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 June 30, 2001
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
Commission File Number:1-12590
GABLES RESIDENTIAL TRUST
(Exact name of Registrant as specified in its Charter)
MARYLAND |
| 58-2077868 |
|
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)
Common shares of beneficial interest, par value $0.01 per share, 24,097,539 shares
The number of shares outstanding of each of the registrant's classes of common stock,
as of July 31, 2001
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 RESIDENTIAL TRUST
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 June 30, 2001 and December 31, 2000 | |
| Consolidated Statements of Operations for the three and six months ended June 30, 2001 and 2000 | |
| Consolidated Statements of Cash Flows for the six months ended June 30, 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 2: |
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Item 3: |
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Item 6: |
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PART I. - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
|
Six Months Ended June 30,
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization
Equity in income of joint ventures
Minority interest of unitholders in Operating Partnership
Gain on sale of real estate assets
Long-term compensation expense
Non-cash unusual items
Operating distributions received from joint ventures
Change in operating assets and liabilities:
Restricted cash
Other assets
Other liabilities, net
Net cash provided by operating activities
$28,688
23,359
- -97
8,558
- -9,604
627
400
972
48
- -4,234
3,839
52,556
$22,803
22,561
- -206
7,099
- -
580
- -
601
929
- -422
-482
53,463
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition and construction of real estate assets
Restricted cash held in escrow, net
Net proceeds from sale of real estate assets
Investment in joint ventures
Proceeds from contribution of real estate assets to joint venture
Other
Net cash used in investing activities
- -119,521
- -1,282
39,384
- -2,304
18,361
- -3,103
- -68,465
- -40,639
- -
- -
- -1,906
- -
-
- -42,545
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of share options
Treasury share purchases and Unit redemptions
Payments of deferred financing costs
Notes payable proceeds
Notes payable repayments
Principal escrow deposits
Preferred dividends paid
Preferred distributions paid
Common dividends paid ($1.135 and $1.060 per share, respectively)
Common distributions paid ($1.135 and $1.060 per share, respectively)
Net cash provided by (used in) financing activities
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosure of cash flow information:
Cash paid for interest
Interest capitalized
Cash paid for interest, net of amounts capitalized
The accompanying notes are an integral part of these consolidated statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and Amounts in Thousands, Except Property and Per Share Data)
Unless the context otherwise requires, all references to "we," "our" or "us" in this report refer collectively to Gables Residential Trust ("Gables"), a Maryland real estate investment trust ("REIT"), and its subsidiaries, including Gables Realty Limited Partnership, a Delaware limited partnership, considered as a single enterprise. Gables GP, Inc., a wholly-owned subsidiary of Gables Residential Trust, is the sole general partner of Gables Realty Limited Partnership.
1. ORGANIZATION AND FORMATION
We are a REIT formed in 1993 under Maryland law to continue and expand the operations of our privately owned predecessor organization. We completed our 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. Substantially all of these businesses are conducted through Gables Realty Limited Partnership (the "Operating Partnership"). We control the Operating Partnership through Gables GP, Inc., a wholly-owned subsidiary and the sole general partner of the Operating Partnership. This structure is commonly referred to as an umbrella partnership REIT or "UPREIT." At June 30, 2001, we were a 79.8% economic owner of the common equity of the Operating Partnership. Our third party management businesses are conducted through a subsidiary, Gables Residential Services, Inc.
Our limited partnership and indirect general partnership interests in the Operating Partnership entitle us to share in cash distributions from, and in the profits and losses of, the Operating Partnership in proportion to our ownership interest therein and entitles us to vote on all matters requiring a vote of the limited partners. Generally, the other limited partners of the Operating Partnership are persons who contributed their direct or indirect interests in certain properties to the Operating Partnership primarily in connection with the IPO and the 1998 acquisition of the properties and operations of Trammell Crow Residential South Florida ("South Florida"). The Operating Partnership is obligated to redeem each common unit of limited partnership interest ("Unit") held by a person other than us at the request of the holder for an amount equal to the fair market value of one of our common shares at the time of such redemption, provided that we, at our option, may elect to acquire each Unit presented for redemption for one common share or cash. With each redemption, our percentage ownership interest in the Operating Partnership will increase. In addition, whenever we issue common shares or preferred shares, we are obligated to contribute any net proceeds to the Operating Partnership and the Operating Partnership is obligated to issue an equivalent number of common or preferred units, as applicable, to us.
As of June 30, 2001, we owned 75 stabilized multifamily apartment communities comprising 21,997 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 June 30, 2001 that are expected to comprise 1,051 apartment homes upon completion and an indirect 20% interest in six apartment communities under development or in lease-up at June 30, 2001 that are expected to comprise 1,680 apartment homes upon completion. In addition, as of June 30, 2001, we owned parcels of land on which we intend to develop two apartment communities that we currently expect will comprise an estimated 654 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, we have 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and Amounts in Thousands, Except Property and Per Share Data)
Preferred Share Offerings
On July 24, 1997, we 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 Gables securities.
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 Gables securities.
Issuances of Common Operating Partnership Units
Since the IPO, the Operating Partnership has 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, the Operating Partnership issued 2,000 of its 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. We have 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 Gables 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 we are currently authorized to purchase up to $150 million of our outstanding common shares or Units. We have 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. Units have also been repurchased for cash upon their presentation for redemption by unitholders. As of June 30, 2001, we had repurchased 3,980 common shares and 287 Units for a total of $102,048.
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, the only issuance under this shelf registration statement has been 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 Gables and its subsidiaries, including the Operating Partnership and 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 consolidated financial statements have been adjusted for the minority interest of unitholders in the Operating Partnership. Because Units, if presented for redemption, can be exchanged for Gables common shares on a one-for-one basis, minority interest of unitholders in the Operating Partnership is calculated based on the weighted average of common shares and Units outstanding during the applicable period.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and Amounts in Thousands, Except Property and Per Share Data)
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 June 30, 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 second quarter of 2001, we sold an apartment community located in Atlanta comprising 386 apartment homes. The net proceeds from this sale totaled $34.0 million resulting in a gain of $7.4 million. Sales proceeds totaling $9.2 million were deposited into an escrow account to fund acquisition activities. The balance of the net proceeds was used to paydown outstanding borrowings under interim financing vehicles. 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 three and six months ended June 30, 2001, we recognized $0.3 million and $0.5 million, respectively, 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 was 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 our 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 (the "GRAP Two JV")
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 $2.8 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. As of June 30, 2001, we had funded $6.1 million of our budgeted $7.1 million equity commitment to the joint venture. 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 June 30, 2001, we had recognized $0.8 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and Amounts in Thousands, Except Property and Per Share Data)
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 (the "GRAP JV")
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 June 30, 2001, we had funded our total equity commitment of $23.8 million to the joint venture. At June 30, 2001, construction was complete with respect to seven of the eight communities and five of the seven 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.
In April 2001, development and lease-up activities at one of the communities comprising 290 apartment homes was suspended due to water infiltration issues, and all residents were subsequently relocated. Consultants have been engaged to determine the cause of the water infiltration issues and recommend remedial actions. This process is in the evaluation phase, and no specific timeline can currently be determined for its completion. The potential cost impact for repairs, and any related charges, cannot be assessed until more information is available. It is anticipated that remedial recommendations will be received within the next 90 days.
Community Acquisitions
On August 1, 2001, we acquired the 75% interest of our venture partner in an apartment community located in Houston comprising 318 apartment homes for approximately $27 million.
On March 30, 2001, we acquired the 80% 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.
Other Acquisition
In May 2001, we acquired a property management company based in Washington, D.C. that manages approximately 3,600 units in 24 multifamily apartment communities located in the Washington, D.C. and surrounding area (the "D.C. Management Co."). The total investment is approximately $1.6 million and is structured to be paid in three installments based on results of the acquired business operations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and Amounts in Thousands, Except Property and Per Share Data)
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 Nos. 137 and 138, 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 in place at December 31, 2000 or during the six months ended June 30, 2001.
In June 2001, SFAS No. 141, "Business Combinations" (effective July 1, 2001) and SFAS 142, "Goodwill and Other Intangible Assets" (effective January 1, 2002) were issued. SFAS No. 141 prohibits pooling-of-interests accounting for acquisitions. SFAS No. 142 specifies that goodwill and some intangible assets will no longer be amortized but instead will be subject to periodic impairment testing. We believe that the adoption of SFAS No. 141 and SFAS No. 142 will not have a significant impact on our financial statements.
6. EARNINGS PER SHARE
Basic earnings per share are computed based on net income available to common shareholders and the weighted average number of common shares outstanding. Diluted earnings per share reflect the assumed issuance of common shares under our share option and incentive plan and upon conversion of Units. The numerator and denominator used for both basic and diluted earnings per share computations are as follows:
Three Months
Ended June 30,
Six Months
Ended June 30,
2001
$15,006
3,875
$18,881
2000
$ 8,882
2,475
$11,357
2000
$17,918
4,943
$22,861
Common shares (denominator):
Average shares outstanding - basic
Incremental shares from assumed conversions of:
Stock options
Outstanding common Units
Other
Average shares outstanding - diluted
23,842
155
6,209
6
30,212
23,947
59
6,670
3
30,679
23,521
151
6,435
6
30,113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and Amounts in Thousands, Except Property and Per Share Data)
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 95% of our total revenues for the three months ended June 30, 2001 and 2000 and 96% and 95% of our total revenues for the six months ended June 30, 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 $39,694 and $38,845 for the three months ended June 30, 2001 and 2000, respectively, and $77,771 and $77,615 for the six months ended June 30, 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 Share Data)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
We are a REIT 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
Our 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 of Taking 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 balance of the year. 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)
Common and Preferred Equity Activity
Secondary Common Share Offerings
Since the IPO, we have 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, we 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 Gables securities.
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 Gables securities.
Issuances of Common Operating Partnership Units
Since the IPO, the Operating Partnership has 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, the Operating Partnership issued 2,000 of its 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. We have 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 Gables 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 we are currently authorized to purchase up to $150 million of our outstanding common shares or Units. We have 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. Units have also been repurchased for cash upon their presentation for redemption by unitholders. As of June 30, 2001, we had repurchased 3,980 common shares and 287 Units for a total of $102,048.
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, the only issuance under this shelf registration statement has been the issuance of $150 million of senior unsecured notes in February 2001.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)
Portfolio and Other Financing Activity
Community and Land Dispositions (exclusive of joint venture transactions)
In the second quarter of 2001, we sold an apartment community located in Atlanta comprising 386 apartment homes. The net proceeds from this sale totaled $34.0 million resulting in a gain of $7.4 million. Sales proceeds totaling $9.2 million were deposited into an escrow account to fund acquisition activities. The balance of the net proceeds was used to paydown borrowings under interim financing vehicles. 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 three and six months ended June 30, 2001, we recognized $0.3 million and $0.5 million, respectively, 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 was 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 our 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 (the "GRAP Two JV")
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 $2.8 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. As of June 30, 2001, we had funded $6.1 million of our budgeted $7.1 million equity commitment to the joint venture. 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 June 30, 2001, we had recognized $0.8 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)
Gables Residential Apartment Portfolio Joint Venture (the "GRAP JV")
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 June 30, 2001, we had funded our total equity commitment of $23.8 million to the joint venture. At June 30, 2001, construction was complete with respect to seven of the eight communities and five of the seven 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.
In April 2001, development and lease-up activities at one of the communities comprising 290 apartment homes was suspended due to water infiltration issues, and all residents were subsequently relocated. Consultants have been engaged to determine the cause of the water infiltration issues and recommend remedial actions. This process is in the evaluation phase, and no specific timeline can currently be determined for its completion. The potential cost impact for repairs, and any related charges, cannot be assessed until more information is available. It is anticipated that remedial recommendations will be received within the next 90 days.
Community Acquisitions
On August 1, 2001, we acquired the 75% interest of our venture partner in an apartment community located in Houston comprising 318 apartment homes for approximately $27 million.
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.
Other Acquisition
In May 2001, we acquired a property management company based in Washington, D.C. that manages approximately 3,600 units in 24 multifamily apartment communities located in the Washington, D.C. and surrounding area (the "D.C. Management Co."). The total investment is approximately $1.6 million and is structured to be paid in three installments based on results of the acquired business operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)
Results of Operations
Comparison of operating results for the three months ended June 30, 2001 (the "2001 Period") to the three months ended June 30, 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 June 30, 2001 and 2000 is summarized as follows:
Three Months Ended June 30, | ||||
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 | $53,470 1,067 852 2,892 421 $58,702 | $51,804 44 - - 5,764 $57,612 | $1,666 1,023 852 2,892 -5,343 $1,090 | 3.2% 2,325.0% -% -% -92.7% 1.9% |
Property operating and maintenance expenses |
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|
$17,724 | $16,912 | $ 812 | 4.8% | |
Revenues in excess of specified expenses | $39,694 | $38,845 | $ 849 | 2.2% |
Revenues in excess of specified expenses as a percentage |
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| (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 April 1, 2000. (5) Communities which were sold subsequent to April 1, 2000. | ||||
Total property revenues increased $1,090, or 1.9%, from $57,612 to $58,702 due primarily to 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"). This increase is offset by the sale of one apartment community during the 2001 Period and the sale of seven apartment communities in the second half of 2000. Following is additional data regarding the increases in total property revenues for three of the five community categories presented in the preceding table:
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)
Same store communities:
Market | Number of Communities | Number of Apartment Homes | % of 2001 Period NOI | Occupancy During the 2001 Period | Change in Occupancy | $ Change in Revenues | % Change in Revenues |
Atlanta | 18 | 5,363 6,298 4,197 1,959 1,517 1,243 20,577 | 26.9% 26.2% 22.0% 10.3% 9.9% 4.7% 100.0% | 93.3% 93.4% 94.5% 97.1% 92.9% 93.3% 94.0% | -1.6% -1.2% 0.2% 1.7% -3.8% 0.7% -0.9% | $ 313 284 533 315 96 -17 $1,524 | (a) | 2.4% |
(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 increased $142, or 24.1%, in the 2001 Period compared to the 2000 Period and occupancy was 100% for both periods. This increase in revenues is the result of an amendment to the master lease agreement which extended the term of the lease by five years to December 2007. | ||||||||
Communities stabilized during the 2001 Period, but not during the 2000 Period:
Market | Number of Communities | Number of Apartment Homes | % of Total Apartment Homes | Occupancy |
$ Change
in
Revenues
Orlando (a)
1
448
100.0%
100.0%
$1,023
Development and lease-up communities:
| Number of Communities | Number of Apartment Homes | % of Total Apartment Homes | Occupancy |
|
Orlando | 1 | 315 |
64.0%
36.0%
100.0%
22.8%
60.7%
40.9%
$284
568
$852
Property management revenues increased $196, or 15.3%, from $1,282 to $1,478 due primarily to the May 2001 acquisition of the D.C. Management Co. in addition to increased joint venture activity for which we serve as the property manager.
Development revenues, net decreased $427, or 51.4%, from $831 to $404 due primarily to a portion of our third-party projects nearing completion, coupled with fewer new project starts in the 2001 Period.
Equity in income (loss) of joint ventures decreased $126, or 100.8%, from $125 to $-1 due primarily to the March 2001 acquisition of the membership interests of our venture partner in two of the stabilized communities in the GRAP JV. This decrease is also impacted by the suspension of lease-up activities and the relocation of residents at one of the communities in the GRAP JV due to water infiltration issues and is offset in part by three joint venture communities reaching stabilization in the second half of 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)
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) | Total | Total | |
Gables' share of joint venture results: |
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|
Rental and other revenue | $1,260 | $ 291 | $1,551 | $1,336 |
(1) Communities which were owned and fully stabilized throughout the 2001 Period. | ||||
Other revenues increased $252, or 48.8%, from $516 to $768 due to income earned during the 2001 Period related to certain non-routine items.
Property operating and maintenance expense (exclusive of depreciation and amortization) increased $241, or 1.3%, from $18,767 to $19,008 due primarily to the increase in the number of apartment homes resulting from the development and acquisition of additional communities, as well as increased payroll, insurance and maintenance costs at our same store communities. This increase is offset in part by the sale of one apartment community during the 2001 Period and the sale of seven apartment communities in the second half of 2000.
Real estate depreciation and amortization expense increased $674, or 6.2%, from $10,947 to $11,621 due primarily to the impact of the development and acquisition of additional communities and capital improvements made to existing operating communities, offset by the sale of one apartment community during the 2001 Period and 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 $168, or 6.9%, from $2,436 to $2,604 due primarily to the May 2001 acquisition of the D.C. Management Co. 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 increased $263, or 2.3%, from $11,518 to $11,781 due primarily to an increase in operating debt associated with the development and acquisition of additional communities. This increase is offset in part by lower interest rates and the sale of one apartment community in the 2001 Period and seven apartment communities in 2000, the proceeds of which were partially used to reduce outstanding indebtedness.
Amortization of deferred financing costs increased $62, or 30.8%, from $201 to $263 due primarily to increased financing costs associated with the issuance of $150 million of senior unsecured notes in February 2001.
General and administrative expense decreased $46, or 2.7%, from $1,720 to $1,674 due primarily to a decrease in abandoned real estate pursuit costs.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)
Gain on sale of real estate assets of $7,966 in the 2001 period is comprised of (1) $7,386 related to the sale of an apartment community in Atlanta comprising 386 apartment homes, (2) recognition of $289 of deferred gain associated with the contribution of land into the GRAP Two JV in March 2001 and (3) recognition of $291 of deferred gain associated with a land sale in 2000.
Comparison of operating results for the six months ended June 30, 2001 (the "2001 Period") to the six months ended June 30, 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 six months ended June 30, 2001 and 2000 is summarized as follows:
Six Months Ended June 30, | ||||
| 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 |
| $103,436 - 44 - 11,473 $114,953 |
| 3.2% -% 6,886.4% -% -87.6% -0.1% |
Property operating and maintenance expenses | $35,075 - 504 1,113 387 $37,079 | | | |
Revenues in excess of specified expenses | $77,771 | $77,615 | $ 156 | 0.2% |
Revenues in excess of specified expenses as a |
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| (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 $103, or 0.1%, from $114,953 to $114,850 due primarily to the sale of one apartment community during the second quarter of 2001 and seven apartment communities in the second half of 2000. This decrease 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"). Following is additional data regarding the increases in total property revenues for two of the five community categories presented in the preceding table:
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)
Same store communities:
Market | Number of Communities | Number of Apartment Homes | % of 2001 Period NOI | Occupancy During the 2001 Period | Change in Occupancy | $ Change in Revenues | % Change in Revenues |
Atlanta | 18 | 5,363 6,298 4,197 1,517 1,959 1,243 20,577 | 26.9% 26.3% 22.1% 10.1% 9.9% 4.7% 100.0% | 93.8% 94.3% 95.0% 94.2% 96.5% 93.4% 94.5% | -0.6% -1.2% 0.0% -2.4% 1.6% -0.8% -0.6% | $ 857 311 1,055 563 456 - 103 $3,139 | (a) | 3.3% |
| (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 increased $139, or 11.8%, in the 2001 Period compared to the 2000 Period and occupancy was 100% for both periods. This increase in revenues is the result of an amendment to the master lease agreement which extended the term of the lease by five years to December 2007. | ||||||||
Development and lease-up communities:
Market | Number of Communities | Number of Apartment Homes | % of Total Apartment Homes | Occupancy |
|
Orlando (a) | 2 | 763 |
81.2%
18.8%
100.0%
50.6%
42.7%
48.0%
$2,193
837
$3,030
(a) One of these communities is leased to a single user group pursuant to a triple net master lease.
Property management revenues increased $427, or 17.1%, from $2,499 to $2,926 due primarily to the May 2001 acquisition of the D.C. Management Co. in addition to increased joint venture activity for which we serve as the property manager.
Development revenues, net decreased $1,116, or 73.1%, from $1,527 to $411 due primarily to a portion of our third party projects nearing completion, coupled with fewer new project starts in the 2001 Period. In addition, a $425 construction reserve was recorded in the first quarter of 2001 associated with planned remedial activities for water infiltration issues at a community owned by the GRAP JV for which we serve as the developer and general contractor.
Equity in income of joint ventures decreased $109, or 52.9%, from $206 to $97 due primarily to the March 2001 acquisition of the membership interests of our venture partner in two of the stabilized communities in the GRAP JV. This decrease is also impacted by the suspension of lease-up activities and the relocation of residents at one of the communities in the GRAP JV due to water infiltration issues and is offset in part by three joint venture communities reaching stabilization in the second half of 2000.
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:
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)
| Stabilized (1) | Development & Lease-up (2) | Sales (3) | Total | Total | ||
Gables' share of joint venture results: |
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| |
Rental and other revenue | $2,511 | $ 596 | $435 | $3,542 | $2,413 | |
(1) Communities which were owned and fully stabilized throughout the 2001 Period. | ||||||
Other revenues decreased $513, or 34.0%, from $1,508 to $995 due primarily to a gain on sale of cable equipment to a cable service provider in the 2000 Period which is offset in part due to income earned during the 2001 Period related to certain non-routine items.
Property operating and maintenance expense (exclusive of depreciation and amortization) decreased $259, or 0.7%, from $37,338 to $37,079 due primarily to the sale of one apartment community during the second quarter of 2001 and the sale of seven apartment communities in the second half of 2000. This decrease is offset in part by the increase in the number of apartment homes resulting from the development and acquisition of additional communities, as well as increased payroll, insurance, utilities, and maintenance costs at our same store communities.
Real estate depreciation and amortization expense increased $703, or 3.2%, from $21,792 to $22,495 due primarily to the impact of the development and acquisition of additional communities and capital improvements made to existing operating communities, offset by the sale of one apartment community during the second quarter of 2001 and 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 $250, or 5.1%, from $4,916 to $5,166 due primarily to the May 2001 acquisition of the D.C. Management Co. 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 $23, or 0.1%, from $22,553 to $22,530 due primarily to a decrease in interest rates and a decrease in outstanding indebtedness associated with the sale of one apartment community in the second quarter of 2001 and seven apartment communities in the second half of 2000. This decrease is offset in part due to an increase in operating debt associated with the development and acquisition of additional communities.
General and administrative expense decreased $332, or 8.5%, from $3,889 to $3,557 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 $9,604 in the 2001 period is comprised of (1) $7,386 related to the sale of an apartment community in Atlanta comprising 386 apartment homes, (2) $944 associated with the sale of 2.5 acres of land in Atlanta in the 2001 Period, (3) $747 associated with the contribution of land into the GRAP Two JV in the 2001 period and (4) recognition of $527 of deferred gain associated with a land sale in 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)
Liquidity and Capital Resources
We had $52.6 million of net cash provided by operating activities for the six months ended June 30, 2001 compared to $53.5 million for the six months ended June 30, 2000. The related decrease of $0.9 million was due to (1) a change in other assets between periods of $3.8 million, (2) a change in restricted cash between periods of $0.9 million and (3) a decrease of $0.5 million in income (a) before certain non-cash or non-operating items, including depreciation, amortization, equity in income of joint ventures, minority interest of unitholders in Operating Partnership, 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 a change in other liabilities between periods of $4.3 million.
We had $68.5 million of net cash used in investing activities for the six months ended June 30, 2001 compared to $42.5 million for the six months ended June 30, 2000. During the six months ended June 30, 2001, we expended $108.5 million related to development expenditures, $5.7 million related to recurring, non-revenue enhancing capital expenditures for operating apartment communities, $5.3 million related to non-recurring, renovation/revenue enhancing capital expenditures, $2.3 million related to our investment in joint ventures, and $3.1 million related to other investments. During the six months ended June 30, 2001, we received cash of (1) $18.4 million in connection with our contribution of interests in certain development communities to the GRAP Two JV and (2) $39.4 million in connection with the sale of one apartment community as well as the sale of a parcel of land adjacent to one of our development communities. In addition, during the six months ended June 30, 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 and we deposited $9.2 million of the cash received in connection with the sale of one apartment community into an escrow account to fund acquisition activities. During the six months ended June 30, 2000, we expended $32.3 million related to development expenditures, $5.2 million related to recurring, non-revenue enhancing capital expenditures for operating apartment communities, $3.1 million related to non-recurring, renovation/revenue enhancing capital expenditures, and $1.9 million related to our investment in joint ventures.
We had $16.9 million of net cash provided by financing activities for the six months ended June 30, 2001 compared to $0.5 million of net cash used in financing activities for the six months ended June 30, 2000. During the six months ended June 30, 2001, we had net borrowings of $52.4 million and proceeds from the exercise of share options of $7.6 million. These net borrowings and share option proceeds were offset by payments for dividends and distributions totaling $41.0 million and deferred financing costs of $1.8 million. During the six months ended June 30, 2000, we had payments for dividends and distributions totaling $39.6 million and payments for treasury share purchases and Unit redemptions in connection with our common equity repurchase program totaling $28.5 million. These payments were offset by net borrowings of $66.7 million and proceeds from the exercise of share options of $1.3 million.
We have 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 we maintain our qualification as a REIT, we 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 our 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 we directly or indirectly own stock and which has elected to be treated as a taxable REIT subsidiary. Effective January 1, 2001, we have met the requirements to treat all eligible investments as taxable REIT subsidiaries.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)
As of June 30, 2001, we had total indebtedness of $818,328, cash and cash equivalents of $5,218, and principal escrow deposits reflected in restricted cash of $3,724. Our indebtedness has an average of 4.8 years to maturity at June 30, 2001. The aggregate maturities of notes payable at June 30, 2001 are as follows:
2001 | $ 16,699 |
The maturities in 2001 include $15.0 million of unsecured senior notes which mature in October 2001. The maturities in 2002 include $82.4 million of unsecured notes which mature in December 2002. The indebtedness outstanding under each of our credit facilities is reflected in the preceding table using the May 2004 maturity date of our $225 million credit facility. We have an option to extend the maturity date of our $225 million credit facility to May 2005 which is exercisable in May 2002.
Dividends through the second quarter of 2001 have been paid from cash provided by operating activities. We anticipate that dividends 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 2004 with a one-year extension option. Borrowings under the facility currently bear interest at our option of LIBOR plus 0.85% 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 0.20% 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 $225 million at June 30, 2001. As of June 30, 2001, we had $45 million in borrowings outstanding under the facility and, therefore, had $180 million of remaining capacity on the $225 million available.
$75 Million Borrowing Facility
We have a $75 million unsecured borrowing facility with a bank that matures in April 2002. The interest rate and maturity date related to each draw on this facility is agreed to by both parties prior to each draw. At June 30, 2001, we had $11.9 million in borrowings outstanding under this facility.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Thousands, Except Property and Per Share Data)
$25 Million Credit Facility
We have a $25 million unsecured revolving credit facility with a bank that currently bears interest at LIBOR plus 0.85%. The facility currently has a maturity date of October 2001 with unlimited one-year extension options. We had $0.4 million in borrowings outstanding under this facility at June 30, 2001.
Restrictive Covenants
Certain of our debt agreements contain customary representations, covenants and events of default, including covenants which restrict the ability of the Operating Partnership to make distributions in excess of stated amounts, which in turn restricts our discretion to declare and pay dividends. In general, during any fiscal year the Operating Partnership may only distribute up to 95% of its 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 the Operating Partnership to make any distributions necessary to allow us to maintain our status as a REIT. We do not anticipate that this provision will adversely effect the ability of the Operating Partnership to make distributions or our 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) our 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Completed Communities in Lease-up and Development Communities at June 30, 2001
Percent at June 30, 2001 | Actual or Estimated Quarter of | |||||||||
| Community | No. of | Total | Complete | Leased | Occupied | Constr. Start | Initial | Constr. | Stab. | |
(millions) | (1) | |||||||||
| Wholly-Owned Development/Lease-up Communities: | |||||||||
| Atlanta, GA | |||||||||
| Gables Montclair | 183 | $ 24 | 43% | -- | -- | 3 Q 2000 | 4 Q 2001 | 1 Q 2002 | 3 Q 2002 |
| Gables Paces | 80 | 22 | 52% | -- | -- | 3 Q 2000 | 4 Q 2001 | 4 Q 2001 | 2 Q 2002 |
| Dallas, TX | |||||||||
| Gables State Thomas Townhomes | 177 | 37 | 100% | 88% | 85% | 4 Q 1999 | 3 Q 2000 | 2 Q 2001 | 4 Q 2001 |
| Houston, TX | |||||||||
| Gables Meyer Park II | 296 | 27 | 35% | -- | -- | 4 Q 2000 | 4 Q 2001 | 2 Q 2002 | 3 Q 2002 |
| Orlando, FL | |||||||||
| Gables North Village | 315 | 41 | 94% | 44% | 33% | 4 Q 1999 | 4 Q 2000 | 4 Q 2001 | 2 Q 2002 |
| Subtotals | 1,051 | $151 | |||||||
Co-Investment Development/Lease-up Communities (2), (3), (4): | |||||||||
| Atlanta, GA | |||||||||
| Gables Metropolitan II | 274 | $ 32 | 17% | -- | -- | 1 Q 2001 | 1 Q 2002 | 3 Q 2002 | 1 Q 2003 |
| Boca Raton, FL | |||||||||
| Gables Crestwood | 290 | 25 | 100% | 64% | 57% | 4 Q 1999 | 3 Q 2000 | 2 Q 2001 | 4 Q 2001 |
| Gables Grande Isle | 320 | 23 | 100% | 91% | 87% | 2 Q 1999 | 1 Q 2000 | 3 Q 2000 | 3 Q 2001 |
| Houston, TX | |||||||||
| Gables White Oak | 186 | 15 | 5% | -- | -- | 2 Q 2001 | 4 Q 2001 | 2 Q 2002 | 2 Q 2002 |
| Tampa, FL | |||||||||
| Gables West Park Village (5) | 320 | 35 | 52% | -- | -- | 4 Q 2000 | 3 Q 2001 | 3 Q 2002 | 4 Q 2002 |
| Subtotals Grand totals | 1,390 | $130 | (3) | ||||||
(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 GRAP JV or the GRAP Two JV, as applicable.
(3) Construction loan proceeds are expected to fund $70 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) This disclosure excludes the Gables State Thomas-Ravello community located in Dallas, Texas, comprising 290 apartment homes, owned by the GRAP JV. In April 2001, development and lease-up activities were suspended at the community due to water infiltration issues and all residents were subsequently relocated. Consultants have been engaged to determine the cause of the water infiltration issues and recommend remedial actions. This process is in the evaluation phase, and no specific timeline can currently be determined for its completion. Any potential cost impact for repairs and the timeframe for re-establishment of lease-up activities have not yet been determined.
(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 our 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS | ||||||
June 30, 2001 Scheduled Rent per | ||||||
| Community | Number | June 30, 2001 | Unit | Sq. Ft. | ||
Houston, TX | ||||||
| Baybrook Village 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 | 94% 98% 94% 91% 94% 96% 99% 98% 97% 97% 98% 98% 98% 93% 97% 93% 92% 99% 96% 97% 98% 95% | $ 614 899 782 704 834 936 993 993 859 759 960 930 952 1,005 1,035 1,064 1,014 745 730 661 1,099 882 | $0.77 0.92 0.91 0.92 0.92 1.06 1.17 1.23 0.97 0.90 1.12 1.02 0.96 1.09 1.01 1.04 0.97 1.00 0.87 0.76 1.20 0.98 | ||
| Atlanta, GA | ||||||
| Briarcliff Gables Buckhead Gables Dunwoody Gables Gables Cityscape Gables Metropolitan (JV) Gables Mill Gables Northcliff 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 | 104 162 311 182 435 438 82 315 310 140 268 380 312 603 290 384 284 252 546 5,798 | 89% | 1,196 | 0.96 | ||
| South FL | ||||||
| Cotton Bay 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 | 444 180 252 296 480 246 189 180 172 312 222 300 368 328 249 343 168 4,729 | 95% 94% 96% 95% 98% 88% 95% 93% 98% 94% 90% 97% 97% 96% 93% 91% 99% 95% | 753 924 966 961 820 1,700 1,591 1,315 890 887 1,037 811 776 826 1,488 1,459 847 1,026 | 0.77 | ||
| MANAGEMENT'S DISCUSSION AND ANALYSIS | ||||||
Stabilized Apartment Communities at June 30, 2001 (continued) | ||||||
June 30, 2001 Scheduled Rent per | ||||||
| Community | Number | June 30, 2001 | Unit | Sq. Ft. | ||
| Dallas, TX Arborstone 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 | 536 108 232 300 126 222 188 150 319 2,181 | 95% 100% 98% 98% 95% 97% 99% 98% 94% 97% | $ 586 1,379 1,405 866 1,234 962 1,045 1,214 990 969 | $0.82 1.27 1.34 0.91 1.35 1.07 0.99 1.21 0.97 1.04 | ||
| Austin, TX | ||||||
| Gables at the Terrace Gables Barton Creek Gables Bluffstone Gables Central Park Gables Great Hills Gables Park Mesa Gables Town Lake | 308 160 256 273 276 148 256 1,677 | 94% 94% 89% 95% 95% 96% 94% 94% | 1,199 1,561 1,236 1,304 919 1,229 1,328 1,233 | 1.26 1.34 1.26 1.39 1.11 1.13 1.42 1.28 | ||
| Memphis, TN | ||||||
| Arbors of Harbortown (JV) Gables Cordova Gables Stonebridge (JV) | 345 464 500 1,309 | 87% 92% 97% 93% | 863 689 689 735 | 0.87 0.74 0.78 0.79 | ||
| Nashville, TN | ||||||
| Brentwood Gables (JV) Gables Hendersonville (JV) Gables Hickory Hollow I Gables Hickory Hollow II | 254 364 272 276 1,166 | 96% 97% 96% 96% 96% | 885 664 665 665 713 | 0.78 0.70 0.73 0.71 0.73 | ||
| Orlando, FL | ||||||
| Gables Celebration Gables Chatham Square Commons at Lake Bryan I | 231 448 280 959 | 95% 100% 100% 99% | 1,184 -- -- 1,184 |
| 1.02 -- -- 1.02 |
|
| TOTALS | 24,817 | 95% | $ 924 | $0.94 | ||
| (a) This property is leased to a single user group pursuant to a triple net master lease. Accordingly, scheduled rent data is not reflected as it is not comparable to the rest of our portfolio. | ||||||
| Type of Indebtedness | Balance | Percentage of Total | Interest Rate (1) | Total Rate (2) | Years to Maturity |
| Fixed Rate: Unsecured fixed-rate notes Secured fixed-rate notes Tax-exempt fixed-rate loans Total fixed-rate indebtedness Variable Rate: Tax-exempt variable-rate loans Unsecured variable-rate credit facilities Total variable-rate indebtedness Total portfolio debt (3), (4) | $380,628 140,134 69,310 $590,072 $170,955 57,301 $228,256 $818,328 | 46.5% 17.1% 8.5% 72.1% 20.9% 7.0% 27.9% 100.0% | 7.43% 7.71% 6.24% 7.36% 2.73% 4.40% 3.15% 6.18% | 7.43% 7.71% 6.47% 7.38% 3.72% 4.40% 3.89% 6.41% | 3.75 7.36 6.30 4.91 5.09 2.87 4.53 4.80 |
(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 June 30, 2001 for purposes of interest capitalization were $100,674.
(4) Excludes (a) $16.4 million of tax-exempt bonds and $18.3 million of outstanding conventional indebtedness related to joint ventures in which
we own a 25% interest, (b) $89.9 million of construction loan indebtedness related to joint ventures 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 shareholders and 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:
|
| |||
| 2001 | 2000 | 2001 | 2000 | |
| Net income available to common shareholders Minority interest of common unitholders in Operating Partnership Gain on sale of previously depreciated operating real estate assets Real estate asset depreciation: Wholly-owned real estate assets Joint venture real estate assets Total depreciation | $ 15,006 | $ 8,882 | $23,803 6,402 -7,386 22,495 966 23,461 | $17,918 4,943 - 21,792 501 22,293 |
| Funds from operations - basic and diluted | $23,558 | $22,578 | $46,280 | $45,154 |
| Recurring, non-revenue enhancing capital expenditures: Carpet Roofing Exterior painting Appliances Other additions and improvements Total capital expenditures | 1,234 8 16 158 1,755 3,171 | 1,158 4 - 118 1,434 2,714 | 2,045 28 49 332 3,259 5,713 | 2,050 32 - 239 2,860 5,181 |
| Adjusted funds from operations - diluted | $20,387 | $19,864 | $40,567 | $39,973 |
Average shares and Units outstanding - basic | 30,051 | 30,617 | 29,956 | 30,889 |
| Average shares and Units outstanding - diluted | 30,212 | 30,679 | 30,113 | 30,930 |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our capital structure includes the use of a 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
| Item 1: | Legal Proceedings |
| None | |
| Item 2: | Changes in Securities |
| None | |
| Item 3: | Defaults Upon Senior Securities |
| None | |
| Item 4: | Submission of Matters to a Vote of Security Holders |
We held our annual meeting of shareholders on May 15, 2001. Our shareholders voted
to elect Marcus E. Bromley and James D. Motta to serve as Class I Trustees, and
C. Jordan Clark to serve as a Class III Trustee. The two Class I Trustees were elected
to serve until our 2004 annual meeting and until their successors are duly elected and
qualified. The Class III Trustee was elected to serve until our 2003 annual meeting and
until his successor is duly elected and qualified. The votes cast for, and withheld from,
the election of the aforementioned trustees are listed below:
Votes Cast For | Votes Withheld | |
| Marcus E. Bromley | 19,479,145 | 51,861 |
| James D. Motta | 19,464,165 | 66,841 |
| C. Jordan Clark | 17,657,156 | 1,873,850 |
Date:
Date:
