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: 1-12252
EQUITY RESIDENTIAL PROPERTIES TRUST
(Exact Name of Registrant as Specified in Its Charter)
MARYLAND 36-3877868
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
TWO NORTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
(Address of Principal Executive Offices) (Zip Code)
(312) 474-1300
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
___ ___
APPLICABLE ONLY TO CORPORATE USERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
AT MAY 13, 1996, 39,580,004 OF THE REGISTRANT'S COMMON SHARES OF BENEFICIAL
INTEREST WERE OUTSTANDING.
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except for share amounts)
(Unaudited)
March 31, December 31,
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 SHAREHOLDERS' EQUITY
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
Minority Interests 151,702 168,963
----------- ------------
Shareholders' equity:
Preferred Shares of beneficial interest,
$.01 par value; 10,000,000 shares authorized:
9 3/8% Series A Cumulative Redeemable Preferred
Shares of Beneficial Interest, liquidation preference
$25 per share, 6,120,000 shares issued and outstanding 153,000 153,000
9 1/8% Series B Cumulative Redeemable Preferred
Shares of Beneficial Interest, liquidation preference
$250 per share, 500,000 shares issued and outstanding 125,000 125,000
Common Shares of beneficial interest, $.01 par value,
100,000,000 shares authorized, 39,559,866 shares issued
and outstanding as of March 31, 1996 and 35,011,715
shares issued and outstanding as of December 31, 1995 396 350
Paid in capital 786,398 652,829
Employee notes (5,313) (5,331)
Distributions in excess of accumulated earnings (52,694) (41,331)
----------- -----------
Total shareholders' equity 1,006,787 884,517
----------- -----------
Total liabilities and shareholders' equity $ 2,217,506 $ 2,141,260
============ ===========
The accompanying notes are an integral part of the financial statements
2
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE 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 -
-------- -------
Income before allocation to Minority Interests 21,295 13,220
Income allocated to Minority Interests (2,901) (2,875)
-------- -------
Net income 18,394 10,345
Preferred distributions 6,437 -
-------- -------
Net income available to Common Shares $ 11,957 $10,345
======== =======
Net income per weighted average Common Share outstanding $ 0.32 $ 0.30
======== =======
Weighted average Common Shares outstanding 37,877 34,097
======== =======
Distributions declared per Common Share outstanding $ 0.59 $ 0.53
======== =======
The accompanying notes are an integral part of the financial statements
3
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31,
---------------------
1996 1995
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 18,394 $ 10,345
Adjustments to reconcile net income to net cash provided by operating activities:
Income allocated to Minority Interests 2,901 2,875
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:
Proceeds from sale of Common Shares 118,522 -
Proceeds from exercise of options 1,167 -
Redemption of Preference Units (1,083) (251)
Payment of offering costs (139) (233)
Distributions to Common Share and Preferred Share owners (25,979) (17,655)
Distributions to Minority Interests (4,838) (4,384)
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
EQUITY RESIDENTIAL PROPERTIES TRUST
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
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DEFINITION OF SPECIAL TERMS:
Capitalized terms used herein and not defined are as defined in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
1. BUSINESS
Equity Residential Properties Trust, formed in March 1993, and its
subsidiaries (collectively, the "Company"), is a self-administered and self-
managed equity real estate investment trust ("REIT"). As of March 31, 1996, the
Company 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 Company and its subsidiaries.
Due to the Company's ability as general partner to control either through
ownership or by contract the Operating Partnership, the Management Partnerships
and the Financing Partnerships, each such entity has been consolidated with the
Company for financial reporting purposes. In regard to Management Corp. and
Management Corp. II, the Company 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 Company have been
prepared pursuant to the Securities and Exchange Commission ("SEC") rules and
regulations and should be read in conjunction with the Financial Statements and
Notes thereto included in the Company's Annual Report on Form 10-K 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
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. INVESTMENT IN RENTAL PROPERTY
During the quarter ended March 31, 1996, the Company 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
Company'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 Company its interest in Desert Park, a
368-unit Property located in Las Vegas, Nevada, subject to $8.1 million of
indebtedness, in exchange for the forgiveness of a $2.7 million note payable to
the Company.
4. DISPOSITION OF RENTAL PROPERTIES
On January 31, 1996, the Company 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.
5. INVESTMENT IN MORTGAGE NOTES
Investment in mortgage notes, net represents the Company's investment in
subordinated mortgages collateralized by the Additional Properties.
7
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS
The following table presents the changes in the Company's issued and
outstanding Common Shares for the quarter ended March 31, 1996:
Balance at January 1, 1996 35,011,715
Common Shares issued through January Common Share Offering 1,725,000
Common Shares issued through February Common Share Offering 2,300,000
Conversion of OP Units into Common Shares 446,249
Common Shares issued through restricted share awards 20,821
Common Shares issued through exercise of options 46,080
Common Shares issued for profit-sharing contribution 10,001
----------
Balance at March 31, 1996 39,559,866
==========
Assuming conversion of all OP Units, total Common Shares outstanding at March
31, 1996 would have been 48,505,334.
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.
The equity positions of various individuals and entities that contributed
their properties to the Operating Partnership in exchange for a partnership
interest are collectively referred to as the "Minority Interests". As of March
31, 1996, the Minority Interests held 8,945,468 OP Units which represented an
18.44% interest in the Operating Partnership.
Net proceeds from the Company's Common Share offerings are contributed by the
Company to the Operating Partnership in return for an increased ownership
percentage and are treated as capital transactions in the Company's Consolidated
Financial Statements. As a result, the net offering proceeds are allocated
between shareholders' equity and Minority Interests to account for the change in
their respective percentage ownership of the underlying equity of the Operating
Partnership.
The Company paid a $0.59 per Common Share distribution on April 12, 1996 for
the quarter ended March 31, 1996, to Common Share holders of record on March 29,
1996.
The Company also paid a $0.5859 per share distribution on April 15, 1996 for
the quarter ended March 31, 1996 to Series A Preferred Share holders of record
on March 29, 1996. In
8
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
addition, the Company paid a $5.703 distribution per $250 Preferred Share (and
$0.5703 per $25 Depositary Share) for the quarter ended March 31, 1996 to
holders of record on March 29, 1996.
7. MORTGAGE NOTES PAYABLE
As of March 31, 1996, the Company 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 Company assumed the outstanding mortgage balances on
three Properties in the aggregate amount of $27.4 million. Scheduled maturities
for the Company'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 Company repaid the outstanding mortgage balance on one Property in the
amount of $14.5 million.
8. LINE OF CREDIT
The Company, through 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%.
9. 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 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.
9
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
10. DEPOSITS - RESTRICTED
Deposits - restricted shown on the Company'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 Company's
Properties.
11. COMMITMENTS AND CONTINGENCIES
There have been no new or significant developments related to the commitments
and contingencies that were discussed in Note 16 to the Company's Form 10-K for
the year ended December 31, 1995.
12. SUBSEQUENT EVENTS
On April 16, 1996, the Company 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.
On April 10, 1996, the Company 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 Company 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 Company 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.
10
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
On April 25, 1996, the Company 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 Company entered into an agreement to acquire Chandler
Court Apartments, 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.
11
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The following discussion and analysis of the results of operations and
financial condition of the Company should be read in connection with the
Consolidated Financial Statements and Notes thereto. Due to the Company's
ability to control the Operating Partnership, the Management Partnerships, 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 Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
RESULTS OF OPERATIONS
Since the Company's IPO, the Company 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 Company's interest in six of the Acquired Properties consists
solely of ownership of the debt collateralized by such Acquired Properties. The
Company 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 between January 1, 1996 and
March 31, 1996 (the "1996 Acquired Properties"). In addition, in August 1995,
the Company 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
Company from the date of each acquisition.
During 1995, the Company 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 Company disposed of one property (the
"1996 Disposed Property") for a sales price of $6.2 million.
The Company's overall results of operations for the quarter ended March 31,
1996 have been impacted by the Company'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
Company's disposition activity partially offset the increases to these same
accounts.
Properties that the Company 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 Company's results of operations and are discussed as well in
the following paragraphs.
12
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. (CONTINUED)
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 and allocation to Minority Interests 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 Company'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 Company 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
Company's Properties. These expenses increased by approximately $0.4 million
primarily as a result of the expansion of the Company'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 Company 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 Company'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 the interest associated with the
debt assumed on the 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.
13
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
As of January 1, 1996, the Company 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 Company's cash and cash equivalents balance at March 31, 1996
was approximately $8.5 million and the amounts available on the Company'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 Company's Statements of Cash Flows.
Part of the Company'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 from the issuance of additional equity or
debt securities. Continuing to employ this strategy, the Company 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 Company's line of credit. In addition, the Company
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 Company's line of credit. The
remaining proceeds were subsequently used to purchase additional properties.
With respect to Property acquisitions during the quarter, the Company
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 Company'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 Company acquired one additional
property for a purchase price of $11.75 million. This acquisition was funded
from the Company's line of credit. The Company is actively seeking to acquire
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 Company disposed of one property
which generated net proceeds of $6.1 million. These proceeds were ultimately
applied to purchase additional properties.
14
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. (CONTINUED)
As of March 31, 1996, the Company 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 Company's line
of credit.
During the quarter ended March 31, 1996, total capital expenditures for the
Company approximated $8.5 million. Of this amount, $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.
Minority Interests as of March 31, 1996 decreased by $17.5 million when
compared to December 31, 1995. The primary factors that impacted this account
during the quarter were distributions declared to Minority Interests, which
amounted to $5.3 million for the quarter, the allocation of its income from
operations in the amount of $2.9 million and the conversion of OP Units into
Common Shares.
Total distributions paid during the quarter ended March 31, 1996 amounted to
$30.8 million. On February 26, 1996, the Company declared a $0.59 distribution
per Common Share, $0.5859 distribution per Series A Preferred Share and $5.703
distribution per $250 Preferred Share (and $0.5703 per $25 Depositary Share)
payable to shareholders of record on March 29, 1996. Total distributions paid in
April 1996 for the quarter ended March 31, 1996 amounted to approximately $35
million.
The Company expects to meet its short-term liquidity requirements generally
through its working capital and net cash provided by operating activities. The
Company considers its cash provided by operating activities to be adequate to
meet operating requirements and payments of distributions. The Company also
expects to meet its long-term liquidity requirements, such as scheduled 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 Company has certain
uncollateralized Properties available for additional mortgage borrowings in the
event that the public capital markets are unavailable to the Company or the cost
of capital to the Company is too high.
The Company 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 Company's current
intent to renegotiate the extension of this facility or replace it with a
similar facility.
15
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. (CONTINUED)
The Company 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 Company generally considers FFO to be one measure of the performance of
real estate companies including an equity REIT. 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 Company believes that FFO is
helpful to investors as a measure of the performance of an equity REIT because,
along with cash flows from operating activities, financing activities and
investing activities, it provides investors an understanding of the ability of
the Company to incur and service debt and to make capital expenditures. FFO does
not represent cash generated from operating activities in accordance with GAAP
and therefore should not be considered an alternative to net income as an
indication of the Company's performance or to net cash flows from operating
activities as determined by GAAP as a measure of liquidity and is not
necessarily indicative of cash available to fund cash needs.
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.
16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The discussion in Note 11 of "Notes to Consolidated Financial 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.
17
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 13, 1996 By: /s/ Bruce C. Strohm
------------ ----------------------------
Bruce C. Strohm
Executive Vice President,
General Counsel
and Secretary
Date: May 13, 1996 By: /s/ Michael J. McHugh
------------ ----------------------------
Michael J. McHugh
Senior Vice President,
Chief Accounting Officer
and Treasurer
18