UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 22, 1994
BRE PROPERTIES, INC.
- - -------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 94-1722214
- - -------------------------------- -------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
One Montgomery Street
Telesis Tower, Suite 2500
San Francisco, California 94104-5525
- - -------------------------------- -------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
(415) 445-6530
- - -------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
ITEM 2 ACQUISITION OR DISPOSITION OF ASSETS
ACQUISITION OF TUCSON APARTMENTS
BRE Properties, Inc. ("BRE" or "the company") has entered into an Agreement for
Purchase and Sale of Real Property, Loan Agreement and Joint Escrow Instructions
to acquire 1,301 units in seven apartment communities in Tucson, Arizona
("Tucson Apartments"). The sellers are affiliates of The Schomac Group
("Schomac"), a privately held apartment and self-storage developer headquartered
in Tucson which is not affiliated with BRE. In connection with the purchase,
the company has agreed, subject to satisfaction of certain conditions, to
provide $3,000,000 in loans to entities affiliated with the seller.
The purchase price is $51,637,000, subject to $28,160,000 of first mortgage
financing on six of the properties. Accordingly, BRE's cash portion of the
purchase price is approximately $23,477,000. The following summarizes the seven
apartment communities:
Number Interest
Name of Units Purchase Price Mortgage Payable Rate
- - ------------------- ---------- -------------- ---------------- -----------
Camino Seco Village 168 $ 6,675,000 $ 4,295,000 8.00%
Casas Lindas 144 7,557,000 -- -
Colonia del Rio 176 8,866,000 5,349,000 8.00
Fountain Plaza 197 4,534,000 3,168,000 8.00
Hacienda del Rio 248 9,295,000 5,684,000 6.85
Oracle Village 144 6,045,000 4,250,000 7.88
Spring Hill 224 8,665,000 5,414,000 8.00
----- ------------ ------------
1,301 $ 51,637,000 $ 28,160,000
----- ------------ ------------
----- ------------ ------------
MATERIAL FACTORS CONSIDERED BY THE REGISTRANT
Prior to acquiring the Tucson Apartments, BRE considered general regional and
local economic conditions, as well as the Tucson apartment market and the Tucson
Apartments' competitive posture within that market.
Arizona Overview
Between 1980 and 1989, Arizona's population grew 43.4% compared with a national
growth of 9.6%. Averaging increases of 2.2% over the past five years, the
population of Arizona exceeded 4 million for the first time at the end of 1993.
Despite its reputation as a retirement center, Arizona's population is slightly
younger than the national average, or 32.2 years compared with 32.9 years.
-2-
The reasons cited for Arizona's growth include affordable housing, a strong
university system and high quality of life. Businesses favor Arizona because
of low labor costs, a well educated work force and the low cost of land and
factory space. The state provides a major transportation hub for the southwest
with international air connections, cross country rail lines and inter-city
trucking operations. Employers consider Arizona to have a positive business
climate, an improving economy and a stable political environment. The state has
been somewhat generous in granting tax incentives to companies to encourage the
location of facilities there. Arizona is also a "right to work" state.
The Arizona Department of Economic Security (DES) presents employment growth
rates for Arizona since 1985 as well as projections through 1995. Arizona has
experienced employment gains in all recent years except 1991 when it was
impacted most by the national recession. Even then, it posted a year of growth.
Arizona's economy showed considerable improvement in 1993 over 1991 and 1992.
Non-farm wage and salary employment grew by more than 54,000 or 3.6%. With the
exception of mining, all eight of the state's major industry groups showed
employment gains, with healthy increases reported in construction. In addition,
throughout 1993, the state's seasonally adjusted unemployment rate declined
steadily, dropping from 7.7% in January to 5.7% in December. Unemployment
averaged 6.2% for the year, 1.2% lower than 1992's average. By comparison, the
national economy showed modest improvement over the same period, reporting an
average 6.8% unemployment rate and 1.5% employment growth. In March of this
year, unemployment in Arizona was 5.5% compared with 6.5% nationally.
The DES two-year forecast calls for Arizona's economy to create 63,000 jobs in
1994 and 67,500 in 1995, representing a 4% increase each year. All eight of the
major industry groups are expected by DES to add jobs in these years, with
construction leading the way.
Arizona's construction industry continues to gain momentum. In 1992,
construction employment increased by 3.2% or by 2,500 jobs, after five prior
years of losses. In 1993, construction employment increased by 11.2%, or nearly
9,000 jobs. The DES forecast calls for continued strength, with 11,000 and
11,700 new jobs forecasted in 1994 and 1995, respectively. Single-family
residential construction is expected to provide most of the gains although
increasing demand for apartment, commercial and industrial property should also
boost job growth. DES suggests that rises in interest rates as the Federal
Reserve attempts to head off inflation will, at some point, slow this robust
activity.
While certain of Arizona's manufacturing sectors, such as lumber and wood
products, are improving because of increased construction, other manufacturing
gains are expected on the high technology side. For 1994, DES predicts an
increase of 2.2%, or 3,900 manufacturing jobs.
-3-
The University of Arizona predicts that population gains will increase in the
short term. As economic opportunities improve locally and as homes become
easier to sell in other parts of the country, migration inflow will improve as
in prior expansions. It predicts that, after adding less than 90,000 persons
last year, the number of new residents will surge to almost 125,000 per year by
1995. This represents nearly 3% population growth in 1995.
TUCSON
The City of Tucson, located in eastern Pima County about 65 miles north of the
Mexican border, is the second largest city in Arizona. Incorporated Tucson
covers a land area of 162 square miles (1993) within an urbanized area of over
400 square miles. Downtown Tucson lies at 2,490 feet above sea level in a
desert valley surrounded by eight mountain ranges. The closest of these are the
Santa Catalina Mountains to the north, rising to 9,200 feet, the Rincon
Mountains to the west and the Santa Rita and Sierrita Mountains to the south.
There is little history of recent seismic activity.
Population and Demographics
Pima County grew in population by 25.8% from 1980 to 1990, well above the
national average of 10% for the period but below the 34.9% growth rate for the
State of Arizona. During that time, Tucson grew by 22.6% while the growth rate
for the unincorporated areas of the county grew by 28.3%. The City of Tucson
grew from the 45th largest U. S. city to the 33rd largest by 1990.
-4-
The University of Arizona projects the population of Pima County to grow by
24,000 residents in 1994, or by approximately 3.4%.
Examples of major employers that have come to the Tucson area in the 1990s
include American Airlines Reservation Center, American Home Furnishings, AT & T
Directory Assistance Center, Cheetah Systems, ChipSoft, Confed Admin Services,
Lockheed Aeromod, Southwest Airlines, Muscular Dystrophy Association, Quantas
Airways Reservation Center, Quality Rubber Products, Rail Car America, Vanguard
Automation and Weiser Locks.
Multi-family Residential Real Estate Market
The total Tucson multi-family residential inventory consisted of 84,637 units,
or about 28% of the total housing stock, at March 31, 1994. The University of
Arizona's "Metropolitan Tucson Land Use Study" reports 3.85 % vacancy for those
units. RealData, Inc., which tracks properties of 40 units or more, reports an
inventory of 54,196 units with a 3.35% vacancy at March 31, 1994.
Peak construction of multi-family properties was seen in the mid 1980s, as
permit levels ranged from 5,525 to 8,289 units between 1983 and 1986. 37% of
Tucson's entire apartment inventory was permitted during those four years. Not
surprisingly, vacancy rates soared to almost 20% in 1988 as employment growth
declined from its high in 1986 in a severely overbuilt market.
Apartment permit levels declined sharply from 1989 through 1993 due to high
vacancy and the recession. This reduced construction coupled with the improving
economy has resulted in the low marketwide vacancy rates reported today.
Projected absorption in 1994 of over 2,500 units will drive vacancy rates even
lower. The size and income levels of the Tucson market have resulted in the
apartment supply generally being developed as a "B" quality market. Of 204
properties having 100 or more units, only 27 of these would be considered "A"
quality by institutional investors.
The Tucson Apartments Being Acquired
As mentioned, there are seven properties containing 1,301 units. Fountain Plaza
was built in 1975. The other six communities were built between 1983 and 1987.
Spring Hill was built of reinforced concrete and steel. The other six
properties consist of one, two and three story structures built of wood frame
and stucco. They range in quality from "A" to "C" and from 144 to 250 units.
Project amenities include pools, spas, activities clubhouses and free covered
parking. Except for Fountain Plaza and Hacienda del Rio, all units have washers
and dryers.
BRE purchased Casas Lindas for $7,557,000 cash on August 18, 1994. The other
six properties are subject to mortgage loans insured by governmental agencies.
Four of the six (Camino Seco Village, Colonia del Rio, Oracle Village and
Spring Hill) mortgages are insured by the Federal National Mortgage Association
("FNMA").
-5-
The other two (Fountain Plaza and Hacienda del Rio) are insured by the
Department of Housing and Urban Development ("HUD"). Both FNMA and HUD require
that each property be held in a single-asset entity, so BRE has established six
wholly owned, single asset subsidiaries, all Delaware corporations, as follows:
BRE Camino Seco Village, Inc.
BRE Colonia del Rio, Inc.
BRE Fountain Plaza, Inc.
BRE Hacienda del Rio, Inc.
BRE Oracle Village, Inc.
BRE Spring Hill, Inc.
BRE will purchase each of the six properties as FNMA and HUD approve BRE's
assumption of the related mortgage loans. Through the date of this report, BRE
has completed the purchases of Colonia del Rio, Fountain Plaza, Oracle Village
and Spring Hill.
With a weighted average interest rate of 7.75% on the $28,160,000 of mortgage
loans, BRE expects to achieve positive leverage on this transaction, allowing a
return on the equity portion of the investment of above 10%, an attractive
return in this market for apartments. The per unit price of $39,690 compares
very favorably with comparable sales in Tucson and represents an estimated 91%
of the properties' current replacement value.
ESTIMATED EFFECT ON THE REGISTRANT'S FINANCIAL STATEMENT
The financial effect of the acquisition of the Tucson Apartments is expected to
be positive during the first year of operations, with the Tucson Apartments
increasing BRE's net income before depreciation expense by approximately
$1,643,000 ($.15 per share). This amount is calculated as follows:
Annual Results
--------------
Purchase price $ 51,637,000 at 9.00% yield = $ 4,647,000
Less: Interest on mortgages payable 28,160,000 at 7.75% rate = (2,182,000)
: Interest on short-term investments 23,477,000 at 3.50% = (822,000)
-----------
Income before depreciation $ 1,643,000
-----------
-----------
Per share $.15
-----------
-----------
The 3.50% yield on short-term investments represents BRE's actual yield for the
fiscal year ended July 31, 1994, consistent with information included in BRE's
audited financial statements.
After reasonable inquiry, BRE is not aware of any material factors relating to
the Tucson Apartments, other than those set forth above, that would cause the
reported financial information not to be necessarily indicative of future
operating results.
-6-
Item 7. FINANCIAL STATEMENTS, PRO-FORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) FINANCIAL STATEMENTS
(a)(3) Auditors' report and combined financial statements for the
following properties as of December 31, 1993 (audited):
Camino Seco Village Apartments
Casas Lindas Apartments
Colonia del Rio Apartments
Fountain Plaza Apartments
Hacienda del Rio Apartments
Oracle Village Apartments
Spring Hill Apartments
(b) Pro forma financial information for the year ended July 31, 1994
(c) EXHIBITS
(c)(2) Agreement for Purchase and Sale of Real Property, Loan
Agreement and Joint Escrow Instructions between Registrant and the following
limited partnerships:
Property Name Property Owner
- - ------------------------------- -----------------------------------
Camino Seco Village Apartments Camino Seco Associates, L. P.
Casas Lindas Apartments Tucson Casas Lindas, L. P.
Colonia del Rio Apartments Colonia del Rio Investors, L. P.
Fountain Plaza Apartments Fountain Plaza Partners, L. P.
Hacienda del Rio Apartments Hacienda del Rio Associates, L. P.
Oracle Village Apartments Rudasill Associates, L. P.
Spring Hill Apartments Spring Hill Associates, L. P.
23.1 Consent of Kenneth Leventhal & Company
-7-
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.
BRE PROPERTIES, INC.
(Registrant)
Date: November 23, 1994 /s/ Howard E. Mason, Jr.
----------------- ---------------------------------------
Howard E. Mason, Jr.
Senior Vice President, Finance
(Principal Financial and Accounting Officer)
Date: November 23, 1994 /s/ Ellen G. Breslauer
----------------- ---------------------------------------
Ellen G. Breslauer
Secretary and Treasurer
-8-
INDEX TO EXHIBITS
EXHIBIT NO. EXHIBIT
(2) Agreement for Purchase and Sale of Real Property, Loan
Agreement and Joint Escrow Instructions between Registrant
and the following partnerships:
Property Name Property Owner
------------------------------ ----------------------------------
Camino Seco Village Apartments Camino Seco Associates, L. P.
Casas Lindas Apartments Tucson Casas Lindas, L. P.
Colonia del Rio Apartments Colonia del Rio Investors, L. P.
Fountain Plaza Apartments Fountain Plaza Partners, L. P.
Hacienda del Rio Apartments Hacienda del Rio Associates, L. P.
Oracle Village Apartments Rudasill Associates, L. P.
Spring Hill Apartments Spring Hill Associates, L. P.
-9-
PRO FORMA CONDENSED STATEMENTS
BRE has entered into an agreement to purchase 1,301 units in seven apartment
communities in Tucson, Arizona. The purchase price was $51,637,000, consisting
of $23,477,000 in cash and the assumption of $28,160,000 of existing first
mortgage financing on six of the properties, with a weighted average interest
rate of 7.75%.
Set forth below are unaudited pro forma condensed statements of income of BRE
Properties, Inc. for the year ended July 31, 1994, which give effect to the
acquisition of the Tucson Apartments as if the acquisition had occurred on
August 1, 1993. The pro forma adjustments are based upon available information
and certain assumptions that management believes are reasonable. The unaudited
pro forma condensed statements of income are not necessarily indicative of the
results of the company's operations that would have actually occurred had the
acquisition taken place on the dates assumed, nor do such statements purport to
indicate the future results of operations.
-10-
PRO FORMA CONDENSED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Year ended July 31, 1994
---------------------------------------------------
Pro forma
BRE Historical Adjustments BRE Pro forma
-------------- ----------- -------------
Revenues
Rental income $ 51,374 $ 7,592 (A) $ 58,966
Other 2,205 (822) (B) 1,383
-------- --------
53,579 60,349
-------- --------
Expenses
Operating expense 16,970 2,884 (A) 20,045
191 (C)
Interest expense 4,547 2,182 (D) 6,729
Provision for depreciation and amortization 6,674 1,033 (E) 7,707
General and administrative 3,631 3,631
-------- --------
31,822 38,112
-------- --------
Income before gain on sales of investments 21,757 22,237
Net gain on sales of investments 548 548
-------- --------
Net income $ 22,305 $ 22,785
-------- --------
-------- --------
Net income per share
Primary:
Income before gain on sales of investments $ 1.99 $ 2.03
Net gain on sales of investments 0.05 0.05
-------- --------
Net income $ 2.04 $ 2.08
-------- --------
-------- --------
Fully diluted $ 2.04 $ 2.08
-------- --------
-------- --------
Weighted average shares outstanding 10,933 10,933
-------- --------
-------- --------
<FN>
(A) Reflects rental income and operating expenses as reported by Shomac
for the period July 1, 1993 to June 30, 1994 (unaudited).
(B) Reflects pro forma adjustments to interest income as if the cash
investment ($23,477) had been made at the beginning of the period,
using an interest rate of 3.5%, which was BRE's actual yield for the
fiscal year ended July 31,1994.
(C) In preparing the properties for sale, Schomac capitalized $762 for
replacements and improvements with estimate useful lives greater than
one year. These costs include, but are not limited to, roof
replacements, floor coverings (carpet, tile and vinyl), interior and
exterior painting, window coverings, appliances, tools, recreational
equipment, refurbishments and the salaries, benefits and related
burden of employees who installed or constructed them. BRE estimates
that, under BRE's accounting policies, BRE would have expensed
approximately 25% ($191) of these costs as part of annual repairs
and maintenance.
(D) Reflects pro forma interest expense as if the first mortgage loans
($28,160) had been outstanding for the entire period at the same terms
as effective July 31, 1994.
(E) Reflects depreciation based upon a cost basis to BRE of $41,310 for
buildings and improvements, depreciated over 40 years.
-11-
PRO FORMA BALANCE SHEET
(DOLLARS IN THOUSANDS) As of July 31, 1994
-----------------------------------------------------
Pro forma BRE Pro
BRE Historical Adjustments forma
-------------- ----------- ----------
ASSETS
Equity investments in real estate $ 325,519 $ 51,637 (A) $ 377,156
Less: Accumulated depreciation and amortization (41,264) (41,264)
--------- ---------
284,255 335,892
Investments in limited partnerships 1,109 1,109
--------- ---------
Real estate portfolio 285,364 337,001
Mortgage loans 4,516 4,516
Allowance for possible losses (1,000) (1,000)
--------- ---------
288,880 340,517
Cash and short-term investments 28,938 (23,477) (B) 5,461
Other 5,077 5,077
--------- ---------
TOTAL ASSETS $ 322,895 $ 351,055
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and other liabilities $ 3,466 $ 3,466
Mortgage loans payable 73,944 28,160 (C) 102,104
--------- ---------
Total liabilities 77,410 105,570
--------- ---------
Shareholders' equity:
Class A common stock 109 109
Additional paid-in capital 211,340 211,340
Undistributed net realized gain on sales of properties 34,036 34,036
--------- ---------
Total shareholders' equity 245,485 245,485
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 322,895 $ 351,055
--------- ---------
--------- ---------
<FN>
(A) Reflects pro forma adjustments to equity investments in real estate as
if the Tucson apartments ($51,637) had been purchased as of July 31,
1994.
(B) Reflects pro forma cash and short-term investments as if the cash
investment in the Tucson apartments ($23,477) had been made as of July
31, 1994.
(C) Reflects pro forma mortgage loans payable as if the mortgage loans
payable on the Tucson apartments ($28,160) had been assumed as of July
31, 1994.
-12-
THE SCHOMAC
MULTIFAMILY
HOUSING PROPERTIES
Combined Statement of
Gross Income and Direct
Operating Expenses
FOR THE YEAR ENDED DECEMBER 31, 1993
THE SCHOMAC
MULTIFAMILY HOUSING PROPERTIES
TABLE OF CONTENTS
Page
----
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . 1
Combined Statement of Gross Income and Direct Operating Expenses . . . . . 2
Notes to Combined Statement of Gross Income and Direct Operating
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Property Information:
Schedule 1 - Camino Seco Village Apartments. . . . . . . . . . . . 5
Schedule 2 - Casas Lindas Apartments . . . . . . . . . . . . . . . 6
Schedule 3 - Colonia Del Rio Apartments. . . . . . . . . . . . . . 7
Schedule 4 - Fountain Plaza Apartments . . . . . . . . . . . . . . 8
Schedule 5 - Hacienda Del Rio Apartments . . . . . . . . . . . . . 9
Schedule 6 - Oracle Village Apartments . . . . . . . . . . . . . . 10
Schedule 7 - Spring Hill Apartments. . . . . . . . . . . . . . . . 11
[LOGO]
2425 East Camelback Road, Suite 300 Kenneth Leventhal
Phoenix, Arizona 85016 & Company
Telephone 602.957.2000
Tucson 602.882.0022
Facsimile 602.957.8239
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
The Schomac Group, Inc.
We have audited the accompanying Combined Statement of Gross Income and Direct
Operating Expenses of The Schomac Multifamily Properties listed in Note 1 (the
"Properties"), for the year ended December 31, 1993 ("Combined Historical
Summary"). This Combined Historical Summary is the responsibility of the
Properties' management. Our responsibility is to express an opinion on this
Combined Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Combined Historical Summary is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Combined Historical Summary. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the Combined
Historical Summary. We believe that our audit provides a reasonable basis for
our opinion.
The accompanying Combined Historical Summary was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission as described in Note 1 and is not intended to be a complete
presentation of the Properties' revenues and expenses.
In our opinion, the Combined Historical Summary of the Properties referred to
above presents fairly, in all material respects, the gross income and direct
operating expenses on the basis described in Note 1, for the year ended December
31, 1993 in conformity with generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the Combined
Historical Summary taken as a whole. The individual property information
included on Schedules 1 through 7 is presented for purposes of additional
analysis and is not a required part of the Combined Historical Summary. Such
information has been subjected to the auditing procedures applied in the audit
of the Combined Historical Summary, and, in our opinion, is fairly stated in all
material respects in relation to the Combined Historical Summary taken as a
whole.
Kenneth Leventhal & Company
July 8, 1994
1
THE SCHOMAC
MULTIFAMILY HOUSING PROPERTIES
Combined Statement of Gross Income and Direct Operating Expenses
For the Year Ended December 31, 1993
Gross Income
Rental income $ 7,062,200
Other income 258,859
------------
7,321,059
------------
Direct Operating Expenses:
Salaries, benefits, and related burden 787,572
Utilities 501,014
Real estate taxes 551,406
Maintenance and repairs 301,419
Management fees - Note 2 335,091
Marketing 185,707
Property insurance 49,601
General and administrative 78,294
------------
2,790,104
------------
Excess of Gross Income over Direct
Operating Expenses $ 4,530,955
------------
------------
See accompanying independent auditors' report and notes. 2
THE SCHOMAC
MULTIFAMILY HOUSING PROPERTIES
Notes to Combined Statement of Gross Income and Direct Operating Expenses
For the Year Ended December 31, 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Combined Statement of Gross Income and Direct Operating Expenses
("Combined Historical Summary") includes the operations of seven
multifamily properties (the "Properties") controlled by The Schomac
Group, Inc. and is prepared in contemplation of an acquisition by a
publicly held company. Certain expenses which would not be comparable
to the proposed future operations of the Properties have been excluded
from the Combined Historical Summary in accordance with Rule 3-14 of
Regulation S-X of the Securities and Exchange Commission. The primary
expenses which have been excluded are depreciation, amortization, land
leases and mortgage interest.
ORGANIZATION
The Properties which are located in Tucson, Arizona are listed below:
Year Square
Property Name Built Units Footage
--------------------------------------- ------- ------- ---------
Camino Seco Village Apartments 1985 168 150,920
Casas Lindas Apartments 1987 144 150,080
Colonia del Rio Apartments 1985 176 177,760
Fountain Plaza Apartments 1975 197 106,978
Hacienda del Rio Apartments 1983 248 152,504
Oracle Village Apartments 1983 144 129,336
Spring Hill Apartments 1987 224 175,520
------- ---------
1,301 1,043,098
------- ---------
------- ---------
INCOME RECOGNITION
Rental income attributable to residential leases is recorded when
earned. Other operating income includes nonrefundable deposits,
forfeited security deposits, late charges, vending and laundry
revenues, damage charges, and miscellaneous reimbursements from
tenants.
CAPITALIZATION POLICY
Replacements and improvements with estimated useful lives greater than
one year were capitalized and have been excluded from the Combined
Historical Summary. These costs include, but are not limited to, floor
coverings (carpet, tile and vinyl), interior and exterior painting,
window coverings, appliances, tools, recreational equipment,
refurbishments and the salaries, benefits and related burden of
employees who installed or constructed the above. Capitalized costs in
the aggregate and per unit during the year ended December 31, 1993 were
$760,587 ($585 per unit).
3
THE SCHOMAC
MULTIFAMILY HOUSING PROPERTIES
Notes to Combined Statement of Gross Income and Direct Operating Expenses
NOTE 2 - TRANSACTIONS WITH AFFILIATES
Operations of the Properties are managed by Schomac Property
Management, Inc. ("SPM"), an affiliate of the owners of the Properties.
SPM is paid a monthly fee based on a percentage of rental and other
operating revenues collected. Management fees associated with the
Properties aggregated $335,091 for the year ended December 31, 1993.
4
SCHEDULE 1
CAMINO SECO VILLAGE APARTMENTS
Statement of Gross Income and Direct Operating Expenses
For the Year Ended December 31, 1993
Gross Income:
Rental income $ 966,876
Other operating income 32,723
------------
999,599
------------
Direct Operating Expenses:
Salaries, benefits, and related burden 116,405
Utilities 58,247
Real estate taxes 78,720
Maintenance and repairs 47,670
Management fees 45,016
Marketing 32,994
Property insurance 7,483
General and administrative 9,801
------------
396,336
------------
Excess of Gross Income over Direct
Operating Expenses $ 603,263
------------
------------
Capitalized costs $ 144,852
------------
------------
See accompanying independent auditors' report and notes. 5
SCHEDULE 2
CASAS LINDAS APARTMENTS
Statement of Gross Income and Direct Operating Expenses
For the Year Ended December 31, 1993
Gross Income:
Rental income $ 1,006,169
Other operating income 23,186
------------
1,029,355
------------
Direct Operating Expenses:
Salaries, benefits, and related burden 84,025
Utilities 65,707
Real estate taxes 81,248
Maintenance and repairs 49,563
Management fees 30,649
Marketing 19,819
Property insurance 7,461
General and administrative 13,737
------------
352,209
------------
Excess of Gross Income over Direct
Operating Expenses $ 677,146
------------
------------
Capitalized costs $ 62,493
------------
------------
See accompanying independent auditors' report and notes. 6
SCHEDULE 3
COLONIA DEL RIO APARTMENTS
Statement of Gross Income and Direct Operating Expenses
For the Year Ended December 31, 1993
Gross Income:
Rental income $ 1,151,085
Other operating income 28,649
------------
1,179,734
------------
Direct Operating Expenses
Salaries, benefits, and related burden 121,323
Utilities 68,533
Real estate taxes 97,611
Maintenance and repairs 33,673
Management fees 53,088
Marketing 23,167
Property insurance 8,748
General and administrative 11,575
------------
417,718
------------
Excess of Gross Income over Direct
Operating Expenses $ 762,016
------------
------------
Capitalized costs $ 98,595
------------
------------
See accompanying independent auditors' report and notes. 7
SCHEDULE 4
FOUNTAIN PLAZA APARTMENTS
Statement of Gross Income and Direct Operating Expenses
For the Year Ended December 31, 1993
Gross Income:
Rental income $ 794,384
Other operating income 42,991
------------
837,375
------------
Direct Operating Expenses:
Salaries, benefits, and related burden 108,835
Utilities 103,767
Real estate taxes 44,638
Maintenance and repairs 38,821
Management fees 37,682
Marketing 27,240
Property insurance 4,774
General and administrative 12,720
------------
378,477
------------
Excess of Gross Income over Direct
Operating Expenses $ 458,898
------------
------------
Capitalized costs $ 209,541
------------
------------
See accompanying independent auditors' report and notes. 8
SCHEDULE 5
HACIENDA DEL RIO APARTMENTS
Statement of Gross Income and Direct Operating Expenses
For the Year Ended December 31, 1993
Gross Income:
Rental income $ 1,101,999
Other operating income 65,886
------------
1,167,885
------------
Direct Operating Expenses:
Salaries, benefits, and related burden 146,249
Utilities 75,800
Real estate taxes 86,334
Maintenance and repairs 36,399
Management fees 75,545
Marketing 24,082
Property insurance 7,298
General and administrative 12,061
------------
463,768
------------
Excess of Gross Income over Direct
Operating Expenses $ 704,117
------------
------------
Capitalized costs $ 129,441
------------
------------
See accompanying independent auditors' report and notes. 9
SCHEDULE 6
ORACLE VILLAGE APARTMENTS
Statement of Gross Income and Direct Operating Expenses
For the Year Ended December 31, 1993
Gross Income:
Rental income $ 865,584
Other operating income 29,992
------------
895,576
------------
Direct Operating Expenses:
Salaries, benefits, and related burden 82,465
Utilities 65,841
Real estate taxes 66,286
Maintenance and repairs 60,763
Management fees 40,418
Marketing 21,395
Property insurance 7,165
General and administrative 7,818
------------
352,151
------------
Excess of Gross Income over Direct
Operating Expenses $ 543,425
------------
------------
Capitalized costs $ 76,894
------------
------------
See accompanying independent auditors' report and notes. 10
SCHEDULE 7
SPRINGHILL APARTMENTS
Statement of Gross Income and Direct Operating Expenses
For the Year Ended December 31, 1993
Gross Income:
Rental income $ 1,176,103
Other operating income 35,432
------------
1,211,535
------------
Direct Operating Expenses:
Salaries, benefits and related burden 128,270
Utilities 63,119
Real estate taxes 96,569
Maintenance and repairs 34,530
Management fees 52,693
Marketing 37,010
Property insurance 6,672
General and administrative 10,582
------------
429,445
------------
Excess of Gross Income over Direct
Operating Expenses $ 782,090
------------
------------
Capitalized costs $ 39,771
------------
------------
See accompanying independent auditors' report and notes. 11