operate as it did in 1997 and fund these cash needs from a variety
of sources including equity, cash reserves and debt provided by its line of
credit.
The company continues to renovate its properties. In connection with these
renovations, the company capitalized improvements of $23 million in 1997.
Approximately $12 million of additional capital improvements are budgeted for
1998 on the existing property portfolio which are expected to be funded through
cash reserves and dividend reinvestment.
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 ample cash to provide for the payment of these operating expenses and
the payment of distributions.
-25-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Capital resources are expected to grow with the future sale of its shares
and from cash flow from operations. Approximately 45% of all 1997 distributions,
$14,198,868, were reinvested in additional common shares. In general, the
company's liquidity and capital resources are believed to be more than adequate
to meet its cash requirements during 1998.
The company is operated as, and annually elects to be taxed as, a real
estate investment trust under the Internal Revenue Code. As a result, the
company has no provision for taxes and thus there is no effect on the company's
liquidity from taxes.
APPLE RESIDENTIAL INCOME TRUST
As of December 31, 1997, the company owned 417,778 common shares of Apple. These
shares represent approximately 3% of common shares of Apple outstanding at
December 31, 1997. In 1997, 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. Apple also has granted the company a first right of refusal to
purchase the business or properties of Apple. (See Note 6 to the consolidated
financial statements).
IMPACT OF YEAR 2000
Some computer programs were written using two digits rather than four to define
the applicable year. As a result, those computer programs have time-sensitive
software that recognize a date using "00" as the year 1900 rather than the year
2000. This could cause a system miscalculation causing disruptions of
operations. The company has completed an assessment of its programs and has
begun to modify or replace portions of its software so that its computer systems
will function properly with respect to dates in the year 2000 and thereafter.
The total Year 2000 project cost will be expensed as incurred and is not
expected to have a material effect on the company's results of operations. This
project is estimated to be completed by December 31, 1998, which is prior to any
impact on the company's system.
IMPACT OF INFLATION
The company does not believe that inflation had any significant impact on
its operation in 1997. 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.
-26-
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
CORNERSTONE REALTY INCOME TRUST, INC.
We have audited the accompanying consolidated balance sheets of Cornerstone
Realty Income Trust, Inc. (the "Company") as of December 31, 1997 and 1996, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cornerstone
Realty Income Trust, Inc. at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, in 1996
the company changed its method of accounting for impairment of long-lived assets
and long-lived assets held for disposition.
/s/ Ernst & Young LLP
Richmond, Virginia
January 22, 1998
-27-
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 31,
- ------------------------------------------------------------------------------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Investment in rental property
Land $ 76,812,953 $ 46,980,280
Building and improvements 402,545,094 277,345,752
Furniture and fixtures 8,217,149 5,389,821
------------ ------------
487,575,196 329,715,853
Less accumulated depreciation (27,486,630) (12,323,037)
------------ ------------
460,088,566 317,392,816
------------ ------------
Cash and cash equivalents 4,513,986 3,182,651
Prepaid expenses 797,484 557,544
Other assets 8,786,414 1,737,563
------------ ------------
14,097,884 5,477,758
------------ ------------
Total Assets $474,186,450 $322,870,574
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $151,569,147 $ 55,403,000
Accrued payable-related party -- 7,297,093
Accounts payable 3,812,578 2,087,673
Accrued expenses 1,158,014 1,366,853
Rents received in advance 463,997 491,928
Tenant security deposits 1,854,462 1,654,322
------------ ------------
Total Liabilities 158,858,198 68,300,869
Shareholders' equity
Common stock, no par value; authorized 50,000,000
shares; issued and outstanding 35,510,327 shares
and 28,141,509 shares, respectively 349,135,379 276,269,539
Deferred compensation (62,976) (55,000)
Distributions greater than net income (33,744,151) (21,644,834)
------------ ------------
315,328,252 254,569,705
------------ ------------
Total Liabilities and Shareholders' Equity $474,186,450 $322,870,574
============ ============
</TABLE>
See accompanying notes to financial statements.
-28-
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
- ------------------------------------------------------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE
Rental income $ 70,115,678 $ 40,261,674 $ 16,266,610
Other income 1,854,946 -- --
EXPENSES
Property and maintenance 19,494,692 11,406,042 5,178,075
Taxes and insurance 6,075,991 3,275,422 1,201,812
Property management fee -- 1,243,215 896,521
Property management 1,769,272 1,274,203 181,166
General and administrative 1,351,667 1,298,970 609,969
Amortization expense and other depreciation 56,075 47,133 30,564
Depreciation of rental property 15,163,593 8,068,063 2,788,818
Other 1,200,669 151,796 81,909
Management contract termination 402,907 16,526,012 --
------------ ------------ ------------
Total expenses 45,514,866 43,290,856 10,968,834
------------ ------------ ------------
Income (loss) before interest income (expense) 26,455,758 (3,029,182) 5,297,776
Interest income 331,114 287,344 226,555
Interest expense (7,561,319) (1,428,011) (294,616)
------------ ------------ ------------
Net income (loss) $ 19,225,553 $ (4,169,849) $ 5,229,715
============ ============ ============
Basic and diluted earnings (loss) per common
share $ 0.59 $ (0.21) $ 0.64
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
-29-
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock 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 declared to
shareholders ($.9575 per share) -- -- -- (6,316,185) (6,316,185)
Restricted stock grants 10,000 110,000 (110,000) -- --
Amortization of deferred compensation -- -- 33,000 -- 33,000
Shares issued through
reinvestment of distributions 355,116 3,515,644 -- -- 3,515,644
-------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 12,754,331 123,771,504 (77,000) (1,540,084) 122,154,420
Net proceeds from the sale of shares 13,816,973 136,183,048 -- -- 136,183,048
Net loss -- -- -- (4,169,849) (4,169,849)
Cash distributions declared to
shareholders ($.9930 per share) -- -- -- (15,934,901) (15,934,901)
Shares issued in connection with
management contract termination 700,000 7,700,000 -- -- 7,700,000
Amortization of deferred compensation -- -- 22,000 -- 22,000
Shares issued through reinvestment
of distributions 870,205 8,614,987 -- -- 8,614,987
-------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 28,141,509 276,269,539 (55,000) (21,644,834) 254,569,705
Net proceeds from the sale of shares 5,175,000 49,287,000 -- -- 49,287,000
Net income -- -- -- 19,225,553 19,225,553
Cash distributions declared to
shareholders ($1.00 per share) -- -- -- (31,324,870) (31,324,870)
Restricted stock grant 2,772 29,972 (29,972) -- --
Shares issued for purchase of
Apple Realty Group, Inc. contracts 150,000 1,650,000 -- -- 1,650,000
Shares issued in connection with
management contract termination 700,000 7,700,000 -- -- 7,700,000
Amortization of deferred compensation -- -- 21,996 -- 21,996
Shares issued through reinvestment
of distributions 1,341,046 14,198,868 -- -- 14,198,868
-------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 35,510,327 $ 349,135,379 $ (62,976) $ (33,744,151) $ 315,328,252
=========================================================================
</TABLE>
See accompanying notes to financial statements.
-30-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------------------------
<S> <C> <C> <C>
FROM OPERATING ACTIVITIES:
Net income (loss) $ 19,225,553 $ (4,169,849) $ 5,229,715
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 15,219,668 8,115,196 2,819,382
Amortization of deferred compensation 21,996 22,000 33,000
Amortization of deferred financing costs 212,802 91,592 43,983
Management contract termination 402,907 14,997,093 --
Amortization of Apple Realty Group, Inc.
contract 546,000 -- --
Changes in operating assets and liabilities:
Prepaid expenses (239,940) (390,392) (63,594)
Other assets (2,103,728) (1,377,028) (349,055)
Accounts payable 1,724,905 1,531,982 342,293
Accrued expenses (208,839) 109,622 1,026,414
Rent received in advance (27,931) 362,280 63,511
Tenant security deposits 200,140 870,280 473,307
-----------------------------------------------
Net cash provided by operating
activities 34,973,533 20,162,776 9,618,956
FROM INVESTING ACTIVITIES:
Acquisitions of rental property,
net of debt assumed (134,900,712) (175,471,367) (68,482,525)
Capital improvements (22,958,631) (19,048,039) (7,106,564)
Investment in Apple Residential
Income Trust, Inc. (3,760,000) -- --
Purchase of acquisition/disposition contract
from Apple Realty Group, Inc. (350,000) -- --
-----------------------------------------------
Net cash used in investing activities (161,969,343) (194,519,406) (75,589,089)
FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings 442,927,152 135,653,144 38,300,000
Repayments of short-term borrowings (346,761,005) (94,050,144) (35,000,000)
Net proceeds from issuance of shares 63,485,868 144,798,035 71,771,027
Cash distributions paid to shareholders (31,324,870) (15,934,901) (6,316,185)
-----------------------------------------------
Net cash provided by financing
activities 128,327,145 170,466,134 68,754,842
Increase (decrease) in cash and
cash equivalents 1,331,335 (3,890,496) 2,784,709
Cash and cash equivalents, beginning of year 3,182,651 7,073,147 4,288,438
-----------------------------------------------
Cash and cash equivalents, end of year $ 4,513,986 $ 3,182,651 $ 7,073,147
===============================================
</TABLE>
See accompanying notes to financial statements.
-31-
<PAGE>
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION
Cornerstone Realty Income Trust, Inc. (together with its subsidiary, the
"company"), a Virginia corporation, is an owner-operator of residential
apartment communities in the mid-Atlantic and southeastern regions of the United
States. The accompanying consolidated financial statements include the accounts
of the company along with its wholly owned subsidiary, CRIT-NC, LLC. All
significant inter-company accounts and transactions have been eliminated in
consolidation. The company's common shares trade on the New York Stock Exchange
under the ticker symbol TCR.
Certain previously reported amounts have been reclassified to conform to
the current year presentation.
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
approximate their carrying value.
INVESTMENT IN RENTAL PROPERTY
In 1996, the company adopted FASB Statement No.121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
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. Impairment losses are measured as the difference between the asset's
fair value, less cost to sell, and its carrying value. The adoption of this
Statement did not have an impact on the company's financial statements.
The investment in rental property is recorded at the lower of cost or fair
value and includes real estate brokerage commissions paid to Cornerstone Realty
Group, a related party, for purchases prior to October 1, 1996 (See Note 6 to
the consolidated financial statements).
Repairs and maintenance costs are expensed as incurred while significant
improvements, renovations 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 operating 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 notes. Actual results may differ from those estimates.
STOCK INCENTIVE PLANS
The company elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options. As discussed in Note 5, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," ("FASB 123") requires the use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
ADVERTISING COSTS
Costs incurred for the production and distribution of advertising are expensed
as incurred.
INCOME PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share." Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants, and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement 128
requirements.
-32-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
For income tax purposes, distributions paid to shareholders consist of
ordinary income and return of capital or a combination thereof. Distributions
per share were $1.00, $.993, and $.9575 in the years ended December 31, 1997,
1996 and 1995, respectively. In 1997, of the total distribution, 77% was taxable
as ordinary income and 23% was a non-taxable return of capital. In 1996, of the
total distribution, 86% was taxable as ordinary income and 14% was a non-taxable
return of capital. In 1995, 83% was taxable as ordinary income and 17% was a
non-taxable return of capital.
NOTE 2
INVESTMENT IN RENTAL PROPERTY
The following is a summary of rental property owned at December 31, 1997.
<TABLE>
<CAPTION>
Initial Total Accumulated Date
Description Acquisition Cost Investment* Depreciation Acquired
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NORTH CAROLINA
Raleigh/Durham, North Carolina
The Hollows $ 4,200,000 $ 5,862,730 $ 803,937 June 1993
The Trestles 10,350,000 11,345,191 1,109,837 December 1994
The Landing 8,345,000 9,827,290 532,052 May 1996
Highland Hills 12,100,000 13,901,839 656,581 September 1996
Parkside at Woodlake 14,663,886 14,929,908 619,610 September 1996
Deerfield 10,675,000 11,095,295 456,364 November 1996
Paces Arbor 5,588,219 5,836,534 142,901 March 1997
Paces Forest 6,473,481 6,793,400 167,343 March 1997
Clarion Crossing 10,600,000 10,812,429 92,074 September 1997
St. Regis 9,800,000 9,887,449 46,995 October 1997
Remington Place 7,900,000 7,982,291 39,791 October 1997
Charlotte, North Carolina
Hanover Landing 5,725,000 7,264,857 550,759 August 1995
Sailboat Bay 9,100,000 13,198,131 1,132,932 November 1995
Bridgetown Bay 5,025,000 5,763,770 340,018 April 1996
Meadow Creek 11,100,000 12,295,434 692,927 May 1996
Beacon Hill 13,579,203 14,517,795 705,777 May 1996
Summerwalk 5,660,000 7,139,674 338,188 May 1996
Paces Glen 7,425,000 8,027,477 317,033 July 1996
Heatherwood 17,630,457 18,903,942 507,135 **
Charleston Place 9,475,000 10,007,406 211,614 May 1997
Winston-Salem, North Carolina
Mill Creek 8,550,000 9,395,861 677,900 September 1995
Glen Eagles 7,300,000 8,863,487 627,144 October 1995
Wilmington, North Carolina
Wimbledon Chase 3,300,000 5,461,662 767,403 February 1994
Chase Mooring 3,594,000 5,174,122 617,969 August 1994
Osprey Landing 4,375,000 6,842,954 510,604 November 1995
Other North Carolina
Wind Lake 8,760,000 9,817,050 899,238 April 1995
The Meadows 6,200,000 7,460,262 536,888 January 1996
Signature Place 5,462,948 6,727,435 340,582 August 1996
GEORGIA
Atlanta, Georgia
Ashley Run 18,000,000 18,684,443 410,263 April 1997
Carlyle Club 11,580,000 12,237,864 242,599 April 1997
Dunwoody Springs 15,200,000 16,594,594 227,872 July 1997
Stone Brooke 7,850,000 7,953,881 38,965 October 1997
Augusta, Georgia
West Eagle Greens 4,020,000 6,056,355 394,366 March 1996
Savannah West 9,843,620 12,501,309 626,284 July 1996
</TABLE>
-33-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 CONTINUED
INVESTMENT IN RENTAL PROPERTY
<TABLE>
<CAPTION>
Initial Total Accumulated Date
Description Acquisition Cost Investment* Depreciation Acquired
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VIRGINIA
Richmond, Virginia
Ashley Park 12,205,000 12,942,802 823,302 March 1996
Trolley Square 10,242,575 12,547,009 523,667 ***
Hampton Glen 11,599,931 12,457,501 591,866 August 1996
Virginia Beach, Virginia
Mayflower Seaside 7,634,144 9,517,913 1,103,186 October 1993
Harbour Club 5,250,000 6,104,145 682,749 May 1994
Bay Watch Pointe 3,372,525 4,881,908 408,201 July 1995
Tradewinds 10,200,000 10,889,492 811,294 November 1995
Arbor Trace 5,000,000 5,867,816 336,766 March 1996
Other Virginia
County Green 3,800,000 5,203,820 777,966 December 1993
Trophy Chase 3,710,000 6,481,964 367,546 April 1996
Greenbrier 11,099,525 11,813,814 506,348 October 1996
SOUTH CAROLINA
Greenville, South Carolina
Polo Club 4,300,000 6,904,635 1,348,765 June 1993
Breckinridge 5,600,000 6,896,124 517,880 June 1995
Magnolia Run 5,500,000 6,750,125 633,948 June 1995
Columbia, South Carolina
Stone Ridge 3,325,000 5,612,592 910,979 December 1993
The Arbors at Windsor Lake 10,875,000 11,339,651 388,602 January 1997
Other South Carolina
Westchase 11,000,000 12,199,764 371,620 January 1997
- -------------------------------------------------------------------------------------------------
$424,164,514 $487,575,196 $ 27,486,630
</TABLE>
* Includes real estate commissions, closing costs and improvements capitalized
since the date of acquisition.
** Heatherwood Apartments is comprised of Heatherwood and Italian Village/Villa
Marina Apartments, acquired in September 1996 and August 1997, respectively, at
a cost of $10,205,457 and $7,425,000. They are adjoining properties and are
operated as one apartment community.
*** Trolley Square Apartments is comprised of Trolley Square East and Trolley
Square West Apartments acquired in June 1996 and December 1996, respectively, at
a cost of $6,000,000 and $4,242,575. They are adjacent properties and are
operated as one apartment community.
The following is a reconciliation of the carrying amount of real estate owned:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1 $329,715,853 $129,696,447 $ 54,107,358
Real estate purchased 134,900,712 180,971,367 68,482,525
Improvements, furniture and fixtures 22,958,631 19,048,039 7,106,564
=============================================================================================
Balance at December 31 $487,575,196 $329,715,853 $129,696,447
</TABLE>
The following is a reconciliation of accumulated depreciation:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1 $ 12,323,037 $ 4,254,974 $ 1,466,156
Depreciation expense 15,163,593 8,068,063 2,788,818
- ----------------------------------------------------------------------------------------------
Balance at December 31 $ 27,486,630 $ 12,323,037 $ 4,254,974
</TABLE>
NOTE 3
NOTES PAYABLE
During 1997, the company obtained a $175 million unsecured line of credit with a
consortium of six banks which replaced its $100 million unsecured line of
credit. The new line of credit bears interest at one month LIBOR plus 120 basis
points at December 31, 1997. The previous line of credit bore interest at one
month LIBOR plus 160 basis points at December 31, 1996. In addition, the company
is obligated to pay the lenders a quarterly commitment fee equal to .20% per
annum of the unused portion of the line. The entire balance is due on October
30, 2000. At December 31, 1997, borrowings under the agreement were $144
million. The weighted average interest rates incurred under the lines of credit
were 7.2% in 1997, 7.2% in 1996 and 7.8% in 1995.
The line of credit agreement contains certain covenants which, among other
things, require maintenance of certain financial ratios and includes
restrictions on the company's ability to make distributions to its shareholders
over certain amounts. At December 31, 1997, the company was in compliance with
these covenants.
-34-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1997, the company also obtained a $5 million unsecured line of
credit for general corporate purposes. This line of credit bears interest at
LIBOR plus 160 basis points and is due on March 31, 1998. At December 31, 1997,
borrowings under the agreement were $2.5 million.
On June 25, 1996, in connection with the acquisition of rental property, an
unsecured note was executed by the company in the amount of $5.5 million. The
note bears an effective interest rate of 6.65% per annum. Annual interest
payments are due on January 1, 1998, and 1999, and the principal balance is due
on June 1, 1999. The note is prepayable at any time, without penalty.
The fair market value of the borrowings approximate the recorded amounts.
No interest was capitalized in 1997, 1996, or 1995. Interest paid was
$7,221,104; $1,075,360; and $227,478; for 1997, 1996, and 1995, respectively.
NOTE 4
COMMON STOCK
In April 1997, the company completed its initial firm-commitment public offering
of 5,175,000 shares of its common stock at $10.50 per share. Net proceeds, after
deducting underwriting discounts and commissions and direct offering costs,
aggregated approximately $49 million and were used to repay $44 million of the
previous line of credit.
The company raised capital through a series of continuous best-efforts
offerings of shares during 1996 and 1995. The company received gross proceeds of
$161,558,958 and $80,142,516 from the sale of 14,687,178 shares and 7,285,683
shares at $11 per share, including shares sold through the reinvestment of
distributions for the years ended December 31, 1996 and 1995, respectively. The
underwriter received selling commissions and a marketing expense allowance equal
to 7.5% and 2.5%, respectively, of the gross proceeds of shares sold. During
1996 and 1995, the underwriter earned $16,159,634 and $8,014,252, respectively.
The net proceeds of the offering, after deducting selling commissions and other
offering expenses, were $144,798,035 in 1996 and $71,771,027 in 1995.
The company provides a plan, which allows shareholders to reinvest
distributions in the purchase of additional shares of the company. In January
1997, the company adopted a Dividend Reinvestment and Share Purchase Plan,
("Plan"),which allows any recordholder to reinvest distributions without payment
of any brokerage commissions or other fees. Of the total proceeds raised from
common shares during the years ended December 31, 1997, 1996, and 1995,
$14,198,868; $9,572,255; and $3,904,325; respectively, were provided through the
reinvestment of distributions.
NOTE 5
STOCK INCENTIVE PLANS
Under the company's Incentive Plan, as amended, a maximum of 1,237,470 options
could be granted, at the discretion of the Board of Directors, to certain
officers and key employees of the company. Under the company's Directors Plan,
as amended, a maximum of 533,547 options could be granted to the directors of
the company. In 1997, the company granted 34,235 options to purchase shares
under the Directors Plan.
Both of the plans generally provide, among other things, that options be
granted at exercise prices not lower than the market value of the shares on the
date of grant. Under the Incentive Plan, options become exercisable at the date
of grant. Generally the optionee has up to 10 years from the date on which the
options first become exercisable during which to exercise the options. Activity
in the company's share option plans during the three years ended December 31,
1997 is summarized in the following table:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
Exercise Exercise Exercise
Options Price Options Price Options Price
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 371,256 $10.99 292,967 $ 10.99 250,959 $ 10.98
Granted 34,235 12.125 78,289 11.00 42,008 11.00
Exercised -- -- -- -- -- --
Forfeited -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------
Outstanding, end of year 405,491 $11.09 371,256 $ 10.99 292,967 $ 10.99
Exercisable at end of year 364,591 $11.07 289,456 $ 10.99 170,267 $ 10.99
- -------------------------------------------------------------------------------------------------
Weighted-average fair value of
option granted during the year $1.00 $ .69 .60
</TABLE>
Pro forma information regarding net income and earnings per share is required by
FASB 123, which also requires that the information be determined as if the
company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method described in that statement. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1997, 1996 and
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1995, respectively: risk-free interest rates of 6.7%, 6.4% and 6.4%; a dividend
yield of 7.0% for 1995 through 1997; volatility factors of the expected market
price of the company's common stock of .161 for 1997 and .122 for 1996 and 1995;
and a weighted-average expected life of the option of 10 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of FASB 123 pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. As the
options are immediately exercisable, the full impact on the pro forma net income
(loss) is disclosed below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1997 1996
<S> <C> <C>
Pro forma FASB 123 net income (loss) $19,148,373 $ (4,250,453)
As reported net income (loss) 19,225,553 (4,169,849)
Pro forma FASB 123 diluted earnings (loss) per common share .59 (.21)
As reported diluted earnings (loss) per common share .59 (.21)
</TABLE>
NOTE 6
RELATED PARTY TRANSACTIONS
RELATIONSHIP WITH APPLE RESIDENTIAL INCOME TRUST
In August 1996, Glade M. Knight, Chairman and Chief Executive Officer of the
company, established Apple Residential Income Trust, Inc. for the purpose of
acquiring apartment communities in Texas. Companies owned by Mr. Knight provided
advisory, property management and asset acquisition services to Apple. In March
1997, the company entered into subcontract arrangements with the companies owned
by Mr. Knight to provide property management services and advisory services to
Apple. Property management fees are 5% of monthly gross revenues plus certain
expense reimbursements. Advisory fees are .1% to .25% of total capital raised by
Apple based on the financial performance of Apple as defined in the agreement.
The amount of fees received by the company under the contracts in 1997 were
$822,934, and direct expenses associated with providing these services were
$355,928.
During March 1997, the company acquired all the assets of Apple Realty
Group, Inc., which provided real estate acquisition and disposal services for
Apple. The sole asset of Apple Realty Group, Inc. was the
acquisition/disposition contract with Apple which expires on October 2001. The
company paid $350,000 cash and issued stock valued at $1,650,000 for this
contract. Under the terms of the contract, Apple pays a real estate commission
equal to 2% of the purchase price of the properties acquired. The company is
amortizing its purchase of this contract over the anticipated total acquisitions
by Apple during the contract period. For 1997, the company received $1,031,066
in real estate commissions under this contract and amortized $546,000 of the
purchase price of this contract.
Apple granted the company a continuing right to own 9.8% of the common
shares of Apple at its selling price, net of selling commissions. In April 1997,
the company purchased 417,778 shares of Apple for $3,760,000. These shares
represent approximately 3% of the common shares of Apple outstanding at December
31, 1997. Apple shares are sold under a "best efforts" offering, and no market
exists for trading of Apple shares. Dividend income from the company's
investment in Apple was $253,172 in 1997.
Apple also granted the company a first right of refusal to purchase the
business and properties of Apple.
RELATIONSHIP WITH ADVISORY, MANAGEMENT AND ACQUISITION COMPANIES
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
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 Stanley J. Olander, Jr., Chief Financial Officer of the
company, and Debra A. Jones, Chief Operating Officer of the company.
-36-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
To effect the transaction, the company agreed to issue 1.4 million shares
to Cornerstone Management Group, Inc. in exchange for the assignment of all of
its rights and interest in, to and under, its management agreements with the
company. The company issued 700,000 shares on October 1, 1996 and 700,000 shares
on September 30, 1997. The consideration for the transaction totaled
approximately $15.4 million based upon the fair market value of $11 per share of
the com-pany's common stock. Imputed interest of $402,907 and $134,302 were
recognized in 1997 and 1996, respectively, related to issuance of 700,000 shares
in September 1997. In addition, on October 1, 1996 the company paid to
Cornerstone Realty Group, Inc. and Cornerstone Advisors, Inc. $1,325,000 in
exchange for the assignment by them of all of their rights and interests in, to
and under, their property acquisition agreement and advisory agreement with the
company. Immediately following the assignment by each of the External Companies
of its rights and interest in, to and under, its respective agreements, the
company terminated such agreements. The consideration for all of the above
transactions, plus related transaction costs and imputed interest, was accounted
for as a termination of the management administration contracts.
Also on October 1, 1996, the company paid to Cornerstone Realty Group, Inc.
$100,000 and paid to Glade Knight $350,000 for the personal property and
building, respectively, located at 306 E. Main Street, Richmond, Virginia, which
serves as the principal executive office of the company. The company also paid
approximately $138,000 to certain lenders, representing the balance owed on
certain automobile loans, in exchange for the conveyance by Cornerstone Realty
Group, Inc., to the company of such automobiles.
Prior to the October 1, 1996 transaction, Cornerstone Advisors, Inc. (The
"Advisor") was the advisor to the company and provided its day-to-day
management. The Advisor earned 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. The Advisor earned $295,759 in 1996 and $219,930 in
1995.
As properties were acquired, the company paid real estate commissions of 2%
of the purchase prices of properties to Cornerstone Realty Group, Inc.
Cornerstone Realty Group, Inc. earned commissions of $1,957,624 in 1996 and
$1,302,550 in 1995.
In addition, the company entered into agreements with Cornerstone
Management Group, Inc. (the "Management Company") to manage the properties. The
Management Company earned a management fee equal to 5% of rental income and was
entitled to be reimbursed for certain expenses. The Management Company earned
management fees of $1,243,215 in 1996 and $2,686,204 in 1995.
OTHER RELATIONSHIPS
Leslie A. Grandis, a director of the company, is also a partner in McGuire,
Woods, Battle & Boothe LLP, which serves as counsel to the company. Fees paid to
McGuire, Woods, Battle & Boothe LLP in 1997 were $420,367. Martin Zuckerbrod and
Harry S. Taubenfeld, directors of the company, provide real estate legal
services to the company. Fees paid to Mr. Zuckerbrod and Mr. Taubenfeld in 1997
were $172,078.
NOTE 7
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income (loss) $ 19,225,553 $(4,169,849) $ 5,229,715
Numerator for basic and diluted earnings 19,225,553 (4,169,849) 5,229,715
Denominator:
Denominator for basic earnings per
share-weighted-average shares 32,617,823 20,210,432 8,176,803
Effect of dilutive securities:
Stock options 2,014 -- 343
- ------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share-
adjusted weighted-average shares and
assumed conversions 32,619,837 20,210,432 8,177,146
- ------------------------------------------------------------------------------------------------
Basic and diluted earnings (loss) per common share $ .59 $ (.21) $ .64
================================================================================================
</TABLE>
-37-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8
QUARTERLY FINANCIAL DATA
(UNAUDITED)
The following is a summary of quarterly results of operations for the years
ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $15,385,285 $ 17,354,804 $ 18,967,143 $ 20,263,392
Income before
interest income (expense) 5,592,743 6,005,325 6,900,266 7,957,424
Net income 4,001,740 4,529,304 5,336,846 5,357,663
Basic and diluted earnings
per common share .14 .14 .15 .15
Distributions per share .25 .25 .25 .25
1996
- ------------------------------------------------------------------------------------------------
Revenues $ 6,536,129 $ 8,649,906 $ 11,469,251 $ 13,606,388
Income (loss) before
interest income (expense) 2,142,429 2,931,010 3,471,329 (11,573,950)
Net income (loss) 2,171,887 2,749,676 3,306,208 (12,397,620)
Basic and diluted earnings
per common share .16 .16 .15 (.45)
Distributions per share .2475 .248 .2485 .249
</TABLE>
(a) Included in the 1997 and 1996 operating results are $402,907 and
$16,526,012, respectively, of management contract termination expense resulting
from the company's conversion to "self-administered" and "self-managed" status.
See Note 6 to the consolidated financial statements.
(b) The 1996 and first three quarters of 1997 earnings per share amounts have
been restated to comply with Statement of Financial Accounting Standards No.
128, "Earnings per Share."
NOTE 9
PRO FORMA INFORMATION
(UNAUDITED)
The following unaudited pro forma information for the years ended December 31,
1997 and 1996 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 to acquire the properties, for properties acquired before
the completion of the offering. 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 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.
<TABLE>
<CAPTION>
Unaudited Pro Forma Totals 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Income $ 80,147,371 $ 69,510,225
Net income (loss) 20,342,399 (1,102,351)
Basic and diluted earnings (loss) per common share .58 (.04)
</TABLE>
The pro forma information reflects adjustments for the actual rental income and
rental expenses of 11 of the 13 properties acquired in 1997 and 19 of the 21
properties acquired in 1996 for the respective periods in 1997 and 1996 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 in effect until the contracts were
terminated; (2) interest expense has been increased for the properties funded by
the company's line of credit based on market rates at the time of acquisition
available to the company for applicable properties; (3) the number of weighted
average common shares outstanding was increased for properties funded by
proceeds from equity offerings; and (4) depreciation has been adjusted based on
the company's basis in the properties.
-38-
<PAGE>
CORPORATE HEADQUARTERS STOCK LISTING
Cornerstone Realty Income Trust New York Stock Exchange
306 East Main Street Symbol TCR
Richmond, Virginia 23219
(804) 643-1761 ANNUAL MEETING
(804) 782-9302 FAX We invite shareholders to attend the
annual meeting of shareholders at 2:00
p.m. on May 5 at The Cornerstone, 107
WORLDWIDE WEB SITE West Broad Street in Richmond, Virginia.
www.cornerstonereit.com
TRANSFER AGENT DIVIDEND REINVESTMENT PLAN
First Union National Bank We offer shareholders the opportunity to
Corporate Trust Operations purchase additional shares of common
1525 West W.T. Harris Boulevard stock through the reinvestment of
Building 3C3 distributions. For more information,
Charlotte, North Carolina 28288-1153 please contact your investment advisor
(800) 829-8432 or Corporate Services at (804) 643-1761.
INDEPENDENT AUDITORS 10-K REPORT
Ernst & Young LLP Sharesholders are welcome to a copy of
901 East Cary Street our annual report on From 10-K, as
Richmond, Virginia 23219 reported to the Securities and Exchange
(804) 344-6000 Commission. Please address requests to
Corporate Services at our corporate
headquarters.
GENERAL COUNSEL COPORATE SERVICES
McGuire, Woods, Battle For additional information about the
& Boothe LLP company, please contact David McKenney,
One James Center Vice President of Corporate Services, at
901 East Cary Street (804) 643-1761.
Richmond, Virginia 23219
(804) 775-1000
MEMBER
National Association of Real Estate
Investment Trusts (NAREIT)
The Institute of Real Estate
Management (IREM)
EXHIBIT 21
Subsidiaries of Cornerstone Realty Income Trust, Inc.
Cornerstone Realty Income Trust, Inc. is the sole member of CRIT-NC, LLC, a
Virginia limited liability company.
Cornerstone Realty Income Trust, Inc. owns all of the issued preferred
shares (but none of the common shares) of Apple Residential Management Group,
Inc., a Virginia corporation, and Apple Residential Advisors, Inc., a Virginia
corporation.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
and the following Registration Statements of Cornerstone Realty Income Trust,
Inc. of our report dated January 22, 1998, included in the 1997 Annual Report to
Shareholders of Cornerstone Realty Income Trust, Inc.:
Registration Statement Number Description
333-24871 Form S-8, pertaining to the Company's
1992 Non-Employee Directors Stock
Option Plan, Special Non-Employee
Directors Stock Option Plan and
Non-Employee Directors Fees Plan
333-24875 Form S-8, pertaining to the Company's
1992 Incentive Plan
333-34441 Form S-3, Shelf Registration Statement,
pertaining to the registration of $200
million of Common Shares, Preferred
Shares and Debt Securities.
333-19187 Form S-3, pertaining to the Company's
Dividend Reinvestment and Share
Purchase Plan
Our audits also included the financial statement schedule of Cornerstone Realty
Income Trust, Inc. listed in Item 14(a). This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Richmond, Virginia
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 4,513,986
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 487,575,196
<DEPRECIATION> 27,486,630
<TOTAL-ASSETS> 474,186,450
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 349,135,379
<OTHER-SE> (33,807,127)
<TOTAL-LIABILITY-AND-EQUITY> 474,186,450
<SALES> 0
<TOTAL-REVENUES> 71,970,624
<CGS> 0
<TOTAL-COSTS> 45,514,866
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,561,319
<INCOME-PRETAX> 19,225,553
<INCOME-TAX> 0
<INCOME-CONTINUING> 19,225,553
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,225,553
<EPS-PRIMARY> .59
<EPS-DILUTED> .59
</TABLE>
EXHIBIT 99.1
THE ARBORS AT WINDSOR LAKE APARTMENTS
Columbia, South Carolina
On January 14, 1997, effective January 1, 1997, Cornerstone Realty Income
Trust, Inc. ("Company") purchased The Arbors at Windsor Lake Apartments, a
228-unit apartment complex having an address of 8720 Windsor Lake Boulevard,
Columbia, South Carolina ("Property").
The Seller was unaffiliated with the Company. The purchase price was
$10,875,000. At closing, the entire purchases price was borrowed under the
Company's unsecured line of credit. The Company expects to repay such borrowed
amount with the proceeds from the sale of additional Shares. 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 Columbia Chamber of Commerce.
Columbia is the capital of South Carolina and the greater metropolitan area
has a population of approximately 500,000 people. The largest employers in the
area included federal, state and local governments, various financial services
firms and the Army's Fort Jackson.
Columbia is also the site of the University of South Carolina and various
other smaller colleges. As a result of the reputation of the engineering program
at the University of South Carolina, the city has recently become home to new
businesses in various technical areas. Also, the medical school and teaching
hospital at the University make Columbia the state's leader in the health care
industry.
The Property is in the northeast portion of the city and is located in an
established residential area. The neighborhood also includes other multi-family
developments and commercial and retail developments.
The Property is near Interstate 77 and Interstate 20, which provide
convenient access to all locations in the greater Columbia area. Downtown
Columbia is an approximately 15-minute drive from the Property. The Property is
approximately one mile from Fort Jackson.
19
<PAGE>
Description of the Property. The Property consists of 228 garden-style
apartments located in 11 buildings on approximately 14.5 acres of land. The
buildings are a combination of two and three stories, and the Property was
constructed in 1991.
The Company believes the Property has generally been well maintained and is
generally in good condition. However, the Company has budgeted approximately
$50,000 for repairs and improvements including landscaping, carpet replacement
and clubhouse renovations.
The Property offers six different unit types. The unit mix and rents being
charged new tenants as of January, 1997 are as follows:
Approximate
Interior
Quantity Type Square Footage Monthly Rental
- -------- ---- -------------- --------------
12 1 bedroom/1 bath 750 $510
56 1 bedroom/1 bath 750 530
(front)
22 2 bedrooms/2 baths 964 615
88 2 bedrooms/2 baths 964 630
(front)
10 3 bedrooms/2 baths 1184 725
40 3 bedrooms/2 baths 1184 740
(front)
The apartments provide a combined total of approximately 216,000 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 gradually. As an example
a three bedroom, two bath apartment rented for $710 in 1992, $710 in 1993, $725
in 1994, $725 in 1995, and $735 in 1996. The average effective annual rental per
square foot at the Property for 1992, 1993, 1994, 1995 and 1996 was $7.55,
$7.55, $7.71, $7.71, and $7.81, respectively.
20
<PAGE>
The buildings are wood frame construction on concrete slabs with a
combination of brick veneer and vinyl siding. Roofs are sloped fiberglass
shingles on plywood.
The Property features an outdoor swimming pool and hot tub, two lighted
tennis courts, a fitness center, a car wash area and vacuum, a playground, 20
covered garages with electronic door openers, 40 extra storage units, a dry
cleaning service and a resident executive center. The Property also has a
clubhouse with a leasing office.
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. Each kitchen has a
refrigerator/freezer, electric range and oven, a dishwasher and a garbage
disposal. Each unit also has a full-sized washer/dryer and some units have
vaulted ceilings, lighted ceiling fans, mini blinds and large walk-in closets.
There are natural gas fire places in 187 apartments units. The owner of the
Property pays for cold water and sewer service. The tenants pay for their
electricity and gas service, which includes heating, 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 generally have rents that are
comparable to those of the Property. Based on a recent telephone survey, the
Company 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 85% in 1992, 88% in 1993, 90% in 1994, 94% in
1995 and 94% in 1996. On January 1, 1997, the Property was 78% occupied. The
tenants are a mix of white-collar workers, military personnel and students.
Approximately 30% of the current residents are employed at Fort Jackson.
The 1996 real estate taxes applicable to the Property were calculated as
assessed value times 6% times 0.3019, and the real estate taxes for 1996 were
calculated to be $120,083. The assessed value was $6,629,300. The basis of the
depreciable residential real property portion of the Property (currently
estimated at about $6,050,100) 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
21
<PAGE>
treated for tax purposes as permitted by the Code based on the nature of the
expenditures.
Before acquisition by the Company, the Property had been in bankruptcy for
over one year. During that period it had been managed by three separate
management companies. The Company believes that inefficient management resulted
in a downturn in occupancy and rental income at the Property during such period.
The Company does not believe that any factors which led to the Property being
placed into bankruptcy will apply to the Company's ownership and operation of
the Property.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Company to be relevant in evaluating the Property for
acquisition by the Company included the following:
1. The Company believes that the Columbia, South Carolina area will
experience continued strong economic development and steady population increase,
owing in part to its status as the capital of the state and the presence of the
University of South Carolina, and that such development and increase will
support stable occupancy rates and reasonable increases in rents at the
Property.
2. Based upon an engineering report and its own inspections, the Company
believes that the Property is in good condition.
3. The Property is conveniently located and proximate to area employers and
shopping.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be necessarily indicative of future operating
results.
WESTCHASE APARTMENTS
Charleston, South Carolina
On January 15, 1997, effective the same date, Cornerstone Realty Income
Trust, Inc. (the "Company") purchased the Westchase Apartments, a 352-unit
apartment complex having an address of One Westchase Drive, Charleston, South
Carolina (the "Property").
22
<PAGE>
The Seller was unaffiliated with the Company. The purchase price was
$11,000,000. At closing, the entire purchase price was borrowed under the
Company's unsecured line of credit. The Company expects to repay such borrowed
amount with the proceeds from the sale of additional Shares. 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 Charleston Chamber of Commerce.
The Charleston Metropolitan Statistical Area ("MSA") is comprised of
Charleston, Berkeley and Dorchester Counties. The approximate population of the
MSA is 570,000. Charleston County has approximately 330,000 residents,
approximately 85,000 of which are in the city limits.
The principal economic factors in the region are distribution and port
facilities, the tourist industry, the medical community and the military.
The Port of Charleston is the leading container cargo port in the southeast
and on the entire east coast ranks second only to the combined ports of New York
and New Jersey. BMW and NUCOR are two recent examples of companies that rely on
the Port of Charleston.
Tourism is a major factor in the area, with approximately five million
visitors annually. Tourist attractions include the historic district of
Charleston, beaches, golf courses, and restaurants. It is estimated that the
total economic impact of the tourist industry in the region is $1.5 billion
annually, accounting for approximately 34,000 jobs and approximately 14% of the
total work force.
Charleston is the home to the Medical University of South Carolina, which
accounts for approximately 7,500 jobs. A total of approximately 16,000 persons
are employed in the region's 10 hospitals.
The United States Navy employs approximately 7,800 people in the region in
installations such as Charleston Naval Weapons Station, Naval Hospital and Naval
Command, Control and Ocean Surveillance Center in Service Engineering, East
Coast Division. In addition, the Charleston Air Force Base employs over 5,400
people. From 1989 to 1996, Naval employment in the region dropped from 21% to 3%
of total jobs. However, the region experienced a concurrent increase in jobs in
other sectors.
23
<PAGE>
The overall unemployment rate in the region is currently approximately 5%.
The Property is located in the West Ashley region of Charleston. The
immediate area consists of other multi-family housing, commercial and retail
development and single-family housing. The Property is located near major
shopping centers, schools and churches and is accessible from Interstate 26. The
Property is within a 10-minute drive of the airport and approximately a
15-minute from downtown Charleston. Charleston's largest mall, the Citadel Mall,
is located less than two miles from the Property and has four major anchor
stores and approximately one million square feet of space. The Roper Hospital is
located within one-half mile of the Property and the St. Francis Xavier Hospital
is expected to relocate less than one-half mile from the Property.
Description of the Property. The Property consists of 352 garden-style
apartments located in 23 two-story buildings on approximately 30 acres of land.
The Property was constructed in 1985.
The Company believes that the Property has generally been well maintained
and is generally in good condition. However, the Company has budgeted
approximately $352,000 for repairs and improvements including siding replacement
and repair, painting, carpet replacement, roof replacement and clubhouse
renovations.
The Property offers many different unit types. The unit mix and rents being
charged new tenants as of January, 1997 are as follows:
Approximate
Interior
Quantity Type Square Footage Monthly Rental
- -------- ---- -------------- --------------
11 Efficiency 407 $425
11 Efficiency LGLRUP 432 425
20 1/1 BWUP 505 445
2 1/1 BWUPSLOC 505 445
20 1/1 WS 505 440
2 1/1 WSSLOC 505 440
20 1/1 BWUP 617 460
2 1/1 BWUPSLOC 617 465
24
<PAGE>
Approximate
Interior
Quantity Type Square Footage Monthly Rental
- -------- ---- -------------- --------------
25 1/1 BWFPUP 617 475
7 1/1 BWFPUP 617 480
1 1/1 BWFPSLOCUP 617 480
52 1/1 WS 617 455
3 1/1 WSSLOC 617 455
36 2/2 BWWDUP 847 580
8 2/2 BWWDUPSLOC 847 580
36 2/2 BWWDFPUP 847 585
8 2/2 BWWDFPUPSLOC 847 585
72 2/2 WS 847 565
16 2/2 WSSLOC 847 565
LGLR -- Large Living Room WS -- Window Seat
UP -- Upper Level FP -- Fireplace
BW -- Bay Window WD -- Washer/Dryer Connections
SLOC -- Special Location
The apartments provide a combined total of approximately 248,000 square
feet of net rental area.
Leases at the Property are for terms of one year or less. Average rental
rates for the past five years have both increased and decreased. As an example a
two bedroom, two bath apartment rented for $470 in 1992, $475 in 1993, $440 in
1994, $480 in 1995, and $495 in 1996. The average effective annual rental per
square foot at the Property for 1992, 1993, 1994, 1995 and 1996 was $7.28,
$7.36, $6.82, $7.44, and $7.67, respectively.
The buildings are wood frame construction on concrete slabs. The buildings
have pitched composition shingled roofs. Exteriors are a combination of brick
and horizontal wood siding.
The Property has an outdoor swimming pool with sun deck, whirlpool, lighted
tennis court, sand volleyball court, basketball court, car wash area with
vacuum, three laundry facilities and a scenic lake with fountains. The Property
also includes a clubhouse with a clubroom, entertainment bar,
25
<PAGE>
conversation area and leasing office. There is paved parking for approximately
616 vehicles.
Apartments units have wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen and baths, as well as cable television hook-ups and
individually controlled heating and air conditioning units. Each unit has a
kitchen passthrough/breakfast bar, pantry, walk-in closets, a linen closet and
mini blinds. Some units also include a bay window with window seats, a wood
burning fire place and washer/dryer connections. Each kitchen is equipped with a
refrigerator/freezer, electric range and oven, dish washer and garbage disposal.
The owner of the Property supplies cold water, sewer service and trash removal.
The tenants pay for their electricity usage, which includes heat, air
conditioning, cooking, hot water and lights.
There are at least six apartment properties in the area which compete with
the Property. All offer similar amenities and generally have rents that are
higher when compared with those of the Property. Based on a recent telephone
survey, the Company 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 97% in 1992, 93% in 1993, 95% in 1994, 95% in
1995 and 95% in 1996. On January 1, 1997, the Property was 97% occupied. The
tenants are a mix of white-collar and blue-collar workers, students and retired
persons. Most of the tenants are under the age of 35 and approximately half are
believed to be single.
The 1996 real estate taxes applicable to the Property were calculated as
assessed value times 6% times 0.3219, plus a solid waste tax of $56 per
apartment unit. The real estate taxes for 1996 were calculated to be $178,384.
The assessed value was $9,236,000. The basis of the depreciable residential real
property portion of the Property (currently estimated at about $7,581,000) 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.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Company to be relevant in evaluating
26
<PAGE>
the Property for acquisition by the Company included the following:
1. The Company believes that the Charleston, South Carolina area will
experience continued strong economic development and steady population increase,
owing to a strong, diversified economy characterized by at least four major
employment factors (port facilities, tourism, medical facilities and the
military), and that such development and increase will support stable occupancy
rates and reasonable increases in rents at the Property.
2. Based upon an engineering report and its own inspections, the Company
believes that the Property is in good condition.
3. The Property is conveniently located and proximate to area employers and
shopping.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be necessarily indicative of future operating
results.
27
EXHIBIT 99.2
PACES ARBOR and PACES FOREST APARTMENTS
Raleigh, North Carolina
On March 27, 1997, Cornerstone Realty Income Trust, Inc. (the "Company")
purchased the Paces Arbor Apartments, a 101-unit apartment complex ("Paces
Arbor"), and the Paces Forest Apartments, a 117-unit apartment complex ("Paces
Forest"), both located in Wake County, near Raleigh, North Carolina. Paces Arbor
and Paces Forest are sometimes referred to collectively herein as the
"Property."
The Company purchased the Property from sellers unaffiliated with the
Company and its affiliates. The aggregate purchase price for the Property was
$12,061,700. The entire purchase price was borrowed on an interim basis under
the Company's unsecured line of credit and title to the Property was conveyed to
the Company by limited warranty deed.
Location. The following information is based in part on information
provided by the Raleigh Chamber of Commerce.
Paces Arbor and Paces Forest are located in Wake County, near Raleigh
within the Raleigh/Durham Metropolitan Statistical Area. The area is also know
as the Research Triangle, and contains the cities of Raleigh, Durham and Chapel
Hill. It is the second largest metropolitan area in North Carolina, after the
Charlotte area.
Raleigh is the capital of North Carolina and is the fastest growing major
city in North Carolina. The population of the city was approximately 150,000 in
1980 and estimated to be approximately 208,000 in 1993.
Research Triangle Park, which is located an approximately 20-minute drive
from the Property, is the largest planned research and development industrial
park in the United States. It was founded in 1958 as a cooperative effort among
Duke University, the University of North Carolina and North Carolina State
University. The Park comprises approximately 6,800 acres and contains over 14
million square feet of industrial space. Among the Park's approximately 60
research-oriented firms are IBM, Glaxo and Northern Telecom.
Raleigh's economy generally is a blend of industry, education and
government. The city's employment stability, strategic location, favorable labor
climate, pro-business
5
<PAGE>
attitude and pool of educated workers have helped the area attract many major
businesses and industries. Major industries in the area include electronics,
electrical equipment and machinery, metal working and food processing.
The Research Triangle is home to Duke University, the University of North
Carolina at Chapel Hill and North Carolina State University.
Paces Arbor is located on Lynn Road off of Six Forks Road. Paces Forest is
located on Millbrook Road. The immediate area around each apartment community
consists of other multi-family housing, commercial and retail development and
single-family housing. Both apartment communities are conveniently located near
shopping, schools and churches. Each apartment community is an approximately
20-minute drive from Raleigh/Durham International Airport. Paces Arbor and Paces
Forest are within two miles of each other.
Description of the Property. The Property consists of two apartment
communities comprising 218 garden-style apartment units. Paces Arbor consists of
six two- and three-story buildings containing 101 units on approximately 10
acres. Paces Forest consists of six two- and three-story buildings containing
117 units on approximately 19.5 acres. Each apartment community was built in
1986.
The Company believes that Paces Arbor is generally in good condition.
However, the Company has budgeted approximately $89,417 for various repairs and
improvements to Paces Arbor, including painting, clubhouse renovations,
siding/wood repair, and addition of an exercise facility.
Paces Arbor offers four unit types. The unit mix and rents currently being
charged new tenants are as follows:
Approximate
Interior Square Monthly
Quantity Type Footage Rental
- -------- ---- ------- ------
18 One bedroom, one 625 $560-$625
bathroom
35 One bedroom, one 788 580-645
bathroom
13 Two bedrooms, one 938 680-755
bathroom
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<PAGE>
Approximate
Interior Square Monthly
Quantity Type Footage Rental
- -------- ---- ------- ------
35 Two bedrooms, two 1,136 740-805
bathrooms
The apartments in Paces Arbor provide a combined total of approximately
91,000 square feet of net rentable area.
Leases at Paces Arbor are generally for terms of one year or less. Average
rental rates for the past five years have generally increased. As an example, a
one-bedroom, one-bath apartment unit (788 square feet) rented for $455 in 1992,
$485 in 1993, $485 in 1994, $535 in 1995, and $535 in 1996. The average
effective annual rental per square foot at the Property for 1992, 1993, 1994,
1995 and 1996 was $6.72, $7.17, $7.17, $7.91 and $7.91, respectively.
The Company believes that Paces Forest is generally in good condition.
However, the Company has budgeted approximately $103,583 for various repairs and
improvements to Paces Forest, including painting, clubhouse renovation, wood
siding repairs and addition of an exercise facility.
Paces Forest also offers four unit types. The unit mix and rents currently
being charged new tenants at Paces Forest are as follows:
Approximate
Interior Square Monthly
Quantity Type Footage Rental
- -------- ---- ------- ------
24 One bedroom, one 625 $580-$635
bathroom
38 One bedroom, one 788 620-675
bathroom
21 Two bedrooms, one 938 710-775
bathroom
34 Two bedrooms, two 1,136 790-835
bathrooms
The apartments in Paces Forest provide a combined total of approximately
103,000 square feet of net rentable area.
7
<PAGE>
Leases at Paces Forest are generally for terms of one year or less. Average
rental rates for the past five years have generally increased. As an example, a
one-bedroom, one-bath apartment unit (788 square feet) rented for $525 in 1992,
$550 in 1993, $565 in 1994, $575 in 1995, and $575 in 1996. The average
effective annual rental per square foot at the Property for 1992, 1993, 1994,
1995 and 1996 was $7.80, $8.17, $8.39, $8.54 and $8.54, respectively.
The buildings at each apartment community are wood frame construction with
crawl spaces. Exteriors are wood cedar siding and brick veneer. The buildings
have pitched roofs covered with asphalt shingles.
Each apartment unit at the Property has wall-to-wall carpeting in the
living areas and vinyl floors in the kitchen and bath, as well as a cable
television hook-up and individually controlled heating and air conditioning
unit. Each apartment unit has washer/dryer connections, miniblinds, pantry and
outside storage, and some units include a wood-burning fireplace, stackable or
full-sized washer and dryer, vaulted ceilings and ceiling fans. Each kitchen is
equipped with a refrigerator/freezer, electric range and oven, dishwasher and
garbage disposal. The owner supplies cold water, sewer service and trash
removal. The tenants pay for their electricity, which includes heat, air
conditioning, cooking, hot water and lights.
Paces Arbor has an outdoor swimming pool and jacuzzi, an exercise/weights
room, a basketball court, gas grills and a gazebo. Paces Arbor has a clubhouse
with a rental office and lounge. There is ample paved parking for tenants.
Paces Forest has an outdoor swimming pool, a jacuzzi, tennis courts, an
exercise/weights room, a basketball court and a barbeque area. The apartment
community also has a clubhouse with a rental office and lounge. There is ample
paved parking for the tenants.
There are at least seven apartment properties in the area which compete
with the Property. All offer similar amenities and have rents that generally are
comparable to those of the Property. Based on a recent telephone survey, the
Company estimates that occupancy in nearby competing properties now averages
approximately 95%.
According to information provided by the seller, physical occupancy at
Paces Arbor averaged approximately 93% in 1992, 94% in 1993, 95% in 1994, 95% in
1995 and 96% in 1996. On March 25, 1997, Paces Arbor was 96% occupied.
8
<PAGE>
According to information provided by the seller, physical occupancy at
Paces Forest averaged approximately 92% in 1992, 94% in 1993, 95% in 1994, 95%
in 1995 and 97% in 1996. On March 25, 1997, Paces Forest was 94% occupied.
The residents at each apartment community are a mix of white-collar and
blue-collar workers, students and retired persons.
The following table sets forth the 1996 real estate tax information on the
Property:
Jurisdiction Assessed Value Rate Tax
- ------------ -------------- ---- ------------
Paces Arbor $3,430,017 $1.1675 $41,560.45*
Paces Forest 3,835,732 1.1675 46,537.17**
* Includes a residential waste reduction fee of $1,515.
** Includes a residential waste reduction fee of $1,755.
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $2,723,473 for Paces Arbor and $3,016,732
for Paces Forest) 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
of 1986, as amended ("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.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Company to be relevant in evaluating the Property for
acquisition by the Company included the following:
1. The Company believes that the Raleigh, North Carolina area will enjoy
continued economic development and steady population increase, and that such
development and increase will support stable occupancy rates and reasonable
increases in rents at the Property. In particular, the Company believes that the
presence of Research Triangle Park and three major universities in the area and
associated businesses and activities will have a positive impact on the area for
the indefinite future.
9
<PAGE>
2. Based upon an engineering report and its own inspections, the Company
believes that the Property is generally in sound condition.
3. The Property is conveniently proximate to major employers and shopping.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be indicative of future operating results.
CARLYLE CLUB APARTMENTS
Lawrenceville, Georgia
On April 30, 1997, the Company purchased the Carlyle Club Apartments, a
243-unit apartment complex located at 3348 Fairway Oaks Drive, Lawrenceville,
Georgia (the "Property").
The Company purchased the Property from a seller unaffiliated with the
Company and its affiliates. The purchase price was $11,580,000, all of which was
borrowed by the Company on an interim basis under the Company's unsecured line
of credit. Title to the Property was conveyed to the Company by limited warranty
deed.
Location. The Property is located in the City of Lawrenceville, County of
Gwinnett, just outside Atlanta, Georgia. The following information is based in
part upon information provided by the greater Atlanta Chamber of Commerce.
The economy of the greater Atlanta area is diverse, and includes as
significant sectors manufacturing, transportation, distribution, retailing,
wholesaling, finance, government, research, education and medicine. More than
80% of the Fortune 500 industrial companies and over 1,800 local manufacturing
firms have operations in the area. Atlanta is the national headquarters of
Coca-Cola, Cable News Network, Delta Air Lines, United Parcel Service, Home
Depot and Holiday Inn Worldwide. The city is also headquarters for the Sixth
District Federal Reserve Bank.
The convention and visitor trade is also one of Atlanta's primary
industries and has an important impact on the overall economy of the city.
Atlanta's hosting of the 1996 Centennial
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<PAGE>
Olympic Games furthered its visibility as an important city internationally.
Atlanta sits at the junction of three major Interstate Highways (I-20, I-75
and I-85). There are several airports in the area, but the principal airport is
Hartsfield-Atlanta International Airport, which had over 60,000 flights and over
4.5 million passengers in 1994. Atlanta also has a rapid rail transit system
(known as the Metropolitan Atlanta Rapid Transit Authority, or "MARTA").
The Property is located within Gwinnett County. It is located approximately
1.5 miles from Gwinnett Place, a 1.6 million square-foot regional mall anchored
by Sears, Macy's, Rich's, Mervyns and Parisians. The Property is also
approximately 1.5 miles from Interstate 85, which provides convenient access to
all portions of the metropolitan area as well as other cities in the region.
Gwinnett County had the highest population growth rate of any large county
in the United States during the 1980's. From 1980 to 1990, Gwinnett County added
almost 190,000 new residents, and the population growth for the County from 1990
to 2000 is projected to exceed 142,000, which would cause it to remain among the
fastest growing counties in the nation.
The immediate area surrounding the Property consists of other multi-family
housing, commercial and retail development and single-family housing. The
Property is adjacent to a golf course and is conveniently near major shopping,
schools and churches.
Description of the Property. The Property consists of 243 garden and
townhouse style apartment units in 27 two- and three- story buildings on
approximately 19.8 acres of land. The Property was built in 1974.
The Company believes that the Property is generally in very good condition.
In 1991, the Property was substantially renovated. The renovations at that time
included siding repair and replacement, new roofs and new appliances. The
Company has budgeted approximately $121,500 for additional repairs and
improvements, including renovation of the clubhouse and center hallways, parking
area resealing and restriping and power washing of all buildings.
The Property offers nine unit types. The unit mix and rents currently being
charged new tenants are as follows:
11
<PAGE>
Approximate
Interior Square Monthly
Quantity Type Footage Rental
- -------- ---- ------- ------
50 One bedroom, one 800 $627
bathroom
30 One bedroom, one 936 670
bathroom, den
40 Two bedrooms, one 1,040 670
and one-half
bathrooms
38 Two bedrooms, one 1,140 725
full and two half
bathrooms, TH
17 Two bedrooms, one 1,140 760
and one-half
bathrooms, TH
24 Two bedrooms, two 1,184 780
bathrooms, den
9 Two bedrooms, one 1,290 865
and one-half
bathrooms, den, TH
18 Three bedrooms, two 1,395 935
and one-half
bathrooms, TH
17 Three bedrooms, two 1,600 950
and one-half
bathrooms, TH
The apartments provide a combined total of approximately 265,000 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 generally increased. As an example, a
two-bedroom, 1.5-bath apartment unit (1,290 square feet) rented for $550 in
1992, $575 in 1993, $655 in 1994, $825 in 1995 and $840 in 1996. The average
effective annual rental per square foot at the Property for 1992, 1993, 1994,
1995 and 1996 was $5.14, $5.38, $6.13, $7.72 and $7.86, respectively.
12
<PAGE>
The buildings are wood-frame construction on concrete slabs with vinyl
siding exteriors. The buildings have pitched roofs covered with asphalt
shingles.
Each apartment unit has 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 an individually controlled heating and air conditioning unit. Each
apartment unit also includes washer/dryer connections, miniblinds, a pantry and
a private balcony or patio. Each kitchen has a refrigerator/freezer with
icemaker, self-cleaning 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 electricity, which includes air conditioning,
cooking, hot water and lights. The tenants also pay for gas usage for heating.
The Property has two outdoor swimming pools, two small lakes, a tennis
court, a playground, two laundry rooms and a clubhouse. A portion of the
Property overlooks the adjacent golf course, which is known as Northwoods
Country Club. There is ample paved parking for tenants.
There are at least seven apartment properties in the area that compete with
the Property. All offer similar amenities and have rents that generally are
comparable to those of the Property. Based on a recent telephone survey, the
Company estimates that occupancy in nearby competing properties now averages
approximately 95%.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 95% in 1992, 96% in 1993, 96% in 1994, 95% in
1995 and 95% in 1996. On April 21, 1997, the Property was 96% occupied.
The tenants at the Property are a mix of white-collar workers, students and
retired persons.
The 1996 real estate tax rate established by Gwinnett County for the
Property was $0.035950. The assessed value was $8,400,000 and the taxable value
(40% of assessed value) was $3,360,000. The taxes were calculated as $120,792.
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $5,816,100) 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
13
<PAGE>
improvements will be treated for tax purposes as permitted by the Code based on
the nature of the expenditures.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Company to be relevant in evaluating the Property for
acquisition by the Company included the following:
1. The Company believes that the greater Atlanta, Georgia metropolitan area
will continue to enjoy strong population increase and steady economic
development and that such increase and development will support stable occupancy
rates and reasonable increases in rents at the Property. In particular, the
Company believes that the Property is located in a particularly desirable part
of the Atlanta metropolitan area.
2. Based upon an engineering report and its own inspections, the Company
believes that the Property is in very good condition. The Company particularly
believes that the Property benefited from a significant renovation completed in
1991.
3. The Property has a convenient location relative to shopping (including a
major regional mall). The Property also benefits from being adjacent to a golf
course.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be indicative of future operating results.
ASHLEY RUN APARTMENTS
Norcross, Georgia
On April 30, 1997, the Company purchased the Ashley Run Apartments, a
348-unit apartment complex located at 3495 Jones Mill Road, Norcross, Georgia
(the "Property").
The Company purchased the Property from a seller unaffiliated with the
Company and its affiliates. The purchase price for the Property was $18,000,000,
which the Company borrowed on an interim basis under its unsecured line of
credit. Title to the Property was conveyed to the Company by limited warranty
deed.
14
<PAGE>
Location. The Property is located in the City of Norcross, which is within
Gwinnett County. Gwinnett County is part of the greater Atlanta, Georgia
metropolitan area. For information on the greater Atlanta metropolitan area, see
"Carlyle Club Apartments" above.
The immediate area surrounding the Property consists of other multi-family
housing, commercial and retail development and single-family housing. The
Property is located in the area known as "Peachtree Corners," and is near
businesses, major shopping, entertainment facilities, schools and churches. The
Property is readily accessible from Interstates 85 and 285.
Description of the Property. The Property consists of 348 garden and
townhouse style apartment units contained in 18 and two- and three-story
buildings on approximately 45 acres of land. The Property was built in 1987.
The Company believes that the Property has been well maintained and is
generally in good condition. Within the last two years, the owner of the
Property painted the building exteriors, replaced siding as necessary, installed
new roofs on four buildings and purchased new fitness equipment. The Company has
budgeted approximately $348,000 for certain renovations, including renovations
to the clubhouse, additional new roofs, painting (a new color) and siding
repairs and replacement.
The Property offers six unit types. The unit mix and rents currently being
charged new tenants are as follows:
Approximate
Interior Square Monthly
Quantity Type Footage Rental
- -------- ---- ------- ------
36 One bedroom, one 835 $625
bathroom
60 Two bedrooms, one 1,089 650
bathroom
86 Two bedrooms, two 1,090 700
bathrooms
60 Two bedrooms, two 1,096 700
bathrooms
100 Three bedrooms, two 1,373 850
bathrooms
15
<PAGE>
Approximate
Interior Square Monthly
Quantity Type Footage Rental
- -------- ---- ------- ------
6 Three bedrooms, two 1,328 900
bathrooms, TH
The apartments provide a combined total of approximately 400,000 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 generally increased. As an example, a
two-bedroom, two-bath apartment unit (1,090 square feet) rented for $510 in
1992, $540 in 1993, $600 in 1994, $650 in 1995 and $660 in 1996. The average
effective annual rental per square foot at the Property for 1992, 1993, 1994,
1995 and 1996 was $5.54, $5.86, $6.51, $7.06 and $7.17, respectively.
The buildings are wood-frame construction on concrete slabs with a
combination of wood siding and brick veneer. The buildings have pitched roofs
covered with asphalt shingles.
Each apartment unit has 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 an individually controlled heating and air conditioning unit. Each
apartment unit also includes washer/dryer connections, a security system, a
fireplace and a dining room ceiling fan. Each kitchen is equipped with a
refrigerator/freezer with icemaker, 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 electricity usage, which includes
air conditioning, cooking and lights. The tenants also pay for gas which
provides their heat and hot water.
The Property has an outdoor swimming pool which is adjacent to a seven-acre
lake. The Property also has a lighted tennis court, a playground, two laundry
facilities, an exercise room and a clubhouse, which is also situated on the
lake. There is ample paved parking for tenants.
There are at least eight apartment properties in the area that compete with
the Property. All offer similar amenities and have rents that generally are
comparable to those of the Property. Based on a recent telephone survey, the
Company estimates that occupancy in nearby competing properties now averages
approximately 95%.
16
<PAGE>
According to information provided by the seller, physical occupancy at the
Property averaged approximately 93% in 1992, 92% in 1993, 95% in 1994, 94% in
1995 and 96% in 1996. On April 22, 1997, the Property was 96% occupied.
The tenants at the Property are a mix of white-collar and blue-collar
workers, students and retired persons.
The 1996 real estate tax rate imposed by Gwinnett County on the Property
was $0.035950. The assessed value of the Property was $11,875,000 and the
taxable value (40% of assessed value) was $4,750,000. The real estate taxes were
calculated as $170,762.50.
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $9,329,700) 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.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Company to be relevant in evaluating the Property for
acquisition by the Company included the following:
1. The Company believes that the greater Atlanta, Georgia metropolitan area
will continue to enjoy strong population increase and steady economic
development and that such increase and development will support stable occupancy
rates and reasonable increases in rents at the Property. In particular, the
Company believes that the Property is located in a particularly desirable part
of the Atlanta metropolitan area, known as Peachtree Corners.
2. The Property is has a convenient location relative to business and
shopping.
3. Based upon an engineering report and its own inspections, the Company
believes that the Property is in very good condition. The Company particularly
believes that the Property benefited from significant renovations accomplished
during the past two years.
17
<PAGE>
4. The Company believes that the Property has a particularly spacious and
attractive site, which includes a seven-acre lake adjacent to the Property's
swimming pool and clubhouse.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be indicative of future operating results.
18
EXHIBIT 99.3
CHARLESTON PLACE APARTMENTS
Charlotte, North Carolina
On May 14, 1997, the Company purchased the Summit Charleston Apartments, a
214-unit apartment complex located at 1700 Charleston Place Lane, Charlotte,
North Carolina (the "Property"). The Company has renamed the Property the
"Charleston Place Apartments."
The Company purchased the Property from a seller unaffiliated with the
Company and its affiliates. The purchase price was $9,475,000, all of which was
borrowed by the Company under the Company's unsecured line of credit. Title to
the Property was conveyed to the Company by limited warranty deed.
Location. The Property is located in the southeastern part of Charlotte,
North Carolina, within Mecklenburg County. The following information is based in
part upon information provided by the greater Charlotte Chamber of Commerce.
Based in part upon its fast rate of growth and a diversified economy,
Charlotte has in recent years come to national attention as an attractive
location for business and residential growth. According to the August 1995, Site
Selection magazine, Charlotte's corporate popularity ranked second nationally
only to Dallas during the period between 1990 and 1994, being the site of 474
significant new and expanded facilities.
Charlotte has developed into a major financial, distribution and
transportation center, with a metropolitan population of approximately 1.3
million and a population of approximately 5.6 million within a 100-mile radius.
Charlotte's growth is also attributable to its favorable year-round climate, a
moderate cost of living, excellent quality of life, educated work force,
probusiness political climate, extensive transportation network, and strategic
geographic location.
According to the Charlotte Chamber of Commerce, during the first six months
of 1995, approximately 530 firms announced new or expanded businesses which will
provide approximately 6,200 new jobs in the area. Charlotte is home to major
offices of more than 225 of the Fortune 500 industrial firms and approximately
300 of the Fortune 500 service firms.
Charlotte is the leading financial center of the Southeast, serving as
corporate headquarters to NationsBank and First Union, with assets of
approximately $170 billion and $124 billion, respectively. The growth of
Charlotte's banking and financial communities has had a positive effect on the
growth of its
4
<PAGE>
supporting industries, such as insurance, accounting, legal services, and real
estate.
The city of Charlotte is located near the border of North Carolina and
South Carolina within Mecklenburg County. It is located at the intersection of
Interstates 77 and 85, the major north/south and each/west thoroughfares in the
region, which provide convenient access to all other regional areas.
The Property is located on Monroe Road adjacent to McAlpine Greenway Park.
The immediate area surrounding the Property consists of commercial and retail
development, other multi-family housing, and single family housing. The Property
is in close proximity to several major employment centers, including the
McAlpine Business Center, Crownpoint Business Center, Matthews Township and the
Charlotte central business district. The Property has ready access to shopping,
dining and entertainment and to the Charlotte/Douglass International Airport.
Description of the Property. The Property consists of 214 garden style
apartment units in 11 two- and three-story buildings on approximately 15 acres
of land. The Property was built in 1986.
The Company believes that the Property is generally in very good condition
and has been well maintained. The Company has budgeted approximately $107,000
for certain improvements, including renovation of the clubhouse and painting.
The Property offers five unit types. The unit mix and rents currently being
charged new tenants are as follows:
Approximate
Interior Square Monthly
Quantity Type Footage Rental
- -------- ---- ------- ------
31 One bedroom/one bath 550 $530-$560
31 One bedroom/one bath 650 550-580
31 One bedroom/one bath 710 600-635
31 One bedroom/one
bath/den 815 660-690
90 Two bedrooms/two 977 690-750
baths
The variation in monthly rental among units is based upon floor level and
amenities such as washer/dryer connections,
5
<PAGE>
fireplace, picture windows, vaulted ceilings and built-in shelving.
The apartments provide a combined total of approximately 172,000 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 generally increased. As an example, a
one-bedroom, one-bath apartment unit (710 square feet) rented for $385 in 1992,
$441 in 1993, $505 in 1994, $540 in 1995 and $550 in 1996. The average effective
annual rental per square foot at the Property for 1992, 1993, 1994, 1995 and
1996 was $6.04, $6.91, $7.92, $8.47 and $8.62, respectively.
The buildings are wood-frame construction on concrete slabs. Exteriors are
a combination of brick veneer and vinyl siding. The buildings have pitched roofs
covered with gabled fiberglass shingles over pre-engineered roof trusses.
Each apartment unit has 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 an individually controlled heating and air conditioning unit. Each
apartment unit also includes miniblinds, vertical blinds, pantry and linen space
and outside storage. Each kitchen has a refrigerator/freezer with icemaker,
electric range and oven, microwave, dishwasher and garbage disposal. The owner
of the Property supplies cold water, sewer service and trash removal. The
tenants pay for their electricity, which includes air conditioning, heating,
cooking, hot water and lights.
The Property has an outdoor swimming pool, a lighted tennis court, an
exercise/fitness center overlooking the swimming pool, a sand volleyball court,
two gazebos with gas grills and picnic areas, a laundry room, and a car care
area. The Property also has winding walkways with access to McAlpine Greenway
Park. The Property has a large clubhouse/leasing office with an entertainment
area, fully-equipped kitchen, library and fireplace. There is ample paved
parking for tenants.
There are at least five apartment properties in the area that compete with
the Property. All offer similar amenities and have rents that generally are
comparable to those of the Property. Based on a recent telephone survey, the
Company estimates that occupancy in nearby competing properties now averages
approximately 92%.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 92% in 1992, 94% in 1993, 94% in 1994, 95% in
1995 and 94% in 1996. On May 5, 1997, the Property was 93% occupied.
6
<PAGE>
Most of the tenants at the Property are white-collar workers.
The combined 1996 real estate tax rate imposed on the Property by the City
of Charlotte and Mecklenburg County was $1.2550. The assessed value was
$6,215,720. The taxes were calculated as $85,069 (including a solid waste tax of
$7,062).
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $5,238,890) 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.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Company to be relevant in evaluating the Property for
acquisition by the Company included the following:
1. The Company believes that the Charlotte, North Carolina area will
experience continued strong economic development and steady population increase,
and that such development and increase will support stable occupancy rates and
reasonable increases in rents at the Property.
2. Based upon an engineering report and its own inspections, the Company
believes that the Property is in very good condition.
3. The Property is conveniently located and proximate to major employers
and shopping.
4. The Company is very familiar with the Charlotte rental market. The
Company already owns several other apartment complexes in the Charlotte area,
which may provide certain economies and efficiency in operation.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be indicative of future operating results.
7
<PAGE>
DUNWOODY SPRINGS APARTMENTS
Dunwoody, Georgia
On July 25, 1997, the Company purchased the Dunwoody Springs Apartments, a
350-unit apartment complex located at 8800 Dunwoody Place, Dunwoody, Georgia
(the "Property").
The Company purchased the Property from a seller unaffiliated with the
Company and its affiliates. The purchase price was $15,200,000, all of which was
borrowed by the Company under the Company's unsecured line of credit. Title to
the Property was conveyed to the Company by limited warranty deed.
Location. The Property is in Dunwoody, Fulton County, just north of
Atlanta, Georgia. The following information is based in part upon information
provided by the greater Atlanta Chamber of Commerce.
The economy of the greater Atlanta area is diverse, and includes as
significant sectors manufacturing, transportation, distribution, retailing,
wholesaling, finance, government, research, education and medicine. More than
80% of the Fortune 500 industrial companies and over 1,800 local manufacturing
firms have operations in the area. Atlanta is the national headquarters of
Coca-Cola, Cable News Network, Delta Air Lines, United Parcel Service, Home
Depot and Holiday Inn Worldwide. The city is also headquarters for the Sixth
District Federal Reserve Bank.
The convention and visitor trade is also one of Atlanta's primary
industries and has an important impact on the overall economy of the city.
Atlanta's hosting of the 1996 Centennial Olympic Games furthered its visibility
as an important city internationally.
Atlanta sits at the junction of three major Interstate Highways (I-20, I-75
and I-85), and I-285 (Perimeter Highway) encircles the city. There are several
airports in the area, but the principal airport is Hartsfield-Atlanta
International Airport, which had over 60,000 flights and over 4.5 million
passengers in 1994. Atlanta also has a rapid rail transit system (known as the
Metropolitan Atlanta Rapid Transit Authority, or "MARTA").
Fulton County is the most densely developed and populated county in the
metropolitan Atlanta area. With nearly 40% of the total number of jobs in the
greater metropolitan area, the county also has the largest employment base, with
downtown, midtown, Buckhead and Perimeter Center office districts all located in
Fulton County.
8
<PAGE>
The 1996 population of Fulton County was approximately 745,000. The Atlanta
Regional Commission projects that Fulton County's population will reach
approximately 773,500 by 2005, and the County's current employment base of
approximately 616,000 is projected to increase by approximately 8,000 jobs
annually over the next ten years. Since 1980, county-wide employment has
increased by an average of approximately 11,000 jobs per year.
The Property is located on Dunwoody Place off of Northridge Road. The
immediate area surrounding the Property consists of other multi-family and
single-family housing, and commercial and retail development. The Property is
located at the apex of metropolitan Atlanta's largest and fastest growing
commercial area, the Perimeter Center/Georgia Highway 400 corridor. The Property
is near businesses, major shopping, entertainment, schools and churches.
The Property is located approximately 16 miles from the Atlanta central
business district, approximately five miles north of Interstate 285 and less
than one mile from both Georgia Highway 400 and Roswell Road.
Description of the Property. The Property consists of 350 garden and loft
style apartment units in 25 two- and three-story buildings on approximately 33
acres of land. The Property was built in 1981.
The Company believes that the Property is generally in very good condition
and has been well maintained. According to the seller, since October of 1993,
the seller has completed approximately $432,000 in capital improvements,
including installation of new appliances, roof repairs, paving, concrete
repairs, floor covering installation, window treatments and HVAC repair and
replacements. In addition, the exterior of the Property was painted in March
1997, which included exterior wood replacement where necessary. The Company has
budgeted $612,500 for additional renovations to the Property, including
construction of a clubhouse, re-siding of the entire Property and appliance
replacements.
The Property offers eight unit types. The unit mix and rents currently
being charged new tenants are as follows:
9
<PAGE>
Approximate
Interior Monthly
Quantity Type Square Footage Rental
-------- ---- -------------- ------
56 One bedroom/one bath 544 $545
(executive)
60 One bedroom/one bath 776 600
(screened porch)
68 One bedroom/one bath 972 645
(loft)
80 One bedroom/one bath 1,000 655
(sun room)
20 Two bedrooms/two 1,121 740
baths (roommate,
screened porch)
28 Two bedrooms/two 1,254 770
baths (screened
porch)
24 Two bedrooms/two 1,308 830
baths (den)
14 Two bedrooms/two 1,400 890
baths (sun room)
The apartments provide a combined total of approximately 331,600 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 both increased and decreased. As an
example, a one-bedroom, one-bath apartment unit (972 square feet) rented for
$519 in 1992, $573 in 1993, $584 in 1994, $540 in 1995 and $625 in 1996. The
average effective annual rental per square foot at the Property for 1992, 1993,
1994, 1995 and 1996 was $6.71, $7.40, $7.54, $6.97 and $8.07, respectively.
The buildings are wood-frame construction on concrete slabs, and the
exteriors are painted hardboard batten-style siding. Roofs are pitched and
covered with composition shingles and have metal gutters and downspouts.
Each apartment unit has 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 individually controlled utilities. Each apartment unit, other than
the smallest one-bedroom unit, has individually metered utilities. The owner of
10
<PAGE>
the property supplies cold water, sewer service and trash removal. Each tenant
is responsible for his or her own electricity usage, which includes air
conditioning and lights, and each tenant also pays for gas usage that provides
heat and hot water, except that the owner of the Property is responsible for gas
usage in the smallest one-bedroom apartment units, which are in four buildings,
each of which is served by one central gas-fired boiler that provides hot water.
Each unit, except the smallest one-bedroom unit, includes washer/dryer
connections for full-sized appliances, mini and vertical blinds and a patio or
balcony. There is a wood-burning fireplace in 241 apartment units and certain
units include built-in bookshelves, a screened porch or sun room. Each kitchen
is equipped with a refrigerator/freezer with icemaker, gas range and oven,
dishwasher and garbage disposal.
The Property has two swimming pools, a sun-deck with dressing rooms and
showers, a pool-side cabana, two lighted tennis courts, a park area with gazebo,
picnic tables and gas grills, a fitness center, a laundry facility and a car
wash area. There is ample paved parking for tenants.
There are at least seven apartment properties in the area that compete with
the Property. All offer similar amenities and have rents that generally are
comparable when compared with those of the Property. Based on a recent telephone
survey, the Company estimates that occupancy in nearby competing properties now
averages approximately 90%.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 93% in 1992, 94% in 1993, 95% in 1994, 94% in
1995, and 96% in 1996. On July 21, 1997, the Property was 95% occupied.
As of July 1997, approximately 80% of the Property's tenants were single,
with an average age of approximately 23. Tenants consist principally of
service-level and mid-management level employees of local businesses, including
MCI and Coca-Cola. The average household income is approximately $32,000.
For 1996, Fulton County specified an assessed value for the Property equal
to $11,797,800. The taxable value is equal to 40% of the assessed value, or
$4,719,120. The tax rate was $0.04028, and the total real estate taxes were
calculated as $190,086.
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $8,970,500) 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 Property on repairs and
11
<PAGE>
improvements will be treated for tax purposes as permitted by the Code based on
the nature of the expenditures.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Company to be relevant in evaluating the Property for
acquisition by the Company included the following.
1. The Company believes that the greater Atlanta, Georgia metropolitan area
will continue to enjoy steady population increase and steady economic
development and that such increase and development will support stable occupancy
rates and reasonable increases in rents at the Property. In particular, the
Company believes that the Property is located in a particularly desirable part
of the Atlanta metropolitan area.
2. Based upon an engineering report and its own inspections, the Company
believes that the Property is in very good condition. The Company particularly
believes that the Property benefited from a significant renovation completed by
the former owner in 1993, and will similarly benefit from additional renovations
to be undertaken by the Company.
3. The Property has an advantageous location near the Perimeter
Center/Georgia Highway 400 corridor, Atlanta's largest and fastest growing
commercial area.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be indicative of future operating results.
12
EXHIBIT 99.4
ITALIAN VILLAGE AND VILLA MARINA APARTMENTS
Charlotte, North Carolina
On August 28, 1997, Cornerstone Realty Income Trust, Inc. (the "Company")
purchased the Italian Village Apartments ("Italian Village") and the Villa
Marina Apartments ("Villa Marina"), comprising a total of 204 apartment units
located at 6060 Landmark Drive, Charlotte, North Carolina. Italian Village and
Villa Marina are sometimes referred to herein collectively as the "Property".
The Company has renamed the Property the "Heatherwood Apartments," and plans to
operate the Property as an integrated apartment community with the Heatherwood
Apartments (formerly the Sterling Chase Apartments), which are located adjacent
to the Property and which were purchased by the Company in September 1996.
The single Seller (Italian Investment Company, a partnership) was
unaffiliated with the Company and its Affiliates. The purchase price was an
aggregate of $7,425,000. At closing, the Company paid the entire purchase price
with borrowed funds under its unsecured line of credit with First Union National
Bank. 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 Charlotte Chamber of Commerce.
Based in part upon its fast rate of growth and a diversified economy,
Charlotte has in recent years come to national attention as an attractive
location for business and residential growth. According to the August 1995, Site
Selection magazine, Charlotte's corporate popularity ranked second nationally
only to Dallas during the period between 1990 and 1994, being the site of 474
significant new and expanded facilities.
Charlotte has developed into a major financial, distribution and
transportation center, with a metropolitan population of approximately 1.3
million and a population of approximately 5.6 million within a 100-mile radius.
Charlotte's growth is also attributable to its favorable year-round climate, a
moderate cost of living, excellent quality of life, educated work force, pro
business political climate, extensive transportation network, and strategic
geographic location.
4
<PAGE>
According to the Charlotte Chamber of Commerce, during the first six months
of 1995, approximately 530 firms announced new or expanded businesses which will
provide approximately 6,200 new jobs in the area. Charlotte is home to major
offices of more than 225 of the Fortune 500 industrial firms and approximately
300 of the Fortune 500 service firms.
Charlotte is the leading financial center of the Southeast, serving as
corporate headquarters to NationsBank and First Union, with assets of
approximately $170 billion and $124 billion, respectively. The growth of
Charlotte's banking and financial communities has had a positive effect on the
growth of its supporting industries, such as insurance, accounting, legal
services, and real estate. Another recent aspect of Charlotte's development is
as the location of professional basketball and football franchises known as the
Charlotte Hornets and the Carolina Panthers, respectively.
The city of Charlotte is located near the border of North Carolina and
South Carolina within Mecklenburg County. It is located at the intersection of
Interstates 77 and 85, the major north/south and east/west thoroughfares in the
region, which provide convenient access to all other regional areas.
Italian Village and Villa Marina are located in a well-established portion
of the expanding Charlotte market. The surrounding neighborhood includes both
retail and residential development and the Property enjoys convenient access to
all major areas of the city. As noted above, the Property shares a common
property line with the Heatherwood Apartments acquired by the Company in 1996
(under the name Sterling Chase), and the Company intends to operate all three
properties as an integrated apartment community. The properties are adjacent to
Providence Square Shopping Center, which features a Harris Teeter and Eckerdt
Drug Store, and are readily accessible from Interstate 85 and Interstate 77. The
Property is located approximately four miles from the SouthPark Mall area and
approximately seven miles from the Charlotte central business district via
Providence Road.
DESCRIPTION OF THE PROPERTY. Italian Village was built in 1970 and 1971 and
consists of 156 garden- and townhouse-style apartments on approximately 22.5
acres of land. Italian Village offers eight unit types. The unit mix and rents
currently being charged to new tenants are as follows.
5
<PAGE>
APPROXIMATE
INTERIOR MONTHLY
QUANTITY TYPE SQUARE FOOTAGE RENTAL
- -------- ---- -------------- ------
20 One bedroom, one bath 728 $510
7 One bedroom, one bath 950 500
(large)
7 Two bedrooms, one 1,000 550
bath
15 Two bedrooms, two 1,060 610
baths
18 Two bedrooms, one and 1,116 610
one half baths
(townhouse)
20 Three bedrooms, two 1,235 710
baths
52 Three bedrooms, two 1,578 710
and one half baths
(townhouse)
17 Four bedrooms, two 1,992 870
and one half baths
(townhouse)
Villa Marina was built in 1980. Villa Marina consists of 48 garden-style
apartments on approximately four acres. It offers two unit types. The unit types
and rents currently being charged new tenants are as follows.
APPROXIMATE
INTERIOR MONTHLY
QUANTITY TYPE SQUARE FOOTAGE RENTAL
- -------- ---- -------------- ------
36 One bedroom, one bath 700 $510
12 Two bedrooms, two 1,000 610
baths
The units at the Property provide for a combined total of approximately
242,000 square feet of net rentable area. The
6
<PAGE>
Property features two outdoor swimming pools, a tennis court and a laundry
facility. There are also two lakes and a playground on the Property. The
Property has a clubhouse with a kitchen, fireplace and leasing office. There is
ample paved parking for tenants.
The Company believes that the Property has generally been well maintained
and is in good condition. However, the Company believes that the Property is in
need of a "face-lift." The Property has a desirable location but, in the opinion
of management, must be repositioned in the marketplace following significant
capital improvements. Management of the Company believes that the completion of
the capital improvements and repositioning of the Property in the market will
permit substantial increases in rents. The Company has budgeted approximately
$1,750,000 in renovations to the Property, which will include residing, roof
replacement, replacing and repainting trim and fascia board, repaving of the
parking areas, extensive interior upgrades and clubhouse renovations.
Leases at the Property are for terms of one year or less. Generally, rental
rates for the past five years at the Property have increased. As an example, a
two bedroom, one and one-half bath (1,116 square feet) apartment at Italian
Village rented for $455 in 1992, $460 in 1993, $495 in 1994, $520 in 1995, and
$545 in 1996. The average effective annual rental per square foot at Italian
Village for 1992, 1993, 1994, 1995, and 1996 was $4.53, $4.58, $4.93, $5.18, and
$5.43 respectively. A one bedroom, one bath (700 square feet) apartment at Villa
Marina rented for $400 in 1992, $405 in 1993, $415 in 1994, $425 in 1995, and
$435 in 1996. The average effective annual rental per square foot at Villa
Marina for 1992, 1993, 1994, 1995, and 1996 was $6.50, $6.58, $6.75, $6.91, and
$7.07, respectively.
The 18 two- and three-story buildings at Italian Village are concrete
masonry and wood-frame construction on concrete slabs. The exteriors are stucco
on concrete masonry or painted wood siding and the roofs consist of plywood
sheathing and three tab shingles. The three three-story buildings at Villa
Marina are wood-frame with painted masonite siding. The roofs at Villa Marina
consist of plywood sheathing and three tab shingles.
All apartment units 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 an individually controlled heating and air conditioning unit. Each
kitchen is equipped with a refrigerator/freezer, electric range and oven,
dishwasher and garbage disposal. Selected units at Italian Village feature
vaulted ceilings, skylights, wet bars and large
7
<PAGE>
balconies or decks. Selected units at Villa Marina include fireplaces and large
balconies. The owner of the Property supplies cold water, sewer service and
trash removal. The tenants are responsible for electricity, which includes
heating, air conditioning, hot water, cooking and lights.
There are at least five apartment properties in the area that compete with
the Property. As noted above, in 1996, the Company purchased the Sterling Chase
Apartments, located adjacent to Italian Village and Villa Marina. The Company
intends to operate all three apartment properties as an integrated apartment
community known as Heatherwood. The other properties that will compete with
Heatherwood offer similar amenities and generally have rents that are comparable
to those of the Property. Based on a recent telephone survey, the Company
estimates that occupancy in nearby competing projects now averages approximately
93%.
According to information provided by the seller, physical occupancy at
Italian Village and Villa Marina averaged approximately 93% in 1992, 94% in
1993, 94% in 1994, 94% in 1995, and 96% in 1996. On August 20, 1997, the
Property was 93% occupied. The tenants of the Property are a mix of blue-collar
and white-collar workers, students and retired persons. Of the tenants for which
financial information was available, the tenants were approximately evenly
divided among the following four income levels: below $20,000; between $20,000
and $30,000; between $30,000 and $40,000; and in excess of $40,000. Management
of the Company believes that the resident profile is somewhat below that of the
general market area.
The following tables set forth 1996 real estate tax information for the
Property.
8
<PAGE>
ITALIAN VILLAGE
TAX
ASSET VALUE RATE TAX
----- ----- ---- ---
Land $1,074,760.00 $1.2550 $13,488.24
Buildings 3,560,490.00 1.2550 44,684.15
Other features 44,980.00 1.2550 564.50
--------- ------
Total $4,680,230.00 $58,736.89
============= ==========
Solid Waste Fee: $5,148.00
TOTAL TAX: $63,884.89
==========
VILLA MARINA
TAX
ASSET VALUE RATE TAX
----- ----- ---- ---
Land $337,680.00 $1.2550 $4,237.88
Buildings 978,320.00 1.2550 12,277.92
Other features 56,570.00 1.2550 709.95
--------- ------
Total $1,372,570.00 $17,225.75
============= ==========
Solid Waste Fee: $1,617.00
TOTAL TAX: $18,842.75
==========
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Company to be relevant in evaluating the Property for
acquisition by the Company included the following:
1. The Company believes that the Charlotte, North Carolina area will
experience continued strong economic development and steady population increase,
and that such development and
9
<PAGE>
increase will support stable occupancy rates and reasonable increases in rents
at the Property.
2. Based upon an engineering report and its own inspections, the Company
believes that the Property is in generally sound condition. In addition, the
Company believes that the completion of its planned significant capital
improvements will reposition the Property in its marketplace and permit
significant increases in rental rates to prevailing market levels.
3. The Property is conveniently located and proximate to major employers
and shopping.
4. The Company is very familiar with the Charlotte rental market. The
Company already owns other apartment complexes in the Charlotte area, which may
provide certain economies and efficiency in operation. In particular, the
Company already owns an apartment community located immediately adjacent to the
Property. The Company believes that the knowledge it has obtained through the
prior operation of the adjacent property will provide advantages in the
operation of the new Property and that the operation of all of the apartment
properties as an integrated community will offer operational, advertising and
marketing advantages.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be necessarily indicative of future operating
results.
10
EXHIBIT 99.5
CLARION CROSSING APARTMENTS
Raleigh, North Carolina
On September 30, 1997, Cornerstone Realty Income Trust, Inc. (the
"Company") purchased the Clarion Crossing Apartments, a 228- unit apartment
complex located in Wake County, near Raleigh, North Carolina (the "Property").
The Company purchased the Property from Clarion Crossing Limited
Partnership, which is not affiliated with the Company or its affiliates. The
aggregate purchase price for the Property was $10,600,000. The Property includes
undeveloped land which the Company believes will accommodate up to 32 additional
apartment units if and when the Company determines to add such units to the
Property. The entire purchase price of the Property was borrowed on an interim
basis under the Company's unsecured line of credit and title to the Property was
conveyed to the Company by a limited warranty deed.
Location. The following information is based in part on information
provided by the Raleigh Chamber of Commerce.
The Property is located in Wake County, near Raleigh within the
Raleigh/Durham Metropolitan Statistical Area. The area is also known as the
Research Triangle, and contains the cities of Raleigh, Durham and Chapel Hill.
It is the second largest metropolitan area in North Carolina, after the
Charlotte metropolitian area.
Raleigh is the capital of North Carolina and is the fastest growing major
city in North Carolina. The population of the city was approximately 150,000 in
1980 and estimated to be approximately 208,000 in 1993.
Research Triangle Park, which is located an approximately 15-minute drive
from the Property, is the largest planned research and development industrial
park in the United States. It was founded in 1958 as a cooperative effort among
Duke University, the University of North Carolina and North Carolina State
University. The Park comprises approximately 6,800 acres and contains over 14
million square feet of industrial space. Among the Park's approximately 60
research-oriented firms are IBM, Glaxo and Northern Telecom.
3
<PAGE>
Raleigh's economy generally is a blend of industry, education and
government. The city's employment stability, strategic location, favorable labor
climate, pro-business attitude and pool of educated workers have helped the area
attract many major businesses and industries. Major industries in the area
include electronics, electrical equipment and machinery, metal working and food
processing.
The Research Triangle is home to Duke University, the University of North
Carolina at Chapel Hill and North Carolina State University.
The Property is located at 1141 Crab Orchard Drive off of Avent Ferry Road.
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, schools and churches, and is readily
accessible from Interstates 40 and 440. The Property is located an approximately
15-minute drive from both Raleigh/Durham International Airport and Research
Triangle Park.
Description of the Property. The Property consists of 228 garden and
townhouse-style apartment units in 20 two-story buildings on approximately 22.8
acres of land. As indicated above, there is additional undeveloped land that the
Company believes could accommodate up to 32 additional apartment units.
The Property was built in 1972 and was substantially renovated in 1993. The
renovations completed in 1993 included raising the elevation of the roofs,
installing new vinyl siding on the entire Property, construction of a clubhouse,
installation of additional washer/dryer connections in apartment units; and
replacing light fixtures, carpeting, vinyl flooring and appliances throughout
the Property.
The Company believes that the Property is in very good condition and that,
because of the substantial renovation completed in 1993, few additional repairs
and improvements are necessary to bring the Property into compliance with the
Company's standards. However, the Company has budgeted approximately $114,000
for additional renovations and improvements to the Property. These additional
renovations and improvements will include redecorating of the clubhouse, some
apartment interior upgrading and minor creek erosion control.
The Property offers seven unit types. The unit mix and rents currently
being charged new tenants are as follows:
4
<PAGE>
Approximate
Interior
Quantity Type Square Footage Monthly Rental
- -------- ---- -------------- --------------
40 Efficiency 420 $ 470
20 One bedroom, one 562 545
bathroom
20 One bedroom, one 606 570
bathroom w/WD
connections
20 One bedroom, one 706 570
bathroom
20 One bedroom, one 776 600
bathroom w/WD
connections
60 Two bedrooms, one 880 650
bathroom w/WD
connections
48 Two bedrooms, two 1,100 740
bathrooms w/WD
connections
The apartments provide a combined total of approximately 175,400 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 generally increased. As an example, a
two-bedroom, one-bath apartment unit (880 square feet) rented for $430 in 1992,
$480 in 1993, $520 in 1994, $560 in 1995, and $590 in 1996. The average
effective annual rental per square foot at the Property for 1992, 1993, 1994,
1995 and 1996 was $6.30 $7.04, $7.62, $8.21 and $8.65, respectively.
The buildings are wood-frame construction on concrete slabs. Exteriors are
covered with vinyl siding and the roofs are pitched and covered with asphalt
shingles.
Each apartment unit at the Property has wall-to-wall carpeting in the
living areas and vinyl floors in the kitchen and bath, as well as a cable
television hook-up and an individually controlled heating and air conditioning
unit. Each apartment unit has mini-blinds and vertical blinds, a private deck or
patio, and walk-in closets. Each kitchen is equipped with a
5
<PAGE>
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 electricity usage, which includes heat, cooking, air
conditioning, hot water and lights.
The Property has an outdoor swimming pool with surrounding decking, two
tennis courts, a fully-equipped fitness center, a creek-side picnic area and a
central laundry facility. In addition, each building has its own laundry room.
The clubhouse includes a kitchen, bar, entertainment center and a leasing
office. There is ample paved parking for tenants.
There are at least seven apartment properties in the area that compete with
the Property. All offer similar amenities and have rents that generally are
comparable to those of the Property. Based on a recent telephone survey, the
Company estimates that occupancy in nearby competing properties now averages
approximately 97%.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 96% in 1992, 85% in 1993, 97% in 1994, 99% in
1995, and 96% in 1996. On September 22, 1997, the Property was 95% occupied.
The tenants at the Property are a mix of white-collar and blue-collar
workers, students and retired persons.
The following table sets forth the 1996 real estate tax information on the
Property.
Assessed
Jurisdiction Value Tax Rate Tax
- ------------ ----- -------- ---
Wake County $5,349,226 0.6300 $33,700.12
City of Raleigh 5,349,226 0.5375 28,752.09
Plus residential
waste reduction
fee of $15 per
unit: 3,420.00
TOTAL: $65,872.21
6
<PAGE>
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $7,506,295) 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 of 1986, as amended ("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.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Company to be relevant in evaluating the Property for
acquisition by the Company included the following:
1. The Company believes that the Raleigh, North Carolina area will enjoy
continued economic development and steady population increase, and that such
development and increase will support stable occupancy rates and reasonable
increases in rents at the Property. In particular, the Company believes that the
presence of Research Triangle Park and three major universities in the area and
associated businesses and activities will have a positive impact on the area for
the indefinite future.
2. The Company already owns several other apartment complexes in Raleigh
and believes that it is knowledgeable and experienced regarding the Raleigh
apartment rental market.
3. Based upon an engineering report and its own inspections, the Company
believes that the Property is in very good condition. In particular, the Company
believes the Property benefitted substantially from the extensive renovation
completed by the seller in 1993.
4. The Property is conveniently proximate to major employers and shopping.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be indicative of future operating results.
7
EXHIBIT 99.6
BARRINGTON PARC APARTMENTS
Norcross, Georgia
On October 31, 1997, Cornerstone Realty Income Trust, Inc. (the "Company")
purchased the Barrington Parc Apartments, a 188-unit apartment complex located
at 1405 Beaver Ruin Road, Norcross, Georgia (the "Property"). Norcross is just
outside Atlanta.
The Company purchased the Property from an affiliate of Winthrop Financial
Associates, which is unaffiliated with the Company. The purchase price was
$7,850,000, all of which was borrowed by the Company under the Company's
unsecured line of credit. Title to the Property was conveyed to the Company by
limited warranty deed.
Location. The Property is located off of Buford Highway in Norcross,
Georgia, within Gwinnett County, just outside Atlanta, Georgia. The following
information concerning the metropolitan Atlanta area is based in part upon
information provided by the greater Atlanta Chamber of Commerce.
The economy of the greater Atlanta area is diverse, and includes as
significant sectors manufacturing, transportation, distribution, retailing,
wholesaling, finance, government, research, education and medicine. More than
80% of the Fortune 500 industrial companies and over 1,800 local manufacturing
firms have operations in the area. Atlanta is the national headquarters of
Coca-Cola, Cable News Network, Delta Air Lines, United Parcel Service, Home
Depot and Holiday Inn Worldwide. The city is also headquarters for the Sixth
District Federal Reserve Bank.
The convention and visitor trade is also one of Atlanta's primary
industries and has an important impact on the overall economy of the city.
Atlanta's hosting of the 1996 Centennial Olympic Games furthered its visibility
as an important city internationally.
Atlanta sits at the junction of three major Interstate Highways (I-20, I-75
and I-85), and I-285 (Perimeter Highway) encircles the city. There are several
airports in the area, but the principal airport is Hartsfield-Atlanta
International Airport, which had over 60,000 flights and over 4.5 million
passengers in 1994. Atlanta also has a rapid rail transit system (known as the
Metropolitan Atlanta Rapid Transit Authority, or "MARTA").
Gwinnett County had the highest population growth rate of any large county
in the United States during the 1980's. From 1980 to 1990, Gwinnett County added
almost 190,000 new residents, and the forecasted population growth for Gwinnett
County from 1990 to 2000 is 142,000.
4
<PAGE>
The immediate area surrounding the Property consists of other multi-family
and single-family housing and commercial and retail development. The Property is
proximate to businesses, major shopping, entertainment, schools and churches.
The Property is approximately one mile east of Interstate 85 and six miles from
Interstate 285.
Description of the Property. The Property consists of 188 garden and
townhouse style apartment units in 21 two- and three-story buildings on
approximately 18 acres of land. The Property was built in 1986.
The Company believes that the Property is generally in good condition and
has been well maintained. The Company has budgeted $131,000 for certain
renovations to the Property, including clubhouse renovations, wood and trim
replacement, exterior painting and resealing, and restriping of parking areas.
The Property offers several types of units. 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>
28 One bedroom/one bathroom 700 $600
6 One bedroom/one bathroom 800 620
28 One bedroom/one bathroom 800 635
12 One bedroom/one bathroom townhouse 900 660
(middle)
12 One bedroom/one bathroom townhouse 900 690
(end)
30 Two bedrooms/two bathrooms (split) 1,000 710
30 Two bedrooms/two bathrooms (split) 1,100 760
14 Two bedrooms/two bathrooms 1,000 715
14 Two bedrooms/two bathrooms 1,100 735
14 Two bedrooms/two bathrooms 1,100 755
</TABLE>
The apartments provide a combined total of approximately 176,000 square
feet of net rentable area.
5
<PAGE>
Leases at the Property are generally for terms of one year or less. Average
rental rates for the past five years have generally increased. As an example, a
two-bedroom, two-bath apartment unit (1,100 square feet) rented for $545 in
1992, $560 in 1993, $595 in 1994, $650 in 1995, and $680 in 1996. The average
effective annual rental per square foot at the Property for 1992, 1993, 1994,
1995 and 1996 was $6.56, $6.75, $7.17, $7.83, and $8.19, respectively.
The buildings are wood-frame construction on concrete slabs. Exteriors are
cedar siding. The buildings have pitched roofs covered with asphalt shingles.
Each apartment unit has 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 individually controlled heating and air-conditioning unit. Each
apartment unit includes full-sized washer/dryer connections, a pantry, a
wood-burning fireplace, a breakfast bar, overhead directional lighting,
mini-blinds and walk-in closets. Each kitchen is equipped with a
refrigerator/freezer with icemaker, 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 electricity service, which includes
heating, air-conditioning, cooking, hot water and lights.
The Property has an outdoor swimming pool and jacuzzi, a lighted tennis
court, a sand volleyball court, a laundry facility, a fitness center with
showers, and a car wash area. The Property also has a clubhouse that includes a
fireplace, kitchen, entertainment area and leasing office. There is ample paved
parking for tenants.
There are at least seven apartment properties in the area that compete with
the Property. All offer similar amenities and have rents that generally are
lower when compared with those of the Property. Based on a recent telephone
survey, the Company estimates that occupancy in nearby competing properties now
averages approximately 90 %.
According to information provided by the Seller, physical occupancy at the
Property averaged approximately 94% in 1992, 95% in 1993, 95% in 1994, 95% in
1995, 91% in 1996, and 91% during the first six months of 1997. On October 14,
1997, the Property was 86% occupied.
The tenants are a mix of white-collar and blue-collar workers, students and
retired persons.
For 1996, Gwinnett County specified an assessed value for the Property
equal to $6,800,000. The taxable value is equal to 40% of the assessed value, or
$2,720,000. The tax rate was $0.034450, and the total real estate taxes were
calculated as $93,704.
The basis of the depreciable residential real property portion of the
Property (currently estimated at about 5,440,000) will be depreciated over 27.5
years on a straight-line basis. The
6
<PAGE>
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 Property on repairs and improvements will be treated for tax purposes as
permitted by the Code based on the nature of the expenditures.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Company to be relevant in evaluating the Property for
acquisition by the Company included the following.
1. The Company believes that the greater Atlanta, Georgia metropolitan area
will continue to enjoy steady population increase and steady economic
development and that such increase and development will support stable occupancy
rates and reasonable increases in rents at the Property. In particular, the
Company believes that the Property is located in a particularly desirable part
of the Atlanta metropolitan area.
2. Based upon an engineering report and its own inspections, the Company
believes that the Property is in very good condition. The Company also believes
that the Property will benefit from additional renovations to be undertaken by
the Company.
3. The Property has an advantageous location in Gwinnett County, one of the
nation's largest and fastest growing commercial areas.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be indicative of future operating results.
7
<PAGE>
ST. REGIS (formerly Sterling Arbor) APARTMENTS
Raleigh, North Carolina
On October 31, 1997, the Company purchased the Sterling Arbor Apartments, a
180- unit apartment complex located at 6210 St. Regis Circle, Raleigh (Wake
County), North Carolina (the "Property"). The Company has changed the name of
the Property to the "St. Regis Apartments."
The Company purchased the Property from Mrs. Robert L. Grubb, who is not
affiliated with the Company. The purchase price was $9,800,000. The entire
purchase price was borrowed under the Company's unsecured line of credit and
title to the Property was conveyed to the Company by limited warranty deed.
Location. The Property is located off of Western Boulevard and Farmgate
Road in Raleigh, North Carolina. The following information is based in part on
information provided by the Raleigh Chamber of Commerce.
The Raleigh/Durham Metropolitan Statistical Area is also known as the
Research Triangle, and contains the cities of Raleigh, Durham and Chapel Hill.
It is the second largest metropolitan area in North Carolina, after the
Charlotte metropolitan area.
Raleigh is the capital of North Carolina and is the fastest growing major
city in North Carolina. The population of the city was approximately 150,000 in
1980 and estimated to be approximately 208,000 in 1993.
Research Triangle Park, which is located an approximately 10-minute drive
from the Property, is the largest planned research and development industrial
park in the United States. It was founded in 1958 as a cooperative effort among
Duke University, the University of North Carolina and North Carolina State
University. The Park comprises approximately 6,800 acres and contains over 14
million square feet of industrial space. Among the Park's approximately 60
research-oriented firms are IBM, Glaxo and Northern Telecom.
Raleigh's economy generally is a blend of industry, education and
government. The city's employment stability, strategic location, favorable labor
climate, pro-business attitude and pool of educated workers have helped the area
attract many major businesses and industries. Major industries in the area
include electronics, electrical equipment and machinery, metal working and food
processing.
The Research Triangle is home to Duke University, the University of North
Carolina at Chapel Hill and North Carolina State University.
The immediate area surrounding the Property consists of other multi-family
and single-family housing, and commercial and retail development. The Property
is located just off
8
<PAGE>
Interstate 40 in the northeast portion of Cary, North Carolina. The Property is
proximate to major employment areas of Raleigh, including the Research Triangle,
Cary Towne Center and the downtown central business district. The Property is
also close to shopping, dining, entertainment, schools and churches. The
Property is an approximately 15-minute drive from the Raleigh/Durham
International Airport.
Description of the Property. The Property consists of 180 garden-style
apartment units in eight three-story buildings on approximately 10.4 acres of
land. The Property was built in 1986.
The Company believes that the Property is in good condition and has been
well maintained. The Company has budgeted approximately $135,000 for certain
renovations to the Property, including redecoration of the clubhouse,
replacement of wood siding and trim, and painting.
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>
28 One bedroom/one bathroom 641 $610
32 One bedroom/one bathroom 672 620
32 Two bedrooms/one bathroom 864 695
28 Two bedrooms/one bathroom 880 705
60 Two bedrooms/two bathrooms 991 785
</TABLE>
The apartments provide a combined total of approximately 151,000 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 generally increased. As an example, a
two-bedroom, two-bath apartment unit (991 square feet) rented for $590 in 1992,
$620 in 1993, $655 in 1994, $685 in 1995, and $710 in 1996, The average
effective annual rental per square foot at the Property for 1992, 1993, 1994,
1995, and 1996 was $7.51, $7.89, $8.34, $8.72, and $9.04, respectively.
The buildings are wood-frame construction on concrete slabs. The exteriors
are masonite siding and roofs are pitched and covered with asphalt shingles.
9
<PAGE>
Each apartment unit has wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath, as well as a cable television hook-up and
individually controlled heating and air-conditioning unit. Each unit includes a
wood-burning fireplace, full-sized washer/dryer connections, vaulted ceilings,
Palladian windows, walk-in closets, a patio or balcony, and an outside storage
closet. Some units also have skylights. 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 electricity service, which includes heat,
air-conditioning, cooking, hot water and lights.
The Property has an outdoor swimming pool with patio area, a lighted tennis
court, a brick barbecue terrace, a fitness center and a laundry room. The
Property also includes a clubhouse with a kitchen, entertainment area and a
leasing office. There is ample paved parking for tenants.
There are at least three apartment properties in the area that compete with
the Property. All offer similar amenities and have rents that generally are
comparable to those of the Property. Based on a recent telephone survey, the
Company estimates that occupancy in nearby competing properties now averages
approximately 93%.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 98% in 1992, 98% in 1993, 99% in 1994, 98% in
1995, 99% in 1996, and 96% during the first six months of 1997. On October 23,
1997, the Property was 92% occupied.
Most of the tenants at the Property currently are professionals. There also
are some blue-collar workers, students and retired persons.
The following table sets forth the 1996 real estate tax information on the
Property.
<TABLE>
<CAPTION>
ASSESSED
JURISDICTION VALUE TAX RATE TAX
------------ ----------- -------- ----------
<S> <C> <C> <C>
Wake County $5,668,093 0.6300 $35,708.99
City of Raleigh 5,668,093 0.5375 30,466.00
Plus residential waste
reduction fee of $16.50 per
unit: 2,970.00
TOTAL: $69,144.99
</TABLE>
10
<PAGE>
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $4,408,138) 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.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Company to be relevant in evaluating the Property for
acquisition by the Company included the following:
1. The Company believes that the Raleigh, North Carolina area will enjoy
continued economic development and steady population increase, and that such
development and increase will support stable occupancy rates and reasonable
increases in rents at the Property. In particular, the Company believes that the
presence of Research Triangle Park and three major universities in the area, and
associated businesses and activities, will have a positive impact on the area
for the indefinite future.
2. The Company already owns several other apartment complexes in Raleigh
and believes that it is knowledgeable and experienced regarding the Raleigh
apartment rental market.
3. Based upon an engineering report and its own inspections, the Company
believes that the Property is in very good condition.
4. The Property is conveniently proximate to major employers and shopping.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be indicative of future operating results.
11
<PAGE>
REMINGTON PLACE (formerly Sterling Place) APARTMENTS
Raleigh, North Carolina
On October 31, 1997, the Company purchased the Sterling Place Apartments, a
136- unit apartment complex located at 1909 Eyrie Court in Raleigh (Wake
County), North Carolina (the "Property"). The Company has changed the name of
the Property to the "Remington Place Apartments."
The Company purchased the Property from Sterling Apartments LLC, which is
not affiliated with the Company. The purchase price for the Property was
$7,900,000. The entire purchase price of the Property was borrowed under the
Company's unsecured line of credit and title to the Property was conveyed to the
Company by a limited warranty deed.
Location. The Property is located just off of Interstate 40 on Lake Dam
Road in southwest Raleigh, North Carolina, less than a mile from Clarion
Crossing Apartments, a property purchased by the Company in September, 1997. For
information on the Raleigh, North Carolina metropolitan area, see "Sterling
Arbor Apartments," above.
The immediate area surrounding the Property consists of other multi-family
and single-family housing, and commercial and retail development. The Property
is adjacent to Lake Johnson and the city park. The Property is in close
proximity to major employment centers in the area, including the Research
Triangle, Cary Towne Center and the downtown central business district. The
Property is also close to North Carolina State University. There are shopping,
dining, entertainment, schools and churches located near the Property. The
Property is an approximately 15-minute drive from the Raleigh/Durham
International Airport.
Description of the Property. The Property consists of 136 garden-style
apartments in 12 two-and three-story buildings on approximately 13.7 acres of
land. The Property was built in 1985.
The Company believes the Property is in good condition and has been well
maintained. The Company has budgeted approximately $272,000 for renovations to
the Property, including redecoration of the clubhouse, wood replacement and
repainting, and repair of asphalt parking areas.
The Property offers four unit types. The unit mix and rents currently being
charged new tenants are as follows.
12
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- -------- ---- ------- --------
<S> <C> <C> <C>
42 One bedroom/one bathroom 870 $665-685
30 One bedroom/one bathroom 1,005 700-720
40 Two bedrooms/two bathrooms 1,255 820-840
24 Two bedrooms/two bathrooms 1,354 890-900
</TABLE>
The apartments provide a combined total of approximately 149,000 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 generally increased. As an example, a
one-bedroom, one-bath apartment unit (870 square feet) rented for $495 in 1992,
$495 in 1993, $545 in 1994, $565 in 1995, and $603 in 1996. The average
effective annual rental per square foot at the Property for 1992, 1993, 1994,
1995, and 1996 was $6.18, $6.18, $6.81, $7.05, and $7.53, respectively.
The buildings are wood-frame construction on concrete slabs. The exteriors
have T- 111 siding and the roofs are pitched and covered with asphalt shingles.
Each apartment unit has wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath, as well as a cable television hook-up and
an individually controlled heating and air-conditioning unit. Each apartment
unit has an Italian tile fireplace, full-sized washer/dryer connections,
built-in bookcases, oversized closets, a sun room, track lighting, beveled
mirrors, a patio or balcony, and a parquet wood foyer. Each kitchen is equipped
with a refrigerator/freezer, gas 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 electricity service, which includes
air-conditioning and lights, and for their gas services, which includes cooking,
heating and hot water.
The Property has an outdoor swimming pool, a lighted tennis court, a
fitness center, a business center, a playground, and barbecue areas. The
Property has a clubhouse with a kitchen, entertainment area and a management
office. There is ample paved parking for tenants.
There are at least eight apartment properties in the area that compete with
the Property. All offer similar amenities and have rents that generally are
comparable to those of the Property. Based on a recent telephone survey, the
Company estimates that occupancy in nearby competing properties now averages
approximately 96%.
13
<PAGE>
According to information provided by the seller, physical occupancy at the
Property averaged approximately 91% in 1992, 91% in 1993, 91% in 1994, 91% in
1995, 91% in 1996, and 93% during the first six months of 1997. On October 23,
1997, the Property was 97% occupied.
Most of the current tenants at the Property are professionals. There are
also some blue-collar workers and retired persons.
The following table sets forth the 1996 real estate tax information on the
Property.
<TABLE>
<CAPTION>
ASSESSED
JURISDICTION VALUE TAX RATE TAX
------------ ---------- -------- ----------
<S> <C> <C> <C>
Wake County $5,337,353 0.6300 $33,625.32
City of Raleigh 5,337,353 0.5375 28,688.27
Plus residential waste reduction
fee of $16.50 per unit: 2,244.00
TOTAL: $64,557.59
</TABLE>
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $4,385,853) 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.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Company to be relevant in evaluating the Property for
acquisition by the Company included the following:
1. The Company believes that the Raleigh, North Carolina area will enjoy
continued economic development and steady population increase, and that such
development and increase will support stable occupancy rates and reasonable
increases in rents at the Property. In particular, the Company believes that the
presence of Research Triangle Park and three major universities in the area and
associated businesses and activities will have a positive impact on the area for
the indefinite future.
14
<PAGE>
2. The Company already owns several other apartment complexes in Raleigh
and believes that it is knowledgeable and experienced regarding the Raleigh
apartment rental market.
3. Based upon an engineering report and its own inspections, the Company
believes that the Property is in very good condition.
4. The Property is conveniently proximate to major employers and shopping.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be indicative of future operating results.
15
