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 MARCH 31, 2001
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
(Exact Name of Registrant as Specified in Its Charter)
MARYLAND 13-3675988
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
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 May 1, 2001, 133,593,603 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)
March 31, December 31,
2001 2000
------------------ --------------------
ASSETS
Investment in real estate
Land $ 1,769,111 $ 1,770,019
Depreciable property 10,748,240 10,782,311
Construction in progress 43,108 39,130
------------------ --------------------
12,560,459 12,591,460
Accumulated depreciation (1,433,394) (1,352,236)
------------------ --------------------
Investment in real estate, net of accumulated depreciation 11,127,065 11,239,224
Real estate held for disposition 21,886 51,637
Cash and cash equivalents 104,831 23,772
Investment in mortgage notes, net 74,347 77,184
Investments in unconsolidated entities 333,170 316,540
Rents receivable 1,980 1,801
Deposits - restricted 254,802 231,639
Escrow deposits - mortgage 69,073 70,470
Deferred financing costs, net 30,456 29,706
Rental furniture, net 61,380 60,183
Property and equipment, net 7,676 7,620
Goodwill, net 70,357 67,589
Other assets 88,472 86,601
------------------ --------------------
Total assets $ 12,245,495 $ 12,263,966
================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 3,097,033 $ 3,230,611
Notes, net 2,418,911 2,120,079
Lines of credit - 355,462
Accounts payable and accrued expenses 98,665 107,818
Accrued interest payable 71,629 51,877
Rents received in advance and other liabilities 108,319 100,819
Security deposits 46,595 46,272
Distributions payable 140,210 18,863
------------------ --------------------
Total liabilities 5,981,362 6,031,801
------------------ --------------------
COMMITMENTS AND CONTINGENCIES
Minority Interests:
Operating Partnership 634,411 609,734
Partially Owned Properties 2,881 2,884
------------------ --------------------
Total Minority Interests 637,292 612,618
------------------ --------------------
Shareholders' equity:
Preferred Shares of beneficial interest, $.01 par value;
100,000,000 shares authorized; 19,945,566 shares
issued and outstanding as of March 31, 2001 and
20,003,166 shares issued and outstanding as of
December 31, 2000 1,181,697 1,183,136
Common Shares of beneficial interest, $.01 par value;
350,000,000 shares authorized; 133,528,115 shares
issued and outstanding as of March 31, 2001 and
132,616,375 shares issued and outstanding as of
December 31, 2000 1,335 1,326
Paid in capital 4,767,480 4,739,782
Employee notes (4,275) (4,346)
Distributions in excess of accumulated earnings (302,363) (300,351)
Accumulated other comprehensive income (17,033) -
------------------ --------------------
Total shareholders' equity 5,626,841 5,619,547
------------------ --------------------
Total liabilities and shareholders' equity $ 12,245,495 $ 12,263,966
================== ====================
SEE ACCOMPANYING NOTES
2
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
QUARTER ENDED MARCH 31,
--------------------------------------
2001 2000
---------------- ------------------
REVENUES
Rental income $ 514,137 $ 473,547
Fee and asset management 1,972 1,400
Interest income - investment in mortgage notes 2,744 2,762
Interest and other income 6,502 3,478
Furniture income 12,546 -
---------------- ------------------
Total revenues 537,901 481,187
---------------- ------------------
EXPENSES
Property and maintenance 141,864 113,868
Real estate taxes and insurance 48,021 48,334
Property management 18,687 18,914
Fee and asset management 1,875 1,066
Depreciation 112,805 111,886
Interest:
Expense incurred 95,276 95,111
Amortization of deferred financing costs 1,397 1,341
General and administrative 6,754 6,698
Furniture expenses 9,724 -
Amortization of goodwill 933 -
---------------- ------------------
Total expenses 437,336 397,218
---------------- ------------------
Income before allocation to Minority Interests, income from
investments in unconsolidated entities, net gain on sales
of real estate, extraordinary items and cumulative effect
of change in accounting principle 100,565 83,969
Allocation to Minority Interests:
Operating Partnership (9,796) (7,096)
Partially Owned Properties (105) 45
Income from investments in unconsolidated entities 3,797 4,223
Net gain on sales of real estate 41,778 19,998
---------------- ------------------
Income before extraordinary items and cumulative effect of
change in accounting principle 136,239 101,139
Extraordinary items 311 -
Cumulative effect of change in accounting principle (1,270) -
---------------- ------------------
Net income 135,280 101,139
Preferred distributions (28,526) (28,388)
---------------- ------------------
Net income available to Common Shares $ 106,754 $ 72,751
================ ==================
Net income per share - basic $ 0.81 $ 0.57
================ ==================
Net income per share - diluted $ 0.80 $ 0.57
================ ==================
Weighted average Common Shares outstanding - basic 132,599 127,798
================ ==================
Weighted average Common Shares outstanding - diluted 148,592 140,686
================ ==================
Distributions declared per Common Share outstanding $ 0.815 $ 0.76
================ ==================
SEE ACCOMPANYING NOTES
3
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
QUARTER ENDED MARCH 31,
----------------------------------
2001 2000
--------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 135,280 $ 101,139
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
ALLOCATION TO MINORITY INTERESTS:
Operating Partnership 9,796 7,096
Partially Owned Properties 105 (45)
Cumulative effect of change in accounting principle 1,270 -
Depreciation 115,029 111,886
Amortization of deferred financing costs 1,397 1,341
Amortization of discount on investment in mortgage notes (161) -
Amortization of goodwill 933 -
Amortization of discounts and premiums on debt (590) (576)
Amortization of deferred settlements on interest rate protection
agreements 101 201
Income from investments in unconsolidated entities (3,797) (4,223)
Net gain on sales of real estate (41,778) (19,998)
Extraordinary items (311) -
Unrealized gain on interest rate protection agreements (71) -
Book value of furniture sales and rental buy outs 2,851 -
Compensation paid with Company Common Shares 2,867 1,422
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in rents receivable (188) 723
Decrease (increase) in deposits - restricted 5,343 (2,802)
Additions to rental furniture (6,272) -
(Increase) in other assets (1,872) (2,025)
(Decrease) increase in accounts payable and accrued expenses (9,153) 1,944
Increase in accrued interest payable 19,752 16,683
Increase (decrease) in rents received in advance and other liabilities 219 (2,652)
Increase in security deposits 343 80
--------------- -----------------
Net cash provided by operating activities 231,093 210,194
--------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate, net (157,157) (18,307)
Improvements to real estate (28,166) (27,193)
Additions to non-real estate property (1,830) (1,038)
Interest capitalized for real estate under construction (667) (236)
Proceeds from disposition of real estate, net 280,448 92,241
Investment in property and equipment (673) -
Principal receipts on investment in mortgage notes 2,998 1,687
Investments in unconsolidated entities, net (16,613) (47,315)
Distributions from unconsolidated entities, net 8,364 4,801
Proceeds from disposition of unconsolidated entities, net - 4,400
(Increase) in deposits on real estate acquisitions, net (28,506) (51,948)
Decrease in mortgage deposits 870 4,596
Purchase of management contract rights - (779)
Business combinations, net of cash acquired (5,538) (3,472)
Other investing activities, net (48) (772)
--------------- -----------------
Net cash provided by (used for) investing activities 53,482 (43,335)
--------------- -----------------
SEE ACCOMPANYING NOTES
4
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
QUARTER ENDED MARCH 31,
---------------------------------
2001 2000
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan and bond acquisition costs $ (3,390) $ (574)
MORTGAGE NOTES PAYABLE:
Proceeds, net 29,052 147,683
Lump sum payoffs (176,746) (12,801)
Scheduled principal repayments (8,451) (7,509)
NOTES, NET:
Proceeds, net 299,316 -
Scheduled principal repayments (119) -
LINES OF CREDIT:
Proceeds 176,686 48,000
Repayments (532,148) (348,000)
(Payments) proceeds from settlement of interest rate protection agreements (7,360) 7,055
Proceeds from sale of Common Shares 3,266 2,900
Proceeds from sale of Preferred Shares/Units, net 34,125 64,350
Proceeds from exercise of options 8,210 4,000
Payment of offering costs (63) (32)
DISTRIBUTIONS:
Common Shares (416) (257)
Preferred Shares/Units (25,432) (28,197)
Minority Interests - Operating Partnership (9) (143)
Minority Interests - Partially Owned Properties (108) -
Principal receipts on employee notes, net 71 59
--------------- ----------------
Net cash (used for) financing activities (203,516) (123,466)
--------------- ----------------
Net increase in cash and cash equivalents 81,059 43,393
Cash and cash equivalents, beginning of period 23,772 29,117
--------------- ----------------
Cash and cash equivalents, end of period $ 104,831 $ 72,510
SUPPLEMENTAL INFORMATION:
=============== ================
Cash paid during the period for interest $ 76,777 $ 78,961
=============== ================
Mortgage loans assumed and/or entered into through
acquisitions of real estate $ 45,918 $ -
=============== ================
Net real estate contributed in exchange for OP Units or
Preference Units $ - $ 636
=============== ================
Mortgage loans assumed by purchaser in real estate dispositions $ (22,815) $ -
=============== ================
Transfers to real estate held for disposition $ 21,886 $ 29,183
=============== ================
Mortgage loans recorded as a result of consolidation of previously
Unconsolidated Properties $ - $ 65,095
=============== ================
Net liabilities recorded as a result of consolidation of previously
Unconsolidated Properties $ - $ 792
=============== ================
5
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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")
(collectively, the "Mergers"). The Company also includes Globe Business
Resources, Inc. ("Globe"), Temporary Quarters, Inc. ("TQ") and Grove Property
Trust ("Grove"). The Company has elected to be taxed as a REIT under Section
856(c) of the Internal Revenue Code 1986, as amended (the "Code").
The Company is engaged in the acquisition, disposition, ownership,
management and operation of multifamily properties. As of March 31, 2001, the
Company owned or had interests in a portfolio of 1,096 multifamily properties
containing 227,153 apartment units (individually a "Property" and collectively
the "Properties") consisting of the following:
Number of Number
Properties of Units
----------- --------
Wholly Owned Properties 979 204,048
Partially Owned Properties 15 3,067
Unconsolidated Properties 102 20,038
----------- --------
Total Properties 1,096 227,153
============ =========
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals) and
certain reclassifications considered necessary for a fair presentation have been
included. Certain reclassifications have been made to the prior periods
financial statements in order to conform to the current year presentation.
Operating results for the three months ended March 31, 2001 are not necessarily
indicative of the results that may be expected for the year ended December 31,
2001.
The balance sheet at December 31, 2000 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements.
For further information including capitalized terms, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 2000.
6
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In the normal course of business, the Company is exposed to the effect
of interest rate changes. The Company limits these risks by following
established risk management policies and procedures including the use of
derivatives.
The Company has a policy of only entering into contracts with major
financial institutions based upon their credit ratings and other factors. When
viewed in conjunction with the underlying and offsetting exposure that the
derivatives are designed to hedge, the Company has not sustained a material loss
from those instruments nor does it anticipate any material adverse effect on its
net income or financial position in the future from the use of derivatives.
On January 1, 2001, the Company adopted SFAS No. 133/138, which
requires an entity to recognize all derivatives as either assets or liabilities
in the statement of financial position and to measure those instruments at fair
value. Additionally, the fair value adjustments will affect either shareholders'
equity or net income depending on whether the derivative instruments qualify as
a hedge for accounting purposes and, if so, the nature of the hedging activity.
When the terms of an underlying transaction are modified, or when the underlying
transaction is terminated or completed, all changes in the fair value of the
instrument are marked-to-market with changes in value included in net income
each period until the instrument matures. Any derivative instrument used for
risk management that does not meet the hedging criteria is marked-to-market each
period.
As of January 1, 2001, the adoption of the new standard resulted in
derivative instruments reported on the balance sheet as liabilities of
approximately $6.6 million; an adjustment of approximately $5.3 million to
"Accumulated Other Comprehensive Income", which are gains and losses not
affecting retained earnings in the Consolidated Statement of Shareholders'
Equity; and a charge of approximately $1.3 million as a cumulative effect of
change in accounting principle in the Consolidated Statement of Operations.
The Company employs derivative financial instruments to hedge
qualifying anticipated transactions. Gains and losses are deferred and
recognized in net income in the same period that the underlying transaction
occurs, expires or is otherwise terminated. As of March 31, 2001, there were
approximately $17.0 million in deferred losses, net, included in accumulated
other comprehensive income.
As of March 31, 2001, the Company has entered into swaps, which have
been designated as cash flow hedges with an aggregate notional amount of $626.4
million at interest rates ranging from 3.65125% to 6.15% maturing at various
dates ranging from 2003 to 2007 with a net liability fair value of $16.5
million; and swaps which have been designated as fair value hedges with an
aggregate notional amount of $176.4 million at interest rates ranging from
4.458% to 4.830% maturing at various dates ranging from 2003 to 2004 with a net
asset fair value of $5.6 million.
On March 31, 2001, the net derivative instruments were reported at
their fair value as other liabilities of approximately $10.9 million. Within the
next twelve months the Company expects to recognize an estimated $4.0 million of
accumulated other comprehensive income as additional interest expense.
7
3. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS
The following table presents the changes in the Company's issued and
outstanding Common Shares for the quarter ended March 31, 2001:
2001
-----------
Common Shares outstanding at January 1, 132,616,375
COMMON SHARES ISSUED:
Conversion of Series E Preferred Shares 31,532
Conversion of Series H Preferred Shares 650
Employee Share Purchase Plan 71,142
Dividend Reinvestment - DRIP Plan 76
Share Purchase - DRIP Plan 3,183
Exercise of options 189,502
Restricted share grants, net 339,053
Conversion of OP Units 276,602
-----------
Common Shares outstanding at March 31, 133,528,115
-----------
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 March 31, 2001, the Minority Interests -
Operating Partnership held 12,186,865 OP Units. As a result, the Minority
Interests -Operating Partnership had an 8.36% interest in the Operating
Partnership at March 31, 2001. Assuming conversion of all OP Units into
Common Shares, total Common Shares outstanding at March 31, 2001 would have
been 145,714,980.
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 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.
During the quarter ended March 31, 2001, the Company, through a
subsidiary of the Operating Partnership, issued preference units with an
equity value of $35 million, receiving net proceeds of $34.1 million:
- - 510,000 7.875% Series G Cumulative Redeemable Preference Units (known
as "Preference Interests") with an equity value of $25.5 million. The
liquidation value of these units is $50 per unit. The 510,000 units are
exchangeable into 510,000 shares of 7.875% Series M-4 Cumulative
Redeemable Preferred Shares of Beneficial Interest of the Company.
Dividends for the Series G Preference Interests or the Series M-4
Preferred Shares are payable quarterly at the rate of $3.9375 per
unit/share per year.
- - 190,000 7.625% Series H Cumulative Convertible Redeemable Preference
Units with an equity value of $9.5 million. The liquidation value of
these units is $50 per unit. The 190,000 units are exchangeable into
190,000 shares of 7.625% Series M-5 Convertible Cumulative Redeemable
Preferred Shares of Beneficial Interest of the Company or 143,526
Common Shares beginning March 2011. Dividends for the Series H
Preference Interests or the Series M-5 Preferred Shares are payable
quarterly at the rate of $3.8125 per unit/share per year.
8
The value of the 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-4 Preferred Shares are
not convertible into EQR Common Shares. The Series H Preference Interests and
the Series M-5 Preferred Shares are convertible into EQR Common Shares at a
conversion price ratio of 0.7554 common shares (equal to a conversion price
of $66.19 per share) beginning in March 2011.
The following table presents the Company's issued and outstanding
Preferred Shares as of March 31, 2001 and December 31, 2000:
AMOUNTS ARE IN THOUSANDS
-------------------------------
ANNUAL
DIVIDEND
RATE PER MARCH DECEMBER
SHARE (1) 31, 2001 31, 2000
--------- ------------- ----------------
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 March 31, 2001 and December 31, 2000
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 March 31, 2001 and December 31, 2000
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 March 31, 2001 and December 31, 2000
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 March 31, 2001 and December 31, 2000
Series E Cumulative Convertible Preferred; liquidation value $1.75000 88,573 89,990
$25 per share; 3,542,915 and 3,599,615 shares issued
and outstanding at March 31, 2001 and December 31, 2000,
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 March 31, 2001 and December 31, 2000
7 1/4% Series G Convertible Cumulative Preferred; liquidation $18.12500 316,175 316,175
value $250 per share; 1,264,700 shares issued and
outstanding at March 31, 2001 and December 31, 2000
7.00% Series H Cumulative Convertible Preferred; liquidation $1.75000 1,449 1,471
value $25 per share; 57,951 and 58,851 shares issued
and outstanding at March 31, 2001 and December 31, 2000,
respectively
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 March 31, 2001 and December 31, 2000
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 March 31, 2001 and December 31, 2000
--------- ------------- ----------------
$ 1,181,697 $ 1,183,136
------------- ----------------
9
(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.
4. Real Estate Acquisitions
During the quarter ended March 31, 2001, the Company acquired the seven
properties listed below from unaffiliated parties for a total purchase price of
$189.1 million.
ACQUISITION
DATE NUMBER PRICE
ACQUIRED PROPERTY LOCATION OF UNITS (IN THOUSANDS)
-------- ------------------------------ ---------------- -------- --------------
01/04/01 Suerte San Diego, CA 272 $ 37,500
02/08/01 Westside Villas VI Los Angeles, CA 18 4,550
02/15/01 Riverview Norwalk, CT 92 9,600
03/15/01 Grand Reserve at Eagle Valley Woodbury, MN 394 54,250
03/22/01 Legends at Preston Morrisville, NC 382 30,200
03/30/01 Mission Hills Oceanside, CA 282 26,750
03/30/01 River Oaks Oceanside, CA 280 26,250
-------- --------------
1,720 $ 189,100
-------- --------------
5. Real Estate Dispositions
During the quarter ended March 31, 2001, the Company disposed
of the fifteen properties listed below to unaffiliated parties. Including the
joint venture and land sale discussed below, the Company recognized a net gain
of approximately $41.8 million on these sales.
DISPOSITION
DATE NUMBER PRICE
DISPOSED PROPERTY LOCATION OF UNITS (IN THOUSANDS)
-------- ------------------------ ------------------- -------- --------------
01/17/01 Meadowood II Indianapolis, IN 74 $ 1,300
01/31/01 Concorde Bridge Overland Park, KS 248 15,600
02/01/01 Springs of Country Woods Salt Lake City, UT 590 31,000
02/22/01 Riverview Estates Napoleon, OH 90 1,750
02/26/01 Chelsea Court Sandusky, OH 62 1,600
02/27/01 Concord Square Lawrenceburg, IN 48 1,200
02/28/01 Canyon Creek Tucson, AZ 242 9,220
03/06/01 Gentian Oaks Columbus, GA 62 1,620
03/06/01 Holly Park Columbus, GA 66 1,730
03/06/01 Stratford Lane I Columbus, GA 67 1,750
03/07/01 Estate on Quarry Lake Austin, TX 302 25,232
03/08/01 Meadowood Crawfordsville, IN 64 1,300
03/14/01 Mill Run Statesboro, GA 88 2,350
03/15/01 Laurel Court Fremont, OH 69 1,450
03/15/01 Regency Woods West Des Moines, IA 200 9,350
-------- --------------
2,272 $106,452
-------- --------------
10
On February 23, 2001, the Company entered into a joint venture with an
unaffiliated joint venture partner ("JVP"). At closing, the Company sold and/or
contributed eleven wholly owned properties containing 3,011 units valued at
$202.5 million to the joint venture encumbered with $20.2 million in mortgage
loans obtained on February 16, 2001. An additional $123.6 million of mortgage
loans was obtained by the joint venture. The JVP contributed cash in an amount
equal to 75% of the equity in the joint venture, which was then distributed to
the Company. The Company retained a 25% interest in the joint venture along with
the right to manage the properties. In accordance with the respective joint
venture organization documents, the Company and the JVP both shall have the
right, but not the obligation, to infuse additional cash into the joint venture.
There are no other agreements that require the Company or the JVP to infuse cash
into each joint venture. In addition, the Company and the JVP have not
guaranteed the mortgage indebtedness of the joint venture. As a result, the
Company recognized 75% of the gain on the sales and/or contributions of property
to the joint venture, which totaled approximately $36.5 million. The Company has
classified its initial $3.4 million 25% interest in the joint venture (at
carryover basis) as investments in unconsolidated entities and accounted for it
under the equity method of accounting.
In addition, during the three months ended March 31, 2001, the Company
sold a vacant parcel of land in Richmond, VA for $11.2 million.
6. Commitments to Acquire/Dispose of Real Estate
As of March 31, 2001, the Company entered into a separate agreement
to acquire one multifamily property containing 125 units from an unaffiliated
party. The Company expects a purchase price of approximately $13.5 million.
As of March 31, 2001, 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 agreements to dispose
of seventeen multifamily properties containing 3,161 units to unaffiliated
parties. The Company expects a combined disposition price of approximately
$137.2 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.
7. INVESTMENTS IN UNCONSOLIDATED ENTITIES
The Company has entered into two separate joint venture agreements with
third party development companies whereby the Company contributes 25% to 30% of
the development cost to the joint venture in return for preferential returns of
9.0% per annum. The basis of the Company's equity investments in these two joint
ventures was $252.4 million and $235.9 million as of March 31, 2001 and December
31, 2000, respectively.
The Company also has various other investments in unconsolidated
entities with ownership interests ranging from 1.5% to 50.0%. The basis of these
equity investments was $80.8 million and $80.6 million as of March 31, 2001 and
December 31, 2000, respectively.
These investments are accounted for under the equity method of
accounting.
8. DEPOSITS - RESTRICTED
Deposits-restricted as of March 31, 2001 primarily included the
following:
11
- deposits in the amount of $39.5 million held in third party
escrow accounts to provide collateral for third party
construction financing in connection with two separate joint
venture agreements;
- approximately $180.2 million in 1031 exchange proceeds; and
- approximately $35.1 million for tenant security, utility,
and other deposits.
9. MORTGAGE NOTES PAYABLE
As of March 31, 2001, the Company had outstanding mortgage indebtedness
of approximately $3.1 billion.
During the quarter ended March 31, 2001 the Company:
- repaid $176.7 million of mortgages due at or prior to maturity
and/or at the disposition date of the respective Property;
- assumed $45.9 million of mortgage debt on four properties in
connection with their acquisitions;
- disposed of $22.8 million of mortgage debt assumed by the
purchaser in connection with the disposition of certain
properties;
- obtained $20.2 million of new mortgage debt on previously
unencumbered properties; and
- received $8.8 million in construction loan draw proceeds on two
properties.
As of March 31, 2001, 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 2.65% to 12.465% at
March 31, 2001. During the quarter ended March 31, 2001, the weighted average
interest rate on the Company's mortgage debt was 6.62%.
10. NOTES
As of March 31, 2001, the Company had outstanding unsecured notes of
approximately $2.4 billion.
During the quarter ended March 31, 2001, the Company issued $300.0
million of ten-year 6.95% fixed-rate public unsecured notes and received net
proceeds of $297.4 million.
As of March 31, 2001, scheduled maturities for the Company's
outstanding notes are at various dates through 2029. The interest rate range on
the Company's notes was 4.75% to 9.375 % at March 31, 2001. During the quarter
ended March 31, 2001, the weighted average interest rate on the Company's notes
was 7.04%.
11. LINES OF CREDIT
The Company has a revolving credit facility to provide the Operating
Partnership with potential borrowings of up to $700.0 million. As of March 31,
2001 no amounts were outstanding under this facility and $54.9 million was
restricted on the line of credit.
In connection with the Globe acquisition, the Company assumed a
revolving credit facility with potential borrowings of up to $55.0 million. As
of March 31, 2001, no amounts were outstanding under this facility.
During the quarter ended March 31, 2001, the weighted average interest
rate on the Company's lines of credit was 6.65%.
12
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.
QUARTER ENDED MARCH 31,
---------------------------------
2001 2000
---------------- -------------
(AMOUNTS IN THOUSANDS EXCEPT PER
SHARE AMOUNTS)
NUMERATOR:
Income before allocation to Minority Interests, income
from investments in unconsolidated entities, net gain
on sales of real estate, extraordinary items, cumulative
effect of change in accounting principle and preferred
distributions $ 100,565 $ 83,969
Allocation to Minority Interests:
Operating Partnership (9,796) (7,096)
Partially Owned Properties (105) 45
Income from investments in unconsolidated entities 3,797 4,223
Preferred distributions (28,526) (28,388)
---------------- ------------
Income before net gain on sales of real estate, extraordinary
items and cumulative effect of change in accounting 65,935 52,753
principle
Net gain on sales of real estate 41,778 19,998
Extraordinary items 311 -
Cumulative effect of change in accounting principle (1,270) -
---------------- ------------
Numerator for net income per share - basic 106,754 72,751
Effect of dilutive securities:
Allocation to Minority Interests -
Operating Partnership 9,796 7,096
Distributions on convertible preferred shares/units 1,692 -
---------------- ------------
Numerator for net income per share - diluted $ 118,242 $ 79,847
================ =============
DENOMINATOR:
Denominator for net income per share - basic 132,599 127,798
Effect of dilutive securities:
Stock options/restricted shares 1,577 422
OP Units 12,231 12,466
Convertible preferred shares/units 2,185 -
---------------- ------------
Denominator for net income per share - diluted 148,592 140,686
================ =============
Net income per share - basic $ 0.81 $ 0.57
================ =============
Net income per share - diluted $ 0.80 $ 0.57
================ =============
13
QUARTER ENDED MARCH 31,
--------------------------------
2001 2000
--------------- ---------------
(AMOUNTS IN THOUSANDS EXCEPT PER
SHARE AMOUNTS)
NET INCOME PER SHARE - BASIC:
Income before net gain on sales of real estate, extraordinary items and
cumulative effect of change in accounting principle
per share - basic $ 0.53 $ 0.43
Net gain on sales of real estate 0.29 0.14
Extraordinary items - -
Cumulative effect of change in accounting principle (0.01) -
--------------- ---------------
Net income per share - basic $ 0.81 $ 0.57
=============== ===============
NET INCOME PER SHARE - DILUTED:
Income before net gain on sales of real estate, extraordinary items and
cumulative effect of change in accounting principle
per share - diluted $ 0.52 $ 0.43
Net gain on sales of real estate 0.29 0.14
Extraordinary items -
-
Cumulative effect of change in accounting principle (0.01) -
--------------- ---------------
Net income per share - diluted $ 0.80 $ 0.57
=============== ===============
CONVERTIBLE PREFERRED SHARES/UNITS THAT COULD BE CONVERTED INTO 5,415,852 AND
10,643,083 WEIGHTED AVERAGE COMMON SHARES FOR THE QUARTERS ENDED MARCH 31, 2001
AND 2000, 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
environmental laws of Federal and local governments. 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 threatened against
the Company other than routine litigation arising out of the ordinary course of
business, some 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 $26.4
million during the quarter ended March 31, 2001. During the remainder of
2001, the Company expects to fund approximately $70.2 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. As of March 31, 2001, the
Company has 19 projects under development with estimated completion dates
ranging from June 30, 2001 through March 31, 2003. At any time following the
completion of construction of any development property, the Company's joint
venture partners have the right to cause the Company to acquire their
respective interests in the completed projects at a mutually agreeable price.
If the Company and the joint venture partner are unable to agree on a price,
appraisals will be obtained by both parties. If the appraised values vary by
more than 10%, both the Company and the joint venture partner will agree on a
third appraiser to determine which original appraisal is closest to its
determination of value.
14
In connection with the Wellsford Merger, the Company provided
a credit enhancement with respect to certain tax-exempt bonds issued to finance
certain public improvements at a multifamily development project. As of March
31, 2001, this enhancement was still in effect at a commitment amount of $12.7
million.
14. REPORTABLE SEGMENTS
The following tables set forth the reconciliation of net income and
total assets for the Company's reportable segments for the quarters ended March
31, 2001 and 2000.
RENTAL REAL CORPORATE/
MARCH 31, 2001 (AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
-------------------------------------------------------- ------------- ---------- --------------
Rental income $ 514,137 $ - $ 514,137
Fee and asset management income - 1,972 1,972
Furniture income - 12,546 12,546
Property and maintenance expense (141,864) - (141,864)
Real estate tax and insurance expense (48,021) - (48,021)
Property management expense (18,687) - (18,687)
Fee and asset management expense - (1,875) (1,875)
Furniture expenses - (9,724) (9,724)
------------- ---------- --------------
Net operating income 305,565 2,919 308,484
Interest income - investment in mortgage notes - 2,744 2,744
Interest and other income - 6,502 6,502
Depreciation expense on non-real estate assets - (2,259) (2,259)
Interest expense:
Expense incurred - (95,276) (95,276)
Amortization of deferred financing costs - (1,397) (1,397)
General and administrative expense - (6,754) (6,754)
Allocation to Minority Interests - Partially
Owned Properties - (105) (105)
Income from investments in unconsolidated entities - 3,797 3,797
Preferred distributions - (28,526) (28,526)
Adjustment for loss on investment in technology
segment - 3,003 3,003
Adjustment for depreciation expense related
to Unconsolidated and Partially Owned Properties - 1,995 1,995
------------- ---------- --------------
Funds from operations available to Common Shares
and OP Units 305,565 (113,357) 192,208
Depreciation/amortization (110,546) (933) (111,479)
Net gain on sales of real estate 41,778 - 41,778
Extraordinary items - 311 311
Cumulative effect of change in accounting principle - (1,270) (1,270)
Allocation to Minority Interests - Operating
Partnership - (9,796) (9,796)
Adjustment for loss on investment in
technology segment - (3,003) (3,003)
Adjustment for depreciation expense related
to Unconsolidated and Partially - (1,995) (1,995)
Owned Properties
------------- ---------- --------------
Net income available to Common Shares $ 236,797 $(130,043) $ 106,754
============= ========== ==============
Investment in real estate, net of accumulated depreciation $ 11,110,846 $ 16,219 $ 11,127,065
============= ========== ==============
Total assets $ 11,132,732 $1,112,763 $ 12,245,495
============= ========== ==============
15
RENTAL REAL CORPORATE/
MARCH 31, 2000 (AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
------------------------------------------------------ ------------ ----------- -------------
Rental income $ 473,547 $ - $ 473,547
Fee and asset management income - 1,400 1,400
Property and maintenance expense (113,868) - (113,868)
Real estate tax and insurance expense (48,334) - (48,334)
Property management expense (18,914) - (18,914)
Fee and asset management expense - (1,066) (1,066)
------------ ----------- -------------
Net operating income 292,431 334 292,765
Interest income - investment in mortgage notes - 2,762 2,762
Interest and other income - 3,478 3,478
Depreciation expense on non-real estate assets - (1,567) (1,567)
Interest expense:
Expense incurred - (95,111) (95,111)
Amortization of deferred financing costs - (1,341) (1,341)
General and administrative expense - (6,698) (6,698)
Allocation to Minority Interests -
Partially Owned Properties - 45 45
Income from investments in unconsolidated entities - 4,223 4,223
Preferred distributions - (28,388) (28,388)
Adjustment for depreciation expense related
to Unconsolidated and Partially Owned Properties - (238) (238)
------------ ----------- -------------
Funds from operations available to Common Shares and
OP Units 292,431 (122,501) 169,930
Depreciation expense on real estate assets (110,319) - (110,319)
Net gain on sales of real estate 19,998 - 19,998
Allocation to Minority Interests -
Operating Partnership - (7,096) (7,096)
Adjustment for depreciation expense related
to Unconsolidated and Partially Owned Properties 238 238
------------ ----------- -------------
Net income available to Common Shares $ 202,110 $(129,359) $ 72,751
============ =========== =============
(1) The Company's primary business 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, investment in technology entities, income earned from
investments in unconsolidated entities, general and administrative
expenses, and interest expense on mortgage notes payable, unsecured note
issuances and lines of credit. The Company's fee and asset management
activity and furniture rental/sales activities are immaterial and do not
meet the threshold requirements of a reportable segment as provided for
in SFAS 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.
16
15. SUBSEQUENT EVENTS
Subsequent to March 31, 2001, the Company has:
- - disposed of four Properties consisting of 658 units for approximately $24.7
million;
- - paid off $6.7 million of mortgage debt at or prior to maturity and/or at
disposition of one property;
- - funded $5.9 million related to the development, earnout and joint venture
agreements; and
- - disposed of $0.9 million of mortgage debt assumed by the purchaser in
connection with the disposition of one property.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
For further information including capitalized terms, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 2000.
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:
- - alternative sources of capital to the Company are more expensive 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
assumes 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 following table summarizes the number of Properties and related
units for the periods presented:
PORTFOLIO SUMMARY
---------------------------------------------------------------------------------
QUARTER ENDED MARCH 31,
---------------------------------------------------------------------------------
2001 2000
---- ----
PROPERTIES UNITS PROPERTIES UNITS
------------ --------- ------------ ---------
Beginning of period 1,104 227,704 1,062 225,708
Acquisitions 7 1,721 1 178
Dispositions (15) (2,272) (11) (2,162)
------------ --------- ------------ ---------
End of period 1,096 227,153 1,052 223,724
------------ --------- ------------ ---------
In addition, the Company sold and/or contributed eleven wholly owned
Properties containing 3,011 units to a joint venture entity during the quarter
ended March 31, 2001. The Company retained a 25% interest along with the rights
to manage the joint venture Properties.
18
The Company's overall results of operations for the quarters ended
March 31, 2001 and 2000 have been significantly impacted by the Company's
acquisition and disposition activity. The significant changes in revenues and
expenses can primarily be attributed to the acquisition of Globe, the 2001 and
the 2000 Acquired Properties, partially offset by the disposition of the 2001
and the 2000 Disposed Properties. This impact is discussed in greater detail in
the following paragraphs.
Properties that the Company owned for all of the quarter ended March
31, 2001 and March 31, 2000 (the "First Quarter 2001 Same Store Properties"),
which represented 188,220 units, also impacted the Company's results of
operations and are discussed as well in the following paragraphs.
COMPARISON OF QUARTER ENDED MARCH 31, 2001 TO QUARTER ENDED MARCH 31, 2000
For the quarter ended March 31, 2001, income before allocation to
Minority Interests, income from investments in unconsolidated entities, net gain
on sales of real estate, extraordinary items and cumulative effect of change in
accounting principle increased by approximately $16.6 million when compared to
the quarter ended March 31, 2000.
Rental income from the First Quarter 2001 Same Store Properties
increased by approximately $22.8 million to $439.9 million or 5.46% 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. For the remainder of 2001,
the Company expects to achieve rental income increases of 4.5% to 5.0% from Same
Store Properties. These estimated increases are subject to certain risks and
uncertainties including, but not limited to, maintaining an overall average
occupancy rate of 95%.
Property operating expenses from the First Quarter 2001 Same Store
Properties, which include property and maintenance, real estate taxes and
insurance and an allocation of property management expenses, increased
approximately $8.9 million or 5.97%. The increase in "same store" expenses is
primarily attributable to a $3.6 million, or 14.8% increase in utilities and a
$2.1 million, or 5.7% increase in payroll. For the remainder of 2001, the
Company expects to maintain expense growth at no more than 4.25% to 4.75%.
Rental income from non-First Quarter 2001 Same Store Properties
increased by approximately $17.8 million primarily as a result of revenue from
the Globe corporate housing business and the acquisition of Properties during
the periods presented. The Company expects similar trends in the future subject
to certain risks and uncertainties including that any new acquisitions perform
at the Company's pro forma expectations.
Interest and other income increased by approximately $3.0 million,
primarily as a result of disposition proceeds earning interest in various tax
deferred 1031 exchange accounts. These proceeds are invested in money market
investments until the Company purchases additional multi-family properties.
Property management represents expenses associated with the
self-management of the Company's Properties. These expenses decreased by
approximately $0.2 million. The Company continues to acquire properties in major
metropolitan areas and dispose of assets in smaller multi-family rental markets
where the Company does not have a significant management presence. As a result,
the Company is able to achieve economies of scale by not increasing off-site
management expenses as it acquires additional properties.
Fee and asset management revenues and fee and asset management expenses
increased as a result of the Company continuing to manage Properties that were
sold and/or contributed to various joint venture entities. As of March 31, 2001,
the Company currently manages 20,300 units for third parties and the joint
venture entities.
19
Furniture income and furniture expenses are associated with the
operation of the furniture rental business assumed in connection with the Globe
acquisition, which occurred in July 2000. Furniture expenses include a
depreciation charge on furniture held in inventory.
Interest expense, including amortization of deferred financing costs,
increased approximately $0.2 million. The effective interest cost on all of the
Company's indebtedness for the quarter ending March 31, 2001 was 7.07% as
compared to 7.17% for the quarter ended March 31, 2000. For the remainder of
2001, the Company expects interest rates to decrease slightly due to lower
variable rates. In connection with the refinancing of $280 million of
indebtedness, the Company expects to incur interest costs approximating 7.5% per
annum.
General and administrative expenses, which include corporate operating
expenses, increased approximately $0.1 million between the periods under
comparison. However, by gaining certain economies of scale with a much larger
operation, these expenses as a percentage of total revenues were 1.26% for the
quarter ended March 31, 2001 compared to 1.39% of total revenues for the quarter
ended March 31, 2000.
Net gain on sales of real estate increased approximately $21.8 million
between the periods under comparison. This increase is primarily the result of
additional Properties sold during the quarter ended March 31, 2001, which
included fifteen wholly owned Properties; eleven joint venture Properties (75%
gain recognition) and one land sale as compared to eleven wholly owned
Properties sold in the quarter ended March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of January 1, 2001, the Company had approximately $23.8 million of
cash and cash equivalents and the amounts available on the Company's lines of
credit was $400 million, of which $53.5 million was restricted. After taking
into effect the various transactions discussed in the following paragraphs, the
Company's cash and cash equivalents balance at March 31, 2001 was approximately
$104.8 million and the amounts available on the Company's lines of credit was
$755 million, of which $54.9 million was restricted.
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
three months of 2001, the Company:
- - disposed of fifteen properties and a vacant parcel of land and received
net proceeds of $115.4 million;
- - issued $300 million of unsecured debt receiving net proceeds of $297.4
million;
- - sold and/or contributed eleven properties to a joint venture and
received net proceeds of $190.0 million;
- - issued $35 million of two new series of Preference Interests and
received net proceeds of $34.1 million.
All of these proceeds were utilized to either:
- - repay the lines of credit;
- - repay mortgage indebtedness on selected Properties;
- - invest in unconsolidated entities;
- - purchase additional properties.
20
During the quarter ended March 31, 2001, the Company:
- - repaid approximately $176.7 million of mortgage indebtedness;
- - invested $1 million in a corporate entity;
- - loaned $2.6 million to an unconsolidated entity;
- - funded $26.4 million related to the development, earnout and joint
venture agreements.
The Company's total debt summary, as of March 31, 2001, included:
DEBT SUMMARY AS OF 3/31/01
- --------------------------------------------------------------------------------
WEIGHTED
$ MILLIONS AVERAGE RATE
------------- ------------
Secured $ 3,097 6.72%
Unsecured $ 2,419 7.04%
------------- ------------
Total $ 5,516 6.86%
Fixed Rate $ 5,048 7.06%
Floating Rate $ 468 4.72%
------------- ------------
Total $ 5,516 6.86%
ABOVE TOTALS INCLUDE:
Total Tax Exempt $ 959 4.80%
Unsecured Revolving Credit Facility $ - N/A
Subsequent to March 31, 2001 and through May 1, 2001, the Company:
- - disposed of four Properties consisting of 658 units for approximately
$24.7 million;
- - repaid $6.7 million of mortgage debt at or prior to maturity and/or
disposition of a Property;
- - funded $5.9 million related to the development, earnout, and joint
venture agreements;
- - disposed of $0.9 million of mortgage debt assumed by the purchaser in
connection with the disposition of one property.
During the remainder of 2001, the Company expects to fund
approximately $70.2 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. As of March 31, 2001, the
Company has 19 projects under development with estimated completion dates
ranging from June 30, 2001 through March 31, 2003. At any time following the
completion of construction of any development property, the Company's joint
venture partners have the right to cause the Company to acquire their
respective interests in the completed projects at a mutually agreeable price.
If the Company and the joint venture partner are unable to agree on a price,
appraisals will be obtained by both parties. If the appraised values vary by
more than 10%, both the Company and the joint venture partner will agree on a
third appraiser to determine which original appraisal is closest to its
determination of value.
During the quarter ended March 31, 2001, the Company's total
improvements to real estate approximated $28.2 million. Of this amount,
approximately $4.5 million, or $89 per unit, related to capital improvements
and major repairs for the 1999, 2000 and 2001 Acquired Properties. Capital
improvements and major repairs for all of the Company's pre-1999 Acquired
Properties approximated $9.9 million or $64 per unit. Capital spent for
replacement-type items approximated $11.4 million, or $56 per unit. In
addition, approximately $1.7 million was spent on seven specific assets
related to major
21
renovations and repositioning of these assets. Also included in total
improvements to real estate was approximately $0.7 million on
commercial/other assets and Partially Owned Properties. Such improvements to
real estate were primarily funded from net cash provided by operating
activities. Total improvements to real estate budgeted for the remainder of
2001 are estimated to be approximately $110.0 million.
Also included in total capital expenditures for the Company was
approximately $1.8 million for non-real estate additions such as computer
software, computer equipment, and furniture and fixtures and leasehold
improvements to the Company's property management offices and its corporate
offices. Such additions to non-real estate property were primarily funded from
net cash provided by operating activities. Total additions to non-real estate
property budgeted for the remainder of 2001 are estimated to be approximately
$4.2 million.
The Company, through its Globe subsidiary, has a policy of capitalizing
expenditures made for rental furniture and property and equipment. 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 also
capitalized. Expenditures for ordinary maintenance and repairs related to
property and equipment are expensed as incurred. For the quarter ended March 31,
2001, total additions to rental furniture approximated $6.3 million and property
and equipment approximated $0.7 million. Total additions to rental furniture and
property and equipment budgeted for the remainder of 2001 are estimated to be
approximately $18.0 million.
Minority Interests as of March 31, 2001 increased by $24.7 million when
compared to December 31, 2000. The primary factors that impacted this account
during the quarter were:
- - distributions declared to Minority Interests, which amounted to $9.9
million for the quarter (excluding preference unit/interest
distributions);
- - the allocation of income from operations in the amount of $9.8 million;
- - the allocation of Minority Interests from Partially Owned Properties in
the amount of $0.1 million;
- - the conversion of OP Units into Common Shares; and
- - the issuance of Common Shares, OP Units and Preference Interests during
the quarter ended March 31, 2001.
Total distributions paid in April 2001 amounted to
approximately $143.3 million, which included distributions declared for the
quarter ended March 31, 2001.
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 the issuance of unsecured notes and
equity securities including additional OP Units as well as from undistributed
FFO and proceeds received from the disposition of certain Properties. 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.
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 May 1, 2001, no amounts were outstanding under this facility.
22
In connection with the Globe Acquisition, the Company assumed a
revolving credit facility with Fifth Third Bank with potential borrowings of
up to $55.0 million. As of May 1, 2001, no amounts were outstanding under
this facility.
In connection with the Wellsford Merger, the Company provided
a credit enhancement with respect to certain tax-exempt bonds issued to finance
certain public improvements at a multifamily development project. As of May 1,
2001, this enhancement was still in effect at a commitment amount of $12.7
million.
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 and investments in
technology segments, 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.
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 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.
For the quarter ended March 31, 2001, FFO available to Common
Shares and OP Units-basic increased by $22.3 million, or 13.1% when compared to
the quarter ended March 31, 2000.
23
The following is a reconciliation of net income to FFO available to
Common Shares and OP Units for the quarters ended March 31, 2001 and 2000
(amounts in thousands except per share and OP Unit amounts):
QUARTER ENDED
MARCH 31,
---------------------------------
2001 2000
--------------- ----------------
STATEMENTS OF FUNDS FROM OPERATIONS
Net income $ 135,280 $ 101,139
Adjustments:
Depreciation/amortization 113,474 110,081
Allocation to Minority Interests - Operating
Partnership 9,796 7,096
Net gain on sales of real estate (41,778) (19,998)
Extraordinary items (311) -
Cumulative effect of change in accounting principle* 1,270 -
Loss on investment in technology segment** 3,003 -
--------------- ----------------
FFO 220,734 198,318
Preferred distributions (28,526) (28,388)
--------------- ----------------
FFO available to Common Shares and OP Units - basic $ 192,208 $ 169,930
--------------- ----------------
FFO available to Common Shares and OP Units - diluted $ 199,653 $ 180,012
=============== ================
Weighted average Common Shares and
OP Units outstanding - basic 144,829 140,264
--------------- ----------------
Weighted average Common Shares and
OP Units outstanding - diluted 154,008 151,329
--------------- ----------------
* Represents the effect related to the Company's adoption of SFAS No. 133/138 on
January 1, 2001.
** Represents the Company's portion of losses related to its investments in four
technology companies.
24
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, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
12 Computation of Ratio of Earnings to Fixed Charges
(B) Reports on Form 8-K:
A Report on Form 8-K dated March 2, 2001, regarding additional
information on the prospectus supplement for the Company's $300 million
unsecured note offering.
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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: May 11, 2001 By: /s/ Bruce C. Strohm
------------ --------------------------------------------
Bruce C. Strohm
Executive Vice President, General Counsel
and Secretary
Date: May 11, 2001 By: /s/ Michael J. McHugh
------------ --------------------------------------------
Michael J. McHugh
Executive Vice President, Chief Accounting
Officer and Treasurer
26