Item 1. Business
Cornerstone Realty Income Trust, Inc. (the "Company"), a Virginia corporation, was incorporated in August 1989. Initial capitalization occurred on August 18, 1992. Operations of rental property commenced on June 1, 1993. The business of the Company is to acquire existing residential apartment complexes located in the mid-Atlantic and southeastern United States. The Company owned forty properties comprising 9,033 apartment units within that region as of December 31, 1996. The investment objectives and policies of the Company are described under the caption "The Company" on pages 18 through 22 of the Company's prospectus (the "Prospectus") filed with the Securities and Exchange Commission as part of the Registration Statement on Form S-3 (Registration No. 333-23693), which are hereby incorporated herein by reference. The Company's first nineteen property acquisitions, (as well as the additional property acquisitions described below) are described on pages 23 through 29 of the Prospectus, which are hereby incorporated herein by reference.
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.
The following is a summary of the twenty-one property acquisitions made by the Company during 1996.
On January 31, 1996, the Company purchased The Meadows Apartments in Asheville, North Carolina. Information with respect to this property is hereby incorporated herein by reference from pages 23 through 29 of the Prospectus.
On March 1, 1996, the Company acquired the Scarlett Oaks Apartments (subsequently renamed "West Eagle Greens") in Augusta, Georgia, Ashley Park Apartments in Richmond, Virginia, and Arbor Trace Apartments in Virginia Beach, Virginia . Information with respect to these properties is hereby incorporated herein by reference from pages 23 through 29 of the Prospectus.
On April 30, 1996, the Company acquired Longmeadows Apartments in Charleston, North Carolina (which was subsequently renamed "Bridgetown Bay") and Westfield Club Apartments (which was subsequently renamed "Trophy Chase") in Charlottesville, Virginia. Information with respect to these properties is hereby incorporated herein by reference from pages 23 through 29 of the Prospectus.
On May 1, 1996, the Company acquired Beacon Hill in Charlotte, North Carolina, Lakewood Apartments (which was subsequently renamed "Summerwalk"), in Concord, North Carolina, and Willow Creek Apartments (which was subsequently renamed "The Landing") in Durham, North Carolina. Information with respect to these properties are hereby incorporated herein by reference from pages 23 through 29 of the Prospectus.
On May 31, 1996, the Company acquired Meadow Creek Apartments in Pineville, North Carolina. Information with respect to this property is hereby incorporated herein by reference from pages 23 through 29 of the Prospectus.
On June 26, 1996, the Company acquired Lexington Towers Apartments (which was subsequently renamed "Trolley Square East") in Richmond, Virginia. Information with respect to this property is hereby incorporated herein by reference from pages 23 through 29 of the Prospectus.
On July 1, 1996, the Company acquired Oak Park Apartments (which was subsequently renamed "Savannah West") in Augusta, Georgia and Paces Glen Apartments in Charlotte, North Carolina. Information with respect to these properties is hereby incorporated herein by reference from pages 23 through 29 of the Prospectus.
On August 21, 1996, the Company acquired Doctors Park Apartments (which was subsequently renamed "Signature Place"), in Greenville, North Carolina and Hampton Glen Apartments in Richmond, Virginia. Information with respect to these properties is hereby incorporated herein by reference from pages 23 through 29 of the Prospectus.
On September 1, 1996, the Company acquired the Sterling Chase Apartments (which was subsequently renamed "Heatherwood") in Charlotte, North Carolina. Information with respect to this property is hereby incorporated herein by reference from pages 23 through 29 of the Prospectus.
On September 27, 1996, the Company acquired Highland Hills Apartments in Carrboro, North Carolina. Information with respect to this property is hereby incorporated herein by reference from pages 23 through 29 of the Prospectus.
On September 30, 1996, the Company acquired Parkside at Woodlake Apartments in Durham, North Carolina. Information with respect to this property is hereby incorporated herein by reference from pages 23 through 29 of the Prospectus.
On October 1, 1996, the Company acquired Greenbrier Apartments in Fredericksburg, Virginia. Information with respect to this property is hereby incorporated herein by reference from pages 23 through 29 of the Prospectus.
On November 20, 1996, the Company acquired Deerfield Apartments in Durham, North Carolina. Information with respect to this property is hereby incorporated herein by reference from pages 23 through 29 of the Prospectus.
On December 1, 1996, the Company acquired Franklin Towers Apartments (which was subsequently renamed "Trolley Square West") in Richmond, Virginia. Information with respect to this property is hereby incorporated herein by reference from pages 23 through 29 of the Prospectus.
In addition to the above, on January 1, 1997, the Company acquired The Arbors at Windsor Lake in Columbia, South Carolina and on January 15, 1997, the Company acquired Westchase Apartments in Charleston, South Carolina. Information with respect to these properties is hereby incorporated herein by reference from pages 23 through 29 of the Prospectus.
Item 2.
Item 2. Properties
The Company's forty real estate property investments owned as of December 31, 1996 are described in Item 1, which is hereby incorporated herein by reference.
Item 3.
Item 3. Legal Proceedings
None.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There is currently no established public market in which the Company's common shares are traded.
On March 1, 1997, there were 12,341 shareholders of record of the Company's common shares.
Distributions of $6,316,185 and $15,934,901 were made to the shareholders during 1995 and 1996, respectively.
Item 6.
Item 6. Selected Financial Data
For the information called for by this item, see the information in Exhibit 13.1 under the caption "Selected Financial Information" on page 19 thereof, which information is hereby incorporated herein by reference.
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.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
For the information required by this item, see the information in Exhibit 13.1 under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 20 through 23 thereof, which information is hereby incorporated herein by reference.
Item 8.
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.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
For information with respect to the Company's directors and director nominees see the information under "Ownership of Equity Securities" and "Election of Directors" in the Company's Proxy Statement dated April 4, 1997, which information is incorporated herein by reference. For information with respect to the Company's executive officers see "Executive Officers" in the Company's Proxy Statement dated April 4, 1997, which information is incorporated herein by reference.
Item 11.
Item 11. Executive Compensation
The Company did not pay salaries to its officers for the period before October 1, 1996. During such prior period, the Company operated as an "externally-advised" and "externally-managed" REIT. The Company has converted to "self-administered" and "self-managed" status. Information with respect to this conversion to self-administration is contained under the caption "Certain Transactions - Conversion to Self-Administration" on pages 43 through 44 of the Prospectus, which is hereby incorporated herein by reference.
For information with respect to compensation of the Company's executive officers and directors, see the information under "Compensation of Executive Officers" and "Compensation of Directors" in the Company's Proxy Statement dated April 4, 1997, which information is incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
See the information under "Ownership of Equity Securities" in the Company's Proxy Statement dated April 4, 1997, which information is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions
Before October 1, 1996, the Company operated as an "externally-advised" and "externally-managed" REIT. Cornerstone Advisors, Inc. served as the advisor to the Company, Cornerstone Management Group, Inc. served as the manager of the properties and property acquisition services were provided to the Company by Cornerstone Realty Group, Inc. (collectively, the "External Companies"). As of September 1, 1996, the Company agreed with the External Companies on a series of related transactions, the effect of which was to convert the Company into a "self-administered" and "self-managed" REIT effective October 1, 1996. Information with respect to this conversion to self-administration is contained under the caption "Certain Transactions Conversion to Self-Administration" on pages 43 through 44 of the Prospectus, which is hereby incorporated herein by reference.
For additional information on certain relationships and related transactions, see the information under "Certain Relationships and Agreements" in the Company's Proxy Statement dated April 4, 1997, which information is incorporated herein by reference.
PART IV
Item 14.
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 financial statements of the registrant incorporated by reference from pages 23 through 33 of Exhibit 13.1 - 1996 Annual Report:
Independent Auditors' Report Ernst & Young LLP
Balance Sheets December 31, 1996 and 1995
Statements of Operations Years Ended December 31, 1996, 1995 and 1994
Statements of Shareholders' Equity Years ended December 31, 1996, 1995 and 1994
Statements of Cash Flows Years ended December 31, 1996, 1995 and 1994
Notes to Financial Statements
2. Financial Statement Schedule
Schedule III - Real Estate and Accumulated Depreciation (included on pages 9 through 11 of this Form 10-K Report)
All other financial statement schedules have been omitted because they are not applicable or not required or because the required information is included elsewhere in the financial statements or notes thereto.
3. Exhibits
Incorporated herein by reference are the exhibits listed under "Exhibits Index" on pages 13 through 15 of this Form 10-K Report.
(b) Reports on Form 8-K
During the last quarter of 1996, the Company filed the following Current Reports on Form 8-K:
On October 15, 1996, the registrant filed a Report on Form 8-K. The items reported were Item 2 (the acquisition of the Sterling Chase, Parkside at Woodlake and Highland Hills Apartments), and Item 5 (the registrant's conversion to self-administered and self-managed status.)
On November 15, 1996, a Report on Form 8-K/A to a Report on Form 8-K dated June 26, 1996 was filed by the registrant. The item reported was Item 7. The financial statements filed were Statements of Income and Direct Operating Expenses (exclusive of certain items) for Lexington Tower for the year ended December 31, 1995, for Oak Park for the twelve months ended June 30, 1996, and for Hampton Glen for the twelve months ended July 31, 1996. Also included were a Pro Forma Statement of Operations for the six months ended June 30, 1996, a Pro Forma Balance Sheet as of June 30, 1996, and Pro Forma Statement of Operations for the year ended December 31, 1995.
On December 16, 1996, a Report on Form 8-K/A to the Report on Form 8-K dated September 26, 1996 was filed by the registrant. The item reported was Item 7. The financial statements filed were Statements of Income and Direct Operating Expenses (exclusive of certain items) for Sterling Chase for the twelve months ended August 31, 1996 and for Parkside for the twelve months ended September 30, 1996, a Pro Forma Statement of Operations for the nine months ended September 30, 1996 and a Pro Forma Statement of Operations for the year ended December 31, 1995.
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION (As of December 31, 1996)
REAL ESTATE AND ACCUMULATED DEPRECIATION (As of December 31, 1996)
(1) Represents the aggregate cost for Federal Income tax purposes:
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 27th day of March, 1997.
CORNERSTONE REALTY INCOME TRUST, INC.
By: /s/ Glade M. Knight ------------------------ Glade M. Knight, Chairman of the Board and President
Pursuant to the requirements of the Securities Exchange Act 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.