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: 0-24920
ERP OPERATING LIMITED PARTNERSHIP
(Exact Name of Registrant as Specified in Its Charter)
ILLINOIS 36-3894853
(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
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
(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 - Partially Owned Properties 2,881 2,884
------------------ ------------------
Partners' capital:
Junior Convertible Preference Units 7,896 7,896
Cumulative Convertible Redeemable Preference Interests 221,000 186,000
Cumulative Convertible or Redeemable Preference Units 1,181,697 1,183,136
General Partner 4,462,177 4,436,411
Limited Partners 405,515 415,838
Accumulated other comprehensive income (17,033) -
------------------ ------------------
TOTAL PARTNERS' CAPITAL 6,261,252 6,229,281
------------------ ------------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 12,245,495 $ 12,263,966
================== ==================
SEE ACCOMPANYING NOTES
2
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER OP UNIT 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 - 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 146,035 108,235
Extraordinary items 311 -
Cumulative effect of change in accounting principle (1,270) -
------------- ---------------
Net income $ 145,076 $ 108,235
============= ===============
ALLOCATION OF NET INCOME:
Junior Convertible Preference Units $ 109 $ 108
============= ===============
Cumulative Convertible Redeemable Preference Interests $ 3,958 $ 1,169
============= ===============
Cumulative Convertible or Redeemable Preference Units $ 24,459 $ 27,111
============= ===============
General Partner $ 106,754 $ 72,751
Limited Partners 9,796 7,096
------------- ---------------
Net income available to OP Unit holders $ 116,550 $ 79,847
============= ===============
Net income per OP Unit - basic $ 0.81 $ 0.57
============= ===============
Net income per OP Unit - diluted $ 0.80 $ 0.57
============= ===============
Weighted average OP Units outstanding - basic 144,830 140,264
============= ===============
Weighted average OP Units outstanding - diluted 148,592 140,686
============= ===============
SEE ACCOMPANYING NOTES
3
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
QUARTER ENDED MARCH 31,
-----------------------------------
2001 2000
----------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 145,076 $ 108,235
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Allocation to Minority Interests - 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
ERP OPERATING LIMITED PARTNERSHIP
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
Capital contributions from General Partner, net 11,413 6,868
Proceeds from sale of preference units/interests, net 34,125 64,350
Distributions paid to partners (25,857) (28,597)
Distributions to 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
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BUSINESS
ERP Operating Limited Partnership ("ERPOP"), an Illinois limited
partnership, was formed to conduct the multifamily residential property
business of Equity Residential Properties Trust ("EQR"). EQR is a Maryland
real estate investment trust ("REIT") formed on March 31, 1993 and is the
general partner of ERPOP. As used herein, the term "Operating Partnership"
also includes its subsidiaries, including entities that own residential real
property and other assets acquired by virtue 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 Operating Partnership also includes Globe Business Resources, Inc.
("Globe"), Temporary Quarters, Inc. ("TQ") and Grove Operating, L.P.
("Grove"). As used herein, the term "Company" means EQR and the Operating
Partnership. EQR has elected to be taxed as a REIT under Section 856(c) of
the Internal Revenue Code 1986, as amended (the "Code").
The Operating Partnership is engaged in the acquisition,
disposition, ownership, management and operation of multifamily properties.
As of March 31, 2001, the Operating Partnership 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 of
Properties 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
Operating Partnership'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 Operating Partnership is
exposed to the effect of interest rate changes. The Operating Partnership
limits these risks by following established risk management policies and
procedures including the use of derivatives.
The Operating Partnership 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 Operating
Partnership 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 Operating Partnership 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 partners' capital 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 Partners'
Capital; and a charge of approximately $1.3 million as a cumulative effect of
change in accounting principle in the Consolidated Statement of Operations.
The Operating Partnership 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 Operating Partnership 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 Operating Partnership expects to recognize an
estimated $4.0 million of accumulated other comprehensive income as
additional interest expense.
3. PARTNERS' CAPITAL
The following table presents the changes in the Operating
Partnership's issued and outstanding OP Units for the quarter ended March 31,
2001:
7
- ------------------------------------------------------------------- ----------------
2001
- ------------------------------------------------------------------- ----------------
Operating Partnership's OP Units outstanding at January 1, 145,045,126
ISSUED TO GENERAL PARTNER:
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 EQR options 189,502
Restricted EQR share grants, net 339,053
ISSUED TO LIMITED PARTNERS:
Issuance pursuant to acquisition of remaining minority interest in
Globe 34,716
- ------------------------------------------------------------------- ----------------
Operating Partnership's OP Units outstanding at March 31, 145,714,980
- ------------------------------------------------------------------- ----------------
As of March 31, 2001, EQR (as the general partner) had an
approximate 91.64% interest and the Limited Partners had an approximate 8.36%
interest in the Operating Partnership. The limited partners of the Operating
Partnership as of March 31, 2001 include various individuals and entities
that contributed their properties to the Operating Partnership in exchange
for a partnership interest (the "Limited Partners") and are represented by
12,186,865 OP Units.
EQR contributes all net proceeds from the various equity offerings
to the Operating Partnership in return for an increased ownership percentage.
Due to the Limited Partners' ability to convert their interest into an
ownership interest in the general partner (on a one-for-one common share per
OP Unit basis), the net offering proceeds are allocated between EQR (as
general partner) and the Limited Partners (to the extent represented by OP
Units) to account for the change in their respective percentage ownership of
the equity of the Operating Partnership.
The following table presents the Operating Partnership's issued and
outstanding Junior Convertible Preference Units as of March 31, 2001 and
December 31, 2000:
AMOUNTS IN THOUSANDS
------------------------
ANNUAL MARCH DECEMBER
DIVIDEND 31, 2001 31, 2000
RATE PER UNIT
- ------------------------------------------------------ -------------- ------------ -----------
Junior Convertible Preference Units:
Series A Junior Convertible Preference Units; $5.469344 $ 7,712 $ 7,712
liquidation value $100 per unit;
77,123 units issued and outstanding at
March 31, 2001 and December 31, 2000
Series B Junior Convertible Preference Units; $2.000000 184 184
liquidation value $25 per unit;
7,367 units issued and outstanding
at March 31, 2001 and December 31, 2000
- ------------------------------------------------------ -------------- ------------ -----------
$ 7,896 $ 7,896
- ------------------------------------------------------ -------------- ------------ -----------
During the quarter ended March 31, 2001, a subsidiary of the
Operating Partnership issued preference units with an equity value of $35
million, receiving net proceeds of $34.1 million:
o 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
8
Redeemable Preferred Shares of Beneficial Interest of EQR. 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.
o 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 EQR or 143,526 EQR 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.
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 Operating Partnership's issued and
outstanding Preference Interests as of March 31, 2001 and December 31, 2000:
- ------------------------------------------------------------------- ------------- ---------------------------
AMOUNTS IN THOUSANDS
------------- -------------
ANNUAL
DIVIDEND
RATE PER MARCH DECEMBER
UNIT 31, 2001 31, 2000
- ------------------------------------------------------------------- ------------- ------------- -------------
Preference Interests:
8.00% Series A Cumulative Redeemable Preference $4.0000 $ 40,000 $ 40,000
Interests; liquidation value $50 per unit; 800,000 units issued
and outstanding at March 31, 2001 and December 31, 2000
8.50% Series B Cumulative Redeemable Preference $4.2500 55,000 55,000
Units; liquidation value $50 per unit; 1,100,000 units issued
and outstanding at March 31, 2001 and December 31, 2000
8.50% Series C Cumulative Redeemable Preference $4.2500 11,000 11,000
Units; liquidation value $50 per unit; 220,000 units issued
and outstanding at March 31, 2001 and December 31, 2000
8.375% Series D Cumulative Redeemable Preference $4.1875 21,000 21,000
Units; liquidation value $50 per unit; 420,000 units issued
and outstanding at March 31, 2001 and December 31, 2000
8.50% Series E Cumulative Redeemable Preference $4.2500 50,000 50,000
Units; liquidation value $50 per unit; 1,000,000 units issued
and outstanding at March 31, 2001 and December 31, 2000
8.375% Series F Cumulative Redeemable Preference $4.1875 9,000 9,000
Units; liquidation value $50 per unit; 180,000 units issued
and outstanding at March 31, 2001 and December 31, 2000
7.875% Series G Cumulative Redeemable Preference $3.9375 25,500 -
Units; liquidation value $50 per unit; 510,000 units issued
and outstanding at March 31, 2001
7.625% Series H Cumulative Convertible Redeemable $3.8125 9,500 -
Preference Units; liquidation value $50 per unit; 190,000 units
issued and outstanding at March 31, 2001
- ------------------------------------------------------------------- ------------- ------------- -------------
$221,000 $186,000
- ------------------------------------------------------------------- ------------- ------------- -------------
9
The following table presents the Operating Partnership's issued and
outstanding Cumulative Convertible or Redeemable Preference Units as of March
31, 2001 and December 31, 2000:
- ------------------------------------------------------------------------------------------------------------
AMOUNTS IN THOUSANDS
-------------------------
ANNUAL
DIVIDEND
RATE PER MARCH DECEMBER
UNIT (1) 31, 2001 31, 2000
- -------------------------------------------------------------------- ------------- ------------ ------------
Cumulative Convertible or Redeemable Preference Units:
9 3/8% Series A Cumulative Redeemable Preference Units; liquidation $2.34375 $153,000 $153,000
value $25 per unit; 6,120,000 units issued and outstanding at
March 31, 2001 and December 31, 2000
9 1/8% Series B Cumulative Redeemable Preference Units; liquidation $22.81252 125,000 125,000
value $250 per unit; 500,000 units issued and outstanding at
March 31, 2001 and December 31, 2000
9 1/8% Series C Cumulative Redeemable Preference Units; liquidation $22.81252 115,000 115,000
value $250 per unit; 460,000 units issued and outstanding
at March 31, 2001 and December 31, 2000
8.60% Series D Cumulative Redeemable Preference Units; liquidation $21.50000 175,000 175,000
value $250 per unit; 700,000 units issued and outstanding
at March 31, 2001 and December 31, 2000
Series E Cumulative Convertible Preference Units; liquidation value $1.75000 88,573 89,990
$25 per unit; 3,542,915 and 3,599,615 units issued and outstanding
at March 31, 2001 and December 31, 2000, respectively
9.65% Series F Cumulative Redeemable Preference Units; liquidation $2.41250 57,500 57,500
value $25 per unit; 2,300,000 units issued and outstanding at
March 31, 2001 and December 31, 2000
7 1/4% Series G Convertible Cumulative Preference Units; liquidation $18.12500 316,175 316,175
value $250 per unit; 1,264,700 units issued and outstanding at
March 31, 2001 and December 31, 2000
7.00% Series H Cumulative Convertible Preference Units; liquidation $1.75000 1,449 1,471
value $25 per unit; 57,951 and 58,851 units issued and outstanding
at March 31, 2001 and December 31, 2000, respectively
8.29% Series K Cumulative Redeemable Preference Units; liquidation $4.14500 50,000 50,000
value $50 per unit; 1,000,000 units issued and outstanding at
March 31, 2001 and December 31, 2000
7.625% Series L Cumulative Redeemable Preference Units; liquidation $1.90625 100,000 100,000
value $25 per unit; 4,000,000 units issued and outstanding at
March 31, 2001 and December 31, 2000
- -------------------------------------------------------------------- ------------- ------------ ------------
$1,181,697 $1,183,136
- -------------------------------------------------------------------- ------------- ------------ ------------
(1) Dividend rates listed for Series B, C, D and G are preference unit rates
and the equivalent depositary unit annual dividend rates are $2.281252,
$2.281252, $2.15 and $1.8125, respectively.
The following table presents the Operating Partnership's allocation
of net income among Cumulative Convertible or Redeemable Preference Units for
the quarters ended March 31, 2001 and 2000 (AMOUNTS ARE IN THOUSANDS):
10
QUARTER ENDED MARCH 31,
--------------------------------
2001 2000
--------------- ---------------
ALLOCATION OF NET INCOME:
9 3/8% Series A Cumulative Redeemable
Preference Units $ 3,586 $ 3,586
9 1/8% Series B Cumulative Redeemable
Preference Units 2,852 2,852
9 1/8% Series C Cumulative Redeemable
Preference Units 2,623 2,623
8.60% Series D Cumulative Redeemable
Preference Units 3,763 3,763
Series E Cumulative Convertible Preference Units 1,550 1,747
9.65% Series F Cumulative Redeemable
Preference Units 1,387 1,387
7 1/4% Series G Convertible Cumulative
Preference Units 5,731 5,732
7.00% Series H Cumulative Convertible
Preference Units 25 28
8.60% Series J Cumulative Convertible
Preference Units - 2,451
8.29% Series K Cumulative Redeemable
Preference Units 1,036 1,036
7.625% Series L Cumulative Redeemable
Preference Units 1,906 1,906
--------------- ---------------
Cumulative Convertible or Redeemable Preference Units $ 24,459 $ 27,111
=============== ===============
4. Real Estate Acquisitions
During the quarter ended March 31, 2001, the Operating Partnership
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 Operating Partnership
disposed of the fifteen properties listed below to unaffiliated parties.
Including the joint venture and land sale discussed below, the Operating
Partnership recognized a net gain of approximately $41.8 million on these
sales.
11
- -------------------------------------------------------------------------------------------------------------
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
- ---------------- ---------------------------------- -------------------------- ------------ -----------------
On February 23, 2001, the Operating Partnership entered into a joint
venture with an unaffiliated joint venture partner ("JVP"). At closing, the
Operating Partnership 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 Operating
Partnership. The Operating Partnership 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 Operating Partnership
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 Operating Partnership or the JVP to infuse cash into each joint
venture. In addition, the Operating Partnership and the JVP have not
guaranteed the mortgage indebtedness of the joint venture. As a result, the
Operating Partnership recognized 75% of the gain on the sales and/or
contributions of property to the joint venture, which totaled approximately
$36.5 million. The Operating Partnership 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
Operating Partnership 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 Operating Partnership entered into a
separate agreement to acquire one multifamily property containing 125 units
from an unaffiliated party. The Operating Partnership 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 Operating Partnership entered into separate
agreements to dispose of seventeen multifamily properties containing 3,161
units to unaffiliated parties. The Operating Partnership 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.
12
7. INVESTMENTS IN UNCONSOLIDATED ENTITIES
The Operating Partnership has entered into two separate joint
venture agreements with third party development companies whereby the
Operating Partnership 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 Operating Partnership'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 Operating Partnership 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:
o 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;
o approximately $180.2 million in 1031 exchange proceeds; and
o approximately $35.1 million for tenant security, utility and
other deposits.
9. MORTGAGE NOTES PAYABLE
As of March 31, 2001, the Operating Partnership had outstanding
mortgage indebtedness of approximately $3.1 billion.
During the quarter ended March 31, 2001 the Operating Partnership:
o repaid $176.7 million of mortgages due at or prior to maturity
and/or at the disposition date of the respective Property;
o assumed $45.9 million of mortgage debt on four properties in
connection with their acquisitions;
o disposed of $22.8 million of mortgage debt assumed by the
purchaser in connection with the disposition of certain
properties;
o obtained $20.2 million of new mortgage debt on previously
unencumbered properties; and
o received $8.8 million in construction loan draw proceeds on two
properties.
As of March 31, 2001, scheduled maturities for the Operating
Partnership's outstanding mortgage indebtedness are at various dates through
October 1, 2033. The interest rate range on the Operating Partnership'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 Operating
Partnership's mortgage debt was 6.62%.
10. NOTES
As of March 31, 2001, the Operating Partnership had outstanding
unsecured notes of approximately $2.4 billion.
During the quarter ended March 31, 2001, the Operating Partnership
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 Operating
Partnership's outstanding notes are at
13
various dates through 2029. The interest rate range on the Operating
Partnership'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
Operating Partnership's notes was 7.04%.
11. LINES OF CREDIT
The Operating Partnership 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 Operating Partnership
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 Operating Partnership's lines of credit was 6.65%.
12. CALCULATION OF NET INCOME PER WEIGHTED AVERAGE OP UNIT
The following tables set forth the computation of net income per OP Unit -
basic and net income per OP Unit - diluted.
QUARTER ENDED MARCH 31,
-----------------------------------
2001 2000
----------------- -------------
(AMOUNTS IN THOUSANDS EXCEPT PER
OP UNIT 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 allocation to preference unit/interest
distributions $ 100,565 $ 83,969
Allocation to Minority Interests - Partially Owned Properties (105) 45
Income from investments in unconsolidated entities 3,797 4,223
Allocation to Junior Convertible Preference Units (109) (108)
Allocation to Cumulative Convertible Redeemable Preference Interests (3,958) (1,169)
Allocation to Redeemable Preference Units (24,459) (27,111)
---------------- ----------------
Income before net gain on sales of real estate, extraordinary items
and cumulative effect of change in accounting principle 75,731 59,849
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 OP Unit - basic 116,550 79,847
Effect of dilutive securities:
Distributions on convertible preference units/interests 1,692 -
---------------- ----------------
Numerator for net income per OP Unit - diluted $ 118,242 $ 79,847
================ ================
DENOMINATOR:
Denominator for net income per OP Unit - basic 144,830 140,264
Effect of dilutive securities:
Dilution for OP Units issuable upon assumed exercise/vesting
of the Company's stock options/restricted shares 1,577 422
Convertible preference units/interests 2,185 -
---------------- ----------------
Denominator for net income per OP Unit--diluted 148,592 140,686
================ ================
Net income per OP Unit--basic $ 0.81 $ 0.57
================ ================
Net income per OP Unit--diluted $ 0.80 $ 0.57
================ ================
14
QUARTER ENDED MARCH 31,
-------------------------------
2001 2000
--------------- ------------
(AMOUNTS IN THOUSANDS EXCEPT
PER OP UNIT AMOUNTS)
NET INCOME PER OP UNIT - BASIC:
Income before net gain on sales of real estate, extraordinary items and
cumulative effect of change in accounting principle
per OP Unit - 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 OP Unit - basic $ 0.81 $ 0.57
============== ==============
NET INCOME PER OP UNIT - DILUTED:
Income before net gain on sales of real estate, extraordinary items and
cumulative effect of change in accounting principle
per OP Unit - 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 OP Unit - diluted $ 0.80 $ 0.57
============== ==============
CONVERTIBLE PREFERENCE UNITS THAT COULD BE CONVERTED INTO 5,415,852 AND
10,643,083 WEIGHTED AVERAGE COMMON SHARES (WHICH WOULD BE CONTRIBUTED TO
THE OPERATING PARTNERSHIP IN EXCHANGE FOR OP UNITS) FOR THE QUARTERS ENDED
MARCH 31, 2001 AND 2000, RESPECTIVELY, WERE OUTSTANDING BUT WERE NOT
INCLUDED IN THE COMPUTATION OF DILUTED EARNINGS PER OP UNIT BECAUSE THE
EFFECTS WOULD BE ANTI-DILUTIVE.
13. COMMITMENTS AND CONTINGENCIES
The Operating Partnership, as an owner of real estate, is subject to
various environmental laws of Federal and local governments. Compliance by
the Operating Partnership with existing laws has not had a material adverse
effect on the Operating Partnership's financial condition and results of
operations. However, the Operating Partnership 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 Operating Partnership does not believe there is any litigation
threatened against the Operating Partnership 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
Operating Partnership.
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 Operating Partnership funded a total
of $26.4 million during the quarter ended March 31, 2001. During the
remainder of 2001, the Operating Partnership expects to fund approximately
$70.2 million in connection with these Properties. In connection with one
joint venture agreement, the Operating Partnership has an obligation to fund
up to an additional $17.5 million to guarantee third party construction
financing. As of March 31, 2001, the Operating Partnership 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 Operating Partnership's joint venture
partners have the right to cause the Operating Partnership to acquire their
respective interests in the completed projects at a mutually agreeable price.
If the Operating Partnership and the joint venture partner are unable to
agree on a price, both parties will obtain appraisals. If the appraised
values vary by more than 10%, both the
15
Operating Partnership and the joint venture partner will agree on a third
appraiser to determine which original appraisal is closest to its
determination of value.
In connection with the Wellsford Merger, the Operating Partnership
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 Operating Partnership'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
Allocation to preference unit/interest holders - (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 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)
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)
-----------------------------------------------------
Net income available to OP Unit holders $ 236,797 $(120,247) $ 116,550
=====================================================
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
=====================================================
16
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
Allocation to preference unit/interest holders - (28,388) (28,388)
Adjustment for depreciation expense related to
Unconsolidated and Partially Owned Properties - (238) (238)
-----------------------------------------------------
Funds from operations available to 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
Adjustment for depreciation expense related to
Unconsolidated and Partially Owned Properties - 238 238
-----------------------------------------------------
Net income available to OP Unit holders $ 202,110 $(122,263) $ 79,847
=====================================================
(1) The Operating Partnership'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 Operating Partnership 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 Operating Partnership'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.
17
15. SUBSEQUENT EVENTS
Subsequent to March 31, 2001, the Operating Partnership has:
o disposed of four Properties consisting of 658 units for approximately
$24.7 million;
o paid off $6.7 million of mortgage debt at or prior to maturity and/or
at disposition of one property;
o funded $5.9 million related to the development, earnout and joint
venture agreements; and
o disposed of $0.9 million of mortgage debt assumed by the purchaser in
connection with the disposition of one property.
18
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
Operating Partnership'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 that 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 Operating Partnership 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:
o alternative sources of capital to the Operating Partnership are more
expensive than anticipated;
o occupancy levels and market rents may be adversely affected by local
economic and market conditions, which are beyond the Operating
Partnership's control; and
o 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
Operating Partnership 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 Operating Partnership 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 Operating Partnership
retained a 25% interest along with the rights to manage the joint venture
Properties.
19
The Operating Partnership's overall results of operations for the
quarters ended March 31, 2001 and 2000 have been significantly impacted by
the Operating Partnership'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 Operating Partnership 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 Operating
Partnership'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 Operating Partnership 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
Operating Partnership 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 Operating Partnership expects similar
trends in the future subject to certain risks and uncertainties including
that any new acquisitions perform at the Operating Partnership'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 Operating Partnership purchases additional multi-family
properties.
Property management represents expenses associated with the
self-management of the Operating Partnership's Properties. These expenses
decreased by approximately $0.2 million. The Operating Partnership continues
to acquire properties in major metropolitan areas and dispose of assets in
smaller multi-family rental markets where the Operating Partnership does not
have a significant management presence. As a result, the Operating
Partnership 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 Operating Partnership continuing to
manage Properties that were sold and/or contributed to various joint venture
entities. As of March 31, 2001, the Operating Partnership currently manages
20,300 units for third
20
parties and the joint venture entities.
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 Operating Partnership'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 Operating Partnership expects interest rates
to decrease slightly due to lower variable rates. In connection with the
refinancing of $280.0 million of indebtedness, the Operating Partnership
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 Operating Partnership had approximately
$23.8 million of cash and cash equivalents and the amounts available on the
Operating Partnership'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 Operating Partnership's cash and
cash equivalents balance at March 31, 2001 was approximately $104.8 million
and the amounts available on the Operating Partnership's lines of credit was
$755 million, of which $54.9 million was restricted.
Part of the Operating Partnership's strategy in funding the purchase
of multifamily properties, funding its Properties in the development and/or
earnout stage and the funding of the Operating Partnership'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 Operating Partnership:
o disposed of fifteen properties and a vacant parcel of land and received
net proceeds of $115.4 million;
o issued $300 million of unsecured debt receiving net proceeds of $297.4
million;
o sold and/or contributed eleven properties to a joint venture and
received net proceeds of $190.0 million;
o 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:
o repay the lines of credit;
o repay mortgage indebtedness on selected Properties;
o invest in unconsolidated entities;
o purchase additional properties.
21
During the quarter ended March 31, 2001, the Operating Partnership:
o repaid approximately $176.7 million of mortgage indebtedness;
o invested $1 million in a corporate entity;
o loaned $2.6 million to an unconsolidated entity;
o funded $26.4 million related to the development, earnout and joint
venture agreements.
The Operating Partnership'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 Operating Partnership:
o disposed of four Properties consisting of 658 units for approximately
$24.7 million;
o repaid $6.7 million of mortgage debt at or prior to maturity and/or
disposition of a Property;
o funded $5.9 million related to the development, earnout and joint
venture agreements;
o 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 Operating Partnership expects to
fund approximately $70.2 million related to the development, earnout and
joint venture agreements. In connection with one joint venture agreement, the
Operating Partnership has an obligation to fund up to an additional $17.5
million to guarantee third party construction financing. As of March 31,
2001, the Operating Partnership 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 Operating Partnership's joint venture partners have the right
to cause the Operating Partnership to acquire their respective interests in
the completed projects at a mutually agreeable price. If the Operating
Partnership and the joint venture partner are unable to agree on a price,
both parties will obtain appraisals. If the appraised values vary by more
than 10%, both the Operating Partnership 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 Operating Partnership'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 Operating Partnership'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 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.
22
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 is estimated to be approximately $110.0 million.
Also included in total capital expenditures for the Operating
Partnership 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 Operating Partnership'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 Operating Partnership, 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.
Total distributions paid in April 2001 amounted to approximately
$143.3 million, which included distributions declared for the quarter ended
March 31, 2001.
The Operating Partnership 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 Operating
Partnership considers its cash provided by operating activities to be
adequate to meet operating requirements and payments of distributions. The
Operating Partnership 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 Operating Partnership has certain uncollateralized Properties
available for additional mortgage borrowings in the event that the public
capital markets are unavailable to the Operating Partnership or the cost of
alternative sources of capital to the Operating Partnership is too high.
The Operating Partnership 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.
In connection with the Globe acquisition, the Operating Partnership
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 Operating Partnership
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
23
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 Operating Partnership 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 Operating Partnership 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
Operating Partnership'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 Operating
Partnership'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 Operating Partnership'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 OP
Units-basic increased by $22.3 million, or 13.1% when compared to the quarter
ended March 31, 2000.
The following is a reconciliation of net income to FFO available to
OP Units for the quarters ended March 31, 2001 and 2000 (amounts in thousands
except per OP Unit amounts):
QUARTER ENDED
MARCH 31,
--------------------------------
2001 2000
--------------- ---------------
STATEMENTS OF FUNDS FROM OPERATIONS
Net income $ 145,076 $ 108,235
Adjustments:
Depreciation/amortization 113,474 110,081
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
Allocation to preference unit/interest holders (28,526) (28,388)
--------------- ---------------
FFO available to OP Units - basic $ 192,208 $ 169,930
=============== ===============
FFO available to OP Units - diluted $ 199,653 $ 180,012
=============== ===============
Weighted average OP Units outstanding - basic 144,829 140,264
=============== ===============
Weighted average OP Units outstanding - diluted 154,008 151,329
=============== ===============
* Represents the effect related to the Operating Partnership's adoption of
SFAS No. 133/138 on January 1, 2001.
** Represents the Operating Partnership'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 Operating
Partnership'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 Operating
Partnership'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 14, 2001 By: /s/ Bruce C. Strohm
------------- --------------------------------------------
Bruce C. Strohm
Executive Vice President, General Counsel
and Secretary
Date: May 14, 2001 By: /s/ Michael J. McHugh
------------- --------------------------------------------
Michael J. McHugh
Executive Vice President, Chief Accounting
Officer and Treasurer
26