UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission File Number 1-12875
CORNERSTONE REALTY INCOME TRUST, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1589139
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
306 EAST MAIN STREET
RICHMOND, VIRGINIA 23219
(Address of principal executive offices) (Zip Code)
(804) 643-1761
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address, and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
At November 1, 2000, there were outstanding 34,893,025 shares of
common stock, no par value, of the registrant.
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page Number
------------
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - September 30, 2000 3
and December 31, 1999
Consolidated Statements of Operations - 4
Three months ended September 30, 2000
and September 30, 1999
Nine months ended September 30, 2000
and September 30, 1999
Consolidated Statement of Shareholders' Equity- 5
Nine months ended September 30, 2000
Consolidated Statements of Cash Flows - 6
Nine months ended September 30, 2000
and September 30, 1999
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about 15
Market Risk
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings (not applicable).
Item 2. Changes in Securities (not applicable).
Item 3. Defaults Upon Senior Securities (not applicable).
Item 4. Submission of Matters to a Vote of
Security Holders (not applicable).
Item 5. Other Information (not applicable)
Item 6. Exhibits and Reports on Form 8-K
16
</TABLE>
2
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------------- ------------------
<S> <C> <C>
ASSETS
Investment in rental property:
Land $127,265,671 $ 136,326,140
Buildings and property improvements 714,101,712 760,712,650
Furniture and fixtures 21,491,027 22,089,948
----------------- ------------------
862,858,410 919,128,738
Less accumulated depreciation (82,367,947) (77,538,085)
----------------- ------------------
780,490,463 841,590,653
Cash and cash equivalents 1,666,061 16,268,336
Prepaid expenses 1,326,707 2,803,488
Other assets 10,555,620 8,602,399
----------------- ------------------
Total Assets $794,038,851 $869,264,876
================= ==================
LIABILITIES and SHAREHOLDERS' EQUITY
Liabilities
Notes payable-unsecured $131,997,000 $ 157,500,000
Notes payable-secured 104,591,109 105,045,682
Distributions payable 7,109,749 6,779,012
Accounts payable 1,224,424 11,670,338
Accrued expenses 9,269,030 11,387,531
Rents received in advance 279,478 613,214
Tenant security deposits 1,432,188 1,903,857
----------------- ------------------
Total Liabilities 255,902,978 294,899,634
Shareholders' equity
Preferred stock, no par value, authorized 25,000,000 shares; $25 liquidation
preference, Series A Cumulative Convertible Redeemable;
issued and outstanding 12,633,866 shares and12,650,047 shares, respectively 265,002,055 263,656,281
Common stock, no par value, authorized 100,000,000
shares; issued and outstanding 35,516,525 shares
and 38,712,037 shares, respectively 348,970,276 383,969,899
Deferred compensation (54,902) (72,976)
Distributions greater than net income (75,781,556) (73,187,962)
----------------- ------------------
Total Shareholders' Equity 538,135,873 574,365,242
----------------- ------------------
Total Liabilities and Shareholders' Equity $794,038,851 $869,264,876
================= ==================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
---------------------------- -----------------------------
<S> <C> <C> <C> <C>
REVENUE:
Rental and other property income $ 36,943,357 $ 34,887,760 $ 108,848,601 $ 82,309,910
Other income -- 212,837 -- 3,954,604
EXPENSES:
Property and maintenance 9,199,882 9,640,510 26,578,662 22,495,898
Taxes and insurance 4,204,697 3,415,101 12,021,651 7,291,159
Property management 666,850 627,444 2,120,561 1,722,673
General and administrative 373,233 538,307 1,380,452 2,667,834
Amortization expense -- -- -- 55,657
Other depreciation 5,741 5,740 17,223 17,228
Depreciation of rental property 9,143,730 8,141,281 26,463,500 19,851,494
Other 10,050 151,763 30,149 752,414
-------------------------------------------------------------------
Total expenses 23,604,183 22,520,146 68,612,198 54,854,357
-------------------------------------------------------------------
Income before interest and dividend income (expense) 13,339,174 12,580,451 40,236,403 31,410,157
Interest and dividend income 36,787 109,904 432,772 323,203
Interest expense (4,434,068) (3,943,225) (13,161,497) (10,876,360)
-------------------------------------------------------------------
Income before gains (losses) on sales of investments and
minority interest in operating partnership 8,941,893 8,747,130 27,507,678 20,857,000
Gains (losses) on sales of investments (248,497) -- 23,157,736 --
-------------------------------------------------------------------
Income before minority interest in operating partnership 8,693,396 8,747,130 50,665,414 20,857,000
Minority Interest of unitholders in operating partnership -- 15,008 -- 73,907
-------------------------------------------------------------------
Net income $ 8,693,396 $ 8,732,122 $ 50,665,414 $ 20,783,093
Distributions to preferred shareholders (7,463,762) (4,923,280) (22,879,732) (4,923,280)
-------------------------------------------------------------------
Net income available to common shareholders $ 1,229,634 $ 3,808,842 $ 27,785,682 $ 15,859,813
Net income per share-basic and diluted $ 0.03 $ 0.10 $ 0.76 $ 0.40
===================================================================
Distributions per common share $ 0.28 $ 0.27 $ 0.83 $ 0.80
===================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Preferred Stock
Number Number of
of Shares Amount Shares Amount
------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 38,712,037 $ 383,969,899 12,650,047 $ 263,656,281
Net income -- -- -- --
Cash distributions declared to shareholders ($.83 per share) -- -- -- --
Distributions for Series A Convertible Preferred Stock -- -- -- --
Imputed distributions on Series A Convertible Preferred Stock -- -- -- 1,750,299
Exercise of stock options 2,400 25,625
Purchase of common stock (3,716,280) (40,175,963) -- --
Preferred stock converted to common stock 25,603 404,525 (16,181) (404,525)
Amortization of deferred compensation -- -- -- --
Shares issued through dividend reinvestment plan 492,765 4,746,190 -- --
------------------------------------------------------------
Balance at September 30, 2000 35,516,525 $ 348,970,276 12,633,866 $ 265,002,055
============================================================
<CAPTION>
Distributions
Greater Total
Deferred than Shareholders'
Compensation Net Income Equity
--------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1999 ($72,976) ($73,187,962) $ 574,365,242
Net income -- 50,665,415 50,665,415
Cash distributions declared to shareholders ($.83 per share) -- (30,379,277) (30,379,277)
Distributions for Series A Convertible Preferred Stock -- (21,129,433) (21,129,433)
Imputed distributions on Series A Convertible Preferred Stock -- (1,750,299) --
Exercise of stock options 25,625
Purchase of common stock -- -- (40,175,963)
Preferred stock converted to common stock -- -- --
Amortization of deferred compensation 18,074 -- 18,074
Shares issued through dividend reinvestment plan -- -- 4,746,190
--------------------------------------------
Balance at September 30, 2000 ($54,902) ($75,781,556) $ 538,135,873
============================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
CORNERSTONE REALTY INCOME TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30, September 30,
2000 1999
------------- ------------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 50,665,415 $ 20,783,093
Adjustments to reconcile net income to net cash
provided by operating activities
Gain on sale of rental property (23,157,736) --
Depreciation and amortization 26,480,723 19,924,379
Minority interest of unitholders in operating partnership -- 73,907
Amortization of deferred compensation 18,074 29,070
Amortization of Apple Realty Group contract purchase -- 241,438
Amortization of deferred financing costs 342,983 172,172
Amortization of mortgage notes payable premium (156,690) (34,820)
Changes in operating assets and liabilities:
Operating assets (830,905) (2,323,837)
Operating liabilities (13,369,820) (889,372)
-------------- ---------------
Net cash provided by operating activities 39,992,044 37,976,030
Cash flow from investing activities:
Acquistions of rental property (45,073,106) (868,173)
Proceeds from the sale of land -- 764,668
Net proceeds from the sale of rental property 127,933,674 --
Capital improvements (25,071,883) (17,890,876)
-------------- ---------------
Net cash provided (used in) investing activities 57,788,685 (17,994,381)
Cash flow from financing activities:
Proceeds from short-term borrowings 125,351,000 52,467,001
Repayments of short-term borrowings (150,854,000) (104,360,000)
Proceeds from secured notes payable -- 73,500,000
Repayment of mortgage notes (297,883) (70,610)
Net proceeds from issuance of common shares 4,771,815 7,098,444
Purchase of common stock (40,175,963) --
Cash distributions to operating partnership unitholders (50,190) (148,710)
Cash distributions paid to preferred shareholders (20,748,506) --
Cash distributions paid to commom shareholders (30,379,277) (31,498,747)
-------------- ---------------
Net cash used in financing activities (112,383,004) (3,012,622)
Increase (decrease) in cash and cash equivalents (14,602,275) 16,969,027
Cash and cash equivalents, beginning of year 16,268,336 2,590,364
-------------- ---------------
Cash and cash equivalents, end of period $ 1,666,061 $ 19,559,391
============== ===============
Supplemental information:
Interest paid $ 12,254,315 $ 10,034,509
Non-cash transactions associated with:
Real estate assets acquired -- 302,204,687
Issuance of preferred stock -- 263,038,214
Assumption of mortgage notes -- 31,847,092
Company common stock held by Apple -- 7,769,500
Operating assets acquired -- 632,831
Operating liabilities acquired -- 10,912,991
Other -- 3,940,548
Accretion of preferred dividends 1,750,299 437,399
Preferred shares converted to common shares 404,525 --
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000
(1) BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information
required by generally accepted accounting principles. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the nine months ended September 30, 2000 are not necessarily
indicative of the results that may be expected for the year ended December
31, 2000. These financial statements should be read in conjunction with
the Company's December 31, 1999 Annual Report on Form 10-K.
The Company did not have any items of comprehensive income requiring
separate reporting and disclosure for the periods presented.
(2) INVESTMENT IN RENTAL PROPERTY
Disposition of Investments
On March 10, 2000, the Company closed the sale of 16 properties containing
3,609 apartment for $136.5 million. The proceeds of the sale were used to
pay down the Company's existing line of credit and fund $35 million of tax
free exchanges.
Acquisition
On March 16, 2000, the Company purchased The Enclave at the Meadows
Apartments, a 168- unit apartment community, located in Asheville, North
Carolina for a purchase price of $8.8 million. On May 11, 2000 the Company
purchased Greystone Crossing Apartments, a 408-unit apartment community
located in Charlotte, North Carolina for $26.8 million. These purchases
completed the tax free exchange transaction using proceeds from the sale
described above.
On September 11, 2000, the Company purchased Prestwick Apartments at Glen
Eagles, a 144-unit apartment community, located in Winston-Salem, North
Carolina for a purchase price of $9.6 million of which $7 million was
financed on the unsecured line of credit.
(3) NOTES PAYABLE
Unsecured
The Company has a $185 million unsecured line of credit with the
consortium of six banks for which the maturity date is July 9, 2002. The
Company's unsecured line of credit bears interest at one month LIBOR plus
120 basis points. In connection with the sale of the 16 properties in
March 2000, the Company repaid $90 million of the Company's unsecured line
of credit. The Company had additional borrowings under its unsecured line
of credit of $70 million during 2000. At September 30, 2000, the Company
had an unused borrowing capacity of $55 million under the unsecured line
of credit. The Company is obligated to pay lenders a quarterly commitment
fee equal to 0.20% per annum of the unused portion of the line. At
September 30, 2000, total unsecured borrowings under this line of credit
were $130 million.
7
<PAGE>
The Company's $7.5 million general corporate purpose line of credit bears
interest at LIBOR plus 120 basis points. The maturity date was extended to
January 31, 2001. At September 30, 2000, the outstanding borrowings under
this line of credit were $2 million.
(3) RELATED PARTIES
Mr. Glade M. Knight, Chairman and Chief Executive Officer of the Company,
also served as the Chairman and Chief Executive Officer of Apple
Residential Income Trust, Inc. ("Apple"). Prior to the merger the Company
provided advisory, property management, and asset acquisition services to
Apple. The services of the Company rendered to Apple terminated upon the
consummation of the merger.
The Company provided property management services and advisory services to
Apple. Property management fees were 5% of monthly gross revenues plus
certain expense reimbursements. Advisory fees were .1% to 25% of total
capital raised by Apple, depending on the financial performance of Apple.
The amount of fees received by the Company under the contracts described
above for the nine months ended September 30, 1999 was $1.9 million.
Prior to the merger, the Company provided real estate acquisition and
disposal services for Apple. Under the terms of the contract, the Company
received a real estate commission equal to 2% of the purchase price of the
properties acquired. The Company amortized the purchase price of the
contract through the date of the merger. For the nine months ended
September 30, 1999, the Company received $561,484 in real estate
commissions under this contract and amortized $241,438 of the purchase
price of this contract.
The Company received distributions on its investment in Apple through the
date of the merger. The Company recognized dividend income for the nine
months ended September 30, 1999 of $194,580 on its investment in Apple.
Mr. Knight also serves as Chairman and Chief Executive Officer of Apple
Suites, Inc., a hospitality REIT formed during 1999. During 2000, the
Company provided services and rented office space to Apple Suites, Inc.
and received payment of approximately $246,000.
8
<PAGE>
(5) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share in accordance with FAS 128:
<TABLE>
<CAPTION>
Three Nine Nine
Months Months Three Months Months
Ended Ended Ended Ended
9/30/00 9/30/00 9/30/99 9/30/99
------- ------- ------- -------
<S> <C> <C> <C> <C>
Numerator:
Net income available to $1,229,634 $27,785,682 $3,808,842 $15,859,813
common shareholders
Numerator for basic and
diluted earnings per
share-income available
to common stockholders 1,229,634 27,785,682 3,808,842 15,859,813
afterassumed conversion
Denominator:
Denominator for basis
earnings per share
weighted-average shares 35,635,629 36,496,327 39,031,951 39,304,761
Effect of dilutive securities:
Stock options Series A
Convertible Preferred
Stock* 14,993 4,405 -- --
-------------------------------------------------------------------------------------------------------
Denominator for diluted
earnings pershare-adjusted
weighted-average shares
and assumed conversions 35,650,622 36,500,732 39,031,951 39,304,761
-------------------------------------------------------------------------------------------------------
Basic and diluted
earnings per common share $ .03 $ .76 $ .10 $ 0.40
-------------------------------------------------------------------------------------------------------
</TABLE>
*Series A Convertible Preferred Stock was not included in dilutive earnings per
common share calculation since its effect was anti-dilutive.
(6) SUBSEQUENT EVENTS
On October 18, 2000, the Company entered into a forward rate lock
agreement with First Union National Bank fixing the interest rate at 7.35%
on a $141 million mortgage loan with regard to 15 properties located at
various locations in Virginia, North Carolina and Texas. The rate lock
period ends on December 15, 2000. The Company deposited $1.41 million as a
rate lock deposit with First Union National Bank. The Company made
additional deposits with First Union National Bank amounting to $350,000
to cover other fees and expenses anticipated to be incurred in connection
with the closing of the mortgage loan.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This 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
improvements in financial operations from completed and planned property
renovations, and expected benefits from the Company's acquisition of Apple
Residential Income Trust ("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
possibility that the merger with Apple will not have the effects
anticipated by the Company, and 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 quarterly 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
INCOME AND OCCUPANCY
The Company's property operations for the nine months ended September 30,
2000 include the results of operations, for the full three quarters from 71
properties acquired before 2000 and from the 3 properties acquired in 2000
from their respective acquisition dates. The operations of the 16
properties sold on March 10, 2000 are reflected through the sale date. The
increased rental income and operating expenses for the three and nine
months ended September 30, 2000 over the same period in 1999 is primarily
due to the effect of the properties acquired through the Apple merger in
July 1999 offset in part by dispositions in 2000.
Substantially all of the Company's income is from the rental operation of
apartment communities. Rental income for the nine months ended September
30, 2000 increased to $108.8 million in 2000 from $82.3 million in 1999.
For the third quarter of 2000, the Company's rental income of $36.9 million
reflected an increase of $2 million, or 6%, compared to the same period in
1999. 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.
10
<PAGE>
Overall economic occupancy for the Company's properties averaged 93% and
92% for the nine months ended September 30, 2000 and 1999, respectively.
For the third quarter of 2000 and 1999, economic occupancy averaged 93%.
Overall average rental rates for the portfolio increased 5% from $619 at
September 30, 1999, to $650 at September 30, 2000. For the third quarter of
1999 and 2000 average rental rates increased 7% from $624 to $670,
respectively. This increase is due to a combination of increased rental
rates from new leases, property renovation, lower average rental rates on
properties disposed of in year 2000 as well as the acquisition of the
properties of Apple which had higher average rental rates than the
Company's portfolio.
COMPARABLE PROPERTY OPERATIONS
The Company's "same-property" portfolio consists of 65 properties,
including 27 Apple properties, acquired prior to 1999, containing 16,207
apartment units owned by the Company or Apple since January 1, 1999. The 16
properties sold in March 2000 have been eliminated. On a comparative basis,
the 65 properties acquired prior to 1999 provided rental and operating
income of $93.5 million and $58 million, respectively during the nine
months ended September 30, 2000 and $87.9 million and $53.8 million for the
same period in 1999. This represents an increase in rental and operating
income from the nine months ended September 30, 1999 compared to the nine
months ended September 30, 2000 of 6% and 8%, respectively. During the
third quarter of 2000 and 1999, these same community operations provided
rental and operating income of $31.8 million and $18 million and $30.1
million and $16.8 million, respectively. This represents an increase in
rental and operating income from the third quarter of 1999 compared to the
third quarter of 2000 of 6% and 7%, respectively.
EXPENSES
Total expenses for the first nine months increased 25% to $68.6 million in
2000 from $54.9 million in 1999. For the third quarter of 2000, total
expenses increased to $23.6 million from $22.5 million for the same period
in 1999. The increase is due largely to full three quarters of expenses of
the properties acquired through the acquisition of Apple on July 23, 1999
and offset slightly by year 2000 dispositions. The operating expense ratio
(the ratio of operating expenses, excluding depreciation, amortization,
general and administrative, and other expenses, to rental income) was 37%
and 38% for the nine months ended September 30, 2000 and 1999, respectively
and 38% and 39% for the three months ended September 30, 2000 and 1999,
respectively.
Depreciation expense for the first nine months has increased to $26.5
million in 2000 from $19.9 million in 1999. For the third quarter of 2000
and 1999 depreciation expense was $9 million and $8 million, respectively.
The increase is directly attributable to the addition of the properties
acquired through the Apple merger.
General and administrative expenses totaled $1.4 million, or 1.3% of rental
income for the nine months ended September 30, 2000 and $2.7 million, or
3.2% for the same period in 1999. For the third quarter of 2000 and 1999,
general and administrative expenses totaled 1% and 1.5%, respectively, of
rental income. These expenses represent the administrative expenses of the
Company as distinguished from the operations of the Company's properties.
The decrease in percentage of rental income is attributable to economies of
scale realized from the Apple merger as the Company provided advisory
services to Apple prior to the merger.
11
<PAGE>
INTEREST AND INVESTMENT INCOME AND EXPENSE
The Company's interest income increased to $432,772 for the nine months
ended September 30, 2000 from $323,203 for the nine months ended nine 30,
1999 due to the investment of its cash and cash reserves received from the
sale of properties pending tax free exchanges which was completed in May
2000. For the third quarter of 2000, interest income was $36,787 and
$109,904 for the same period in 1999. The Company incurred interest expense
of $13.2 million and $10.9 million during the first nine months of 2000 and
1999. For the third quarter of 2000, interest expense was $4.4 million and
$3.9 million, respectively. The increase is due to debt assumed in the
Apple merger coupled with the increase in interest rates on the Company's
unsecured line of credit.
INCOME AND EXPENSE FROM RELATIONSHIP WITH APPLE RESIDENTIAL INCOME TRUST
Prior to the merger, the Company or affiliates provided property
management, advisory, and real estate brokerage services for Apple. The
fees received by the Company from service contracts with Apple terminated
upon consummation of the merger.
Property management fees charged to Apple were 5% of gross revenues.
Advisory fees charged to Apple were .1% to .25% of total capital raised by
Apple. Real estate commissions were generally 2% of the purchase price of
each property Apple acquired. The Company received $1.9 million for the
nine months ended September 30, 1999, for advisory and property management
services rendered to Apple. For the third quarter of 1999, the Company
received $212,838 for the same services. The Company received $561,485 for
the quarter ended September 30, 1999 in real estate commissions under
separate contract and amortized $241,438 as of September 30, 1999 of the
purchase price of this contract. During the third quarter of 1999, the
Company received no real estate commissions.
The Company received distributions on its investment in Apple through the
date of the merger. The Company recognized dividend income for the three
and nine months ended September 30, 1999 of $24,550 and $194,580,
respectively, on its investment in Apple.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are rental income generated
from the properties, proceeds from lines of credit, reinvestment of
distributions, and proceeds from secured debt.
The Company believes rental income generated from the properties and
borrowings on its line of credit will be sufficient to meet normal property
operating expenses, payment of distributions, capital improvements, and
payment of mortgage debt. At September 30, 2000, the Company had $1.7
million in cash and cash equivalents and $55 million available under this
unsecured line of credit.
During the third quarter of 2000, the Company completed the previously
authorized $50 million share repurchase program and the Board of Directors
authorized the repurchase of an additional $50 million of the Company's
common shares. For the nine months ended September 30, 2000, the Company
repurchased 3.7 million common shares at an average price of $10.81 per
share for $40.2 million.
12
<PAGE>
CAPITAL REQUIREMENTS
The Company has an ongoing capital expenditure commitment to fund its
renovation program for recently acquired properties. In addition, the
Company is always assessing potential acquisitions and intends to acquire
additional properties during 2000. However, no material commitments existed
on November 1, 2000 for the purchase of additional properties. The expected
source to fund the improvements and acquisitions is from a variety of
sources including equity, excess flow from operations over distributions,
and debt, provided by its line of credit. The Company may seek to obtain
additional debt financing to meet its objectives. Given the Company's
current debt level, the Company is confident that it will be able to obtain
debt financing from a variety of sources, both secured and unsecured.
The Company capitalized $25 million of improvements to its various
properties during the first nine months of 2000. It is anticipated that
some $20 million in additional capital improvements will be completed
during the next twelve months on the current portfolio.
Capital resources are expected to grow with the future sale of its shares
and from cash flow from operations. Approximately 16% of the Company's 2000
common stock dividend distributions, or $4.7 million, were reinvested in
additional common shares. In general, the Company's liquidity and capital
resources are expected to be adequate to meet its cash requirements in
2000.
DISPOSITION OF INVESTMENTS As part of its strategic repositioning, the
Company has undertaken proactive portfolio review analysis with the
objective of identifying properties that no longer meet the Company's
long-term investment objectives due to location, age and other factors. The
disposition program allows the Company to reduce the age of its existing
portfolio and increase shareholder value by capturing the hidden equity in
the Company's mature assets and will allow the Company to reinvest the net
proceeds in assets with higher growth potential. On March 10, 2000, the
Company closed the sale of 16 properties containing 3,609 apartment units
for $136.5 million. The proceeds from the sale paid down $90 million of the
Company's existing line of credit and repurchased common stock. The
remaining amount of the proceeds from the sale was used to complete tax free
exchanges.
ACQUISITION
On March 16, 2000, the Company purchased The Enclave at the Meadows
Apartments, a 168-unit apartment community, located in Asheville, North
Carolina for a purchase price of $8.8 million. On May 11, 2000, the Company
purchased Greystone Crossing Apartments, a 408-unit apartment community
located in Charlotte, North Carolina for $26.8 million. These purchases
completed the previously funded tax free exchange transaction using proceeds
from the sale described above.
On September 11, 2000, the Company purchased Prestwick Apartments at Glen
Eagles, a 144-unit apartment community, located in Winston-Salem, North
Carolina for a purchase price of $9.6 million of which $7 million was
financed by the unsecured line of credit.
NOTES PAYABLE
The Company has a $185 million unsecured line of credit with the consortium
of six banks for which the maturity date is July 9, 2002. The line of credit
bears interest at one month LIBOR plus 120 basis points. At September 30,
2000, borrowings under the unsecured line of credit were $130 million. At
September 30, 2000, the Company had an unused borrowing capacity of $55
million under the unsecured line of credit.
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The Company has available a $7.5 million unsecured line of credit for
general corporate purposes. This line of credit bears interest at LIBOR plus
120 basis points and the maturity date was extended to January 31, 2001. At
September 30, 2000, the outstanding borrowings under this line of credit
were $2 million.
On October 18, 2000, the Company entered into a forward rate lock agreement
with First Union National Bank fixing the interest rate at 7.35% on a $141
million mortgage loan with regard to 15 properties located at various
locations in Virginia, North Carolina and Texas. The rate lock period ends
on December 15, 2000. The Company deposited $1.41 million as a rate lock
deposit with First Union National Bank. The Company made additional deposits
with First Union National Bank amounting to $350,000 to cover other fees and
expenses anticipated to be incurred in connection with the closing of the
mortgage loan.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes since December 31, 1999. See the information
provided in the Company's Annual Report on Form 10-K under Item 7-Management's
Discussion and Analysis of Financial Condition and Results of Operations.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cornerstone Realty Income Trust, Inc.
-------------------------------------
(Registrant)
DATE: 11-14-00 BY: /s/ Stanley J. Olander
-------------------------- -----------------------------------
Stanley J. Olander
Vice President and Chief Financial Officer
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