Exhibit 99.1
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
Equity Residential
The Partners
ERP Operating Limited Partnership
We have audited the accompanying statement of revenue and certain expenses of Harbor Steps for the year ended December 31, 2004. This statement is the responsibility of the management of Harbor Steps (the “Property”). Our responsibility is to express an opinion on this statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement. We were not engaged to perform an audit of the Property’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Property’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in a Current Report on Form 8-K of Equity Residential and ERP Operating Limited Partnership, as described in Note 1, and is not intended to be a complete presentation of the Property’s revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all material respects, the revenue and certain expenses of Harbor Steps for the year ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.
| /s/ Ernst & Young LLP |
|
| Ernst & Young LLP |
Chicago, Illinois
January 13, 2006
6
HARBOR STEPS
Statements of Revenue and Certain Expenses
|
| Period from |
|
|
| ||
|
| January 1, 2005 to |
| Year Ended |
| ||
|
| September 23, |
| December 31, |
| ||
|
| 2005 |
| 2004 |
| ||
|
| (Unaudited) |
|
|
| ||
|
|
|
|
|
| ||
Rental revenue |
| $ | 12,170,283 |
| $ | 15,826,377 |
|
Other revenue |
| 1,273,442 |
| 679,331 |
| ||
Total revenue |
| 13,443,725 |
| 16,505,708 |
| ||
|
|
|
|
|
| ||
Expenses |
|
|
|
|
| ||
Maintenance |
| 818,153 |
| 651,623 |
| ||
Operating |
| 1,958,028 |
| 2,761,390 |
| ||
Utilities |
| 679,413 |
| 778,427 |
| ||
Real estate taxes and insurance |
| 1,294,971 |
| 1,935,643 |
| ||
Management fees – affiliate |
| 334,410 |
| 414,951 |
| ||
Total expenses |
| 5,084,975 |
| 6,542,034 |
| ||
Revenue in excess of certain expenses |
| $ | 8,358,750 |
| $ | 9,963,674 |
|
See accompanying notes.
7
HARBOR STEPS
Notes to Statements of Revenue and Certain Expenses
1. Basis of Presentation
On September 23, 2005, ERP Operating Limited Partnership (collectively with Equity Residential, its general partner, the “Company”) indirectly acquired Harbor Steps (the “Property”), a residential and commercial property, located in Seattle, Washington.
The statements of revenue and certain expenses relate to the operations of Harbor Steps and were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, including Rule 3-14 of Regulation S-X. Accordingly, the accompanying statements of revenue and certain expenses have been prepared using the accrual method of accounting, and certain expenses such as depreciation, amortization, income taxes, mortgage interest expense and entity expenses are not reflected in the statements of revenue and certain expenses, as required by Rule 3-14 of Regulation S-X of the Securities and Exchange Commission. Consequently, the statements of revenue and certain expenses for the periods presented are not representative of the actual operations for the periods presented, as certain revenues and expenses which may not be in the proposed future operations of Harbor Steps have been excluded in accordance with Rule 3-14 of Regulation S-X.
The accompanying unaudited interim statement of revenue and certain expenses has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and was prepared on the same basis as the statement of revenue and certain expenses for the year ended December 31, 2004. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the information for this interim period have been made. The revenue in excess of certain expenses for such interim period is not necessarily indicative of the excess of revenue over certain expenses for the full year.
2. Summary of Significant Accounting Policies
Revenue Recognition
The residential apartments are leased under operating leases with terms of generally one year or less. Rental income is recognized as it is earned, which is not materially different than on a straight-line basis.
Rental income from commercial space is generally recognized on a straight-line basis over the life of the lease. All commercial leases have been accounted for as operating leases with remaining lease terms from one to eight years.
Repairs and Maintenance
Repairs and maintenance costs are expensed as incurred, while significant improvements, renovations and replacements are capitalized.
Estimates
The preparation of the statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Advertising Costs
All advertising costs are expensed as incurred and included as operating expenses on the statement of revenue and certain expenses. For the year ended December 31, 2004 and the period from January 1, 2005 to September 23, 2005 (unaudited), advertising expenses were approximately $219,000 and $156,000, respectively.
8
HARBOR STEPS
Notes to Statements of Revenue and Certain Expenses (Continued)
3. Related Party Transactions
An affiliate of Harbor Steps performed the property management function and charged total management fees of 2.5% of rental and other property cash receipts for this service for 2004 and the period from January 1, 2005 to September 23, 2005. Management fees in the amount of $414,951 and $334,410 were charged to the Property during 2004 and the period from January 1, 2005 to September 23, 2005 (unaudited), respectively.
An affiliate of Harbor Steps allocated insurance expense under a master policy to the Property and various affiliated properties. Allocations were based on property square footage and replacement cost values. Insurance expense for the year ended December 31, 2004 and the period from January 1, 2005 to September 23, 2005 (unaudited) were approximately $650,000 and $312,000, respectively.
4. Leases
Minimum future rental revenues to be received from non-cancelable commercial leases in effect at September 23, 2005 are as follows:
Year |
| Amount |
| |
2005 |
| $ | 2,222,243 |
|
2006 |
| 2,106,227 |
| |
2007 |
| 1,986,159 |
| |
2008 |
| 1,355,155 |
| |
2009 |
| 1,084,394 |
| |
Thereafter |
| 2,046,135 |
| |
Total |
| $ | 10,800,313 |
|
Total minimum future rental income represents the base rent commercial tenants are required to pay under the terms of their leases exclusive of charges for contingent rents, real estate taxes, and operating cost escalations.
5. Parking Facility Revenue
During 2004, the Property was subject to an operating lease for the management of the Property’s parking garage. The lease required monthly payments of approximately $101,000 throughout the lease term. During the year ended December 31, 2004, $1,210,000 is recorded in rental revenue in the statement of revenue and certain expenses. In April 2005, the lease was terminated and revenue associated with operations of the garage were recorded as other revenue in the accompanying statement of revenue and certain expenses.
9
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
Equity Residential
The Partners
ERP Operating Limited Partnership
We have audited the accompanying statement of revenue and certain expenses of Northlake for the year ended December 31, 2004. This statement is the responsibility of the management of Northlake (the “Property”). Our responsibility is to express an opinion on this statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement. We were not engaged to perform an audit of the Property’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Property’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in a Current Report on Form 8-K of Equity Residential and ERP Operating Limited Partnership, as described in Note 1, and is not intended to be a complete presentation of the Property’s revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all material respects, the revenue and certain expenses of Northlake for the year ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.
| /s/ Ernst & Young LLP |
|
| Ernst & Young LLP |
Chicago, Illinois
January 14, 2006
10
NORTHLAKE
Statements of Revenue and Certain Expenses
|
| Period from |
|
|
| ||
|
| January 1, 2005 to |
| Year Ended |
| ||
|
| September 2, 2005 |
| December 31, 2004 |
| ||
|
| (Unaudited) |
|
|
| ||
|
|
|
|
|
| ||
Rental revenue |
| $ | 2,094,354 |
| $ | 3,070,915 |
|
Other revenue |
| 101,367 |
| 161,388 |
| ||
Total revenue |
| 2,195,721 |
| 3,232,303 |
| ||
|
|
|
|
|
| ||
Expenses |
|
|
|
|
| ||
Maintenance |
| 169,592 |
| 221,836 |
| ||
Operating |
| 290,049 |
| 318,094 |
| ||
Utilities |
| 109,953 |
| 113,112 |
| ||
Promotion and advertising |
| 24,712 |
| 33,191 |
| ||
Real estate taxes |
| 178,191 |
| 268,226 |
| ||
Insurance |
| 71,634 |
| 94,671 |
| ||
Management fees – affiliate |
| 98,188 |
| 144,841 |
| ||
Total expenses |
| 942,319 |
| 1,193,971 |
| ||
Revenue in excess of certain expenses |
| $ | 1,253,402 |
| $ | 2,038,332 |
|
See accompanying notes.
11
NORTHLAKE
Notes to Statements of Revenue and Certain Expenses
1. Basis of Presentation
On September 2, 2005, ERP Operating Limited Partnership (collectively with Equity Residential, its general partner, the “Company”) acquired an apartment building in Germantown, Maryland known as Northlake (the “Property”).
The statements of revenue and certain expenses relate to the operations of Northlake and were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, including Rule 3-14 of Regulation S-X. Accordingly, the accompanying statements of revenue and certain expenses have been prepared using the accrual method of accounting, and certain expenses such as depreciation, amortization, income taxes, mortgage interest expense and entity expenses are not reflected in the statements of revenue and certain expenses, as required by Rule 3-14 of Regulation S-X of the Securities and Exchange Commission. Consequently, the statements of revenue and certain expenses for the periods presented are not representative of the actual operations for the periods presented, as certain revenues and expenses which may not be in the proposed future operations of Northlake have been excluded in accordance with Rule 3-14 of Regulation S-X.
The accompanying unaudited interim statement of revenue and certain expenses has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and was prepared on the same basis as the statement of revenue and certain expenses for the year ended December 31, 2004. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the information for this interim period have been made. The revenue in excess of certain expenses for such interim period is not necessarily indicative of the excess of revenue over certain expenses for the full year.
2. Summary of Significant Accounting Policies
Revenue Recognition
The residential apartments are leased under operating leases with terms of generally one year or less. Rental income is recognized on a straight-line basis over the life of the lease.
Repairs and Maintenance
Repairs and maintenance costs are expensed as incurred, while significant improvements, renovations and replacements are capitalized.
Estimates
The preparation of the statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Advertising Costs
All advertising costs are expensed as incurred and included as promotion and advertising expenses on the statement of revenue and certain expenses. For the year ended December 31, 2004 and the period from January 1, 2005 to September 2, 2005 (unaudited), advertising expenses were approximately $33,000 and $25,000, respectively.
12
NORTHLAKE
Notes to Statements of Revenue and Certain Expenses (Continued)
3. Related Party Transactions
The Property is charged a management fee of 3.6% of gross operating revenues by Equity Residential Properties Management Corp. (“ERPMC”), an affiliate of the Company. In addition, the Property reimburses payroll expenses to ERPMC. Management fees totaled $115,518 and $78,594 for 2004 and the period from January 1, 2005 to September 2, 2005 (unaudited), respectively. Remaining management fees for the year ended December 31, 2004 and the period from January 1, 2005 to September 2, 2005 were paid to an unaffiliated third party. Payroll expenses incurred totaled $250,222 and $222,505 for 2004 and the period from January 1, 2005 to September 2, 2005 (unaudited), respectively. Payroll expenses are included in operating expenses on the statement of revenue and certain expenses.
13
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
Equity Residential
The Partners
ERP Operating Limited Partnership
We have audited the accompanying statement of revenue and certain expenses of Oak Mill I for the year ended December 31, 2004. This statement is the responsibility of the management of Oak Mill I (the “Property”). Our responsibility is to express an opinion on this statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement. We were not engaged to perform an audit of the Property’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Property’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in a Current Report on Form 8-K of Equity Residential and ERP Operating Limited Partnership, as described in Note 1, and is not intended to be a complete presentation of the Property’s revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all material respects, the revenue and certain expenses of Oak Mill I for the year ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.
| /s/ Ernst & Young LLP |
|
| Ernst & Young LLP |
Chicago, Illinois
January 14, 2006
14
OAK MILL I
Statements of Revenue and Certain Expenses
|
| Nine-Month |
|
|
| ||
|
| Period Ended |
| Year Ended |
| ||
|
| September 30, 2005 |
| December 31, 2004 |
| ||
|
| (Unaudited) |
|
|
| ||
|
|
|
|
|
| ||
Rental revenue |
| $ | 1,548,507 |
| $ | 2,143,812 |
|
Other revenue |
| 85,527 |
| 118,081 |
| ||
Total revenue |
| 1,634,034 |
| 2,261,893 |
| ||
|
|
|
|
|
| ||
Expenses |
|
|
|
|
| ||
Maintenance |
| 139,788 |
| 194,993 |
| ||
Operating |
| 185,481 |
| 219,784 |
| ||
Utilities |
| 184,197 |
| 111,307 |
| ||
Promotion and advertising |
| 18,494 |
| 24,196 |
| ||
Real estate taxes |
| 146,339 |
| 186,510 |
| ||
Insurance |
| 49,398 |
| 65,275 |
| ||
Management fees – affiliate |
| 66,141 |
| 90,464 |
| ||
Total expenses |
| 789,838 |
| 892,529 |
| ||
Revenue in excess of certain expenses |
| $ | 844,196 |
| $ | 1,369,364 |
|
See accompanying notes.
15
OAK MILL I
Notes to Statements of Revenue and Certain Expenses
1. Basis of Presentation
On November 10, 2005, ERP Operating Limited Partnership (collectively with Equity Residential, its general partner, the “Company”) indirectly acquired an apartment building in Germantown, Maryland known as Oak Mill I (the “Property”).
The statements of revenue and certain expenses relate to the operations of Oak Mill I and were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, including Rule 3-14 of Regulation S-X. Accordingly, the accompanying statements of revenue and certain expenses have been prepared using the accrual method of accounting, and certain expenses such as depreciation, amortization, income taxes, mortgage interest expense and entity expenses are not reflected in the statements of revenue and certain expenses, as required by Rule 3-14 of Regulation S-X of the Securities and Exchange Commission. Consequently, the statements of revenue and certain expenses for the periods presented are not representative of the actual operations for the periods presented, as certain revenues and expenses which may not be in the proposed future operations of Oak Mill I have been excluded in accordance with Rule 3-14 of Regulation S-X.
The accompanying unaudited interim statement of revenue and certain expenses has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and was prepared on the same basis as the statement of revenue and certain expenses for the year ended December 31, 2004. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the information for this interim period have been made. The revenue in excess of certain expenses for such interim period is not necessarily indicative of the excess of revenue over certain expenses for the full year.
2. Summary of Significant Accounting Policies
Revenue Recognition
The residential apartments are leased under operating leases with terms of generally one year or less. Rental income is recognized on a straight-line basis over the life of the lease.
Repairs and Maintenance
Repairs and maintenance costs are expensed as incurred, while significant improvements, renovations and replacements are capitalized.
Estimates
The preparation of the statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Advertising Costs
All advertising costs are expensed as incurred and included as promotion and advertising expenses on the statement of revenue and certain expenses. For the year ended December 31, 2004 and the nine month period ended September 30, 2005 (unaudited), advertising expenses were approximately $24,000 and $18,000, respectively.
16
OAK MILL I
Notes to Statements of Revenue and Certain Expenses (Continued)
3. Related Party Transactions
The Property is charged a management fee of 4% of gross operating revenues by Equity Residential Properties Management Corp. (“ERPMC”), an affiliate of the Company. In addition, the Property reimburses payroll expenses to ERPMC. Management fees totaled $90,464 and $66,141 for 2004 and the nine month period ended September 30, 2005 (unaudited), respectively. Payroll expenses incurred totaled $180,199 and $143,018 for 2004 and the nine month period ended September 30, 2005 (unaudited), respectively. Payroll expenses are included in operating expenses on the statement of revenue and certain expenses.
17
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
Equity Residential
The Partners
ERP Operating Limited Partnership
We have audited the accompanying statement of revenue and certain expenses of Stoney Ridge for the year ended December 31, 2004. This statement is the responsibility of the management of Stoney Ridge (the “Property”). Our responsibility is to express an opinion on this statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement. We were not engaged to perform an audit of the Property’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Property’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in a Current Report on Form 8-K of Equity Residential and ERP Operating Limited Partnership, as described in Note 1, and is not intended to be a complete presentation of the Property’s revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all material respects, the revenue and certain expenses of Stoney Ridge for the year ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.
| /s/ Ernst & Young LLP |
|
| Ernst & Young LLP |
Chicago, Illinois
January 14, 2006
18
STONEY RIDGE
Statements of Revenue and Certain Expenses
|
| Nine-Month |
|
|
| ||
|
| Period Ended |
| Year Ended |
| ||
|
| September 30, 2005 |
| December 31, 2004 |
| ||
|
| (Unaudited) |
|
|
| ||
|
|
|
|
|
| ||
Rental revenue |
| $ | 2,078,779 |
| $ | 2,735,179 |
|
Other revenue |
| 214,628 |
| 303,496 |
| ||
Total revenue |
| 2,293,407 |
| 3,038,675 |
| ||
|
|
|
|
|
| ||
Expenses |
|
|
|
|
| ||
Maintenance |
| 148,093 |
| 232,831 |
| ||
Operating |
| 208,998 |
| 270,638 |
| ||
Utilities |
| 144,985 |
| 209,818 |
| ||
Promotion and advertising |
| 21,526 |
| 38,611 |
| ||
Real estate taxes |
| 157,937 |
| 244,696 |
| ||
Insurance |
| 62,405 |
| 82,405 |
| ||
Management fees – affiliate |
| 101,623 |
| 136,617 |
| ||
Total expenses |
| 845,567 |
| 1,215,616 |
| ||
Revenue in excess of certain expenses |
| $ | 1,447,840 |
| $ | 1,823,059 |
|
See accompanying notes.
19
STONEY RIDGE
Notes to Statements of Revenue and Certain Expenses
1. Basis of Presentation
On October 13, 2005, ERP Operating Limited Partnership (collectively with Equity Residential, its general partner, the “Company”) indirectly acquired an apartment building in Dale City, Virginia known as Stoney Ridge (the “Property”).
The statements of revenue and certain expenses relate to the operations of Stoney Ridge and were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, including Rule 3-14 of Regulation S-X. Accordingly, the accompanying statements of revenue and certain expenses have been prepared using the accrual method of accounting, and certain expenses such as depreciation, amortization, income taxes, mortgage interest expense and entity expenses are not reflected in the statements of revenue and certain expenses, as required by Rule 3-14 of Regulation S-X of the Securities and Exchange Commission. Consequently, the statements of revenue and certain expenses for the periods presented are not representative of the actual operations for the periods presented, as certain revenues and expenses which may not be in the proposed future operations of Stoney Ridge have been excluded in accordance with Rule 3-14 of Regulation S-X.
The accompanying unaudited interim statement of revenue and certain expenses has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and was prepared on the same basis as the statement of revenue and certain expenses for the year ended December 31, 2004. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the information for this interim period have been made. The revenue in excess of certain expenses for such interim period is not necessarily indicative of the excess of revenue over certain expenses for the full year.
2. Summary of Significant Accounting Policies
Revenue Recognition
The residential apartments are leased under operating leases with terms of generally one year or less. Rental revenue is recognized as it is earned, which is not materially different than on a straight-line basis.
Repairs and Maintenance
Repairs and maintenance costs are expensed as incurred, while significant improvements, renovations and replacements are capitalized.
Estimates
The preparation of the statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Advertising Costs
All advertising costs are expensed as incurred and included as promotion and advertising expenses on the statement of revenue and certain expenses. For the year ended December 31, 2004 and the nine month period ended September 30, 2005 (unaudited), advertising expenses were approximately $39,000 and $22,000, respectively.
20
STONEY RIDGE
Notes to Statements of Revenue and Certain Expenses (Continued)
3. Related Party Transactions
The Property is charged a management fee of 3.6% of gross operating revenues by Equity Residential Properties Management Corp. (“ERPMC”), an affiliate of the Company. In addition, the Property reimburses payroll expenses to ERPMC. Management fees totaled $109,056 and $83,356 for 2004 and the nine month period ended September 30, 2005 (unaudited), respectively. Remaining management fees for the year ended December 31, 2004 and the nine month period ended September 30, 2005 were paid to an unaffiliated third party. Payroll expenses incurred totaled $236,083 and $173,553 for 2004 and the nine month period ended September 30, 2005 (unaudited), respectively. Payroll expenses are included in operating expenses on the statement of revenue and certain expenses.
21
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
Equity Residential
The Partners
ERP Operating Limited Partnership
We have audited the accompanying statement of revenue and certain expenses of Skyline Towers for the year ended December 31, 2004. This statement is the responsibility of the management of Skyline Towers (the “Property”). Our responsibility is to express an opinion on this statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement. We were not engaged to perform an audit of the Property’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Property’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in a Current Report on Form 8-K of Equity Residential and ERP Operating Limited Partnership, as described in Note 1, and is not intended to be a complete presentation of the Property’s revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all material respects, the revenue and certain expenses of Skyline Towers for the year ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.
| /s/ Ernst & Young LLP |
|
| Ernst & Young LLP |
Chicago, Illinois
February 23, 2006
22
SKYLINE TOWERS
Statements of Revenue and Certain Expenses
|
| Nine-Month |
|
|
| ||
|
| Period Ended |
| Year Ended |
| ||
|
| September 30, 2005 |
| December 31, 2004 |
| ||
|
| (Unaudited) |
|
|
| ||
|
|
|
|
|
| ||
Revenue |
|
|
|
|
| ||
Rental revenue |
| $ | 10,300,232 |
| $ | 11,194,038 |
|
Other revenue |
| 1,091,663 |
| 962,041 |
| ||
Total revenue |
| 11,391,895 |
| 12,156,079 |
| ||
|
|
|
|
|
| ||
Expenses |
|
|
|
|
| ||
Repairs & maintenance |
| 1,123,603 |
| 1,301,296 |
| ||
Payroll |
| 950,268 |
| 1,088,369 |
| ||
Administrative |
| 136,310 |
| 222,653 |
| ||
Utilities |
| 1,207,395 |
| 1,446,216 |
| ||
Promotion and advertising |
| 148,972 |
| 187,012 |
| ||
Real estate taxes |
| 811,668 |
| 1,000,619 |
| ||
Insurance |
| 207,505 |
| 253,426 |
| ||
Management fees – affiliate |
| 345,114 |
| 363,965 |
| ||
Total expenses |
| 4,930,835 |
| 5,863,556 |
| ||
Revenue in excess of certain expenses |
| $ | 6,461,060 |
| $ | 6,292,523 |
|
See accompanying notes.
23
SKYLINE TOWERS
Notes to Statements of Revenue and Certain Expenses
1. Basis of Presentation
On December 14, 2005, ERP Operating Limited Partnership (collectively with Equity Residential, its general partner, the “Company”) indirectly acquired an apartment building in Falls Church, Virginia known as Skyline Towers (the “Property”).
The statements of revenue and certain expenses relate to the operations of Skyline Towers and were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, including Rule 3-14 of Regulation S-X. Accordingly, the accompanying statements of revenue and certain expenses have been prepared using the accrual method of accounting, and certain expenses such as depreciation, amortization, income taxes, mortgage interest expense and entity expenses are not reflected in the statements of revenue and certain expenses, as required by Rule 3-14 of Regulation S-X of the Securities and Exchange Commission. Consequently, the statements of revenue and certain expenses for the periods presented are not representative of the actual operations for the periods presented, as certain revenues and expenses which may not be in the proposed future operations of Skyline Towers have been excluded in accordance with Rule 3-14 of Regulation S-X.
The accompanying unaudited interim statement of revenue and certain expenses has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and was prepared on the same basis as the statement of revenue and certain expenses for the year ended December 31, 2004. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the information for this interim period have been made. The revenue in excess of certain expenses for such interim period is not necessarily indicative of the excess of revenue over certain expenses for the full year.
2. Summary of Significant Accounting Policies
Revenue Recognition
The residential apartments are leased under operating leases with terms of generally one year or less. Rental income is recognized on a straight-line basis over the life of the lease.
Repairs and Maintenance
Repairs and maintenance costs are expensed as incurred, while significant improvements, renovations and replacements are capitalized.
Estimates
The preparation of the statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Advertising Costs
All advertising costs are expensed as incurred and included as promotion and advertising expenses on the statement of revenue and certain expenses. For the year ended December 31, 2004 and the nine month period ended September 30, 2005 (unaudited), advertising expenses were approximately $187,000 and $149,000, respectively.
24
SKYLINE TOWERS
Notes to Statements of Revenue and Certain Expenses (Continued)
3. Related Party Transactions
An affiliate of Skyline Towers performed the property management function and charged total management fees of 3% of rental and other property income for this service for 2004 and the nine month period ended September 30, 2005. Management fees in the amount of $363,965 and $345,114 were charged to the Property during 2004 and the nine month period ended September 30, 2005 (unaudited), respectively.
25
Pro Forma Condensed Consolidated Balance Sheets
The accompanying unaudited Pro Forma Condensed Consolidated Balance Sheets of Equity Residential and ERP Operating Limited Partnership (collectively, the “Company”) are presented as if Trump Place, Oak Mill I, Stoney Ridge and Skyline Towers had been acquired on September 30, 2005. Harbor Steps and Northlake were previously acquired on September 23, 2005 and September 2, 2005, respectively, and as a result, both acquisitions are already reflected in the historical amounts as of September 30, 2005. These Pro Forma Condensed Consolidated Balance Sheets should be read in conjunction with the Pro Forma Condensed Consolidated Statements of Operations for the nine-month period ended September 30, 2005 and for the year ended December 31, 2004 and the historical consolidated financial statements and notes thereto of the Company reported on Forms 10-Q for the nine-month period ended September 30, 2005 and on Forms 10-K for the year ended December 31, 2004, as updated on Forms 8-K dated December 2, 2005. In management’s opinion, all adjustments necessary to reflect the acquisitions of Trump Place, Harbor Steps, Northlake, Oak Mill I, Stoney Ridge and Skyline Towers have been made. The following Pro Forma Condensed Consolidated Balance Sheets are not necessarily indicative of what the actual financial position would have been assuming the above transactions had been consummated at September 30, 2005, nor do they purport to represent the future financial position of the Company.
26
Pro Forma Condensed Consolidated Statements of Operations
The accompanying unaudited Pro Forma Condensed Consolidated Statements of Operations for the nine-month period ended September 30, 2005 and for the year ended December 31, 2004 of Equity Residential and ERP Operating Limited Partnership (collectively, the “Company”) are presented as if Trump Place, Harbor Steps, Northlake, Oak Mill I, Stoney Ridge and Skyline Towers had been acquired on January 1, 2004.
These Pro Forma Condensed Consolidated Statements of Operations should be read in conjunction with the historical consolidated financial statements included in the Company’s previous filings with the Securities and Exchange Commission.
The unaudited Pro Forma Condensed Consolidated Statements of Operations are not necessarily indicative of what the actual results of operations would have been for the nine-month period ended September 30, 2005 or for the year ended December 31, 2004 assuming the above transactions had been consummated on January 1, 2004, nor do they purport to represent the future results of operations of the Company.
27
EQUITY RESIDENTIAL
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2005
(Amounts in thousands)
(Unaudited)
|
| HISTORICAL |
| PRO FORMA |
| PRO FORMA |
| PRO FORMA |
| PRO FORMA |
| |||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
| |||||
Investment in real estate |
|
|
|
|
|
|
|
|
|
|
| |||||
Land |
| $ | 2,283,157 |
| $ | 388,441 |
| $ | 18,000 |
| $ | 78,278 |
| $ | 2,767,876 |
|
Depreciable property |
| 12,670,716 |
| 422,737 |
| 37,258 |
| 91,428 |
| 13,222,139 |
| |||||
Construction in progress (including land) |
| 330,965 |
| — |
| — |
| — |
| 330,965 |
| |||||
Investment in real estate |
| 15,284,838 |
| 811,178 |
| 55,258 |
| 169,706 |
| 16,320,980 |
| |||||
Accumulated depreciation |
| (2,805,552 | ) | — |
| — |
| — |
| (2,805,552 | ) | |||||
Investment in real estate, net |
| 12,479,286 |
| 811,178 |
| 55,258 |
| 169,706 |
| 13,515,428 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
| 306,933 |
| — |
| — |
| — |
| 306,933 |
| |||||
Investments in unconsolidated entities |
| 11,390 |
| — |
| — |
| — |
| 11,390 |
| |||||
Rents receivable |
| 940 |
| — |
| — |
| — |
| 940 |
| |||||
Deposits – restricted |
| 305,366 |
| — |
| (15,333 | ) | — |
| 290,033 |
| |||||
Escrow deposits – mortgage |
| 36,389 |
| — |
| — |
| — |
| 36,389 |
| |||||
Deferred financing costs, net |
| 40,041 |
| — |
| 391 |
| 963 |
| 41,395 |
| |||||
Goodwill, net |
| 30,000 |
| — |
| — |
| — |
| 30,000 |
| |||||
Other assets |
| 101,484 |
| — |
| — |
| — |
| 101,484 |
| |||||
Total assets |
| $ | 13,311,829 |
| $ | 811,178 |
| $ | 40,316 |
| $ | 170,669 |
| $ | 14,333,992 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
| |||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Mortgage notes payable |
| $ | 3,323,932 |
| $ | — |
| $ | 31,245 |
| $ | 93,810 |
| $ | 3,448,987 |
|
Notes, net |
| 3,443,588 |
| — |
| — |
| — |
| 3,443,588 |
| |||||
Lines of credit |
| — |
| 811,178 |
| 4,047 |
| 76,859 |
| 892,084 |
| |||||
Accounts payable and accrued expenses |
| 124,908 |
| — |
| — |
| — |
| 124,908 |
| |||||
Accrued interest payable |
| 64,201 |
| — |
| — |
| — |
| 64,201 |
| |||||
Rents received in advance and other liabilities |
| 490,894 |
| — |
| — |
| — |
| 490,894 |
| |||||
Security deposits |
| 49,977 |
| — |
| — |
| — |
| 49,977 |
| |||||
Distributions payable |
| 143,572 |
| — |
| — |
| — |
| 143,572 |
| |||||
Total liabilities |
| 7,641,072 |
| 811,178 |
| 35,292 |
| 170,669 |
| 8,658,211 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
| |||||
Total Minority Interests |
| 410,937 |
| — |
| 2,385 |
| — |
| 413,322 |
| |||||
Total shareholders’ equity |
| 5,259,820 |
| — |
| 2,639 |
| — |
| 5,262,459 |
| |||||
Total liabilities and shareholders’ equity |
| $ | 13,311,829 |
| $ | 811,178 |
| $ | 40,316 |
| $ | 170,669 |
| $ | 14,333,992 |
|
See accompanying notes.
28
EQUITY RESIDENTIAL
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2005
(Amounts in thousands except per share data)
(Unaudited)
|
| HISTORICAL |
| PRO FORMA |
| PRO FORMA |
| PRO FORMA |
| PRO FORMA |
| PRO FORMA |
| ||||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Rental income |
| $ | 1,453,829 |
| $ | 35,137 |
| $ | 13,444 |
| $ | 6,123 |
| $ | 11,392 |
| $ | 1,519,925 |
|
Fee and asset management |
| 8,456 |
| — |
| — |
| (266 | ) | — |
| 8,190 |
| ||||||
Total revenues |
| 1,462,285 |
| 35,137 |
| 13,444 |
| 5,857 |
| 11,392 |
| 1,528,115 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Property and maintenance |
| 411,187 |
| 9,210 |
| 3,456 |
| 1,646 |
| 3,567 |
| 429,066 |
| ||||||
Real estate taxes and insurance |
| 162,711 |
| 1,935 |
| 1,295 |
| 666 |
| 1,019 |
| 167,626 |
| ||||||
Property management |
| 63,254 |
| 338 |
| 334 |
| — |
| 345 |
| 64,271 |
| ||||||
Fee and asset management |
| 7,518 |
| — |
| — |
| — |
| — |
| 7,518 |
| ||||||
Depreciation |
| 378,123 |
| 10,939 |
| 4,279 |
| 1,776 |
| 2,600 |
| 397,717 |
| ||||||
General and administrative |
| 45,012 |
| — |
| — |
| — |
| — |
| 45,012 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total expenses |
| 1,067,805 |
| 22,422 |
| 9,364 |
| 4,088 |
| 7,531 |
| 1,111,210 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating income |
| 394,480 |
| 12,715 |
| 4,080 |
| 1,769 |
| 3,861 |
| 416,905 |
| ||||||
Interest and other income |
| 65,471 |
| — |
| (1,870 | ) | (1,277 | ) | — |
| 62,324 |
| ||||||
Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Expense incurred, net |
| (281,762 | ) | (21,385 | ) | (4,868 | ) | (1,272 | ) | (5,829 | ) | (315,116 | ) | ||||||
Amortization of deferred financing costs |
| (4,996 | ) | — |
| — |
| (36 | ) | (142 | ) | (5,174 | ) | ||||||
Income before allocation to Minority Interests, loss from investments in unconsolidated entities, net gain on sales of unconsolidated entities and discontinued operations |
| 173,193 |
| (8,670 | ) | (2,658 | ) | (816 | ) | (2,110 | ) | 158,939 |
| ||||||
Allocation to Minority Interests: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating Partnership |
| (43,060 | ) | 587 |
| 180 |
| 55 |
| 143 |
| (42,095 | ) | ||||||
Preference Interests |
| (6,431 | ) | — |
| — |
| — |
| — |
| (6,431 | ) | ||||||
Junior Preference Units |
| (11 | ) | — |
| — |
| — |
| — |
| (11 | ) | ||||||
Partially Owned Properties |
| 672 |
| — |
| — |
| — |
| — |
| 672 |
| ||||||
Premium on redemption of Preference Interests |
| (4,134 | ) | — |
| — |
| — |
| — |
| (4,134 | ) | ||||||
Loss from investments in unconsolidated entities |
| (450 | ) | — |
| — |
| — |
| — |
| (450 | ) | ||||||
Net gain on sales of unconsolidated entities |
| 124 |
| — |
| — |
| — |
| — |
| 124 |
| ||||||
Income (loss) from continuing operations |
| 119,903 |
| (8,083 | ) | (2,478 | ) | (761 | ) | (1,967 | ) | 106,614 |
| ||||||
Preferred distributions |
| (39,004 | ) | — |
| — |
| — |
| — |
| (39,004 | ) | ||||||
Premium on redemption of Preferred Shares |
| (4,316 | ) | — |
| — |
| — |
| — |
| (4,316 | ) | ||||||
Income (loss) from continuing operations available to Common Shares |
| $ | 76,583 |
| $ | (8,083 | ) | $ | (2,478 | ) | $ | (761 | ) | $ | (1,967 | ) | $ | 63,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Earnings per share - basic: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income from continuing operations available to Common Shares |
| $ | 0.39 |
|
|
|
|
|
|
|
|
| $ | 0.34 |
| ||||
Weighted average Common Shares outstanding |
| 285,331 |
|
|
|
|
|
|
|
|
| 285,331 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Earnings per share - diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income from continuing operations available to Common Shares |
| $ | 0.39 |
|
|
|
|
|
|
|
|
| $ | 0.34 |
| ||||
Weighted average Common Shares outstanding |
| 310,211 |
|
|
|
|
|
|
|
|
| 310,211 |
|
See accompanying notes.
29
EQUITY RESIDENTIAL
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2004
(Amounts in thousands except per share data)
(Unaudited)
|
| HISTORICAL |
| PRO FORMA |
| PRO FORMA |
| PRO FORMA |
| PRO FORMA |
| PRO FORMA |
| ||||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Rental income |
| $ | 1,774,509 |
| $ | 41,931 |
| $ | 16,506 |
| $ | 8,533 |
| $ | 12,156 |
| $ | 1,853,635 |
|
Fee and asset management |
| 11,796 |
| — |
| — |
| (372 | ) | — |
| 11,424 |
| ||||||
Total revenues |
| 1,786,305 |
| 41,931 |
| 16,506 |
| 8,161 |
| 12,156 |
| 1,865,059 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Property and maintenance |
| 486,298 |
| 11,729 |
| 4,191 |
| 1,988 |
| 4,246 |
| 508,452 |
| ||||||
Real estate taxes and insurance |
| 209,207 |
| 2,291 |
| 1,936 |
| 942 |
| 1,254 |
| 215,630 |
| ||||||
Property management |
| 76,823 |
| 412 |
| 415 |
| — |
| 364 |
| 78,014 |
| ||||||
Fee and asset management |
| 8,777 |
| — |
| — |
| — |
| — |
| 8,777 |
| ||||||
Depreciation |
| 453,931 |
| 22,429 |
| 7,448 |
| 3,331 |
| 5,145 |
| 492,284 |
| ||||||
General and administrative |
| 50,013 |
| — |
| — |
| — |
| — |
| 50,013 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total expenses |
| 1,285,049 |
| 36,861 |
| 13,990 |
| 6,261 |
| 11,009 |
| 1,353,170 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating income |
| 501,256 |
| 5,070 |
| 2,516 |
| 1,900 |
| 1,147 |
| 511,889 |
| ||||||
Interest and other income |
| 8,958 |
| — |
| (1,224 | ) | (836 | ) | — |
| 6,898 |
| ||||||
Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Expense incurred, net |
| (328,538 | ) | (13,995 | ) | (7,066 | ) | (1,565 | ) | (6,419 | ) | (357,583 | ) | ||||||
Amortization of deferred financing costs |
| (6,072 | ) | — |
| — |
| (48 | ) | (189 | ) | (6,309 | ) | ||||||
Income before allocation to Minority Interests, loss from investments in unconsolidated entities, net gain on sales of unconsolidated entities and discontinued operations |
| 175,604 |
| (8,925 | ) | (5,774 | ) | (549 | ) | (5,461 | ) | 154,895 |
| ||||||
Allocation to Minority Interests: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating Partnership |
| (31,228 | ) | 620 |
| 401 |
| 38 |
| 379 |
| (29,790 | ) | ||||||
Preference Interests |
| (19,420 | ) | — |
| — |
| — |
| — |
| (19,420 | ) | ||||||
Junior Preference Units |
| (70 | ) | — |
| — |
| — |
| — |
| (70 | ) | ||||||
Partially Owned Properties |
| 1,787 |
| — |
| — |
| — |
| — |
| 1,787 |
| ||||||
Premium on redemption of Preference Interests |
| (1,117 | ) | — |
| — |
| — |
| — |
| (1,117 | ) | ||||||
Loss from investments in unconsolidated entities |
| (7,325 | ) | — |
| — |
| — |
| — |
| (7,325 | ) | ||||||
Net gain on sales of unconsolidated entities |
| 4,593 |
| — |
| — |
| — |
| — |
| 4,593 |
| ||||||
Income (loss) from continuing operations |
| 122,824 |
| (8,305 | ) | (5,373 | ) | (511 | ) | (5,082 | ) | 103,553 |
| ||||||
Preferred distributions |
| (53,746 | ) | — |
| — |
| — |
| — |
| (53,746 | ) | ||||||
Income (loss) from continuing operations available to Common Shares |
| $ | 69,078 |
| $ | (8,305 | ) | $ | (5,373 | ) | $ | (511 | ) | $ | (5,082 | ) | $ | 49,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Earnings per share - basic: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income from continuing operations available to Common Shares |
| $ | 0.33 |
|
|
|
|
|
|
|
|
| $ | 0.26 |
| ||||
Weighted average Common Shares outstanding |
| 279,744 |
|
|
|
|
|
|
|
|
| 279,744 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Earnings per share - diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income from continuing operations available to Common Shares |
| $ | 0.33 |
|
|
|
|
|
|
|
|
| $ | 0.26 |
| ||||
Weighted average Common Shares outstanding |
| 303,871 |
|
|
|
|
|
|
|
|
| 303,871 |
|
See accompanying notes.
30
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2005
(Amounts in thousands)
(Unaudited)
|
| HISTORICAL |
| PROFORMA |
| PROFORMA |
| PROFORMA |
| PROFORMA |
| |||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
| |||||
Investment in real estate |
|
|
|
|
|
|
|
|
|
|
| |||||
Land |
| $ | 2,283,157 |
| $ | 388,441 |
| $ | 18,000 |
| $ | 78,278 |
| $ | 2,767,876 |
|
Depreciable property |
| 12,670,716 |
| 422,737 |
| 37,258 |
| 91,428 |
| 13,222,139 |
| |||||
Construction in progress (including land) |
| 330,965 |
| — |
| — |
| — |
| 330,965 |
| |||||
Investment in real estate |
| 15,284,838 |
| 811,178 |
| 55,258 |
| 169,706 |
| 16,320,980 |
| |||||
Accumulated depreciation |
| (2,805,552 | ) | — |
| — |
| — |
| (2,805,552 | ) | |||||
Investment in real estate, net |
| 12,479,286 |
| 811,178 |
| 55,258 |
| 169,706 |
| 13,515,428 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
| 306,933 |
| — |
| — |
| — |
| 306,933 |
| |||||
Investments in unconsolidated entities |
| 11,390 |
| — |
| — |
| — |
| 11,390 |
| |||||
Rents receivable |
| 940 |
| — |
| — |
| — |
| 940 |
| |||||
Deposits – restricted |
| 305,366 |
| — |
| (15,333 | ) | — |
| 290,033 |
| |||||
Escrow deposits – mortgage |
| 36,389 |
| — |
| — |
| — |
| 36,389 |
| |||||
Deferred financing costs, net |
| 40,041 |
| — |
| 391 |
| 963 |
| 41,395 |
| |||||
Goodwill, net |
| 30,000 |
| — |
| — |
| — |
| 30,000 |
| |||||
Other assets |
| 101,484 |
| — |
| — |
| — |
| 101,484 |
| |||||
Total assets |
| $ | 13,311,829 |
| $ | 811,178 |
| $ | 40,316 |
| $ | 170,669 |
| $ | 14,333,992 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
LIABILITIES AND PARTNERS’ CAPITAL |
|
|
|
|
|
|
|
|
|
|
| |||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Mortgage notes payable |
| $ | 3,323,932 |
| $ | — |
| $ | 31,245 |
| $ | 93,810 |
| $ | 3,448,987 |
|
Notes, net |
| 3,443,588 |
| — |
| — |
| — |
| 3,443,588 |
| |||||
Lines of credit |
| — |
| 811,178 |
| 4,047 |
| 76,859 |
| 892,084 |
| |||||
Accounts payable and accrued expenses |
| 124,908 |
| — |
| — |
| — |
| 124,908 |
| |||||
Accrued interest payable |
| 64,201 |
| — |
| — |
| — |
| 64,201 |
| |||||
Rents received in advance and other liabilities |
| 490,894 |
| — |
| — |
| — |
| 490,894 |
| |||||
Security deposits |
| 49,977 |
| — |
| — |
| — |
| 49,977 |
| |||||
Distributions payable |
| 143,572 |
| — |
| — |
| — |
| 143,572 |
| |||||
Total liabilities |
| 7,641,072 |
| 811,178 |
| 35,292 |
| 170,669 |
| 8,658,211 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
| |||||
Total Minority Interests |
| 10,716 |
| — |
| — |
| — |
| 10,716 |
| |||||
Total partners’ capital |
| 5,660,041 |
| — |
| 5,024 |
| — |
| 5,665,065 |
| |||||
Total liabilities and partners’ capital |
| $ | 13,311,829 |
| $ | 811,178 |
| $ | 40,316 |
| $ | 170,669 |
| $ | 14,333,992 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
See accompanying notes. |
|
|
|
|
|
|
|
|
|
|
|
31
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2005
(Amounts in thousands except per OP Unit data)
(Unaudited)
|
| HISTORICAL |
| PRO FORMA |
| PRO FORMA |
| PRO FORMA |
| PRO FORMA |
| PRO FORMA |
| ||||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Rental income |
| $ | 1,453,829 |
| $ | 35,137 |
| $ | 13,444 |
| $ | 6,123 |
| $ | 11,392 |
| $ | 1,519,925 |
|
Fee and asset management |
| 8,456 |
| — |
| — |
| (266 | ) | — |
| 8,190 |
| ||||||
Total revenues |
| 1,462,285 |
| 35,137 |
| 13,444 |
| 5,857 |
| 11,392 |
| 1,528,115 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Property and maintenance |
| 411,187 |
| 9,210 |
| 3,456 |
| 1,646 |
| 3,567 |
| 429,066 |
| ||||||
Real estate taxes and insurance |
| 162,711 |
| 1,935 |
| 1,295 |
| 666 |
| 1,019 |
| 167,626 |
| ||||||
Property management |
| 63,254 |
| 338 |
| 334 |
| — |
| 345 |
| 64,271 |
| ||||||
Fee and asset management |
| 7,518 |
| — |
| — |
| — |
| — |
| 7,518 |
| ||||||
Depreciation |
| 378,123 |
| 10,939 |
| 4,279 |
| 1,776 |
| 2,600 |
| 397,717 |
| ||||||
General and administrative |
| 45,012 |
| — |
| — |
| — |
| — |
| 45,012 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total expenses |
| 1,067,805 |
| 22,422 |
| 9,364 |
| 4,088 |
| 7,531 |
| 1,111,210 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating income |
| 394,480 |
| 12,715 |
| 4,080 |
| 1,769 |
| 3,861 |
| 416,905 |
| ||||||
Interest and other income |
| 65,471 |
| — |
| (1,870 | ) | (1,277 | ) | — |
| 62,324 |
| ||||||
Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Expense incurred, net |
| (281,762 | ) | (21,385 | ) | (4,868 | ) | (1,272 | ) | (5,829 | ) | (315,116 | ) | ||||||
Amortization of deferred financing costs |
| (4,996 | ) | — |
| — |
| (36 | ) | (142 | ) | (5,174 | ) | ||||||
Income before allocation to Minority Interests, loss from investments in unconsolidated entities, net gain on sales of unconsolidated entities and discontinued operations |
| 173,193 |
| (8,670 | ) | (2,658 | ) | (816 | ) | (2,110 | ) | 158,939 |
| ||||||
Allocation to Minority Interests — Partially Owned Properties |
| 672 |
| — |
| — |
| — |
| — |
| 672 |
| ||||||
Loss from investments in unconsolidated entities |
| (450 | ) | — |
| — |
| — |
| — |
| (450 | ) | ||||||
Net gain on sales of unconsolidated entities |
| 124 |
| — |
| — |
| — |
| — |
| 124 |
| ||||||
Income (loss) from continuing operations |
| $ | 173,539 |
| $ | (8,670 | ) | $ | (2,658 | ) | $ | (816 | ) | $ | (2,110 | ) | $ | 159,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
ALLOCATION OF INCOME FROM CONTINUING OPERATIONS: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Preference Units |
| $ | 39,004 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 39,004 |
|
Preference Interests |
| $ | 6,431 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 6,431 |
|
Junior Preference Interests |
| $ | 11 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 11 |
|
Premium on redemption of Preference Units |
| $ | 4,316 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 4,316 |
|
Premium on redemption of Preference Interests |
| $ | 4,134 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 4,134 |
|
Income (loss) from continuing operations available to OP Units |
| $ | 119,643 |
| $ | (8,670 | ) | $ | (2,658 | ) | $ | (816 | ) | $ | (2,110 | ) | $ | 105,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Earnings per OP Unit — basic: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income from continuing operations available to OP Units |
| $ | 0.39 |
|
|
|
|
|
|
|
|
| $ | 0.34 |
| ||||
Weighted average OP Units outstanding |
| 306,171 |
|
|
|
|
|
|
|
|
| 306,171 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Earnings per OP Unit — diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income from continuing operations available to OP Units |
| $ | 0.39 |
|
|
|
|
|
|
|
|
| $ | 0.34 |
| ||||
Weighted average OP Units outstanding |
| 310,211 |
|
|
|
|
|
|
|
|
| 310,211 |
|
See accompanying notes.
32
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2004
(Amounts in thousands except per OP Unit data)
(Unaudited)
|
| HISTORICAL |
| PRO FORMA |
| PRO FORMA |
| PRO FORMA |
| PRO FORMA |
| PRO FORMA |
| ||||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Rental income |
| $ | 1,774,509 |
| $ | 41,931 |
| $ | 16,506 |
| $ | 8,533 |
| $ | 12,156 |
| $ | 1,853,635 |
|
Fee and asset management |
| 11,796 |
| — |
| — |
| (372 | ) | — |
| 11,424 |
| ||||||
Total revenues |
| 1,786,305 |
| 41,931 |
| 16,506 |
| 8,161 |
| 12,156 |
| 1,865,059 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Property and maintenance |
| 486,298 |
| 11,729 |
| 4,191 |
| 1,988 |
| 4,246 |
| 508,452 |
| ||||||
Real estate taxes and insurance |
| 209,207 |
| 2,291 |
| 1,936 |
| 942 |
| 1,254 |
| 215,630 |
| ||||||
Property management |
| 76,823 |
| 412 |
| 415 |
| — |
| 364 |
| 78,014 |
| ||||||
Fee and asset management |
| 8,777 |
| — |
| — |
| — |
| — |
| 8,777 |
| ||||||
Depreciation |
| 453,931 |
| 22,429 |
| 7,448 |
| 3,331 |
| 5,145 |
| 492,284 |
| ||||||
General and administrative |
| 50,013 |
| — |
| — |
| — |
| — |
| 50,013 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total expenses |
| 1,285,049 |
| 36,861 |
| 13,990 |
| 6,261 |
| 11,009 |
| 1,353,170 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating income |
| 501,256 |
| 5,070 |
| 2,516 |
| 1,900 |
| 1,147 |
| 511,889 |
| ||||||
Interest and other income |
| 8,958 |
| — |
| (1,224 | ) | (836 | ) | — |
| 6,898 |
| ||||||
Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Expense incurred, net |
| (328,538 | ) | (13,995 | ) | (7,066 | ) | (1,565 | ) | (6,419 | ) | (357,583 | ) | ||||||
Amortization of deferred financing costs |
| (6,072 | ) | — |
| — |
| (48 | ) | (189 | ) | (6,309 | ) | ||||||
Income before allocation to Minority Interests, loss from investments in unconsolidated entities, net gain on sales of unconsolidated entities and discontinued operations |
| 175,604 |
| (8,925 | ) | (5,774 | ) | (549 | ) | (5,461 | ) | 154,895 |
| ||||||
Allocation to Minority Interests – Partially Owned |
| 1,787 |
| — |
| — |
| — |
| — |
| 1,787 |
| ||||||
Loss from investments in unconsolidated entities |
| (7,325 | ) | — |
| — |
| — |
| — |
| (7,325 | ) | ||||||
Net gain on sales of unconsolidated entities |
| 4,593 |
| — |
| — |
| — |
| — |
| 4,593 |
| ||||||
Income (loss) from continuing operations |
| $ | 174,659 |
| $ | (8,925 | ) | $ | (5,774 | ) | $ | (549 | ) | $ | (5,461 | ) | $ | 153,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
ALLOCATION OF INCOME FROM CONTINUING OPERATIONS: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Preference Units |
| $ | 53,746 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 53,746 |
|
Preference Interests |
| $ | 19,420 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 19,420 |
|
Junior Preference Interests |
| $ | 70 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 70 |
|
Premium on redemption of Preference Units |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Premium on redemption of Preference Interests |
| $ | 1,117 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 1,117 |
|
Income (loss) from continuing operations available to OP Units |
| $ | 100,306 |
| $ | (8,925 | ) | $ | (5,774 | ) | $ | (549 | ) | $ | (5,461 | ) | $ | 79,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Earnings per OP Unit – basic: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income from continuing operations available to OP Units |
| $ | 0.33 |
|
|
|
|
|
|
|
|
| $ | 0.26 |
| ||||
Weighted average OP Units outstanding |
| 300,683 |
|
|
|
|
|
|
|
|
| 300,683 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Earnings OP Unit — diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income from continuing operations available to OP Units |
| $ | 0.33 |
|
|
|
|
|
|
|
|
| $ | 0.26 |
| ||||
Weighted average OP Units outstanding |
| 303,871 |
|
|
|
|
|
|
|
|
| 303,871 |
|
See accompanying notes.
33
EQUITY RESIDENTIAL
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2005
(Unaudited)
Notes to Pro Forma Condensed Consolidated Balance Sheets
(A) Represents the consolidated balance sheets of Equity Residential and ERP Operating Limited Partnership (collectively the “Company”) as of September 30, 2005, as contained in the unaudited historical consolidated financial statements and notes thereto filed on their respective Form 10-Q’s. Harbor Steps and Northlake were previously acquired on September 23, 2005 and September 2, 2005, respectively, and as a result, both acquisitions are already reflected in the historical amounts as of September 30, 2005. Harbor Steps was acquired for a total purchase price of $217.3 million (amount includes $26.2 million to reflect the above-market premiums on the mortgage notes payable assumed) plus closing costs of $1.1 million and was financed by the assumption of $121.3 million of mortgage notes payable and approximately $70.9 million through the use of tax-deferred 1031 exchange proceeds from dispositions and earnest money deposits. Northlake was acquired for a total purchase price of $37.7 million plus closing costs of $0.5 million and was financed through the use of $33.1 million of tax-deferred 1031 exchange proceeds from dispositions and by the revolving lines of credit.
(B) Represents the acquisition of Trump Place for a total purchase price of $808.8 million plus closing costs of $2.4 million. Although this Pro Form Condensed Consolidated Balance Sheet assumes the acquisition of Trump Place would be financed initially by the revolving lines of credit, the Company’s near-term intention is to finance the acquisition through the use of tax-deferred 1031 exchange proceeds from dispositions.
(C) Represents the acquisition of Oak Mill I and Stoney Ridge:
• Oak Mill I was acquired for a total purchase price of $22.6 million (amount includes $1.2 million to reflect the above-market premiums on the mortgage notes payable assumed) plus closing costs of $0.5 million. The acquisition of Oak Mill I was partially financed by the assumption of $13.2 million of mortgage notes payable, the issuance of $5.0 million of OP Units and by the revolving lines of credit. The Company capitalized financing costs of $0.2 million related to costs incurred to assume the mortgage notes payable at acquisition.
• Stoney Ridge was acquired for a total purchase price of $32.0 million (amount includes $0.2 million to reflect the above-market premiums on the mortgage notes payable assumed) plus closing costs of $0.1 million. The acquisition of Stoney Ridge was financed by the assumption of $16.6 million of mortgage notes payable and $15.3 million through the use of tax-deferred 1031 exchange proceeds. The Company capitalized financing costs of $0.2 million related to costs incurred to assume the mortgage notes payable at acquisition.
(D) Represents the acquisition of Skyline Towers for a total purchase price of $169.4 million (amount includes $3.8 million to reflect the above-market premiums on the mortgage notes payable assumed) plus closing costs of $0.3 million. The acquisition of Skyline Towers was financed initially by the assumption of $90.0 million of mortgage notes payable and by the revolving lines of credit. The Company capitalized financing costs of $1.0 million related to costs incurred to assume the mortgage notes payable at acquisition.
34
EQUITY RESIDENTIAL
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2005
(Unaudited)
Notes to Pro Forma Condensed Consolidated Statements of Operations
(A) Represents the historical consolidated statements of operations of Equity Residential and ERP Operating Limited Partnership (collectively, the “Company”) as contained in the historical consolidated financial statements included in previous filings with the Securities and Exchange Commission.
(B) Represents the pro forma revenues and expenses for the nine months ended September 30, 2005 attributable to the acquisition of Trump Place as if the acquisition had occurred on January 1, 2004. Interest expense incurred of $21.4 million is attributable to draws under the lines of credit calculated using a weighted average interest rate of 3.515%. Although these Pro Forma Condensed Consolidated Statements of Operations assume the acquisition of Trump Place would be financed initially by the revolving lines of credit, the Company’s near-term intention is to finance the acquisition through the use of tax-deferred 1031 exchange proceeds from dispositions. Preliminary depreciation expense of $10.9 million relates to the aggregate purchase price of $811.2 million less a preliminary allocation to land of $388.4 million and is calculated as follows (amounts in thousands except for depreciable lives):
|
|
|
|
|
| Nine Months |
| ||
|
|
|
| Weighted Average |
| Ended 9/30/05 |
| ||
Asset |
| Basis |
| Depreciable Life |
| Expense |
| ||
Building |
| $ | 410,654 |
| 30 Years |
| $ | 10,267 |
|
F,F&E |
| 3,995 |
| 5 Years |
| 599 |
| ||
In-Place Leases – Residential |
| 7,844 |
| 9 Months |
| — |
| ||
In-Place Leases – Retail |
| 244 |
| 30 Months |
| 73 |
| ||
|
|
|
|
|
|
|
| ||
Total |
| $ | 422,737 |
|
|
| $ | 10,939 |
|
(C) Represents the pro forma revenues and expenses for the nine months ended September 30, 2005 attributable to the acquisition of Harbor Steps as if the acquisition had occurred on January 1, 2004. Interest income has been reduced by $1.9 million to reflect the $70.9 million reduction in tax-deferred 1031 exchange proceeds used in the acquisition at a weighted average interest rate of 3.515%. Interest expense incurred of $4.9 million includes a $7.1 million increase related to the assumed mortgages and a $2.2 million reduction related to the amortization of the premium on the assumed mortgages. Preliminary depreciation expense of $4.3 million relates to the aggregate purchase price of $218.4 million less a preliminary allocation to land of $59.9 million and is calculated as follows (amounts in thousands except for depreciable lives):
|
|
|
|
|
| Nine Months |
| ||
|
|
|
| Weighted Average |
| Ended 9/30/05 |
| ||
Asset |
| Basis |
| Depreciable Life |
| Expense |
| ||
Building |
| $ | 154,279 |
| 30 Years |
| $ | 3,857 |
|
F,F&E |
| 2,226 |
| 5 Years |
| 334 |
| ||
In-Place Leases – Residential |
| 1,743 |
| 9 Months |
| — |
| ||
In-Place Leases – Retail |
| 293 |
| 30 Months |
| 88 |
| ||
|
|
|
|
|
|
|
| ||
Total |
| $ | 158,541 |
|
|
| $ | 4,279 |
|
(D) Represents the pro forma revenues and expenses for the nine months ended September 30, 2005 attributable to the acquisition of Northlake, Oak Mill I and Stoney Ridge (collectively the “Artery Properties”) as if the acquisitions had occurred on January 1, 2004. Prior to acquisition by the Company, the Artery Properties were fee managed by the Company. The related management fee revenues and expenses have been eliminated within the Pro Forma Condensed Consolidated Statements of Operations. Interest income has been reduced by $1.3 million to reflect the $48.5 million reduction in tax-deferred 1031 exchange proceeds used in the acquisitions at a weighted average
35
EQUITY RESIDENTIAL
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2005
(Unaudited)
Notes to Pro Forma Condensed Consolidated Statements of Operations (Continued)
interest rate of 3.515%. Interest expense incurred of $1.3 million includes a $1.2 million increase related to the assumed mortgages, a $0.2 million reduction related to the amortization of the premiums on the assumed mortgages and a $0.3 million increase related to the assumed $9.0 million in draws under the lines of credit calculated using a weighted average interest rate of 3.515%. Preliminary depreciation expense of $1.8 million relates to the combined aggregate purchase price of $93.4 million less a preliminary allocation to land of $33.0 million and is calculated as follows (amounts in thousands except for depreciable lives):
|
|
|
|
|
| Nine Months |
| ||
|
|
|
| Weighted Average |
| Ended 9/30/05 |
| ||
Asset |
| Basis |
| Depreciable Life |
| Expense |
| ||
Building |
| $ | 57,095 |
| 30 Years |
| $ | 1,427 |
|
F,F&E |
| 2,328 |
| 5 Years |
| 349 |
| ||
In-Place Leases – Residential |
| 962 |
| 9 Months |
| — |
| ||
|
|
|
|
|
|
|
| ||
Total |
| $ | 60,385 |
|
|
| $ | 1,776 |
|
(E) Represents the pro forma revenues and expenses for the nine months ended September 30, 2005 attributable to the acquisition of Skyline Towers as if the acquisition had occurred on January 1, 2004. Interest expense incurred of $5.8 million includes a $4.4 million increase related to the assumed mortgages, a $0.6 million reduction related to the amortization of the premiums on the assumed mortgages and a $2.0 million increase related to the assumed $76.9 million in draws under the lines of credit calculated using a weighted average interest rate of 3.515%. Although these Pro Forma Condensed Consolidated Statements of Operations assume the acquisition of Skyline Towers would be partially financed initially by the revolving lines of credit, the Company’s near-term intention is to finance the acquisition through the use of tax-deferred 1031 exchange proceeds from dispositions. Preliminary depreciation expense of $2.6 million relates to the aggregate purchase price of $169.7 million less a preliminary allocation to land of $78.3 million and is calculated as follows (amounts in thousands except for depreciable lives):
|
|
|
|
|
| Nine Months |
| ||
|
|
|
| Weighted Average |
| Ended 9/30/05 |
| ||
Asset |
| Basis |
| Depreciable Life |
| Expense |
| ||
Building |
| $ | 86,917 |
| 30 Years |
| $ | 2,173 |
|
F,F&E |
| 2,817 |
| 5 Years |
| 423 |
| ||
In-Place Leases – Residential |
| 1,679 |
| 9 Months |
| — |
| ||
In-Place Leases – Retail |
| 15 |
| 30 Months |
| 4 |
| ||
|
|
|
|
|
|
|
| ||
Total |
| $ | 91,428 |
|
|
| $ | 2,600 |
|
36
EQUITY RESIDENTIAL
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2004
(Unaudited)
Notes to Pro Forma Condensed Consolidated Statements of Operations
(A) Represents the historical consolidated statements of operations of Equity Residential and ERP Operating Limited Partnership (collectively the “Company”) as contained in the historical consolidated financial statements included in previous filings with the Securities and Exchange Commission.
(B) Represents the pro forma revenues and expenses for the year ended December 31, 2004 attributable to the acquisition of Trump Place as if the acquisition had occurred on January 1, 2004. Interest expense incurred of $14.0 million is attributable to draws under the lines of credit calculated using a weighted average interest rate of 1.7253%. Although these Pro Forma Condensed Consolidated Statements of Operations assume the acquisition of Trump Place would be financed initially by the revolving lines of credit, the Company’s near-term intention is to finance the acquisition through the use of tax-deferred 1031 exchange proceeds from dispositions. Preliminary depreciation expense of $22.4 million relates to the aggregate purchase price of $811.2 million less a preliminary allocation to land of $388.4 million and is calculated as follows (amounts in thousands except for depreciable lives):
|
|
|
|
|
| Year |
| ||
|
|
|
| Weighted Average |
| Ended 12/31/04 |
| ||
Asset |
| Basis |
| Depreciable Life |
| Expense |
| ||
Building |
| $ | 410,654 |
| 30 Years |
| $ | 13,688 |
|
F,F&E |
| 3,995 |
| 5 Years |
| 799 |
| ||
In-Place Leases – Residential |
| 7,844 |
| 9 Months |
| 7,844 |
| ||
In-Place Leases – Retail |
| 244 |
| 30 Months |
| 98 |
| ||
|
|
|
|
|
|
|
| ||
Total |
| $ | 422,737 |
|
|
| $ | 22,429 |
|
(C) Represents the pro forma revenues and expenses for the year ended December 31, 2004 attributable to the acquisition of Harbor Steps as if the acquisition had occurred on January 1, 2004. Interest income has been reduced by $1.2 million to reflect the $70.9 million reduction in tax-deferred 1031 exchange proceeds used in the acquisition at a weighted average interest rate of 1.7253%. Interest expense incurred of $7.1 million includes a $10.4 million increase related to the assumed mortgages and a $3.3 million reduction related to the amortization of the premiums on the assumed mortgages. Preliminary depreciation expense of $7.4 million relates to the aggregate purchase price of $218.4 million less a preliminary allocation to land of $59.9 million and is calculated as follows (amounts in thousands except for depreciable lives):
|
|
|
|
|
| Year |
| ||
|
|
|
| Weighted Average |
| Ended 12/31/04 |
| ||
Asset |
| Basis |
| Depreciable Life |
| Expense |
| ||
Building |
| $ | 154,279 |
| 30 Years |
| $ | 5,143 |
|
F,F&E |
| 2,226 |
| 5 Years |
| 445 |
| ||
In-Place Leases – Residential |
| 1,743 |
| 9 Months |
| 1,743 |
| ||
In-Place Leases – Retail |
| 293 |
| 30 Months |
| 117 |
| ||
|
|
|
|
|
|
|
| ||
Total |
| $ | 158,541 |
|
|
| $ | 7,448 |
|
(D) Represents the pro forma revenues and expenses for the year ended December 31, 2004 attributable to the acquisition of Northlake, Oak Mill I and Stoney Ridge (collectively the “Artery Properties”) as if the acquisitions had occurred on January 1, 2004. Prior to acquisition by the Company, the Artery Properties were fee managed by the Company. The related management fee revenues and expenses have been eliminated within the Pro Forma Condensed Consolidated Statements of Operations. Interest income has been reduced by $0.8 million to reflect the $48.5 million reduction in tax-deferred
37
EQUITY RESIDENTIAL
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2004
(Unaudited)
Notes to Pro Forma Condensed Consolidated Statements of Operations (Continued)
1031 exchange proceeds used in the acquisitions at a weighted average interest rate of 1.7253%. Interest expense incurred of $1.6 million includes a $1.6 million increase related to the assumed mortgages, a $0.2 million reduction related to the amortization of the premiums on the assumed mortgages and a $0.2 million increase related to the assumed $9.0 million in draws under the lines of credit calculated using a weighted average interest rate of 1.7253%. Preliminary depreciation expense of $3.3 million relates to the combined aggregate purchase price of $93.4 million less a preliminary allocation to land of $33.0 million and is calculated as follows (amounts in thousands except for depreciable lives):
|
|
|
|
|
| Year Ended |
| ||
|
|
|
| Weighted Average |
| 12/31/04 |
| ||
Asset |
| Basis |
| Depreciable Life |
| Expense |
| ||
Building |
| $ | 57,095 |
| 30 Years |
| $ | 1,903 |
|
F,F&E |
| 2,328 |
| 5 Years |
| 466 |
| ||
In-Place Leases – Residential |
| 962 |
| 9 Months |
| 962 |
| ||
|
|
|
|
|
|
|
| ||
Total |
| $ | 60,385 |
|
|
| $ | 3,331 |
|
(E) Represents the pro forma revenues and expenses for the year ended December 31, 2004 attributable to the acquisition of Skyline Towers as if the acquisition had occurred on January 1, 2004. Interest expense incurred of $6.4 million includes a $5.9 million increase related to the assumed mortgages, a $0.8 million reduction related to the amortization of the premiums on the assumed mortgages and a $1.3 million increase related to the assumed $76.9 million in draws under the lines of credit calculated using a weighted average interest rate of 1.7253%. Although these Pro Forma Condensed Consolidated Statements of Operations assume the acquisition of Skyline Towers would be partially financed initially by the revolving lines of credit, the Company’s near-term intention is to finance the acquisition through the use of tax-deferred 1031 exchange proceeds from dispositions. Preliminary depreciation expense of $5.1 million relates to the aggregate purchase price of $169.7 million less a preliminary allocation to land of $78.3 million and is calculated as follows (amounts in thousands except for depreciable lives):
|
|
|
|
|
| Year Ended |
|
|
|
|
| Weighted Average |
| 12/31/04 |
|
Asset |
| Basis |
| Depreciable Life |
| Expense |
|
Building |
| $86,917 |
| 30 Years |
| $2,897 |
|
F,F&E |
| 2,817 |
| 5 Years |
| 563 |
|
In-Place Leases – Residential |
| 1,679 |
| 9 Months |
| 1,679 |
|
In-Place Leases – Retail |
| 15 |
| 30 Months |
| 6 |
|
|
|
|
|
|
|
|
|
Total |
| $91,428 |
|
|
| $5,145 |
|
38