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, 1999 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)
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 [ ]
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. [ ]
Based on the closing sales price of March 15, 2000, the aggregate market value
of the voting common equity held by non-affiliates of the registrant on such
date was $393,859,319.*
On March 15, 2000, there were outstanding approximately 37,962,344 common
shares.
- ----------
* 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.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The portions of the registrant's annual report to security holders for the
fiscal year ended December 31, 1999 referred to in Part II.
The registrant's Proxy Statement for its 2000 Annual Meeting of Shareholders.
PART I
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 improvements in
financial operations from completed and planned property renovations, and
benefits from the Company's acquisition of Apple Residential Income Trust, Inc.
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 or the
properties, 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.
ITEM 1. Business
Cornerstone Realty Income Trust, Inc. (together with its subsidiaries, the
"Company") is a Virginia corporation and 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 southern
United States. As of December 31, 1999, the Company owned 87 apartment
communities, which comprised a total of 20,965 apartment units. The Company's
apartment
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communities are located in Georgia, North Carolina, South Carolina, Texas and
Virginia. The Company's property acquisitions are described in Item 2 of this
report, which is hereby incorporated herein by reference. The Company directly
owns all of its properties in Georgia and Virginia. In other states, the Company
owns its properties through its wholly-owned or majority-owned subsidiaries.
The Company is a self-administered and self-managed equity REIT headquartered in
Richmond, Virginia. The Company 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:
o Increasing rental rates, maintaining high economic occupancy rates, and
controlling costs at the properties; and
o 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 nine regional property management offices, which are located in
the following cities: Atlanta, Georgia; Raleigh, Charlotte and Wilmington, North
Carolina; Columbia, South Carolina; Dallas and Fort Worth, Texas; and Blacksburg
and Virginia Beach, Virginia. As of December 31, 1999, the Company had
approximately 625 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 25,000 apartment units over the last 25 years using the
strategies and techniques described below. The Company's top three executive
officers have an average of approximately 20 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, 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. To achieve each property's objectives,
management delegates significant decision-making responsibility to regional and
on-site employees, thereby instilling in
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its employees a sense of ownership of their property. Management believes that
this strategy is an effective way to maximize each property's potential. 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 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. In addition, the Company passes through expenses
to tenants by sub-metering of water and sewer to tenants where local and state
regulations allow.
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.
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The Company has demonstrated an ability to grow through acquisitions. The
Company's first two properties were acquired in June of 1993. As of December 31,
1999, the Company owned and operated 87 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 based on deferred maintenance, management neglect, or the
prior owner's financial distress. Upon acquisition, the Company seeks to improve
both operating results and property identity through a 24-month renovation
policy which 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 in the
approximate amounts of $30 million in 1999, $26 million in 1998, $23 million in
1997, and $19.0 million in 1996.
The Company has also 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.
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.
As of December 31, 1999, the Company had 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
which 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 acquired these adjacent parcels and
transferred them to a developer for construction and lease-up of the
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additional apartment units. These parcels and the additional apartments are
subject to repurchase by the Company, which is contingent on a number of
factors, including the achievement of certain occupancy levels and compliance
with various time commitments. The construction at the Meadows has been
completed, and the Company repurchased the property on March 16, 2000. 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.
Acquisition of Apple Residential Income Trust, Inc.
On July 23, 1999, the Company acquired Apple Residential Income Trust, Inc.
("Apple"). As a result, the Company acquired 29 apartment communities containing
7,503 apartment homes. The acquisition qualified as a tax-free reorganization
and was accounted for under the purchase method of accounting. The acquisition
was structured as a merger of Apple into a majority-owned subsidiary of the
Company. The aggregate purchase price was approximately $311 million. Under the
terms of the merger agreement, each Apple shareholder received 0.4 of the
Company's Series A Convertible Preferred Shares for each common share of Apple.
A total of 12,666,019 of the Company's Series A Convertible Preferred Shares
were issued as a result of the merger. The Series A Convertible Preferred Shares
have a first year dividend rate of $2.125, which will increase to $2.25 in the
second year and $2.375 in the third year and thereafter. Each Series A
Convertible Preferred Share reflects a conversion price of $15.80 per common
share of the Company. After five years, the Series A Convertible Preferred
Shares will be redeemable at $25 per share plus any accrued dividends, at the
option of the Company, in whole or in part, for cash or stock, subject to
certain conditions. In addition, the company assumed approximately $32 million
of Apple's debt with an effective interest rate of approximately 6.475%. No
goodwill was recorded as a result of this transaction.
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, the
Company may obtain capital from lines of credit or other secured or unsecured
borrowings.
On September 29, 1999, the Company received a loan in the principal amount of
$73.5 million from The Prudential Insurance Company of America. The loan is
secured by ten properties. The loan is interest only, paid monthly, and bears
interest at a fixed interest rate of 7.29% per annum with a maturity date of
September, 2006. The proceeds were used to pay down short-term debt and to
curtail the Company's existing line of credit as described below.
In connection with the Apple merger, the Company assumed six mortgage notes with
a principal amount of $30.8 million. These mortgages were recorded at a fair
value of $32 million at the date of assumption. The difference between the fair
value and the principal is being amortized as an adjustment to interest expense
over the term of the respective notes. Prepayment penalties apply for early
retirements. Scheduled maturities are at various dates through December 2005. At
December 31, 1999 the balance of the mortgage note payable was $31,545,682.
Mortgage notes payable are due in monthly installments, including principal and
interest.
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During 1999, the Company's $175 million Unsecured Line of Credit was increased
to $185 million and the maturity date was extended to July 9, 2002. 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. At December 31, 1999, the Company had an unused borrowing
capacity of $35 million under the Unsecured Line of Credit. In addition, the
Company is obligated to pay lenders a quarterly commitment fee equal to .20% per
annum of the unused portion of the line. At December 31, 1999, borrowings under
the agreement was $150 million.
During 1999, the Company increased its $5 million unsecured line of credit for
general corporate purposes to $7.5 million. This line of credit bears interest
at LIBOR plus 1.20%, adjusted monthly, and the maturity date was extended to
October 31, 2000. On December 31, 1999, the outstanding balance on this loan was
$7.5 million.
The Company intends to maintain a debt policy limit in which the Company's total
combined indebtedness plus its pro rata share of indebtedness of any
unconsolidated investments ("Joint Venture Debt") is limited to 40% of the
Company's total equity market capitalization plus its combined indebtedness
(including its pro rata share of Joint Venture Debt).
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.
Recent Developments
Effective as of March 10, 2000, the Company sold 16 apartment communities for a
gross selling price of $136.5 million. These apartment communities had a net
book value, after depreciation, of approximately $105 million at December 31,
1999.
ITEM 2. Properties
Property Descriptions and Characteristics
As of December 31, 1999, the Company owned 87 apartment communities, which
comprised a total of 20,965 apartment units. Those apartment communities were
located in Georgia (7 communities), North Carolina (31 communities), South
Carolina (8 communities), Texas (29 communities), and Virginia (12 communities).
The following table sets forth specific information regarding the Company's
properties:
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<TABLE>
<CAPTION>
Total Total
Initial Investment Investment
Year Date of Encum-- Acquisition at Number Per Unit at
Property Location Completed Acquisition brances Cost 12-31-99(1) of Units 12-31-99
-------- -------- --------- ----------- ------- ---- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GEORGIA
Ashley Run............... Atlanta 1987 April 1997 (8) $18,000,000 $19,972,413 348 $57,392
Stone Brook.............. Atlanta 1986 October 1997 (8) 7,850,000 8,872,988 188 47,197
Carlyle Club............. Atlanta 1974 April 1997 --- 11,580,000 13,251,328 243 54,532
Dunwoody Springs......... Atlanta 1981 July 1997 --- 15,200,000 19,090,735 350 54,545
Savannah West............ Augusta 1968 July 1996 --- 9,843,620 14,048,274 456 30,808
West Eagle Greens........ Augusta 1974 March 1996 --- 4,020,000 6,426,900 165 38,951
Spring Lake.............. Morrow 1986 August 1998 (8) 9,000,000 9,866,697 188 52,482
NORTH CAROLINA
The Meadows.............. Asheville 1974 January 1996 6,200,000 7,499,248 176 42,609
Beacon Hill.............. Charlotte 1985 May 1996 --- 13,579,203 14,977,670 349 42,916
Bridgetown Bay........... Charlotte 1986 April 1996 --- 5,025,000 5,978,562 120 49,821
Charleston Place......... Charlotte 1986 May 1997 (8) 9,475,000 10,479,833 214 48,971
Hanover Landing.......... Charlotte 1972 August 1995 --- 5,725,000 7,688,461 192 40,044
Heatherwood ............. Charlotte (3) (3) --- 17,630,457 25,678,852 476 53,947
Meadow Creek............. Charlotte 1984 May 1996 --- 11,100,000 12,846,737 250 51,387
Paces Glen............... Charlotte 1986 July 1996 --- 7,425,000 8,283,569 172 48,160
Sailboat Bay............. Charlotte 1973 November 1995 --- 9,100,000 13,760,358 358 38,437
Summerwalk............... Concord 1983 May 1996 --- 5,660,000 7,811,259 160 48,820
Deerfield................ Durham 1985 November 1996 --- 10,675,000 11,434,772 204 56,053
The Landing.............. Durham 1984 May 1996 --- 8,345,000 10,273,739 200 51,369
Parkside at Woodlake..... Durham 1996 Sept ember 1996 --- 14,663,886 15,363,983 266 57,759
Wind Lake................ Greensboro 1985 April 1995 --- 8,760,000 11,513,608 299 38,507
Signature Place.......... Greenville 1981 August 1996 --- 5,462,948 7,490,089 171 43,802
Highland Hills........... Raleigh 1987 September 1996 --- 12,100,000 14,777,352 264 55,975
Clarion Crossing......... Raleigh 1972 September 1997 --- 10,600,000 11,199,362 228 49,120
The Hollows.............. Raleigh 1974 June 1993 --- 4,200,000 6,344,761 176 36,050
Paces Arbor.............. Raleigh 1986 March 1997 --- 5,588,219 6,061,500 101 60,015
Paces Forest............. Raleigh 1986 March 1997 --- 6,473,481 7,061,353 117 60,353
Remington Place.......... Raleigh 1985 October 1997 (8) 7,900,000 8,742,446 136 64,283
St. Regis................ Raleigh 1986 October 1997 (8) 9,800,000 10,313,631 180 57,298
The Trestles............. Raleigh 1987 December 1994 --- 10,350,000 11,674,666 280 41,695
The Timbers ............. Raleigh 1983 June 1998 --- 8,100,000 8,973,326 176 50,985
Chase Mooring............ Wilmington 1968 August 1994 --- 3,594,000 7,033,468 224 31,399
Osprey Landing........... Wilmington 1974 November 1995 --- 4,375,000 7,568,285 176 43,002
Wimbledon Chase.......... Wilmington 1976 February 1994 --- 3,300,000 5,792,212 192 30,168
Glen Eagles.............. Winston Salem 1986 October 1995 --- 7,300,000 8,387,218 166 50,525
<CAPTION>
December Year-to-Date
Average Average Economic
Unit Size Rent Per Month (6) Occupancy (7)
(Square ------------------ -------------
Property Feet) 1998(2) 1999 1998(2) 1999
-------- ----- ------- ---- ------ ----
<S> <C> <C> <C> <C> <C>
GEORGIA
Ashley Run............... 1,150 743 781 92% 92%
Stone Brook.............. 937 656 703 89% 92%
Carlyle Club............. 1,089 730 768 92% 93%
Dunwoody Springs......... 948 681 724 92% 95%
Savannah West............ 877 473 454 83% 78%
West Eagle Greens........ 796 485 510 90% 88%
Spring Lake.............. 1,009 646 693 94% 92%
NORTH CAROLINA
The Meadows.............. 1,068 620 649 95% 95%
Beacon Hill.............. 734 587 612 94% 92%
Bridgetown Bay........... 867 631 677 95% 96%
Charleston Place......... 806 613 632 93% 92%
Hanover Landing.......... 832 545 574 94% 93%
Heatherwood ............. 1,186 609 649 90% 93%
Meadow Creek............. 860 620 636 91% 90%
Paces Glen............... 907 640 658 93% 93%
Sailboat Bay............. 906 569 602 91% 94%
Summerwalk............... 963 626 656 94% 95%
Deerfield................ 888 754 756 92% 94%
The Landing.............. 960 650 667 93% 95%
Parkside at Woodlake..... 865 686 712 88% 91%
Wind Lake................ 727 506 522 92% 91%
Signature Place.......... 1,037 533 568 94% 93%
Highland Hills........... 1,000 767 765 96% 92%
Clarion Crossing......... 769 637 659 93% 91%
The Hollows.............. 903 655 692 92% 94%
Paces Arbor.............. 899 672 684 89% 90%
Paces Forest............. 883 665 678 89% 91%
Remington Place.......... 1,098 758 781 92% 92%
St. Regis................ 840 686 701 93% 92%
The Trestles............. 776 589 605 92% 94%
The Timbers ............. 745 614 638 92% 93%
Chase Mooring............ 867 559 532 79% 84%
Osprey Landing........... 981 629 626 88% 91%
Wimbledon Chase.......... 818 574 568 92% 90%
Glen Eagles.............. 952 683 670 93% 88%
</TABLE>
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<TABLE>
<CAPTION>
Total Total
Initial Investment Investment
Year Date of Encum-- Acquisition at Number Per Unit at
Property Location Completed Acquisition brances Cost 12-31-99(1) of Units 12-31-99
-------- -------- --------- ----------- ------- ---- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mill Creek............... Winston Salem 1984 September 1995 --- 8,550,000 9,756,845 220 44,349
Stone Point.............. Charlotte 1986 January 1998 (8) 9,700,000 10,340,351 192 53,856
Pinnacle Ridge........... Asheville 1951 April 1998 --- 5,731,150 6,421,295 168 38,222
SOUTH CAROLINA
Westchase................ Charleston 1985 January 1997 (8) 11,000,000 13,212,319 352 37,535
Hampton Pointe........... Charleston 1986 March 1998 (8) 12,225,000 14,667,288 304 48,248
The Arbors at Windsor
Lake................... Columbia 1991 January 1997 (8) 10,875,000 11,701,117 228 51,321
Stone Ridge.............. Columbia 1975 December 1993 --- 3,325,000 6,019,560 191 31,516
Breckinridge............. Greenville 1973 June 1995 --- 5,600,000 7,208,834 236 30,546
Magnolia Run............. Greenville 1972 June 1995 --- 5,500,000 7,009,512 212 33,064
Polo Club................ Greenville 1972 June 1993 4,300,000 7,866,907 365 21,553
Cape Landing............. Myrtle Beach 1998 October 1998 --- 17,100,000 19,233,648 288 66,784
VIRGINIA
Trophy Chase............. Charlottesville (5) (5) --- 12,628,991 16,648,166 425 39,172
Greenbrier............... Fredericksburg 1970/1990 October 1996 --- 11,099,525 12,606,881 258 48,864
Tradewinds............... Hampton 1988 November 1995 --- 10,200,000 11,781,289 284 41,483
County Green............. Lynchburg 1976 December 1993 --- 3,800,000 5,496,059 180 30,534
Ashley Park.............. Richmond 1988 March 1996 --- 12,205,000 13,271,520 272 48,792
Hampton Glen............. Richmond 1986 August 1996 --- 11,599,931 13,008,010 232 56,069
Trolley Square........... Richmond (4) (4) --- 10,242,575 13,717,622 325 42,208
Arbor Trace.............. Virginia 1985 March 1996 --- 5,000,000 6,141,118 148 41,494
Bay Watch Pointe......... Virginia 1972 July 1995 --- 3,372,525 5,156,962 160 32,231
Harbour Club............ Virginia 1988 May 1994 --- 5,250,000 6,543,804 214 30,579
Mayflower Seaside........ Virginia 1950 October 1993 --- 7,634,144 10,786,692 263 41,014
The Gables............... Richmond 1987 July 1998 --- 11,500,000 12,710,802 224 56,745
TEXAS
Brookfield............... Dallas 1984 July 1999 --- 8,014,533 8,161,716 232 35,180
Toscana.................. Dallas 1986 July 1999 --- 7,334,023 7,365,639 192 38,363
Paces Cove............... Dallas 1982 July 1999 --- 11,712,879 11,971,802 328 36,499
Timberglen............... Dallas 1984 July 1999 --- 13,220,605 13,584,884 304 44,687
Summertree............... Dallas 1980 July 1999 --- 7,724,156 8,229,667 232 35,473
Devonshire............... Dallas 1978 July 1999 $3,966,620 7,564,892 7,891,678 144 54,803
The Courts on Pear Ridge. Dallas 1988 July 1999 --- 11,843,691 11,946,254 242 49,365
Eagle Crest.............. Irving 1983\1985 July 1999 --- 21,566,317 21,656,922 484 44,746
Remington Hills.......... Irving 1984\1985 July 1999 --- 20,921,219 21,404,019 362 59,127
Estrada Oaks............. Irving 1983 July 1999 --- 10,786,882 11,012,434 248 44,405
Aspen Hills.............. Arlington 1979 July 1999 --- 7,223,722 7,358,975 240 30,662
Mill Crossing............ Arlington 1979 July 1999 --- 5,269,792 5,338,858 184 29,016
Polo Run................. Arlington 1984 July 1999 --- 7,556,647 8,352,311 224 37,287
<CAPTION>
December Year-to-Date
Average Average Economic
Unit Size Rent Per Month (6) Occupancy (7)
(Square ------------------ -------------
Property Feet) 1998(2) 1999 1998(2) 1999
-------- ----- ------- ---- ------ ----
<S> <C> <C> <C> <C> <C>
Mill Creek............... 897 592 579 94% 90%
Stone Point.............. 848 631 660 94% 94%
Pinnacle Ridge........... 885 528 563 95% 95%
SOUTH CAROLINA
Westchase................ 706 551 589 96% 96%
Hampton Pointe........... 1,035 606 681 98% 98%
The Arbors at Windsor
Lake................... 966 668 661 94% 91%
Stone Ridge.............. 1,047 542 576 93% 91%
Breckinridge............. 726 441 440 90% 93%
Magnolia Run............. 993 535 553 91% 92%
Polo Club................ 807 403 440 84% 92%
Cape Landing............. 933 666 662 84% 93%
VIRGINIA
Trophy Chase............. 1,736 581 625 94% 91%
Greenbrier............... 851 648 681 97% 95%
Tradewinds............... 930 624 653 92% 94%
County Green............. 1,000 525 543 94% 93%
Ashley Park.............. 765 606 629 95% 94%
Hampton Glen............. 788 677 717 94% 94%
Trolley Square........... 589 561 612 95% 92%
Arbor Trace.............. 850 590 652 91% 93%
Bay Watch Pointe......... 911 620 644 95% 96%
Harbour Club............ 813 589 654 91% 93%
Mayflower Seaside........ 698 715 753 95% 92%
The Gables............... 700 600 654 94% 92%
<PAGE>
TEXAS
Brookfield............... 714 --- 547 --- 94%
Toscana.................. 601 --- 546 --- 97%
Paces Cove............... 670 --- 563 --- 92%
Timberglen............... 728 --- 601 --- 93%
Summertree............... 575 --- 512 --- 92%
Devonshire............... 876 --- 665 --- 96%
The Courts on Pear Ridge. 774 --- 678 --- 94%
Eagle Crest.............. 887 --- 647 --- 89%
Remington Hills.......... 957 --- 791 --- 90%
Estrada Oaks............. 771 --- 617 --- 94%
Aspen Hills.............. 671 --- 527 --- 92%
Mill Crossing............ 691 --- 525 --- 93%
Polo Run................. 854 --- 609 --- 92%
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Total Total
Initial Investment Investment
Year Date of Encum-- Acquisition at Number Per Unit at
Property Location Completed Acquisition brances Cost 12-31-99(1) of Units 12-31-99
-------- -------- --------- ----------- ------- ---- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cottonwood............... Arlington 1985 July 1999 --- 6,271,756 6,768,671 200 33,843
Burney Oaks.............. Arlington 1985 July 1999 --- 9,965,236 10,224,472 240 42,602
Copper Crossing.......... Fort Worth 1981 July 1999 --- 11,776,983 12,005,817 400 30,015
The Arbors on Forest..... Bedford 1986 July 1999 --- 9,573,954 9,617,764 210 45,799
Park Village............. Bedford 1983 July 1999 --- 8,224,541 8,582,259 238 36,060
Wildwood................. Euless 1984 July 1999 --- 4,471,294 4,524,238 120 37,702
Main Park................ Duncanville 1984 July 1999 --- 9,082,967 9,201,464 192 47,924
Pace's Point............. Lewisville 1985 July 1999 8,076,155 12,980,245 13,167,942 300 43,893
Silver Brook I........... Grand Prairie 1982 July 1999 --- 15,709,893 16,505,257 472 34,969
Silver Brook II.......... Grand Prairie 1984 July 1999 2,996,150 5,808,250 6,022,167 170 35,425
Grayson Square II........ Grapevine 1986 July 1999 6,622,849 12,210,121 12,437,775 250 49,751
Grayson Square I......... Grapevine 1985 July 1999 6,884,762 9,948,959 10,238,037 200 51,190
Meridian................. Austin 1988 July 1999 2,999,146 7,539,224 7,742,932 200 38,715
Canyon Hills............. Austin 1996 July 1999 --- 12,512,502 12,586,448 229 54,963
Cutter's Point........... Richardson 1978 July 1999 --- 9,859,840 10,367,834 196 52,897
Sierra Ridge............. San Antonio 1981 July 1999 --- 6,624,666 7,014,246 230 30,497
--------------------------------------------------------------
$105,045,682 $799,739,444 $919,128,738 20,965 $43,841
<CAPTION>
December Year-to-Date
Average Average Economic
Unit Size Rent Per Month (6) Occupancy (7)
(Square ------------------ -------------
Property Feet) 1998(2) 1999 1998(2) 1999
-------- ----- ------- ---- ------ ----
<S> <C> <C> <C> <C> <C>
Cottonwood............... 751 --- 540 --- 95%
Burney Oaks.............. 794 --- 635 --- 96%
Copper Crossing.......... 739 --- 494 --- 91%
The Arbors on Forest..... 804 --- 643 --- 92%
Park Village............. 647 --- 539 --- 93%
Wildwood................. 755 --- 651 --- 92%
Main Park................ 939 --- 732 --- 97%
Pace's Point............. 762 --- 624 --- 97%
Silver Brook I........... 842 --- 558 --- 94%
Silver Brook II.......... 741 --- 512 --- 94%
Grayson Square II........ 850 --- 690 --- 94%
Grayson Square I......... 840 --- 683 --- 93%
Meridian................. 741 --- 612 --- 97%
Canyon Hills............. 799 --- 730 --- 98%
Cutter's Point........... 1,010 --- 719 --- 95%
Sierra Ridge............. 751 --- 502 --- 92%
----------------------------------------------------
863 $608 $625 92% 92%
</TABLE>
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, excluding Apple properties. The Apple properties
include the allocated purchase price at the time of the merger and
improvements capitalized since the merger.
(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.
10
<PAGE>
(5) Trophy Chase is comprised of Trophy Chase (completed in 1970) and Hunter's
Creek (completed in 1970) acquired in April 1996 and July 1999,
respectively, at a cost of $3,710,000 and $8,918,991.
(6) Average rent per month reflects December's monthly gross potential less
concessions divided by the property's number of units.
(7) Economic Occupancy percentage reflects Adjusted Schedule Rent divided by
Adjusted Gross Potential where Adjusted Gross Potential consists of Gross
Potential net of concessions, model unit costs, and employee unit costs,
and Adjusted Schedule Rent consists of Adjusted Gross Potential net of
vacancies and bad debt expense.
(8) Indication for ten properties that serve as collateral for $73.5 million of
secured debt.
11
<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.
12
<PAGE>
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 15, 2000, the
last reported sale price on the NYSE was $10.375 per common share.
<TABLE>
<CAPTION>
- ------------------------------------- ---------------- ----------------- ---------------------
Cash Distribution
1998 High Low Per Common Share
- ---- ---- --- ----------------
<S> <C> <C> <C>
First Quarter $ 13.25 $ 11.875 $ 0.25
Second Quarter 12.6875 11.125 0.26
Third Quarter 12.125 10.25 0.26
Fourth Quarter 11.25 10.25 0.26
1999
- ----
First Quarter $ 11.125 $ 9.00 $ 0.26
Second Quarter 10.9375 9.625 0.27
Third Quarter 10.625 9.00 0.27
Fourth Quarter 10.6875 9.0625 0.27
- ------------------------------------- ---------------- ----------------- ---------------------
</TABLE>
Distributions of $42,050,415 and $38,317,602 were made to the shareholders
during 1999 and 1998, 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. The Company's distributions to its
shareholders also may be limited by the agreement pertaining to the Company's
Unsecured Line of Credit.
For federal income tax purposes, distributions paid to common 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
13
<PAGE>
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 1999,
approximately 11% of distributions represented a return of capital, and the
balance represented ordinary income.
The Company has 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.
On July 23, 1999, in connection with the Apple merger, the Company issued
12,666,019 Series A Convertible Preferred Shares, each of which is convertible
into 1.5823 of the Company's common shares, reflecting a conversion price of
$15.80 per common share of the Company. The Series A Convertible Preferred
Shares are non-voting and have a liquidation preference of $25 per share of the
Company's common shares. After five years, the Series A Convertible Preferred
Shares are redeemable at $25 per share plus any accrued dividends, at the option
of the Company, in whole or in part, for cash or stock, subject to certain
conditions. The Company is imputing dividends calculated as the present value
difference between the perpetual preferred stock distribution and the stated
distribution rate. The imputed dividend is reflected as additional preferred
stock distributions. The Series A Convertible Preferred Shares are not listed on
any exchange.
On March 15, 2000, the Company's common shares were held by 128 record
shareholders.
ITEM 6. Selected Financial Data
For the information called for by this item, see the information in Exhibit 13,
1999 Annual Report, under the caption "Selected Financial Data" on page 26
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 / 7A. Management's Discussion and Analysis of Financial Condition and
Results of Operations / Market Risk Disclosure
For the information called for by this item, see the information in Exhibit 13,
1999 Annual Report, under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 27 through 32 thereof,
which information is hereby incorporated herein by reference.
14
<PAGE>
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.
15
<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 for its 2000 Annual Meeting of
Shareholders, 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 for its 2000 Annual Meeting of
Shareholders, 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 for its 2000
Annual Meeting of Shareholders, 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 for its 2000 Annual Meeting of Shareholders, 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 for its 2000 Annual Meeting of Shareholders, which information is
hereby incorporated herein by reference.
16
<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
hereby included in Item 8 and incorporated by reference from Exhibit 13 (1999
Annual Report).
Independent Auditors' Report
Ernst & Young LLP
Consolidated Balance Sheets
December 31, 1999 and 1998
Consolidated Statements of Operations
Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedule
Schedule III - Real Estate and Accumulated Depreciation
(Included at the end of this Part IV on pages 19 through 26 of
this 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 "Exhibit
Index" on pages 28 through 36 of this report.
17
<PAGE>
(b) Reports on Form 8-K
During the last quarter of 1999, the Company filed the following Current
Reports on Form 8-K:
On October 13, 1999, the registrant filed a Report on Form 8-K to a Report
on Form 8-K dated October 1, 1999. This item was item 5 and 7.
On November 3, 1999, the registrant filed a Report on Form 8-K to a Report
on Form 8-K dated September 29, 1999.
18
<PAGE>
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION (AS OF DECEMBER 31, 1999)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Initial Cost Subsequent Imp. Gross Amount Carried
Encum- ------------------------------------------------------------------------------------
Description brances Land Bldg. & Imp. Capitalized Land Bldg. & Imp. Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1) Polo Club -- $ 264,698 $4,035,302 $3,566,907 $264,698 $7,602,209 $7,866,907
* Greenville, SC
* Multi-family housing
2) The Hollows -- 1,374,840 2,825,160 2,144,761 1,390,671 4,954,090 6,344,761
* Raleigh, NC
* Multi-family housing
3) Mayflower Seaside -- 2,258,169 5,375,975 3,152,548 2,258,248 8,528,444 10,786,692
* Virginia Beach, VA
* Multi-family housing
* Retail shops
4) Stone Ridge -- 374,271 2,950,729 2,694,560 374,293 5,645,267 6,019,560
* Columbia, SC
* Multi-family housing
5) County Green -- 319,250 3,480,750 1,696,059 327,484 5,168,575 5,496,059
* Lynchburg, VA
* Multi-family housing
6) Wimbledon Chase -- 304,590 2,995,410 2,492,212 305,365 5,486,847 5,792,212
* Wilmington, NC
* Multi-family housing
7) Harbour Club -- 1,019,895 4,230,105 1,293,804 1,020,274 5,523,530 6,543,804
* Virginia Beach, VA
* Multi-family housing
8) Chase Mooring -- 258,126 3,335,874 3,439,468 252,909 6,780,559 7,033,468
* Wilmington, NC
* Multi-family housing
9) The Trestles -- 2,650,884 7,699,116 1,324,666 2,686,006 8,988,660 11,674,666
* Raleigh, NC
* Multi-family housing
<CAPTION>
Year Date
Description Acc. Depr. Constructed Acquired Dep. Life
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1) Polo Club $2,229,426 1972 June 3, 1993 27.5 yrs.
* Greenville, SC
* Multi-family housing
2) The Hollows $1,371,280 1974 June 1, 1993 27.5 yrs.
* Raleigh, NC
* Multi-family housing
3) Mayflower Seaside $1,776,525 1950 Oct. 26, 1993 27.5 yrs.
* Virginia Beach, VA
* Multi-family housing
* Retail shops
4) Stone Ridge $1,523,199 1975 Dec. 8, 1993 27.5 yrs.
* Columbia, SC
* Multi-family housing
5) County Green $1,287,273 1976 Dec. 1, 1993 27.5 yrs.
* Lynchburg, VA
* Multi-family housing
6) Wimbledon Chase $1,312,650 1976 Feb. 1, 1994 27.5 yrs.
* Wilmington, NC
* Multi-family housing
7) Harbour Club $1,185,861 1988 May 1, 1994 27.5 yrs.
* Virginia Beach, VA
* Multi-family housing
8) Chase Mooring $1,221,272 1968 Aug. 1, 1994 27.5 yrs.
* Wilmington, NC
* Multi-family housing
9) The Trestles $1,951,490 1987 Dec. 30, 1994 27.5 yrs.
* Raleigh, NC
* Multi-family housing
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Initial Cost Subsequent Imp. Gross Amount Carried
Encum- ------------------------------------------------------------------------------------
Description brances Land Bldg. & Imp. Capitalized Land Bldg. & Imp. Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
10) Wind Lake -- 1,051,200 7,708,800 2,753,608 1,088,780 10,424,828 11,513,608
* Greensboro, NC
* Multi-family housing
11) Magnolia Run -- 495,000 5,005,000 1,509,512 509,001 6,500,511 7,009,512
* Greenville, SC
* Multi-family housing
12) Breckinridge -- 1,512,000 4,088,000 1,608,834 1,558,060 5,650,774 7,208,834
* Greenville, SC
* Multi-family housing
13) Bay Watch Pointe -- 775,680 2,596,845 1,784,437 816,936 4,340,026 5,156,962
* Virginia Beach, VA
* Multi-family housing
14) Hanover Landing -- 801,500 4,923,500 1,963,461 822,285 6,866,176 7,688,461
* Charlotte, NC
* Multi-family housing
15) Mill Creek -- 1,368,000 7,182,000 1,206,845 1,417,614 8,339,231 9,756,845
* Winston-Salem, NC
* Multi-family housing
16) Glen Eagles -- 1,095,000 6,205,000 1,087,218 890,680 7,496,538 8,387,218
* Winston-Salem, NC
* Multi-family housing
17) Sailboat Bay -- 2,002,000 7,098,000 4,660,358 2,066,930 11,693,428 13,760,358
* Charlotte, NC
* Multi-family housing
18) Tradewinds -- 1,428,000 8,772,000 1,581,289 1,436,890 10,344,399 11,781,289
* Hampton, VA
* Multi-family housing
19) Osprey Landing -- 393,750 3,981,250 3,193,285 403,842 7,164,443 7,568,285
* Wilmington, NC
* Multi-family housing
20) The Meadows -- 186,000 6,014,000 1,299,248 166,196 7,333,052 7,499,248
* Asheville, NC
* Multi-family housing
21) West Eagle Green -- 326,400 3,693,600 2,406,900 316,825 6,110,075 6,426,900
* Augusta, GA
* Multi-family housing
<CAPTION>
Year Date
Description Acc. Depr. Constructed Acquired Dep. Life
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10) Wind Lake $1,797,291 1985 April 1, 1995 27.5 yrs.
* Greensboro, NC
* Multi-family housing
11) Magnolia Run $1,249,880 1972 June 1, 1995 27.5 yrs.
* Greenville, SC
* Multi-family housing
12) Breckinridge $1,070,571 1973 June 21, 1995 27.5 yrs.
* Greenville, SC
* Multi-family housing
13) Bay Watch Pointe $850,371 1972 July 18, 1995 27.5 yrs.
* Virginia Beach, VA
* Multi-family housing
14) Hanover Landing $1,124,516 1972 Aug. 22, 1995 27.5 yrs.
* Charlotte, NC
* Multi-family housing
<PAGE>
15) Mill Creek $1,367,852 1984 Sept. 1, 1995 27.5 yrs.
* Winston-Salem, NC
* Multi-family housing
16) Glen Eagles $1,277,793 1990 Oct. 1, 1995 27.5 yrs.
* Winston-Salem, NC
* Multi-family housing
17) Sailboat Bay $2,893,325 1972 Nov. 1, 1995 27.5 yrs.
* Charlotte, NC
* Multi-family housing
18) Tradewinds $1,671,376 1988 Nov. 1, 1995 27.5 yrs.
* Hampton, VA
* Multi-family housing
19) Osprey Landing $1,252,918 1973 Nov. 1, 1995 27.5 yrs.
* Wilmington, NC
* Multi-family housing
20) The Meadows $1,193,546 1974 Jan. 31, 1996 27.5 yrs.
* Asheville, NC
* Multi-family housing
21) West Eagle Green $1,006,501 1974 March 1, 1996 27.5 yrs.
* Augusta, GA
* Multi-family housing
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Initial Cost Subsequent Imp. Gross Amount Carried
Encum- ------------------------------------------------------------------------------------
Description brances Land Bldg. & Imp. Capitalized Land Bldg. & Imp. Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
22) Ashley Park -- 1,586,650 10,618,350 1,066,520 1,589,251 11,682,269 13,271,520
* Richmond, VA
* Multi-family housing
23) Arbor Trace -- 1,100,000 3,900,000 1,141,118 1,130,749 5,010,369 6,141,118
* Virginia Beach, VA
* Multi-family housing
24) Bridgetown Bay -- 603,000 4,422,000 953,562 624,233 5,354,329 5,978,562
* Charlotte, NC
* Multi-family housing
25) Trophy Chase -- 853,000 2,856,700 4,019,175 2,480,997 14,167,169 16,648,166
* Charlottesville, VA 1,602,680 7,316,311
* Multi-family housing
26) Beacon Hill -- 3,121,587 10,457,616 1,398,467 3,076,214 11,901,456 14,977,670
* Charlotte, NC
* Multi-family housing
27) Summerwalk -- 1,528,200 4,131,800 2,151,259 1,565,051 6,246,208 7,811,259
* Concord, NC
* Multi-family housing
28) The Landing -- 1,001,400 7,343,600 1,928,739 1,023,951 9,249,788 10,273,739
* Raleigh, NC
* Multi-family housing
29) Meadowcreek -- 1,110,000 9,990,000 1,746,737 1,134,445 11,712,292 12,846,737
* Pineville, NC
* Multi-family housing
30) Trolley Square -- 1,620,000 4,380,000 3,475,047 2,817,605 10,900,017 13,717,622
Trolley Square West 1,145,495 3,097,080
* Richmond, VA
* Multi-family housing
31) Savannah West -- 627,860 9,215,760 4,204,654 1,146,016 12,902,258 14,048,274
* Augusta, GA
* Multi-family housing
32) Paces Glen -- 2,153,250 5,271,750 858,569 2,226,399 6,057,170 8,283,569
* Charlotte, NC
* Multi-family housing
33) Signature Place -- 491,665 4,971,283 2,027,141 502,648 6,987,441 7,490,089
* Greenville, NC
* Multi-family housing
<CAPTION>
Year Date
Description Acc. Depr. Constructed Acquired Dep. Life
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
22) Ashley Park $1,799,541 1988 March 1, 1996 27.5 yrs.
* Richmond, VA
* Multi-family housing
23) Arbor Trace $815,867 1985 March 1, 1996 27.5 yrs.
* Virginia Beach, VA
* Multi-family housing
24) Bridgetown Bay $801,470 1986 April 1, 1996 27.5 yrs.
* Charlotte, NC
* Multi-family housing
25) Trophy Chase $1,173,456 1970 April 1, 1996 27.5 yrs.
* Charlottesville, VA
* Multi-family housing
26) Beacon Hill $1,670,404 1985 May 1, 1996 27.5 yrs.
* Charlotte, NC
* Multi-family housing
<PAGE>
27) Summerwalk $933,110 1983 May 1, 1996 27.5 yrs.
* Concord, NC
* Multi-family housing
28) The Landing $1,314,898 1984 May 1, 1996 27.5 yrs.
* Raleigh, NC
* Multi-family housing
29) Meadowcreek $1,676,493 1984 May 31, 1996 27.5 yrs.
* Pineville, NC
* Multi-family housing
30) Trolley Square $1,627,402 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 $1,753,913 1976 July 1, 1996 27.5 yrs.
* Augusta, GA
* Multi-family housing
32) Paces Glen $807,822 1986 July 19, 1996 27.5 yrs.
* Charlotte, NC
* Multi-family housing
33) Signature Place $1,056,405 1981 August 1, 1996 27.5 yrs.
* Greenville, NC
* Multi-family housing
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Initial Cost Subsequent Imp. Gross Amount Carried
Encum- ------------------------------------------------------------------------------------
Description brances Land Bldg. & Imp. Capitalized Land Bldg. & Imp. Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
34) Hampton Glen -- 1,391,992 10,207,939 1,408,079 1,414,237 11,593,773 13,008,010
* Richmond, VA
* Multi-family housing
35) Heatherwood -- 2,449,310 7,756,147 8,048,395 4,186,842 21,492,010 25,678,852
Italian Village/Villa Marina 1,707,750 5,717,250
* Charlotte, NC
* Multi-family housing
36) Highland Hills -- 1,210,000 10,890,000 2,677,352 1,198,724 13,578,628 14,777,352
* Carrboro, NC
* Multi-family housing
37) Parkside at Woodlake -- 2,932,778 11,731,108 700,097 2,884,355 12,479,628 15,363,983
* Durham, NC
* Multi-family housing
38) Greenbrier -- 998,957 10,100,568 1,507,356 1,009,698 11,597,183 12,606,881
* Fredericksburg, VA
* Multi-family housing
39) Deerfield -- 427,000 10,248,000 759,772 430,416 11,004,356 11,434,772
* Durham, NC
* Multi-family housing
40) The Arbors at Windor
Lake (2) 978,750 9,896,250 826,117 994,426 10,706,691 11,701,117
* Columbia, SC
* Multi-family housing
41) Westchase (2) 1,980,000 9,020,000 2,212,319 2,012,327 11,199,992 13,212,319
* Charleston, SC
* Multi-family housing
42) Paces Arbor -- 1,173,526 4,414,693 473,281 1,181,172 4,880,328 6,061,500
* Raleigh, NC
* Multi-family housing
43) Paces Forest -- 1,359,431 5,114,050 587,872 1,370,590 5,690,763 7,061,353
* Raleigh, NC
* Multi-family housing
44) Carlyle Club -- 3,589,800 7,990,200 1,671,328 3,607,026 9,644,302 13,251,328
* Lawrenceville, GA
* Multi-family housing
<CAPTION>
Year Date
Description Acc. Depr. Constructed Acquired Dep. Life
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
34) Hampton Glen $1,556,617 1986 August 1, 1996 27.5 yrs.
* Richmond, VA
* Multi-family housing
35) Heatherwood $2,376,773 1980 Sept. 1, 1996 27.5 yrs.
Italian Village/Villa Marina 1980 Aug. 29, 1997
* Charlotte, NC
* Multi-family housing
36) Highland Hills $1,867,985 1987 Sept. 27, 1996 27.5 yrs.
* Carrboro, NC
* Multi-family housing
37) Parkside at Woodlake $1,616,808 1996 Aug. 31, 1996 27.5 yrs.
* Durham, NC
* Multi-family housing
38) Greenbrier $1,537,701 1980 Oct. 1, 1996 27.5 yrs.
* Fredericksburg, VA
* Multi-family housing
39) Deerfield $1,323,856 1985 Nov. 1, 1996 27.5 yrs.
* Durham, NC
* Multi-family housing
40) The Arbors at Windsor
Lake $1,255,948 1991 Jan. 1, 1997 27.5 yrs.
* Columbia, SC
* Multi-family housing
41) Westchase $1,356,921 1985 Jan. 15, 1997 27.5 yrs.
* Charleston, SC
* Multi-family housing
42) Paces Arbor $542,022 1986 March 1, 1997 27.5 yrs.
* Raleigh, NC
* Multi-family housing
43) Paces Forest $635,445 1986 March 1, 1997 27.5 yrs.
* Raleigh, NC
* Multi-family housing
44) Carlyle Club $1,098,000 1974 Apr. 30, 1997 27.5 yrs.
* Lawrenceville, GA
* Multi-family housing
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Initial Cost Subsequent Imp. Gross Amount Carried
Encum- ------------------------------------------------------------------------------------
Description brances Land Bldg. & Imp. Capitalized Land Bldg. & Imp. Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
45) Ashley Run (2) 3,780,000 14,220,000 1,972,413 3,793,621 16,178,792 19,972,413
* Norcross, GA
* Multi-family housing
46) Charleston Place (2) 1,516,000 7,959,000 1,004,833 1,534,603 8,945,230 10,479,833
* Charlotte, NC
* Multi-family housing
47) Dunwoody Springs -- 3,648,000 11,552,000 3,890,735 3,662,295 15,428,440 19,090,735
* Dunwoody, GA
* Multi-family housing
48) Clarion Crossing -- 3,180,000 7,420,000 599,362 3,235,960 7,963,402 11,199,362
* Raleigh, NC
* Multi-family housing
49) Stone Brook (2) 1,570,000 6,280,000 1,022,988 1,582,468 7,290,520 8,872,988
* Norcross, GA
* Multi-family housing
50) St. Regis (2) 2,156,000 7,644,000 513,631 2,170,353 8,143,278 10,313,631
* Raleigh, NC
* Multi-family housing
51) Remington Place (2) 1,422,000 6,478,000 842,446 1,433,609 7,308,837 8,742,446
* Raleigh, NC
* Multi-family housing
52) Stone Point (2) 1,164,000 8,536,000 640,351 1,128,956 9,211,395 10,340,351
* Charlotte, NC
* Multi-family housing
53) Pinnacle Ridge -- 1,547,411 4,183,740 690,144 1,572,517 4,848,778 6,421,295
* Ashville, NC
* Multi-family housing
54) Hampton Point (2) 1,589,250 10,635,750 2,442,288 1,648,342 13,018,946 14,667,288
* Charleston, SC
* Multi-family housing
55) The Timbers -- 1,944,000 6,156,000 873,326 1,955,741 7,017,585 8,973,326
* Raleigh, NC
* Multi-family housing
56) The Gables -- 2,185,000 9,315,000 1,210,802 2,200,818 10,509,984 12,710,802
* Richmond, VA
* Multi-family housing
<CAPTION>
Year Date
Description Acc. Depr. Constructed Acquired Dep. Life
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
45) Ashley Run $1,744,247 1987 Apr. 30, 1997 27.5 yrs.
* Norcross, GA
* Multi-family housing
46) Charleston Place $936,387 1986 May 13, 1997 27.5 yrs.
* Charlotte, NC
* Multi-family housing
47) Dunwoody Springs $1,538,123 1981 July 25, 1997 27.5 yrs.
* Dunwoody, GA
* Multi-family housing
48) Clarion Crossing $709,617 1972 Sept. 30, 1997 27.5 yrs.
* Raleigh, NC
* Multi-family housing
49) Stone Brook $653,005 1986 Oct. 31, 1997 27.5 yrs.
* Norcross, GA
* Multi-family housing
<PAGE>
50) St. Regis $670,792 1986 Oct. 31, 1997 27.5 yrs.
* Raleigh, NC
* Multi-family housing
51) Remington Place $588,592 1985 Oct. 31, 1997 27.5 yrs.
* Raleigh, NC
* Multi-family housing
52) Stone Point $718,777 1986 Jan.15, 1998 27.5 yrs.
* Charlotte, NC
* Multi-family housing
53) Pinnacle Ridge $337,877 1951 April 1, 1998 27.5 yrs.
* Ashville, NC
* Multi-family housing
54) Hampton Point $937,704 1986 Mar 31, 1998 27.5 yrs.
* Charleston, NC
* Multi-family housing
55) The Timbers $451,536 1983 June 4, 1998 27.5 yrs.
* Raleigh, NC
* Multi-family housing
56) The Gables $615,267 1987 July 2, 1998 27.5 yrs.
* Richmond, VA
* Multi-family housing
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Initial Cost Subsequent Imp. Gross Amount Carried
Encum- ------------------------------------------------------------------------------------
Description brances Land Bldg. & Imp. Capitalized Land Bldg. & Imp. Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
57) Spring Lake (2) 900,000 8,100,000 866,697 907,578 8,959,119 9,866,697
* Morrow, GA
* Multi-family housing
58) Cape Landing -- 1,026,000 16,074,000 2,133,648 1,860,687 17,372,961 19,233,648
* Myrtle Beach, SC
* Multi-family housing
59) Brookfield -- 1,624,051 6,390,482 147,183 1,624,051 6,537,665 8,161,716
* Dallas, TX
* Multi-family housing
60) Eagle Crest -- 4,038,424 17,527,893 90,605 4,038,424 17,618,498 21,656,922
* Irving, TX
* Multi-family housing
61) Aspen Apartments -- 1,129,071 6,094,651 135,253 1,129,071 6,229,904 7,358,975
* Arlington, TX
* Multi-family housing
62) Mill Crossing -- 803,095 4,466,697 69,066 803,095 4,535,763 5,338,858
* Arlington, TX
* Multi-family housing
63) Polo Run -- 936,682 6,619,965 795,664 936,682 7,415,629 8,352,311
* Arlington, TX
* Multi-family housing
64) Wildwood -- 881,479 3,589,815 52,944 881,479 3,642,759 4,524,238
* Euless, TX
* Multi-family housing
65) Toscana -- 998,938 6,335,085 31,616 998,937 6,366,702 7,365,639
* Dallas, TX
* Multi-family housing
66) Arbors on Forest Ridge -- 862,803 8,711,151 43,810 862,803 8,754,961 9,617,764
* Bedford, TX
* Multi-family housing
67) Paces Cove -- 2,259,317 9,453,562 258,923 2,259,317 9,712,485 11,971,802
* Dallas, TX
* Multi-family housing
68) Remington Hills -- 4,509,071 16,412,148 482,800 4,509,072 16,894,947 21,404,019
* Irving, TX
* Multi-family housing
<CAPTION>
Year Date
Description Acc. Depr. Constructed Acquired Dep. Life
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
57) Spring Lake $487,958 1986 Aug. 12, 1998 27.5 yrs.
* Morrow, GA
* Multi-family housing
58) Cape Landing $800,319 1997/98 Oct. 16, 1998 27.5 yrs.
* Myrtle Beach, SC
* Multi-family housing
59) Brookfield $186,973 1984 July 23, 1999 27.5 yrs.
* Dallas, TX
* Multi-family housing
60) Eagle Crest $357,622 1983 July 23, 1999 27.5 yrs.
* Irving, TX 1985
* Multi-family housing
61) Aspen Apartments $155,255 1979 July 23, 1999 27.5 yrs.
* Arlington, TX
* Multi-family housing
<PAGE>
62) Mill Crossing $107,921 1979 July 23, 1999 27.5 yrs.
* Arlington, TX
* Multi-family housing
63) Polo Run $154,386 1984 July 23, 1999 27.5 yrs.
* Arlington, TX
* Multi-family housing
64) Wildwood $84,312 1984 July 23, 1999 27.5 yrs.
* Euless, TX
* Multi-family housing
65) Toscana $126,957 1986 July 23, 1999 27.5 yrs.
* Dallas, TX
* Multi-family housing
66) Arbors on Forest Ridge $170,899 1986 July 23, 1999 27.5 yrs.
* Bedford, TX
* Multi-family housing
67) Paces Cove $195,934 1982 July 23, 1999 27.5 yrs.
* Dallas, TX
* Multi-family housing
68) Remington Hills $370,565 1984 July 23, 1999 27.5 yrs.
* Irving, TX 1985
* Multi-family housing
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Initial Cost Subsequent Imp. Gross Amount Carried
Encum- ------------------------------------------------------------------------------------
Description brances Land Bldg. & Imp. Capitalized Land Bldg. & Imp. Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
69) Copper Crossing -- 1,782,562 9,994,421 228,834 1,783,749 10,222,068 12,005,817
* Fort Worth, TX
* Multi-family housing
70) Main Park -- 619,641 8,463,326 118,497 619,641 8,581,823 9,201,464
* Duncanville, TX
* Multi-family housing
71) Timberglen -- 2,563,522 10,657,083 364,279 2,563,522 11,021,362 13,584,884
* Dallas, TX
* Multi-family housing
72) Silver Brook I -- 3,352,896 12,356,997 795,364 3,352,896 13,152,361 16,505,257
* Grand Prairie, TX
* Multi-family housing
73) Summer Tree -- 3,338,748 4,385,408 505,511 3,338,748 4,890,919 8,229,667
* Dallas, TX
* Multi-family housing
74) Park Village -- 928,744 7,295,797 357,718 928,743 7,653,516 8,582,259
* Bedford, TX
* Multi-family housing
75) Cottonwood -- 474,344 5,797,412 496,915 474,344 6,294,327 6,768,671
* Arlington, TX
* Multi-family housing
76) Devonshire $3,966,620 1,892,165 5,672,727 326,786 1,892,165 5,999,513 7,891,678
* Dallas, TX
* Multi-family housing
77) Pace's Point $8,076,155 2,132,795 10,847,450 187,697 2,132,795 11,035,147 13,167,942
* Lewisville, TX
* Multi-family housing
78) The Meridian $2,999,146 531,832 7,007,392 203,708 531,832 7,211,100 7,742,932
* Austin, TX
* Multi-family housing
79) Grayson II $6,622,849 962,939 11,247,182 227,654 962,939 11,474,836 12,437,775
* Grapevine, TX
* Multi-family housing
80) Silver Brook II $2,996,150 1,202,745 4,605,505 213,917 1,202,746 4,819,421 6,022,167
* Grand Prairie, TX
* Multi-family housing
<CAPTION>
Year Date
Description Acc. Depr. Constructed Acquired Dep. Life
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
69) Copper Crossing $225,802 1980/1981 July 23, 1999 27.5 yrs.
* Fort Worth, TX
* Multi-family housing
70) Main Park $161,804 1984 July 23, 1999 27.5 yrs.
* Duncanville, TX
* Multi-family housing
71) Timberglen $226,307 1984 July 23, 1999 27.5 yrs.
* Dallas, TX
* Multi-family housing
72) Silver Brook I $279,259 1982 July 23, 1999 27.5 yrs.
* Grand Prairie, TX
* Multi-family housing
73) Summer Tree $121,790 1980 July 23, 1999 27.5 yrs.
* Dallas, TX
* Multi-family housing
<PAGE>
74) Park Village $157,853 1983 July 23, 1999 27.5 yrs.
* Bedford, TX
* Multi-family housing
75) Cottonwood $118,929 1985 July 23, 1999 27.5 yrs.
* Arlington, TX
* Multi-family housing
76) Devonshire $135,312 1978 July 23, 1999 27.5 yrs.
* Dallas, TX
* Multi-family housing
77) Pace's Point $207,288 1985 July 23, 1999 27.5 yrs.
* Lewisville, TX
* Multi-family housing
78) The Meridian $134,852 1988 July 23, 1999 27.5 yrs.
* Austin, TX
* Multi-family housing
79) Grayson II $208,621 1986 July 23, 1999 27.5 yrs.
* Grapevine, TX
* Multi-family housing
80) Silver Brook II $98,797 1984 July 23, 1999 27.5 yrs.
* Grand Prairie, TX
* Multi-family housing
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Initial Cost Subsequent Imp. Gross Amount Carried
Encum- ------------------------------------------------------------------------------------
Description brances Land Bldg. & Imp. Capitalized Land Bldg. & Imp. Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
81) Estrada Oaks -- 1,939,650 8,847,232 225,552 1,939,651 9,072,783 11,012,434
* Irving, TX
* Multi-family housing
82) Burney Oaks -- 1,063,277 8,901,959 259,236 1,063,277 9,161,195 10,224,472
* Arlington, TX
* Multi-family housing
83) Cutter's Point -- 2,001,796 7,858,044 507,994 2,001,796 8,366,038 10,367,834
* Richardson, TX
* Multi-family housing
84) The Courts on Pear -- 2,360,962 9,482,729 102,563 2,360,962 9,585,292 11,946,254
* Dallas, TX
* Multi-family housing
85) Sierra Ridge -- 611,683 6,012,983 389,580 611,693 6,402,553 7,014,246
* San Antonio, TX
* Multi-family housing
86) Grayson I $6,884,762 770,541 9,178,418 289,078 770,911 9,467,126 10,238,037
* Grapevine, TX
* Multi-family housing
87) Canyon Hills -- 1,233,883 11,278,619 73,946 1,081,892 11,504,556 12,586,448
* Austin, TX
* Multi-family housing
housing
--------------------------------------------------------------------------------------------------
$105,045,682 138,289,067 661,450,377 119,389,294 136,326,140 782,802,598 919,128,738 (1)
<CAPTION>
Year Date
Description Acc. Depr. Constructed Acquired Dep. Life
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
81) Estrada Oaks $164,335 1983 July 23, 1999 27.5 yrs.
* Irving, TX
* Multi-family housing
82) Burney Oaks $172,359 1985 July 23, 1999 27.5 yrs.
* Arlington, TX
* Multi-family housing
83) Cutter's Point $172,370 1978 July 23, 1999 27.5 yrs.
* Richardson, TX
* Multi-family housing
84) The Courts on Pear $165,473 1988 July 23, 1999 27.5 yrs.
* Dallas, TX
* Multi-family housing
85) Sierra Ridge $118,741 1981 July 23, 1999 27.5 yrs.
* San Antonio, TX
* Multi-family housing
86) Grayson I $168,123 1985 July 23, 1999 27.5 yrs.
* Grapevine, TX
* Multi-family housing
87) Canyon Hills $185,272 1996 July 23, 1999 27.5 yrs.
* Austin, TX
* Multi-family housing
-------------------
$77,538,085
</TABLE>
<PAGE>
(1) Represents the aggregate cost for Federal Income tax purposes.
(2) $73.5 million of secured debt which is secured by 10 properties which are
individually noted.
The reconciliations of the carrying amount of real estate owned and accumulated
depreciation is contained in Note 3 of the audited financial statements.
26
<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.
Cornerstone Realty Income Trust, Inc.
By: /s/ Glade M. Knight
----------------------------------
Glade M. Knight
Chairman of the Board,
Chief Executive Officer
and President
March 27, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITIES DATE
--------- ---------- ----
<S> <C> <C>
/s/ Glade M. Knight Director, Chief Executive Officer March 27, 2000
- ----------------------------------- and President
Glade M. Knight
/s/ Stanley J. Olander, Jr. Director, Chief Financial Officer March 27, 2000
- ----------------------------------- and Principal Accounting Officer
Stanley J. Olander, Jr.
/s/ Glenn W. Bunting, Jr. Director March 24, 2000
- -----------------------------------
Glenn W. Bunting, Jr.
/s/ Leslie A. Grandis Director March 27, 2000
- -----------------------------------
Leslie A. Grandis
/s/ Penelope W. Kyle Director March 27, 2000
- -----------------------------------
Penelope W. Kyle
/s/ Harry S. Taubenfeld Director March 24, 2000
- -----------------------------------
Harry S. Taubenfeld
/s/ Martin Zuckerbrod Director March 24, 2000
- -----------------------------------
Martin Zuckerbrod
</TABLE>
27
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
2 Agreement and Plan of Merger, dated as of March 30, 1999, by and among
the registrant, Apple Residential Income Trust, Inc. and Cornerstone
Acquisition Company (Incorporated by reference to Exhibit 2 included in
the registrant's Registration Statement on Form S-4; Registration
Statement No. 333-78117).
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 registrant's Report on Form 8-K dated May 12, 1998;
File No. 1-12875).
3.2 Articles of Amendment to the Amended and Restated Articles of
Incorporation of Cornerstone Realty Income Trust, Inc. (Incorporated by
reference to Exhibit 3.2 included in the registrant's Report on Form
8-K dated July 23, 1999; File No. 1-12875).
3.3 Bylaws of Cornerstone Realty Income Trust, Inc. (Amended Through July
15, 1999) (Incorporated by reference to Exhibit 3.3 included in the
registrant's Report on Form 8-K dated July 23, 1999; File No. 1-12875).
4.1 Amended and Restated Credit Agreement dated as of July 9, 1999, by and
among Cornerstone Realty Income Trust, Inc., CRIT-NC, LLC, Cornerstone
REIT Limited Partnership, and any Additional Borrowers party thereto,
as Borrowers, the Lenders referred to therein, First Union National
Bank, as Administrative Agent, and Fleet National Bank, as Syndication
Agent (Incorporated by reference to Exhibit 4.1 included in the
registrant's Report on Form 8-K dated June 25, 1999; File No. 1-12875).
4.2 Joinder Agreement dated July 26, 1999 to the Amended and Restated
Credit Agreement dated as of July 9, 1999, by and among Cornerstone
Realty Income Trust, Inc. and its subsidiaries, as Borrowers, the
lenders party to the Amended and Restated Credit Agreement, First Union
National Bank, as Administrative Agent, and Fleet National Bank, as
Syndication Agent (Incorporated by reference to Exhibit 4.2 included in
the registrant's Report on Form 8-K dated June 25, 1999; File No.
1-12875).
4.3 Lender Addition and Acknowledgement Agreement dated July 27, 1999 to
the Amended and Restated Credit Agreement dated as of July 9, 1999, by
and among Cornerstone Realty Income Trust, Inc. and its subsidiaries,
as Borrowers, the Lenders who are or may become party thereto, First
Union National Bank, as Administrative Agent, and Fleet National Bank
as Syndication Agent (Incorporated by reference to Exhibit 4.3 included
in the registrant's Report on Form 8-K dated June 25, 1999; File No.
1-12875).
28
<PAGE>
Exhibit
No. Description
- ------- -----------
4.4 (1) Replacement Revolving Credit Note dated July 27, 1999 in the
principal amount of up to $60,000,000 made payable by Cornerstone
Realty Income Trust, Inc. and its subsidiaries to the order of First
Union National Bank, and (2) Revolving Credit Note dated July 27, 1999
in the principal amount of up to $35,000,000 made payable by
Cornerstone Realty Income Trust, Inc. and its subsidiaries to the order
of Wachovia Bank, N.A., and (3) Replacement Revolving Credit Note dated
July 27, 1999 in the principal amount of up to $35,000,000 made payable
by Cornerstone Realty Income Trust, Inc. and its subsidiaries to the
order of Fleet National Bank, and (4) Replacement Revolving Credit Note
dated July 27, 1999 in the principal amount of up to $30,000,000 made
payable by Cornerstone Realty Income Trust, Inc. and its subsidiaries
to the order of Guaranty Federal Bank, F.S.B., and (5) Replacement
Revolving Credit Note dated July 27, 1999 in the principal amount of up
to $25,000,000 made payable by Cornerstone Realty Income Trust, Inc.
and its subsidiaries to the order of Crestar Bank (Incorporated by
reference to Exhibit 4.4 included in the registrant's Report on Form
8-K dated June 25, 1999; File No. 1-12875).
4.5 Loan Letter Agreement dated June 25, 1999 among Cornerstone Realty
Income Trust, Inc., CRIT-NC, LLC and Cornerstone REIT Limited
Partnership as Borrowers, and First Union National Bank as Lender,
pertaining to a loan in the amount of $5,500,000 (Incorporated by
reference to Exhibit 4.5 included in the registrant's Report on Form
8-K dated June 25, 1999; File No. 1-12875).
4.6 Promissory Note dated September 27, 1999 in the principal amount of
$50,550,000 made payable by Cornerstone Realty Income Trust, Inc. to
the order of The Prudential Insurance Company of America (Incorporated
by reference to Exhibit 4.1 included in the registrant's Report on Form
8-K dated September 29, 1999; File No. 1-12875).
4.7 Promissory Note dated September 27, 1999 in the principal amount of
$22,950,000 made payable by CRIT-NC, LLC to the order of The Prudential
Insurance Company of America (Incorporated by reference to Exhibit 4.2
included in the registrant's Report on Form 8-K dated September 29,
1999; File No. 1-12875).
4.8 Mortgage and Security Agreement dated as of September 27, 1999 from
Cornerstone Realty Income Trust, Inc., as borrower, to The Prudential
Insurance Company of America, as lender, pertaining to the Hampton
Pointe and Westchase properties (Incorporated by reference to Exhibit
4.3 included in the registrant's Report on Form 8-K dated September 29,
1999; File No. 1-12875).
4.9 Mortgage and Security Agreement dated as of September 27, 1999 from
Cornerstone Realty Income Trust, Inc., as borrower, to The Prudential
Insurance Company of America, as lender, pertaining to the Arbors at
Windsor Lake property (Incorporated by reference to Exhibit 4.4
included in the registrant's Report on Form 8-K dated September 29,
1999; File No. 1-12875).
29
<PAGE>
Exhibit
No. Description
- ------- -----------
4.10 Deed of Trust and Security Agreement dated as of September 27, 1999
made by CRIT-NC, LLC, as borrower, for the benefit of The Prudential
Insurance Company of America, as lender, pertaining to the Charleston
Place and Stone Point properties (Incorporated by reference to Exhibit
4.5 included in the registrant's Report on Form 8-K dated September 29,
1999; File No. 1-12875).
4.11 Deed of Trust and Security Agreement dated as of September 27, 1999
made by CRIT-NC, LLC, as borrower, for the benefit of The Prudential
Insurance Company of America, as lender, pertaining to the St. Regis
and Remington Place properties (Incorporated by reference to Exhibit
4.6 included in the registrant's Report on Form 8-K dated September 29,
1999; File No. 1-12875).
4.12 Deed To Secure Debt and Security Agreement by Cornerstone Realty Income
Trust, Inc., as borrower, to The Prudential Insurance Company of
America, as lender, pertaining to the Ashley Run, Stone Brook and
Spring Lake properties (Incorporated by reference to Exhibit 4.7
included in the registrant's Report on Form 8-K dated September 29,
1999; File No. 1-12875).
4.13 Assignment of Leases and Rents dated as of September 27, 1999, by
Cornerstone Realty Income Trust, Inc. to The Prudential Insurance
Company of America (Charleston County, South Carolina) (Incorporated by
reference to Exhibit 4.8 included in the registrant's Report on Form
8-K dated September 29, 1999; File No. 1-12875).
4.14 Assignment of Leases and Rents dated as of September 27, 1999, by
Cornerstone Realty Income Trust, Inc. to The Prudential Insurance
Company of America (Richland County, South Carolina) (Incorporated by
reference to Exhibit 4.9 included in the registrant's Report on Form
8-K dated September 29, 1999; File No. 1-12875).
4.15 Assignment of Leases and Rents dated as of September 27, 1999, by
CRIT-NC, LLC to The Prudential Insurance Company of America
(Mecklenburg County, North Carolina) (Incorporated by reference to
Exhibit 4.10 included in the registrant's Report on Form 8-K dated
September 29, 1999; File No. 1-12875).
4.16 Assignment of Leases and Rents dated as of September 27, 1999, by
Cornerstone Realty Income Trust, Inc. to The Prudential Insurance
Company of America (Clayton County, Georgia) (Incorporated by reference
to Exhibit 4.11 included in the registrant's Report on Form 8-K dated
September 29, 1999; File No. 1-12875).
4.17 Assignment of Leases and Rents dated as of September 27, 1999, by
Cornerstone Realty Income Trust, Inc. to The Prudential Insurance
Company of America (Gwinnett County, Georgia) (Incorporated by
reference to Exhibit 4.12 included in the registrant's Report on Form
8-K dated September 29, 1999; File No. 1-12875).
30
<PAGE>
Exhibit
No. Description
- ------- -----------
4.18 Assignment of Leases and Rents dated as of September 27, 1999, by
CRIT-NC, LLC to The Prudential Insurance Company of America (Wake
County, North Carolina) (Incorporated by reference to Exhibit 4.13
included in the registrant's Report on Form 8-K dated September 29,
1999; File No. 1-12875).
The registrant agrees to furnish the Securities and Exchange Commission
on request a copy of any instrument with respect to long-term debt of the
registrant or its subsidiaries the total amount of securities authorized under
which does not exceed 10% of the total assets of the registrant and its
subsidiaries on a consolidated basis.
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
Cornerstone Realty Income Trust, Inc. and First Union National Bank of
North Carolina (Incorporated by reference to Exhibit 10.19 to the
registrant'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. (Incorporated by reference to
Exhibit 10.8 to the registrant's Report on Form 10-K for the Year Ended
December 31, 1997; File No. 1-12875).
31
<PAGE>
Exhibit
No. Description
- ------- -----------
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 First Amendment to the Cornerstone Realty Income Trust, Inc. 1992
Incentive Plan. 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. (Incorporated by reference to Exhibit 10.24 to the
registrant's Report on Form 10-K for the Year Ended December 31, 1997;
File No. 1-12875).
10.12 First Amendment to the 1992 Incentive Plan Nonstatutory Stock Option
Agreement 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. (Incorporated by reference to Exhibit 10.25 to the
registrant's Report on Form 10-K for the Year Ended December 31, 1997;
File No. 1-12875).
10.13 First Amendment to the 1992 Incentive Plan Nonstatutory Stock Option
Agreement 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. (Incorporated by reference to Exhibit 10.26 to the
registrant's Report on Form 10-K for the Year Ended December 31, 1997;
File No. 1-12875).
10.14 First Amendment to the Cornerstone Realty Income Trust, Inc. 1992
Non-Employee Directors Stock Option Plan. 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. (Incorporated by reference to
Exhibit 10.1 to the registrant's Current Report on Form 8-K dated May
12, 1998; File No. 1-12875).
10.15 Articles of Organization of CRIT-NC, LLC (Incorporated by reference to
Exhibit 10.1 included in the registrant's Current Report on Form 8-K
dated December 30, 1997; File No. 0-23954.)
10.16 Operating Agreement of CRIT-NC, LLC dated as of December 9, 1997
(Incorporated by reference to Exhibit 10.2 included in the registrant's
Current Report on Form 8-K dated December 30, 1997; File No. 0-23954).
32
<PAGE>
Exhibit
No. Description
- ------- -----------
10.17 Environmental Indemnity Agreement dated as of September 27, 1999 by
Cornerstone Realty Income Trust, Inc. in favor of The Prudential
Insurance Company of America referring to the $50,550,000 Promissory
Note (Incorporated by reference to Exhibit 10.1 included in the
registrant's Report on Form 8-K dated September 29, 1999; File No.
1-12875).
10.18 Environmental Indemnity Agreement dated as of September 27, 1999 by
CRIT-NC, LLC and Cornerstone Realty Income Trust, Inc. in favor of The
Prudential Insurance Company of America referring to the $22,950,000
Note (Incorporated by reference to Exhibit 10.2 included in the
registrant's Report on Form 8-K dated September 29, 1999; File No.
1-12875).
10.19 Unconditional and Irrevocable Guaranty of Payment and Performance
(Recourse Carveouts) dated as of September 27, 1999 made by Cornerstone
Realty Income Trust, Inc. in favor of The Prudential Insurance Company
of America pertaining to the $22,950,000 Promissory Note (Incorporated
by reference to Exhibit 10.3 included in the registrant's Report on
Form 8-K dated September 29, 1999; File No. 1-12875).
10.20 Unconditional and Irrevocable Guaranty of Payment and Performance
(Cross-Collateralization) dated as of September 27, 1999 made by
Cornerstone Realty Income Trust, Inc. in favor of The Prudential
Insurance Company of America pertaining to the $22,950,000 Promissory
Note (Incorporated by reference to Exhibit 10.4 included in the
registrant's Report on Form 8-K dated September 29, 1999; File No.
1-12875).
10.21 Unconditional and Irrevocable Guaranty of Payment and Performance
(Cross-Collateralization) dated as of September 27, 1999 made by
CRIT-NC, LLC in favor of The Prudential Insurance Company of America
pertaining to the $50,550,000 Promissory Note (Incorporated by
reference to Exhibit 10.5 included in the registrant's Report on Form
8-K dated September 29, 1999; File No. 1-12875).
10.22 Articles of Incorporation of Apple General, Inc. (Incorporated by
reference to Exhibit 10.14 filed in the registration statement on Form
S-11 of Apple Residential Income Trust, Inc.; File No. 333-10635).
10.23 Bylaws of Apple General, Inc. (Incorporated by reference to Exhibit
10.15 filed in the registration statement on Form S-11 of Apple
Residential Income Trust, Inc.; File No. 333-10635).
10.24 Articles of Incorporation of Apple Limited, Inc. (Incorporated by
reference to Exhibit 10.12 filed in the registration statement on Form
S-11 of Apple Residential Income Trust, Inc.; File No. 333-10635).
10.25 Bylaws of Apple Limited, Inc. (Incorporated by reference to Exhibit
10.13 filed in the registration statement on Form S-11 of Apple
Residential Income Trust, Inc.; File No. 333-10635).
33
<PAGE>
Exhibit
No. Description
- ------- -----------
10.26 Certificate of Limited Partnership of Apple REIT Limited Partnership
(Incorporated by reference to Exhibit 10.16 filed in the registration
statement on Form S-11 of Apple Residential Income Trust, Inc.; File
No. 333-10635).
10.27 Limited Partnership Agreement of Apple REIT Limited Partnership
(Incorporated by reference to Exhibit 10.17 filed in the registration
statement on Form S-11 of Apple Residential Income Trust, Inc.; File
No. 333-10635).
10.28 Certificate of Limited Partnership for Apple REIT II Limited
Partnership (Incorporated by reference to Exhibit 10.1 to Current
Report on Form 8-K dated July 9, 1998 of Apple Residential Income
Trust, Inc.; File No. 0-23983).
10.29 Limited Partnership Agreement for Apple REIT II Limited Partnership
(Incorporated by reference to Exhibit 10.6 to Current Report on Form
8-K dated July 9, 1998 of Apple Residential Income Trust, Inc.; File
No. 0-23983).
10.30 Certificate of Limited Partnership for Apple REIT III Limited
Partnership (Incorporated by reference to Exhibit 10.2 to Current
Report on Form 8-K dated July 9, 1998 of Apple Residential Income
Trust, Inc.; File No. 0-23983).
10.31 Limited Partnership Agreement for Apple REIT III Limited Partnership
(Incorporated by reference to Exhibit 10.7 to Current Report on Form
8-K dated July 9, 1998 of Apple Residential Income Trust, Inc.; File
No. 0-23983).
10.32 Certificate of Limited Partnership for Apple REIT IV Limited
Partnership (Incorporated by reference to Exhibit 10.3 to Current
Report on Form 8-K dated July 9, 1998 of Apple Residential Income
Trust, Inc.; File No. 0-23983).
10.33 Limited Partnership Agreement for Apple REIT IV Limited Partnership
(Incorporated by reference to Exhibit 10.8 to Current Report on Form
8-K dated July 9, 1998 of Apple Residential Income Trust, Inc.; File
No. 0-23983).
10.34 Certificate of Limited Partnership for Apple REIT V Limited Partnership
(Incorporated by reference to Exhibit 10.4 to Current Report on Form
8-K dated July 9, 1998 of Apple Residential Income Trust, Inc.; File
No. 0-23983).
10.35 Limited Partnership Agreement for Apple REIT V Limited Partnership
(Incorporated by reference to Exhibit 10.9 to Current Report on Form
8-K dated July 9, 1998 of Apple Residential Income Trust, Inc.; File
No. 0-23983).
10.36 Certificate of Limited Partnership for Apple REIT VI Limited
Partnership (Incorporated by reference to Exhibit 10.5 to Current
Report on Form 8-K dated July 9, 1998 of Apple Residential Income
Trust, Inc.; File No. 0-23983)
34
<PAGE>
Exhibit
No. Description
- ------- -----------
10.37 Limited Partnership Agreement for Apple REIT VI Limited Partnership
(Incorporated by reference to Exhibit 10.10 to Current Report on Form
8-K dated July 9, 1998 of Apple Residential Income Trust, Inc.; File
No. 0-23983).
10.38 Certificate of Limited Partnership of Apple REIT VII Limited
Partnership (Incorporated by reference to Exhibit 10.3 to Current
Report on Form 8-K dated February 1, 1999 of Apple Residential Income
Trust, Inc.; File No. 0-23983).
10.39 Limited Partnership Agreement of Apple REIT VII Limited Partnership
(Incorporated by reference to Exhibit 10.4 to Current Report on Form
8-K dated February 1, 1999 of Apple Residential Income Trust, Inc.;
File No. 0-23983).
10.40 Apple Residential Income Trust, Inc. 1996 Non-Employee Directors Stock
Option Plan. 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 (Incorporated by reference to Exhibit 99 to the
Registration Statement on Form S-8 of Apple Residential Income Trust,
Inc., as filed with the Securities and Exchange Commission on September
30, 1998; File No. 333-64703).
10.41 Apple Residential Income Trust, Inc. 1996 Incentive Plan. 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 (Incorporated
by reference to Exhibit 99 to the Registration Statement on Form S-8 of
Apple Residential Income Trust, Inc., as filed with the Securities and
Exchange Commission on September 30, 1998; File No. 333-64701).
10.42 Articles of Incorporation of Cornerstone Acquisition Company, as
amended by Articles of Amendment thereto (FILED HEREWITH).
10.43 Bylaws of Cornerstone Acquisition Company. (FILED HEREWITH).
10.44 Articles of Incorporation of CRIT-SC, Inc. (FILED HEREWITH).
10.45 Bylaws of CRIT-SC, Inc. (FILED HEREWITH).
10.46 Articles of Organization of CRIT-SC, LLC. (FILED HEREWITH).
10.47 Operating Agreement of CRIT-SC, LLC. (FILED HEREWITH).
10.48 Certificate of Limited Partnership of CRIT-Cornerstone Limited
Partnership. (FILED HEREWITH).
10.49 Limited Partnership Agreement of CRIT-Cornerstone Limited Partnership.
(FILED HEREWITH).
10.50 Stock Option Agreement dated July 23, 1999 between Glade M. Knight and
Cornerstone Realty Income Trust, Inc. 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).
35
<PAGE>
Exhibit
No. Description
- ------- -----------
12 Statement regarding computation of Ratio of Earnings to Fixed Charges.
(FILED HEREWITH).
13 Portions of the registrant's 1999 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 1999 Annual
Report is to be deemed filed as a part of this Form 10-K Report).
(FILED HEREWITH).
21 Subsidiaries of Cornerstone Realty Income Trust, Inc. (FILED HEREWITH).
23 Consent of Independent Auditors. (FILED HEREWITH).
27 Financial Data Schedule. (FILED HEREWITH).
(1) Incorporated herein by reference to the Exhibit referred to in
parentheses which was filed as an Exhibit to the registrant'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 registrant's Report on Form 8-K dated
September 26, 1996 (File No. 0-23954).
36
EXHIBIT 10.42
CORNERSTONE ACQUISITION COMPANY
ARTICLES OF INCORPORATION
ARTICLE I
NAME
The name of the Corporation is Cornerstone Acquisition Company.
ARTICLE II
PURPOSE
The Corporation is organized to engage in any lawful business not
required by the Virginia Stock Corporation Act to be stated in the Articles of
Incorporation.
ARTICLE III
AUTHORIZED SHARES
3.1 Number and Designation. The Corporation shall have authority to
issue 2,000,000 Common Shares, no par value.
3.2 Preemptive Rights. No holder of outstanding shares shall have any
preemptive right with respect to (i) any shares of any class of the Corporation,
whether now or hereafter authorized, (ii) any warrants, rights or options to
purchase any such shares, or (iii) any obligations convertible into any such
shares or into warrants, rights or options to purchase any such shares.
3.3 Voting; Distributions. The holders of the Common Shares shall have
unlimited voting rights and are entitled to receive the net assets of the
Corporation upon the liquidation, dissolution or winding up of the affairs of
the Corporation.
<PAGE>
ARTICLE IV
REGISTERED OFFICE AND REGISTERED AGENT
The address of the initial registered office of the Corporation, which
is located in the City of Richmond, Virginia, is c/o McGuire, Woods, Battle &
Boothe LLP, 901 East Cary Street, Richmond, Virginia, 23219. The initial
registered agent of the Corporation is Martin B. Richards, whose business office
is identical with the registered office and who is a resident of Virginia and a
member of the Virginia State Bar.
ARTICLE V
INDEMNIFICATION
5.1 Mandatory Indemnification. The Corporation (the term "Corporation"
as used in this Section 5.1 shall mean this Corporation only and no predecessor
entity or other legal entity) shall indemnify any individual who is, was or is
threatened to be made a party to a civil, criminal, administrative,
investigative or other proceeding (including a proceeding by or in the right of
the Corporation or by or on behalf of its shareholders) because such individual
is or was a director or officer of the Corporation or of any legal entity
controlled by the Corporation, or is or was a fiduciary of any employee benefit
plan established at the direction of the Corporation, against all liabilities
and reasonable expenses incurred by him on account of the proceeding, provided
that the directors of the Corporation (excluding the indemnified party)
determine in good faith that his course of conduct which caused the loss or
liability was in the best interests of the Corporation, and provided further
that such liabilities and expenses were not incurred because of his willful
misconduct, bad faith, reckless disregard of duties or knowing violation of the
criminal law. Before any indemnification is paid a determination shall be made
that indemnification is permissible in the circumstances because the person
seeking indemnification is eligible for indemnification and has met the standard
of conduct set forth above. Such determination shall be made in the manner
provided by Virginia law for determining that
<PAGE>
indemnification of a director is permissible, provided, however, that if a
majority of the directors of the Corporation has changed after the date of the
alleged conduct giving rise to a claim for indemnification, the determination
that indemnification is permissible shall, at the option of the person claiming
indemnification, be made by special legal counsel agreed upon by the Board of
Directors and such person. Unless a determination has been made that
indemnification is not permissible, the Corporation shall make advances and
reimbursement for expenses incurred by any of the persons named above upon
receipt of an undertaking from him or her to repay the same if it is ultimately
determined that such individual is not entitled to indemnification. The
Corporation is authorized to contract in advance to indemnify any of the persons
named above to the extent it is required to indemnify them pursuant to the
provisions of this Section 5.1.
5.2 Limit on Liability. In every instance in which the Virginia Stock
Corporation Act, as it exists on the date hereof or may hereafter be amended,
permits the limitation or elimination of liability of directors or officers of a
corporation to the corporation or its shareholders, the directors and officers
of the Corporation shall not be liable to the Corporation or its shareholders.
5.3 Miscellaneous. The rights of each person or entity entitled to
indemnification under this Article shall inure to the benefit of such person's
or entity's heirs, executors, administrators, successors, or assigns.
Indemnification pursuant to this Article shall not be exclusive of any other
right of indemnification to which any person may be entitled, including
indemnification pursuant to a valid contract, indemnification by legal entities
other than the Corporation, and indemnification under policies of insurance
purchased and maintained by the Corporation or others. However, no person shall
be entitled to indemnification by the Corporation to the extent such person is
indemnified by another, including an insurer.
<PAGE>
5.4 Amendments. No amendment, modification, or repeal of this Article
shall diminish the rights provided hereunder to any person or entity arising
from conduct or events occurring before the adoption of such amendment,
modification, or repeal.
Dated: March 15, 1999
By: /s/ Martin B. Richards
---------------------------------
Martin B. Richards, Incorporator
<PAGE>
CORNERSTONE ACQUISITION COMPANY
A VIRGINIA CORPORATION
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
These Articles of Amendment are being filed with the State Corporation
Commission of Virginia in accordance with Section 13.1-710 of the Code of
Virginia.
1. The name of the corporation is CORNERSTONE ACQUISITION COMPANY, a Virginia
corporation (the "Corporation").
2. The text of each amendment adopted is set forth in Exhibit A, which is
attached hereto and made a part hereof by this reference. The amendments add new
Articles VI and VII to the Articles of Incorporation.
3. Each amendment was adopted as of July 22, 1999.
4. The Board of Directors of the Corporation, by written consent dated July 22,
1999, found each amendment to be in the best interests of Corporation, approved
and adopted each amendment, and directed that each amendment be submitted to the
sole shareholder of the Corporation for its approval.
5. Each amendment was adopted by the sole shareholder of the Corporation by
written consent dated July 22, 1999.
DATE: July 22, 1999
CORNERSTONE ACQUISITION COMPANY
a Virginia corporation
By: /s/ Stanley J. Olander, Jr.
---------------------------------------
Stanley J. Olander, Jr., Vice President
<PAGE>
Exhibit A
ARTICLE VI
CERTAIN SHAREHOLDER ACTION
Pursuant to and as permitted by Section 13.1-657 of the Virginia Stock
Corporation Act (which shall be deemed to include any successor provision), if
the Corporation is not a "public corporation" (within the meaning of that
section or any successor provision) at the time action is to be taken, then any
action required or permitted by the Virginia Stock Corporation Act to be taken
at a shareholders' meeting may be taken without a meeting and without prior
notice (except as may be required by the Virginia Stock Corporation Act), if the
action is taken by shareholders who would be entitled to vote at a meeting of
holders of outstanding shares having the voting power to cast not less than the
minimum number (or numbers, in the case of voting by groups) of votes that would
be necessary to authorize or take the action at a meeting at which all
shareholders entitled to vote thereon were present and voted. All actions taken
pursuant to this Article VI of the Articles of Incorporation of the Corporation
shall be taken in accordance with Section 13.1-657 of the Virginia Stock
Corporation Act (or any successor provision).
ARTICLES VII
CERTAIN LIMITATIONS ON TRANSFERS OF COMMON SHARES
To help ensure that the Corporation qualifies and remains qualified as
a real estate investment trust ("REIT") for Federal income tax purposes, and
does not have less than the minimum number of shareholders for such
qualification, no Common Shares may be voluntarily sold, exchanged, transferred
or otherwise assigned by any holder thereof to any other holder of any
securities of the Corporation without the prior written consent of the Board of
Directors of the Corporation. The Board of Directors shall be deemed to have
acted reasonably in withholding consent when, in the Board's opinion, the
proposed sale, exchange, transfer or assignment, if completed, would jeopardize
or would create a significant risk of jeopardizing the Corporation's
qualification as a REIT. Any attempted sale, exchange, transfer or other
assignment in violation of this Article VII shall be ineffective and void. In
accordance with Section 13.1-649 of the Virginia Stock Corporation Act, the
Corporation shall use its best efforts to place a conspicuous notice of the
reasonable restrictions imposed by this Article VII on each certificate
representing the Common Shares and on each information statement provided in
lieu of a certificate.
EXHIBIT 10.43
CORNERSTONE ACQUISITION COMPANY
BYLAWS
ARTICLE I
MEETINGS OF SHAREHOLDERS
1.1 Place and Time of Meetings. Meetings of shareholders shall be held
at such place, either within or without the Commonwealth of Virginia, and at
such time, as may be provided in the notice of the meeting and approved by the
President or the Board of Directors.
1.2 Annual Meeting. The annual meeting of shareholders, shall be held
on the second Tuesday in July of each year, or on such date, as may be
designated by resolution of the Board of Directors from time to time for the
purpose of electing directors and conducting such other business as may properly
come before the meeting.
1.3 Special Meetings. Special meetings of the shareholders may be
called by the President or the Board of Directors and shall be called by the
Secretary upon demand of shareholders as required by law. Only business within
the purpose or purposes described in the notice for a special meeting of
shareholders may be conducted at the meeting.
1.4 Record Dates. The Board of Directors may fix, in advance, a record
date to make a determination of shareholders entitled to notice of, or to vote
at, any meeting of shareholders, to receive any dividend or for any purpose,
such date to be not more than 70 days before the meeting or action requiring a
determination of shareholders. If no such record date is set then the record
date shall be the close of business on the day before the date on which the
first notice is given.
When a determination of shareholders entitled to notice of or to vote
at any meeting of shareholders has been made, such determination shall be
effective for any adjournment of the
1
<PAGE>
meeting unless the Board of Directors fixes a new record date, which it shall do
if the meeting is adjourned to a date more than 120 days after the date fixed
for the original meeting.
1.5 Notice of Meetings. Written notice stating the place, day and hour
of each meeting of shareholders and, in case of a special meeting, the purpose
or purposes for which the meeting is called, shall be given not less than ten
nor more than 60 days before the date of the meeting (except when a different
time is required in these Bylaws or by law) either personally or by mail,
telephone, telegraph, teletype, telecopy or other form of wire or wireless
communication, or by private courier, to each shareholder of record entitled to
vote at such meeting and to such nonvoting shareholders as may be required by
law. If mailed, such notice shall be deemed to be effective when deposited in
first class United States mail with postage thereon prepaid, addressed to the
shareholder at his address as it appears on the share transfer books of the
Corporation. If given in any other manner, such notice shall be deemed to be
effective (i) when given personally or by telephone, (ii) when sent by
telegraph, teletype, telecopy or other form of wire or wireless communication or
(iii) when given to a private courier to be delivered.
If a meeting is adjourned to a different date, time or place, notice
need not be given if the new date, time or place is announced at the meeting
before adjournment. However, if a new record date for an adjourned meeting is
fixed, notice of the adjourned meeting shall be given to shareholders as of the
new record date, unless a court provides otherwise.
1.6 Waiver of Notice; Attendance at Meeting. A shareholder may waive
any notice required by law, the Articles of Incorporation or these Bylaws before
or after the date and time of the meeting that is the subject of such notice.
The waiver shall be in writing, be signed by the shareholder entitled to the
notice, and be delivered to the Secretary of the Corporation for inclusion in
the minutes or filing with the corporate records.
2
<PAGE>
A shareholder's attendance at a meeting (i) waives objection to lack of
notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting, and (ii) waives objection to consideration of a particular
matter at the meeting that is not within the purpose or purposes described in
the meeting notice, unless the shareholder objects to considering the matter
when it is presented.
1.7 Quorum and Voting Requirements. Unless otherwise required by law, a
majority of the votes entitled to be cast on a matter constitutes a quorum for
action on that matter. Once a share is represented for any purpose at a meeting,
it is deemed present for quorum purposes for the remainder of the meeting and
for any adjournment of that meeting unless a new record date is or shall be set
for that adjourned meeting. If a quorum exists, action on a matter, other than
the election of directors, is approved if the votes cast favoring the action
exceed the votes cast opposing the action, unless a greater number of
affirmative votes is required by law. Directors shall be elected by a plurality
of the votes cast by the shares entitled to vote in the election at a meeting at
which a quorum is present. Less than a quorum may adjourn a meeting.
1.8 Action Without Meeting. Action required or permitted to be taken at
a meeting of the shareholders may be taken without a meeting and without action
by the Board of Directors if the action is taken by all the shareholders
entitled to vote on the action. The action shall be evidenced by one or more
written consents describing the action taken, signed by all the shareholders and
delivered to the Secretary of the Corporation for inclusion in the minutes or
filing with the corporate records. Action taken by unanimous consent shall be
effective according to its terms when all consents are in the possession of the
Corporation, unless the consent specifies a different effective date, in which
event the action taken shall be effective as of the date specified therein
provided that the consent states the date of execution by each
3
<PAGE>
shareholder. A shareholder may withdraw a consent only by delivering a written
notice of withdrawal to the Corporation prior to the time that all consents are
in the possession of the Corporation.
If not otherwise fixed pursuant to the provisions of Section 1.5, the
record date for determining shareholders entitled to take action without a
meeting is the date the first shareholder signs the consent described in the
preceding paragraph.
ARTICLE II
DIRECTORS
2.1 General Powers. The Corporation shall have a Board of Directors.
All corporate powers shall be exercised by or under the authority of, and the
business and affairs of the Corporation managed under the direction of, its
Board of Directors, subject to any limitation set forth in the Articles of
Incorporation.
2.2 Number, Term and Election. The number of directors of the
Corporation shall be not less than one nor more than three. This number may be
changed from time to time by amendment to these Bylaws to increase or decrease
by 30 percent or less the number of directors last elected by the shareholders,
but only the shareholders may increase or decrease the number by more than 30
percent. No decrease in number shall have the effect of shortening the term of
any incumbent director. Each director shall hold office until his death,
resignation, retirement or removal or until his successor is elected.
Except as provided in Section 2.3 of this Article, the directors (other
than initial directors) shall be elected by the holders of the Common Shares at
the annual meeting of shareholders, and those persons who receive the greatest
number of votes shall be deemed elected even though they do not receive a
majority of the votes cast. No individual shall be named or elected as a
director without his prior consent.
4
<PAGE>
2.3 Removal; Vacancies. The shareholders may remove one or more
directors, with or without cause, if the number of votes cast to remove him
constitutes a majority of the votes entitled to be cast at an election of
directors. A director may be removed by the stockholders only at a meeting
called for the purpose of removing him and the meeting notice must state that
the purpose, or one of the purposes of the meeting, is removal of the director.
A vacancy on the Board of Directors, including a vacancy resulting from
the removal of a director or an increase in the number of directors, may be
filled by (i) the shareholders, (ii) the Board of Directors, or (iii) the
affirmative vote of a majority of the remaining directors though less than a
quorum of the Board of Directors, and may, in the case of a resignation that
will become effective at a specified later date, be filled before the vacancy
occurs but the new director may not take office until the vacancy occurs.
2.4 Annual and Regular Meetings. An annual meeting of the Board of
Directors, which shall be considered a regular meeting, shall be held
immediately following each annual meeting of shareholders, for the purpose of
electing officers and carrying on such other business as may properly come
before the meeting. The Board of Directors may also adopt a schedule of
additional meetings which shall be considered regular meetings. Regular meetings
shall be held at such times and at such places, within or without the
Commonwealth of Virginia, as the President or the Board of Directors shall
designate from time to time. If no place is designated, regular meetings shall
be held at the principal office of the Corporation.
2.5 Special Meetings. Special meetings of the Board of Directors may be
called by the President or a majority of the directors of the Corporation, and
shall be held at such times and at such places, within or without the
Commonwealth of Virginia, as the person or persons calling
5
<PAGE>
the meetings shall designate. If no such place is designated in the notice of a
meeting, it shall be held at the principal office of the Corporation.
2.6 Notice of Meetings. No notice need be given of regular meetings of
the Board of Directors. Notices of special meetings of the Board of Directors
shall be given to each director in person or delivered to his residence or
business address (or such other place as he may have directed in writing) not
less than twenty-four (24) hours before the meeting by mail, messenger,
telecopy, telegraph, or other means of written communication or by telephoning
such notice to him. Any such notice shall set forth the time and place of the
meeting and state the purpose for which it is called.
2.7 Waiver of Notice; Attendance at Meeting. A director may waive any
notice required by law, the Articles of Incorporation, or these Bylaws before or
after the date and time stated in the notice, and such waiver shall be
equivalent to the giving of such notice. Except as provided in the next
paragraph of this section, the waiver shall be in writing, signed by the
director entitled to the notice and filed with the minutes or corporate records.
A director's attendance at or participation in a meeting waives any
required notice to him of the meeting unless the director at the beginning of
the meeting or promptly upon his arrival objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or assent
to action taken at the meeting.
2.8 Quorum; Voting. A majority of the number of directors fixed in
these Bylaws shall constitute a quorum for the transaction of business at a
meeting of the Board of Directors. If a quorum is present when a vote is taken,
the affirmative vote of a majority of the directors present is the act of the
Board of Directors. A director who is present at a meeting of the Board of
Directors or a committee of the Board of Directors when corporate action is
taken is deemed to
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have assented to the action taken unless (i) he objects at the beginning of the
meeting, or promptly upon his arrival, to holding it or transacting specified
business at the meeting; or (ii) he votes against, or abstains from, the action
taken.
2.9 Telephonic Meetings. The Board of Directors may permit any or all
directors to participate in a regular or special meeting by, or conduct the
meeting through the use of, any means of communication by which all directors
participating may simultaneously hear each other during the meeting. A director
participating in a meeting by this means is deemed to be present in person at
the meeting.
2.10 Action Without Meeting. Action required or permitted to be taken
at a meeting of the Board of Directors may be taken without a meeting if the
action is taken by all members of the Board. The action shall be evidenced by
one or more written consents stating the action taken, signed by each director
either before or after the action taken, and included in the minutes or filed
with the corporate records reflecting the action taken. Action taken under this
section shall be effective when the last director signs the consent unless the
consent specifies a different effective date, in which event the action taken is
effective as of the date specified therein provided the consent states the date
of execution by each director.
2.11 Compensation. The Board of Directors may fix the compensation of
directors and may provide for the payment of all expenses incurred by them in
attending meetings of the Board of Directors.
ARTICLE III
OFFICERS
3.1 Officers. The officers of the Corporation shall be a President, and
a Secretary, and, in the discretion of the Board of Directors, one or more Vice
Presidents and such other officers
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as may be deemed necessary or advisable to carry on the business of the
Corporation. Any two or more offices may be held by the same person.
3.2 Election; Term. Officers shall be elected at the annual meeting of
the Board of Directors and may be elected at such other time or times as the
Board of Directors shall determine. They shall hold office, unless removed,
until the next annual meeting of the Board of Directors or until their
successors are elected. Any officer may resign at any time upon written notice
to the Board of Directors, and such resignation shall be effective when notice
is delivered unless the notice specifies a later effective date.
3.3 Removal of Officers. The Board of Directors may remove any officer
at any time, with or without cause.
3.4 Duties of Officers. The President shall be the Chief Executive
Officer of the Corporation. He and the other officers shall have such powers and
duties as generally pertain to their respective offices as well as such powers
and duties as may be delegated to them from time to time by the Board of
Directors. The Chief Executive Officer, if he is present, shall be chairman of
all meetings of the shareholders and the Board of Directors, as well as any
committee of which he is a member.
ARTICLE IV
SHARE CERTIFICATES
4.1 Form. Shares of the Corporation shall, when fully paid, be
evidenced by certificates containing such information as is required by law and
approved by the Board of Directors. Certificates shall be signed by the
President and the Secretary and may (but need not) be sealed with the seal of
the Corporation. The seal of the Corporation and any or all signatures on a
share certificate may be facsimile. If any officer who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer before such certificate is issued it
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may be issued by the Corporation with the same effect as if he were such officer
on the date of issue.
4.2 Transfer. The Board of Directors may make rules and regulations
concerning the issue, registration and transfer of certificates representing the
shares of the Corporation. Transfers of shares and of the certificates
representing such shares shall be made upon the books of the Corporation by
surrender of the certificates representing such shares accompanied by written
assignments given by the owners or their attorneys-in-fact.
4.3 Restrictions on Transfer. A lawful restriction on the transfer or
registration of transfer of shares is valid and enforceable against the holder
or a transferee of the holder if the restriction complies with the requirements
of law and its existence is noted conspicuously on the front or back of the
certificate representing the shares. Unless so noted a restriction is not
enforceable against a person without knowledge of the restriction.
4.4 Lost or Destroyed Share Certificates. The Corporation may issue a
new share certificate in the place of any certificate theretofore issued which
is alleged to have been lost or destroyed and may require the owner of such
certificate, or his legal representative, to give the Corporation a bond, with
or without surety, or such other agreement, undertaking or security as the Board
of Directors shall determine is appropriate, to indemnify the Corporation
against any claim that may be made against it on account of the alleged loss or
destruction or the issuance of any such new certificate.
ARTICLE V
MISCELLANEOUS PROVISIONS
5.1 Fiscal Year. The fiscal year of the Corporation shall be set by the
Board of Directors.
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5.2 Amendments. These Bylaws may be amended or repealed, and new Bylaws
may be made at any regular or special meeting of the Board of Directors. Bylaws
made by the Board of Directors may be repealed or changed and new Bylaws may be
made by the shareholders, and the shareholders may prescribe that any Bylaw made
by them shall not be altered, amended or repealed by the Board of Directors.
10
EXHIBIT 10.44
CRIT-SC, INC.
ARTICLES OF INCORPORATION
ARTICLE I
NAME
The name of the Corporation is CRIT-SC, Inc. (the "Corporation").
ARTICLE II
PURPOSE
The Corporation is organized to engage in any lawful business not
required by the Virginia Stock Corporation Act to be stated in the Articles of
Incorporation.
ARTICLE III
AUTHORIZED SHARES
3.1 Number and Designation. The number and designation of shares that
the Corporation shall have authority to issue are as follows:
Class Number of Shares
----- ----------------
Common 5,000
3.2 Preemptive Rights. No holder of outstanding shares shall have any
preemptive right with respect to (i) any shares of any class of the Corporation,
whether now or hereafter authorized, (ii) any warrants, rights or options to
purchase any such shares, or (iii) any obligations convertible into any such
shares or into warrants, rights or options to purchase any such shares.
3.3 Voting; Distributions. The holders of the Common Shares shall have
unlimited voting rights and are entitled to receive the net assets of the
Corporation upon the liquidation, dissolution or winding up of the affairs of
the Corporation.
<PAGE>
ARTICLE IV
REGISTERED OFFICE AND REGISTERED AGENT
The address of the initial registered office of the Corporation, which
is located in the City of Richmond, Virginia, is c/o McGuire, Woods, Battle &
Boothe LLP, 901 East Cary Street, One James Center, Richmond, Virginia 23219.
The initial registered agent of the Corporation is James W. C. Canup, whose
business office is identical with the registered office and who is a resident of
Virginia and a member of the Virginia State Bar.
ARTICLE V
INDEMNIFICATION
5.1 Mandatory Indemnification. The Corporation (the term "Corporation"
as used in this Section 5.1 shall mean this Corporation only and no predecessor
entity or other legal entity) shall indemnify any individual who is, was or is
threatened to be made a party to a civil, criminal, administrative,
investigative or other proceeding (other than a proceeding by or in the right of
the Corporation or by or on behalf of its shareholders, or a proceeding in which
he or she was adjudged liable on the basis of having improperly received a
personal benefit) because such individual is or was a director or officer of the
Corporation or of any other legal entity controlled by the Corporation, or is or
was a fiduciary of any employee benefit plan established at the direction of the
Corporation, against all liabilities and reasonable expenses incurred by him or
her on account of the proceeding. Indemnification pursuant to this Section 5.1
shall be subject to the following conditions: (i) if the proceeding relates to
the performance of duties by the individual seeking indemnification, such
individual shall have conducted himself or herself in good faith and believed
that his or her conduct was in the best interests of the legal entity he or she
was serving or of its participants, if such legal entity was an employee benefit
plan; (ii) if the
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proceeding is a criminal proceeding, the individual seeking indemnification
shall have no reasonable cause to believe that his or her conduct prior to the
initiation of the proceeding was unlawful; and (iii) if the proceeding is any
other type of proceeding, the individual seeking indemnification, prior to the
initiation of the proceeding, shall have conducted himself or herself in good
faith and believed that his or her conduct was at least not opposed to the best
interests of the legal entity such individual was serving or its participants,
if such legal entity was an employee benefit plan. Before any indemnification is
paid a determination shall be made that indemnification is permissible in the
circumstances because the person seeking indemnification has met the standard of
conduct set forth above. Such determination shall be made in the manner provided
by Virginia law for determining that indemnification of a director is
permissible. Unless a determination has been made that indemnification is not
permissible, the Corporation shall make advances and reimbursement for expenses
incurred by any of the persons named above upon receipt of an undertaking from
him or her to repay the same if it is ultimately determined that such individual
is not entitled to indemnification. The Corporation is authorized to contract in
advance to indemnify any of the persons named above to the extent it is required
to indemnify them pursuant to the provisions of this Section 5.1.
5.2 Miscellaneous. The rights of each person entitled to
indemnification under this Article shall inure to the benefit of such person's
heirs, executors and administrators. Indemnification pursuant to this Article
shall not be exclusive of any other right of indemnification to which any person
may be entitled, including indemnification pursuant to a valid contract,
indemnification by legal entities other than the Corporation and
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indemnification under policies of insurance purchased and maintained by the
Corporation or others. However, no person shall be entitled to indemnification
by the Corporation to the extent such person is indemnified by another including
an insurer.
Dated: December 22, 1999
By: /s/ Martin B. Richards
--------------------------------
Martin B. Richards, Incorporator
4
EXHIBIT 10.45
CRIT-SC, INC.
BYLAWS
ARTICLE I
MEETINGS OF SHAREHOLDERS
1.1 PLACE AND TIME OF MEETINGS. Meetings of shareholders shall be held
at such place, either within or without the Commonwealth of Virginia, and at
such time, as may be provided in the notice of the meeting and approved by the
President or the Board of Directors.
(A) ANNUAL MEETING. The annual meeting of shareholders, shall
be held on the second Tuesday in July of each year, or on such date, as may be
designated by resolution of the Board of Directors from time to time for the
purpose of electing directors and conducting such other business as may properly
come before the meeting.
(B) SPECIAL MEETINGS. Special meetings of the shareholders may
be called by the President or the Board of Directors and shall be called by the
Secretary upon demand of shareholders as required by law. Only business within
the purpose or purposes described in the notice for a special meeting of
shareholders may be conducted at the meeting.
(C) RECORD DATES. The Board of Directors may fix, in advance,
a record date to make a determination of shareholders entitled to notice of, or
to vote at, any meeting of shareholders, to receive any dividend or for any
purpose, such date to be not more than 70 days before the meeting or action
requiring a determination of shareholders. If no such record date is set then
the record date shall be the close of business on the day before the date on
which the first notice is given.
When a determination of shareholders entitled to notice of or to vote
at any meeting of shareholders has been made, such determination shall be
effective for any adjournment of the
<PAGE>
meeting unless the Board of Directors fixes a new record date, which it shall do
if the meeting is adjourned to a date more than 120 days after the date fixed
for the original meeting.
1.2 NOTICE OF MEETINGS. Written notice stating the place, day and hour
of each meeting of shareholders and, in case of a special meeting, the purpose
or purposes for which the meeting is called, shall be given not less than ten
nor more than 60 days before the date of the meeting (except when a different
time is required in these Bylaws or by law) either personally or by mail,
telephone, telegraph, teletype, telecopy or other form of wire or wireless
communication, or by private courier, to each shareholder of record entitled to
vote at such meeting and to such nonvoting shareholders as may be required by
law. If mailed, such notice shall be deemed to be effective when deposited in
first class United States mail with postage thereon prepaid, addressed to the
shareholder at his address as it appears on the share transfer books of the
Corporation. If given in any other manner, such notice shall be deemed to be
effective (i) when given personally or by telephone, (ii) when sent by
telegraph, teletype, telecopy or other form of wire or wireless communication or
(iii) when given to a private courier to be delivered.
If a meeting is adjourned to a different date, time or place, notice
need not be given if the new date, time or place is announced at the meeting
before adjournment. However, if a new record date for an adjourned meeting is
fixed, notice of the adjourned meeting shall be given to shareholders as of the
new record date, unless a court provides otherwise.
1.3 WAIVER OF NOTICE; ATTENDANCE AT MEETING. A shareholder may waive
any notice required by law, the Articles of Incorporation or these Bylaws before
or after the date and time of the meeting that is the subject of such notice.
The waiver shall be in writing, be signed by the shareholder entitled to the
notice, and be delivered to the Secretary of the Corporation for inclusion in
the minutes or filing with the corporate records.
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A shareholder's attendance at a meeting (i) waives objection to lack of
notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting, and (ii) waives objection to consideration of a particular
matter at the meeting that is not within the purpose or purposes described in
the meeting notice, unless the shareholder objects to considering the matter
when it is presented.
1.4 QUORUM AND VOTING REQUIREMENTS. Unless otherwise required by law, a
majority of the votes entitled to be cast on a matter constitutes a quorum for
action on that matter. Once a share is represented for any purpose at a meeting,
it is deemed present for quorum purposes for the remainder of the meeting and
for any adjournment of that meeting unless a new record date is or shall be set
for that adjourned meeting. If a quorum exists, action on a matter, other than
the election of directors, is approved if the votes cast favoring the action
exceed the votes cast opposing the action, unless a greater number of
affirmative votes is required by law. Directors shall be elected by a plurality
of the votes cast by the shares entitled to vote in the election at a meeting at
which a quorum is present. Less than a quorum may adjourn a meeting.
1.5 ACTION WITHOUT MEETING. Action required or permitted to be taken at
a meeting of the shareholders may be taken without a meeting and without action
by the Board of Directors if the action is taken by all the shareholders
entitled to vote on the action. The action shall be evidenced by one or more
written consents describing the action taken, signed by all the shareholders and
delivered to the Secretary of the Corporation for inclusion in the minutes or
filing with the corporate records. Action taken by unanimous consent shall be
effective according to its terms when all consents are in the possession of the
Corporation, unless the consent specifies a different effective date, in which
event the action taken shall be effective as of the date specified therein
provided that the consent states the date of execution by each
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shareholder. A shareholder may withdraw a consent only by delivering a written
notice of withdrawal to the Corporation prior to the time that all consents are
in the possession of the Corporation.
If not otherwise fixed pursuant to the provisions of Section 1.5, the
record date for determining shareholders entitled to take action without a
meeting is the date the first shareholder signs the consent described in the
preceding paragraph.
ARTICLE II
DIRECTORS
2.1 GENERAL POWERS. The Corporation shall have a Board of Directors.
All corporate powers shall be exercised by or under the authority of, and the
business and affairs of the Corporation managed under the direction of, its
Board of Directors, subject to any limitation set forth in the Articles of
Incorporation.
2.2 NUMBER, TERM AND ELECTION. The number of directors of the
Corporation shall be not less than one nor more than three. This number may be
changed from time to time by amendment to these Bylaws to increase or decrease
by 30 percent or less the number of directors last elected by the shareholders,
but only the shareholders may increase or decrease the number by more than 30
percent. No decrease in number shall have the effect of shortening the term of
any incumbent director. Each director shall hold office until his death,
resignation, retirement or removal or until his successor is elected.
Except as provided in Section 2.3 of this Article, the directors (other
than initial directors) shall be elected by the holders of the Common shares at
the annual meeting of shareholders, and those persons who receive the greatest
number of votes shall be deemed elected even though
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they do not receive a majority of the votes cast. No individual shall be named
or elected as a director without his prior consent.
2.3 REMOVAL; VACANCIES. The shareholders may remove one or more
directors, with or without cause, if the number of votes cast to remove him
constitutes a majority of the votes entitled to be cast at an election of
directors. A director may be removed by the stockholders only at a meeting
called for the purpose of removing him and the meeting notice must state that
the purpose, or one of the purposes of the meeting, is removal of the director.
A vacancy on the Board of Directors, including a vacancy resulting from
the removal of a director or an increase in the number of directors, may be
filled by (i) the shareholders, (ii) the Board of Directors or (iii) the
affirmative vote of a majority of the remaining directors though less than a
quorum of the Board of Directors, and may, in the case of a resignation that
will become effective at a specified later date, be filled before the vacancy
occurs but the new director may not take office until the vacancy occurs.
2.4 ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of
Directors, which shall be considered a regular meeting, shall be held
immediately following each annual meeting of shareholders, for the purpose of
electing officers and carrying on such other business as may properly come
before the meeting. The Board of Directors may also adopt a schedule of
additional meetings which shall be considered regular meetings. Regular meetings
shall be held at such times and at such places, within or without the
Commonwealth of Virginia, as the President or the Board of Directors shall
designate from time to time. If no place is designated, regular meetings shall
be held at the principal office of the Corporation.
2.5 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called by the President or a majority of the directors of the Corporation, and
shall be held at such times and at
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such places, within or without the Commonwealth of Virginia, as the person or
persons calling the meetings shall designate. If no such place is designated in
the notice of a meeting, it shall be held at the principal office of the
Corporation.
2.6 NOTICE OF MEETINGS. No notice need be given of regular meetings of
the Board of Directors.
Notices of special meetings of the Board of Directors shall be given to
each director in person or delivered to his residence or business address (or
such other place as he may have directed in writing) not less than twenty-four
(24) hours before the meeting by mail, messenger, telecopy, telegraph, or other
means of written communication or by telephoning such notice to him. Any such
notice shall set forth the time and place of the meeting and state the purpose
for which it is called.
2.7 WAIVER OF NOTICE; ATTENDANCE AT MEETING. A director may waive any
notice required by law, the Articles of Incorporation, or these Bylaws before or
after the date and time stated in the notice, and such waiver shall be
equivalent to the giving of such notice. Except as provided in the next
paragraph of this section, the waiver shall be in writing, signed by the
director entitled to the notice and filed with the minutes or corporate records.
A director's attendance at or participation in a meeting waives any
required notice to him of the meeting unless the director at the beginning of
the meeting or promptly upon his arrival objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or assent
to action taken at the meeting.
2.8 QUORUM; VOTING. A majority of the number of directors fixed in
these Bylaws shall constitute a quorum for the transaction of business at a
meeting of the Board of Directors. If a quorum is present when a vote is taken,
the affirmative vote of a majority of the directors present
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is the act of the Board of Directors. A director who is present at a meeting of
the Board of Directors or a committee of the Board of Directors when corporate
action is taken is deemed to have assented to the action taken unless (i) he
objects at the beginning of the meeting, or promptly upon his arrival, to
holding it or transacting specified business at the meeting; or (ii) he votes
against, or abstains from, the action taken.
2.9 TELEPHONIC MEETINGS. The Board of Directors may permit any or all
directors to participate in a regular or special meeting by, or conduct the
meeting through the use of, any means of communication by which all directors
participating may simultaneously hear each other during the meeting. A director
participating in a meeting by this means is deemed to be present in person at
the meeting.
2.10 ACTION WITHOUT MEETING. Action required or permitted to be taken
at a meeting of the Board of Directors may be taken without a meeting if the
action is taken by all members of the Board. The action shall be evidenced by
one or more written consents stating the action taken, signed by each director
either before or after the action taken, and included in the minutes or filed
with the corporate records reflecting the action taken. Action taken under this
section shall be effective when the last director signs the consent unless the
consent specifies a different effective date, in which event the action taken is
effective as of the date specified therein provided the consent states the date
of execution by each director.
2.11 COMPENSATION. The Board of Directors may fix the compensation of
directors and may provide for the payment of all expenses incurred by them in
attending meetings of the Board of Directors.
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<PAGE>
ARTICLE III
OFFICERS
3.1 OFFICERS. The officers of the Corporation shall be a President, and
a Secretary, and, in the discretion of the Board of Directors, one or more
Vice-Presidents and such other officers as may be deemed necessary or advisable
to carry on the business of the Corporation. Any two or more offices may be held
by the same person.
3.2 ELECTION; TERM. Officers shall be elected at the annual meeting of
the Board of Directors and may be elected at such other time or times as the
Board of Directors shall determine. They shall hold office, unless removed,
until the next annual meeting of the Board of Directors or until their
successors are elected. Any officer may resign at any time upon written notice
to the Board of Directors, and such resignation shall be effective when notice
is delivered unless the notice specifies a later effective date.
3.3 REMOVAL OF OFFICERS. The Board of Directors may remove any officer
at any time, with or without cause.
3.4 DUTIES OF OFFICERS. The President shall be the Chief Executive
Officer of the Corporation. He and the other officers shall have such powers and
duties as generally pertain to their respective offices as well as such powers
and duties as may be delegated to them from time to time by the Board of
Directors. The Chief Executive Officer, if he is present, shall be chairman of
all meetings of the shareholders and the Board of Directors, as well as any
committee of which he is a member.
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<PAGE>
ARTICLE IV
SHARE CERTIFICATES
4.1 FORM. Shares of the Corporation shall, when fully paid, be
evidenced by certificates containing such information as is required by law and
approved by the Board of Directors. Certificates shall be signed by the
President and the Secretary and may (but need not) be sealed with the seal of
the Corporation. The seal of the Corporation and any or all signatures on a
share certificate may be facsimile. If any officer who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer before such certificate is issued it may be issued by the
Corporation with the same effect as if he were such officer on the date of
issue.
4.2 TRANSFER. The Board of Directors may make rules and regulations
concerning the issue, registration and transfer of certificates representing the
shares of the Corporation. Transfers of shares and of the certificates
representing such shares shall be made upon the books of the Corporation by
surrender of the certificates representing such shares accompanied by written
assignments given by the owners or their attorneys-in-fact.
4.3 RESTRICTIONS ON TRANSFER. A lawful restriction on the transfer or
registration of transfer of shares is valid and enforceable against the holder
or a transferee of the holder if the restriction complies with the requirements
of law and its existence is noted conspicuously on the front or back of the
certificate representing the shares. Unless so noted a restriction is not
enforceable against a person without knowledge of the restriction.
4.4 LOST OR DESTROYED SHARE CERTIFICATES. The Corporation may issue a
new share certificate in the place of any certificate theretofore issued which
is alleged to have been lost or destroyed and may require the owner of such
certificate, or his legal representative, to give the
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Corporation a bond, with or without surety, or such other agreement, undertaking
or security as the Board of Directors shall determine is appropriate, to
indemnify the Corporation against any claim that may be made against it on
account of the alleged loss or destruction or the issuance of any such new
certificate.
ARTICLE V
MISCELLANEOUS PROVISIONS
5.1 FISCAL YEAR. The fiscal year of the Corporation shall be set by the
Board of Directors.
5.2 AMENDMENTS. These Bylaws may be amended or repealed, and new Bylaws
may be made at any regular or special meeting of the Board of Directors. Bylaws
made by the Board of Directors may be repealed or changed and new Bylaws may be
made by the shareholders, and the shareholders may prescribe that any Bylaw made
by them shall not be altered, amended or repealed by the Board of Directors.
10
EXHIBIT 10.46
ARTICLES OF ORGANIZATION
OF
CRIT-SC, LLC
Pursuant to Section 13.1-1010 of Chapter 12 of Title 13.1 of the Code
of Virginia, the undersigned states as follows:
1. The name of the limited liability company (the "LLC") is CRIT-SC,
LLC.
2. The address of the initial registered office in Virginia is c/o
McGuire, Woods, Battle & Boothe LLP, 901 East Cary Street, One James Center,
Richmond, Virginia 23219, which is located in the City of Richmond.
3. A. The registered agent's name is James W. C. Canup whose business
address is identical with the registered office.
B. The registered agent is an individual who is a resident of
Virginia and a member of the Virginia State Bar.
4. The post office address of the principal office where the records
will be maintained pursuant to Virginia Code Section 13.1-1028 is 306 East Main
Street, Richmond, Virginia 23219.
In WITNESS WHEREOF the undersigned executed these Articles of
Organization on the date set forth opposite his name.
/s/ Martin B. Richards December 22, 1999
-----------------------------------
Martin B. Richards, Organizer
EXHIBIT 10.47
OPERATING AGREEMENT
OF
CRIT-SC, LLC
This OPERATING AGREEMENT of CRIT-SC, LLC (the "LLC") is made as of
December 22, 1999, between Cornerstone Realty Income Trust, Inc. (the "Member")
and the LLC.
ARTICLE I
FORMATION, PURPOSES, AND MEMBERS
1.1 FORMATION. The Member acknowledges the formation of the LLC under
the Virginia Limited Liability Company Act, as amended from time to time (the
"Act"). The Virginia State Corporation Commission issued the Certificate of
Organization on December 22, 1999.
1.2 PURPOSES.
(A) BUSINESS PURPOSE. The purpose of the LLC is to engage in
investment activities and any and all lawful business.
(B) TAX CLASSIFICATION. The Member intends that this LLC be
treated as a proprietorship for federal income tax purposes as long as it has a
single owner, and that it be treated as a partnership for federal income tax
purposes whenever it has more than one owner, and this Agreement shall be
interpreted accordingly.
(C) LIMITED LIABILITY. No Member or Manager shall have any
personal obligation for any liabilities of the LLC solely by reason of being a
Member or Manager, except as provided by law.
ARTICLE II
MEMBER
2.1 GENERAL. The term "Member" means the undersigned initial Member and
any Person subsequently admitted as a Member. The term "Person" includes
entities as well as individuals.
2.2 MEMBER LIST. The LLC shall maintain at its principal office a
current list showing the name, address, percentage interest in profits and
losses, and capital contribution of each Member.
<PAGE>
2.3 CONSENT OR APPROVALS OF MEMBERS; MEETINGS.
(A) MEETINGS; WRITTEN CONSENT. Except as is otherwise provided
in this Agreement, any action which requires the consent or approval of all, or
any portion, of the Members shall be obtained at a meeting of the Members, or
shall be evidenced by the written consent of Members holding the requisite
voting power.
(B) MAJORITY VOTE. Unless this Agreement provides otherwise,
any action which requires the consent or approval of Members must be consented
to or approved by Members owning a majority of the then aggregate value of the
Capital Accounts of the Members.
2.4 ADMISSION OF MEMBERS. A Person acquiring an interest in the LLC
from the LLC may be admitted as a Member only by unanimous written consent of
the Members.
ARTICLE III
MANAGEMENT
3.1 MANAGEMENT BY MANAGERS. The LLC shall be managed by a person or
persons who shall have full responsibility for managing the business and affairs
of the LLC (the "Manager"). All references to the "Manager" shall refer to the
Manager or Managers serving at the time.
3.2 POWERS OF MANAGER. The Manager shall have all the powers set forth
in Section 13.1-1009 of the Act. Multiple Managers shall act unanimously.
3.3 DESIGNATION OF MANAGER. S. J. Olander, Jr., is designated as the
initial Manager.
3.4 SUCCESSOR MANAGER. In the event of the death, resignation, removal,
or incapacity of the Manager, the Members shall have the right to appoint a
Successor Manager. The Members may remove a Manager at any time.
3.5 COMPENSATION. A Manager shall receive reasonable compensation for
any services rendered as Manager. A Member who is not acting as a Manager shall
not be entitled to any compensation as a Member.
2
<PAGE>
ARTICLE IV
REIMBURSEMENT OF EXPENSES
4.1 EXPENSES; REIMBURSEMENT. The LLC shall bear all expenses and
liabilities incurred with respect to the operation and management of the LLC. A
Member or Manager shall be entitled to reimbursement from the LLC for any LLC
expenses or liabilities incurred by the Member or Manager, provided that the
expenses or liabilities did not arise as a result of the Member's or Manager's
willful misconduct or a knowing violation of the criminal law.
ARTICLE V
CONTRIBUTIONS AND DISTRIBUTIONS
5.1 CONTRIBUTIONS. The initial Member has contributed to the LLC the
property described on Exhibit A in exchange for all of the interests in the LLC.
5.2 DISTRIBUTIONS OF CASH. The Manager may distribute to the Members,
annually or more frequently, cash and non-cash assets not required for LLC
operations or reserves.
ARTICLE VI
DISSOLUTION
6.1 EVENTS OF DISSOLUTION. The LLC shall dissolve upon the written
election of the Members.
6.2 CONTINUATION UNDER CERTAIN CIRCUMSTANCES. Notwithstanding anything
to the contrary in this Agreement, if at any time there ceases to be at least
one Member of the LLC, within 90 days of such date any person who holds an
interest in the LLC may elect to become a Member by written notice mailed to the
principal office of the LLC (to be effective as of the date on which there
ceased to be at least one Member), and in such event the LLC shall continue and
shall not be dissolved or wound up until otherwise required under this
Agreement.
6.3 WINDING UP. Upon the dissolution of the LLC, the Manager shall wind
up the affairs of the LLC. The Manager shall determine the time, manner, and
terms of any sale or sales of LLC property pursuant to such winding up, having
due regard to the activity and the condition of the LLC and relevant market and
economic conditions.
6.4 CERTIFICATE OF CANCELLATION. Upon completion of the winding up of
the LLC, the LLC shall terminate and a Certificate of Cancellation shall be
filed with the Virginia State Corporation Commission, together with any other
documents required to effectuate the termination.
3
<PAGE>
ARTICLE VII
ADMINISTRATIVE PROVISIONS
7.1 OFFICES. The initial principal office, registered office, and
registered agent shall be as set forth in the Articles of Organization. The
Manager may change the principal office, the registered office or the registered
agent at any time.
7.2 INFORMATION AND RECORDS. The Manager shall keep full and accurate
books of account, records, and supporting documents at the principal office of
the LLC. Upon reasonable notice, a Member or a Member's designated
representative shall have access to such books, records, and documents during
reasonable business hours and may inspect and make copies of any of them at the
Member's expense.
ARTICLE VIII
MISCELLANEOUS
8.1 AMENDMENT. This Agreement may be amended at any time by the
unanimous written consent of the Members.
8.2 DEFINITIONS. Unless the context otherwise requires, the terms used
in this Agreement shall have the same definitions set forth in the Act.
8.3 GOVERNING LAW. This Agreement shall be governed by the Act and
other applicable laws of the Commonwealth of Virginia, without giving effect to
its conflicts of laws rules.
IN WITNESS WHEREOF, the Member and the LLC have executed this Agreement
on the day and date indicated above.
CORNERSTONE REALTY INCOME TRUST, INC.
By: /s/ S. J. Olander, Jr.
---------------------------------
S. J. Olander, Jr., Secretary
Member
CRIT-SC, LLC
By: /s/ S. J. Olander, Jr.
---------------------------------
S. J. Olander, Jr., Manager
4
<PAGE>
EXHIBIT A
TO THE
OPERATING AGREEMENT
OF
CRIT-SC, LLC
Name and Business Percentage
Address of Member Capital Contribution Interest
- ----------------- -------------------- --------
Cornerstone Realty Income $1,000.00 100%
Trust, Inc.
306 East Main Street
Richmond, VA 23219
5
EXHIBIT 10.48
CERTIFICATE OF LIMITED PARTNERSHIP
OF
CRIT-CORNERSTONE LIMITED PARTNERSHIP
CRIT-SC, Inc., a Virginia corporation, is the general partner of
CRIT-Cornerstone Limited Partnership (the "Partnership").
The General Partner submits this Certificate of Limited Partnership for
filing in the office of the Virginia State Corporation Commission in accordance
with ss. 50-73.11 of the Virginia Revised Uniform Limited Partnership Act (the
"Act"):
1. The name of the Partnership is CRIT-Cornerstone Limited Partnership.
2. (a) The post office and street address of the office of the
Partnership at which the records of the Partnership required to be maintained by
ss. 50-73.8 of the Act shall be kept is:
306 East Main Street
Richmond, Virginia 23219
(City of Richmond, Virginia)
(b) The registered agent of the Partnership is James W. C. Canup,
who is a resident of Virginia and a member of the Virginia State Bar. The post
office address of the registered agent is c/o McGuire, Woods, Battle & Boothe
LLP, One James Center, 901 East Cary Street, Richmond, Virginia 23219. This
address is in the City of Richmond, Virginia.
3. The name and post office address of the General Partner are as
follows:
CRIT-SC, Inc.
(a Virginia corporation)
306 East Main Street
Richmond, Virginia 23219
4. The Partnership shall be dissolved and its affairs wound up on
December 31, 2100 or at such earlier time as is required by law or the agreement
of limited partnership of the Partnership.
IN WITNESS WHEREOF, the General Partner has executed this Certificate
of Limited Partnership as of December 22, 1999.
CRIT-SC, INC.
By: /s/ Stanley J. Olander, Jr.
------------------------------
Name: Stanley J. Olander, Jr.
Title: President
EXHIBIT 10.49
LIMITED PARTNERSHIP AGREEMENT
OF
CRIT-CORNERSTONE LIMITED PARTNERSHIP
This LIMITED PARTNERSHIP AGREEMENT (the "Partnership Agreement") is
made as of December 22, 1999, by and between CRIT-SC, Inc, a Virginia
corporation, the general partner ("General Partner"), and CRIT-SC, LLC, a
Virginia limited liability company, the limited partner ("Limited Partner" and
together with the General Partner, the "Partners").
INTRODUCTION
A. The General Partner and the Limited Partner have agreed to form a
limited partnership (the "Partnership") pursuant to the provisions of the
"Virginia Revised Uniform Limited Partnership Act" (the "Act"). The existence of
the Partnership shall commence upon the filing of a certificate of limited
partnership with the Virginia State Corporation Commission (the "Commission").
B. The rights, duties and obligations of the Partners shall be governed
by the Act except as otherwise provided in this Partnership Agreement. The term
"Person," as used herein, means an individual or an entity.
ARTICLE I
ORGANIZATIONAL MATTERS
1.1 NAME. The name of the Partnership is CRIT-Cornerstone Limited
Partnership. The Partnership may trade or transact business under the name
CRIT-Cornerstone Limited Partnership or such other name as shall be selected by
the General Partner.
1.2 PURPOSE. The Partnership is formed to acquire, hold, operate and in
all respects act as owner of real property in South Carolina and to engage in
any and all activities related or incidental thereto or agreed to by the
Partners from time to time provided, however, such activities shall be limited
to and conducted in such a manner as to permit Cornerstone Realty Income Trust,
Inc. (the "Cornerstone REIT") at all times to qualify as a real estate
investment trust ("REIT") under sections 856 through 860 of the Internal Revenue
Code of 1986, as amended (the "Code").
1.3 FILINGS.
(a) The Partnership has filed with the Commission a certificate of
limited partnership (the "Certificate") pursuant to Va Code ss. 50-73.11.
(b) The Certificate designates 306 East Main Street, Richmond,
Virginia 23219 as the principal office (the "Principal Office") of the
Partnership. It designates c/o McGuire, Woods, Battle & Boothe LLP, One James
Center, 901 East Cary Street, Richmond, Virginia 23219 as its registered office
(the "Registered Office") and James W. C. Canup, Esq., at that address, as its
registered agent (the "Registered Agent").
<PAGE>
ARTICLE II
MANAGEMENT
2.1 THE GENERAL PARTNER. The General Partner shall have the sole and
exclusive right, duty and power to manage the business of the Partnership,
including, without limitation, the right and power to:
(i) acquire, hold, sell, maintain, encumber, improve, develop or
lease Partnership property, real or personal, and any interest therein
on such terms and conditions as the General Partner deems advisable;
(ii) borrow money on behalf of the Partnership, secure any such
borrowings with Partnership assets, and repay the same at any time or
from time to time;
(iii) establish investment accounts for the Partnership and deposit
and withdraw funds in or from such accounts;
(iv) assign, compromise or release any claim of, or debt due, the
Partnership;
(v) institute and defend actions at law or in equity on behalf of
the Partnership and consent to arbitrate any disputes or controversies
of the Partnership;
(vi) engage and retain accountants, lawyers and other professional
persons to perform services for the Partnership, and purchase such
goods and other services as may be required to conduct the business of
the Partnership; and
(vii) enter into such contracts and perform such other acts as may
be necessary to further the business of the Partnership.
2.2 LIMITATIONS ON POWER AND AUTHORITY. Notwithstanding anything to the
contrary in this Partnership Agreement, the General Partner's rights, authority
and power are subject to and limited by certain provisions of the Bylaws of the
Cornerstone REIT (including Article XIII therein) and actions described in such
Bylaws (including such Article) may only be undertaken in compliance with the
provisions thereof, including the obtaining of any consents referred to therein.
ARTICLE III
LIMITED PARTNERS
3.1 PARTICIPATION IN MANAGEMENT. The Limited Partner shall not
participate in the management or control of the business of the Partnership, and
shall have no power to sign for or bind the Partnership.
2
<PAGE>
ARTICLE IV
CAPITAL; PROFITS AND LOSSES; COMPENSATION; DISTRIBUTIONS
4.1 CAPITAL CONTRIBUTIONS. Each of the Partners has contributed to the
capital of the Partnership the property set forth on Schedule A. The Partners
shall not be required to make any additional capital contributions except as
required by law, but the Partners may make such additional contributions of cash
or property as they may mutually agree. No Partner shall have any right to
require the return of all or any part of its capital, or to receive interest
with respect thereto.
4.2 CAPITAL ACCOUNTS. A separate capital account ("Capital Account")
shall be maintained for each Partner. The value of each Capital Account shall be
the sum of the cash contributions to the account, the agreed upon value of
contributions of property to the account and the share of Partnership profits
allocated to the account, less all distributions made from the account and the
share of Partnership losses allocated to the account.
4.3 PROFITS AND LOSSES. The net profits and net losses of the
Partnership for any period (except for the profits and losses upon dissolution)
shall be credited or charged to the Capital Accounts of the Partners in the
percentages set forth on Schedule A under the heading "Partners' Percentages"
(as the same may be amended from time to time, the "Partners' Percentages").
4.4 DISTRIBUTIONS. Any cash which, in the opinion of the General
Partner, is not reasonably required for the operation of the business of the
Partnership or for Partnership reserves (other than amounts distributed upon
dissolution) shall be distributed to the Partners in accordance with the
Partners' Percentages not less frequently than each calendar quarter. Other
distributions of assets may be made from time to time in the same manner.
4.5 REIT DISTRIBUTIONS. Notwithstanding anything to the contrary in
this Agreement, the General Partner shall cause the Partnership to distribute
amounts sufficient to enable the Cornerstone REIT to pay its shareholders
dividends that will allow the Cornerstone REIT to (i) meet the distribution
requirement for qualification as a REIT as set forth in Section 857(a)(1) of the
Code and (ii) avoid any federal income or excise tax liability imposed by the
Code.
4.6 LOANS. A loan by a Partner to the Partnership shall not be
considered a capital contribution and shall be repaid as debt of the
Partnership.
3
<PAGE>
ARTICLE V
INDEMNIFICATION
5.1 INDEMNIFICATION.
(a) The Partnership shall indemnify each Partner (and each director
and officer of a Partner) who was, is or is threatened to be made a party to any
action, suit or proceeding, whether civil, criminal, administrative, arbitrative
or investigative, and whether formal or informal (a "Proceeding"), (i) solely by
reason of being or having been a Partner or a director or officer of a Partner
or (ii) as a result of having served at the request of the Partnership as a
fiduciary for an employee benefit or other plan related to the business of the
Partnership, against any liability and reasonable expenses (including reasonable
attorney's fees), incurred as a result of such Proceeding, except such
liabilities and expenses which are incurred as a result of a breach of this
Partnership Agreement, willful misconduct or a knowing violation of the law.
(b) The Partnership shall promptly make advances or reimbursements
for reasonable expenses (including attorney's fees) incurred by any Partner or a
director or officer of a Partner claiming indemnification under this Article
unless it has been determined that such Partner, director or officer is not
entitled to indemnification. Advances or reimbursements made in advance of any
such determination shall be conditioned upon receipt from the Partner, director
or officer claiming indemnification of a written undertaking to repay the amount
of such advances or reimbursements if it is ultimately determined that such
Partner, director or officer is not entitled to indemnification.
ARTICLE VI
EVENTS OF DISSOLUTION
6.1 EVENTS OF DISSOLUTION. The Partnership shall only be dissolved:
(i) upon the election of the General Partner;
(ii) at such time as there is no General Partner serving
unless, within 90 days, the Limited Partner consents to continue the
business of the Partnership and appoints one or more General Partners;
(iii) upon automatic cancellation of the certificate of limited
partnership for failure to pay annual registration fees, unless steps
to obtain reinstatement are promptly taken; or
(iv) by judicial decree.
4
<PAGE>
ARTICLE VII
DISSOLUTION, WINDING UP AND TERMINATION
7.1 GENERAL. Upon dissolution without continuation, the business of the
Partnership shall be wound up by the General Partner or, if there is no General
Partner, by a representative designated by the Limited Partner (either of which
or whom is hereinafter referred to as the "Liquidating Representative"). The
Liquidating Representative shall proceed with reasonable promptness to liquidate
the business and assets of the Partnership and may determine whether and to
which Partners properties should be distributed in kind. Partnership assets
shall be distributed in the following order:
(i) to creditors of the Partnership, including Partners who
are creditors, in the order of priority by law;
(ii) to the creation of such reserves for contingencies as the
Liquidating Representative may deem necessary or advisable;
(iii) to the Limited Partner to the extent of its contribution
to capital;
(iv) to the General Partner to the extent of its contribution
to capital;
(v) to the Partners, General and Limited, according to their
Capital Account balances, after all adjustments.
ARTICLE VIII
MISCELLANEOUS
8.1 BOOKS OF ACCOUNT AND RECORDS. The Partnership shall keep complete
books of account at the Principal Office which shall be open to examination by
the Partners, the Cornerstone REIT and their authorized representatives during
normal business hours. The books shall be kept on a cash or accrual basis, as
determined by the General Partner.
8.2 TAX COMPLIANCE. Notwithstanding anything to the contrary contained
in this Partnership Agreement, all actions taken in the conduct of the business
of the Partnership, or on its dissolution, shall comply with the provisions of
Section 704 of the Code and the Regulations thereunder. The General Partner
shall be the "Tax Matters Partner" required by the Code.
8.3 POWER OF ATTORNEY. The Limited Partner hereby appoints the General
Partner its attorney-in-fact, or agent, to execute, acknowledge, deliver and
file in its name any document required by law to be filed by the Partnership or
such Partner with any governmental body or agency. Any such appointment is a
special power, coupled with an interest, and shall remain in effect as long as
the Partner granting it has any interest in the Partnership or remains
responsible for any obligations under this Partnership Agreement.
5
<PAGE>
8.4 COUNTERPARTS. This Partnership 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.
8.5 AMENDMENTS. This Partnership Agreement may be amended only with the
consent of the General Partner and the Limited Partner.
8.6 THIRD PARTIES; SUCCESSORS AND ASSIGNS. The agreements contained
herein are for the benefit of the parties hereto and their permitted successors
and assigns and are not for the benefit of any third parties, including, without
limitation, creditors of the Partnership.
8.7 HEADINGS. The section headings herein are for convenience only and
shall not affect the interpretation of this Partnership Agreement.
8.8 INTERPRETATION. This Partnership Agreement is executed and
delivered in the Commonwealth of Virginia and shall be construed and enforced in
accordance with the laws of such state without giving effect to its choice of
law rules.
WITNESS the following signatures:
GENERAL PARTNER
CRIT-SC, Inc.
By: /s/ S. J. Olander, Jr.
-------------------------------
Name: S. J. Olander, Jr.
Title: President
LIMITED PARTNER:
CRIT-SC, LLC
By: /s/ S. J. Olander, Jr.
-------------------------------
Name: S. J. Olander, Jr.
Title: Manager
6
<PAGE>
SCHEDULE A
GENERAL PARTNER
Name and Capital Partners'
Business Address Contribution Percentages
CRIT-SC, Inc. $1.00 1%
306 East Main Street
Richmond, Virginia 23219
LIMITED PARTNER
Name and
Business Address
CRIT-SC, LLC $99.00 99%
306 East Main Street
Richmond, Virginia 23219
7
EXHIBIT 10.50
Cornerstone Realty Income Trust, Inc.
Stock Option Agreement
July 23, 1999
Glade M. Knight
306 East Main Street
Richmond, Virginia 23219
Dear Mr. Knight:
You have been designated to receive a nonstatutory stock option to
purchase shares of the common stock of Cornerstone Realty Income Trust, Inc.
(the "Company") on the terms set forth in this letter. A nonstatutory stock
option is an option that does not receive special tax treatment under the
Internal Revenue Code.
This letter constitutes an option agreement (the "Agreement") between
you and the Company. The Compensation Committee of the Company"s Board of
Directors shall administer this Agreement. The terms and conditions of the
option award are as follows:
1. Nonstatutory Option. In consideration of your agreement contained in
this letter, the Company hereby grants to you a nonstatutory option (the
"Option") to purchase from the Company up to 348,771 shares of common stock of
the Company ("Company Stock") at a price of $10.1250 per share (the "Option
Price").
2. Option Vesting. The Option shall vest and become exercisable
immediately upon granting (the "Date of Grant").
3. Expiration of the Option. The Option will expire ten (10) years from
the Date of Grant (the "Expiration Date").
<PAGE>
4. Entitlement to Exercise the Option. The grant of the Option is
subject to the following terms and conditions:
(a) Except as otherwise stated in this Agreement, the Option may be
exercised, in whole or in part, from the Date of Grant until the
earliest of (i) the Expiration Date, (ii) 60 days from your retirement
or termination of your status as an executive officer of the Company
for reasons other than death or disability, or (iii) 180 days from the
date you terminate your status as an executive officer of the Company
by reason of death or disability. The Committee shall, in its sole
discretion, determine whether the executive officer is disabled.
(b) Except as otherwise stated in this paragraph, the Option may be
exercised only while you are an executive officer of the Company.
5. Payment Under Option. You may exercise the Option, in whole or in
part, but only with respect to whole shares of Company Stock. You may pay the
Option price in cash, in Mature Shares of Company Stock, or in any combination
thereof. For purposes of this Agreement, "Mature Shares" shall mean shares of
Company Stock for which the holder has good title, free and clear of all liens
and encumbrances and which such holder either (i) has held for at least six
months, or (ii) has purchased on the open market. If you deliver Mature Shares
of Company Stock to make any such payment, the shares shall be valued at the
Fair Market Value thereof on the date you exercise the Option. For purposes of
this Agreement, "Fair Market Value" shall mean, on any given date, (i) if the
Company Stock is traded on an exchange, the closing registered sales price of
the Company Stock on such day on the exchange on which it generally has the
greatest trading volume, (ii) if the Company Stock is traded in the
over-the-counter market, the average between the closing bid and asked prices on
such day as reported by NASDAQ, or (iii) if the Company Stock is not traded on
any exchange or in the over-the-counter market, the Fair Market Value shall be
determined by the Committee using any reasonable method in good faith.
6. Transferability of Option. The Option is not transferable by you
(other than by will or by the laws of descent and distribution) and, except as
otherwise stated in this letter, may
-2-
<PAGE>
be exercised during your lifetime only by you. Notwithstanding the preceding,
you shall have the right to transfer the rights under the Option granted in this
Agreement during your lifetime subject to the following limitations:
(a) transfers may be made only to the following transferees: (i)
the optionee"s children, step-children, grandchildren,
step-grandchildren or other lineal descendants (including relationships
arising from legal adoptions) (such individuals are hereinafter
referred to as "Immediate Family Members"); (ii) trust(s) for the
exclusive benefit of any one or more of the optionee"s Immediate Family
Members (the optionee"s spouse may also be a beneficiary); or (iii)
partnership(s), limited liability compan(ies) or other entit(ies), the
only partners, members or interest holders of which are among the
optionee"s Immediate Family Members (the optionee"s spouse may also
hold an interest);
(b) there may be no consideration for the transfer;
(c) there may be no subsequent transfer of the transferred Option
except by will or the laws of descent and distribution;
(d) following transfer, the Option shall continue to be subject to
the same terms and conditions as were applicable immediately prior to
transfer (including the conditions under which the Option may terminate
prior to its expiration); except that the transferee rather than the
optionee may deliver the Option exercise notice and payment of the
exercise price;
(e) written notice of any transfer must be delivered to the Chief
Financial Officer of the Company; and
(f) the optionee"s estate may transfer the Option to the
beneficiaries of such estate, subject to the limitations set forth in
items (b) through (e) above.
-3-
<PAGE>
7. Adjustments. If the number of outstanding shares of Company Stock is
increased or decreased as a result of: (i) a subdivision or consolidation of
shares, (ii) the payment of a stock dividend, (iii) a stock split, or (iv) any
other change in the capitalization that is effective without receipt of
consideration by the Company, the number of shares with respect to which you
have an unexercised Option and the Option price shall be appropriately adjusted
by the Company, whose determination shall be binding.
8. Triggering Events. Notwithstanding any other provision to the
contrary, in the case of the occurrence of a "Triggering Event," as defined
herein, the provisions of this Section 8 shall apply. For purposes of this
Section 8, a "Triggering Event" occurs when (i) a majority of the Board of
Directors of the Company is comprised of persons other than (A) those directors
who are serving at the date of this Agreement and (B) any new directors whose
nomination or election is approved by a majority of the Board of Directors
serving at the date of this Agreement, (ii) the shareholders of the Company
approve a reorganization, merger or consolidation which would result in the
shareholders of the Company immediately prior to such transaction owning less
than a majority of the outstanding shares or voting power of the corporation
resulting from such transaction, (iii) the shareholders of the Company approve
the liquidation or dissolution of the Company, (iv) the shareholders of the
Company approve the sale or other disposition of 50% or more of the Company's
consolidated assets or earnings power, (v) any person, entity or group (within
the meaning of Section 13(d)(3) under the Securities Exchange Act of 1934 and
the regulations interpreting it, or any successor provisions to such statute and
regulations) becomes the beneficial owner of 20% or more of the outstanding
common shares of the Company, or (vi) any two of Glade M. Knight, Chief
Executive Officer of the Company, Debra A. Jones, Chief Operating Officer of the
Company, or Stanley J. Olander, Jr., Chief Financial Officer of the Company,
cease to serve in such positions for any reason other than death or permanent
disability.
(a) Upon a Triggering Event, the Option shall be exercisable at an
exercise price of $1.00 per share of Company Stock (subject to
adjustments pursuant to Section 7 hereof) and remain exercisable for
180 days following the occurrence of such event.
-4-
<PAGE>
(b) If you elect in writing not to exercise the Option or if you
fail to exercise the Option within the 180 day period as described in
subparagraph (a) above, the Company shall, immediately upon receipt of
such written election or expiration of the 180 day period, pay you, in
cash, the difference between the exercise price and the Fair Market
Value of the Company Stock that could be obtained upon exercise of the
Option (or, as appropriate, the fair market value, as determined in
good faith by the Committee, of securities received in exchange for or
receivable in lieu of such Company Stock in the context of an
acquisition transaction that constitutes a Triggering Event in which
Company Stock is to be exchanged for or replaced by other securities).
(c) If the exercise of the Option or the receipt of payment in lieu
of such exercise results in income (collectively, "Option Income")
which would subject you to an excise tax under Internal Revenue Code
Sections 280G or 4999, the Company shall pay to you, in cash, an
additional amount equal to the sum of the excise tax due and the
federal, state and local income taxes due on the additional amount
(cumulatively, the "Gross-Up Payment"), such that the net amount
retained by you will equal the Option Income. The Gross-Up Payment
shall be paid to you as soon as possible following the exercise of the
vested portion of the Option or the receipt of payment in lieu of such
exercise, but in no event later than ninety (90) calendar days after
such date. For purposes of determining the amount of the Gross-Up
Payment, you shall be deemed to pay federal income taxes at your
highest marginal rate in the calendar year in which the Gross-Up
Payment is to be made and the state and local income taxes at your
highest marginal rates in the state and locality of your residence, net
of the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes.
9. Exercise and Notices. To exercise your Option, you must deliver to
the Chief Financial Officer of the Company written notice, signed by you,
stating the number of shares you have elected to purchase, and payment to the
Company as described in paragraph 5. Any notice to be given under the terms of
this letter shall be addressed to the Chief Financial Officer of the Company at
the Company"s primary business address, and any notice to be given to you shall
be
-5-
<PAGE>
given to you or your personal representative, legatee or distributee, and shall
be addressed to him or her at the address set forth above. Either party may
hereafter designate in writing any other address for purposes of notice in a
notice duly sent to the other. Notices shall be deemed to have been duly given
if mailed, postage prepaid, addressed as aforesaid.
10. Withholding. By signing this letter, you agree to make arrangement
satisfactory to the Company to comply with any income tax withholding
requirements that may apply upon the exercise of the Option.
11. Continuation as Officer of the Company. Neither the Agreement nor
the Option confers upon you any right to continue as an officer of the Company
or limits in any respect the right of the Company to terminate your status as an
officer.
12. Delivery of Certificate. The Company may delay delivery of the
certificate for shares purchased pursuant to the exercise of an Option until (i)
the admission of such shares to listing on any stock exchange on which the
Company Stock may then be listed, (ii) receipt of any required representation by
you or completion of any registration or other qualification of such shares
under any state or federal law or regulation that the Company"s counsel shall
determine as necessary or advisable, and (iii) receipt by the Company of advice
by counsel that all applicable legal requirements have been complied with. As a
condition of exercising the Option, you may be required to execute a customary
written indication of your investment intent and such other agreements as the
Company deems necessary or appropriate to comply with applicable securities
laws.
13. Acceptance of Option. Your acceptance of the Option, which shall be
deemed to take place when you sign where indicated on this letter, places no
obligation or commitment on you to exercise the Option. By signing below, you
indicate your acceptance of the Option and your agreement to the terms and
conditions set forth in this letter, which shall become the Company"s Agreement
with you. Unless the Company otherwise agrees in writing, this letter will not
be effective as an Agreement if such copy is not signed and returned.
-6-
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
/s/ Stanley J. Olander, Jr.
--------------------------------------
Chief Financial Officer
Agreed and Accepted:
/s/ Glade M. Knight
- --------------------
Glade M. Knight
-7-
<TABLE>
<CAPTION>
EXHIBIT 12
CORNERSTONE REALTY INCOME TRUST, INC.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DISTRIBUTIONS
1995 1996 1997 1998
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income available to common shareholders $5,229,715 $(4,169,849) $19,225,553 $23,225,335
(before minority interests)
ADD:
Fixed charges 311,824 1,474,643 7,657,173 12,752,799
Preferred stock distributions - - - -
--------------------------------------------------------------
Earnings 5,541,539 (2,695,206) 26,882,726 35,978,134
Fixed charges and preferred stock distributions
Interest on indebtedness 248,120 1,336,419 7,348,517 12,315,102
Amortization of loan costs 43,983 91,592 212,802 272,795
Portion of rents representative of interest factor 19,721 46,632 95,854 164,902
Capitalized interest - - - -
--------------------------------------------------------------
Fixed Charges 311,824 1,474,643 7,657,173 12,752,799
Preferred stock distributions - - - -
--------------------------------------------------------------
Combined fixed charges and preferred distributions 311,824 1,474,643 7,657,173 12,752,799
Ratio of earnings to combined fixed charges and
preferred stock distributions 17.77 (a) 3.51 2.82
==============================================================
Ratio of earnings to fixed charges 17.77 (a) 3.51 2.82
==============================================================
<CAPTION>
Supplemental
Pro Forma
------------
1999 1999
-------------------------------
<S> <C> <C>
Net Income available to common shareholders $17,798,227 $3,218,280
(before minority interests)
ADD:
Fixed charges 15,523,117 16,696,450
Preferred stock distributions 12,323,538 29,634,683
-------------------------------
Earnings 45,644,882 49,549,413
Fixed charges and preferred stock distributions
Interest on indebtedness 15,039,593 16,212,926
Amortization of loan costs 306,005 306,005
Portion of rents representative of interest factor 177,519 177,519
Capitalized interest - -
-------------------------------
Fixed Charges 15,523,117 16,696,450
Preferred stock distributions 12,323,538 29,634,683
-------------------------------
Combined fixed charges and preferred distributions 27,846,655 46,331,133
Ratio of earnings to combined fixed charges and
preferred stock distributions 1.64 1.07
===============================
Ratio of earnings to fixed charges 2.94 2.97
===============================
</TABLE>
(a) Earnings for the year ended December 31, 1996 were inadequate to cover fixed
charges due to management contract termination expense resulting from the
company's conversion to "self-administered" and "self-managed" status. The
amount of deficiency was $4,169,849 for the year ended December 31, 1996.
To give effect to the merger with Apple and the operations of property
acquisitions made during 1998 and 1999 by Apple and seven property acquisitions
made by Cornerstone during 1998. The pro forma data includes the historical
results of operations for the periods indicated regardless of when Cornerstone
or Apple, as the case may be, acquired such properties. As a result, the pro
forma data may not be indicative of results of operations in future periods.
<TABLE>
<CAPTION>
EXHIBIT 13
SELECTED FINANCIAL DATA
As of December 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Results (c)
Rental income $ 121,086,920 $ 88,752,254 $ 70,115,678 $ 40,261,674 $ 16,266,610
Net income (loss) before minority interest
of unitholders in operating partnership 30,121,765 23,225,335 19,225,553 (4,169,849) 5,229,715
Net income (loss) 30,037,102 23,210,642 19,225,553 (4,169,849) 5,229,715
Distributions to preferred shareholders 12,323,538 -- -- -- --
Net income available to common shareholders 17,713,564 23,210,642 19,225,553 (4,169,849) 5,229,715
Distributions to common shareholders 42,050,415 38,317,602 31,324,870 15,934,901 6,316,185
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share
Net income (loss) $ 0.45 $ 0.62 $ 0.59 $ (0.21) $ 0.64
Distributions per preferred share $ 0.97 -- -- -- --
Distributions per common share $ 1.07 $ 1.03 $ 1.00 $ 0.99 $ 0.96
Common share distributions
representing return of capital 11% 20% 23% 14% 17%
Weighted average common shares
outstanding and diluted 39,182,802 37,630,546 32,617,823 20,210,432 8,176,803
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
Investment in rental property $ 919,128,738 $ 587,438,358 $ 487,575,196 $ 329,715,853 $ 129,696,447
Total assets $ 869,264,876 $ 552,347,608 $ 474,186,450 $ 322,870,574 $ 133,181,032
Notes payable-unsecured $ 157,500,000 $ 201,892,999 $ 151,569,147 $ 55,403,000 $ 8,300,000
Notes payable-secured $ 105,045,682 -- -- -- --
Shareholders' equity $ 574,365,242 $ 339,171,496 $ 315,328,252 $ 254,569,705 $ 122,154,420
Common shares outstanding 38,712,037 39,113,916 35,510,327 28,141,509 12,754,331
- ------------------------------------------------------------------------------------------------------------------------------------
Other Data
Cash flow from:
Operating activities $ 62,310,895 $ 45,027,654 $ 34,973,533 $ 20,162,776 $ 9,618,956
Investing activities $ (30,445,531) $ (97,863,162) $(161,969,343) $(194,519,406) $ (75,589,089)
Financing activities $ (18,187,392) $ 50,911,886 $ 128,327,145 $ 170,466,134 $ 68,754,842
Number of communities owned at year-end 87 58 51 40 19
- ------------------------------------------------------------------------------------------------------------------------------------
Funds from Operations Calculation
Net income (loss) before minority interest $ 30,121,765 $ 23,225,335 $ 19,225,553 $ (4,169,849) $ 5,229,715
of unitholders in operating partnership
Depreciation of real estate 29,310,325 20,741,130 15,163,593 8,068,063 2,788,818
Amortization of organizational cost 55,657 -- -- -- --
Management contract termination (a) -- -- 402,907 16,526,012 --
- ------------------------------------------------------------------------------------------------------------------------------------
Funds from operations (b) $ 59,487,747 $ 43,966,465 $ 34,792,053 $ 20,424,226 $ 8,018,533
- ------------------------------------------------------------------------------------------------------------------------------------
</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.
(b) "Funds from operations" is defined as income before gains (losses) on
investments, minority interest of unitholders in operating partnership 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 NAREIT definition. 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.
(c) On July 23, 1999, the company merged with Apple Residential Income Trust,
Inc. See Note 2 to the consolidated financial statements.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The company operates in 19 markets overall. At December 31, 1999, the company
did not own more than 30% of its apartment communities in any one market. The
following table summarizes the company's major apartment market information.
<TABLE>
<CAPTION>
Number of Average
Apartment Number of % of Total Cost 1999 Annual Average December 1999
Market Communities Total Cost Apartment Homes of Apartments Economic Occupancy Rental Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dallas\Fort Worth, TX 26 $273,938,856 6,604 30 % 93 % $ 608
Raleigh\Durham, NC 12 122,220,891 2,328 13 92 693
Charlotte, NC 10 117,845,652 2,483 13 93 632
Atlanta, GA 5 71,054,161 1,317 8 93 740
Richmond, VA 4 52,707,954 1,053 6 93 649
Virginia Beach, VA 5 40,409,865 1,069 5 93 676
Greenville, SC 3 22,085,253 813 2 92 470
Augusta, GA 2 20,475,174 621 2 81 469
Winston-Salem, NC 2 18,144,063 386 2 89 618
Wilmington, NC 3 20,393,965 592 2 88 572
Columbia, SC 2 17,720,677 419 2 91 622
Austin, TX 2 20,329,380 429 2 97 675
San Antonio, TX 1 7,014,246 230 1 92 502
Other 10 114,788,601 2,621 12 94 613
- -----------------------------------------------------------------------------------------------------------------------------------
Total 87 $919,128,738 20,965 100 % 92 % $ 625
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following discussion is based on the financial statements of the
company as of December 31, 1999, 1998, and 1997. 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 con-cerning anticipated improvements in
financial operations from completed and planned property renovations, and
expected benefits from the company's acquisition of Apple Residential Income
Trust, Inc. ("Apple"). Such statements involve known and unknown risks,
uncertainties, and other factors which may cause the actual results,
performance, or achievements 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, general and local economies, or 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.
<PAGE>
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, 1999 TO DECEMBER 31, 1998
INCOME AND OCCUPANCY The results of the company's property operations for the
year ended December 31, 1999 include the results of operations from 87
properties acquired to date, including properties acquired through the
acquisition of Apple on July 23, 1999. The increased rental income and operating
expenses for the year ended December 31, 1999, over the year ended December 31,
1998, are primarily due to a full year of operation in 1999 of the 1998
acquisitions as well as the effect of the properties acquired through the Apple
merger.
The principal source of the company's revenue is the rental operation of its
apartment communities. Rental income increased 36% in 1999 to $121,086,920, up
$32,334,666 over 1998 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 1999 and in 1998. Rental rates
for the portfolio increased 3% to $625 on December 31,1999 from $608 on December
31, 1998. This increase is due to a combination of increased rental rates from
new leases and property renovation as well as the acquisition of properties from
Apple.
EXPENSES Total property expenses increased 37% to $79,966,146 in 1999 from
$58,236,673 in 1998, due largely to the increase in the number of apartments.
The operating expense ratio (the ratio of operating expenses, excluding
depreciation, amortization, general and administrative, and other expenses, to
rental income) increased to 39% in 1999 from 38% in 1998.
General and administrative expenses totaled 1.3% and 1.9% of revenues in
1999 and 1998, respectively. These expenses represent the administrative
expenses of the company as distinguished from the operations of the company's
properties. The decrease in this percentage is partially attributable to
economies of scale associated with the Apple merger.
Depreciation of real estate increased to $29,310,325 in 1999 from
$20,741,130 in 1998, and is directly attributable to a full year of depreciation
of properties acquired in 1998 and the addition of the Apple properties for the
period beginning July 23, 1999.
INTEREST INCOME AND EXPENSE The company earned interest income of $197,405 in
1999 and $71,474 in 1998 from the investment of its cash and cash reserves. The
company incurred $12,515,874 and $11,957,052 of interest expense in 1999 and
1998, respectively, associated with borrowings under its lines of credit. During
1999, the company incurred interest expense of $1,354,421 on $73.5 million of
secured debt and $896,348 associated with the mortgage notes assumed with the
Apple merger. The company incurred $272,950 and $358,050 of interest expense in
1999 and 1998, respectively, associated with a $5.5 million unsecured note. The
company amortized as interest expense deferred financing costs of $306,005 in
1999 and $272,795 in 1998. The overall weighted average interest rate for all
borrowings was 6.5% and 6.9% during 1999 and 1998, respectively.
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 $1,893,120 in 1999 and $2,220,594
in 1998 for advisory and property management services. The company received
$561,484 in 1999 and $2,665,100 in 1998 in real estate brokerage commissions.
The company amortized into expense $241,438 in 1999 and $1,054,470 in 1998 of
the $2 million purchase price the
<PAGE>
company paid for the acquisition of the brokerage services contract with Apple.
Income from the company's investment in Apple was $194,580 in 1999 and $340,483
in 1998. (See Note 7 to the consolidated financial statements.)
During May, 1999, Apple paid the company $1.5 million to modify the
company's right of first refusal to purchase Apple and the service contracts
between Apple and Cornerstone to allow for termination of such agreements in the
event of a change in control of the company. The company recorded the payment as
other income.
SAME-PROPERTY RESULTS The company's "same-property" portfolio consists of 61
properties, including 10 Apple properties, acquired prior to 1998, containing
14,498 apartment units owned by the company or Apple since January 1, 1998. On a
comparative basis, the 61 properties provided rental and operating income of
$91.8 million and $59.1 million, respectively, in 1999 and $87.5 million and
$55.6 million in 1998. This represents an increase from 1998 to 1999 of 5% and
6%, respectively.
RESULTS OF OPERATIONS
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO DECEMBER 31, 1997
INCOME AND OCCUPANCY The company increased rental income and expenses in 1998
and 1997 due to a full year of operations from the pre-1998 acquisitions and the
seven properties acquired in 1998 from their respective acquisition dates.
Rental income increased 27% in 1998 to $88,752,254 from $70,115,678 in 1997.
The properties had an average economic occupancy of 92% in 1998 and 1997.
Overall, rental rates for the portfolio increased 4% to $608 on December 31,
1998 from $582 on December 31, 1997. 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.
EXPENSES Total property expenses, excluding management contract termination,
increased 29% to $58,236,673 in 1998 from $45,111,959 in 1997, due largely to
the increase in the number of apartments. The operating expense ratio (the ratio
of operating expenses, excluding depreciation, amortization, general and
administrative, and other expenses, to rental income) decreased to 38% in 1998
from 39% in 1997 and is attributable to economies of scale achieved in property
management and certain property operation functions.
General and administrative expenses totaled 1.9% of revenues in 1998 and
1997, respectively. These expenses represent the administrative expenses of the
company as distinguished from the operations of the company's properties. In
1998, the company continued to expand its internal administrative infrastructure
to keep pace with its growth.
Depreciation of real estate increased to $20,741,130 in 1998 from
$15,163,593 in 1997, and is directly attributable to the acquisition of
apartment communities in 1998 and a full year of depreciation of properties
acquired in 1997.
INTEREST INCOME AND EXPENSE The company earned interest income of $71,474 in
1998 and $77,972 in 1997 from the investment of its cash and cash reserves. The
company incurred $11,957,052 and $7,017,967 of interest expense in 1998 and
1997, respectively, associated with borrowings under its line of credit. The
company incurred $358,050 and $330,550 of interest expense in 1998 and 1997,
respectively, associated with a $5.5 million unsecured note. The company
amortized as interest expense deferred financing costs of $272,795 in 1998 and
$212,802 in 1997. 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 was
6.9% and 7.2% during 1998 and 1997, respectively.
INCOME AND EXPENSE FROM RELATIONSHIP WITH APPLE RESIDENTIAL INCOME TRUST The
company received from Apple $2,220,594 in 1998 and $822,934 in 1997 for advisory
and property management services. The company received from Apple $2,665,100 in
1998 and $1,031,066 in 1997 in real estate brokerage commissions under separate
contract. The company amortized into expense $1,054,470 in 1998 and $546,000 in
1997 of the $2 million purchase price the company paid for the acquisition of
the brokerage services contract with Apple. Income from the company's investment
in Apple was $340,483 in 1998 and $253,172 in 1997. (See Note 7 to the
consolidated financial statements.)
SAME-PROPERTY RESULTS On a comparative basis, the 38 properties owned during all
of 1998 and 1997 provided rental and operating income of $58.9 million and $37.4
million,
<PAGE>
respectively, in 1998 and $56.5 million and $35.5 million in 1997. This
represents an increase from 1997 to 1998 of 4% and 6%, respectively. Certain
current reported expenses, which approximated $228,000, have been excluded to
make for a more meaningful comparison to 1997.
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 December 31, 1999, the company had $16,268,336 in cash and
cash equivalents and $35 million in availability under its unsecured line of
credit.
In September 1999, the Board of Directors authorized the repurchase of up to
$50 million of the company's common shares. For the year ended December 31,
1999, the company repurchased 789,100 common shares at an average price of $9.90
per share.
MERGER WITH APPLE RESIDENTIAL INCOME TRUST, INC. On July 23, 1999, the company
completed the acquisition of Apple, which included 29 apartment communities
containing 7,503 apartment homes. The merger qualified as a tax-free
reorganization and was accounted for under the purchase method of accounting.
The acquisition was structured as a merger of Apple into a wholly-owned
subsidiary of the company. The aggregate purchase price was approximately $311
million. Under the terms of the merger agreement, each Apple shareholder
received 0.4 shares of the company's $25 Series A Convertible Preferred Stock
for each share of Apple common stock. A total of 12,666,019 shares of the
company's Series A Convertible Preferred Stock were issued as a result of the
merger. The Series A Convertible Preferred Stock has a first-year dividend rate
of $2.125 per share, which will increase to $2.25 in the second year and $2.375
in the third year and thereafter. The company is imputing dividends calculated
as the present value difference between the preferred stock distribution and the
stated distribution rate. Each share of Series A Convertible Preferred Stock
carries a $25 per share liquidation preference and is convertible into 1.5823
shares of the company's common stock, which reflects a conversion price of
$15.80 for the company's common stock. After five years, the Series A
Convertible Preferred Stock will be redeemable at $25 per share plus any accrued
dividends, at the option of the company, in whole or in part, for cash or stock,
subject to certain conditions. In addition, the company assumed approximately
$32 million of Apple's debt with an effective interest rate of approximately
6.475%. (See Note 2 to the consolidated financial statements for further
information.)
The Apple merger brought the total number of residential rental communities
to 87 and total apartment homes owned to 20,965 at December 31, 1999.
NOTES PAYABLE
On September 29, 1999, the company placed $73.5 million of secured debt. The
loan is secured by 10 properties. The loan is interest-only and bears a fixed
interest rate of 7.29% per annum with a maturity date of September 2006. The
proceeds were used to pay down short-term debt and to curtail the company's
existing line of credit, described below.
In connection with the Apple merger, the company has assumed six mortgage
notes with a principal amount of $30.8 million. These mortgages were recorded at
a fair value of $32 million at the date of assumption. The difference between
the fair value and principal is being amortized as an adjustment to interest
expense over the term of the respective notes. Mortgage notes payable are due in
monthly installments, including principal and interest. At December 31, 1999,
the balance of mortgage notes payable was $31.5 million.
During 1999, the company's $175 million unsecured line of credit (the
"Unsecured Line") with a consortium of six banks was increased to $185 million,
and the maturity date was extended to July 9, 2002. The Unsecured Line bears
interest at one month LIBOR plus 120 basis points. Proceeds from the secured
debt, described above, were used to repay $35 million of the company's Unsecured
Line and $30.5 million of other unsecured debt. At December 31, 1999, borrowings
under the Unsecured Line were $150 million and the company had an unused
borrowing capacity of $35 million.
<PAGE>
During 1999, the company increased the $5 million unsecured line of credit
for general corporate purposes (the "General Purpose Line") to $7.5 million. The
General Purpose Line bears interest at LIBOR plus 120 basis points, and the
maturity date was extended to October 31, 2000. At December 31, 1999, borrowings
under the General Purpose Line were $7.5 million.
During 1999, the company's June 25, 1996 unsecured note was refinanced with
a $5.5 million unsecured loan from a commercial bank. The new unsecured note was
paid in full in September 1999 with proceeds from the secured debt described
above.
CAPITAL REQUIREMENTS The company has an ongoing capital expenditure commitment
to fund its renovation program for recently acquired properties. The company
anticipates that it will continue to operate as it did in 1999 and fund these
cash needs from a variety of sources including equity, excess cash 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 continues to renovate its properties. In connection with these
renovations, the company capitalized improvements of $30 million in 1999.
Capital resources are expected to grow with the future sale of its shares
and from cash flow from operations. Approximately 22% of all 1999 common stock
dividend distributions, or $9,168,728, 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 2000.
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.
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS The company issued Series A Convertible
Preferred Stock in July 1999, in connection with the Apple merger. The company
is imputing dividends calculated as the present value difference between the
perpetual preferred stock distribution and the stated distribution rate. The
imputed dividend is reflected as additional non-cash preferred stock
distributions.
IMPACT OF YEAR 2000 The company completed the year 2000 project as planned. The
company has not experienced any year 2000 problems company-wide or from external
sources and does not anticipate any. The total cost incurred to meet year 2000
compliance was not significant.
MARKET RISK DISCLOSURE
In connection with the acquisition of Apple, the company assumed $32 million
of mortgage loans. The company marked this debt to market using interest rates
available on similar loans at the time of assumption, resulting in an effective
interest rate of approximately 6.475%. In addition, in 1999, the company secured
10 properties with $73.5 million of secured debt with a fixed interest rate of
7.29%.
The company is subject to changes in the fair market value of its fixed-rate
secured debt amounting to $105 million at December 31, 1999. If market interest
rates for fixed-rate debt were 100 basis points higher at December 31, 1999, the
fair value of fixed-rate debt would have decreased from $105 million to $100
million. If market interest rates for fixed-rate debt were 100 basis points
lower at December 31, 1999, the fair value of fixed-rate debt would have
increased from $105 million to $110.5 million.
The company has market risk exposure to short-term interest rates from
variable rate borrowings under its line of credit. The line of credit bears
interest at one month LIBOR plus 120 basis points. The company may utilize
variable rate debt up to specified limits to total market capitalization.
The company has analyzed its interest rate risk exposure. If market interest
rates for these types of credit facilities average 100 basis points more in 2000
than they did in 1999 and the company's Unsecured Line balance remains
<PAGE>
unchanged from December 31, 1999, the company's interest expense would increase,
and net income would decrease by $1.5 million. These amounts are determined by
considering the impact of hypothetical interest rates on the company's borrowing
cost. These analyses do not consider the effects of the reduced overall economic
activity that could exist in such an environment. Further, in the event of a
change of such magnitude, management would likely take actions to further
mitigate its exposure to the change. However, due to the uncertainty of the
specific actions that would be taken and their possible effects, the sensitivity
analysis assumes no changes in the company's financial structure.
IMPACT OF INFLATION
The company does not believe that inflation had any significant impact on
the operation of the company in 1999. 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.
<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, 1999 and 1998, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1999.
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 auditing standards generally
accepted in the United States. 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 consolidated financial position of
Cornerstone Realty Income Trust, Inc. at December 31, 1999 and 1998, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Richmond, Virginia
January 27, 2000,
except for Note 10, as to which
the date is February 21, 2000
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investment in rental property
Land $ 136,326,140 $ 87,100,659
Buildings and property improvements 760,712,650 487,972,647
Furniture and fixtures 22,089,948 12,365,052
- -------------------------------------------------------------------------------------------------------------------
919,128,738 587,438,358
Less accumulated depreciation (77,538,085) (48,227,760)
- -------------------------------------------------------------------------------------------------------------------
841,590,653 539,210,598
Cash and cash equivalents 16,268,336 2,590,364
Prepaid expenses 2,803,488 1,372,498
Other assets 8,602,399 9,174,148
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 869,264,876 $ 552,347,608
===================================================================================================================
Liabilities and Shareholders' Equity
Liabilities
Notes payable--unsecured $ 157,500,000 $ 201,892,999
Notes payable--secured 105,045,682 --
Distributions payable 6,779,012 --
Accounts payable 11,670,338 4,301,682
Accrued expenses 11,387,531 2,730,418
Rents received in advance 613,214 506,649
Tenant security deposits 1,903,857 1,729,671
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 294,899,634 211,161,419
===================================================================================================================
Minority interest of unitholders in operating partnership -- 2,014,693
Shareholders' Equity
Preferred stock, no par value, authorized 25,000,000 shares;
12,650,047 shares, $25 liquidation preference, Series A
Convertible Preferred Stock issued and outstanding 263,656,281 --
Common stock, no par value, authorized 100,000,000
shares; issued and outstanding 38,712,037 shares
and 39,113,916 shares, respectively 383,969,899 388,131,512
Deferred compensation (72,976) (108,905)
Distributions greater than net income (73,187,962) (48,851,111)
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 574,365,242 339,171,496
===================================================================================================================
Total liabilities and shareholders' equity $ 869,264,876 $ 552,347,608
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Rental income $ 121,086,920 $ 88,752,254 $ 70,115,678
Other income 3,954,604 4,885,694 1,854,946
Expenses
Property and maintenance 33,030,333 24,641,642 19,494,692
Taxes and insurance 11,524,945 6,986,245 6,075,991
Property management 2,385,110 2,169,552 1,769,272
General and administrative 1,659,715 1,681,810 1,351,667
Amortization expense and other depreciation 78,627 47,703 56,075
Depreciation of rental property 29,310,325 20,741,130 15,163,593
Other 1,977,091 1,968,591 1,200,669
Management contract termination -- -- 402,907
- -----------------------------------------------------------------------------------------------------------------
Total expenses 79,966,146 58,236,673 45,514,866
Income before interest and dividend income (expense) 45,075,378 35,401,275 26,455,758
Interest and dividend income 391,985 411,957 331,114
Interest expense (15,345,598) (12,587,897) (7,561,319)
- -----------------------------------------------------------------------------------------------------------------
Income before minority interest in
operating partnership 30,121,765 23,225,335 19,225,553
Minority interest of unitholders
in operating partnership (84,663) (14,693) --
- -----------------------------------------------------------------------------------------------------------------
Net income 30,037,102 23,210,642 19,225,553
Distributions to preferred shareholders (12,323,538) -- --
- -----------------------------------------------------------------------------------------------------------------
Net income available to common shareholders $ 17,713,564 $ 23,210,642 $ 19,225,553
=================================================================================================================
Net income per share-basic and diluted $ 0.45 $ 0.62 $ 0.59
=================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Preferred Stock Distributions
-------------------------- --------------------- (Greater) Total
Number Number Deferred Less Than Shareholders'
of Shares Amount of Shares Amount Compensation Net Income Equity
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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. contract 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
Net proceeds from the
sale of shares 2,612,582 28,032,107 -- -- -- -- 28,032,107
Net income -- -- -- -- -- 23,210,642 23,210,642
Cash distributions
declared to shareholders
($1.03 per share) -- -- -- -- -- (38,317,602) (38,317,602)
Restricted stock grant 7,350 90,497 -- -- (90,497) -- --
Amortization of deferred
compensation -- -- -- -- 44,568 -- 44,568
Shares issued through dividend
reinvestment plan 983,657 10,873,529 -- -- -- -- 10,873,529
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 39,113,916 388,131,512 -- -- (108,905) (48,851,111) 339,171,496
Net income -- -- -- -- -- 30,037,102 30,037,102
Issuance of Series A
Convertible Preferred Stock -- -- 2,666,019 $262,946,547 -- -- 262,946,547
Cash distributions declared
to common shareholders
($1.07 per share) -- -- -- -- -- (42,050,415) (42,050,415)
Distributions for Series A
Convertible Preferred Stock -- -- -- -- -- (11,214,459) (11,214,459)
Imputed Distributions on Series A
Convertible Preferred Stock -- -- -- 1,109,079 -- (1,109,079) --
Exercise of stock options 539 5,390 -- -- -- -- 5,390
Purchase of common stock
held by Apple Residential
Income Trust, Inc. (Apple) (758,000) (7,769,500) -- -- -- -- (7,769,500)
Purchase of common stock (789,100) (7,815,844) -- -- -- -- (7,815,844)
Conversion of minority
interests of unitholders
in operating partnership 185,887 1,850,268 -- -- -- -- 1,850,268
Preferred stock converted
to common stock 25,264 399,345 (15,972) (399,345) -- -- --
Amortization of deferred
compensation -- -- -- -- 35,929 -- 35,929
Shares issued through dividend
reinvestment plan 933,531 9,168,728 -- -- -- -- 9,168,728
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 38,712,037 $383,969,899 12,650,047 $263,656,281 $(72,976) $(73,187,962) $574,365,242
=================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flow from Operating Activities
Net income $ 30,037,102 $ 23,210,642 $ 19,225,553
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 29,383,210 20,788,833 15,219,668
Minority interest of unitholders in operating partnership 84,663 14,693 --
Amortization of deferred compensation 35,929 44,568 21,996
Amortization of deferred financing costs 306,005 272,795 212,802
Management contract termination -- -- 402,907
Amortization of Apple Realty Group, Inc. contract 241,438 1,054,470 546,000
Changes in operating assets and liabilities:
Operating assets (3,170,981) (2,337,716) (2,343,668)
Operating liabilities 5,393,529 1,979,369 1,688,275
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 62,310,895 45,027,654 34,973,533
Cash Flow from Investing Activities:
Net cash used in the purchase of Apple Residential
Income Trust, Inc. (868,173) -- --
Acquisitions of rental property, net of debt assumed -- (71,883,993) (134,900,712)
Proceeds from sale of land 764,668
Capital improvements (30,342,026) (25,979,169) (22,958,631)
Investment in Apple Residential Income Trust, Inc. -- -- (3,760,000)
Apple Realty Group, Inc. contract purchase -- -- (350,000)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (30,445,531) (97,863,162) (161,969,343)
Cash Flow from Financing Activities:
Payment of deferred financing costs (1,616,309)
Proceeds from short-term borrowings 69,710,001 118,289,852 442,927,152
Repayments of short-term borrowings (114,103,000) (67,966,000) (346,761,005)
Proceeds from secured notes payable 73,500,000 -- --
Repayment of mortgage notes (301,407) -- --
Shares issued through dividend reinvestment
plan and exercise of stock options 9,174,118 38,905,636 63,485,868
Purchase of common stock (7,815,844) -- --
Conversion of operating partnership units -- -- --
Cash distributions to operating partnership unitholders (198,899) -- --
Cash distributions paid to preferred shareholders (4,485,637) -- --
Cash distributions paid to common shareholders (42,050,415) (38,317,602) (31,324,870)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (18,187,392) 50,911,886 128,327,145
Increase (decrease) in cash and cash equivalents 13,677,972 (1,923,622) 1,331,335
Cash and cash equivalents, beginning of year 2,590,364 4,513,986 3,182,651
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 16,268,336 $ 2,590,364 $ 4,513,986
==============================================================================================================================
Supplemental Information:
Non-cash transactions:
Apple acquisition
Real estate assets acquired $ 302,113,022 -- --
Issuance of preferred stock 262,946,547 -- --
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 1,109,079 -- --
Conversion of minority interest and operating partnership 1,850,268 -- --
Cash paid for interest 16,113,511 $ 11,636,307 $ 7,221,104
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
GENERAL INFORMATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
BUSINESS Cornerstone Realty Income Trust, Inc. (together with its subsidiaries,
the "company"), a Virginia corporation, is an owner-operator of residential
apartment communities in the southern regions of the United States. The
accompanying consolidated financial statements include the accounts of the
company along with its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. The company's common stock
trades 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 approximates their carrying value.
INVESTMENT IN RENTAL PROPERTY The investment in rental property is recorded at
cost, net of depreciation, and includes real estate brokerage commissions to
related parties for purchases prior to October 1, 1996.
The company records impairment losses on rental property used in the
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. No impairment
losses have been recorded to date.
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 income, interest, and other income are recorded on an
accrual basis. The company's properties are leased under lease agreements that,
typically, have terms that do not exceed one year.
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 6, the alternative fair value accounting provided for under
FASB Statement No. 123, "Accounting for Stock-Based Compensation," ("FASB 123")
requires 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.
EARNINGS PER COMMON SHARE Basic and diluted earnings per common share are
calculated in accordance with FASB Statement No. 128 "Earnings Per Share." Basic
earnings per common share is computed based upon the weighted average number of
shares outstanding during the year. Diluted earnings per share is calculated
after giving effect to all potential common shares that were dilutive and
outstanding for the year. The Series A Convertible Preferred Stock is not
included in dilutive earnings per share calculations since the impact is not
dilutive. Operating Partnership units are not included as the units were
converted to common stock prior to December 31, 1999 and were not dilutive
during the period in which they were outstanding.
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
<PAGE>
pay federal income taxes on its distributed income. Accord-ingly, no provision
has been made for federal income taxes.
For federal income tax purposes, distributions paid to common shareholders
consist of ordinary income and return of capital or a combination thereof.
Distributions per common share were $1.07, $1.03, and $1.00 in the years ended
December 31, 1999, 1998, and 1997, respectively. In 1999, of the total common
distribution, 89% was taxable as ordinary income, and 11% was a non-taxable
return of capital. In 1998, of the total common distribution, 80% was taxable as
ordinary income, and 20% was a non-taxable return of capital. In 1997, 77% was
taxable as ordinary income, and 23% was a non-taxable return of capital. All
amounts distributed to preferred shareholders are ordinary income for federal
income tax purposes.
USE OF ESTIMATES The preparation of financial statements in accordance with
accounting principles generally accepted in the United States 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.
COMPREHENSIVE INCOME On January 1, 1998, the company adopted Statement 130,
"Reporting Comprehensive Income." The company does not currently have any items
of comprehensive income requiring separate reporting and disclosure.
NOTE 2
ACQUISITION OF APPLE RESIDENTIAL INCOME TRUST, INC.
On July 23, 1999, the company completed the acquisition of Apple Residential
Income Trust, Inc. ("Apple"), which owned 29 apartment communities containing
7,503 apartment homes. The merger qualified as a tax-free reorganization and was
accounted for under the purchase method of accounting. The acquisition was
structured as a merger of Apple into a wholly-owned subsidiary of the company.
The aggregate purchase price was approximately $311 million. Under the terms of
the merger agreement, each Apple shareholder received 0.4 of the company's $25
Series A Convertible Preferred Stock for each share of Apple common stock. A
total of 12,666,019 shares of the company's Series A Convertible Preferred Stock
were issued as a result of the merger. The Series A Convertible Preferred Stock
has a first-year per-share dividend rate of $2.125, which will increase to $2.25
in the second year and $2.375 in the third year and thereafter. Each share of
Series A Convertible Preferred Stock carries a $25 per share liquidation
preference and is convertible into 1.5823 shares of the company's common stock,
which reflects a conversion price of $15.80 for the company's common stock.
After five years, the Series A Convertible Preferred Stock will be redeemable at
$25 per share plus any accrued dividends, at the option of the company, in whole
or in part, for cash or stock, subject to certain conditions. In addition, the
company assumed approximately $32 million of Apple's debt with an effective
interest rate of approximately 6.475%. No goodwill was recorded as a result of
this transaction.
The following unaudited pro forma information for the years ended December
31, 1999 and 1998 assumes the acquisition of Apple was completed on January 1 of
the respective periods. In addition to the merger, the unaudited pro forma
information gives effect to seven property acquisitions made by the company
during 1998, and 16 and three property acquisitions made by Apple in 1998 and
1999, respectively, as if these property acquisitions were made on January 1 of
the respective periods. The pro forma information is not necessarily indicative
of what the company's consolidated results of operations would have been if the
acquisitions previously described had occurred at the beginning of each period
presented. Additionally, the pro forma information does not purport to be
indicative of the company's results of operations for future periods.
Unaudited Pro Forma Totals 1999 1998
- --------------------------------------------------------------------------------
Rental income $148,372,645 $140,413,804
Net income available to
common shareholders 3,133,617 8,624,264
Net income per common
share--basic and diluted $.08 $.23
The pro forma information presented above reflects adjustments for the
actual rental income and rental expenses of the 23 properties acquired during
1998 and the three properties acquired in 1999 (including the Apple properties)
for the respective periods in 1998 prior to acquisition. Net income has been
adjusted as follows: (1) revenues and expenses related to the acquisition have
been eliminated;
<PAGE>
(2) depreciation expense has been adjusted based on the company's basis in the
properties; (3) interest expense has been adjusted based on the market rate
available to the company for acquisitions made with debt or cash; and (4)
outstanding number of common shares has been adjusted for acquisitions made
through the sale of common stock.
NOTE 3
INVESTMENT IN RENTAL PROPERTY
At December 31, 1999, the company did not own more than 30% of its apartment
communities in any one market. The following is a summary of rental property
owned at December 31, 1999:
<TABLE>
<CAPTION>
Initial Carrying Accumulated Date
Description Acquisition Cost Value* Depreciation Encumbrances Acquired
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NORTH CAROLINA
Raleigh/Durham, North Carolina
The Hollows $ 4,200,000 $ 6,344,761 $ 1,371,280 -- June 1993
The Trestles 10,350,000 11,674,666 1,951,490 -- December 1994
The Landing 8,345,000 10,273,739 1,314,898 -- May 1996
Highland Hills 12,100,000 14,777,352 1,867,985 -- September 1996
Parkside at Woodlake 14,663,886 15,363,983 1,616,808 -- September 1996
Deerfield 10,675,000 11,434,772 1,323,856 -- November 1996
Paces Arbor 5,588,219 6,061,500 542,022 -- March 1997
Paces Forest 6,473,481 7,061,353 635,445 -- March 1997
Clarion Crossing 10,600,000 11,199,362 709,617 -- September 1997
St. Regis 9,800,000 10,313,631 670,792 ** October 1997
Remington Place 7,900,000 8,742,446 588,592 ** October 1997
The Timbers 8,100,000 8,973,326 451,536 -- June 1998
Charlotte, North Carolina
Hanover Landing 5,725,000 7,688,461 1,124,516 -- August 1995
Sailboat Bay 9,100,000 13,760,358 2,893,325 -- November 1995
Bridgetown Bay 5,025,000 5,978,562 801,470 -- April 1996
Meadow Creek 11,100,000 12,846,737 1,676,493 -- May 1996
Beacon Hill 13,579,203 14,977,670 1,670,404 -- May 1996
Summerwalk 5,660,000 7,811,259 933,110 -- May 1996
Paces Glen 7,425,000 8,283,569 807,822 -- July 1996
Heatherwood 17,630,457 25,678,852 2,376,773 -- ***
Charleston Place 9,475,000 10,479,833 936,387 ** May 1997
Stone Point 9,700,000 10,340,351 718,777 ** January 1998
Winston-Salem, North Carolina
Mill Creek 8,550,000 9,756,845 1,367,852 -- September 1995
Glen Eagles 7,300,000 8,387,218 1,277,793 -- October 1995
Wilmington, North Carolina
Wimbledon Chase 3,300,000 5,792,212 1,312,650 -- February 1994
Chase Mooring 3,594,000 7,033,468 1,221,272 -- August 1994
Osprey Landing 4,375,000 7,568,285 1,252,918 -- November 1995
Other North Carolina
Wind Lake 8,760,000 11,513,608 1,797,291 -- April 1995
The Meadows 6,200,000 7,499,248 1,193,546 -- January 1996
Signature Place 5,462,948 7,490,089 1,056,405 -- August 1996
Pinnacle Ridge 5,731,150 6,421,295 337,877 -- April 1998
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Initial Carrying Accumulated Date
Description Acquisition Cost Value* Depreciation Encumbrances Acquired
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GEORGIA
Atlanta, Georgia
Ashley Run $ 18,000,000 $ 19,972,413 $ 1,744,247 ** April 1997
Carlyle Club 11,580,000 13,251,328 1,098,000 -- April 1997
Dunwoody Springs 15,200,000 19,090,735 1,538,123 -- July 1997
Stone Brooke 7,850,000 8,872,988 653,005 ** October 1997
Spring Lake 9,000,000 9,866,697 487,958 ** August 1998
Other Georgia
West Eagle Greens 4,020,000 6,426,900 1,006,501 -- March 1996
Savannah West 9,843,620 14,048,274 1,753,913 -- July 1996
VIRGINIA
Richmond, Virginia
Ashley Park 12,205,000 13,271,520 1,799,541 -- March 1996
Trolley Square 10,242,575 13,717,622 1,627,402 -- ****
Hampton Glen 11,599,931 13,008,010 1,556,617 -- September 1996
The Gables 11,500,000 12,710,802 615,267 -- July 1998
Virginia Beach, Virginia
Mayflower Seaside 7,634,144 10,786,692 1,776,525 -- October 1993
Harbour Club 5,250,000 6,543,804 1,185,861 -- May 1994
Bay Watch Pointe 3,372,525 5,156,962 850,371 -- July 1995
Tradewinds 10,200,000 11,781,289 1,671,376 -- November 1995
Arbor Trace 5,000,000 6,141,118 815,867 -- March 1996
Other Virginia
County Green 3,800,000 5,496,059 1,287,273 -- December 1993
Trophy Chase 12,628,991 16,648,166 1,173,456 -- *****
Greenbrier 11,099,525 12,606,881 1,537,701 -- October 1996
SOUTH CAROLINA
Greenville, South Carolina
Polo Club 4,300,000 7,866,907 2,229,426 -- June 1993
Breckinridge 5,600,000 7,208,834 1,070,571 -- June 1995
Magnolia Run 5,500,000 7,009,512 1,249,880 -- June 1995
Columbia, South Carolina
Stone Ridge 3,325,000 6,019,560 1,523,199 -- December 1993
The Arbors at Windsor Lake 10,875,000 11,701,117 1,255,948 ** January 1997
Other South Carolina
Westchase 11,000,000 13,212,319 1,356,921 ** January 1997
Hampton Pointe 12,225,000 14,667,288 937,704 ** March 1998
Cape Landing 17,100,000 19,233,648 800,319 -- October 1998
TEXAS
Dallas, Texas
Brookfield 8,014,533 8,161,716 186,973 -- July 1999
Toscana 7,334,023 7,365,639 126,957 -- July 1999
Paces Cove 11,712,879 11,971,802 195,934 -- July 1999
Timberglen 13,220,605 13,584,884 226,307 -- July 1999
Summer Tree 7,724,156 8,229,667 121,790 -- July 1999
Devonshire 7,564,892 7,891,678 135,312 $3,966,620 July 1999
The Courts on Pear Ridge 11,843,691 11,946,254 165,473 -- July 1999
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Initial Carrying Accumulated Date
Description Acquisition Cost Value* Depreciation Encumbrances Acquired
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Irving, Texas
Eagle Crest $ 21,566,317 $ 21,656,922 $ 357,622 -- July 1999
Remington Hills 20,921,219 21,404,019 370,565 -- July 1999
Estrada Oaks 10,786,882 11,012,434 164,335 -- July 1999
Arlington, Texas
Aspen Hills 7,223,722 7,358,975 155,255 -- July 1999
Mill Crossing 5,269,792 5,338,858 107,921 -- July 1999
Polo Run 7,556,647 8,352,311 154,386 -- July 1999
Cottonwood 6,271,756 6,768,671 118,929 -- July 1999
Burney Oaks 9,965,236 10,224,472 172,359 -- July 1999
Fort Worth, Texas
Copper Crossing 11,776,983 12,005,817 225,802 -- July 1999
Bedford, Texas
The Arbors on Forest Ridge 9,573,954 9,617,764 170,899 -- July 1999
Park Village 8,224,541 8,582,259 157,853 -- July 1999
Euless, Texas
Wildwood 4,471,294 4,524,238 84,312 -- July 1999
Duncanville, Texas
Main Park 9,082,967 9,201,464 161,804 -- July 1999
Lewisville, Texas
Pace's Point 12,980,245 13,167,942 207,288 $ 8,076,155 July 1999
Grand Prairie, Texas
Silverbrook I 15,709,893 16,505,257 279,259 -- July 1999
Silverbrook II 5,808,250 6,022,167 98,797 2,996,150 July 1999
Grapevine, Texas
Grayson Square II 12,210,121 12,437,775 208,621 6,622,849 July 1999
Grayson Square I 9,948,959 10,238,037 168,123 6,884,762 July 1999
Austin, Texas
The Meridian 7,539,224 7,742,932 134,852 2,999,146 July 1999
Canyon Hills 12,512,502 12,586,448 185,272 -- July 1999
Richardson, Texas
Cutter's Point 9,859,840 10,367,834 172,370 -- July 1999
San Antonio, Texas
Sierra Ridge 6,624,666 7,014,246 118,741 -- July 1999
- ------------------------------------------------------------------------------------------------------------------------------------
$ 799,739,444 $ 919,128,738 $ 77,538,085 $105,045,682
======================================================================
</TABLE>
*Includes real estate commissions, closing costs, and improvements capitalized
since the date of acquisition for properties acquired to date, excluding the
Apple properties. The Apple properties include the allocated purchase price at
the time of the merger and improvements capitalized since the merger.
** $73.5 million of secured debt which is secured by 10 properties which are
individually noted.
*** 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.
*****Trophy Chase is comprised of Trophy Chase and Hunter's Creek acquired in
April 1996 and July 1999, respectively, at a cost of $3,710,000 and $8,918,991.
They are adjacent properties and are operated as one apartment community.
<PAGE>
The following is a reconciliation of the carrying amount of real estate owned:
1999 1998 1997
- --------------------------------------------------------------------------------
Balance at January 1 $587,438,358 $487,575,196 $329,715,853
Real estate purchased 302,113,022 73,883,993 134,900,712
Sale of land (764,668) -- --
Improvements, furniture,
and fixtures 30,342,026 25,979,169 22,958,631
- --------------------------------------------------------------------------------
Balance at December 31 $919,128,738 $587,438,358 $487,575,196
The following is a reconciliation of accumulated depreciation:
1999 1998 1997
- --------------------------------------------------------------------------------
Balance at January 1 $48,227,760 $27,486,630 $12,323,037
Depreciation expense 29,310,325 20,741,130 15,163,593
- --------------------------------------------------------------------------------
Balance at December 31 $77,538,085 $48,227,760 $27,486,630
NOTE 4
NOTES PAYABLE
SECURED On September 29, 1999, the company placed $73.5 million of secured debt.
The loan is secured by 10 properties. The loan is interest only, paid monthly,
and bears interest at a fixed interest rate of 7.29% per annum with a maturity
date of September 2006. The proceeds were used to pay down short-term debt and
to curtail the company's existing line of credit as described below.
In connection with the Apple merger, the company assumed six mortgage notes
with a principal amount of $30.8 million. These mortgages were recorded at a
fair value of $32 million at the date of assumption. The difference between the
fair value and the principal is being amortized as an adjustment to interest
expense over the term of the respective notes. Prepayment penalties apply for
early retirements. Scheduled maturities are at various dates through December
2005. At December 31, 1999, the balance of the mortgage notes payable was
$31,545,682. Mortgage notes payable are due in monthly installments, including
principal and interest.
The aggregate maturities of principal, including monthly installments of
principal previously described, for secured debt subsequent to December 31, 1999
are as follows:
Year Amount
- --------------------------------------------------------
2000 $ 622,432
2001 691,727
2002 727,228
2003 7,953,828
2004 3,252,688
Thereafter 91,797,779
- --------------------------------------------------------
$105,045,682
- --------------------------------------------------------
The fair market value of secured debt at December 31, 1999 was $103 million.
UNSECURED During 1999, the company's $175 million unsecured line of credit
("Unsecured Line") with a consortium of six banks was increased to $185 million
and the maturity date was extended to July 9, 2002. The Unsecured Line bears
interest at one month LIBOR plus 120 basis points, reduced from one month LIBOR
plus 135 basis points at December 31, 1998 and 1997. Proceeds from the secured
debt described above were used to repay $35 million of the company's Unsecured
Line and $30.5 million of other unsecured debt. At December 31, 1999, the
company had an unused borrowing capacity of $35 million under the Unsecured
Line. In addition, the company is obligated to pay lenders a quarterly
commitment fee equal to .20% per annum of the unused portion of the line. At
December 31, 1999 and 1998, total unsecured borrowings under these agreements
were $150 million and $196 million, respectively.
The line of credit agreement contains certain covenants which, 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. At December 31, 1999, the company was in compliance with these
covenants.
During 1999, the company increased the $5 million unsecured line of credit
for general corporate purposes ("General Purpose Line") to $7.5 million . The
General Corporate Purpose Line bears interest at LIBOR plus 120 basis points.
The maturity date was extended to October 31, 2000. At December 31, 1999 and
1998, borrowings under this arrangement were $7.5 million and $343,000,
respectively.
<PAGE>
During 1999, the company's June 25, 1996 unsecured note was refinanced with
a $5.5 million unsecured loan from a commercial bank. The new unsecured note was
paid in full in September 1999 with proceeds from the secured debt described
above.
No interest was capitalized in 1999, 1998, or 1997. Overall,
weighted-average interest rates incurred were 6.5% in 1999 and 6.9% in 1998.
NOTE 5
SHAREHOLDERS' EQUITY
PREFERRED STOCK On July 23, 1999, in connection with the Apple merger, the
company issued 12,666,019 shares of Series A Convertible Preferred Stock, with a
liquidation preference of $25 per share. The Series A Convertible Preferred
Stock is convertible into 1.5823 shares of the company's common stock which
reflect a conversion price of $15.80 for the company's common stock. After five
years, the Series A Convertible Preferred Stock is redeemable at $25 per share
plus any accrued dividends, at the option of the company, in whole or in part,
for cash or stock, subject to certain conditions. The company is imputing
dividends calculated as the present value difference between the perpetual
preferred stock distribution and the stated distribution rate. The imputed
dividend is reflected as additional non-cash preferred stock distributions.
COMMON STOCK In 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, 1999,
1998, and 1997, $9,168,728, $10,873,529, and $14,198,868, respectively, were
provided through the reinvestment of distributions.
In 1998, the company organized Cornerstone REIT Limited Partnership to
acquire Cape Landing Apartments. In connection with this acquisition, the
company issued 185,887 partnership units. On December 29, 1999, the operating
partnership units were converted to common stock, at a ratio of one share of
common stock for every operating partnership unit.
During 1998, the company raised $30 million by issuing 2.6 million common
shares through its participation in a Unit Investment Trust, which resulted in
$28 million net proceeds to the company, after underwriting discounts,
commissions, and other direct costs. The company used the proceeds to pay down
its line of credit, for the acquisition of additional apartment communities, and
for working capital.
In April 1997, the company completed its firm-commitment initial 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 a previous line of credit.
NOTE 6
BENEFITS PLANS
STOCK INCENTIVE PLAN Based on the outstanding shares, under the 1992 Incentive
Plan, as amended, a maximum of 1,258,596 options could be granted, at the
discretion of the Board of Directors, to certain officers and key employees of
the company. Under the Directors Plan, as amended, a maximum of 542,190 options
could be granted to the directors of the company. In 1999, the company granted
39,625 options to purchase shares under the Directors Plan and 13,000 options to
purchase shares under the Incentive Plan.
Both of the plans 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,
1999 is summarized in the following table:
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
Weighted-Average Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price Options Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 904,096 $11.73 405,491 $11.07 371,256 $10.99
Granted 401,396 10.29 498,605 11.96 34,235 11.38
Exercised (539) 10.00 -- -- -- --
Forfeited -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding, end of year 1,304,953 $11.15 904,096 $11.73 405,491 $11.07
Exercisable at end of year 1,304,953 $11.15 904,096 $11.73 364,591 $11.07
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted-average fair value of
options granted during the year $ .30 $ .32 $ 1.00
</TABLE>
Options granted during 1999 included options granted to Mr. Glade M. Knight,
Chairman and Chief Executive Officer of the company, separate from the incentive
plan. Mr. Knight was granted options ("Award Options") to purchase 348,771 of
the company's common shares at an exercise price of $10.125. These options
represent a "rollover" of certain options previously held by Mr. Knight with
respect to Apple common shares.
If a triggering event occurs, the exercise price will be $1.00 per common
share for the following 180 days. A triggering event means the occurrence of
certain events, defined in the option agreement, reflecting a change or
prospective change in control of the company.
If a triggering event occurs, and Mr. Knight either elects not to, or fails
to, exercise any exercisable Award Options, then the company must pay to Mr.
Knight the difference between the exercise price and the value of the common
shares that would be obtained upon exercise. If the exercise or the receipt of
payment in lieu of such exercise subjects the holder to an additional penalty
tax under the Internal Revenue Code, the company will pay to the holder an
additional amount to offset the penalty tax.
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 1999, 1998, and 1997:
1999 1998 1997
- --------------------------------------------------------------------------------
Risk-free interest 5.6 % 5.5 % 6.7 %
Dividend yields 9.0 % 9.0 % 7.0 %
Volatility factors .160 .160 .161
Weighted-average
expected life (years) 10 10 10
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 of the pro forma adjustment
to net income is disclosed below.
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income available
to common shareholders
Pro forma $ 17,581,422 $ 23,040,840 $ 19,148,373
As reported $ 17,713,564 $ 23,210,642 $ 19,225,553
Earnings per
common share--diluted
Pro forma $ .45 $ .61 $ .59
As reported $ .45 $ .62 $ .59
</TABLE>
<PAGE>
401(K) SAVINGS PLAN Eligible employees of the company participate in a
contributory employee savings plan. Under the plan, the company may match a
percentage of contributions made by eligible employees, such percentage to apply
to a maximum of 1% of their annual salary. Expenses under this plan for 1999 and
1998 were $65,117 and $42,288, respectively.
NOTE 7
RELATED-PARTY TRANSACTIONS
Mr. Knight, Chairman and Chief Executive Officer of the company, also served as
the Chairman and Chief Executive Officer of Apple. Prior to the merger with
Apple, the company provided services to Apple. The services the company rendered
to Apple terminated upon the consummation of the merger. (See Note 2 to the
consolidated financial statements.)
Prior to the merger, the company or its affiliates provided real estate
brokerage services to Apple. In March 1997, the company purchased the right to
provide brokerage services to Apple by purchasing the assets of Apple Realty
Group, Inc., for $2 million, consisting of $350,000 in cash and 150,000 company
common shares valued at $1,650,000. The principal asset of Apple Realty Group,
Inc. was its brokerage contract with Apple. Under the terms of the brokerage
contract with Apple, the company received a real estate commission equal to 2%
of the purchase price of the properties acquired plus reimbursement of certain
expenses. During 1999, 1998, and 1997, the company earned $561,484, $2,665,100,
and $1,031,066, respectively, in real estate brokerage commissions. The company
amortized $241,438, $1,054,470, and $546,000, in 1999, 1998, and 1997,
respectively, of the purchase price for the brokerage contract. The company
amortized the purchase price of the contract in relationship to the assets
acquired through the date of the merger.
The company also provided property management and advisory services to
Apple. Property management services were 5% of monthly rental revenues plus
reimbursement of certain expenses. Advisory services were .1% to .25% based on
total capital raised by Apple and the financial performance of Apple. During
1999, 1998, and 1997, the company earned $1,893,120, $2,220,594, and $822,497,
respectively, for management and advisory services.
During 1997, the company purchased 417,778 common shares of Apple for
$3,760,000. The company received distributions on this investment of $194,580,
$340,483, and $253,172 in 1999, 1998, and 1997, respectively.
During May, 1999, Apple paid the company $1.5 million to modify the
company's right of first refusal to purchase Apple and the service contracts
between Apple and the company to allow for termination of such agreements in the
event of a change of control of the company. The company recorded the payment as
other income.
Prior to the Apple merger, officers of the company held 200,000 Apple Class
B Convertible Shares which converted into 640,000 of the company's Series A
Convertible Preferred Shares upon consummation of the merger.
Mr. Knight also serves as Chairman and Chief Executive Officer of Apple
Suites, Inc., a hospitality REIT formed during 1999, and also owns companies
which provide services to Apple Suites, Inc. During 1999, the company provided
services and rented office space to these entities and received payment of
approximately $214,000.
OTHER RELATIONSHIPS Leslie A. Grandis, a director of the company, is also a
partner in McGuire, Woods, Battle & Boothe LLP, which serves as general counsel
to the company. Martin Zuckerbrod and Harry S. Taubenfeld, directors of the
company, provide real estate legal services to the company.
<PAGE>
NOTE 8
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income available to common shareholders $ 17,713,564 $ 23,210,642 $ 19,225,553
Numerator for basic and diluted earnings per share-income
available to common stockholders after assumed conversion $ 17,713,564 $ 23,210,642 $ 19,225,553
Denominator:
Denominator for basic earnings per share-weighted-average shares 39,182,802 37,630,546 32,617,823
Effect of dilutive securities:
Stock options 21 20,402 2,014
Series A Convertible Preferred Stock* -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share-adjusted
weighted-average shares and assumed conversions 39,182,823 37,650,948 32,619,837
- ------------------------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per common share $ .45 $ .62 $ .59
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Series A Convertible Preferred Stock was not included in dilutive earnings per
common share calculation since its effect was anti-dilutive.
NOTE 9
QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly results of operations for the years
ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
First Second Third Fourth
1999 Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 24,528,378 $ 26,635,539 $ 35,100,597 $ 38,777,010
Income before interest income (expense) 9,207,685 9,622,021 12,580,451 13,665,221
Net income 5,832,410 6,218,561 8,732,122 9,254,009
Distributions to preferred shareholders -- -- 4,923,280 7,400,258
Net income available to common shareholders 5,832,410 6,218,561 3,808,842 1,853,751
Basic and diluted earnings per
common share .15 .16 .09 .05
Distributions per share .26 .27 .27 .27
1998
- --------------------------------------------------------------------------------------------------------------------------------
Revenues $ 20,962,469 $ 22,721,906 $ 24,999,279 $ 24,954,294
Income before interest income (expense) 7,963,956 8,572,162 9,405,990 9,459,167
Net income 5,236,048 5,512,931 6,289,373 6,172,290
Distributions to preferred shareholders -- -- -- --
Net income available to common shareholders 5,236,048 5,512,931 6,289,373 6,172,290
Basic and diluted earnings per common share .15 .15 .16 .16
Distributions per share .25 .26 .26 .26
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 10
SUBSEQUENT EVENT
As of February 17, 2000, the company entered into a contract to sell 16
apartment communities for a gross selling price of approximately $135 million,
with a net book value of $105 million at December 31, 1999. There is no
assurance that this transaction will take place.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following are direct or indirect wholly-owned subsidiaries of
Cornerstone Realty Income Trust, Inc.:
CRIT-NC, LLC (a Virginia limited liability company)
CRIT-SC, LLC (a Virginia limited liability company)
CRIT-SC, Inc.(a Virginia corporation)
CRIT-Cornerstone Limited Partnership (a Virginia limited partnership)
In addition, Cornerstone Realty Income Trust, Inc. owns 99.99% of the
following company:
Cornerstone Acquisition Company (a Virginia corporation)
The following are direct or indirect wholly-owned subsidiaries of
Cornerstone Acquisition Company:
Apple General, Inc. (a Virginia corporation)
Apple Limited, Inc. (a Virginia corporation)
Apple REIT Limited Partnership (a Virginia limited partnership)
Apple REIT II Limited Partnership (a Virginia limited partnership)
Apple REIT III Limited Partnership (a Virginia limited partnership)
Apple REIT IV Limited Partnership (a Virginia limited partnership)
Apple REIT V Limited Partnership (a Virginia limited partnership)
Apple REIT VI Limited Partnership (a Virginia limited partnership)
Apple REIT VII Limited Partnership (a Virginia limited partnership)
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (From 10K)
and the following Registration Statements of Cornerstone Realty Income Trust,
Inc. and in the related Prospectuses of our report dated January 27, 2000,
except for Note 10 , as to which the date is February 21, 2000, included in the
1999 Annual Report to Shareholders of Cornerstone Realty Income Trust, Inc.:
<TABLE>
<CAPTION>
Registration Statement Number Description
<S> <C>
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
333-94895 Form S-3, pertaining to the resale of up to 185,887 Common
Shares of the Company
</TABLE>
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,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Richmond, Virginia
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000854875
<NAME> CORNERSTONE REALTY INCOME TRUST, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 16,268,336
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 919,128,738
<DEPRECIATION> 77,538,085
<TOTAL-ASSETS> 869,264,876
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
263,656,281
<COMMON> 385,969,899
<OTHER-SE> (73,260,938)
<TOTAL-LIABILITY-AND-EQUITY> 869,264,876
<SALES> 0
<TOTAL-REVENUES> 125,041,524
<CGS> 0
<TOTAL-COSTS> 79,966,146
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,345,598
<INCOME-PRETAX> 17,713,564
<INCOME-TAX> 0
<INCOME-CONTINUING> 17,713,564
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,713,564
<EPS-BASIC> .45
<EPS-DILUTED> .45
</TABLE>
