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, 1996
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
Incorporation or Organization) Identification No.)
TWO NORTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
(Address of Principal Executive Offices) (Zip Code)
(312) 474-1300
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------- -------
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
March 31, December 31,
1996 1995
---------- -----------
ASSETS
Investment in rental property
Land $ 221,098 $ 210,369
Depreciable property 2,084,874 1,976,267
---------- -----------
2,305,972 2,186,636
Accumulated depreciation (235,211) (217,183
---------- -----------
Investment in rental property, net of accumulated depreciation 2,070,761 1,969,453
Cash and cash equivalents 8,496 13,428
Investment in mortgage notes, net 86,914 87,154
Rents receivable 1,077 1,073
Deposits - restricted 3,681 18,272
Escrow deposits - mortgage 16,312 16,745
Deferred financing costs, net 11,720 12,653
Other assets 18,545 22,482
---------- ----------
Total assets $2,217,506 $2,141,260
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage notes payable $ 588,434 $ 561,695
Notes, net 348,603 348,524
Line of credit 27,000 92,000
Accounts payable and accrued expenses 23,014 23,544
Accrued interest payable 12,797 8,354
Due to affiliates 1,416 1,568
Rents received in advance and other liabilities 11,920 11,138
Security deposits 10,798 10,131
Distributions payable 35,035 30,826
---------- ----------
Total liabilities 1,059,017 1,087,780
---------- ----------
Commitments and contingencies
Redeemable Preference Interests - 24,578
---------- ----------
9 3/8% Series A Cumulative Redeemable Preference Units 153,000 153,000
---------- ----------
9 1/8% Series B Cumulative Redeemable Preference Units 125,000 125,000
---------- ----------
Partners' capital:
General Partner 728,787 606,517
Limited Partners 151,702 144,385
---------- ----------
Total partners' capital 880,489 750,902
---------- ----------
Total liabilities and partners' capital $2,217,506 $2,141,260
========== ==========
The accompanying notes are an integral part of the financial statements
2
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per OP Unit data)
(Unaudited)
Three Months Ended March 31,
----------------------------
1996 1995
----------------------------
REVENUES
Rental income $ 101,443 $ 89,426
Fee and asset management 1,545 1,862
Interest income - investment in mortgage notes 2,710 --
Interest and other income 623 594
------------ ------------
Total revenues 106,321 91,882
------------ ------------
EXPENSES
Property and maintenance 28,666 25,248
Real estate taxes and insurance 10,279 9,290
Property management 4,435 4,020
Fee and asset management 1,106 986
Depreciation 20,616 16,609
Interest:
Expense incurred 18,241 19,565
Amortization of deferred financing costs 944 786
General and administrative 2,079 2,158
------------ ------------
Total expenses 86,366 78,662
------------ ------------
Income before gain on disposition of
property 19,955 13,220
Gain on disposition of property 1,340 --
------------ ------------
Net income $ 21,295 $ 13,220
============ ============
ALLOCATION OF NET INCOME:
Redeemable Preference Interests $ 263 $ 386
============ ============
9 3/8% Series A Cumulative Redeemable
Preference Units $ 3,586 $ --
============ ============
9 1/8% Series B Cumulative Redeemable
Preference Units $ 2,851 $ --
============ ============
General Partner 11,957 10,345
Limited Partners 2,638 2,489
------------ ------------
$ 14,595 $ 12,834
============ ============
Net income per weighted average OP Unit outstanding $ 0.32 $ 0.30
============ ============
Weighted average OP Units outstanding 46,210 42,414
============ ============
The accompanying notes are an integral part of the financial statements
3
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Three Months ended March 31,
------------------------------------
1996 1995
------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,295 $ 13,220
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 20,616 16,609
Amortization of deferred financing costs (including discount on 1999 and 2002 Notes) 1,023 829
Gain on disposition of property (1,340) -
Changes in assets and liabilities:
(Increase) in rents receivable (4) (162)
Decrease (increase) in deposits - restricted 14,791 (906)
Decrease (increase) in other assets 1,108 (62)
(Decrease) in due to affiliates (260) (1,464)
(Decrease) increase in accounts payable and accrued expenses (202) 172
Increase in accrued interest payable 4,443 3,762
Increase (decrease) in rents received in advance and other liabilities 782 (384)
--------- ---------
Net cash provided by operating activities 62,252 31,614
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in rental properties, net (90,824) (42,305)
Improvements to rental property (5,444) (5,876)
Additions to non-rental property (384) (911)
Proceeds from disposition of rental property 6,252 -
Decrease (increase) in mortgage deposits 433 (1,807)
Deposits (made) on rental property acquisitions (300) (1)
Deposits applied on rental property acquisitions 100 -
Decrease in investment in mortgage notes, net 240 -
Other investing activities 157 127
--------- ---------
Net cash (used for) investing activities (89,770) (50,773)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions from General Partner 119,550 (233)
Redemption of Preference Interests (1,083) (251)
Distributions paid to partners (30,817) (22,039)
Principal receipts on employee notes 18 7
Proceeds from lines of credit 37,000 55,000
Repayments on lines of credit (102,000) (7,000)
Principal payments on mortgage notes payable (698) (13,371)
Loan and bond acquisition costs (51) (379)
Increase in security deposits 667 282
--------- ---------
Net cash provided by financing activities 22,586 12,016
--------- ---------
Net (decrease) in cash and cash equivalents (4,932) (7,143)
Cash and cash equivalents, beginning of period 13,428 20,038
--------- ---------
Cash and cash equivalents, end of period $ 8,496 $ 12,895
========= =========
The accompanying notes are an integral part of the financial statements
4
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Amounts in thousands)
(Unaudited)
Three Months ended March 31,
---------------------------------
1996 1995
---------------------------------
Supplemental information:
Cash paid during the period for interest $ 13,798 $ 15,803
========== ==========
Mortgage loans assumed through acquisitions of rental properties $ 27,438 $ -
========= =========
Rental property assumed through foreclosure $ 10,854 $ -
=========== ==========
The accompanying notes are an integral part of the financial statements
5
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
DEFINITION OF SPECIAL TERMS:
Capitalized terms used herein and not defined are as defined in the Operating
Partnership's Annual Report on Form 10-K for the year ended December 31,1995.
1. BUSINESS
ERP Operating Limited Partnership (the "Operating Partnership"), an
Illinois limited partnership, was formed to conduct the multifamily residential
property business of Equity Residential Properties Trust (the "General Partner"
or the "Company"). The Company is a Maryland real estate investment trust formed
on March 31, 1993. The Company conducts substantially all of its operations
through the Operating Partnership. As of March 31, 1996, the Operating
Partnership controlled a portfolio of 181 multifamily residential properties
(individually a "Property" and collectively the "Properties"). The Company's
interest in six of these Properties consists solely of ownership of debt
collateralized by such Properties. The Company also has an investment in
partnership interests and subordinated mortgages collateralized by 21 properties
(the "Additional Properties").
2. BASIS OF PRESENTATION
The balance sheet and statements of operations and cash flows as of and for
the quarter ended March 31, 1996 represent the consolidated financial
information of the Operating Partnership and its interests in the Financing
Partnerships and the Management Partnerships.
Due to the Operating Partnership's ability to control, through ownership,
the Management Partnerships and the Financing Partnerships, each such entity has
been consolidated with the Operating Partnership for financial reporting
purposes. In regard to Management Corp. and Management Corp. II, the Operating
Partnership does not have legal control; however, these entities are
consolidated for financial reporting purposes, the effects of which are
immaterial.
These unaudited Consolidated Financial Statements of the Operating
Partnership have been prepared pursuant to the Securities and Exchange
Commission ("SEC") rules and regulations and should be read in conjunction with
the Financial Statements and Notes thereto included in the Operating
Partnership's Annual Report on Form 10-K for the year ended December 31, 1995
("Form 10-K"). The following Notes to Consolidated Financial Statements
highlight significant changes to the notes included in the Form 10-K and present
interim disclosures as required by the SEC. The accompanying Consolidated
Financial Statements reflect, in the opinion of management, all adjustments
necessary for a fair presentation of the interim financial statements. All such
adjustments are of a normal and recurring nature. Certain reclassifications have
been made to the prior period's financial statements in order to conform with
the current period presentation.
6
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. PARTNERS' CAPITAL
The limited partners of the Operating Partnership include various
individuals and entities that contributed their properties to the Operating
Partnership in exchange for a partnership interest (the "Limited Partners"). As
of March 31, 1996, the Limited Partners were represented by 8,945,468
partnership interests ("OP Units") which are exchangeable on a one-for-one basis
into the Company's Common Shares. As of March 31, 1996, the General Partner had
an approximate 81.56% interest in the Operating Partnership and the Limited
Partners had an approximate 18.44% interest.
In regards to the General Partner, net proceeds from the various offerings
of the Company have been contributed by the Company 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, the net offering proceeds are allocated between the Company (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.
Minority Interests represented by the Company's indirect 1% interest in
various Financing Partnerships and LLCs are immaterial and have not been
accounted for in the Consolidated Financial Statements. In addition, certain
amounts due from the Company for its 1% interest in the Financing Partnerships
has not been reflected in the Consolidated Balance Sheets since such amounts are
immaterial to the Consolidated Balance Sheets.
4. INVESTMENT IN RENTAL PROPERTY
During the quarter ended March 31, 1996, the Operating Partnership acquired
the seven Properties listed below. Each Property was purchased from an
unaffiliated third party. The cash portion of these transactions was primarily
funded from the Operating Partnership's line of credit.
Total
Acquisition
Date Number Cost
Acquired Property Location of Units (in thousands)
- -------- -------- -------------- -------- --------------
02/07/96 7979 Westheimer Houston, TX 459 $ 13,902
02/27/96 Vinings at Coral Springs Coral Springs, FL 275 19,425
03/01/96 The Plantations Cary, NC 344 19,822
03/05/96 Oxford & Sussex Sunrise, FL 144 7,071
03/12/96 Pines of Cloverlane Ann Arbor, MI 592 19,066
03/14/96 Regency Palms Huntington Beach, CA 310 18,565
03/21/96 Port Royale II Ft. Lauderdale, FL 161 10,157
----- --------
2,285 $108,008
===== ========
In addition to the Properties mentioned above, on February 1, 1996,
Management Corp. II transferred to the Operating Partnership its interest in
Desert Park, a 368-unit Property located in Las
7
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Vegas, Nevada, subject to $8.1 million of indebtedness, in exchange for the
forgiveness of a $2.7 million note payable to the Operating Partnership.
5. DISPOSITION OF RENTAL PROPERTIES
On January 31, 1996, the Operating Partnership sold Sanddollar Apartments
located in Tulsa, Oklahoma for a sales price of $6.2 million. The gain for
financial reporting purposes was approximately $1.3 million.
6. INVESTMENT IN MORTGAGE NOTES
Investment in mortgage notes, net represents the Operating Partnership's
investment in subordinated mortgages collateralized by the Additional
Properties..
7. REDEEMABLE PREFERENCE INTERESTS
During the quarter ended March 31, 1996, the Operating Partnership redeemed
1,140 Preference Units for a total redemption price of approximately $1.1
million.
On March 1, 1996, the Operating Partnership exercised its option to convert
all of the remaining Preference Units into OP Units. This conversion resulted
in 1,182,835 OP Units being issued.
8. MORTGAGE NOTES PAYABLE
As of March 31, 1996, the Operating Partnership had outstanding mortgage
indebtedness of approximately $588.4 million encumbering 76 of the Properties.
The carrying value of such Properties (net of accumulated depreciation of $111.6
million) was $807.7 million. In connection with the Properties acquired during
the quarter ended March 31, 1996, the Operating Partnership assumed the
outstanding mortgage balances on three Properties in the aggregate amount of
$27.4 million. Scheduled maturities for the Operating Partnership's outstanding
mortgage indebtedness are at various dates through April 1, 2027. As of March
31, 1996, fixed interest rates on certain of these mortgage notes ranged from 4%
to 10.27% and variable interest rates on certain of the mortgage notes ranged
from 3.15% to 7.63%. Subsequent to March 31, 1996, the Operating Partnership
repaid the outstanding mortgage balance on one Property in the amount of $14.5
million.
9. LINE OF CREDIT
The Operating Partnership has a $250 million unsecured line of credit with
Wells Fargo Realty Advisors Funding, Incorporated, as agent. This line of
credit matures in November 1996 unless extended by the parties. Borrowings
under this line of credit currently bear interest at a rate equal to the one
month LIBOR, plus 1.375. As of March 31, 1996, $27 million was outstanding
under this facility and was bearing interest at a weighted average interest rate
of 6.77%.
8
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
10. NOTES
Included in this balance are the 1999 Notes, the Floating Rate Notes and
the 2002 Notes.
The 1999 Notes were issued at a discount, which is being amortized over the
life of the 1999 Notes on a straight-line basis. As of March 31, 1996, the
unamortized discount balance was approximately $0.5 million. The 1999 Notes are
due May 15, 1999 and bear interest at a rate of 8.5%, which is payable
semiannually in arrears on May 15 and November 15.
The Floating Rate Notes are due on December 22, 1997 and currently bear
interest at three-month LIBOR plus 0.75%, which is payable quarterly in arrears
on the third Wednesday of each February, May, August and November of each year.
The 2002 Notes were issued at a discount, which is being amortized over the
life of the 2002 Notes on a straight-line basis. As of March 31, 1996 the
unamortized discount balance was approximately $0.9 million. The 2002 Notes are
due on April 15, 2002 and bear interest at 7.95%, which is payable semi-annually
on each October 15 and April 15.
11. DEPOSITS - RESTRICTED
Deposits - restricted shown on the Operating Partnership's Consolidated
Balance Sheet as of March 31, 1996 included approximately $300,000 of earnest
money deposits made for property acquisitions. Also included in the deposits -
restricted amount were tenant security and utility deposits made for certain of
the Operating Partnership's Properties.
12. COMMITMENTS AND CONTINGENCIES
There have been no new or significant developments related to the
commitments and contingencies that were discussed in Note 18 to the Operating
Partnership's Form 10-K for the year ended December 31, 1995.
13. SUBSEQUENT EVENTS
On April 12, 1996, the Operating Partnership paid a $0.59 per OP Unit
distribution for the quarter ended March 31, 1996 to OP Unit holders of record
on March 29, 1996. On April 15, 1996, the Operating Partnership paid a $0.5859
distribution and a $0.5703 distribution for the quarter ended March 31, 1996 to
the Company as holder of the Series A Cumulative Preference Units and the Series
B Cumulative Preference Units, respectively.
On April 16, 1996, the Operating Partnership acquired Twenty-Nine Hundred
on First Apartments, a 135-unit multifamily residential property located in
Seattle, Washington from an unaffiliated third party. The purchase price was
approximately $11.75 million.
9
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
On April 10, 1996, the Operating Partnership entered into an agreement to
acquire Lands End Apartments, a 260-unit multifamily residential property
located in Pacifica, California from an unaffiliated third party. The expected
purchase price is $18.5 million.
On April 18, 1996, the Operating Partnership entered into an agreement to
acquire four multifamily residential properties containing 1,300 units and a
vacant land parcel from an unaffiliated third party. The expected combined
purchase price is $76.3 million, including the assumption of mortgage
indebtedness of $46.2 million.
On April 23, 1996, the Operating Partnership entered into separate
agreements to acquire 15 multifamily residential properties containing 6,105
units from an unaffiliated third party. The expected combined purchase price is
$240.6 million.
On April 25, 1996, the Operating Partnership entered into an agreement to
acquire Woodland Hills Apartments, a 228-unit multifamily residential property
located in Atlanta, Georgia from an unaffiliated third party. The expected
purchase price is $12.25 million.
On May 7, 1996, the Operating Partnership entered into an agreement to
acquire Chandler Court, a 310-unit multifamily residential property located in
Chandler, Arizona from an unaffiliated third party. The expected purchase price
is $14 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 five preceding paragraphs.
10
ERP OPERATING LIMITED PARTNERSHIP
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
The following discussion and analysis of the results of operations and
financial condition of the Operating Partnership should be read in connection
with the Consolidated Financial Statements and Notes thereto. Due to the
Operating Partnership's ability to control, through ownership, Equity
Residential Properties Management Limited Partnership and Equity Residential
Properties Management Limited Partnership II (collectively, the "Management
Partnerships"), a series of limited partnerships (the "Financing Partnerships")
and the LLCs, each entity has been consolidated with the Company for financial
reporting purposes. Capitalized terms used herein and not defined, are as
defined in the Operating Partnership's Annual Report on Form 10-K for the year
ended December 31, 1995.
RESULTS OF OPERATIONS
Since the Company's IPO, the Operating Partnership has acquired direct or
indirect interests in 119 properties (the "Acquired Properties"), containing
36,667 units in the aggregate for a total purchase price of approximately $1.8
billion, including the assumption of approximately $439.4 million of mortgage
indebtedness. The Operating Partnership's interest in six of the Acquired
Properties consists solely of ownership of the debt collateralized by such
Acquired Properties. The Operating Partnership purchased ten of such Acquired
Properties or 2,694 units between the IPO and December 31, 1993 (the "1993
Acquired Properties"); 84 of such Acquired Properties or 26,285 units in 1994
(the "1994 Acquired Properties"); 17 of such Acquired Properties or 5,035 units
in 1995 (the "1995 Acquired Properties") and eight of such Acquired Properties
or 2,653 units in 1996 (the "1996 Acquired Properties"). In addition, in August
1995, the Operating Partnership made an investment in partnership interests and
subordinated mortgages collateralized by the 21 Additional Properties. The
Acquired Properties were presented in the Consolidated Financial Statements of
the Operating Partnership from the date of each acquisition.
During 1995, the Operating Partnership also disposed of six properties
containing 2,445 units (the "1995 Disposed Properties") for a total sales price
of approximately $52 million and the release of mortgage indebtedness of $20.5
million. During the quarter ended March 31, 1996, the Operating Partnership
disposed of one property (the "1996 Disposed Property") for a sales price of
$6.2 million.
The Operating Partnership's overall results of operations for the quarter
ended March 31, 1996 have been significantly impacted by the Operating
Partnership's acquisition and disposition activity. The significant increases in
rental revenues, property and maintenance expenses, real estate taxes and
insurance, depreciation expense and property management can all primarily be
attributed to the acquisition of the 1995 Acquired Properties and 1996 Acquired
Properties. The impact of the 1995 Acquired Properties is discussed in greater
detail in the following paragraphs. The Operating Partnership's disposition
activity partially offset the increases to these same accounts.
11
ERP OPERATING LIMITED PARTNERSHIP
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Properties that the Operating Partnership owned for all of both the
quarters ended March 31, 1996 and March 31, 1995 (the "First Quarter 1996 Same
Store Properties") also impacted the Operating Partnership's results of
operations and are discussed as well in the following paragraphs.
COMPARISON OF QUARTER ENDED MARCH 31, 1996 TO QUARTER ENDED MARCH 31, 1995
For the quarter ended March 31, 1996, income before gain on disposition of
property increased by $6.7 million when compared to the quarter ended March 31,
1995. This increase was primarily due to increases in rental revenues net of
increases in property and maintenance expenses, real estate taxes and insurance,
property management expenses, fee and asset management and depreciation expense.
All of the increases in the various line item accounts mentioned above can be
primarily attributed to the 1996 Acquired Properties and 1995 Acquired
Properties. These increases were partially offset by the 1995 Disposed
Properties and the 1996 Disposed Property. Interest income of $2.7 million
earned on the Operating Partnership's mortgage note investment was an additional
factor that impacted the quarter to quarter changes.
In regard to the First Quarter 1996 Same Store Properties, rental revenues
increased by approximately $4.6 million or 5.4% as a result of higher rental
rates charged to new tenants and tenant renewals. Overall property operating
expenses which include property and maintenance, real estate taxes and insurance
and an allocation of property management expenses increased approximately $1.6
million or 4.5%. This increase was primarily the result of higher payroll
expenses, leasing and advertising costs, utilities and repairs and maintenance.
The Operating Partnership also increased its per unit charge for property level
insurance commencing in the first quarter of 1996.
Property management represents expenses associated with the management of
the Operating Partnership's Properties. These expenses increased by
approximately $0.4 million primarily as a result of the expansion of the
Operating Partnership's property management with the addition of a regional
operations center in Seattle, Washington.
Fee and asset management revenues and fee and asset management expenses are
associated with the management of properties not owned by the Operating
Partnership that are managed for affiliates. These revenues decreased by $0.3
million due to the disposition of certain of these properties and expenses
increased by $0.1 million.
Interest expense, including amortization of deferred financing costs,
decreased by approximately $1.1 million. Of this decrease, $2.9 million was due
to having a lower average balance outstanding on the Operating Partnership's
line of credit and $1.6 million was due to the repayment of mortgage
indebtedness on certain of the 1994 Acquired Properties and Zell Properties.
This decrease was offset by an increase of approximately $0.7 million due to
interest associated with the debt assumed on the
12
ERP OPERATING LIMITED PARTNERSHIP
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
1995 Acquired Properties and 1996 Acquired Properties, $0.1 million was due to
interest related to the 1999 Notes and the Floating Rate Notes and $2.6 million
was due to interest related to the 2002 Notes.
General and administrative expenses, which include corporate operating
expenses, were slightly lower between the quarters under comparison. General
and administrative expenses as a percentage of total revenues decreased from
2.4% for the quarter ended March 31, 1995 to 2% for the quarter ended March 31,
1996.
LIQUIDITY AND CAPITAL RESOURCES
As of January 1, 1996, the Operating Partnership had approximately $13.4
million of cash and cash equivalents and $158 million available on its line of
credit. After taking into effect the various transactions discussed in the
following paragraphs, the Operating Partnership's cash and cash equivalents
balance at March 31, 1996 was approximately $8.5 million and the amounts
available on the Operating Partnership's line of credit were $223 million. The
following discussion also explains the changes in net cash provided by operating
activities, net cash (used for) investing activities and net cash provided by
financing activities, which amounts for each period under comparison are
presented in the Operating Partnership's Statements of Cash Flows.
Part of the Operating Partnership's strategy in funding the purchase of
multifamily residential properties is to utilize its line of credit and to
subsequently repay the line of credit with proceeds contributed by the Company
from the issuance of additional equity or debt securities. Continuing to employ
this strategy, the Operating Partnership completed the January 1996 Common Share
Offering and received net proceeds of approximately $50.7 million, substantially
all of which were applied to repay a portion of the outstanding balance on the
Operating Partnership's line of credit. In addition, the Operating Partnership
completed the February 1996 Common Share Offering and received net proceeds of
approximately $67.8 million. Of these proceeds, $60 million were applied to
repay the remaining outstanding balance on the Operating Partnership's line of
credit. The remaining proceeds were subsequently used to purchase additional
properties.
With respect to Property acquisitions during the quarter, the Operating
Partnership purchased eight Properties containing 2,653 units for a total of
$118.6 million, which included the assumption of $27.4 million of mortgage
indebtedness. These acquisitions were primarily funded from amounts drawn on
the Operating Partnership's line of credit, proceeds funded from third party
escrow accounts related to the tax-deferred exchange of certain properties and a
portion of the proceeds received in connection with the Common Share offerings
as mentioned in the previous paragraph. Subsequent to March 31, 1996, the
Operating Partnership acquired one additional property for a purchase price of
$11.75 million. This acquisition was funded from the Operating Partnership's
line of credit. The Operating Partnership is actively seeking to acquire
13
ERP OPERATING LIMITED PARTNERSHIP
PART 1
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
additional multifamily residential properties with physical and market
characteristics similar to the Properties and is currently under contract with
various sellers to purchase up to 8,203 units. The combined purchase price of
these probable acquisitions is approximately $362 million. The closings of these
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 will not differ in material respects.
During the quarter ended March 31, 1996, the Operating Partnership disposed
of one property which generated net proceeds of $6.1 million. These proceeds
were ultimately applied to purchase additional properties.
As of March 31, 1996, the Operating Partnership had total indebtedness of
approximately $965 million, which included conventional mortgages of $425.9
million, unsecured debt of $348.6 million (net of a $1.4 million discount), tax
exempt bond indebtedness of $162.5 million and $27 million outstanding on the
Operating Partnership's line of credit.
During the quarter ended March 31, 1996, total capital expenditures for the
Operating Partnership approximated $8.5 million. Of this amount, approximately
$2.7 million related to capital improvements and major repairs for the Acquired
Properties. Such capital expenditures were primarily funded from working capital
reserves and from net cash provided by operating activities. Total capital
expenditures for the remaining portion of 1996 are budgeted to be approximately
$37 million.
Total distributions paid during the quarter ended March 31, 1996 amounted
to $30.8 million. On February 26, 1996, the Operating Partnership declared a
$0.59 distribution per OP Unit to holders of record on March 29, 1996 and a
$0.5859 distribution and a $0.5703 distribution to the Company as holder of the
Series A Cumulative Preference Units and the Series B Cumulative Preference
Units, respectively. Total distributions paid in April 1996 for the quarter
ended March 31, 1996 amounted to approximately $35 million.
The Operating Partnership expects to meet its short-term liquidity
requirements generally through its working capital and net cash provided by
operating activities. 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 mortgage debt maturities, reduction of
outstanding amounts under its line of credit, property acquisitions and
significant capital improvements by long-term collateralized and un-
collateralized borrowings and the issuance of equity securities including
additional OP Units as well as from 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
14
ERP OPERATING LIMITED PARTNERSHIP
PART 1
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
public capital markets are unavailable to the Operating Partnership or the cost
of capital to the Operating Partnership is too high.
The Operating Partnership currently has a $250 million line of credit which
will continue to be used for property acquisitions and for any working capital
needs. As of May 13, 1996, $87 million was outstanding under this facility. This
facility is scheduled to mature in November 1996; however, it is the Operating
Partnership's current intent to renegotiate the extension of this facility or
replace it with a similar facility.
The Operating Partnership is currently restructuring certain of its tax-
exempt bond investments and anticipates receiving approximately $75 million of
net proceeds in connection therewith. This transaction is expected to be
completed by June 1996.
FUNDS FROM OPERATIONS
The Operating Partnership generally considers FFO to be one measure of the
performance of real estate companies. In accordance with the new definition of
FFO adopted by the Board of Governors of NAREIT, FFO represents net income
(loss) (computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation on real estate assets and
after adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures are calculated to
reflect FFO on the same basis. The Operating Partnership believes that FFO is
helpful to investors as a measure of the performance 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 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.
For the quarter ended March 31, 1996, FFO, based on the new definition
(except for the effect of amortization of deferred financing costs related to
Predecessor Business of approximately $159,000), increased by $4 million when
compared to the quarter ended March 31, 1995 to approximately $33.8 million.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The discussion in Note 12 of "Notes to Consolidated Statements" is
incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits: None
(B) Reports on Form 8-K:
A report on Form 8-K dated March 1, 1996 was filed reporting the dismissal of
Grant Thornton L.L.P. as its independent public accountants
A report on Form 8-K/A, Amendment No. 1, dated March 1, 1996, was filed on March
22, 1996 amending the report on Form 8-K dated March 1, 1996.
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SIGNATURES
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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.
ERP OPERATING LIMITED PARTNERSHIP
BY: EQUITY RESIDENTIAL PROPERTIES TRUST,
ITS GENERAL PARTNER
Date: May 13, 1996 By: /s/ Bruce C. Strohm
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Bruce C. Strohm
Executive Vice President, General Counsel
and Secretary
Date: May 13, 1996 By: /s/ Michael J. McHugh
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Michael J. McHugh
Senior Vice President, Chief Accounting
Officer and Treasurer
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