SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
Commission File Number: 000-22683
GABLES REALTY LIMITED PARTNERSHIP
(Exact name of Registrant as specified in its Charter)
DELAWARE |
| 58-2077966 |
|
2859 Paces Ferry Road, Suite 1450
Atlanta, Georgia 30339
(Address of principal executive offices, including zip code)
(770) 436 - 4600
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or 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.
(1) | (X) YES | ( ) NO |
(2) | (X) YES | ( ) NO |
GABLES REALTY LIMITED PARTNERSHIP
FORM 10 - Q INDEX
Part I | Financial Information |
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Item 1: | Financial Statements |
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| Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000 | |
| Consolidated Statements of Operations for the three months ended March 31, 2001 and 2000 | |
| Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and 2000 | |
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Item 2: | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3: | ||
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Part II | Other Information |
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Item 6: |
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ITEM 1. - FINANCIAL STATEMENTS | ||||||
GABLES REALTY LIMITED PARTNERSHIP | ||||||
March 31, | December 31, | |||||
ASSETS: | ||||||
Real estate assets: | ||||||
Land | $ 227,090 | $ 209,470 | ||||
Buildings | 1,191,512 | 1,106,900 | ||||
Furniture, fixtures and equipment | 102,652 | 93,578 | ||||
Construction in progress | 98,375 | 122,947 | ||||
Investment in joint ventures | 22,034 | 24,626 | ||||
Land held for future development | 23,986 | 30,323 | ||||
Real estate assets before accumulated depreciation | 1,665,649 | 1,587,844 | ||||
Less: accumulated depreciation | -206,558 | -195,706 | ||||
Net real estate assets | 1,459,091 | 1,392,138 | ||||
Cash and cash equivalents | 2,977 | 4,252 | ||||
Restricted cash | 8,858 | 17,902 | ||||
Deferred financing costs, net | 4,914 | 3,981 | ||||
Other assets, net | 36,068 | 34,747 | ||||
Total assets | $ 1,511,908 | $ 1,453,020 | ||||
LIABILITIES AND PARTNERS' CAPITAL: | ||||||
Notes payable | $ 837,142 | $ 765,927 | ||||
Accrued interest payable | 3,211 | 5,140 | ||||
Preferred distributions payable | 1,243 | 1,187 | ||||
Real estate taxes payable | 7,161 | 15,650 | ||||
Accounts payable and accrued expenses - construction | 6,603 | 10,082 | ||||
Accounts payable and accrued expenses - operating | 14,697 | 11,824 | ||||
Security deposits | 4,391 | 4,312 | ||||
Total liabilities | 874,448 | 814,122 | ||||
Limited partners' common capital interest (6,660 and 6,663 common Units), at redemption value | 189,043 | 185,362 | ||||
Preferred partner's capital interest (180 Series Z Preferred Units), at $25.00 liquidation preference | 4,500 | 4,500 | ||||
Commitments and contingencies | ||||||
Partners' capital: | ||||||
General partner (300 and 298 common Units) | 5,045 | 4,567 | ||||
Limited partner (23,034 and 22, 828 common Units) | 273,872 | 279,469 | ||||
Preferred partners (4,600 Series A Preferred Units and 2,000 Series B Preferred Units), at $25.00 liquidation preference | 165,000 | 165,000 | ||||
Total partners' capital | 443,917 | 449,036 | ||||
Total liabilities, partners' capital interest and partners' capital | $ 1,511,908 | $ 1,453,020 | ||||
The accompanying notes are an integral part of these consolidated balance sheets. | ||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and Amounts in Thousands, Except Property and Per Unit Data)
Unless the context otherwise requires, all references to "we," "our" or "us" in this report refer collectively to Gables Realty Limited Partnership and its subsidiaries.
1. ORGANIZATION AND FORMATION
Gables Realty Limited Partnership (the "Operating Partnership") is the entity through which Gables Residential Trust (the "Trust"), a real estate investment trust (a "REIT"), conducts substantially all of its business and owns, either directly or indirectly through subsidiaries, substantially all of its assets. The Trust was formed in 1993 under Maryland law to continue and expand the operations of its privately owned predecessor organization. The Trust completed its initial public offering on January 26, 1994.
We are a fully integrated real estate company engaged in the multifamily apartment community management, development, construction, acquisition and disposition businesses. We also provide related brokerage and corporate rental housing services. Our third party management businesses are conducted through a subsidiary, Gables Residential Services, Inc.
As of March 31, 2001, the Trust was 77.8% economic owner of our common equity. The Trust controls us through Gables GP, Inc. ("Gables GP"), a wholly-owned subsidiary of the Trust and our sole general partner. This structure is commonly referred to as an umbrella partnership REIT or "UPREIT." The board of directors of Gables GP, the members of which are the same as the members of the Trust's board of trustees, manages our affairs by directing the affairs of Gables GP. The Trust's limited partnership and indirect general partnership interests entitle it to share in our cash distributions, and in our profits and losses in proportion to its ownership interest therein and entitles the Trust to vote on all matters requiring a vote of the limited partners. Generally, our other limited partners are persons who contributed their direct or indirect interests in certain of our properties primarily in connection with the IPO and the 1998 acquisition of the properties and operations of Trammell Crow Residential South Florida ("South Florida"). We are obligated to redeem each common unit of limited partnership interest ("Unit") held by a person other than the Trust at the request of the holder for an amount equal to the fair market value of a share of the Trust's common shares at the time of such redemption, provided that the Trust, at its option, may elect to acquire each Unit presented for redemption for one common share or cash. Such limited partners' redemption rights are reflected in "limited partners' capital interest" in our accompanying consolidated balance sheets at the cash redemption amount at the balance sheet date. The Trust's percentage ownership interest in us will increase with each redemption. In addition, whenever the Trust issues common shares or preferred shares, it is obligated to contribute any net proceeds to us and we are obligated to issue an equivalent number of common or preferred units, as applicable to the Trust.
Distributions to holders of Units are made to enable distributions to be made to the Trust's shareholders under its dividend policy. As a result of recently enacted tax legislation, effective for tax years beginning after December 31, 2000, the distribution requirement has been reduced from 95% to 90% of a REIT's ordinary taxable income. We make distributions to the Trust to enable it to satisfy this requirement.
As of March 31, 2001, we owned 76 stabilized multifamily apartment communities comprising 22,398 apartment homes, an indirect 25% interest in two stabilized apartment communities comprising 663 apartment homes, an indirect 20% interest in three stabilized apartment communities comprising 1,039 apartment homes, and an indirect 9% interest in three stabilized apartment communities comprising 1,118 apartment homes. We also owned five multifamily apartment communities under development or in lease-up at March 31, 2001 that are expected to comprise 1,051 apartment homes upon completion and an indirect 20% interest in five apartment communities under development or in lease-up at March 31, 2001 that are expected to comprise 1,494 apartment homes upon completion. In addition, as of March 31, 2001, we owned parcels of land on which we intend to develop three apartment communities that we currently expect will comprise an estimated 840 apartment homes. We also have rights to acquire additional parcels of land on which we believe we could develop communities. Any future development is subject to permits and other governmental approvals, as well as our ongoing business review, and may not be undertaken or completed.
2. COMMON AND PREFERRED EQUITY ACTIVITY
Secondary Common Share Offerings
Since the IPO, the Trust has issued a total of 14,831 common shares in eight offerings, generating $347,771 in net proceeds which were generally used (1) to reduce outstanding indebtedness under interim financing vehicles utilized to fund development and acquisition activities and (2) for general working capital purposes, including funding of future development and acquisition activities.
Preferred Share Offerings
On July 24, 1997, the Trust issued 4,600 shares of 8.30% Series A Cumulative Redeemable Preferred Shares (liquidation preference $25.00 per share). The net proceeds from this offering of $111.0 million were used to reduce outstanding indebtedness under interim financing vehicles. The Series A Preferred Shares may be redeemed at $25.00 per share plus accrued and unpaid dividends on or after July 24, 2002. The Series A Preferred Shares have no stated maturity, sinking fund, or mandatory redemption and are not convertible into any other securities of the Trust.
On June 18, 1998, the Trust issued 180 shares of 5.0% Series Z Cumulative Redeemable Preferred Shares (liquidation preference $25.00 per share) in connection with the acquisition of a parcel of land for future development. The Series Z Preferred Shares, which are subject to mandatory redemption on June 18, 2018, may be redeemed at any time for $25.00 per share plus accrued and unpaid dividends. The Series Z Preferred Shares are not subject to any sinking fund or convertible into any other securities of the Trust.
Issuances of Common Operating Partnership Units
Since the IPO, we have issued a total of 4,421 Units in connection with the South Florida acquisition, the acquisition of other operating apartment communities, and the acquisition of a parcel of land for future development.
Issuance of Preferred Operating Partnership Units
On November 12, 1998, we issued 2,000 of our 8.625% Series B Preferred Units to an institutional investor. The net proceeds from this issuance of $48.7 million were used to reduce outstanding indebtedness under interim financing vehicles. The Trust has the option to redeem the Series B Preferred Units after November 14, 2003. These Units are exchangeable by the holder into 8.625% Series B Cumulative Redeemable Preferred Shares of the Trust on a one-for-one basis; however, this exchange right is generally not exercisable until after November 14, 2008. The Series B Preferred Units have no stated maturity, sinking fund, or mandatory redemption.
Common Equity Repurchase Program
We have a common equity repurchase program pursuant to which the Trust is currently authorized to purchase up to $150 million of its outstanding common shares or Units. The Trust has repurchased shares from time to time in open market and privately negotiated transactions, depending on market prices and other conditions, using proceeds from sales of selected assets. Whenever the Trust repurchases common shares from shareholders, we are required to redeem from the Trust an equivalent number of Units on the same terms and for the same aggregate price. After redemption, the Units redeemed by us are no longer deemed outstanding. Units have also been redeemed for cash upon their presentation for redemption by unitholders. As of March 31, 2001, we had redeemed 4,267 Units for a total of $102,048, including 3,980 Units redeemed by the Trust.
Shelf Registration Statement
We have an effective shelf registration statement on file with the Securities and Exchange Commission ("SEC") providing $500 million of equity capacity and $300 million of debt capacity. We believe it is prudent to maintain shelf registration capacity in order to facilitate future capital raising activities. To date, there have been no issuances under this shelf registration statement other than the issuance of $150 million of senior unsecured notes in February 2001.
3. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the consolidated accounts of the Operating Partnership and its subsidiaries, including Gables Residential Services, Inc. We consolidate the financial statements of all entities in which we have a controlling financial interest, as that term is defined under generally accepted accounting principles ("GAAP"), through either majority voting interest or contractual agreements. All significant intercompany accounts and transactions have been eliminated in consolidation.
The accompanying interim unaudited financial statements have been prepared in accordance with GAAP for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, all adjustments (consisting only of normally recurring adjustments) considered necessary for a fair presentation for these interim periods have been included. The results of operations for the interim period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with the financial statements included in our Form 10-K for the year ended December 31, 2000.
4. PORTFOLIO AND OTHER FINANCING ACTIVITY
Community and Land Dispositions (exclusive of joint venture transactions)
In the first quarter of 2001, we sold 2.5 acres of land adjacent to one of our development communities for $5.4 million and recognized a gain of $0.9 million. During the quarter, we recognized $0.2 million of deferred gain associated with a parcel of land we sold in 2000.
During 2000, we sold an apartment community located in Dallas comprising 126 apartment homes, an apartment community located in Houston comprising 228 apartment homes, two apartment communities located in San Antonio comprising 544 apartment homes, and a parcel of land adjacent to an existing apartment community located in Atlanta. The net proceeds from these sales totaled $81 million, $30 million of which was deposited into an escrow account and is being used to fund development and acquisition activities. The balance of the net proceeds was used to paydown outstanding borrowings under interim financing vehicles and purchase common shares and Units under the Trust's common equity repurchase program. The total gain from these sales was $20.4 million, of which $19.6 million was recognized in 2000. The remaining gain of $0.8 million that was deferred at December 31, 2000 is being recognized when earned using the percentage of completion method because we serve as the developer and general contractor for the purchaser of the land parcel and have a commitment to construct an apartment community on the parcel of land sold.
Gables Residential Apartment Portfolio Two Joint Venture
On March 30, 2001, we entered into a joint venture in which our economic ownership interest is currently 20%. The business purpose of the joint venture is to develop, own and operate three multifamily apartment communities, comprising 780 apartment homes, located in three of our markets. We serve as the managing member of the venture and have responsibility for all day-to-day operating matters. We also serve as the property manager, developer and general contractor for construction activities. On March 30, 2001, we contributed our interest in two of the development communities to the joint venture in return for (1) cash of $15.6 million and (2) an initial capital account in the joint venture of $3.9 million. On April 27, 2001, we contributed our interest in the third development community to the joint venture in return for (1) cash of $2.7 million and (2) an increase in the initial capital account in the joint venture of $0.7 million. As of the respective contribution dates, we had commenced construction of two of the development communities and owned the land for the future development of the third community. The capital budget for the development of the three communities is $82 million which is expected to be funded with equity of $36 million and debt of $46 million. The equity component is being funded 80% by the venture partner and 20% by us. Our portion of the equity will be funded through contributions of cash and property. We will record a gain on this contribution of approximately $2.8 million which will be recognized when earned using the percentage of completion method since we serve as the developer and general contractor for the joint venture. As of March 31, 2001, we had recognized $0.5 million of this gain.
Senior Unsecured Note Issuance
In February 2001, we issued $150.0 million of senior unsecured notes which bear interest at 7.25%, were priced to yield 7.29% and mature in February 2006. The net proceeds of $148.5 million were used to reduce borrowings under our unsecured credit facilities and repay our $40 million term loan which had a November 2001 maturity date.
CMS Tennessee Multifamily Joint Venture
On December 28, 2000, we sold 91% of our interests in three apartment communities comprising 1,118 apartment homes to a joint venture with CMS Companies. Two of these communities are located in Nashville and the third is located in Memphis. We currently have a 1% general partner interest and an 8% limited partner interest in this venture. In addition, we serve as the property manager. We received net proceeds of $61 million in connection with this sale and we recognized a gain of $9.9 million. The net proceeds were used to repay a fixed-rate note payable with an outstanding principal balance of $18.6 million that encumbered one of the assets and to reduce borrowings under our interim financing vehicles.
Gables Residential Apartment Portfolio Joint Venture
On March 26, 1999, we entered into a joint venture in which our economic ownership interest is currently 20%. The business purpose of the joint venture is to develop, own and operate eight multifamily apartment communities comprising 2,471 apartment homes, located in four of our markets. We serve as the managing member of the venture and have responsibility for all day-to-day operating matters. We also serve as the property manager, developer and general contractor for construction activities. The capital budget for the development of the eight communities is $238 million and is being funded with 50% equity and 50% debt. The equity component is being funded 80% by the venture partner and 20% by us. Our portion of the equity was funded through contributions of cash and property. As of March 31, 2001, we had funded our total equity commitment of $23.8 million to the joint venture. At March 31, 2001, construction was complete with respect to six of the eight communities and five of the six completed communities had reached a stabilized occupancy level.
On March 30, 2001, we acquired the membership interests of our venture partner in two of the stabilized communities comprising 532 apartment homes.
Community Acquisitions
On March 30, 2001, we acquired the membership interests of our venture partner in two communities located in South Florida comprising 532 apartment homes for $66 million. This cash consideration was based on a valuation of the assets of $75 million and is net of our $9 million share of the venture distribution.
During the third quarter of 2000, we acquired an apartment community located in Austin comprising 160 apartment homes. In consideration for such community, we paid $5.7 million in cash and assumed a $14.1 million secured fixed-rate note.
5. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued, establishing accounting and reporting standards requiring that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the statement of operations, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133, as amended by SFAS No. 137, was effective for us beginning January 1, 2001. The impact of SFAS No. 133 on our financial statements will depend on the extent, type and effectiveness of our hedging activities. SFAS No. 133 could increase volatility in net income and other comprehensive income. We had no derivative instruments at December 31, 2000 or March 31, 2001.
6. EARNINGS PER UNIT
Basic earnings per Unit are computed based on net income available to common unitholders and the weighted average number of common Units outstanding. Diluted earnings per Unit reflect the assumed issuance of common Units under the Trust's share option and incentive plan. The numerator and denominator used for both basic and diluted earnings per Unit computations are as follows:
Three Months
Ended March 31,
unitholders (numerator):
Net income - basic and diluted
$11,324
=====
$11,504
=====
Common Units (denominator):
Average Units outstanding - basic
Incremental Units from assumed conversions of:
Stock options
Other
Average Units outstanding - diluted
29,860
147
5
30,012
=====
31,161
16
2
31,179
=====
7. INTEREST RATE PROTECTION AGREEMENTS
In the ordinary course of business, we are exposed to interest rate risks. We periodically seek input from third party consultants regarding market interest rate and credit risk in order to evaluate our interest rate exposure. In certain situations, we may utilize derivative financial instruments in the form of rate caps, rate swaps or rate locks to hedge interest rate exposure by modifying the interest rate characteristics of related balance sheet instruments and prospective financing transactions. We do not utilize such instruments for trading or speculative purposes. Derivatives used as hedges must be effective at reducing the risk associated with the exposure being hedged, correlate in nominal amount, rate, and term with the balance sheet instrument being hedged, and must be designated as a hedge at the inception of the derivative contract.
8. SEGMENT REPORTING
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. Our chief operating decision-maker is our senior management group.
We own, operate and develop multifamily apartment communities in major markets located in Texas, Georgia, Florida and Tennessee. Such apartment communities generate rental revenue and other income through the leasing of apartment homes to a diverse base of residents. We evaluate the performance of each of our apartment communities on an individual basis. However, because each of our apartment communities has similar economic characteristics, residents, and products and services, our apartment communities have been aggregated into one reportable segment. This segment comprises 97% and 95% of our total revenues for the three months ended March 31, 2001 and 2000, respectively.
The primary financial measure for our reportable business segment is net operating income ("NOI"), which represents total property revenues less property operating and maintenance expenses (as reflected in the accompanying statements of operations). Accordingly, NOI excludes certain expenses included in the determination of net income. Current year NOI is compared to prior year NOI and current year budgeted NOI as a measure of financial performance. The NOI yield or return on total capitalized costs is an additional measure of financial performance. NOI from our apartment communities totaled $38,077 and $38,770 for the three months ended March 31, 2001 and 2000, respectively. All other segment measurements are disclosed in our consolidated financial statements.
We also provide management, brokerage, corporate rental housing and development and construction services to third parties. These operations, on an individual and aggregate basis, do not meet the quantitative thresholds for segment reporting under current accounting literature.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Unit Data)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
We are the entity through which the Trust conducts substantially all of its business and owns, either directly or indirectly through subsidiaries, substantially all of its assets. We are focused within the multifamily industry in demand-driven markets throughout the United States that have high job growth and are resilient to economic downturns. Our operating performance relies predominantly on net operating income from our apartment communities. Net operating income is determined by rental revenues and operating expenses, which are affected by the demand and supply dynamics within our markets. Our performance is also affected by the general availability and cost of capital and our ability to develop and acquire additional apartment communities with returns in excess of our blended cost of capital.
Business Objectives and Strategy
The Trust's objective is to increase shareholder value by producing consistent high quality earnings to sustain dividend growth and annual total returns that exceed the multifamily sector average. To achieve that objective, we employ a number of business strategies. First, our long-term investment strategy is research-driven with the objective of creating a portfolio of high quality assets in approximately six to eight strategically selected markets that are complementary through economic diversity and characterized by high job growth and resiliency to national economic downturns. We believe such a portfolio will provide predictable growth in operating cash flow on a sustainable basis. Second, we adhere to a strategy of owning and operating high quality, class AA/A apartment communities under the Gables® brand. We believe that such communities, when located in highly desirable areas to live and supplemented with high quality service and amenities, attract the affluent renter-by-choice who is willing to pay a premium for location preference, superior service and high quality communities. The resulting portfolio should maintain high levels of occupancy and rental rates. This, coupled with more predictable operating expenses and reduced capital expenditure requirements associated with high quality construction materials, should lead to operating margins that exceed national averages for the multifamily sector and sustainable growth in operating cash flow. Third, our aim is to be recognized as the employer of choice within the industry. Our mission ofTaking Care of the WayPeople Live is a cornerstone of our strategy, involving innovative human resource practices that we believe will attract and retain the highest caliber associates. Because of our long-established presence as a fully integrated apartment management, development, construction, acquisition and disposition company within our markets, we have the ability to offer multi-faceted career opportunities among the various disciplines within the industry. Finally, our capital strategy is to maximize return on invested capital while maintaining financial flexibility through a conservative, investment grade credit profile. We judiciously manage our capital and are able to recycle existing capital through asset dispositions. We believe the successful execution of these strategies will result in operating cash flow and dividend growth, producing annual total returns that exceed the multifamily REIT sector average.
We believe we are well positioned to continue achieving our objectives because of our long-established presence as a fully integrated real estate company in our markets. This local market presence creates a competitive advantage in generating increased cash flow from (1) property operations during different economic cycles and (2) new investment opportunities that involve site selection, market information and requests for entitlements and zoning petitions.
Portfolio-wide occupancy levels have remained high and portfolio-wide rental rates have continued to increase during each of the last several years. We expect portfolio-wide rental expenses to increase at a rate ahead of inflation and believe that it will approximate the increase in property revenues for the coming twelve months. Our ongoing evaluation of the growth prospects for a specific asset may result in a determination to dispose of the asset. In that event, we would intend to sell the asset and utilize the net proceeds from any such sale to invest in new assets expected to have better growth prospects, reduce indebtedness or, in certain circumstances with appropriate approval from our board of trustees, repurchase outstanding common shares. We maintain staffing levels sufficient to meet existing construction, acquisition, and leasing activities. If market conditions warrant, we would anticipate adjusting staffing levels to mitigate a negative impact on results of operations.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results or developments could differ materially from those projected in such statements as a result of certain factors set forth in the section entitled "Certain Factors Affecting Future Operating Results" and elsewhere in this report.The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our accompanying consolidated financial statements and notes thereto.
Common and Preferred Equity Activity
Secondary Common Share Offerings
Since the IPO, the Trust has issued a total of 14,831 common shares in eight offerings, generating $347,771 in net proceeds which were generally used (1) to reduce outstanding indebtedness under interim financing vehicles utilized to fund our development and acquisition activities and (2) for general working capital purposes, including funding of future development and acquisition activities.
Preferred Share Offerings
On July 24, 1997, the Trust issued 4,600 shares of 8.30% Series A Cumulative Redeemable Preferred Shares (liquidation preference $25.00 per share). The net proceeds from this offering of $111.0 million were used to reduce outstanding indebtedness under interim financing vehicles. The Series A Preferred Shares may be redeemed at $25.00 per share plus accrued and unpaid dividends on or after July 24, 2002. The Series A Preferred Shares have no stated maturity, sinking fund or mandatory redemption and are not convertible into any other securities of the Trust.
On June 18, 1998, we issued 180 shares of 5.0% Series Z Cumulative Redeemable Preferred Shares (liquidation preference $25.00 per share) in connection with the acquisition of a parcel of land for future development. The Series Z Preferred Shares, which are subject to mandatory redemption on June 18, 2018, may be redeemed at any time for $25.00 per share plus accrued and unpaid dividends. The Series Z Preferred Shares are not subject to any sinking fund or convertible into any other securities of the Trust.
Issuances of Common Operating Partnership Units
Since the IPO, we have issued a total of 4,421 Units in connection with the South Florida acquisition, the acquisition of other operating apartment communities, and the acquisition of a parcel of land for future development.
Issuance of Preferred Operating Partnership Units
On November 12, 1998, we issued 2,000 of our 8.625% Series B Preferred Units to an institutional investor. The net proceeds from this issuance of $48.7 million were used to reduce outstanding indebtedness under interim financing vehicles. The Trust has the option to redeem the Series B Preferred Units after November 14, 2003. These Units are exchangeable by the holder into 8.625% Series B Cumulative Redeemable Preferred Shares of the Trust on a one-for-one basis; however, this exchange right is generally not exercisable until after November 14, 2008. The Series B Preferred Units have no stated maturity, sinking fund, or mandatory redemption.
Common Equity Repurchase Program
We have a common equity repurchase program pursuant to which the Trust is currently authorized to purchase up to $150 million of its outstanding common shares or Units. The Trust has repurchased shares from time to time in open market and privately negotiated transactions, depending on market prices and other conditions, using proceeds from sales of selected assets. Whenever the Trust repurchases common shares from shareholders, we are required to redeem from the Trust an equivalent number of Units on the same terms and for the same aggregate price. After redemption, the Units redeemed by us are no longer deemed outstanding. Units have also been redeemed for cash upon their presentation for redemption by unitholders. As of March 31, 2001, we had redeemed 4,267 Units for a total of $102,048, including 3,980 Units redeemed by the Trust.
Shelf Registration Statement
We have an effective shelf registration statement on file with the Securities and Exchange Commission providing $500 million of equity capacity and $300 million of debt capacity. We believe it is prudent to maintain shelf registration capacity in order to facilitate future capital raising activities. To date, there have been no issuances under this shelf registration statement other than the issuance of $150 million of senior unsecured notes in February 2001.
Portfolio and Other Financing Activity
Community and Land Dispositions (exclusive of joint venture transactions)
In the first quarter of 2001, we sold 2.5 acres of land adjacent to one of our development communities for $5.4 million and recognized a gain of $0.9 million. During the quarter, we recognized $0.2 million of deferred gain associated with a parcel of land we sold in 2000.
During 2000, we sold an apartment community located in Dallas comprising 126 apartment homes, an apartment community located in Houston comprising 228 apartment homes, two apartment communities located in San Antonio comprising 544 apartment homes, and a parcel of land adjacent to an existing apartment community located in Atlanta. The net proceeds from these sales totaled $81 million, $30 million of which was deposited into an escrow account and is being used to fund development and acquisition activities. The balance of the net proceeds was used to paydown outstanding borrowings under interim financing vehicles and purchase common shares and Units under the Trust's common equity repurchase program. The total gain from these sales was $20.4 million, of which $19.6 million was recognized in 2000. The remaining gain of $0.8 million that was deferred at December 31, 2000 is being recognized when earned using the percentage of completion method because we serve as the developer and general contractor for the purchaser of the land parcel and have a commitment to construct an apartment community on the parcel of land sold.
Gables Residential Apartment Portfolio Two Joint Venture
On March 30, 2001, we entered into a joint venture in which our economic ownership interest is currently 20%. The business purpose of the joint venture is to develop, own and operate three multifamily apartment communities, comprising 780 apartment homes, located in three of our markets. We serve as the managing member of the venture and have responsibility for all day-to-day operating matters. We also serve as the property manager, developer and general contractor for construction activities. On March 30, 2001, we contributed our interest in two of the development communities to the joint venture in return for (1) cash of $15.6 million and (2) an initial capital account in the joint venture of $3.9 million. On April 27, 2001, we contributed our interest in the third development community to the joint venture in return for (1) cash of $2.7 million and (2) an increase in the initial capital account in the joint venture of $0.7 million. As of the respective contribution dates, we had commenced construction of two of the development communities and owned the land for the future development of the third community. The capital budget for the development of the three communities is $82 million which is expected to be funded with equity of $36 million and debt of $46 million. The equity component is being funded 80% by the venture partner and 20% by us. Our portion of the equity will be funded through contributions of cash and property. We will record a gain on this contribution of approximately $2.8 million which will be recognized when earned using the percentage of completion method since we serve as the developer and general contractor for the joint venture. As of March 31, 2001, we had recognized $0.5 million of this gain.
Senior Unsecured Note Issuance
In February 2001, we issued $150.0 million of senior unsecured notes which bear interest at 7.25%, were priced to yield 7.29% and mature in February 2006. The net proceeds of $148.5 million were used to reduce borrowings under our unsecured credit facilities and repay our $40 million term loan which had a November 2001 maturity date.
CMS Tennessee Multifamily Joint Venture
On December 28, 2000, we sold 91% of our interests in three apartment communities comprising 1,118 apartment homes to a joint venture with CMS Companies. Two of these communities are located in Nashville and the third is located in Memphis. We currently have a 1% general partner interest and an 8% limited partner interest in this venture. In addition, we serve as the property manager. We received net proceeds of $61 million in connection with this sale and we recognized a gain of $9.9 million. The net proceeds were used to repay a fixed-rate note payable with an outstanding principal balance of $18.6 million that encumbered one of the assets and to reduce borrowings under our interim financing vehicles.
Gables Residential Apartment Portfolio Joint Venture
On March 26, 1999, we entered into a joint venture in which our economic ownership interest is currently 20%. The business purpose of the joint venture is to develop, own and operate eight multifamily apartment communities comprising 2,471 apartment homes, located in four of our markets. We serve as the managing member of the venture and have responsibility for all day-to-day operating matters. We also serve as the property manager, developer and general contractor for construction activities. The capital budget for the development of the eight communities is $238 million and is being funded with 50% equity and 50% debt. The equity component is being funded 80% by the venture partner and 20% by us. Our portion of the equity was funded through contributions of cash and property. As of March 31, 2001, we had funded our total equity commitment of $23.8 million to the joint venture. At March 31, 2001, construction was complete with respect to six of the eight communities and five of the six completed communities had reached a stabilized occupancy level.
On March 30, 2001, we acquired the membership interests of our venture partner in two of the stabilized communities comprising 532 apartment homes.
Community Acquisitions
On March 30, 2001, we acquired the membership interests of our venture partner in two communities located in South Florida comprising 532 apartment homes for $66 million. This cash consideration was based on a valuation of the assets of $75 million and is net of our $9 million share of the venture distribution.
During the third quarter of 2000, we acquired an apartment community located in Austin comprising 160 apartment homes. In consideration for such community, we paid $5.7 million in cash and assumed a $14.1 million secured fixed-rate note.
Results of Operations
Comparison of operating results for the three months ended March 31, 2001 (the "2001 Period") to the three months ended March 31, 2000 (the "2000 Period").
Our net income is generated primarily from the operation of our apartment communities. For purposes of evaluating comparative operating performance, we categorize our operating communities based on the period each community reaches stabilized occupancy. A community is considered to have achieved stabilized occupancy on the earlier to occur of (1) attainment of 93% physical occupancy or (2) one year after completion of construction. The operating performance for all of our wholly-owned apartment communities combined for the three months ended March 31, 2001 and 2000 is summarized as follows:
Three Months Ended March 31, | ||||
2001 | 2000 | $ Change | % Change | |
| Rental and other property revenues: Same store communities (1) Communities stabilized during the 2001 Period, but not the 2000 Period (2) Development and lease-up communities (3) Acquired communities (4) Sold communities (5) Total property revenues | $54,249 - 1,154 745 - $56,148 | $52,600 - - - 4,741 $57,341 | $1,649 - 1,154 745 -4,741 -$1,193 | 3.1% -% -% -% -100.0% -2.1% |
Property operating and maintenance expenses |
|
|
|
|
Same store communities (1) | $17,630 | $16,944 | $686 | 4.0% |
Revenues in excess of specified expenses | $38,077 | $38,770 | -$693 | -1.8% |
Revenues in excess of specified expenses as a percentage of total property revenues | 67.8% | 67.6% | - | 0.2% |
| (1) Communities which were owned and fully stabilized throughout both the 2001 Period and 2000 Period ("same store"). (2) Communities which were stabilized during all of the 2001 Period, but not the 2000 Period. (3) Communities in the development and/or lease-up phase which were not fully stabilized during all or any of the 2001 Period. (4) Communities which were acquired subsequent to January 1, 2000. (5) Communities which were sold subsequent to January 1, 2000. | ||||
Total property revenues decreased $1,193, or 2.1%, from $57,341 to $56,148 due primarily to the sale of seven apartment communities in the second half of 2000 which is offset by an increase in the number of apartment homes resulting from the development and acquisition of additional communities and an increase in rental rates on communities stabilized throughout both periods ("same store"). Below is additional data regarding the increases in total property revenues for two of the five community categories presented in the preceding table:
Same store communities:
| Number of Communities | Number of Apartment Homes | Percent of 2001 Period NOI | Occupancy During the 2001 Period | Change in Occupancy | Change in Revenues | % Change in Revenue | |
Atlanta | 19 18 15 6 8 4 70 == | 5,764 6,302 4,197 1,517 1,959 1,243 20,982 ===== | 28.5% 25.8% 21.7% 10.1% 9.4% 4.5% 100.0% ====== | 94.2% 95.1% 95.4% 95.6% 95.8% 93.9% 95.0% ===== | 0.2% -1.3% -0.3% -0.9% 1.5% -2.1% -0.4% ==== | $582 27 521 360 248 -86 $1,652 ==== | (a) | 4.2% 0.2% 4.8% 7.3% 4.9% -3.1% 3.2% ==== |
(a) This table excludes Commons at Lake Bryan I, a community comprising 280 apartment homes that is leased to a single user group pursuant to a triple net master lease. Revenues for Commons at Lake Bryan I decreased $3, or 0.5%, in the 2001 Period compared to the 2000 Period and occupancy was 100% for both periods. | ||||||||
Development and lease-up communities:
| Number of Communities | Number of Apartment Homes | Percent of Total Apartment Homes | Occupancy During the 2001 Period | Change in Revenues |
| Orlando (a) Dallas | 2 | 763 | 81.2% 18.8% 100.0% ===== | 42.7% | $886 268 $1,154 ==== |
(a) One of these communities is leased to a single user group pursuant to a triple net master lease. | |||||
Property management revenues increased $231, or 19.0%, from $1,217 to $1,448 due primarily to increased joint venture activity for which we serve as the property manager.
Development revenues, net decreased $689, or 99.0%, from $696 to $7 due primarily to a $425 construction reserve in association with planned remedial activities for water infiltration issues at a community owned by the Gables Residential Apartment Portfolio JV for which we serve as the developer and general contractor.
Other revenues decreased $765, or 77.1%, from $992 to $227 due primarily to a gain on sale of cable equipment to a cable service provider in the 2000 Period.
Our share of the operating results for the apartment communities in which we have a joint venture interest for the 2001 Period and 2000 Period is as follows:
| Stabilized (1) | Development & Lease-up (2) | Sales (3) | Total | Total | ||
Gables' share of joint venture results: |
|
|
|
|
| |
Rental and other revenue | $1,251 | $305 | $435 | $1,991 | $1,077 | |
(1) Communities which were owned and fully stabilized throughout the 2001 Period. | ||||||
Property operating and maintenance expense (exclusive of depreciation and amortization) decreased $500, or 2.7%, from $18,571 to $18,071 due primarily to the sale of seven apartment communities in the second half of 2000.
Real estate depreciation and amortization expense increased $29, or 0.3%, from $10,845 to $10,874 due primarily to the impact of the development and acquisition of additional communities and capital improvements made to existing operating communities, offset by the impact of the sale of seven apartment communities in the second half of 2000.
Property management expense for owned communities and third party properties on a combined basis increased $82, or 3.3%, from $2,480 to $2,562 due primarily to inflationary increases in expenses. We allocate property management expenses to both owned communities and third party properties based on the proportionate share of total apartment homes and units managed.
Interest expense and credit enhancement fees decreased $286, or 2.6%, from $11,035 to $10,749 due primarily to a decrease in outstanding indebtedness associated with the sale of seven apartment communities in the second half of 2000.
General and administrative expense decreased $286, or 13.2%, from $2,169 to $1,883 due primarily to a decrease in abandoned real estate pursuit costs.
Unusual items of $400 in the 2001 Period represent a reserve associated with our equity investment in Broadband Residential, Inc., a high speed internet access provider.
Gain on sale of real estate assets of $1,638 in the 2001 period is comprised of (1) $944 associated with the sale of 2.5 acres of land in Atlanta in the 2001 Period, (2) $458 associated with the contribution of land into the Gables Residential Apartment Portfolio Two JV in the 2001 period and (3) recognition of $236 of deferred gain associated with a land sale in 2000.
Liquidity and Capital Resources
Net cash provided by operating activities decreased from $15,682 for the three months ended March 31, 2000 to $11,710 for the three months ended March 31, 2001 due to (1) a change in other assets between periods of $5,081 and (2) a decrease of $957 in income (a) before certain non-cash or non-operating items, including depreciation, amortization, equity in income of joint ventures, gain on sale of real estate assets, long-term compensation expense, and unusual items, and (b) after operating distributions received from joint ventures. Such decreases were offset in part by (1) a change in other liabilities between periods of $1,877 and (2) a change in restricted cash between periods of $189.
Our net cash used in investing activities increased from $21.0 million for the three months ended March 31, 2000 to $65.6 million for the three months ended March 31, 2001. During the three months ended March 31, 2001, we expended $90.8 million related to development expenditures, including related land acquisitions, $2.5 million related to recurring, non-revenue enhancing capital expenditures for operating apartment communities, and $1.1 million related to non-recurring, renovation/revenue enhancing capital expenditures. During the three months ended March 31, 2001, we received cash of (1) $15.6 million in connection with our contribution of interests in certain development communities to the Gables Residential Apartment Portfolio Two Joint Venture and (2) $5.4 million in connection with the sale of land adjacent to one of our development communities. In addition, during the three months ended March 31, 2001, $7.9 million of the $8.5 million in sales proceeds held in escrow at December 31, 2000 was released to fund development activities. During the three months ended March 31, 2000, we expended $16.5 million related to development expenditures, including related land acquisitions, $2.5 million related to recurring, non-revenue enhancing capital expenditures for operating apartment communities, $0.9 million related to non-recurring, renovation/revenue enhancing capital expenditures, and $1.1 million related to our investment in joint ventures.
We had $52.6 million of net cash provided by financing activities for the three months ended March 31, 2001 compared to $0.2 million of net cash used in financing activities for the three months ended March 31, 2000. During the three months ended March 31, 2001, we had net borrowings of $71.2 million and proceeds from the exercise of share options of $3.5 million. These net borrowings and share option proceeds were offset by payments for distributions totaling $20.4 million and deferred financing costs of $1.5 million. During the three months ended March 31, 2000, we had payments for distributions totaling $20.0 million and payments for Unit redemptions in connection with the Trust's common equity repurchase program totaling $9.8 million. These payments were offset by net borrowings of $29.8 million.
The Trust has elected to be taxed as a REIT under the Code. Effective for tax years beginning after December 31, 2000, the distribution requirement has been reduced from 95% to 90% of a REIT's ordinary taxable income. Provided the Trust maintains its qualification as a REIT, it generally will not be subject to federal income tax on distributed net income.
The recently effective tax legislation also alters the requirements for qualification as a REIT. In particular, the new legislation generally liberalizes, from the perspective of the Trust's historic operations, the asset diversification requirements applicable to REITs. Effective for tax years beginning after December 31, 2000, a REIT may own the securities of a "taxable REIT subsidiary" without limitation on the REIT's voting control over the subsidiary, provided that not more than 20% of the value of the REIT's total assets is represented by securities of one or more taxable REIT subsidiaries. A taxable REIT subsidiary would include a corporation in which the Trust directly or indirectly owns stock and which has elected to be treated as a taxable REIT subsidiary. Effective January 1, 2001, the Trust had met the requirements to treat all eligible investments as taxable REIT subsidiaries.
As of March 31, 2001, we had total indebtedness of $837,142, cash and cash equivalents of $2,977, and principal escrow deposits reflected in restricted cash of $3,542. Our indebtedness has an average of 4.8 years to maturity at March 31, 2001. The aggregate maturities of notes payable at March 31, 2001 are as follows:
2001 | $ 72,814 |
The maturities in 2001 include (1) $15.0 million of unsecured senior notes which mature in October 2001, (2) an outstanding balance of $5.5 million under our $25 million credit facility which currently matures in October 2001, and (3) an outstanding balance of $49.9 million under our $50 million borrowing facility which had a maturity date of April 2001 that was extended to April 2002 subsequent to quarter-end.
Distributions through the first quarter of 2001 have been paid from cash provided by operating activities. We anticipate that distributions will continue to be paid on a quarterly basis from cash provided by operating activities.
We have met and expect to continue to meet our short-term liquidity requirements generally through net cash provided by operations. Our net cash provided by operations has been adequate and we believe that it will continue to be adequate to meet both operating requirements and payment of dividends in accordance with REIT requirements. The budgeted expenditures for improvements and renovations to our communities, in addition to monthly principal amortization payments, are also expected to be funded from net cash provided by operations. We anticipate that construction and development activities as well as land purchases will be initially funded primarily through borrowings under our credit facilities described below.
We expect to meet certain of our long-term liquidity requirements, such as scheduled debt maturities, repayment of short-term financing of construction and development activities and possible property acquisitions, through long-term secured and unsecured borrowings, the issuance of debt securities or equity securities, private equity investments in the form of joint ventures, or through the disposition of assets which, in our evaluation, may no longer meet our investment requirements.
$225 Million Credit Facility
We have a $225 million unsecured revolving credit facility provided by a consortium of banks. The facility currently has a maturity date of May 2003 with a one-year extension option. Borrowings under the facility currently bear interest at our option of LIBOR plus 0.95% or prime minus 0.25%. Such scheduled interest rates may be adjusted up or down based on changes in our senior unsecured credit ratings. We may also enter into competitive bid loans with participating banks for up to $112.5 million at rates below the scheduled rates. In addition, we pay an annual facility fee currently equal to 0.15% of the $225 million commitment. Availability under the facility, which is based on the value of our unencumbered real estate assets as compared to the amount of our unsecured indebtedness, was $219 million at March 31, 2001. As of March 31, 2001, we had $20 million in borrowings outstanding under the facility and, therefore, had $199 million of remaining capacity on the $219 million available.
$50 Million Borrowing Facility
At December 31, 2000, we had a $50 million unsecured borrowing facility with a bank. In connection with the extension of the April 2001 maturity date to April 2002, the availability under the facility was increased to $75 million. The interest rate and maturity date related to each draw on this facility is agreed to by both parties prior to each draw. At March 31, 2001, we had $49.9 million in borrowings outstanding under this facility.
$25 Million Credit Facility
We have a $25 million unsecured revolving credit facility with a bank that currently bears interest at LIBOR plus 0.95%. The facility currently has a maturity date of October 2001 with unlimited one-year extension options. We had $5.5 million in borrowings outstanding under this facility at March 31, 2001.
Restrictive Covenants
Certain of our debt agreements contain customary representations, covenants and events of default, including covenants which restrict our ability to make distributions in excess of stated amounts, which in turn restricts the Trust's discretion to declare and pay dividends. In general, during any fiscal year we may only distribute up to 95% of our consolidated income available for distribution (as defined in the related agreement) exclusive of distributions of capital gains for such year. The applicable debt agreements contain exceptions to these limitations to allow us to make any distributions necessary to allow the Trust to maintain its status as a REIT. We do not anticipate that this provision will adversely effect our ability to make distributions or the Trust's ability to declare dividends, as currently anticipated.
Inflation
Substantially all leases at our communities are for a term of one year or less, which may enable us to seek increased rents upon renewal of existing leases or commencement of new leases in times of rising prices. The short-term nature of these leases generally serves to lessen the impact of cost increases arising from inflation.
Certain Factors Affecting Future Operating Results
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words "believe," "expect," "anticipate," "intend," "estimate," "assume" and other similar expressions which are predictions of or indicate future events and trends and which do not relate solely to historical matters identify forward-looking statements. These statements include, among other things, statements regarding our intent, belief or expectations with respect to the following: (1) the declaration or payment of distributions, (2) potential developments or acquisitions or dispositions of properties, assets or other entities, (3) our policies regarding investments, indebtedness, acquisitions, dispositions, financings, conflicts of interest and other matters, (4) the Trust's qualification as a REIT under the Code, (5) the real estate markets in which we operate, (6) in general, the availability of debt and equity financing, interest rates and general economic conditions, and (7) trends affecting our financial condition or results of operations.
Reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause such a difference include, but are not limited to, the following: (1) we may abandon or fail to secure development opportunities, (2) construction costs of a community may exceed original estimates, (3) construction and lease-up may not be completed on schedule, resulting in increased debt service expense and construction costs and reduced rental revenues, (4) occupancy rates and market rents may be adversely affected by local economic and market conditions which are beyond our control, (5) financing may not be available or may not be available on favorable terms, (6) our cash flow may be insufficient to meet required payments of principal and interest, and (7) existing indebtedness may mature in an unfavorable credit environment, preventing such indebtedness from being refinanced or, if financed, causing such refinancing to occur on terms that are not as favorable as the terms of existing indebtedness. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Recent Accounting Pronouncements
See Note 5 to Consolidated Financial Statements.
| Completed Communities in Lease-up and Development Communities at March 31, 2001 | |||||||||
| Community | Number of Apartment Homes | Total Budgeted Cost | Percent at March 31, 2001 | Actual or Estimated Quarter of | |||||
| Complete | Leased | Occupied | Construction Start | Initial Occupancy | Construction End | Stabilized Occupancy | |||
(millions) | (1) | ||||||||
| Wholly-Owned Development/Lease-up Communities: | |||||||||
| Orlando, FL | |||||||||
| Gables North Village | 315 | $ 41 | 84% | 31% | 17% | 4 Q 1999 | 4 Q 2000 | 4 Q 2001 | 1 Q 2002 |
| Atlanta, GA | |||||||||
| Gables Montclair | 183 | 24 | 24% | -- | -- | 3 Q 2000 | 4 Q 2001 | 1 Q 2002 | 3 Q 2002 |
| Gables Paces | 80 | 21 | 44% | - -- | - -- | 3 Q 2000 | 4 Q 2001 | 4Q 2001 | 1 Q 2002 |
| Dallas, TX | |||||||||
| Gables State Thomas Townhomes | 177 | 37 | 99% | 42% | 35% | 4 Q 1999 | 3 Q 2000 | 2 Q 2001 | 4 Q 2001 |
| Houston, TX | |||||||||
| Gables Meyer Park II | 296 | 27 | 8% | -- | -- | 4 Q 2000 | 4 Q 2001 | 2 Q 2002 | 3 Q 2002 |
| Wholly-Owned totals | 1,051 | $ 150 | |||||||
Co-Investment Development/Lease-up Communities (2), (3): | |||||||||
| Atlanta, GA | |||||||||
| Gables Metropolitan II | 274 | $ 32 | 10% | -- | -- | 1 Q 2001 | 1 Q 2002 | 3 Q 2002 | 1 Q 2003 |
| Boca Raton, FL | |||||||||
| Gables Crestwood | 290 | 25 | 93% | 45% | 36% | 4 Q 1999 | 3 Q 2000 | 2 Q 2001 | 4 Q 2001 |
| Gables Grande Isle | 320 | 23 | 100% | 85% | 82% | 2 Q 1999 | 1 Q 2000 | 3 Q 2000 | 2 Q 2001 |
| Dallas, TX | |||||||||
| Gables State Thomas - Ravello (4) | 290 | 33 | 91% | 58% | 51% | 2 Q 1999 | 2 Q 2000 | 4 Q 2001 | 4 Q 2002 |
| Tampa, FL | |||||||||
| Gables West Park Village (5) | 320 | 35 | 32% | -- | -- | 4 Q 2000 | 4 Q 2001 | 3 Q 2002 | 4 Q 2002 |
| Co-Investment totals | 1,494 | $ 148 | (3) | ||||||
| Development totals | 2,545 | $ 298 | |||||||
| (1) Stabilized occupancy is defined as the earlier to occur of (i) 93% occupancy or (ii) one year after completion of construction. (2) These communities were contributed into the Gables Residential Apartment Portfolio Joint Venture or the Gables Residential Apartment Portfolio Two Joint Venture, as applicable. (3) Construction loan proceeds are expected to fund $79 million of these costs. The remaining costs will be funded by capital contributions to the venture from the venture partner and us in a funding ratio of 80% and 20%, respectively. (4) During April 2001, the venture took this property off-line in order to make remedial repairs for design and construction issues impacting the community. The community is expected to be back on-line by the end of 2001. (5) This development community includes 40,000 square feet of commercial space. |
The following is a "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended. The projections and estimates contained in the table above are forward-looking statements. These forward-looking statements involve risks and uncertainties and actual results may differ materially from those projected in such statements. Risks associated with Gables' development, construction, and lease-up activities, which could impact the forward-looking statements made, include: development opportunities may be abandoned; construction costs of a community may exceed original estimates, possibly making the community uneconomical; and construction and lease-up may not be completed on schedule, resulting in increased debt service and construction costs. |
Stabilized Apartment Communities at March 31, 2001 | ||||||
March 31, 2001 Scheduled Rent per | ||||||
| Community | ||||||
Number
of Homes
March 31, 2001
Occupancy
Unit
Sq. Ft.
Houston, TX
Gables Austin Colony
Gables Bradford Place
Gables Bradford Pointe
Gables Champions
Gables CityPlaza
Gables Cityscape
Gables CityWalk/Waterford Square
Gables Edgewater
Gables Lions Head
Gables Meyer Park
Gables New Territory
Gables of First Colony
Gables Piney Point
Gables Pin Oak Green
Gables Pin Oak Park
Gables Raveneaux (JV)
Gables Rivercrest I
Gables Rivercrest II
Gables Windmill Landing
Metropolitan Uptown (JV)
776
237
372
360
404
246
252
317
292
277
345
256
324
246
581
474
382
140
140
259
318
6,998
96%
95%
95%
92%
94%
97%
97%
97%
97%
98%
94%
97%
98%
94%
92%
96%
96%
96%
85%
95%
95%
894
776
688
841
936
987
986
859
749
959
891
929
1,000
1,036
1,070
1,014
745
730
729
1,085
880
0.92
0.90
0.90
0.92
1.06
1.16
1.22
0.97
0.89
1.11
0.98
0.94
1.08
1.01
1.04
0.97
0.88
0.87
0.84
1.19
0.98
Buckhead Gables
Dunwoody Gables
Gables Cityscape
Gables Metropolitan (JV)
Gables Mill
Gables Northcliff
Gables Sugarloaf
Gables Vinings
Gables Walk
Gables Wood Arbor
Gables Wood Crossing
Gables Wood Glen
Gables Wood Knoll
Lakes at Indian Creek
Rock Springs Estates
Roswell Gables I
Roswell Gables II
Spalding Gables
Wildwood Gables
162
311
192
435
438
82
386
315
310
140
268
380
312
603
295
384
284
252
546
6,199
95%
95%
95%
96%
94%
95%
98%
94%
96%
97%
96%
96%
94%
96%
91%
94%
94%
94%
96%
94%
95%
1,195
890
904
897
1,240
905
1,281
919
1,088
1,161
781
787
728
903
673
920
956
956
945
956
933
0.96
1.18
0.97
1.08
1.11
0.97
0.82
0.91
1.02
0.98
0.86
0.82
0.73
0.91
0.73
0.91
0.88
0.81
0.96
0.84
0.91
Gables Boca Place
Gables Boynton Beach I
Gables Boynton Beach II
Gables Kings Colony
Gables Mizner on the Green
Gables Palma Vista
Gables San Remo
Gables Town Colony
Gables Town Place
Gables Wellington
Hampton Lakes
Hampton Place
Mahogany Bay
San Michele I
San Michele II
Vinings at Hampton Village
180
252
296
480
246
189
180
172
312
222
300
368
328
249
343
168
4,729
98%
91%
96%
98%
93%
95%
96%
97%
97%
91%
94%
97%
98%
87%
85%
96%
94%
924
966
961
820
1,700
1,592
1,315
890
887
1,037
801
767
821
1,488
1,459
847
1,024
0.95
0.81
0.80
0.92
1.34
1.10
0.72
1.04
1.06
0.78
0.76
0.80
0.82
1.11
1.05
0.70
0.91
Gables at Pearl Street
Gables City Place
Gables Green Oaks
Gables Mirabella
Gables San Raphael (JV)
Gables Spring Park
Gables Turtle Creek
Gables Valley Ranch
108
232
300
126
222
188
150
319
2,181
95%
96%
96%
96%
98%
99%
95%
98%
97%
1,370
1,383
849
1,234
962
985
1,171
962
945
1.26
1.31
0.89
1.35
1.06
0.93
1.16
0.94
1.02
Gables Barton Creek
Gables Bluffstone
Gables Central Park
Gables Great Hills
Gables Park Mesa
Gables Town Lake
160
256
273
276
148
256
1,677
93%
93%
98%
94%
97%
98%
95%
1,561
1,191
1,304
907
1,229
1,315
1,221
1.34
1.21
1.39
1.09
1.13
1.41
1.27
Gables Cordova
Gables Stonebridge (JV)
464
500
1,309
96%
95%
94%
666
684
725
0.71
0.78
0.78
Gables Hendersonville (JV)
Gables Hickory Hollow I
Gables Hickory Hollow II
364
272
276
1,166
95%
98%
98%
97%
654
665
665
702
0.69
0.73
0.71
0.72
Gables Chatham Square
The Commons at Little Lake Bryan I
448
280
959
100%
100%
98%
--
--
1,184
(a)
(a)
--
--
1.02
(a)
(a)
=====
======
=====
====
| Portfolio Indebtedness Summary at March 31, 2001: |
Type of Indebtedness
Balance
Percentage
of Total
Rate (1)
Rate (2)
Maturity
Unsecured fixed-rate senior notes
Unsecured fixed-rate notes
$265,000
115,912
31.7%
13.8%
7.04%
8.32%
7.04%
8.32%
4.28
3.37
Secured fixed-rate notes
Tax-exempt fixed-rate loans
140,609
80,110
16.8%
9.6%
7.71%
6.04%
7.71%
6.38%
7.61
6.62
Total fixed-rate indebtedness
$601,631
71.9%
7.31%
7.36%
5.19
Variable Rate:
Tax-exempt variable-rate loans
$160,155
19.1%
3.53%
4.51%
5.23
Unsecured variable-rate credit facilities
75,356
9.0%
5.83%
5.83%
0.60
Total variable-rate indebtedness
$235,511
28.1%
4.27%
4.93%
3.75
Total portfolio debt (3), (4)
$837,142
=======
100.0%
======
6.45%
=====
6.67%
=====
4.79
=====
(1) Interest Rate represents the weighted average interest rate incurred on our indebtedness, exclusive of deferred financing cost amortization and credit enhancement fees, as applicable.
(2) Total Rate represents the Interest Rate (1) plus credit enhancement fees, as applicable.
(3) Interest associated with construction activities is capitalized as a cost of development and does not impact current earnings. The qualifying construction expenditures at March 31, 2001 for purposes of interest capitalization were $108,893.
(4) Excludes (a) $16.4 million of tax-exempt bonds and $18.5 million of outstanding conventional indebtedness related to joint ventures in which we own a 25% interest, (b) $83.6 million of construction loan indebtedness related to a joint venture in which we own a 20% interest, and (c) $52.1 million of outstanding conventional indebtedness related to a joint venture in which we own a 9% interest.
SUPPLEMENTAL DISCUSSION - Funds From Operations and Adjusted Funds From Operations
We consider funds from operations ("FFO") to be a useful performance measure of the operating performance of an equity REIT because, together with net income and cash flows, FFO provides investors with an additional basis to evaluate the ability of a REIT to incur and service debt and to fund distributions and capital expenditures. We believe that in order to facilitate a clear understanding of our operating results, FFO should be examined in conjunction with net income as presented in the financial statements and data included elsewhere in this report. We compute FFO in accordance with standards established by the National Association of Real Estate Investment Trusts ("NAREIT"). Effective January 1, 2000, NAREIT amended its definition of FFO to include in FFO all non-recurring items, except those defined as extraordinary items under GAAP and gains and losses from sales of depreciable operating property. We are using the amended definition of FFO in reporting our results for all periods on or after January 1, 2000. FFO as defined by NAREIT represents net income (loss) determined in accordance with GAAP, excluding extraordinary items as defined under GAAP and gains or losses from sales of depreciable operating property, plus certain non-cash items such as real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. FFO presented herein is not necessarily comparable to FFO presented by other real estate companies due to the fact that not all real estate companies use the same definition. However, our FFO is comparable to the FFO of real estate companies that use the amended NAREIT definition. Adjusted funds from operations ("AFFO") is defined as FFO less recurring, non-revenue enhancing capital expenditures. FFO and AFFO should not be considered alternatives to net income as indicators of our operating performance or as alternatives to cash flows as measures of liquidity. FFO does not measure whether cash flow is sufficient to fund all of our cash needs, including principal amortization, capital expenditures, and distributions to unitholders. Additionally, FFO does not represent cash flows from operating, investing or financing activities as defined by GAAP. Reference is made to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" for a discussion of our cash needs and cash flows. A reconciliation of FFO and AFFO follows:
Three Months | ||
| 2001 | 2000 | |
| Net income available to common unitholders Real estate asset depreciation: Wholly-owned real estate assets Joint venture real estate assets Total depreciation | $11,324 | $11,504 |
| Funds from operations - basic and diluted | $22,722 | $22,576 |
| Recurring, non-revenue enhancing capital expenditures: Carpet Roofing Exterior painting Appliances Other additions and improvements Total capital expenditures | 811 20 33 174 1,504 2,542 | 892 28 - 121 1,426 2,467 |
| Adjusted funds from operations - diluted | $20,180 ===== | $20,109 ===== |
Average Units outstanding - basic | 29,860 ===== | 31,161 ===== |
| Average Units outstanding - diluted | 30,012 ===== | 31,179 ===== |
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our capital structure includes the use of variable rate and fixed rate indebtedness. As such, we are exposed to the impact of changes in interest rates. We periodically seek input from third party consultants regarding market interest rate and credit risk in order to evaluate our interest rate exposure. In certain situations, we may utilize derivative financial instruments in the form of rate caps, rate swaps or rate locks to hedge interest rate exposure by modifying the interest rate characteristics of related balance sheet instruments and prospective financing transactions. We do not utilize such instruments for trading or speculative purposes.
We typically refinance maturing debt instruments at then-existing market interest rates and at terms which may be more or less than the interest rates and terms on the maturing debt.
Refer to our Annual Report on Form 10-K for the year ended December 31, 2000 for detailed disclosure about quantitative and qualitative disclosures about market risk. Quantitative and qualitative disclosures about market risk have not materially changed since December 31, 2000.
Part II - Other Information | |||
Legal Proceedings | |||
|
| None | |
Item 2: | |||
|
| Each time the Trust issues shares of beneficial interest, it contributes the proceeds of such issuance to us in return for a like number of Units with rights and preferences analogous to the shares issued. During the period commencing January 1, 2001 and ending March 31, 2001, in connection with such issuances of shares by the Trust during that time period, we issued an aggregate 129,416 common Units to the Trust. Such Units were issued in reliance on an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. | |
Item 3: | |||
|
| None | |
Item 4: | |||
|
| None | |
Item 5: | |||
|
| None | |
Item 6: | |||
| (a) | Exhibits | |
| 4.1 | Supplemental Indenture No. 4, dated February 22, 2001, between the Operating Partnership and First Union National Bank, including a form of the 7.25% Senior Note due 2006. (1) | |
| 4.2 | The Operating Partnership 7.25% Senior Note due 2006. (1) | |
| 10.1 * | Senior Executive Severance Agreement between the Company and Chris D. Wheeler. | |
| 10.2 * | Form of Senior Executive Severance Agreement as signed by the Company and each of Marvin R. Banks, Jr., C. Jordan Clark, and Michael M. Hefley. | |
| 10.3 * | Senior Executive Severance Agreement between the Company and Dawn H. Severt. | |
| --------------------------------- | ||
| (1) | Incorporated herein by reference to the Operating Partnership's Current Report on Form 8-K dated February 22, 2001 (File No. 000-22683) | |
| (b) | Reports on Form 8-K | |
| (i) | A Form 8-K dated February 22, 2001 was filed with the Securities and Exchange Commission with the underwriting agreement, indenture and other related items executed in connection with the Operating Partnership's issuance of $150 million of 7.25% Senior Unsecured Notes due February 2006. | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
| GABLES REALTY LIMITED PARTNERSHIP |
Date: | May 14, 2001 |
| /s/ Marvin R. Banks, Jr. |
|
|
| Marvin R. Banks, Jr. |