FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-12252
EQUITY RESIDENTIAL PROPERTIES TRUST
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(Exact Name of Registrant as Specified in Its Charter)
MARYLAND 13-3675988
- ------------------------------- ------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
TWO NORTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
- -------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(312) 474-1300
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE USERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
At November 6, 2000, 131,624,863 of the Registrant's Common Shares of Beneficial
Interest were outstanding.
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT FOR SHARE AMOUNTS)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------------- -----------------
ASSETS
Investment in real estate
Land $ 1,543,454 $ 1,550,378
Depreciable property 10,296,305 10,670,550
Construction in progress 30,093 18,035
------------------ ----------------
11,869,852 12,238,963
Accumulated depreciation (1,273,394) (1,070,487)
------------------ ----------------
Investment in real estate, net of accumulated depreciation 10,596,458 11,168,476
Real estate held for disposition 224,553 12,868
Cash and cash equivalents 56,242 29,117
Investment in mortgage notes, net 79,690 84,977
Investments in unconsolidated joint ventures 270,391 140,284
Rents receivable 1,611 1,731
Deposits - restricted 263,661 111,270
Escrow deposits - mortgage 73,186 75,328
Deferred financing costs, net 30,343 33,968
Rental furniture, net 59,069 -
Property and equipment, net 7,664 -
Goodwill and other intangibles, net 70,844 -
Other assets 87,150 57,670
------------------ ----------------
TOTAL ASSETS $ 11,820,862 $ 11,715,689
================== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable, net $ 3,017,449 $ 2,883,583
Notes, net 2,121,118 2,290,285
Lines of credit 33,631 300,000
Accounts payable and accrued expenses 149,892 102,955
Accrued interest payable 69,995 44,257
Rents received in advance and other liabilities 77,126 74,196
Security deposits 40,946 39,687
Distributions payable 138,821 18,813
------------------ ----------------
TOTAL LIABILITIES 5,648,978 5,753,776
------------------ ----------------
COMMITMENTS AND CONTINGENCIES
Minority Interests:
Operating Partnership 589,620 456,979
Partially Owned Properties 2,903 -
------------------ ----------------
Total Minority Interests 592,523 456,979
------------------ ----------------
Shareholders' equity:
Preferred Shares of beneficial interest, $.01 par value;
100,000,000 shares authorized; 20,276,064 shares issued and
outstanding as of September 30, 2000 and 25,085,652 shares
issued and outstanding as of December 31, 1999 1,189,959 1,310,266
Common Shares of beneficial interest, $.01 par value;
350,000,000 shares authorized; 131,575,197 shares
issued and outstanding as of September 30, 2000 and
127,450,798 shares issued and outstanding as of
December 31, 1999 1,316 1,275
Paid in capital 4,593,594 4,523,919
Employee notes (4,416) (4,670)
Distributions in excess of accumulated earnings (201,092) (325,856)
------------------ ----------------
TOTAL SHAREHOLDERS' EQUITY 5,579,361 5,504,934
------------------ ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 11,820,862 $ 11,715,689
================== ================
See Accompanying notes
2
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
NINE MONTHS ENDED QUARTER ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ----------------------------
2000 1999 2000 1999
------------------------------- ------------------------------
REVENUES
Rental income $ 1,454,958 $ 1,243,958 $ 502,218 $ 424,780
Fee and asset management 4,711 3,432 1,876 1,018
Interest income - investment in mortgage notes 8,282 8,502 2,783 2,858
Income from investments in unconsolidated joint ventures 14,589 7,042 5,525 2,691
Interest and other income 19,009 10,613 10,624 3,841
Furniture income 14,228 - 14,228 -
------------- -------------- ------------- ------------
Total revenues 1,515,777 1,273,547 537,254 435,188
------------- -------------- ------------- ------------
EXPENSES
Property and maintenance 368,291 300,798 140,446 103,933
Real estate taxes and insurance 141,830 126,304 46,829 41,789
Property management 56,204 42,817 18,444 14,844
Fee and asset management 3,647 2,301 1,545 677
Depreciation 335,844 297,505 111,332 100,371
Interest:
Expense incurred 285,337 241,516 95,074 83,017
Amortization of deferred financing costs 4,063 2,773 1,360 1,112
General and administrative 19,439 15,736 6,223 5,022
Furniture operating costs 9,505 - 9,505 -
Amortization of goodwill and other intangibles 767 - 767 -
------------- -------------- ------------- ------------
Total expenses 1,224,927 1,029,750 431,525 350,765
------------- -------------- ------------- ------------
Income before gain on disposition of properties, net,
extraordinary item, allocation to Minority Interests,
and provision for income taxes 290,850 243,797 105,729 84,423
Gain on disposition of properties, net 205,121 64,315 117,469 18,508
Loss on early extinguishment of debt - (451) - -
Allocation to Minority Interests:
Operating Partnership (35,825) (21,554) (16,693) (7,040)
Partially Owned Properties 145 - (12) -
Provision for income taxes (518) - (518) -
------------- -------------- ------------- ------------
Net income 459,773 286,107 205,975 95,891
Preferred distributions (83,597) (85,118) (27,943) (28,007)
------------- -------------- ------------- ------------
Net income available to Common Shares $ 376,176 $ 200,989 $ 178,032 $ 67,884
============= ============== ============= ============
Net income per share - basic $ 2.91 $ 1.67 $ 1.35 $ 0.56
============= ============== ============= ============
Net income per share - diluted $ 2.88 $ 1.66 $ 1.33 $ 0.55
============= ============== ============= ============
Weighted average Common Shares outstanding - basic 129,435 120,621 131,412 122,312
============= ============= ============= ============
Distributions declared per Common Share outstanding $ 2.335 $ 2.180 $ 0.815 0.760
============= ============= ============= ============
SEE ACCOMPANYING NOTES
3
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
2000 1999
------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 459,773 $ 286,107
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Allocation to Minority Interests - Operating Partnership 35,825 21,554
Allocation to Minority Interests - Partially Owned Properties (145) -
Depreciation 335,844 297,505
Amortization of deferred financing costs 4,063 2,773
Amortization of goodwill and other intangibles 767 -
Amortization of discounts and premiums on debt (1,725) (1,746)
Amortization of deferred settlements on interest rate protection agreements 290 768
Equity from earnings of investments in unconsolidated joint ventures (459) (3,092)
Gain on disposition of properties, net (205,121) (64,315)
Compensation paid with Company Common Shares 4,300 -
Provision for income taxes 518 -
Book value of furniture sales and rental buyouts 4,802 -
CHANGES IN ASSETS AND LIABILITIES:
Decrease in rents receivable 44 2,480
Decrease (increase) in deposits - restricted 3,660 (4,344)
(Increase) decrease in other assets (7,285) 41,030
Increase in accounts payable and accrued expenses 39,186 32,010
Increase in accrued interest payable 22,612 16,439
(Decrease) increase in rents received in advance and other liabilities (10,273) 7,727
Increase (decrease) in security deposits 14 (1,735)
------------- ------------
Net cash provided by operating activities 686,690 633,161
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CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate, net (238,218) (469,585)
Improvements to real estate (100,347) (93,456)
Additions to non-real estate property (3,919) (5,922)
Additions to rental furniture (7,477) -
Investment in property and equipment (416) -
Interest capitalized for real estate under construction (827) (1,157)
Proceeds from disposition of real estate, net 416,603 197,125
Principal receipts on investment in mortgage notes 5,287 2,746
Investment in unconsolidated joint ventures, net (119,893) (77,641)
Proceeds from disposition of unconsolidated joint ventures, net 4,602 54,060
(Increase) in deposits on real estate acquisitions, net (154,711) (55,201)
Decrease (increase) in mortgage deposits 2,283 (4,750)
Decrease in mortgage receivables - 7,150
Purchase of management contract rights (779) (285)
Business combinations, net of cash acquired (61,754) -
Merger costs paid after initial business combinations (9,474) (4,598)
Other investing activities, net (2,950) (15,075)
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Net cash (used for) investing activities (271,990) (466,589)
------------- ------------
SEE ACCOMPANYING NOTES
4
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
2000 1999
------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan and bond acquisition costs $ (2,392) $ (8,423)
MORTGAGE NOTES PAYABLE:
Proceeds, net 389,051 188,569
Lump sum payoffs (119,412) (54,231)
Scheduled principal payments (19,930) (13,041)
NOTES, NET:
Proceeds - 298,014
Payoffs (208,000) (125,000)
LINES OF CREDIT:
Proceeds 209,305 959,000
Repayments (505,179) (1,159,000)
Proceeds from settlement of interest rate protection agreements 7,055 -
Proceeds from sale of Common Shares 5,901 7,099
Proceeds from sale of Preferred Shares/Units, net 133,575 39,000
Proceeds from exercise of options 18,964 27,542
Payment of offering costs (212) (426)
DISTRIBUTIONS:
Common Shares (197,113) (171,488)
Preferred Shares/Units (80,412) (84,979)
Minority Interests - Operating Partnership (18,923) (18,443)
Minority Interests - Partially Owned Properties (617) -
Principal receipts on employee notes, net 254 144
Principal receipts on other notes receivable, net 510 7,931
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Net cash (used for) financing activities (387,575) (107,732)
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Net increase in cash and cash equivalents 27,125 58,840
Cash and cash equivalents, beginning of period 29,117 3,965
------------- -----------
Cash and cash equivalents, end of period $ 56,242 $ 62,805
============= ===========
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $ 264,582 $ 226,234
============= ===========
Mortgage loans assumed and/or entered into through acquisitions of real estate $ 38,442 $ 69,885
============= ===========
Net real estate contributed in exchange for OP Units or Preference Units $ 4,707 $ 28,232
============= ===========
Mortgage loans assumed by purchaser in real estate dispositions $ (220,000) $ -
============= ===========
Transfers to real estate held for disposition $ 224,553 $ 13,457
============= ===========
Refinancing of mortgage notes payable in favor of notes, net $ - $ 75,790
============= ===========
Mortgage loans assumed through consolidation of Partially Owned Properties $ 65,095 $ -
============= ===========
Net liabilities assumed through consolidation of Partially Owned Properties $ 792 $ -
============= ===========
SEE ACCOMPANYING NOTES
5
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DEFINITION OF SPECIAL TERMS:
Capitalized terms used but not defined in this Quarterly Report on Form
10-Q are as defined in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 ("Form 10-K").
1. BUSINESS
Equity Residential Properties Trust, formed in March 1993 ("EQR"), is a
self-administered and self-managed equity real estate investment trust ("REIT").
As used herein, the term "Company" means EQR, and its subsidiaries, as the
survivor of the mergers between EQR and each of Wellsford Residential Property
Trust ("Wellsford") (the "Wellsford Merger"), Evans Withycombe Residential, Inc.
("EWR") (the "EWR Merger"), Merry Land & Investment Company, Inc. ("MRY") (the
"MRY Merger"), and Lexford Residential Trust ("LFT") ("the LFT Merger"). The
term "Company" also includes Globe Business Resources, Inc. ("Globe") (the
"Globe Merger") and Temporary Quarters, Inc. ("TQ") (the "TQ Merger"). The
Company has elected to be taxed as a REIT under Section 856(c) of the Internal
Revenue Code of 1986, as amended (the "Code").
The Company is engaged in the acquisition, disposition, ownership,
management and operation of multifamily properties. As of September 30, 2000,
the Company owned or had interests in a portfolio of 1,056 multifamily
properties containing 222,699 apartment units (individually a "Property" and
collectively the "Properties") consisting of the following:
NUMBER OF NUMBER OF
PROPERTIES UNITS
- ----------------------------------------------------------------------------
Wholly Owned Properties 953 204,610
Partially Owned Properties 14 2,995
Unconsolidated Properties 89 15,094
------------------------------------------
Total Properties 1,056 222,699
==========================================
The "Partially Owned Properties" are controlled and partially owned by
the Company but have partners with minority interests (see further discussion in
Notes 4 and 5). The "Unconsolidated Properties" are partially owned but not
controlled by the Company and consist of investments in partnership interests
and/or subordinated mortgages that are accounted for under the equity method of
accounting. The Properties are located in 35 states throughout the United
States.
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statements of Financial Accounting Standards No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("Statement No. 133"). Statement
No. 133 requires recording all derivative instruments as assets or
liabilities, measured at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the
hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized
in earnings. The ineffective portion of a derivative's change in fair value
will be immediately recognized in earnings. The standard's effective date was
deferred by FASB Statement No. 137 to all fiscal quarters of all fiscal years
beginning after June 15, 2000. The Company will adopt the standard effective
January 1, 2001, and does not anticipate that the adoption will have a
material impact on the Company's financial condition and results of
operations.
2. BASIS OF PRESENTATION
The balance sheet and statements of operations and cash flows as of and
for the nine months and quarter ended September 30, 2000 represent the
consolidated financial information of the Company and its subsidiaries.
Due to the Company's ability as general partner to control either
through ownership or by contract the Operating Partnership, a series of
management limited partnerships and companies (collectively, the "Management
Partnerships" or the "Management Companies"), the Financing Partnerships, the
LLC's, Globe and certain other entities. Each such entity has been consolidated
with the Company for financial reporting purposes. In regard to the Management
Companies, the Company does not have legal control; however, these entities are
consolidated for financial reporting purposes, the effects of which are
immaterial. Certain reclassifications have been made to the prior year's
financial statements in order to conform to the current year presentation.
6
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
These unaudited Consolidated Financial Statements of the Company have
been prepared pursuant to the Securities and Exchange Commission ("SEC") rules
and regulations and should be read in conjunction with the Financial Statements
and Notes thereto included in the Company's Annual Report on Form 10-K. The
following Notes to Consolidated Financial Statements highlight significant
changes to the notes included in the Form 10-K and present interim disclosures
as required by the SEC. The accompanying Consolidated Financial Statements
reflect, in the opinion of management, all adjustments necessary for a fair
presentation of the interim financial statements. All such adjustments are of a
normal and recurring nature.
3. BUSINESS COMBINATIONS
On July 11, 2000, the Company acquired Globe in an all cash and debt
transaction. Globe provides fully furnished short-term housing through an
inventory of leased housing units to transferring or temporarily assigned
corporate personnel, new hires, trainees, consultants and individual customers
throughout the United States. Additionally, Globe rents and sells furniture to a
diversified base of commercial and residential customers throughout the United
States. Shareholders of Globe received $13.00 per share, which approximated
$58.7 million in cash based on the 4.5 million Globe shares outstanding. In
addition, the Company:
- Acquired $94.8 million in other Globe assets and assumed $29.2
million in other Globe liabilities.
- Allocated $68.0 million to goodwill and $0.4 million to other
intangible assets, representing the estimated fair value of
existing covenants not to compete at the merger date;
- Recorded merger costs of $4.5 million; and
- Assumed $70.8 million in debt, which included $1.4 million in
mortgage debt, $39.9 million in unsecured notes, and Globe's line
of credit totaling $29.5 million;
On July 21, 2000, the Company, through its Globe subsidiary, acquired
TQ, the leading corporate housing provider in Atlanta, Georgia, in a $3.3
million all cash transaction.
The Company accounted for both the Globe Merger and the TQ Merger as
purchases in accordance with Accounting Principals Board Opinion No. 16.
Significant accounting policies relating to corporate housing and furniture
rental/sales are as follows:
RENTAL FURNITURE
Rental furniture is stated at cost and depreciated on a straight-line
basis at a rate of 1% per month, which is designed to approximate an estimated
useful life of four years with provision for a 50% residual value.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation expense is
provided on a straight-line basis over estimated useful lives of three to ten
years.
GOODWILL AND OTHER INTANGIBLES
Goodwill is amortized on a straight-line basis over a period of 20
years. Other intangibles are amortized on a straight-line basis over periods
ranging from 3 to 5 years. The Company periodically reviews goodwill and other
intangibles for impairment. If a permanent decline in value has occurred, such
impairment would be calculated based on discounted cash flows. Accumulated
amortization of
7
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
goodwill and other intangibles was $0.8 million at September 30, 2000.
REVENUE RECOGNITION
Leased housing unit rentals vary in terms from a few days to several
months. Leases of furniture generally have an initial term of three to six
months in duration and can be extended by the customer on a month-to-month
basis. Leased housing unit rentals and furniture rentals are accounted for as
operating leases, and revenue is recorded in the month earned. For sales of
furniture, as well as rental buyouts, revenue and related cost of sales are
recorded when the furniture is delivered or taken off lease. Revenues from both
furniture rentals and sales are included in furniture income while the
associated costs of those rentals and sales are included in furniture operating
costs in the consolidated statements of operations.
INCOME TAXES
In accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", deferred taxes are provided for all differences
between the financial statement basis and the tax basis of assets and
liabilities using the enacted tax rate. A valuation allowance is provided for
deferred tax assets, which are more likely than not unrealizable.
4. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS
The following table presents the changes in the Company's issued and
outstanding Common Shares for the nine months ended September 30, 2000:
- ---------------------------------------------------------------------------
2000
- ---------------------------------------------------------------------------
Common Shares outstanding at January 1, 127,450,798
COMMON SHARES ISSUED:
Conversion of Series E Preferred Shares 69,011
Conversion of Series G Preferred Shares 1,280
Conversion of Series H Preferred Shares 62,278
Conversion of Series J Preferred Shares 2,822,012
Employee Share Purchase Plan 130,305
Dividend Reinvestment - DRIP Plan 18,099
Share Purchase - DRIP Plan 10,358
Exercise of options 497,681
Restricted share grants, net 232,161
Conversion of OP Units 281,214
- ---------------------------------------------------------------------------
Common Shares outstanding at September 30, 131,575,197
===========
- ---------------------------------------------------------------------------
The equity positions of various individuals and entities that
contributed their properties to the Operating Partnership in exchange for a
partnership interest are collectively referred to as the "Minority Interests -
Operating Partnership". As of September 30, 2000, the Minority Interests -
Operating Partnership held 12,302,698 OP Units. As a result, the Minority
Interests - Operating Partnership had an 8.55% interest in the Operating
Partnership at September 30, 2000. Assuming conversion of all OP Units into
Common Shares, total Common Shares outstanding at September 30, 2000 would have
been 143,877,895.
Net proceeds from the Company's Common Share and Preferred Share
offerings are contributed by the Company to the Operating Partnership in return
for an increased ownership percentage and are
8
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
treated as capital transactions in the Company's Consolidated Financial
Statements. As a result, the net offering proceeds from Common Shares are
allocated between shareholders' equity and Minority Interests - Operating
Partnership to account for the change in their respective percentage ownership
of the underlying equity of the Operating Partnership.
The Guilford portfolio properties (see further discussion in Note 5)
are controlled and partially owned by the Company but have partners with
minority interests. Effective January 1, 2000, the Company has included 100% of
the assets, liabilities, revenues and expenses of these Partially Owned
Properties in the Consolidated Financial Statements due to an increased
ownership interest in these properties. The equity interests of the unaffiliated
partners are reflected as Minority Interests -- Partially Owned Properties.
On March 3, 2000, Lexford Properties, L.P., a subsidiary of the
Operating Partnership, issued 1.1 million units of 8.50% Series B Cumulative
Convertible Redeemable Preference Units (collectively known as "Preference
Interests") with an equity value of $55.0 million. Lexford Properties, L.P.
received $53.6 million in net proceeds from this transaction. The liquidation
value of these units is $50 per unit. The 1.1 million units are exchangeable
into 1.1 million shares of 8.50% Series M-1 Cumulative Redeemable Preferred
Shares of Beneficial Interest of the Company. Dividends for the Series B
Preference Interests or the Series M-1 Preferred Shares are payable quarterly at
the rate of $4.25 per unit/share per year.
On March 23, 2000, Lexford Properties, L.P., a subsidiary of the
Operating Partnership, issued 220,000 units of 8.50% Series C Cumulative
Convertible Redeemable Preference Units with an equity value of $11.0 million.
Lexford Properties, L.P. received $10.7 million in net proceeds from this
transaction. The liquidation value of these units is $50 per unit. The 220,000
units are exchangeable into 220,000 shares of 8.50% Series M-1 Cumulative
Redeemable Preferred Shares of Beneficial Interest of the Company. Dividends for
the Series C Preference Interests or the Series M-1 Preferred Shares are payable
quarterly at the rate of $4.25 per unit/share per year.
On May 1, 2000, Lexford Properties, L.P., a subsidiary of the Operating
Partnership, issued 420,000 units of 8.375% Series D Cumulative Convertible
Redeemable Preference Units with an equity value of $21.0 million. Lexford
Properties, L.P. received $20.5 million in net proceeds from this transaction.
The liquidation value of these units is $50 per unit. The 420,000 units are
exchangeable into 420,000 shares of 8.375% Series M-2 Cumulative Redeemable
Preferred Shares of Beneficial Interest of the Company. Dividends for the Series
D Preference Interests or the Series M-2 Preferred Shares are payable quarterly
at the rate of $4.1875 per unit/share per year.
On August 11, 2000, Lexford Properties, L.P., a subsidiary of the
Operating Partnership, issued 1,000,000 units of 8.50% Series E Cumulative
Convertible Redeemable Preference Units with an equity value of $50.0 million.
Lexford Properties, L.P. received $48.8 million in net proceeds from this
transaction. The liquidation value of these units is $50 per unit. The 1,000,000
units are exchangeable into 1,000,000 shares of 8.50% Series M-3 Cumulative
Redeemable Preferred Shares of Beneficial Interest of the Company. Dividends for
the Series E Preference Interests or the Series M-3 Preferred Shares are payable
quarterly at the rate of $4.25 per unit/share per year.
The value of these Preference Interests are included in Minority
Interests - Operating Partnership in the Consolidated Balance Sheets and the
distributions incurred are included in preferred distributions in the
Consolidated Statements of Operations. The Series M-1, M-2 and M-3 Preferred
Shares are not convertible into EQR Common Shares.
The following table presents the Company's issued and outstanding
Preferred Shares as of September 30, 2000 and December 31, 1999:
9
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
AMOUNTS IN THOUSANDS
--------------------------------
ANNUAL DIVIDEND SEPTEMBER DECEMBER
RATE PER SHARE (1) 30, 2000 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------
Preferred Shares of beneficial interest, $.01 par value;
100,000,000 shares authorized:
9 3/8% Series A Cumulative Redeemable Preferred; liquidation $2.34375 $153,000 $153,000
value $25 per share; 6,120,000 shares issued and outstanding
at September 30, 2000 and December 31, 1999
9 1/8% Series B Cumulative Redeemable Preferred; liquidation $22.81252 125,000 125,000
value $250 per share; 500,000 shares issued and outstanding
at September 30, 2000 and December 31, 1999
9 1/8% Series C Cumulative Redeemable Preferred; liquidation $22.81252 115,000 115,000
value $250 per share; 460,000 shares issued and outstanding
at September 30, 2000 and December 31, 1999
8.60% Series D Cumulative Redeemable Preferred; liquidation $21.50000 175,000 175,000
value $250 per share; 700,000 shares issued and outstanding
at September 30, 2000 and December 31, 1999
Series E Cumulative Convertible Preferred; liquidation value $1.75000 96,748 99,850
$25 per share; 3,869,940 and 3,994,000 shares issued and
outstanding at September 30, 2000 and December 31, 1999,
respectively
9.65% Series F Cumulative Redeemable Preferred; liquidation $2.41250 57,500 57,500
value $25 per share; 2,300,000 shares issued and outstanding
at September 30, 2000 and December 31, 1999
7 1/4% Series G Convertible Cumulative Preferred; liquidation $18.12500 316,175 316,250
value $250 per share; 1,264,700 and 1,265,000 shares issued
and outstanding at September 30, 2000 and December 31, 1999,
respectively
7.00% Series H Cumulative Convertible Preferred; liquidation $1.75000 1,536 3,686
value $25 per share; 61,424 and 147,452 shares issued and
outstanding at September 30, 2000 and December 31, 1999,
respectively
8.60% Series J Cumulative Convertible Preferred; liquidation $2.15000 - 114,980
value $25 per share; 0 and 4,599,200 shares issued and
outstanding at September 30, 2000 and December 31, 1999,
respectively (2)
8.29% Series K Cumulative Redeemable Preferred; liquidation $4.14500 50,000 50,000
value $50 per share; 1,000,000 shares issued and outstanding
at September 30, 2000 and December 31, 1999
7.625% Series L Cumulative Redeemable Preferred; liquidation $1.90625 100,000 100,000
value $25 per share; 4,000,000 shares issued and outstanding
at September 30, 2000 and December 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------
$1,189,959 $1,310,266
- ------------------------------------------------------------------------------------------------------------------------------
(1) Dividends on all series of Preferred Shares are payable quarterly
at various pay dates. Dividend rates listed for Series B, C, D
and G are Preferred Share rates and the equivalent Depositary
Share annual dividend rates are $2.281252, $2.281252, $2.15 and
$1.8125, respectively.
(2) On June 2, 2000, the Company redeemed all of its remaining issued
and outstanding Series J Cumulative Convertible Preferred Shares
of Beneficial Interest. The preferred shares were redeemed for
such number of common shares that were issuable at a conversion
rate of 0.6136 of a common share of EQR for each Series J
Preferred Share.
10
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. REAL ESTATE ACQUISITIONS
During the nine months ended September 30, 2000, the Company acquired
the eighteen Properties listed below from unaffiliated parties. In connection
with certain of the acquisitions listed below, the Company assumed and/or
entered into new mortgage indebtedness of approximately $38.4 million and issued
OP Units having a value of approximately $4.1 million. The cash portion of these
transactions was funded from proceeds received from the disposition of
properties and working capital.
- --------------------------------------------------------------------------------------------------------------------
PURCHASE
DATE NUMBER PRICE
ACQUIRED PROPERTY LOCATION OF UNITS (IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------------
01/19/00 Windmont Atlanta, GA 178 $ 10,310
04/05/00 Alborada Fremont, CA 442 83,500
06/30/00 Jefferson at Wyndham Lakes Coral Springs, FL 332 33,340
07/12/00 Ambergate West Palm Beach, FL 72 2,362
07/12/00 Greengate West Palm Beach, FL 120 4,019
07/12/00 Jupiter Cove II Juno Beach, FL 61 1,663
07/12/00 Oakland Hills Margate, FL 189 7,800
07/12/00 Summit Center West Palm Beach, FL 87 2,347
07/12/00 Whispering Pines Fort Pierce, FL 64 978
07/25/00 Harbour Town Boca Raton, FL 392 31,940
09/13/00 Madison at Wells Branch Austin, TX 300 18,750
09/13/00 Madison at Scofield Farms Austin, TX 260 16,510
09/14/00 Westside Villas I-V Los Angeles, CA 176 42,000
09/27/00 Millburn Court I Dayton, OH 65 1,500
- --------------------------------------------------------------------------------------------------------------------
2,738 $ 257,019
- --------------------------------------------------------------------------------------------------------------------
On January 19, 2000, the Company paid $1.25 million to acquire an
additional ownership interest in LFT's Guilford portfolio (14 properties
containing 2,995 units located in four states). The transaction was effective on
January 1, 2000. Prior to January 1, 2000, the Company accounted for this
portfolio under the equity method of accounting. As a result of this additional
ownership acquisition, the Company acquired a controlling interest, and as such,
now consolidates these properties for financial reporting purposes. The Company
recorded additional investments in real estate totaling $69.4 million in
connection with this transaction.
On August 7, 2000, the Company funded approximately $30.9 million
for an ownership interest in Laguna Clara Apartments, a 264-unit property
located in Santa Clara, California. As the Company cannot exercise unilateral
control over major decisions, this property has been classified as an
investment in unconsolidated joint venture and accounted for under the equity
method.
6. REAL ESTATE DISPOSITIONS
During the nine months ended September 30, 2000, the Company disposed
of the twenty-seven properties listed below to unaffiliated parties. The Company
recognized a net gain for financial reporting purposes of approximately $155.8
million.
11
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------
DISPOSITION
DATE NUMBER PRICE
DISPOSED PROPERTY LOCATION OF UNITS (IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------------
02/04/00 Lakeridge at the Moors Miami, FL 175 $ 10,000
02/09/00 Sonnet Cove I & II Lexington, KY 331 12,300
02/25/00 Yuma Court Colorado Springs, CO 40 2,350
02/25/00 Indigo Plantation Daytona Beach, FL 304 14,200
02/25/00 The Oaks of Lakebridge Ormond Beach, FL 170 7,800
03/23/00 Tanglewood Lake Oswego, OR 158 10,750
03/30/00 Preston Lake Tucker, GA 320 17,325
03/31/00 Cypress Cove Melbourne, FL 326 18,800
04/20/00 Village of Sycamore Ridge Memphis, TN 114 5,200
04/28/00 Towne Centre III & IV Laurel, MD 562 29,244
05/11/00 3000 Grand Des Moines, IA 186 9,625
06/14/00 Villa Madeira Scottsdale, AZ 332 17,500
07/06/00 Idlewood Indianapolis, IN 320 15,600
07/25/00 Sabal Palm Pompano Beach, FL 416 27,200
07/27/00 Lake in the Woods Ypsilanti, MI 1,028 57,000
07/28/00 Windmill Colorado Springs, CO 304 12,358
07/28/00 Cheyenne Crest Colorado Springs, CO 208 12,286
07/28/00 Lamplight Court London, OH 53 738
08/24/00 Huntington Hollow Tulsa, OK 288 7,100
08/24/00 Hunter Glen Springfield, IL 64 1,750
08/29/00 Glenridge Colorado Springs, CO 220 13,127
09/18/00 Greenwich Woods/Hollyview Silver Springs, MD 606 37,500
09/26/00 The Hollows Columbia, SC 212 8,000
09/26/00 Tamarind at Stoneridge Columbia, SC 240 8,030
- ---------------------------------------------------------------------------------------------------------------------
6,977 $355,783
- ---------------------------------------------------------------------------------------------------------------------
On June 30, 2000, the Company entered into two separate joint ventures
with an unaffiliated party. At closing, the Company sold and/or contributed
twenty-one wholly owned properties containing 5,211 units valued at $303.4
million to the joint ventures encumbered with $220.0 million in mortgage loans
obtained on June 26, 2000 (see further discussion in Note 9). The unaffiliated
party acquired a 75% interest in the joint ventures while the Company retained a
25% interest along with the right to manage the properties. The Company has
classified its 25% interest in the joint ventures as investments in
unconsolidated joint ventures and accounted for them under the equity method of
accounting. The Company recognized a net gain for financial reporting purposes
of approximately $49.3 million.
In addition, during the nine months ended September 30, 2000, the
Company sold its entire interest in three Unconsolidated Properties containing
377 units for approximately $4.6 million.
7. COMMITMENTS TO ACQUIRE/DISPOSE OF REAL ESTATE
As of September 30, 2000, in addition to the Properties that were
subsequently acquired as discussed in Note 15 of the Notes to Consolidated
Financial Statements, the Company entered into separate agreements to acquire
eight multifamily properties containing 1,698 units from unaffiliated
parties. The Company expects a combined purchase price of approximately
$283.5 million, including the assumption of mortgage indebtedness of
approximately $24.7 million.
As of September 30, 2000, in addition to the Properties that were
subsequently disposed of as discussed in Note 15 of the Notes to Consolidated
Financial Statements, the Company entered into separate
12
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
agreements to dispose of seven multifamily properties containing 1,117 units
to unaffiliated parties. The Company expects a combined disposition price of
approximately $53.3 million.
The closings of these pending transactions are subject to certain
contingencies and conditions; therefore, there can be no assurance that these
transactions will be consummated or that the final terms thereof will not differ
in material respects from those summarized in the preceding paragraphs.
8. DEPOSITS - RESTRICTED
Deposits-restricted as of September 30, 2000 included the following:
- deposits in the amount of $29.5 million held in third party
escrow accounts to provide collateral for third party
construction financing in connection with two separate joint
venture agreements;
- approximately $195.3 million held in third party escrow
accounts, representing proceeds received in connection with
the Company's disposition of twenty-two properties and
earnest money deposits made for eight additional
acquisitions;
- approximately $33.4 million for tenant security, utility
deposits, and other deposits for certain of the Company's
Properties; and
- approximately $5.5 million of other deposits.
9. MORTGAGE NOTES PAYABLE
As of September 30, 2000, the Company had outstanding mortgage
indebtedness of approximately $3.0 billion encumbering 510 of the Properties and
one warehouse acquired in the Globe Merger. The carrying value of such
Properties (net of accumulated depreciation of $555.0 million) was approximately
$4.8 billion. The mortgage note payables are generally due in monthly
installments of principal and interest.
During the nine months ended September 30, 2000 the Company:
- recorded additional third-party mortgage debt totaling $65.1
million in connection with the consolidation of the Guilford
portfolio on January 1, 2000 (see Note 5);
- repaid the outstanding mortgage balances on sixty-one
Properties in the aggregate amount of $119.4 million;
- obtained new mortgage financing on eleven previously
unencumbered properties in the amount of $148.3 million on
March 20, 2000;
- settled on a $100 million forward starting swap and received
$7.1 million. This amount is being amortized over the life
of the financing for the eleven previously unencumbered
Properties that occurred on March 20, 2000;
- obtained new mortgage financings on twenty-one previously
unencumbered properties in the amount of $220 million on
June 26, 2000. These mortgage loans were assumed by the
joint ventures that closed on June 30, 2000 (see Note 6);
- assumed mortgage debt on six properties in the amount of
$38.4 million in connection with their acquisitions; and
- obtained approximately $88.3 million in construction loan
commitments on two properties, of which $20.7 million was
currently outstanding.
As of September 30, 2000, scheduled maturities for the Company's
outstanding mortgage indebtedness are at various dates through October 1, 2033.
The interest rate range on the Company's mortgage debt was 4.00% to 10.67% at
September 30, 2000. During the nine months ended September 30, 2000, the
weighted average interest rate on the Company's mortgage debt was 6.85%.
13
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
10. NOTES
The following tables summarize the Company's unsecured note balances
and certain interest rate and maturity date information as of and for the nine
months ended September 30, 2000:
WEIGHTED
SEPTEMBER 30, 2000 NET PRINCIPAL INTEREST RATE AVERAGE MATURITY
(AMOUNTS IN THOUSANDS) BALANCE RANGES INTEREST RATE DATE RANGES
- ---------------------------------------------------------------------------------------------------------------------
Fixed Rate Public Notes $ 1,893,538 6.150% - 9.375% 7.07% 2000 - 2026
Floating Rate Public Notes 99,800 (1) 7.26% 2003
Fixed Rate Tax-Exempt Bonds 127,780 4.750% - 5.200% 5.08% 2024 - 2029
----------- -----
Totals $ 2,121,118 6.96%
=========== =====
(1) As of September 30, 2000, floating rate public notes consisted of
one note. The interest rate on this note was LIBOR (reset
quarterly) plus a spread (reset annually in August) equal to
0.65% at September 30, 2000.
During the nine months ended September 30, 2000 the Company:
- assumed $39.9 million of fixed rate public notes in the
Globe Merger;
- paid off at maturity fixed rate 7.25% public notes of $55.0
million;
- paid off at maturity fixed rate 6.15% public notes of $145.0
million; and
- paid off $8.0 million in fixed rate public notes assumed in
the Globe Merger.
As of September 30, 2000, the Company had outstanding unsecured notes
of approximately $2.1 billion net of a $3.9 million discount and including a
$5.5 million premium.
As of September 30, 2000, the remaining unamortized balance of deferred
settlement receipts and payments from treasury locks and interest rate
protection agreements was $9.0 million and $2.5 million, respectively.
11. LINES OF CREDIT
The Company has a revolving credit facility with Bank of America
Securities LLC and Chase Securities Inc. acting as joint lead arrangers to
provide the Operating Partnership with potential borrowings of up to $700.0
million. As of September 30, 2000, no amounts were outstanding under this
facility and $51.3 million was restricted on this line of credit. During the
nine months ended September 30, 2000, the weighted average interest rate on this
revolving credit facility was 6.58%.
In connection with the Globe Merger, the Company assumed a second
revolving credit facility with Fifth Third Bank to provide the Operating
Partnership with potential borrowings of up to $55.0 million. As of September
30, 2000, $33.6 million was outstanding under this facility. From the period
July 11, 2000 (Globe Merger date) through September 30, 2000, the weighted
average interest rate on this revolving credit facility was 8.78%.
12. CALCULATION OF NET INCOME PER WEIGHTED AVERAGE COMMON SHARE
The following tables set forth the computation of net income per share
- - basic and net income per share - diluted.
14
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NINE MONTHS ENDED QUARTER ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
NUMERATOR:
Income before gain on disposition of properties, net,
extraordinary item, allocation to Minority Interests,
provision for income taxes and preferred distributions $ 290,850 $ 243,797 $ 105,729 $ 84,423
Allocation to Minority Interests:
Operating Partnership (35,825) (21,554) (16,693) (7,040)
Partially Owned Properties 145 -- (12) --
Provision for income taxes (518) -- (518) --
Preferred distributions (83,597) (85,118) (27,943) (28,007)
--------- --------- --------- ---------
Income before gain on disposition of properties, net
and extraordinary item 171,055 137,125 60,563 49,376
Gain on disposition of properties, net 205,121 64,315 117,469 18,508
Loss on early extinguishment of debt -- (451) -- --
--------- --------- --------- ---------
Numerator for net income per share - basic 376,176 200,989 178,032 67,884
Effect of dilutive securities:
Allocation to Minority Interests -
Operating Partnership 35,825 21,554 16,693 7,040
Distributions on convertible preferred shares/units 9,713 -- 7,576 --
--------- --------- --------- ---------
Numerator for net income per share - diluted $ 421,714 $ 222,543 $ 202,301 $ 74,924
========= ========= ========= =========
DENOMINATOR:
Denominator for net income per share - basic 129,435 120,621 131,412 122,312
Effect of dilutive securities:
Dilution for assumed exercise of stock options 721 714 985 660
OP Units 12,383 12,869 12,320 12,681
Convertible preferred shares/units 3,967 -- 7,777 --
--------- --------- --------- ---------
Denominator for net income per share - diluted 146,506 134,204 152,494 135,653
========= ========= ========= =========
Net income per share - basic $ 2.91 $ 1.67 $ 1.35 $ 0.56
========= ========= ========= =========
Net income per share - diluted $ 2.88 $ 1.66 $ 1.33 $ 0.55
========= ========= ========= =========
15
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NINE MONTHS ENDED QUARTER ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
2000 1999 2000 1999
-------------------------- --------------------------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
NET INCOME PER SHARE - BASIC:
Income before gain on disposition of properties, net
and extraordinary item per share - basic $ 1.46 $ 1.19 $ 0.53 $ 0.42
Gain on disposition of properties, net 1.45 0.48 0.82 0.14
Loss on early extinguishment of debt - - - -
------------ ----------- ------------ -----------
Net income per share - basic $ 2.91 $ 1.67 $ 1.35 $ 0.56
============ =========== ============ ===========
NET INCOME PER SHARE - DILUTED:
Income before gain on disposition of properties, net
and extraordinary item per share - diluted $ 1.48 $ 1.18 $ 0.56 $ 0.42
Gain on disposition of properties, net 1.40 0.48 0.77 0.13
Loss on early extinguishment of debt - - - -
------------ ----------- ------------ -----------
Net income per share - diluted $ 2.88 $ 1.66 $ 1.33 $ 0.55
============ =========== ============ ===========
CONVERTIBLE PREFERRED SHARES AND JUNIOR CONVERTIBLE PREFERENCE UNITS THAT COULD
BE CONVERTED INTO 5,402,699 AND 12,357,124 WEIGHTED AVERAGE COMMON SHARES FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999, RESPECTIVELY, AND 0 AND
11,365,744 WEIGHTED AVERAGE COMMON SHARES FOR THE QUARTERS ENDED SEPTEMBER 30,
2000 AND 1999, RESPECTIVELY, WERE OUTSTANDING BUT WERE NOT INCLUDED IN THE
COMPUTATION OF DILUTED EARNINGS PER SHARE BECAUSE THE EFFECTS WOULD BE
ANTI-DILUTIVE.
13. COMMITMENTS AND CONTINGENCIES
The Company, as an owner of real estate, is subject to various Federal,
state and local environmental laws and regulations. Compliance by the Company
with existing laws has not had a material adverse effect on the Company's
financial condition and results of operations. However, the Company cannot
predict the impact of new or changed laws or regulations on its current
properties or on properties that it may acquire in the future.
The Company does not believe there is any litigation pending or
threatened against the Company other than routine litigation arising out of the
ordinary course of business, the costs and expenses of most of which is expected
to be covered by liability insurance, none of which is expected to have a
material adverse effect on the consolidated financial statements of the Company.
In regards to the funding of Properties in the development and/or
earnout stage and the joint venture agreements with two multifamily residential
real estate developers, the Company funded a total of $103.3 million during the
nine months ended September 30, 2000. During the remainder of 2000, the Company
expects to fund approximately $55.4 million in connection with these Properties.
In connection with one joint venture agreement, the Company has an obligation to
fund up to an additional $17.5 million to guarantee third party construction
financing.
Pursuant to the terms of a Stock Purchase Agreement with Wellsford Real
Properties, Inc. ("WRP Newco"), the Company had agreed to purchase up to
1,000,000 shares of WRP Newco Series A
16
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Preferred at $25.00 per share on a standby basis over a three-year period ending
on May 30, 2000. This agreement was terminated on May 5, 2000, and, as such, the
Company has no further obligations under this agreement.
In connection with the Wellsford Merger, the Company provided a $14.8
million credit enhancement with respect to certain tax-exempt bonds issued to
finance certain public improvements at a multifamily development project. As of
September 30, 2000, this enhancement was still in effect.
Pursuant to the terms of a capital investment in Constellation Real
Technologies, LLC ("Constellation"), the Company has a funding commitment of
$12.3 million as of September 30, 2000. Constellation's primary objectives will
be to serve as incubator for real estate technology companies and to provide a
platform for pooling of its investor's purchasing power. The Company's current
equity ownership interest in Constellation is 9.999% as of September 30, 2000.
14. REPORTABLE SEGMENTS
The following tables set forth the reconciliation of net income and
total assets for the Company's reportable segments for the nine months and
quarter ended September 30, 2000 and net income for the nine months and quarter
ended September 30, 1999.
17
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 RENTAL REAL CORPORATE/
(AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
- -------------------------------------------------------------------------------------------------------------------------
Rental income $ 1,454,958 $ - $ 1,454,958
Fee and asset management income - 4,711 4,711
Furniture income - 14,228 14,228
Property and maintenance expense (368,291) - (368,291)
Real estate tax and insurance expense (141,830) - (141,830)
Property management expense (56,204) - (56,204)
Fee and asset management expense - (3,647) (3,647)
Furniture operating costs - (9,505) (9,505)
----------- ---------- -----------
Net operating income 888,633 5,787 894,420
Interest income - investment in mortgage notes - 8,282 8,282
Income from investments in unconsolidated joint ventures - 14,589 14,589
Interest and other income - 19,009 19,009
Depreciation expense on non-real estate assets - (5,830) (5,830)
Interest expense:
Expense incurred - (285,337) (285,337)
Amortization of deferred financing costs - (4,063) (4,063)
General and administrative expense - (19,439) (19,439)
Amortization of goodwill and other intangibles - (767) (767)
Allocation to Minority Interests - Partially Owned Properties - 145 145
Provision for income taxes - (518) (518)
Preferred distributions - (83,597) (83,597)
Adjustment for depreciation expense related to Unconsolidated
and Partially Owned Properties - (193) (193)
----------- ---------- -----------
Funds from operations available to Common Shares and OP Units 888,633 (351,932) 536,701
Depreciation expense on real estate assets (330,014) - (330,014)
Gain on disposition of properties, net 205,121 - 205,121
Allocation to Minority Interests - Operating Partnership - (35,825) (35,825)
Adjustment for depreciation expense related to Unconsolidated
and Partially Owned Properties - 193 193
----------- ---------- -----------
Net income available to Common Shares $ 763,740 $ (387,564) $ 376,176
============ =========== ===========
Investment in real estate, net of accumulated Depreciation $ 10,580,070 $ 16,388 $10,596,458
================================================
Total assets $ 10,804,623 $ 1,016,239 $11,820,862
================================================
18
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 RENTAL REAL CORPORATE/
(AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
- ---------------------------------------------------------------------------------------------------------------------
Rental income $ 1,243,958 $ -- $ 1,243,958
Fee and asset management income -- 3,432 3,432
Property and maintenance expense (300,798) -- (300,798)
Real estate tax and insurance expense (126,304) -- (126,304)
Property management expense (42,817) -- (42,817)
Fee and asset management expense -- (2,301) (2,301)
-----------------------------------------
Net operating income 774,039 1,131 775,170
Interest income - investment in mortgage notes -- 8,502 8,502
Income from investments in unconsolidated joint ventures -- 7,042 7,042
Interest and other income -- 10,613 10,613
Depreciation expense on non-real estate assets -- (5,125) (5,125)
Interest expense:
Expense incurred -- (241,516) (241,516)
Amortization of deferred financing costs -- (2,773) (2,773)
General and administrative expense -- (15,736) (15,736)
Preferred distributions -- (85,118) (85,118)
Adjustment for depreciation expense related to Unconsolidated Properties -- 710 710
-----------------------------------------
Funds from operations available to Common Shares
and OP Units 774,039 (322,270) 451,769
Depreciation expense on real estate assets (292,380) -- (292,380)
Gain on disposition of properties, net 64,315 -- 64,315
Loss on early extinguishment of debt -- (451) (451)
Allocation to Minority Interests - Operating Partnership -- (21,554) (21,554)
Adjustment for depreciation expense related to Unconsolidated Properties -- (710) (710)
-----------------------------------------
Net income available to Common Shares $ 545,974 $ (344,985) $ 200,989
=========================================
19
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
QUARTER ENDED SEPTEMBER 30, 2000 RENTAL REAL CORPORATE/
(AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
- -----------------------------------------------------------------------------------------------------
Rental income $ 502,218 $ -- $ 502,218
Fee and asset management income -- 1,876 1,876
Furniture income 14,228 14,228
Property and maintenance expense (140,446) -- (140,446)
Real estate tax and insurance expense (46,829) -- (46,829)
Property management expense (18,444) -- (18,444)
Fee and asset management expense -- (1,545) (1,545)
Furniture operating costs -- (9,505) (9,505)
------------------------------------
Net operating income 296,499 5,054 301,553
Interest income - investment in mortgage notes -- 2,783 2,783
Income from investments in unconsolidated joint ventures -- 5,525 5,525
Interest and other income -- 10,624 10,624
Depreciation expense on non-real estate assets -- (2,673) (2,673)
Interest expense:
Expense incurred -- (95,074) (95,074)
Amortization of deferred financing costs -- (1,360) (1,360)
General and administrative expense -- (6,223) (6,223)
Amortization of goodwill and other intangibles -- (767) (767)
Allocation to Minority Interests - Partially Owned Properties
-- (12) (12)
Provision for income taxes -- (518) (518)
Preferred distributions -- (27,943) (27,943)
Adjustment for depreciation expense related to Unconsolidated
and Partially Owned Properties -- 298 298
------------------------------------
Funds from operations available to Common Shares and OP Units 296,499 (110,286) 186,213
Depreciation expense on real estate assets (108,659) -- (108,659)
Gain on disposition of properties, net 117,469 -- 117,469
Allocation to Minority Interests - Operating Partnership -- (16,693) (16,693)
Adjustment for depreciation expense related to Unconsolidated
and Partially Owned Properties -- (298) (298)
------------------------------------
Net income available to Common Shares $ 305,309 $(127,277) $ 178,032
====================================
20
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
QUARTER ENDED SEPTEMBER 30, 1999 RENTAL REAL CORPORATE/
(AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
- -------------------------------------------------------------------------------------------------
Rental income $ 424,780 $ -- $ 424,780
Fee and asset management income -- 1,018 1,018
Property and maintenance expense (103,933) -- (103,933)
Real estate tax and insurance expense (41,789) -- (41,789)
Property management expense (14,844) -- (14,844)
Fee and asset management expense -- (677) (677)
------------------------------------
Net operating income 264,214 341 264,555
Interest income - investment in mortgage notes -- 2,858 2,858
Income from investments in unconsolidated joint ventures -- 2,691 2,691
Interest and other income -- 3,841 3,841
Depreciation expense on non-real estate assets -- (1,702) (1,702)
Interest expense:
Expense incurred -- (83,017) (83,017)
Amortization of deferred financing costs -- (1,112) (1,112)
General and administrative expense -- (5,022) (5,022)
Preferred distributions -- (28,007) (28,007)
Adjustment for depreciation expense related to
Unconsolidated Properties -- 159 159
------------------------------------
Funds from operations available to Common Shares
and OP Units 264,214 (108,970) 155,244
Depreciation expense on real estate assets (98,669) -- (98,669)
Gain on disposition of properties, net 18,508 -- 18,508
Allocation to Minority Interests - Operating Partnership -- (7,040) (7,040)
Adjustment for depreciation expense related to
Unconsolidated Properties -- (159) (159)
------------------------------------
Net income available to Common Shares $ 184,053 $(116,169) $ 67,884
====================================
(1) The Company's primary reportable business segment is owning, managing, and
operating multifamily residential properties, which includes the generation
of rental and other related income through the leasing of apartment units
to tenants.
(2) The Company has a segment for corporate level activity including such items
as fee and asset management activity, furniture rental/sales activity,
interest income earned on short-term investments and investment in mortgage
notes, income earned from investments in unconsolidated joint ventures,
general and administrative expenses and interest expense on mortgage notes
payable, unsecured notes and lines of credit. The Company's fee and asset
management and furniture rental/sales activities are immaterial and do not
meet the threshold requirements of reportable segments as provided for in
Statement No. 131. Interest expense on debt is not allocated to individual
Properties, even if the Properties secure such debt. Further, income
allocated to Minority Interests is not allocated to the Properties.
21
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
15. SUBSEQUENT EVENTS
Subsequent to September 30, 2000 and through November 3, 2000, the
Company disposed of the seventeen properties listed below to unaffiliated
parties. A portion of these proceeds were used to pay off mortgage debt on one
property approximating $9.1 million. The purchaser assumed the mortgage debt on
two of these properties totaling $1.6 million.
- -------------------------------------------------------------------------------------------------------------------
DISPOSITION
DATE NUMBER PRICE
DISPOSED PROPERTY LOCATION OF UNITS (IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------
10/02/00 Villa Serenas Tucson, AZ 611 $ 20,850
10/03/00 Camellia Court Carrollton, KY 55 1,550
10/03/00 Millston I, II & III Aberdeen, OH 93 1,194
10/03/00 Springwood Maysville, KY 54 1,026
10/03/00 Willowood Owensboro, KY 55 1,200
10/17/00 Mission Palms Tucson, AZ 360 20,700
10/19/00 Del Coronado Mesa, AZ 419 23,575
10/19/00 Rancho Murietta Tempe, AZ 292 17,075
10/20/00 Crossings at Green Valley Las Vegas, NV 384 20,738
10/20/00 Reflections at the Lake Las Vegas, NV 326 19,665
10/20/00 The Trails Las Vegas, NV 440 29,410
10/23/00 Augustine Club Tallahassee, FL 222 9,925
10/23/00 Plantations at Killearn Tallahassee, FL 184 9,150
10/23/00 Woodlake at Killearn Tallahassee, FL 352 14,475
10/25/00 La Valencia Mesa, AZ 361 19,925
10/25/00 Towne Square Chandler, AZ 584 33,300
10/31/00 Willow Run Willard, OH 61 1,250
- -------------------------------------------------------------------------------------------------------------------
4,853 $245,008
- -------------------------------------------------------------------------------------------------------------------
On October 11, 2000, the Company acquired Waterford at Manderin II, a
vacant land parcel located adjacent to Waterford at Manderin Phase I in
Jacksonville, FL, from an unaffiliated party for a total purchase price of
approximately $0.5 million.
On October 31, 2000, the Company closed on its acquisition of Grove
Property Trust ("Grove"). Grove's portfolio of 60 properties contains 7,308
units located in three New England states. As provided in the Company's merger
agreement with Grove, each Grove common share was exchanged for $17.00 (cash)
and each Grove operating partnership unit was exchanged for cash in the same
amount or 0.3696 units in the Company's Operating Partnership at the option of
the holder. As a result, the Company paid approximately $174.0 million in cash
and issued approximately 0.3 million OP Units. In addition, the Company assumed
approximately $241.4 million in Grove debt, of which $45.8 million was paid off
immediately following the close of the merger.
On November 1, 2000, the Company acquired Centre Club Apartments, a
312-unit multifamily property located in Ontario, CA, from an unaffiliated party
for a total purchase price of approximately $31.1 million.
22
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion and analysis of the results of operations and
financial condition of the Company should be read in connection with the
Consolidated Financial Statements and Notes thereto. Due to the Company's
ability to control the Operating Partnership, the Management Partnerships and
Management Companies, the Financing Partnerships, the LLC's and certain other
entities, each entity has been consolidated with the Company for financial
reporting purposes. Capitalized terms used herein and not defined, are as
defined in the Company's Annual Report on Form 10-K for the year ended December
31, 1999.
Forward-looking statements in this report are intended to be made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The words "believes", "expects" and "anticipates" 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. Such forward-looking statements are subject to risks
and uncertainties, which could cause actual results, performance, or
achievements of the Company to differ materially from anticipated future
results, performance or achievements expressed or implied by such
forward-looking statements. Factors that might cause such differences include,
but are not limited to, the following:
- costs to obtain alternative sources of capital to the Company are
higher than anticipated;
- occupancy levels and market rents may be adversely affected by
local economic and market conditions, which are beyond the
Company's control; and
- additional factors as discussed in Part I of the Annual Report on
Form 10-K.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release any revisions to these
forward-looking statements, which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
The acquired properties are presented in the Consolidated Financial
Statements of the Company from the date of each acquisition or the closing dates
of the Mergers. The following table summarizes the number of Wholly Owned
Acquired and Disposed Properties and related units for the periods presented:
ACQUISITIONS DISPOSITIONS
------------------------------------------------------
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
PERIOD PROPERTIES UNITS PROPERTIES UNITS
- -----------------------------------------------------------------------------
1999 366 35,450 36 7,886
YTD 9/30/00 18 2,738 27 6,977
The Company's overall results of operations for the nine months ended
September 30, 2000 and 1999 have been significantly impacted by the Company's
acquisition and disposition activity, including the Globe Merger. The
significant changes in rental revenues, property and maintenance expenses, real
estate taxes and insurance, depreciation expense, property management and
interest expense can primarily be attributed to the acquisition of the 1999
Acquired Properties, the 2000 Acquired
23
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Properties and the Globe Merger, partially offset by the disposition of the 1999
Disposed Properties and the 2000 Disposed Properties.
Properties that the Company owned for all of both the nine-month
periods ended September 30, 2000 and September 30, 1999 (the "Nine-Month 2000
Same Store Properties"), which represented 163,368 units, also impacted the
Company's results of operations. Properties that the Company owned for all of
both the quarters ended September 30, 2000 and September 30, 1999 (the
"Third-Quarter 2000 Same Store Properties"), which represented 167,740 units,
also impacted the Company's results of operations. Both the Nine-Month 2000 Same
Store Properties and Third-Quarter 2000 Same Store Properties are discussed in
the following paragraphs.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 TO NINE MONTHS
ENDED SEPTEMBER 30, 1999
For the nine months ended September 30, 2000, income before gain on
disposition of properties, net, extraordinary item, allocation to Minority
Interests and provision for income taxes increased by approximately $47.1
million when compared to the nine months ended September 30, 1999. This increase
was primarily due to the acquisition of the 1999 Acquired Properties, the 2000
Acquired Properties and the Globe Merger, as well as increases in rental
revenues net of increases in property and maintenance expenses, real estate
taxes and insurance, property management expenses, depreciation expense,
interest expense and general and administrative expenses.
In regard to the Nine-Month 2000 Same Store Properties, total revenues
increased by approximately $47.5 million to $1.1 billion or 4.34% primarily as a
result of higher rental rates charged to new tenants and tenant renewals and an
increase in income from billing tenants for their share of utility costs as well
as other ancillary services provided to tenants. Overall, property operating
expenses, which include property and maintenance, real estate taxes and
insurance and an allocation of property management expenses, increased
approximately $9.0 million or 2.22%. This increase was primarily the result of
higher expenses for on-site compensation costs and an increase in real estate
taxes on certain properties, but was partially offset by lower leasing and
advertising, administrative, maintenance, building and insurance costs.
Property management represents expenses associated with the
self-management of the Company's Properties. These expenses increased by
approximately $13.4 million primarily due to the operations of the property
management business obtained through the LFT Merger and a current year
compensation charge associated with the issuance of restricted shares to our
property management personnel.
Fee and asset management revenues and fee and asset management expenses
are associated with the management of Unconsolidated Properties. These revenues
increased by approximately $1.3 million, but were offset by an increase in
expenses of approximately $1.3 million when compared to the nine months ended
September 30, 1999.
Interest expense, including amortization of deferred financing costs,
increased by approximately $45.1 million. This increase was primarily the result
of a $661.7 million increase in the Company's average indebtedness outstanding.
The effective interest cost on all of the Company's indebtedness for the nine
months ended September 30, 2000 was 7.23% as compared to 6.97% for the nine
months ended September 30, 1999.
General and administrative expenses, which include corporate operating
expenses, increased approximately $3.7 million between the periods under
comparison. This increase was primarily due to
24
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
recording higher compensation expense associated with the issuance of restricted
shares. These expenses as a percentage of total revenues were 1.28% for the nine
months ended September 30, 2000 compared to 1.24% of total revenues for the nine
months ended September 30, 1999.
COMPARISON OF QUARTER ENDED SEPTEMBER 30, 2000 TO QUARTER ENDED
SEPTEMBER 30, 1999
For the quarter ended September 30, 2000, income before gain on
disposition of properties, net, extraordinary item, allocation to Minority
Interests and provision for income taxes increased by approximately $21.3
million when compared to the quarter ended September 30, 1999. This increase was
primarily due to the acquisition of the 1999 Acquired Properties, the 2000
Acquired Properties and the Globe Merger, as well as increases in rental
revenues net of increases in property and maintenance expenses, real estate
taxes and insurance, property management expenses, depreciation expense,
interest expense and general and administrative expenses.
In regard to the Third-Quarter 2000 Same Store Properties, total
revenues increased by approximately $19.4 million or 5.12% primarily as a result
of higher rental rates charged to new tenants and tenant renewals and an
increase in income from billing tenants for their share of utility costs as well
as other ancillary services provided to tenants. Overall, property operating
expenses, which include property and maintenance, real estate taxes and
insurance and an allocation of property management expenses, increased
approximately $4.5 million or 3.12%. This increase was primarily the result of
higher expenses for on-site compensation costs and an increase in real estate
taxes on certain properties, but was partially offset by lower leasing and
advertising, administrative, maintenance and insurance costs.
Property management represents expenses associated with the
self-management of the Company's Properties. These expenses increased by
approximately $3.6 million primarily due to the operations of the property
management business obtained through the LFT Merger and a current year
compensation charge associated with the issuance of restricted shares to our
property management personnel.
Fee and asset management revenues and fee and asset management expenses
are associated with the management of Unconsolidated Properties. These revenues
increased by approximately $0.9 million, but were offset by an increase in
expenses of approximately $0.9 million when compared to the quarter ended
September 30, 1999.
Interest expense, including amortization of deferred financing costs,
increased by approximately $12.3 million. This increase was primarily the result
of a $491.4 million increase in the Company's average indebtedness outstanding.
The effective interest cost on all of the Company's indebtedness for the quarter
ended September 30, 2000 was 7.25% as compared to 6.95% for the quarter ended
September 30, 1999.
General and administrative expenses, which include corporate operating
expenses, increased approximately $1.2 million between the periods under
comparison. This increase was primarily due to recording higher compensation
expense associated with the issuance of restricted shares. These expenses as a
percentage of total revenues were 1.16% for the quarter ended September 30, 2000
compared to 1.15% of total revenues for the quarter ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of January 1, 2000, the Company had approximately $29.1 million of
cash and cash equivalents and the amount available on the Company's line of
credit was $400 million, of which $65.8
25
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
million was restricted. After taking into effect the various transactions
discussed in the following paragraphs, the Company's cash and cash equivalents
balance at September 30, 2000 was approximately $56.2 million and the amount
available on the Company's lines of credit was $721.4 million, of which $51.3
million was restricted. The following discussion also explains the changes in
net cash provided by operating activities, net cash (used for) investing
activities and net cash (used for) financing activities, all of which are
presented in the Company's Statements of Cash Flows.
Part of the Company's strategy in funding the purchase of multifamily
properties, funding its Properties in the development and/or earnout stage and
the funding of the Company's investment in two joint ventures with multifamily
real estate developers is to utilize its lines of credit and to subsequently
repay the lines of credit from the disposition of Properties or the issuance of
additional equity or debt securities. Utilizing this strategy during the first
nine months of 2000, the Company:
- obtained new mortgage financing on eleven previously unencumbered
properties and received net proceeds of $147.7 million;
- disposed of thirty properties (including the sale of the
Company's entire interest in three Unconsolidated Properties) and
received net proceeds of $360.4 million;
- sold and/or contributed twenty-one properties to two separate
joint ventures and received net proceeds of $60.5 million;
- issued approximately 0.9 million Common Shares and received net
proceeds of $24.9 million;
- issued the Series B, C, D and E Cumulative Convertible Redeemable
Preference Units and received net proceeds of $133.6 million; and
- obtained new mortgage financing on twenty-one previously
unencumbered properties and received net proceeds of $217.2
million.
All of these proceeds were utilized to either:
- repay the lines of credit;
- repay mortgage indebtedness on certain Properties and/or repay
unsecured notes;
- provide funding for properties in the development and/or earnout
stage including properties subject to the joint venture
agreements; and/or
- purchase additional properties.
During the nine months ended September 30, 2000, the Company:
- repaid four unsecured notes totaling $208.0 million;
- repaid approximately $119.4 million of mortgage indebtedness on
sixty-one Properties;
- settled on a $100 million interest rate protection agreement and
received approximately $7.1 million in connection therewith. This
amount is being amortized over the life of the financing for the
eleven previously unencumbered Properties that occurred on March
20, 2000;
- funded $103.3 million related to the development, earnout and
joint venture agreements;
- purchased eighteen Properties for a total purchase price of
approximately $257.0 million;
- funded $1.25 million to acquire an additional ownership interest
in LFT's Guilford portfolio; and
- acquired $25.0 million of 8.25% preferred securities of WRP
Convertible Trust I, an affiliate of WRP Newco.
26
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
As of September 30, 2000, the Company had total indebtedness of
approximately $5.2 billion, which included mortgage indebtedness of $3.0 billion
(including premiums of $2.6 million), of which $836.6 million represented
tax-exempt bond indebtedness, and unsecured debt of $2.1 billion (including net
discounts and premiums in the amount of $1.6 million), of which $127.8 million
represented tax-exempt bond indebtedness.
Subsequent to September 30, 2000 and through November 6, 2000, the
Company:
- repaid and/or the purchaser assumed the outstanding mortgage
balance on three Properties totaling approximately $10.6 million;
- disposed of seventeen properties for a total sales price of
$245.0 million;
- acquired one property containing 312 units and a vacant land
parcel for a total purchase price of approximately $31.6 million;
and
- acquired Grove for cash of approximately $174.0 million and
assumed approximately $241.4 million in Grove debt, of which
$45.8 million was paid off immediately following the close of the
merger.
During the remainder of 2000, the Company expects to fund $55.4 million
related to the development, earnout and joint venture agreements. In connection
with one joint venture agreement, the Company has an obligation to fund up to an
additional $17.5 million to guarantee third party construction financing.
The Company has a policy of capitalizing expenditures made for new real
estate assets, including newly acquired properties and the costs associated with
placing these assets into service. Expenditures for improvements and renovations
to real estate that significantly enhance the value of existing assets or
substantially extend the useful life of an asset are also capitalized.
Expenditures for in-the-unit replacement-type items such as appliances,
draperies, carpeting and floor coverings, mechanical equipment and certain
furniture and fixtures are also capitalized. Expenditures for ordinary
maintenance and repairs are expensed to operations as incurred. With respect to
acquired properties, the Company has determined that it generally spends $1,000
per unit during its first three years of ownership to fully improve and enhance
these properties to meet the Company's standards. In regard to replacement-type
items described above, the Company generally expects to spend $250 per unit on
an annual recurring basis.
During the nine months ended September 30, 2000, the Company's total
improvements to real estate approximated $100.3 million. Of this amount,
approximately $24.8 million, or $254 per unit, related to capital improvements
and major repairs for the 1998, 1999 and 2000 Acquired Properties. Capital
improvements and major repairs for all of the Company's pre-EQR IPO properties
and 1993, 1994, 1995, 1996 and 1997 Acquired Properties approximated $25.5
million, or $227 per unit. Capital spent for replacement-type items approximated
$42.5 million, or $202 per unit. In addition, approximately $5.3 million was
spent on eight specific assets related to major renovations and repositioning of
these assets. Also included in total improvements to real estate was
approximately $0.7 million spent on commercial/other assets, $1.4 million spent
on the Partially Owned Properties and $0.1 million spent on properties that were
sold prior to 2000. Such improvements to real estate were primarily funded from
working capital reserves and from net cash provided by operating activities.
Total improvements to real estate for the remaining portion of 2000 are
estimated to be approximately $16.4 million.
27
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The Company, through it's Globe subsidiary, has a policy for
capitalizing expenditures made for rental furniture and property and equipment,
including new acquisitions and the costs associated with placing these assets
into service. Globe purchases furniture to replace furniture that has been sold
and to maintain adequate levels of rental furniture to meet existing and new
customer needs. Expenditures for property and equipment that significantly
enhance the value of existing assets or substantially extend the useful life of
an asset are capitalized. Expenditures for ordinary maintenance and repairs
related to property and equipment are expensed as incurred. For the period July
11, 2000 through September 30, 2000, total additions to rental furniture and
property and equipment approximated $7.5 million and $0.4 million, respectively.
Such additions to rental furniture and property and equipment were primarily
funded from working capital reserves and from net cash provided by operating
activities. Total additions to rental furniture and property and equipment for
the remaining portion of 2000 are estimated to be approximately $6.4 million.
Also included in total capital expenditures was approximately $3.9
million expended for non-real estate additions such as computer software,
computer equipment, and furniture and fixtures and leasehold improvements for
the Company's property management offices and its corporate headquarters. Such
additions to non-real estate property were primarily funded from working capital
reserves and from net cash provided by operating activities. Total additions to
non-real estate property for the remaining portion of 2000 are estimated to be
approximately $1.3 million.
Minority Interests as of September 30, 2000 increased by $135.5 million
when compared to December 31, 1999. The primary factors that contributed to
changes in the book value of Minority Interests during the nine months ended
September 30, 2000 were:
- distributions declared to Minority Interests, which amounted to
$28.8 million for the nine months (excluding preference
unit/interest distributions);
- the allocation of income from operations in the amount of $35.8
million;
- the allocation of Minority Interests from Partially Owned
Properties in the amount of $2.9 million;
- the conversion of OP Units into Common Shares; and
- the issuance of Common Shares, OP Units and Preference Interests
during the nine months ended September 30, 2000.
Total distributions paid in October 2000 amounted to approximately
$141.5 million, which included distributions declared for the quarter ended
September 30, 2000.
The Company expects to meet its short-term liquidity requirements,
including capital expenditures related to maintaining its existing Properties
and certain scheduled unsecured note and mortgage note repayments, generally
through its working capital, net cash provided by operating activities and
borrowings under its lines of credit. The Company considers its cash provided by
operating activities to be adequate to meet operating requirements and payments
of distributions. The Company also expects to meet its long-term liquidity
requirements, such as scheduled unsecured note and mortgage debt maturities,
property acquisitions, financing of construction and development activities and
capital improvements, through undistributed FFO and proceeds received from the
disposition of certain Properties and/or through the issuance of unsecured notes
and equity securities including additional OP Units. In addition, the Company
has certain uncollateralized Properties available for additional mortgage
borrowings in the event that the public capital markets are unavailable to the
Company or the cost of alternative sources of capital to the Company is too
high.
28
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The Company has a revolving credit facility with Bank of America
Securities LLC and Chase Securities Inc. acting as joint lead arrangers to
provide the Operating Partnership with potential borrowings of up to $700
million. As of November 6, 2000, $250 million was outstanding under this
facility at a weighted average interest rate of 7.06%.
In connection with the Globe Merger, the Company assumed a revolving
credit facility with Fifth Third Bank with potential borrowings of up to $55.0
million. This line of credit matures on May 31, 2003. As of November 6, 2000,
$42.2 million was outstanding under this facility at a weighted average interest
rate of 8.92%.
In connection with the Wellsford Merger, the Company provided a $14.8
million credit enhancement with respect to certain tax-exempt bonds issued to
finance certain public improvements at a multifamily development project. As of
November 6, 2000, this enhancement was still in effect.
Pursuant to the terms of a capital investment in Constellation Real
Technologies, LLC ("Constellation"), the Company has a funding commitment of
$12.3 million as of September 30, 2000. Constellation's primary objectives will
be to serve as incubator for real estate technology companies and to provide a
platform for pooling of its investor's purchasing power. The Company's current
equity ownership interest in Constellation is 9.999% as of November 6, 2000.
Pursuant to the terms of a Stock Purchase Agreement with Wellsford Real
Properties, Inc. ("WRP Newco"), the Company had agreed to purchase up to
1,000,000 shares of WRP Newco Series A Preferred at $25.00 per share on a
standby basis over a three-year period ending on May 30, 2000. This agreement
was terminated on May 5, 2000, and, as such, the Company has no further
obligations under this agreement.
On May 5, 2000, the Company acquired $25.0 million of 8.25% preferred
securities of WRP Convertible Trust I, an affiliate of WRP Newco. These
preferred securities are indirectly convertible into WRP Newco common shares
under certain circumstances.
FUNDS FROM OPERATIONS
Funds from Operations ("FFO") represents net income (loss) (computed in
accordance with accounting principles generally accepted in the United States
(("GAAP")), excluding gains or losses from sales of property, plus depreciation
and amortization, and after adjustments for unconsolidated partnerships and
joint ventures. Adjustments for unconsolidated partnerships and joint ventures
will be calculated to reflect funds from operations on the same basis. This
definition of FFO is in accordance with the National Association of Real Estate
Investment Trust's ("NAREIT") recommended definition. NAREIT modified this
definition effective January 1, 2000. However, as a result of this modification,
no changes were required to the Company's calculation of FFO for either the
current or prior periods presented.
The Company believes that FFO is helpful to investors as a supplemental
measure of the operating performance of a real estate company because, along
with cash flows from operating activities, financing activities and investing
activities, it provides investors an understanding of the ability of the Company
to incur and service debt and to make capital expenditures. FFO in and of itself
does not represent cash generated from operating activities in accordance with
GAAP and therefore should not be considered an alternative to net income as an
indication of the Company's performance or to net cash flows from operating
activities as determined by GAAP as a measure of liquidity and is not
necessarily
29
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
indicative of cash available to fund cash needs. The Company's calculation of
FFO may differ from the methodology for calculating FFO utilized by other real
estate companies and may differ as a result of differences between the Company's
and other real estate company's accounting policies for replacement type items
and, accordingly, may not be comparable to such other real estate companies.
FFO per share and OP Unit is presented giving affect to the Statement
of Financial Accounting Standards No. 128 "Earnings Per Share".
For the nine months ended September 30, 2000, FFO available to Common
Shares and OP Units increased by $84.9 million, or 18.8%, and FFO per share and
OP Unit - diluted increased by $0.39, or 11.7%, when compared to the nine months
ended September 30, 1999.
For the quarter ended September 30, 2000, FFO available to Common
Shares and OP Units increased by $31.0 million, or 19.9%, and FFO per share and
OP Unit - diluted increased by $0.14, or 12.4%, when compared to the quarter
ended September 30, 1999.
The following is a reconciliation of net income to FFO available to
Common Shares and OP Units for the nine months and quarters ended September 30,
2000 and 1999:
NINE MONTHS ENDED QUARTER ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------------------
2000 1999 2000 1999
-------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND
OP UNIT AMOUNTS)
STATEMENTS OF FUNDS FROM OPERATIONS
Net income $ 459,773 $ 286,107 $ 205,975 $ 95,891
Adjustments:
Allocation to Minority Interests - Operating Partnership 35,825 21,554 16,693 7,040
Depreciation on real estate assets* 329,821 293,090 108,957 98,828
Loss on early extinguishment of debt -- 451 -- --
Gain on disposition of properties, net (205,121) (64,315) (117,469) (18,508
--------- --------- --------- ---------)
FFO 620,298 536,887 214,156 183,251
Preferred distributions (83,597) (85,118) (27,943) (28,007)
--------- --------- --------- ---------
FFO available to Common Shares and OP Units $ 536,701 $ 451,769 $ 186,213 $ 155,244
========= ========= ========= =========
FFO per share and OP Unit - basic $ 3.78 $ 3.38 $ 1.30 $ 1.15
========= ========= ========= =========
FFO per share and OP Unit - diluted $ 3.71 $ 3.32 $ 1.27 $ 1.13
========= ========= ========= =========
Weighted average Common Shares and OP Units outstanding - basic 141,817 133,490 143,732 134,993
========= ========= ========= =========
* INCLUDES $890 AND $710 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999,
RESPECTIVELY, AND $680 AND $159 FOR THE QUARTERS ENDED SEPTEMBER 30, 2000 AND
1999, RESPECTIVELY, RELATED TO THE COMPANY'S SHARE OF DEPRECIATION FROM
UNCONSOLIDATED PROPERTIES. EXCLUDES $1,083 FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2000 AND $382 FOR THE QUARTER ENDED SEPTEMBER 30, 2000 RELATED TO THE
MINORITY INTERESTS' SHARE OF DEPRECIATION FROM PARTIALLY OWNED PROPERTIES.
30
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no new or significant developments related to the legal
proceedings that were discussed in Part I, Item III of the Company's Form 10-K
for the year ended December 31, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(B) Reports on Form 8-K:
A Report on Form 8-K dated September 12, 2000 and filed on September 13, 2000,
disclosing additional financial information of Globe as of June 30, 2000 and for
the four-month period then ended.
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EQUITY RESIDENTIAL PROPERTIES TRUST
Date: November 13, 2000 By: /s/ BRUCE C. STROHM
----------------- ------------------------------------------
Bruce C. Strohm
Executive Vice President, General Counsel
and Secretary
Date: November 13, 2000 By: /s/ MICHAEL J. MCHUGH
----------------- ------------------------------------------
Michael J. McHugh
Executive Vice President, Chief Accounting
Officer and Treasurer
32