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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ____________.
Commission file number 0-22411
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SUMMIT PROPERTIES PARTNERSHIP, L.P.
(Exact name of registrant as specified in its charter)
Delaware 56-1857809
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
212 S. Tryon Street, Suite 500, Charlotte, North Carolina 28281
(Address of principal executive offices - zip code)
(704) 334-9905
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check 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
--- ---
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SUMMIT PROPERTIES PARTNERSHIP, L.P.
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1 Financial Statements
Balance Sheets as of September 30, 1997
and December 31, 1996 (Unaudited). . . . . . . . . . . 3
Statements of Earnings for the three and
nine months ended September 30, 1997 and 1996
(Unaudited). . . . . . . . . . . . . . . . . . . . . . 4
Statement of Partners' Equity (Unaudited) . . . . . . . . 5
Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996
(Unaudited). . . . . . . . . . . . . . . . . . . . . . 6
Notes to Financial Statements. . . . . . . . . . . . . . . 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 11
PART II OTHER INFORMATION
Item 2 Changes in Securities. . . . . . . . . . . . . . . . . . . 29
Item 6 Exhibits Index and Reports on Form 8-K . . . . . . . . . . 29
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUMMIT PROPERTIES PARTNERSHIP, L.P.
BALANCE SHEETS
(Dollars in Thousands)
(UNAUDITED)
September 30, December 31,
1997 1996
------------- ------------
ASSETS
Real estate assets:
Land and land improvements $ 120,811 $ 102,605
Buildings and improvements 576,932 472,996
Furniture, fixtures and equipment 49,405 43,021
--------- ---------
747,148 618,622
Less: accumulated depreciation (99,789) (85,651)
--------- ---------
Operating real estate assets 647,359 532,971
Construction in progress 118,108 86,157
--------- ---------
Net real estate assets 765,467 619,128
Cash and cash equivalents 3,930 3,665
Restricted cash 5,115 4,121
Deferred financing costs, net 7,294 4,675
Other assets 4,823 3,775
--------- ---------
Total assets $ 786,629 $ 635,364
========= =========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Notes payable $ 438,094 $ 309,933
Accrued interest payable 2,597 1,318
Accounts payable and accrued expenses 17,641 7,257
Distributions payable to unitholders 10,867 10,244
Security deposits and prepaid rents 3,605 3,196
--------- ---------
Total liabilities 472,804 331,948
--------- ---------
Commitments
Partners' equity
Partnership units issued and outstanding 27,339,016
and 26,415,977
General partner - outstanding 273,390 and 264,159 3,869 3,766
Limited partners - outstanding 27,065,626 and
26,151,818 309,956 299,650
--------- ---------
Total partners' equity 313,825 303,416
--------- ---------
Total liabilities and partners' equity $ 786,629 $ 635,364
========= =========
See notes to financial statements.
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SUMMIT PROPERTIES PARTNERSHIP, L.P.
STATEMENTS OF EARNINGS
(Dollars In Thousands Except For Per Unit Data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
Revenues:
Rental $ 28,240 $ 23,143 $ 80,348 $ 65,097
Other property income 1,660 1,293 4,558 3,461
Interest 97 240 305 395
Other income 71 95 209 310
------------ ------------ ------------ ------------
Total revenues 30,068 24,771 85,420 69,263
------------ ------------ ------------ ------------
Expenses:
Property operating and maintenance:
Personnel 2,427 2,191 6,899 6,315
Advertising and promotion 596 434 1,418 1,015
Utilities 1,312 1,056 3,623 3,036
Building repairs and maintenance 2,326 2,022 6,382 5,456
Real estate taxes and insurance 2,573 2,258 8,111 6,744
Depreciation 5,852 4,682 16,463 13,249
Property supervision 701 576 2,041 1,632
Other operating expenses 797 690 2,356 1,943
------------ ------------ ------------ ------------
16,584 13,909 47,293 39,390
Interest 5,790 4,292 15,382 13,346
General and administrative 857 764 2,099 2,045
Loss (income) in equity investments:
Summit Management Company (111) 66 (86) 161
Real estate joint venture -- -- -- (1)
------------ ------------ ------------ ------------
Total expenses 23,120 19,031 64,688 54,941
------------ ------------ ------------ ------------
Income before gain on sale of real
estate assets and extraordinary items 6,948 5,740 20,732 14,322
Gain on sale of real estate assets -- -- 4,366 --
------------ ------------ ------------ ------------
Income before extraordinary items 6,948 5,740 25,098 14,322
Extraordinary items -- (626) -- (626)
------------ ------------ ------------ ------------
Net income 6,948 5,114 25,098 13,696
Net income allocated to general partner (70) (51) (251) (137)
------------ ------------ ------------ ------------
Net income allocated to limited partners $ 6,878 $ 5,063 $ 24,847 $ 13,559
============ ============ ============ ============
Per unit data:
Income before extraordinary items $ 0.25 $ 0.24 $ 0.92 $ 0.66
============ ============ ============ ============
Net income $ 0.25 $ 0.21 $ 0.92 $ 0.63
============ ============ ============ ============
Distributions declared $ 0.40 $ 0.39 $ 1.19 $ 1.16
============ ============ ============ ============
Weighted average units 27,369,316 24,070,632 27,252,718 21,769,807
============ ============ ============ ============
See notes to financial statements.
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SUMMIT PROPERTIES PARTNERSHIP, L.P.
STATEMENT OF PARTNERS' EQUITY
(Dollars In Thousands)
(Unaudited)
General Limited
Partner Partners Total
------- ---------- ---------
Balance, December 31, 1996 $ 3,766 $ 299,650 $ 303,416
Distributions (326) (32,306) (32,632)
Contributions from Summit Properties related to:
Issuance of stock 117 11,629 11,746
Exercise of stock options 7 731 738
Amortization of restricted stock grants 3 268 271
Proceeds from Dividend Reinvestment
and Employee Stock Purchase Plans 17 1,743 1,760
Costs of shelf registrations (5) (506) (511)
Issuance of units related to property acquisitions 39 3,900 3,939
Net income 251 24,847 25,098
------- --------- ---------
Balance, September 30, 1997 $ 3,869 $ 309,956 $ 313,825
======= ========= =========
See notes to financial statements.
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SUMMIT PROPERTIES PARTNERSHIP, L.P.
STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
(Unaudited)
Nine Months Ended
September 30,
-------------------------
1997 1996
--------- ---------
Cash flows from operating activities:
Net income $ 25,098 $ 13,696
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary items -- 626
Gain (loss) on equity method investments (86) 160
Gain on sale of real estate assets (4,366) --
Depreciation and amortization 17,336 13,994
Increase in restricted cash (994) (610)
Increase in other assets (699) (1,747)
Increase (decrease) in accrued interest payable 1,262 (82)
Increase in accounts payable and accrued expenses 4,484 4,114
Increase (decrease) in security deposits and prepaid rents (104) 557
--------- ---------
Net cash provided by operating activities 41,931 30,708
--------- ---------
Cash flows from investing activities:
Construction of real estate assets, net of payables (68,980) (54,259)
Purchase of Communities (57,749) (6,360)
Proceeds from sale of Community 9,271 --
Capitalized interest (4,528) (2,884)
Recurring capital expenditures (2,589) (1,805)
Non-recurring capital expenditures (3,317) (2,329)
--------- ---------
Net cash used in investing activities (127,892) (67,637)
--------- ---------
Cash flows from financing activities:
Debt proceeds, net of underwriters discount, offering
and related costs 226,920 80,775
Debt repayments (117,358) (103,751)
Distributions to unitholders (32,104) (23,761)
Payments of financing costs (32) (148)
Contributions from Summit Properties related to:
Issuance of common stock, net of underwriters discount,
offering and related costs 6,813 97,619
Exercise of stock options 738 224
Proceeds from Dividend Reinvestment and Employee Stock
Purchase Plans 1,760 1,262
Shelf registrations costs (511) --
--------- ---------
Net cash provided by financing activities 86,226 52,220
--------- ---------
Net increase in cash and cash equivalents 265 15,291
Cash and cash equivalents, beginning of period 3,665 2,881
--------- ---------
Cash and cash equivalents, end of period $ 3,930 $ 18,172
========= =========
Supplemental disclosure of cash flow
information - Cash paid for interest, net of capitalized interest $ 13,359 $ 12,643
========= =========
See notes to financial statements.
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SUMMIT PROPERTIES PARTNERSHIP, L.P.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by
the management of Summit Properties Partnership, L.P., (the "Operating
Partnership") in accordance with generally accepted accounting
principles for interim financial information and in conformity with the
rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary
for a fair presentation have been included. The results of operations
for the nine months ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the full year. These
financial statements should be read in conjunction with the Operating
Partnership's December 31, 1996 audited financial statements and notes
thereto included in the Operating Partnership's Registration Statement
on Form 10, as amended.
The Operating Partnership conducts the business of developing,
acquiring and managing multi-family apartment communities for Summit
Properties Inc. ("Summit Properties"). Summit Properties is the sole
general partner and majority owner of the Operating Partnership. Summit
Properties is a self-administered and self-managed equity real estate
investment trust ("REIT").
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standard No. 128 (SFAS No. 128), "Earnings Per
Share," which will be effective for periods ending after December 15,
1997. SFAS No. 128 will change the method for calculating earnings per
Unit. Had the Operating Partnership applied SFAS No. 128 for the three
and nine months ended September 30, 1997, the effect on reported
earnings per Unit would not be significant.
2. ACQUISITIONS AND DISPOSITIONS
During 1997, the Operating Partnership completed the acquisition of
four Communities: Summit Mayfaire, Summit Portofino, Summit Sand Lake
and Summit Windsor II. The acquisitions added a total of 1,188
apartment homes to the Operating Partnership's portfolio at an
aggregate purchase price of $82.9 million. The acquisitions were
primarily financed with the assumption of $15.2 million in debt, the
issuance of 243,608 Units to Summit Properties in exchange for Summit
Properties issuing 243,608 shares of Common Stock to the seller, the
issuance of 194,495 Units directly to the seller, and payment of $57.7
million in cash.
In addition, the Operating Partnership acquired its joint venture
partner's interest in Summit Plantation (formerly Plantation Cove)
apartment community on April 1, 1996. The Operating Partnership paid
$6.4 million in cash for the remaining 75% interest in this joint
venture, which is now owned entirely by the Operating Partnership.
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The following summary of selected unaudited pro forma results of
operations presents information as if the communities acquired in 1997
and the Summit Plantation acquisition had occurred at the beginning of
each period presented. The pro forma information for the nine months
ended September 30, 1997 and 1996 is provided for informational
purposes only and is not indicative of results that would have occurred
or which may occur in the future (dollars in thousands, except per unit
amounts):
Nine Months Ended
September 30,
---------------------------
1997 1996
---------- -----------
Net revenues $ 87,356 $ 78,131
========== ===========
Income before gain on sale of real estate assets $ 20,613 $ 13,922
========== ===========
Net income $ 24,979 $ 13,922
========== ===========
Net income per Unit $ 0.91 $ 0.62
========== ===========
Weighted average units 27,386,667 22,522,939
========== ===========
On May 14, 1997, the Operating Partnership sold a community in
Charlotte, North Carolina known as Summit Charleston for $9.5 million.
A gain on the sale of $4.4 million was recognized. Proceeds from the
sale were used to partially fund the acquisition of Summit Windsor II .
3. SENIOR UNSECURED DEBT OFFERING
On August 12, 1997, the Operating Partnership completed a $125 million
senior unsecured debt offering (the Notes). The Notes consist of: $25
million of 6.8% Notes due on August 15, 2002, $50 million of 6.95%
Notes due on August 15, 2004 and $50 million of 7.2% Notes due on
August 15, 2007. The Notes are redeemable at any time at the option of
the Operating Partnership, in whole or in part, at a redemption price
equal to the sum of the principal amount of the Notes and the
make-whole amount, if any, based upon the available reinvestment rate.
The Notes are not subject to any mandatory sinking fund and are
unsecured obligations of the Operating Partnership. The related
indenture contains various covenants including certain restrictions on
future indebtedness, limitations on encumbered assets and maintenance
of a minimum debt coverage ratio.
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4. RESTRICTED STOCK
In the nine months ended September 30, 1997 and 1996, Summit Properties
granted 26,528 and 56,041 shares, respectively, of restricted stock to
employees of the Operating Partnership and subsidiaries under Summit
Properties 1994 Stock Option and Incentive Plan. The market value of
the restricted stock grants in 1997 and 1996 totaled $570,000 and $1.1
million, respectively. Unearned compensation is being amortized to
expense over the vesting period which ranges from three to five years.
5. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the nine months ended
September 30, 1997 and 1996 are as follows:
A. In the nine months ended September 30, 1997, the Operating
Partnership purchased four communities (Summit Mayfaire,
Summit Portofino, Summit Sand Lake and Summit Windsor II). The
Operating Partnership completed the purchase of the four
Communities by assuming debt, issuing 194,495 Units, issuing
243,608 Units to Summit Properties in exchange for Summit
Properties issuing 243,608 shares of Common Stock to the
seller, assuming certain liabilities and current assets, and
the payment of cash. The recording of the purchases is
summarized as follows (in thousands):
Fixed assets $ 82,898
Other assets 30
Debt assumed (15,226)
Current liabilities assumed (1,081)
Value of Operating Partnership Units issued (3,939)
Value of Common Stock issued (4,933)
--------
Cash invested $ 57,749
========
B. On April 1, 1996, the Operating Partnership acquired its joint
venture partner's interest in the Summit Plantation (formerly
Plantation Cove) apartment community. The Operating
Partnership paid $6.4 million in cash for the remaining 75%
interest in this joint venture, which is now owned entirely by
the Operating Partnership. The recording of the purchase is
summarized as follows (in thousands):
Fixed assets $ 21,913
Current assets 202
Deferred charges 95
Debt assumed (14,347)
Current liabilities assumed (288)
Equity investment (1,215)
--------
Net cash paid $ 6,360
========
C. The Operating Partnership issued 106,330 Units, (valued at
$2.1 million) for the purchase of land during the nine months
ended September 30, 1996.
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D. The Operating Partnership accrued a distribution payable in
the amount of $10.9 million and $10.2 million at September 30,
1997 and 1996, respectively.
E. Summit Properties issued 26,528 and 56,041 shares,
respectively, of restricted stock valued at $570,000 and $1.1
million during the nine months ended September 30, 1997 and
1996, respectively, to employees of the Operating Partnership
and subsidiaries.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q contains forward-looking statements including, without
limitation, statements relating to the operating performance of stabilized
communities and development activities of the Operating Partnership within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, as amended. Although the Operating Partnership
believes that the expectations reflected in such forward-looking statements are
based on reasonable assumptions, the Operating Partnership's actual results and
performance of stabilized and development communities could differ materially
from those set forth in the forward-looking statements. Certain factors that
might cause such a difference include general economic conditions, local real
estate market conditions, construction delays due to unavailability of
materials, weather conditions or other delays and those factors discussed in the
last paragraph under the heading entitled "Operating Performance of the
Operating Partnership's Stabilized Communities" and in the section entitled
"Development Activity--Certain Factors Affecting the Performance of Development
Communities" on pages 13 and 24, respectively, of this Form 10-Q.
As of September 30, 1997, there were 27,339,016 Units outstanding of the
Operating Partnership, of which 23,306,930, or 85.3% were owned by Summit
Properties and 4,032,086, or 14.7% were owned by other partners (including
certain officers and directors of Summit Properties).
The following discussion should be read in conjunction with the Financial
Statements of Summit Properties Partnership, L.P. and the Notes thereto
appearing elsewhere herein.
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HISTORICAL RESULTS OF OPERATIONS
The Operating Partnership's net income is generated primarily from operations of
its apartment communities (the "Communities"). The changes in operating results
from period to period reflect changes in existing Community performance and
increases in the number of apartment homes due to development and acquisition of
new Communities. Where appropriate, comparisons are made on a "stabilized
Communities," "acquisition Communities," "stabilized development Communities"
and "Communities in lease-up" basis in order to adjust for changes in the number
of apartment homes. A Community is deemed to be "stabilized" when it has
attained either a physical occupancy level of at least 93% or when construction
has been completed for one year in each of the comparable periods presented. A
Community is deemed to be a "stabilized development" when stabilized in the
entire current period presented but was in lease-up in the prior period
presented.
Results of Operations for the Three and Nine Months Ended September 30, 1997 and
1996
For the three and nine months ended September 30, 1997, income before gain on
sale of real estate assets and extraordinary items increased $1.2 million and
$6.4 million, respectively, to $6.9 million and $20.7 million, respectively,
from the three and nine months ended September 30, 1996.
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OPERATING PERFORMANCE OF THE OPERATING PARTNERSHIP'S PORTFOLIO OF COMMUNITIES
The operating performance of the Communities for the three and nine months ended
September 30, 1997 and 1996 is summarized below (dollars in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- ------------------------------------
1997 1996 % Change 1997 1996 % Change
----------- ---------- ----------- ----------- ----------- ------------
Property revenues:
Stabilized communities (1) $21,376 $21,072 1.4% $61,115 $60,010 1.8%
Acquisition communities (2) 2,743 0 100.0% 8,985 1,467 512.5%
Stabilized development communities 3,137 2,773 13.1% 9,264 5,768 60.6%
Communities in lease-up 2,644 233 1034.8% 5,023 255 1869.8%
Community sold 0 358 -100.0% 519 1,058 -50.9%
------- ------- ------- -------
Total property revenues 29,900 24,436 22.4% 84,906 68,558 23.8%
------- ------- ------- -------
Property operating and maintenance
expense (3):
Stabilized communities 8,080 8,083 0.0% 23,057 22,902 0.7%
Acquisition communities 934 0 100.0% 3,022 515 486.8%
Stabilized development communities 933 889 4.9% 2,865 2,127 34.7%
Communities in lease-up 785 114 588.6% 1,675 161 940.4%
Community sold 0 141 -100.0% 211 436 -51.6%
------- ------- ------- -------
Total property operating and
maintenance expense 10,732 9,227 16.3% 30,830 26,141 17.9%
------- ------- ------- -------
Property operating income $19,168 $15,209 26.0% $54,076 $42,417 27.5%
======= ======= ======= =======
Apartment homes, end of period 14,734 12,140 21.4% 14,734 12,140 21.4%
======= ======= ======= =======
(1) Includes Communities which were stabilized for each of the comparable
periods presented. Three month results include Summit Plantation which
was acquired April 1, 1996.
(2) Three month results include the Communities acquired in 1997. Nine month
results include the Communities acquired in 1997 and Summit Plantation
acquired April 1, 1996.
(3) Before real estate depreciation expense.
A summary of the Operating Partnership's apartment homes for the nine months
ended September 30, 1997 and 1996 is as follows:
1997 1996
------ ------
Apartment homes at January 1 12,454 11,286
Acquisitions 1,188 262
Developments which began rental operations
during the period 1,306 592
Sale of apartment homes (214) --
------ ------
Apartment homes at September 30 14,734 12,140
====== ======
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OPERATING PERFORMANCE OF THE OPERATING PARTNERSHIP'S STABILIZED COMMUNITIES
The operating performance of the 45 and 44 Communities stabilized during the
entire period in each of the three and nine months ended September 30, 1997 and
1996, respectively, are summarized below (dollars in thousands except average
monthly rental revenue):
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------- -----------------------------------
1997 1996 % Change 1997 1996 % Change
---------- ---------- ----------- ---------- ----------- -----------
Property revenues:
Rental $20,348 $20,004 1.7% $58,209 $57,089 2.0%
Other 1,028 1,068 -3.7% 2,906 2,921 -0.5%
------- ------- ------- -------
Total property revenues 21,376 21,072 1.4% 61,115 60,010 1.8%
------- ------- ------- -------
Property operating and maintenance
expense (1):
Personnel 1,793 1,923 -6.8% 5,217 5,580 -6.5%
Advertising and promotion 315 254 24.0% 781 634 23.2%
Utilities 982 922 6.5% 2,719 2,669 1.9%
Building repairs and maintenance 1,886 1,886 0.0% 5,186 5,113 1.4%
Real estate taxes and insurance 1,983 2,015 -1.6% 5,898 5,792 1.8%
Property supervision 530 523 1.3% 1,524 1,491 2.2%
Other operating expense 591 560 5.5% 1,732 1,623 6.7%
------- ------- ------- -------
Total property operating and
maintenance expense 8,080 8,083 0.0% 23,057 22,902 0.7%
------- ------- ------- -------
Property operating income $13,296 $12,989 2.4% $38,058 $37,108 2.6%
======= ======= ======= =======
Average physical occupancy (2) 93.7% 93.7% 0.0% 93.3% 93.3% 0.0%
======= ======= ======= =======
Average monthly rental revenue (3) $ 724 $ 712 1.8% $ 734 $ 720 2.0%
======= ======= ======= =======
Number of apartment homes 10,134 10,134 9,872 9,872
======= ======= ======= =======
(1) Before real estate depreciation expense.
(2) Average physical occupancy is defined as the number of apartment homes
occupied divided by the total number of apartment homes contained in
the Communities, expressed as a percentage. Average physical occupancy
has been calculated using the average of the midweek occupancy that
existed during each week of the period.
(3) Represents the average monthly net rental revenue per occupied
apartment home.
The increase in rental revenue from stabilized Communities for the third quarter
and the first nine months of 1997 compared to 1996 was primarily the result of
increases in average rental rates. Property operating and maintenance expenses
were stable with increases in advertising and promotion, and other operating
expense, offset by a decrease in personnel expense. As a percentage of total
property revenue, property operating and maintenance expenses decreased for the
three months ended September 30, 1996 and 1997 from 38.4% to 37.8% and for the
nine months ended September 30, 1996 and 1997 from 38.2% to 37.7%.
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The 1.4% and 1.8% rates of growth in property revenues were lower than the 3.9%
and 4.1% rates of growth in property revenues achieved from the third quarter of
1995 compared to third quarter 1996 and the first nine months of 1995 compared
to the first nine months of 1996, respectively. The growth rate was lower
primarily as a result of a new supply of competing multi-family communities and
the increase in home affordability in some of the markets in which the Operating
Partnership operates. This lower growth rate was especially noticeable in the
Tampa and Atlanta markets. The Operating Partnership expects property growth
rates for the remainder of 1997 to be similar to the first nine months of 1997
as the supply of new multi-family communities continues to increase, balanced by
the continued strength of the local economies in which the Operating Partnership
operates. The Operating Partnership believes its expectations with respect to
property revenue growth are based on reasonable assumptions as to future
economic conditions and the quantity of competitive multi-family communities in
the markets in which the Operating Partnership does business. There can be no
assurance that actual results will not differ from these assumptions.
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OPERATING PERFORMANCE OF THE OPERATING PARTNERSHIP'S ACQUISITION COMMUNITIES
Acquisition communities consist of Summit Mayfaire, Summit Portofino, Summit
Sand Lake and Summit Windsor II acquired in 1997 (1,188 apartment homes) and
Summit Plantation (262 apartment homes) acquired on April 1, 1996, for the nine
month periods presented and only the four Communities acquired in 1997 for the
three month periods presented. The operations of these Communities for the three
and nine months ended September 30, 1997 and 1996 are summarized as follows
(dollars in thousands except average monthly rental revenue):
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -------------------
1997 1996 1997 1996
------ ---- ------ ------
Property revenues:
Rental revenues $2,539 $ 0 $8,404 $1,391
Other property revenue 204 0 581 76
------ --- ------ ------
Total property revenues 2,743 0 8,985 1,467
------ --- ------ ------
Property operating and maintenance
expense (1) 934 0 3,022 515
------ --- ------ ------
Property operating income $1,809 $ 0 $5,963 $ 952
====== === ====== ======
Average physical occupancy (2) 93.4% 0.0% 93.2% 92.8%
====== === ====== ======
Average monthly rental revenue (3) $ 800 $ 0 $ 820 $ 985
====== === ====== ======
Number of apartment homes 1,188 0 1,450 262
====== === ====== ======
(1) Before real estate depreciation expense.
(2) Average physical occupancy is defined as the number of apartment homes
occupied divided by the total number of apartment homes contained in
the communities, expressed as a percentage. Average physical occupancy
has been calculated using the average of the midweek occupancy that
existed during each week of the period.
(3) Represents the average monthly net rental revenue per occupied
apartment home.
The decrease in the average monthly rental revenue for the nine months ended
September 30, 1997 as compared to the corresponding period in 1996 is
attributable to lower average monthly rental revenue on the 1997 acquisition
communities in comparison to the 1996 acquisition community. Average monthly
rental revenue for the nine months ended September 30, 1997 for the 1997
acquisitions alone was $772.
The unleveraged yield, defined as property operating income for the three and
nine months ended September 30, 1997 for the Acquisition Communities, as defined
above, on an annualized basis over total acquisition cost, was 9.08% and 9.22%,
respectively. The unleveraged yield for only the four communities acquired in
1997 for the nine months ended September 30, 1997, was 9.17%.
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OPERATING PERFORMANCE OF THE OPERATING PARTNERSHIP'S STABILIZED DEVELOPMENT
COMMUNITIES
The Operating Partnership had four development communities (Summit Aventura,
Summit Hill II, Summit Green, and Summit River Crossing), which were stabilized
during the entire three and nine months ended September 30, 1997 but were still
in lease-up/construction in the three and nine months ended September 30, 1996.
The operating performance of these four Communities for the three and nine
months ended September 30, 1997 and 1996 is summarized below (dollars in
thousands except average monthly rental revenue):
Three Months Ended Nine Months Ended
September 30 September 30
------------------- -------------------
1997 1996 1997 1996
------ ------ ------ ------
Property revenues:
Rental revenues $2,936 $2,593 $8,655 $5,377
Other property revenue 201 180 609 391
------ ------ ------ ------
Total property revenues 3,137 2,773 9,264 5,768
------ ------ ------ ------
Property operating and maintenance
expense (1) 933 889 2,865 2,127
------ ------ ------ ------
Property operating income $2,204 $1,884 $6,399 $3,641
====== ====== ====== ======
Average physical occupancy (2) 92.3% 81.5% 92.3% 56.7%
====== ====== ====== ======
Average monthly rental revenue (3) $ 883 $ 843 $ 884 $ 860
====== ====== ====== ======
Number of apartment homes 1,200 1,200 1,200 1,200
====== ====== ====== ======
(1) Before real estate depreciation expense.
(2) Average physical occupancy is defined as the number of apartment homes
occupied divided by the total number of apartment homes contained in
the communities, expressed as a percentage. Average physical occupancy
has been calculated using the average of the midweek occupancy that
existed during each week of the period.
(3) Represents the average monthly net rental revenue per occupied
apartment home.
The unleveraged yield, defined as property operating income for the three and
nine months ended September 30, 1997 on an annualized basis over total
development cost, was 10.98% and 10.62%, respectively.
17
18
OPERATING PERFORMANCE OF THE OPERATING PARTNERSHIP'S COMMUNITIES IN LEASE-UP
The Operating Partnership had nine Communities in lease-up in the three and nine
months ended September 30, 1997. A Community in lease-up is defined as one which
has commenced rental operations but has not reached stabilization. A summary of
the nine Communities in lease-up as of September 30, 1997 is as follows (dollars
in thousands):
Total Actual/ Homes Q3 1997 % Leased
Number Of Actual/ Anticipated Actual/ Completed Average As Of
Apartment Estimated Construction Anticipated At Sept. 30, Occupancy Sept. 30,
Community Homes Cost Completion Stabilization 1997 1997 1997
- -------------------- --------- ----------- ------------ ------------- ------------ --------- ---------
Summit Fairways 240 $17,775 Q4 1996 Q3 1997 240 93.88% 99.60%
Summit on the River 352 23,922 Q2 1997 Q4 1997 352 82.60% 93.80%
Summit Russett 314 23,055 Q3 1997 Q3 1997 314 77.78% 96.20%
Summit Stonefield 216 18,400 Q4 1997 Q1 1998 100 21.80% 62.00%
Summit Ballantyne I 246 16,800 Q4 1997 Q2 1998 148 20.70% 49.20%
Summit Sedgebrook I 248 15,600 Q4 1997 Q2 1998 128 18.70% 46.80%
Summit Plantation II 240 22,000 Q4 1997 Q2 1998 152 20.90% 55.80%
Summit Norcroft II 54 3,800 Q4 1997 Q1 1998 12 0.30% 11.10%
Summit Lake I 302 19,700 Q2 1998 Q3 1998 44 0.60% 9.60%
======= ========
2,212 $161,052
======= ========
Property operating income after interest expense was $457,000 and $460,000 for
the nine communities in lease-up for the three and nine months ended September
30, 1997, respectively.
18
19
OPERATING PERFORMANCE OF SUMMIT MANAGEMENT COMPANY
The operating performance of Summit Management Company (the "Management
Company") and its wholly-owned subsidiary, Summit Apartment Builders Inc. (the
"Construction Company"), for the three and nine months ended September 30, 1997
and 1996 is summarized below (dollars in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1997 1996 1997 1996
------ ------- ------ -------
Property management revenue $1,213 $ 1,228 $3,598 $ 3,526
Construction company income 366 148 824 324
Other management company income 25 27 80 86
------ ------- ------ -------
Total revenue 1,604 1,403 4,502 3,936
Property management expenses:
Operating 1,054 1,138 3,127 3,287
Depreciation 48 27 144 83
Amortization 78 70 226 208
Interest 75 75 225 225
------ ------- ------ -------
Total property management expenses 1,255 1,310 3,722 3,803
Construction company expenses 238 159 694 294
------ ------- ------ -------
Total expenses 1,493 1,469 4,416 4,097
------ ------- ------ -------
Net income (loss) of Summit
Management Company $ 111 ($ 66) $ 86 ($ 161)
====== ======= ====== =======
The increase in property management revenue for the nine months ended September
30, 1997 was the result of higher revenues for managing the Operating
Partnership's Communities (which was due to an increase in the number of
Communities managed as a result of new developments and acquisitions), offset by
a reduction in the average number of communities managed for third parties
during 1997 compared to 1996. Total apartment homes managed for third parties
was 4,769 and 7,850 at September 30, 1997 and 1996, respectively. The Operating
Partnership expects third party management revenue as a percentage of total
property management revenues to continue to decline as revenues from the
Operating Partnership's communities continue to increase.
Property management revenues include $415,000 and $604,000 of fees from third
parties for the three months ended September 30, 1997 and 1996, respectively,
and $1.3 million and $1.7 million of fees from third parties for the nine months
ended September 30, 1997 and 1996, respectively.
Construction Company income and expenses increased in 1997 compared to 1996
primarily due to the increased number of construction projects. The increase in
construction projects was a result of the Operating Partnership's decision to
expand its in-house construction operations in the state of Florida to cover the
entire geographic area in which the Operating Partnership operates. All of the
Construction Company's income is from contracts with the Operating Partnership.
19
20
OTHER INCOME AND EXPENSES
Interest expense increased $1.5 million and $2.0 million or 34.9% and 15.3% for
the three and nine months ended September 30, 1997, respectively, primarily due
to interest on debt related to the Communities acquired in 1997 and interest on
Communities in lease-up, offset by the Operating Partnership's repayment of debt
in connection with Summit Properties' public offering of 5.75 million shares of
Common Stock in August 1996, the proceeds of which were contributed to the
Operating Partnership.
Depreciation expense increased $1.2 million and $3.2 million or 25.0% and 24.3%
for the three and nine months ended September 30, 1997, respectively, primarily
due to Communities acquired in 1997 and 1996, increased depreciation on
Communities that were in construction in 1996, but completed by 1997 and
Communities in lease-up in 1997.
General and administrative expenses were relatively stable with an increase of
only $54,000 or 2.6% to $2.1 million for the nine months ended September 30,
1997 from $2.0 million for the same period in 1996. General and administrative
expenses were 2.5% and 3.0% of total revenues for the nine months ended
September 30, 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Operating Partnership's working capital is primarily provided by operations
and an unsecured $150 million credit facility (the "Unsecured Credit Facility").
The Unsecured Credit Facility has a three year term and currently bears interest
at LIBOR + 110 basis points based upon the Operating Partnership's credit rating
of BBB- by Standard & Poors Rating Group. The interest rate can be reduced in
the event of an upgrade of the Operating Partnership's unsecured credit rating
as assigned by Standard & Poors Rating Group (which rating must be accompanied
by the comparable senior unsecured bond rating from one of Moody's, Duff &
Phelps or Fitch) as follows:
S & P CREDIT RATING RATE
------------------- ----
BBB-.................................... LIBOR + 110
BBB..................................... LIBOR + 95
BBB+.................................... LIBOR + 80
The Unsecured Credit Facility provides $25 million for general working capital
purposes with the remaining $125 million available to finance new development
and acquisitions.
On August 12, 1997, the Operating Partnership completed a $125 million senior
unsecured debt offering comprised of three tranches. The first tranche, $25
million of 6.80% Notes due on August 15, 2002, was priced at 99.940% to yield
6.81%, or 73 basis points over the rate on U. S. Treasury securities with a
comparable maturity. The second tranche, $50 million of 6.95% Notes due on
August 15, 2004, was priced at 99.764% to yield 6.99% or 81 basis points over
the rate on U. S. Treasury securities with a comparable maturity. The third
tranche, $50 million of 7.2% Notes due on August 15, 2007, was priced at 99.83%
to yield 7.22% or 104 basis points over the rate on U. S. Treasury securities
with a comparable maturity. The proceeds from the Notes were used to pay down
the Unsecured Credit Facility.
20
21
The Operating Partnership's outstanding indebtedness at September 30, 1997
totaled $438.1 million. This amount includes approximately $205.8 million in
fixed rate conventional mortgages, $53.0 million of variable rate tax-exempt
bonds, $156.0 million of fixed rate unsecured notes, $9.3 million of tax exempt
fixed rate loans, and $14.0 million under the variable rate Unsecured Credit
Facility.
The Operating Partnership's net cash provided by operating activities increased
from $30.7 million for the nine months ended September 30, 1996 to $41.9 million
for the same period in 1997 primarily due to a $11.7 million increase in
property operating income.
Net cash used in investing activities increased from $67.6 million for the nine
months ended September 30, 1996 to $127.9 million for the same period in 1997
primarily due to an increase in the acquisition of Communities and an increase
in construction of real estate assets, partially offset by the proceeds from the
sale of a Community in 1997.
Net cash provided by financing activities increased from $52.2 million for the
nine months ended September 30, 1996 to $86.2 million for the same period in
1997, primarily due to an increase in debt proceeds partially offset by lower
Summit Properties' equity offering proceeds contributed to the Operating
Partnership, by higher debt repayments and by higher distributions to
unitholders. The increase in debt proceeds was primarily due to $125 million
senior unsecured debt issued in August, 1997. The lower equity issuance proceeds
were due to Summit Properties' public stock offering in August, 1996. The higher
debt repayments were the result of more credit facility debt being repaid in
1997 with the proceeds of the $125 million debt offering than credit facility
debt repaid in 1996 with the proceeds of Summit Properties' public stock
offering.
The Operating Partnership expects to meet its short-term liquidity requirements
(i.e., liquidity requirements arising within twelve months) generally through
its net cash provided by operations and borrowings under the Unsecured Credit
Facility. The Operating Partnership believes that its net cash provided by
operations will be adequate to meet its operating requirements and to satisfy
Summit Properties' applicable REIT dividend payment requirements in both the
short-term and in the long-term. Improvements and renovations at existing
Communities are expected to also be funded from property operations.
The Operating Partnership expects to meet its long-term liquidity requirements
(i.e., liquidity requirements arising after twelve months), such as current and
future developments, debt maturities, acquisitions, renovations and other
non-recurring capital expenditures, with borrowings under its Unsecured Credit
Facility, through the issuance of long-term secured and unsecured debt
securities and additional equity securities of Summit Properties which will be
contributed to the Operating Partnership, or in connection with the acquisition
of land or improved property, through the issuance of Units of the Operating
Partnership.
21
22
On May 14, 1997, the Operating Partnership sold a community in Charlotte, North
Carolina known as Summit Charleston for $9.5 million. A gain on the sale of
approximately $4.4 million was recognized.
The Operating Partnership purchased an apartment community known as Summit
Windsor II for $17.1 million in cash on July 18, 1997. Summit Windsor II, which
was developed by the Operating Partnership in 1988, has 306 apartment homes and
is located in Frederick, Maryland. The proceeds from the sale of the Summit
Charleston community and borrowings on the Unsecured Credit Facility were used
to fund the purchase. The third quarter acquisition was in addition to the three
Communities with a total of 1,188 apartment homes acquired at a cost of $65.8
million in the first quarter of 1997.
22
23
The following table sets forth certain information regarding debt financing as
of September 30, 1997 and December 31, 1996:
Principal Outstanding
Interest ------------------------------
Rate As Of Maturity September 30, December 31,
September 30, 1997 Date (1) 1997 1996
------------------------------- -------------- -------------
FIXED RATE DEBT
MORTGAGE LOAN (2) (3) 5.88% 2/15/01 $ 121,040 $ 122,950
MORTGAGE LOAN (2) (3) 7.71% 12/15/05 29,328 29,653
MORTGAGE LOAN (4) 8.00% 09/1/05 8,578 8,638
MORTGAGE NOTES
Summit Hollow I 8.00% 11/1/18 2,254 2,286
Summit Hollow II 7.75% 1/1/29 2,571 2,587
Summit Creekside 8.00% 6/1/22 2,847 2,877
Summit Old Town 8.00% 9/1/20 3,061 3,097
Summit Eastchester 8.00% 5/1/21 3,829 3,872
Summit Foxcroft 8.00% 4/1/20 2,743 2,788
Summit Oak 7.75% 12/1/23 2,561 2,585
Summit Sherwood 7.88% 3/1/29 3,310 3,329
Summit Radbourne 9.80% 3/1/02 8,621 8,683
Summit Sand Lake 7.88% 2/15/06 15,059 -
TAX EXEMPT MORTGAGE NOTES
Summit Crossing 6.95% 11/1/25 4,175 4,213
Summit East Ridge 7.25% 12/1/26 5,115 5,156
-------------- -------------
TOTAL MORTGAGE DEBT 215,092 202,714
-------------- -------------
UNSECURED NOTES
6.80% Notes due 2002 6.80% 8/15/02 25,000 -
6.95% Notes due 2004 6.95% 8/15/04 50,000 -
7.20% Notes due 2007 7.20% 8/15/07 50,000 -
Bank Note 7.85% 8/3/02 16,000 16,000
Bank Note 7.61% 8/3/00 15,000 15,000
-------------- -------------
TOTAL UNSECURED NOTES 156,000 31,000
-------------- -------------
TOTAL FIXED RATE DEBT 371,092 233,714
VARIABLE RATE DEBT
UNSECURED CREDIT FACILITY LIBOR + 110 9/30/99 14,050 22,357
TAX EXEMPT BONDS (5)
Summit Belmont 5.55% 4/1/07 11,650 11,850
Summit Hampton 5.55% 6/1/07 12,490 12,700
Summit Pike Creek 5.55% 8/15/20 13,082 13,262
Summit Gateway 5.55% 7/1/07 7,100 7,300
Summit Stony Point 5.55% 4/1/29 8,630 8,750
-------------- -------------
TOTAL TAX EXEMPT BONDS 52,952 53,862
-------------- -------------
TOTAL VARIABLE RATE DEBT 67,002 76,219
============== =============
TOTAL OUTSTANDING INDEBTEDNESS $ 438,094 $ 309,933
============== =============
(1) With the exception of the Mortgage Loans referred to in Note 3 below,
all of the secured debt can be prepaid at any time. Prepayment of such
debt is generally subject to penalty or premium; however, the tax
exempt mortgage notes can be prepaid at any time without penalty or
premium.
23
24
(2) Mortgage Loans are secured by the following Communities:
Summit Glen Summit Blue Ash Summit Heron's Run
Summit Springs Summit Square Summit Perico
Summit Village Summit Waterford Summit Providence
Summit Highland Summit Del Ray Summit Meadow
Summit Norcroft Summit Palm Lake Summit Windsor
(3) The Operating Partnership may elect to extend the maturity of each of these
Mortgage Loans for a period of up to two years by providing six months'
written notice. These Mortgage Loans generally may not be prepaid in whole
or in part during their original term, but may be prepaid in whole or in
part at any time during applicable extension periods, if any, without
premium or penalty.
(4) Mortgage Loan secured by Summit Simsbury and Summit Touchstone Communities.
(5) The tax exempt bonds (the "Bonds") bear interest at various rates set by a
remarketing agent at the demand note index plus 0.50%, set weekly, or the
lowest percentage of prime which allows the resale at a price of par. The
Bonds are enhanced by letters of credit from financial institutions (the
"Credit Enhancements"), each of which Credit Enhancements will terminate
prior to the maturity dates of the related Bonds. In the event such Credit
Enhancements are not renewed or replaced upon termination, the related loan
obligations will be accelerated.
The London Interbank Offered Rate (LIBOR) at September 30, 1997 was 5.66%
DEVELOPMENT ACTIVITY
The Operating Partnership's developments in process at September 30, 1997 are
summarized as follows (dollars in thousands):
Total Estimated Anticipated
Apartment Estimated Cost To Cost To Construction
Community Homes Costs Date Complete Completion
- ---------------------------------------- ------------ ------------ ------------ ----------- --------------
Summit Stonefield-Yardley, PA 216 $ 18,400 $ $ 16,329 $ 2,071 Q4 1997
Summit Norcroft II-Charlotte, NC 54 3,800 3,076 724 Q4 1997
Summit Sedgebrook I-Charlotte, NC 248 15,600 13,830 1,770 Q4 1997
Summit Ballantyne I-Charlotte, NC 246 16,800 14,001 2,799 Q4 1997
Summit Plantation II-Plantation, FL 240 22,000 20,445 1,555 Q4 1997
Summit Lake I-Raleigh, NC 302 19,700 13,786 5,914 Q2 1998
Summit Fair Lakes I-Fairfax, VA 370 32,900 9,529 23,371 Q1 1999
Summit New Albany-Columbus, OH 301 22,600 6,581 16,019 Q1 1999
Summit Governor's Village-Chapel Hill, NC 242 16,400 2,065 14,335 Q4 1998
Summit Ballantyne II-Charlotte, NC 154 10,100 1,626 8,474 Q1 1999
------------ ------------ ------------ -----------
2,373 178,300 101,268 77,032
Other development and construction costs - - 16,840 -
------------ ------------ ------------ -----------
2,373 $ 178,300 $ 118,108 $ 77,032
============ ============ ============ ===========
In addition, the Operating Partnership has a commitment to purchase a community
(Summit St. Claire) currently under construction in Atlanta, Georgia for
approximately $27.5 million, subject to adjustment based on the percentage of
apartment homes leased as of the date of acquisition. The 336 apartment home
community is expected to be purchased, after reaching rental stabilization,
which is currently expected in the fourth quarter of 1998.
24
25
Estimated costs to complete the development communities and the purchase
commitment for Summit St. Claire represent all of the Operating Partnership's
material commitments for capital expenditures.
Certain Factors Affecting the Performance of Development Communities
The Operating Partnership is optimistic about the operating prospects of the
Communities under construction even with the increased supply of newly
constructed apartment homes of comparable quality in many of its markets. As
with any development community, there are uncertainties and risks associated
with the development of the Communities described above. While the Operating
Partnership has prepared development budgets and has estimated completion and
stabilization target dates based on what it believes are reasonable assumptions
in light of current conditions, there can be no assurance that actual costs will
not exceed current budgets or that the Operating Partnership will not experience
construction delays due to the unavailability of materials, weather conditions
or other events.
Other development risks include the possibility of incurring additional cost or
liability resulting from defects in construction material and the possibility
that financing may not be available on favorable terms, or at all, to pursue or
complete development activities. Similarly, market conditions at the time these
Communities become available for leasing will affect the rental rates that may
be charged and the period of time necessary to achieve stabilization, which
could make one or more of the development communities unprofitable or result in
achieving stabilization later than currently anticipated. In addition, the
Operating Partnership is conducting feasibility and other pre-development work
for seven Communities. The Operating Partnership could abandon the development
of any one or more of these potential Communities in the event that it
determines that market conditions do not support development, financing is not
available on favorable terms or other circumstances prevent development.
Similarly, there can be no assurance that if the Operating Partnership does
pursue one or more of these potential Communities that it will be able to
complete construction within the currently estimated development budgets or that
construction can be started at the time currently anticipated.
CAPITALIZATION OF FIXED ASSETS AND PROPERTY IMPROVEMENTS
The Operating Partnership has established a policy of capitalizing those
expenditures relating to acquiring new assets, materially enhancing the value of
an existing asset, or substantially extending the useful life of an existing
asset. All expenditures necessary to maintain a Community in ordinary operating
condition (including replacement carpets) are expensed as incurred.
The Operating Partnership has a capital expenditure replacement program whereby
various physical components are replaced as necessary to maintain the
Communities in normal operating condition. Certain physical components may be
replaced other than at regular inspection intervals when extraordinary wear has
occurred. The Operating Partnership also makes capital expenditures for new
physical components if these expenditures will produce sufficient revenue
enhancements as to achieve acceptable returns on invested capital. There are
currently no material commitments with respect to renovation or improvements at
existing facilities.
25
26
Capitalized expenditures for the nine months ended September 30, 1997 and 1996
are summarized as follows (dollars in thousands):
Nine Months Ended
September 30,
----------------------
1997 1996
-------- --------
Acquisition of new Communities (1) $ 82,898 $21,913
Construction of new Communities (2) 74,382 59,431
Capitalized interest 4,528 2,884
Non-recurring capital expenditures:
Construction of garages 233 720
Access gates 203 133
New signage 71 113
Water meters 19 201
Washer/dryer units 12 96
Major improvements 2,560 1,037
Other 219 29
-------- -------
Total non-recurring capital expenditures 3,317 2,329
-------- -------
Recurring capital expenditures:
Exterior painting 868 661
Other community additions and improvements 1,642 1,141
Corporate additions 79 3
-------- -------
Total recurring capital expenditures 2,589 1,805
-------- -------
$167,714 $88,362
======== =======
(1) Includes the issuance of Units a value of $8.9 million and assumption of
debt of $15.2 million in 1997. In addition, includes the assumption of $14.3
million of debt and conversion of equity investment into fixed assets of $1.2
million in conjunction with the purchase of Summit Plantation in 1996.
(2) Includes issuance of $2.1 million of Units for the acquisition of land in
1996.
Construction of Communities was funded primarily by unsecured fixed rate debt,
Summit Properties' equity offering proceeds contributed to the Operating
Partnership and borrowing under the Operating Partnership's credit facilities.
Other additions and improvements were funded primarily by Community operations
and the Operating Partnership's credit facilities.
INFLATION
Substantially all of the leases at the Communities are for a term of one year or
less, which, coupled with the relatively high occupancy rates, may enable the
Operating Partnership to seek increased rents upon renewal of existing leases or
commencement of new leases. The short-term nature of these leases generally
serves to reduce the risk to the Operating Partnership of the adverse effect of
inflation.
26
27
FUNDS FROM OPERATIONS
The White Paper on Funds from Operations approved by the Board of Governors of
NAREIT in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of property, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. The Operating Partnership computes Funds from Operations in accordance
with the standards established by the White Paper, which may differ from the
methodology for calculating Funds from Operations utilized by other equity
REITs, and, accordingly, may not be comparable to such other REITs. Funds
Available for Distribution is defined as Funds from Operations less capital
expenditures funded by operations (recurring capital expenditures). The
Operating Partnership's methodology for calculating Funds Available for
Distribution may differ from the methodology for calculating Funds Available for
Distribution utilized by other REITs, and accordingly, may not be comparable to
other REITs. Funds from Operations and Funds Available for Distribution do not
represent amounts available for management's discretionary use because of needed
capital replacement or expansion, debt service obligations, property
acquisitions, development and distributions or other commitments and
uncertainties. Funds from Operations and Funds Available for Distribution should
not be considered as alternatives to net income (determined in accordance with
GAAP) as an indication of the Operating Partnership's financial performance or
to cash flows from operating activities (determined in accordance with GAAP) as
a measure of the Operating Partnership's liquidity, nor are they indicative of
funds available to fund the Operating Partnership's cash needs, including its
ability to make distributions. The Operating Partnership believes Funds from
Operations and Funds Available for Distribution are helpful to investors as
measures of the performance of the Operating Partnership because, along with
cash flows from operating activities, financing activities and investing
activities, they provide investors with an understanding of the ability of the
Operating Partnership to incur and service debt and make capital expenditures.
27
28
Funds from Operations and Funds Available for Distribution for the three and
nine months ended September 30, 1997 and 1996 are calculated as follows (dollars
in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
Net income $ 6,948 $ 5,114 $ 25,098 $ 13,696
Gain on sale of real estate assets -- -- (4,366) --
Extraordinary items -- 626 -- 626
Depreciation:
Operating Communities 5,843 4,673 16,436 13,221
Summit Plantation -- -- -- 33
------------ ------------ ------------ ------------
Funds from Operations 12,791 10,413 37,168 27,576
Recurring capital expenditures (1) (1,118) (402) (2,589) (1,805)
------------ ------------ ------------ ------------
Funds Available for Distribution $ 11,673 $ 10,011 $ 34,579 $ 25,771
============ ============ ============ ============
Weighted average units 27,369,316 24,070,632 27,252,718 21,769,807
============ ============ ============ ============
(1) Recurring capital expenditures are expected to be funded from operations and
consist primarily of exterior painting, new appliances, vinyl, blinds, tile, and
wallpaper. In contrast, non- recurring capital expenditures, such as major
improvements, new garages and access gates, are expected to be funded by
financing activities and are therefore not included in the calculation of Funds
Available for Distribution.
28
29
PART II. OTHER INFORMATION
ITEM 2 CHANGES IN SECURITIES
During the three months ended September 30,1997 the Operating Partnership has
issued Units in private placements in reliance on the exemption from
registration under section 4(2) of the Securities Act in the amounts and for the
consideration set forth below:
A. Summit Properties has issued an aggregate of 7,016 shares of
Common Stock pursuant to its Dividend Reinvestment Plan.
Summit Properties has contributed the proceeds (approximately
$134,000) of these sales to the Operating Partnership in
consideration of an aggregate of 7,016 Units.
B. Summit Properties has issued an aggregate of 250 shares of
Common Stock in connection with restricted stock awards. Each
time a share of Common Stock is issued in connection with such
an award, the Operating Partnership issues a Unit to Summit
Properties; consequently, 250 Units have been issued to Summit
Properties to date.
C. Summit Properties has issued an aggregate of 20,623 shares of
Common Stock pursuant to its Employee Stock Purchase Plan.
Summit Properties has contributed the proceeds (approximately
$425,342) of these sales to the Operating Partnership in
consideration of an aggregate of 20,623 Units.
D. Summit Properties has issued an aggregate of 1,000 shares of
Common Stock pursuant to the exercise of stock options. Summit
Properties has contributed the proceeds (approximately
$19,000) of these options to the Operating Partnership in
consideration of an aggregate 1,000 Units.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 First Amendment to $150,000,000 Credit Agreement
10.2 Schedule of Executives with Executive Severance Agreements and
Executive Severance Agreement
27.1 Financial Data Schedule
29
30
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.
SUMMIT PROPERTIES PARTNERSHIP, L.P.
November 12, 1997 /s/ William F. Paulsen
- ----------------- -----------------------
(Date) William F. Paulsen, President
and Chief Executive Officer
November 12, 1997 /s/ Michael L. Schwarz
- ----------------- ------------------------
(Date) Michael L. Schwarz, Executive
Vice President and Chief
Financial Officer
30
31
EXHIBIT INDEX
10.1 First Amendment to $150,000,000 Credit Agreement
10.2 Schedule of Executives with Executive Severance Agreements and
Executive Severance Agreement
27.1 Financial Data Schedule
31