SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
For the Fiscal Year Ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number: 000-22683
GABLES REALTY LIMITED PARTNERSHIP
(Exact name of Registrant as specified in its charter)
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Delaware 58-2077966
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
2859 Paces Ferry Road, Suite 1450
Atlanta, Georgia 30339
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 436-4600
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
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.
(1) Yes X No
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(2) Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K X
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As of March 20, 1998, the aggregate market value of the 3,437,211 units of
limited partnership interest ("Units") held by non-affiliates of the Registrant
was $90,226,789 based upon the closing price ($26.25) on the New York Stock
Exchange composite tape on such date of the common shares of beneficial
interest, par value $.01 per share, of Gables Residential Trust (the "Company"),
a Maryland real estate investment trust and the 100% owner of Gables GP, Inc.,
the sole general partner of the Registrant, into which Units are redeemable
under certain circumstances at the election of the Company. (For this
computation, the Registrant has excluded the market value of all Units reported
as beneficially owned by the Company and by executive officers and directors of
the Registrant; such exclusion shall not be deemed to constitute an admission
that any such person is an "affiliate" of the Registrant.)
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in Gables Residential Trust's Proxy Statement
relating to its Annual Meeting of Shareholders to be held May 19, 1998 are
incorporated by reference in Part III, Items 10, 11, 12 and 13.
FORM 10-K ANNUAL REPORT
FISCAL YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
PART I
Item Page
No. No.
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1. Business ........................................................ 1
2. Properties ..................................................... 10
3. Legal Proceedings .............................................. 18
4. Submission of Matters to a Vote of Security Holders ............. 18
PART II
5. Market for Registrant's Common Equity and Related Stockholder
Matters........................................................ 18
6. Selected Financial and Operating Information .................... 19
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ..................................... 22
8. Financial Statements and Supplementary Data ..................... 35
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ................................... 35
PART III
10. Directors and Executive Officers of the Registrant .............. 35
11. Executive Compensation ......................................... 35
12. Security Ownership of Certain Beneficial Owners and Management... 35
13. Certain Relationships and Related Transactions ................. 35
PART IV
14. Exhibits, Financial Statements and Schedule and Reports on Form
8-K ......................................................... 35
Page-1
PART I
ITEM 1. BUSINESS
General
Gables Realty Limited Partnership (the "Operating Partnership") is the entity
through which Gables Residential Trust (the "Company"), a self-administered and
self-managed real estate investment trust (a "REIT"), conducts substantially all
of its business and owns (either directly or through subsidiaries) substantially
all of its assets. The Operating Partnership is one of the largest owners,
operators and developers of multifamily communities in the Southwestern and
Southeastern region of the United States (the "Sunbelt" or "Sunbelt Region"). In
1993, the Company was formed under Maryland law and the Operating Partnership
was organized as a Delaware limited partnership to continue and to expand the
multifamily apartment community management, development, construction and
acquisition operations of its privately owned predecessor organization (the
"Company's Predecessor"). The term "Gables Residential Group" or "Group" as used
herein refers to the Company's Predecessor organization prior to the Company's
initial public offering in January, 1994 (the "Initial Offering" or "IPO") and
the concurrent completion of the various transactions that occurred
simultaneously therewith (the "Formation Transactions"). The term "Company" as
used herein means Gables Residential Trust and its subsidiaries on a
consolidated basis (including Gables Realty Limited Partnership and its
subsidiaries) or, where the context so requires, Gables Residential Trust only,
and, as the context may require, their predecessors. The term "Operating
Partnership" or "Gables" as used herein means Gables Realty Limited Partnership
and its subsidiaries on a consolidated basis, or, where the context so requires,
Gables Realty Limited Partnership only, and, as the context may require, their
predecessors.
The Company controls the Operating Partnership through Gables GP, Inc. ("GGPI"),
a wholly-owned subsidiary and the sole general partner of the Operating
Partnership (this structure is commonly referred to as an umbrella partnership
REIT or "UPREIT"). At December 31, 1997, the Company was an 84.4% economic owner
of the Operating Partnership (excluding the Company's ownership of 100% of the
Operating Partnership's Series A Preferred Units). The Board of Directors of
GGPI, the members of which are the same as the members of the Board of Trustees
of the Company, manages the affairs of the Operating Partnership by directing
the affairs of GGPI. The Company's limited partner and indirect general partner
interests in the Operating Partnership entitle it to share in cash distributions
from, and in the profits and losses of, the Operating Partnership in proportion
to its ownership interest therein and entitle the Company to vote on all matters
requiring a vote of the limited partners.
The other limited partners of the Operating Partnership are persons who
contributed their direct or indirect interests in certain properties to the
Operating Partnership primarily in connection with the Formation Transactions.
The Operating Partnership is obligated to redeem each unit of limited
partnership interest ("Unit") at the request of the holder thereof for cash
equal to the fair market value of a share of the Company's common shares of
beneficial interest, par value $.01 per share ("Common Shares"), at the time of
such redemption, provided that the Company at its option may elect to acquire
any such Unit presented for redemption for one Common Share or cash. The Company
presently anticipates that it will elect to issue Common Shares to acquire Units
presented for redemption, rather than paying cash. With each such redemption the
Company's percentage ownership interest in the Operating Partnership will
increase. In addition, whenever the Company issues Common Shares, the Company is
obligated to contribute any net proceeds therefrom to the Operating Partnership
and the Operating Partnership is obligated to issue an equivalent number of
Units to the Company. Units issued to the Company in connection with the
issuance and sale by the Company of a series of preferred shares (and the
subsequent contribution to the Operating Partnership of the net proceeds
therefrom) ("Preferred Shares"), will, in general, have, with respect to other
Units, rights and preferences that the series of Preferred Shares have with
respect to the Common Shares.
The Operating Partnership may issue additional Units to acquire land parcels for
the development of apartment communities or operating apartment communities in
transactions that in certain circumstances defer some or all of the sellers' tax
consequences. The Operating Partnership believes that many potential sellers of
multifamily residential properties have a low tax basis in their properties and
would be more willing to sell the properties in transactions that defer Federal
income taxes. Offering Units instead of cash for properties may provide
potential sellers partial Federal income tax deferral.
Page-2
As of December 31, 1997, Gables owned 59 multifamily apartment communities and
had an indirect 25% interest in two multifamily apartment communities
(collectively, the "Current Communities") located in the following major cities
in Texas, Georgia and Tennessee: Houston, Dallas, Austin, San Antonio, Atlanta,
Memphis and Nashville (the "Core Markets"). The Current Communities totaled
18,479 apartment homes and included one multifamily apartment community in the
final stages of lease-up. Gables also owned five multifamily apartment
communities that were under construction at December 31, 1997 that Gables
expects will comprise 1,409 apartment homes upon completion (collectively, the
"Development Communities" and, with the Current Communities, the "Communities").
Three of the Development Communities are located in Atlanta, Austin and Houston
and two of the Development Communities are located in Orlando, Florida. Gables
also owns sites (the "Undeveloped Sites") on which it intends to develop seven
additional multifamily apartment communities that Gables expects will comprise
an estimated 1,792 apartment homes and has rights (the "Development Rights") to
acquire additional sites on which Gables believes it could develop multifamily
apartment communities comprising an estimated 2,596 apartment homes. Gables is
pursuing the acquisition of additional multifamily apartment communities. See
"Recent Developments" for acquisitions that were under contract as of March 16,
1998.
Gables' executive offices are located at 2859 Paces Ferry Road, in Atlanta,
Georgia 30339 and its telephone number is (770) 436-4600.
Management Structure. Gables has been responsible for the development or
acquisition of approximately 42,700 apartment homes since 1982 and its senior
management team has, on average, in excess of fifteen years experience in the
multifamily industry. Gables provides a full range of integrated real estate
services through a staff of approximately 900 employees who have experience in
property operations, development, acquisition and construction. Gables maintains
offices in Atlanta, Houston and Dallas, each with its own fully integrated
organization, including experienced in-house management, development and
acquisition staffs with specific knowledge of the particular markets served.
Gables believes that its competitive strength and growth potential lie in
management's in-depth knowledge of the changing opportunities available in each
local market and in its locally focused management structure, which enables
highly experienced development and acquisition personnel to pursue new
opportunities in each market and highly experienced on-site managers to make the
day-to-day decisions needed to maximize the performance of existing properties.
The finance, accounting and administrative functions for Gables are controlled
by a central staff located in Atlanta.
COMPETITIVE ADVANTAGES. Gables believes that it has several competitive
advantages. These advantages include:
SERVICE-ORIENTED PHILOSOPHY: a service-oriented philosophy which focuses on
offering extensive resident amenities and services in quality apartment homes to
increase occupancy and rental rates and reduce resident turnover.
GEOGRAPHIC DIVERSIFICATION: an established market presence in multiple
major markets in the Sunbelt Region which are geographically independent, rely
on diverse economic foundations, and during the past several years have shown
job growth substantially above national averages.
PRODUCT FOCUS: a portfolio concentration of Class A properties located
primarily in in-fill locations and master-planned communities, which includes
garden, townhome and higher density apartment communities that were developed,
acquired, rehabilitated or repositioned by Gables, targeted toward a lifestyle
renter segment.
LOCAL PRESENCE IN MULTIPLE MARKETS: a local presence for approximately
fifteen years in each of the Core Markets served by Gables through an
experienced staff with superior knowledge of local markets and a culture which
provides incentives for outstanding performance at all levels.
FULLY INTEGRATED ORGANIZATION: a fully integrated organization with a track
record of approximately fifteen years in all phases of real estate property
management, development, acquisition, construction, rehabilitation, financing
(including tax- exempt bond financing) and marketing.
INCREASED SIZE: Gables' increased size has allowed it to generate economies
of scale by spreading its corporate overhead costs over a larger portfolio and
increasing its buying power with vendors.
Page-3
THE MANAGEMENT COMPANIES
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Gables' management operations with respect to properties in which Gables does
not have an interest are conducted through subsidiaries of the Operating
Partnership (the "Management Companies"). The Management Companies also provide
other services to third parties, including construction and brokerage services
and the provision of corporate rental housing. Certain of these services are, or
may also be, provided by the Operating Partnership directly, to the extent
consistent with the gross income requirements for REITs under the Code. To
maintain the Company's qualifications as a REIT while realizing income from its
fee management and related service business, the Operating Partnership owns 100%
of the nonvoting common stock (representing 98.99% of the total equity) of each
Management Company and 1% of the voting common stock (representing .01% of the
total equity) of each Management Company. The nonvoting common stock and voting
common stock owned by the Operating Partnership together represent 99% of the
equity interests in each Management Company. Executive officers of the Company
hold, in the aggregate, the remaining 1% of the equity in each Management
Company, representing 99% of the voting interest therein. The voting common
stock held by such executive officers is subject to a provision of the by-laws
of each Management Company that is designed to ensure that the stock will be
held by officers of the Management Companies at all times. This bylaw provision
of each Management Company cannot be amended without the vote of 100% of the
outstanding voting common stock of such company.
BRAND NAME STRATEGY
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Gables is continuing to pursue a long standing strategy of brand name
development by linking the "Gables" name to its properties. This strategy is
intended to reinforce Gables' reputation and to build recognition of its
multifamily communities as a high quality, recognizable brand. Gables believes
that increased consumer recognition of the "Gables" brand name in each of its
markets has enhanced its ability to attract new residents, increased the
markets' perception of the Communities as high quality residential developments
and enhanced its relationships with local authorities.
BUSINESS OBJECTIVES AND STRATEGY OF GABLES
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The Company's objective is to increase shareowner value by being a dominant
owner and operator of Class A multifamily communities in the Sunbelt Region. To
achieve its objective, Gables employs a number of strategies including operating
high quality, well-located assets in a diverse set of select Sunbelt markets
which have similar demographic characteristics such as diverse economies with
projected job growth. Gables' primary target customer is the more affluent
renter-by-choice, which requires a focus on customer service through highly
trained associates and the maintenance of Gables' assets to a high standard.
Gables intends to grow cash flow from operating communities through innovative,
proactive property management that focuses on resident satisfaction and
retention, increases in rents and occupancy levels, and the control of operating
expenses through improved economies of scale. Due to the cyclical nature of the
real estate markets, Gables has adopted an investment strategy based on strong
local presence and expertise which will allow for growth in assets through both
acquisition and development as warranted by underlying market fundamentals, and
that will provide for both favorable initial returns and long-term growth
prospects. Gables believes the successful execution of these operating and
investment strategies will result in consistent high quality growth in operating
cash flow.
Gables believes that it is well positioned to achieve its objective as a result
of its long-established presence as a fully integrated real estate management,
development, construction and acquisition company in each of Gables' Core
Markets for the past fifteen years. Gables believes that this long-term, local
market presence gives it a competitive advantage with regard to its ability to
generate increased cash flow from property operations during different economic
cycles and to new investment opportunities that involve site selection, market
information and requests for entitlements and zoning petitions. The Core Markets
are geographically independent, rely on diverse economic foundations and have
experienced job growth substantially above national averages. Gables recently
entered the Orlando market which has the common growth characteristics of the
Core Markets.
PROPERTY OPERATIONS. The property management group operates the Communities to
maximize cash flow and create long- term value. This is achieved by aggressive
marketing and leasing of apartment homes, providing the best possible resident
service and maintaining the Communities to the highest standards. Management
believes that excellent service will distinguish Gables from its competitors and
will retain current residents and attract new prospects. Gables has a service
oriented philosophy which is reinforced through its "College of Career
Development" named Gables University. This comprehensive training system for
Gables' employees is overseen by full-time training coordinators and offers
Page-4
classes in a variety of different schools, such as the School of Leasing, the
School of People Resources and the School of Maintenance Development.
Additionally, there are "degree" programs which are completed with graduation
ceremonies. Service is also reinforced with quarterly "I Made a Difference"
recognition ceremonies, where personal achievement by associates is acknowledged
by senior management in each of the markets where Gables operates.
Financial and marketing information is collected and distributed through on-site
computer systems at all Communities and effectively summarizes operating and
marketing data critical for making accurate daily decisions. The system also
compiles demographic profile information on prospective and current residents,
allowing Gables to effectively target its customer base.
The property management group is strategically focused on the following areas:
EMPLOYEES. Hiring the highest quality associates possible through extensive
screening and proactive recruiting, and encouraging loyalty and reducing
employee turnover by providing outstanding training, career opportunities and
benefit programs. The average tenure for vice presidents and regional managers
of the group is over eight years and the average tenure of property managers is
over six years.
RESIDENTS. Providing exceptional services to Gables' relatively affluent
residents, who expect a service level commensurate with the high quality product
and resultant high level rents.
FINANCIAL PERFORMANCE. Maximizing revenues from the Communities by
empowering and inciting property managers to make decisions regarding rental
rates and implementation of marketing programs to attract and retain residents;
reducing property operating expenses by continuously evaluating vendors and
service contracts, utilizing volume discount purchasing programs and analyzing
tax and utility expenses; and monitoring overall appearance and appeal of the
Communities by ensuring cleanliness, investing wisely in major capital expenses
and ensuring the quality of the landscaping.
DEVELOPMENT. The development team has extensive experience in the identification
of sites, land planning, product development and construction in the Sunbelt
Region. In evaluating whether to develop an apartment community, the development
team analyzes current demographics and economic data such as household formation
rates, income levels, rental rates and occupancies. Gables relies both on
internal and external market research to determine the current position of the
real estate cycle.
Successful development has been instrumental to the growth of Gables and, since
1982, Gables has developed approximately 28,300 apartment homes. Gables seeks to
develop properties in markets where it discerns a strong demand, which Gables
anticipates will enable it to achieve its targeted initial yields. Gables
expects to continue to focus on the Sunbelt Region which, as a result of job
growth and household formation, has generally experienced high occupancy levels
and rising rents in recent years. The typical submarket where Gables develops
its communities is one where resident profiles, including relatively high income
households, justify the development of Class A multifamily communities offering
extensive resident amenities and services. Fundamental to Gables' development is
its in-house construction group, which allows Gables to act as its own general
contractor, which helps control quality, scheduling and cost. In addition,
Gables' development and construction expertise has enabled it to develop a
variety of multifamily communities, including Class A garden apartments,
townhomes and higher density apartments in a variety of geographic areas.
ACQUISITION. Gables also focuses its efforts on the acquisition of existing
multifamily communities which management believes are consistent with the
characteristics of its existing portfolio or present opportunities for creating
value, including properties requiring extensive renovations and market
repositioning. Since 1982, Gables has acquired and repositioned communities
comprising a total of approximately 14,400 apartment homes, of which
approximately 3,000 apartment homes were value-added acquisitions which required
substantial redevelopment, repositioning, and strong management skills. Gables
will seek to invest in those properties that management believes are available
at prices below estimated replacement cost, are located in submarkets with a
relatively high income population with close proximity to major employment
centers, and are capable of growth in cash flow through application of Gables'
management ability and strategic capital improvements.
Page-5
FEE MANAGEMENT BUSINESS AND RELATED SERVICES. As of December 31, 1997, Gables
managed for third parties 27 multifamily communities comprising approximately
9,600 apartment homes. These fee management contracts are maintained with a
total of approximately 17 owners. In addition to contributing modestly to funds
from operations, engaging in fee management allows Gables to leverage its
management operations costs, provides access to development and acquisition
opportunities and provides Gables with additional market knowledge. In addition
to its fee management business, Gables provides other services through the
Management Companies, including construction and brokerage services and the
provision of corporate rental housing.
COMPETITION
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All of the Communities are located in developed areas that include other
apartment communities. The number of competitive multifamily communities in a
particular area could have a material effect on Gables' ability to lease
apartment homes at the Communities or at any newly developed or acquired
community, as well as on the rents charged. Gables may be competing for
development and acquisition opportunities with others that have greater
resources than Gables (including other REITs). In addition, the Communities must
compete for residents with new and existing homes and condominiums. The home
affordability index in all of Gables' markets is above the national average.
This competitive environment is partially offset by the propensity to rent for
households in Gables' markets which in all cases exceeds the national average.
The fee management business is highly competitive, and Gables faces competition
from a variety of local, regional and national firms. Gables competes against
these firms by stressing the quality and experience of its employees, the
services provided by Gables and the market presence and experience it has
developed over the past fifteen years. Gables may, nevertheless, lose some of
its third party management business, particularly when such properties are sold.
ENVIRONMENTAL MATTERS
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Under various Federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
required to investigate and clean up hazardous or toxic substances or petroleum
product releases at such property, and may be held liable to a governmental
entity or to third parties for property damage and for investigation and
clean-up costs incurred by such parties in connection with the contamination.
Such laws, ordinances and regulations typically impose clean-up responsibility
and liability without regard to whether the owner knew of or caused the presence
of the contaminants, and the liability under such laws has been interpreted to
be joint and several unless the harm is divisible and there is a reasonable
basis for allocation of responsibility. The cost of investigation, remediation
or removal of such substances may be substantial, and the presence of such
substances, or the failure to properly remediate the contamination on such
property, may adversely affect the owner's ability to sell or rent such property
or to borrow using such property as collateral. Persons who arrange for the
disposal or treatment of hazardous or toxic substances also may be liable for
the costs of removal or remediation of such substances at the disposal or
treatment facility, whether or not such facility is owned or operated by such
person. In addition, some environmental laws create a lien on the contaminated
site in favor of the government for damages and costs it incurs in connection
with the contamination. Finally, the owner or operator of a site may be subject
to common law claims by third parties based on damages and costs resulting from
environmental contamination emanating from a site. In connection with the
ownership, operation, management and development of the Communities and other
real properties, Gables may be potentially liable for such damages and costs.
Certain Federal, state and local laws, ordinances and regulations govern the
removal, encapsulation and disturbance of asbestos-containing materials ("ACMs")
when such materials are in poor condition or in the event of construction,
remodeling, renovation or demolition of a building. Such laws, ordinances and
regulations may impose liability for release of ACMs and may provide for third
parties to seek recovery from owners or operators of real properties for
personal injury associated with ACMs. In connection with its ownership,
operation, management and development of the Communities and other real
properties, Gables may be potentially liable for such costs.
In addition, recent studies have linked radon, a naturally-occurring substance,
to increased risks of lung cancer. While there are currently no state or Federal
requirements regarding the monitoring for, presence of, or exposure to, radon in
indoor air, the U.S. Environmental Protection Agency ("EPA") and the Surgeon
General recommend testing residences for the presence of radon in indoor air,
and the EPA further recommends that concentrations of radon in indoor air be
limited to less than 4 picocuries per liter of air (pCi/L) (the "Recommended
Action Level"). The presence of radon in concentrations equal to or greater than
the Recommended Action Level in a Community may adversely affect Gables' ability
to rent apartment homes in that Community and the market value of the Community.
Page-6
Finally, recently-enacted Federal legislation will eventually require owners and
landlords of residential housing constructed prior to 1978 to disclose to
potential tenants or purchasers of the Communities any known lead-paint hazards
and will impose treble damages for failure to so notify. In addition, lead-based
paint in any of the Communities may result in lead poisoning in children
residing in that Community if chips or particles of such lead-based paint are
ingested, and Gables may be held liable under state laws for any such injuries
caused by ingestion of lead-based paint by children living at the Communities.
Gables' assessments of the Communities have not revealed any environmental
liability that Gables believes would have a material adverse effect on Gables'
business, assets or results of operations, nor is Gables aware of any such
material environmental liability. Nevertheless, it is possible that Gables'
assessments do not reveal all environmental liabilities or that there are
material environmental liabilities of which Gables is unaware. Moreover, there
can be no assurance that (i) future laws, ordinances or regulations will not
impose any material environmental liability or (ii) the current environmental
condition of the Communities will not be affected by tenants, by the condition
of land or operations in the vicinity of the properties (such as the presence of
underground storage tanks), or by third parties unrelated to Gables.
Gables believes that no ACMs were used in connection with the construction of
the Communities or will be used in connection with future construction by the
Company. Gables' environmental assessments have revealed the presence of
"potentially friable" ACMs at two Current Communities and non-friable ACMs at
four Current Communities. Gables has programs in place to maintain and monitor
ACMs. Gables believes that the Communities are in compliance in all material
respects with all Federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances or petroleum products. Gables has not
been notified by any governmental authority, and is not otherwise aware, of any
material noncompliance, liability or claim relating to hazardous or toxic
substances or petroleum products in connection with any of its present
properties that would involve substantial expenditure, and Gables does not
believe that compliance with applicable environmental laws or regulations will
have a material adverse effect on Gables or its financial condition or results
of operations.
COSTS OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT AND SIMILAR LAWS
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Under the Americans with Disabilities Act of 1990 (the "ADA"), all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. These requirements became effective in
1992. Management of Gables believes that the Communities are substantially in
compliance with present requirements of the ADA, as they apply to multifamily
dwellings. A number of additional Federal, state and local laws exist which also
may require modifications to the Communities, or regulate certain further
renovations thereof, with respect to access thereto by disabled persons. For
example, the Fair Housing Amendments Act of 1988 (the "FHAA") requires apartment
communities first occupied after March 13, 1990 to be accessible to the
handicapped. Noncompliance with the FHAA could result in the imposition of fines
or an award of damages to private litigants. Gables believes that the
Communities that are subject to the FHAA are in compliance with such law.
Additional legislation may impose further burdens or restrictions on owners with
respect to access by disabled persons. The ultimate amount of the cost of
compliance with the ADA or such legislation is not currently ascertainable, and,
while such costs are not expected to have a material effect on Gables, such
costs could be substantial. Limitations or restrictions on the completion of
certain renovations may limit application of Gables' investment strategy in
certain instances or reduce overall returns on Gables' investments.
INSURANCE
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Gables carries comprehensive liability, fire, extended coverage and rental loss
insurance with respect to all of the Current Communities, with policy
specifications, insured limits and deductibles customarily carried for similar
properties. Gables carries similar insurance with respect to its other
properties, but with such exceptions as are appropriate given the undeveloped
nature of certain of these properties. There are, however, certain types of
losses (such as losses arising from acts of war) that are not generally insured
because they are either uninsurable or not economically insurable. Should an
uninsured loss or a loss in excess of insured limits occur, Gables could lose
its capital invested in a property, as well as the anticipated future revenues
from such property and would continue to be obligated on any mortgage
indebtedness or other obligations related to the property. Any such loss would
adversely affect Gables.
Page-7
EMPLOYEES
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Gables provides a full range of real estate services through a staff of
approximately 900 employees, including an experienced management team. There are
no collective bargaining agreements with any of Gables' employees.
TAX MATTERS
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The Operating Partnership is a limited partnership and as such is not subject to
Federal or state income taxes. The partners of the Operating Partnership are
required to include their respective share of profits and losses in their income
tax returns. The Company elected to be taxed as a REIT under the Code,
commencing with the taxable year ended December 31, 1994, and intends to
maintain its qualification as a REIT in the future. As a qualified REIT, with
limited exceptions, the Company will not be taxed under Federal and certain
state income tax laws at the corporate level on its net income.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
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The following is a discussion of certain investment, financing and other
policies of Gables. These policies have been determined by the Company's Board
of Trustees and GGPI's Board of Directors (collectively, the "Board") and may be
amended or revised from time to time by the Board without a vote of the
Company's shareholders, except that (i) the Company cannot change its policy of
holding its assets and conducting its business only through the Operating
Partnership, the Management Companies and other permitted subsidiaries without
the consent of the holders of Units as provided in the partnership agreement of
the Operating Partnership, (ii) changes in certain policies with respect to
conflicts of interest must be consistent with legal requirements, and (iii) the
Company cannot take any action intended to terminate its qualification as a REIT
without the approval of the holders of two-thirds of the Common Shares.
INVESTMENT POLICIES. The Company will conduct all its investment activities
through the Operating Partnership and its subsidiaries. Gables' investment
objectives are to provide quarterly cash distributions and achieve long-term
capital appreciation through increases in the value of Gables. Gables may
purchase income-producing multifamily apartments or other types of properties
for long-term investment, expand and improve the communities presently owned or
other properties purchased, or sell such communities or other properties, in
whole or in part, when circumstances warrant. Gables may also participate with
third parties in apartment community ownership, through joint ventures or other
types of co-ownership. Equity investments may be subject to existing mortgage
financing and other indebtedness or such financing or indebtedness as may be
incurred in connection with acquiring or refinancing these investments. Debt
service on such financing or indebtedness will have a priority over the
Company's Common Shares and any distributions thereon.
While Gables emphasizes equity real estate investments in multifamily apartment
communities, it may, in the discretion of the Board, invest in other types of
equity real estate investments, mortgages (including participating or
convertible mortgages) and other real estate interests. Gables currently intends
to invest in apartment communities in the Sunbelt Region. However, future
development or investment activities will not be limited to any geographic area
or product type or to a specified percentage of Gables' assets. Gables will not
have any limit on the amount or percent of its assets invested in one property.
Subject to the percentage of ownership limitations and gross income and asset
tests necessary for REIT qualification, Gables also may invest in securities of
other REITs, other entities engaged in real estate activities or securities of
other issuers, including for the purpose of exercising control over such
entities, although it does not presently intend to do so and it has not done so
in the past. Gables may enter into joint ventures or partnerships for the
purpose of obtaining an equity interest in a particular property in accordance
with Gables' investment policies. Such investments may permit Gables to own
interests in larger assets without unduly restricting diversification and,
therefore, add flexibility in structuring its portfolio. Gables will not enter
into a joint venture or partnership to make an investment that would not
otherwise meet its investment policies. Investment in these securities is also
subject to Gables' policy not to be treated as an investment company under the
Investment Company Act of 1940.
FINANCING POLICIES. The debt to total market capitalization ratio of Gables
(i.e., the total consolidated debt of Gables as a percentage of the December 31,
1997 market value of outstanding Common Shares of the Company and Operating
Partnership Units, plus total consolidated debt and Preferred Shares at
liquidation value) was approximately 34% at December 31, 1997. Excluding
construction-related indebtedness, this ratio was 30% at December 31, 1997. This
ratio will fluctuate with changes in the price of the Common Shares (and the
issuance of additional Common Shares, or other forms of shares of beneficial
interest, if any) and differs from the debt to book capitalization ratio, which
is based upon book values.
Page-8
This percentage will increase as Gables uses financing to continue construction
of the Development Communities and to acquire additional multifamily apartment
communities. As the debt to book capitalization ratio may not reflect the
current income potential of a company's assets and operations, Gables believes
that the debt to total market capitalization ratio provides an alternative
indication of leverage for a company whose assets are primarily income-producing
real estate and should be evaluated along with the debt service coverage and
underlying components of Gables' indebtedness. Gables currently has a policy of
incurring debt only if upon such incurrence the ratio of debt to total market
capitalization would be 60% or less. The Company's Amended and Restated
Declaration of Trust and Second Amended and Restated Bylaws do not, however,
limit the amount or percentage of indebtedness that the Company may incur. In
addition, Gables may from time to time modify its debt policy in light of
current economic conditions, relative costs of debt and equity capital, market
values of its Communities, general conditions in the market for debt and equity
securities, fluctuations in the market price of Common Shares, growth
opportunities and other factors. Accordingly, Gables may increase or decrease
its debt to total market capitalization ratio beyond the limits described above.
To the extent that the Board decides to obtain additional capital, Gables may
raise such capital through additional equity offerings (including offerings of
senior securities), debt financings or retention of Funds from Operations
(subject to satisfying provisions in the Code, requiring minimum distributions
of net income in order to maintain tax status as a REIT), or a combination of
these methods. Gables presently anticipates that any additional borrowings would
be made through the Operating Partnership, although the Company might incur
indebtedness, the proceeds of which would be reloaned to the Operating
Partnership. Borrowings may be unsecured or may be secured by any or all of the
assets of the Company, the Operating Partnership or any existing or new property
owning partnership and may have full or limited recourse to all or any portion
of the assets of the Company, the Operating Partnership or any existing or new
property owning partnership. Indebtedness incurred by Gables may be in the form
of bank borrowings, tax-exempt bonds, purchase money obligations to sellers of
apartment communities or other properties, publicly or privately placed debt
instruments or financing from institutional investors or other lenders. The
proceeds from any borrowings by Gables may be used for working capital, to
refinance existing indebtedness and to finance acquisitions, expansions or
development of new communities and other properties, and for the payment of
distributions. Gables has not established any limit on the number or amount of
mortgages that may be placed on any single property or on its portfolio as a
whole.
Gables currently has a senior unsecured debt rating of BBB from Standard and
Poor's and Baa2 from Moody's Investors Service. The Company's Series A Preferred
Shares currently have a rating of BBB- from Standard and Poor's and baa3 from
Moody's Investors Service. Gables intends to adhere to financing policies that
will allow it to maintain these investment grade credit ratings.
CONFLICT OF INTEREST POLICIES. As part of their employment agreements, each of
Messrs. Bromley, Rippel, Clark and Banks is bound by a non-competition covenant
with the Company. These non-competition covenants provide that during the term
of employment, and for a period of one year following termination of employment
under certain circumstances, each individual is prohibited from, directly or
indirectly, competing with the Company with respect to any multifamily apartment
residential real estate property development, construction, acquisition or
management activities then undertaken or being considered by the Company. These
employment agreements also contain certain non-solicitation covenants, whereby
each individual subject to such an agreement is prohibited, during the term of
employment and for a period of one year thereafter, from, directly or indirectly
(i) soliciting or inducing any present or future employee of the Company to
accept employment with such individual or any person or entity associated with
such individual, (ii) employing, or causing any person or entity associated with
such individual to employ, any present or future employee of the Company without
providing the Company with prior written notice of such proposed employment or
(iii) either for himself or for any other person or entity, competing for or
soliciting the third party owners with whom the Company has an existing property
management agreement. Such employment agreements terminate on January 1, 1999
but are automatically extended for additional one-year periods unless notice is
given by the Company or the employee, three months prior to the agreement's
expiration, that the agreement will not be renewed.
The Company has adopted a policy that, without the approval of a majority of the
trustees who are neither officers of the Company nor affiliated with the
Company, it will not (i) acquire from or sell to any trustee, officer or
employee of the Company, or any entity in which a trustee, officer or employee
of the Company beneficially owns more than a 1% interest, or acquire from or
sell to any affiliate of any of the foregoing, any of the assets or other
property of the Company, (ii) make any loan to or borrow from any of the
foregoing persons or (iii) engage in any other transaction with any of the
foregoing persons.
Page-9
RECENT DEVELOPMENTS
- -------------------
The following sections contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking statements are
inherently subject to risks and uncertainties, many of which cannot be predicted
with accuracy. Acquisitions that are pursued by Gables may not be consummated
for a variety of reasons, including the failure of either party to meet the
required conditions to closing.
PENDING ACQUISITIONS - SOUTH FLORIDA
- ------------------------------------
Gables has entered into a Contribution Agreement with an effective date of March
16, 1998 (the "Contribution Agreement") to acquire the properties and operations
of Trammell Crow Residential South Florida ("TCR/SF"), which consist of up to 15
multifamily apartment communities (the "South Florida Communities") containing a
total of 4,197 apartment homes (assuming completion of three South Florida
Communities currently under construction), and all of TCR/SF's residential
construction and development and third party management activities in South
Florida (the "South Florida Transaction"). The South Florida Communities are
located in Palm Beach County, Broward County and Dade County and encompass the
metropolitan areas of Palm Beach, Fort Lauderdale and Miami, respectively. The
South Florida Transaction is expected to be consummated in the second quarter of
1998.
Gables believes the South Florida Transaction, if successfully completed, will
facilitate the following goals:
- - establish a growth platform in the South Florida markets by integrating the
existing operating, acquisition, development and construction personnel of
TCR/SF into Gables' existing management team;
- - allow Gables to enter into the South Florida markets with a critical mass
of multifamily apartment communities that have internal earnings growth
potential and product quality characteristics consistent with Gables'
existing portfolio;
- - provide further geographic and economic diversification of Gables'
portfolio of multifamily apartment communities, thereby enhancing the
stability of Gables' cash flow;
- - generate a pipeline of acquisition and development opportunities in the
South Florida markets, which are characterized by high job growth and high
barriers to entry;
- - allow Gables to generate economies of scale by spreading its corporate
overhead costs over a larger portfolio and increasing its buying power with
vendors; and
- - produce immediate earnings growth and accelerate long-term earnings growth.
There can be no assurance that all South Florida Communities will be included in
the South Florida Transaction or that the South Florida Transaction will be
consummated at all. Additionally, although Gables expects that the South Florida
Transaction and Gables' entry into new markets will provide the benefits
discussed above, there can be no assurance that these benefits will be realized.
At December 31, 1997, 12 of the South Florida Communities, which were built
between 1984 and 1997, were stabilized and had a weighted average physical
occupancy rate of approximately 94.8%, two of the South Florida Communities were
under construction and lease-up, and one South Florida Community was under
construction but had not yet commenced leasing. All of the South Florida
Communities under construction are anticipated to be substantially completed by
September, 1998. The average unit size for all South Florida Communities is 984
square feet and the scheduled rent at December 31, 1997 was $875 per unit and
$0.89 per square foot. Gables currently expects it will also acquire from TCR/SF
third party management contracts for approximately 8,000 apartment homes.
Page-10
Under the terms of the Contribution Agreement, Gables will acquire the South
Florida Communities, the third party management business and other properties
and assets of TCR/SF in exchange for (i) approximately $149.0 million in cash,
(ii) the assumption of approximately $135.9 million of tax-exempt debt (subject
to certain required consents) and (iii) the initial issuance of Units valued at
up to approximately $71.1 million based on an agreed upon price of $27.625 per
Unit (the "Share Price"). The Share Price is subject to decrease in certain
circumstances as set forth in the Contribution Agreement. In addition,
approximately $12.5 million of the purchase price will be retained by Gables
until January 1, 2000, at which time Gables will issue to the sellers a number
of Units (the "Deferred Units") equal in value to such retained amount (subject
to possible decrease pursuant to the terms of the Contribution Agreement). The
Deferred Units will be valued based on the average of the closing prices of the
Common Shares on the NYSE during a 15 trading day period preceding the date of
issuance.
In the event that the South Florida Communities are not contributed by TCR/SF in
accordance with the terms of the Contribution Agreement, Gables or TCR/SF may
elect to terminate the Contribution Agreement in its entirety, subject to
certain payments specified in the Contribution Agreement. In addition, if the
average of the closing prices of the Common Shares on the NYSE during a 15
trading day period preceding the closing is less than $23.50, either TCR/SF or
Gables may elect to terminate the Contribution Agreement.
PENDING ACQUISITIONS - HOUSTON
- ------------------------------
On February 18, 1998, Gables entered into contribution agreements with four
partnerships under common control pursuant to which Gables expects to acquire
four multifamily apartment communities (the "Greystone Communities") comprising
a total of 913 apartment homes located in the Houston metropolitan area, which
at December 31, 1997 had a weighted average physical occupancy rate of
approximately 99.0% (the "Greystone Transaction"). In connection with such
acquisition, Gables will assume approximately $28.0 million of indebtedness and
issue Units valued at up to approximately $21.0 million, of which approximately
$2.0 million will be deferred for up to two years. The closing of the Greystone
Transaction is subject to certain conditions, including receipt of certain third
party consents. There can be no assurance that the Greystone Transaction will
close as contemplated, that the required conditions to closing will be met, or
that the contribution agreements will not be amended or terminated.
PENDING ACQUISITION - AUSTIN
- ----------------------------
On March 11, 1998, Gables entered into an agreement to acquire a multifamily
apartment community in Austin comprising 308 apartment homes. The acquistion of
this community is subject to the completion of due diligence as well as ongoing
business review by Gables. No assurance can be made that the acquisition will
close.
ITEM 2. PROPERTIES
As of December 31, 1997, Gables owned or had an interest in 61 Current
Communities, consisting of 18,479 apartment homes, and owned five Development
Communities, consisting of 1,409 apartment homes. The Communities, comprising a
total of 19,888 apartment homes, are located in Texas, Georgia, Tennessee and
Florida. The following table shows the locations of the Communities and the
number of apartment homes in each metropolitan area:
Number of Communities Number of Apartment Homes Percent of
Location Current Development Total Current Development Total Total Apt.Homes
- -------- ------- ----------- ----- ------- ----------- ----- ---------------
Houston, TX (1) 17 1 18 6,091 256 6,347 31.9%
Atlanta, GA 20 1 21 5,841 386 6,227 31.3%
Dallas, TX 9 -- 9 2,085 -- 2,085 10.5%
Memphis, TN (2) 5 -- 5 1,799 -- 1,799 9.0%
Austin, TX 4 1 5 953 256 1,209 6.1%
Nashville, TN 4 -- 4 1,166 -- 1,166 5.9%
San Antonio, TX 2 -- 2 544 -- 544 2.7%
Orlando, FL -- 2 2 -- 511 511 2.6%
----- ----- ----- ------ ----- ------ -----
61 5 66 18,479 1,409 19,888 100.0%
===== ===== ===== ====== ===== ====== =====
<FN>
(1) Includes a Current Community comprising 318 apartment homes in which Gables
has a 25% general partner interest.
(2) Includes a Current Community comprising 345 apartment homes in which Gables
has a 25% general partner interest.
</FN>
Page-11
CURRENT COMMUNITIES. Gables developed 37 Current Communities (consisting of
10,353 apartment homes), and acquired 24 Current Communities (consisting of
8,126 apartment homes). All but one (Rivercrest) of the Current Communities are
managed and operated by the Company. The Current Communities typically are two
and three story garden apartments, townhomes and higher-density apartments. As
of December 31, 1997, the Current Communities had an average scheduled monthly
rental rate per apartment home of approximately $812 and, with the exception of
one Community in the final lease-up phase, had a physical occupancy rate of 95%.
The average age of the Current Communities is approximately 7.5 years.
Most of the Communities offer many attractive features designed to enhance their
market appeal, such as vaulted ceilings, fireplaces, dishwashers, disposals,
washer/dryer connections, ice-makers, patios and decks. Recreational facilities
include swimming pools, fitness facilities, playgrounds, picnic areas and tennis
and racquetball courts. In many Communities, Gables makes amenities and services
available to residents, such as aerobic classes, resident social events, dry
cleaning pick up and delivery, and the use of fax, computer and copy equipment.
In-depth market research, including periodic focus groups with residents and
feedback from on-site management personnel, is used to refine and enhance
management services and community design.
DEVELOPMENT COMMUNITIES. The Development Communities have been designed to
generally resemble the Current Communities developed by Gables and to offer
similar amenities. The Development Communities and the recently completed
Current Communities reflect Gables' continuing research of consumer preferences
for upscale multifamily rental housing and incorporate and emphasize garage
parking, increased privacy, high quality interiors and private telephone and
television systems.
UNDEVELOPED SITES. At December 31, 1997, Gables owned seven Undeveloped Sites
and intends to develop multifamily communities at those sites in the future:
Metropolitan Estimated Number
Undeveloped Sites Area of Apartment Homes
- ----------------- ---- ------------------
Gables Metropolitan I Atlanta, GA 365
Gables Metropolitan II Atlanta, GA 355
Gables at the Galleria Dallas, TX 222
Gables State Thomas Dallas, TX 202
Gables Green Oaks II Dallas, TX 250
Gables Quail Ridge II Memphis, TN 148
Gables Colonnade II San Antonio, TX 250
-----
1,792
=====
DEVELOPMENT RIGHTS. As of March 16, 1998, Gables had nine Development Rights
which are located in four cities:
Metropolitan Estimated Number
Development Right Area of Apartment Homes
- ----------------- ---- ------------------
Gables Plaza Atlanta, GA 200
Gables Sugarloaf II Atlanta, GA 690 (1)
Gables at First Street Austin, TX 400
Gables Meyer Park II Houston, TX 200
Gables New Territory II Houston, TX 240
Gables White Oak Houston, TX 183
Gables at Little Lake Bryan II Orlando, FL 246 (1)
Gables at Little Lake Bryan III Orlando, FL 230 (1)
Gables at Little Lake Bryan IV Orlando, FL 207 (1)
-----
2,596
=====
(1) Gables has these land parcels under options with various termination dates.
There can be no assurance of when or if Gables will exercise the Development
Rights.
Page-12
The following is a "Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of
1934, as amended. The projections contained in the tables above under the
captions "Undeveloped Sites" and "Development Rights" are forward-looking
statements. These forward-looking statements involve risks and uncertainties and
actual results may differ materially from those projected in the forward-looking
statements. Risks associated with Gables' development, construction and land
acquisition activities, which could impact the forward-looking statements made,
include: development and acquisition opportunities may be abandoned;
construction costs of a community may exceed original estimates, possibly making
the community uneconomical; and construction may not be completed on schedule,
resulting in increased debt service and construction costs. Development of the
Undeveloped Sites and the Development Rights is subject to permits and other
governmental approvals, as well as ongoing business review by Gables. There can
be no assurance that Gables will decide or be able to develop the Undeveloped
Sites, to complete development of all or any of the communities subject to the
Development Rights, or to complete the number of apartment homes shown above.
Page-13
DEVELOPMENT COMMUNITIES AS OF DECEMBER 31, 1997
Certain information regarding Gables' Development Communities at December 31,
1997 is presented below.
Number of Total Average Actual or Estimated Quarter of
Apartment Budgeted Apartment Percent at December 31, 1997 Construction Initial Construction Stabilized
Community Homes Cost Home Size Complete Leased Occupied Start Occupancy End Occupancy
- --------- ----- ---- --------- -------- ------ -------- ----- --------- --- ---------
(millions) (sq. ft.)
ATLANTA, GA
Gables at Sugarloaf 386 $28.7 1,099 35% --- --- 2 Q 1997 2 Q 1998 1 Q 1999 2 Q 1999
AUSTIN, TX
Gables Bluffstone 256 20.5 984 87% 5% 2% 1 Q 1997 4 Q 1997 2 Q 1998 4 Q 1998
HOUSTON, TX
Gables New Territory 256 15.2 913 27% --- --- 3 Q 1997 2 Q 1998 4 Q 1998 2 Q 1999
ORLANDO, FL
The Commons at
Little Lake Bryan I 280 21.7 1,034 54% 100% --- 2 Q 1997 1 Q 1998 3 Q 1998 3 Q 1998
Gables Celebration 231 23.4 1,128 17% --- --- 3 Q 1997 2 Q 1998 4 Q 1998 4 Q 1998
------ ------ -----
TOTALS 1,409 $109.5 1,036
====== ====== =====
<FN>
The following is a "Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of
1934, as amended. The projections and estimates contained in the table above are
forward-looking statements. These forward-looking statements involve risks and
uncertainties and actual results may differ materially from those projected in
such statements. Risks associated with Gables' development, construction, and
lease-up activities, which could impact the forward-looking statements made,
include: development opportunities may be abandoned; construction costs of a
community may exceed original estimates, possibly making the community
uneconomical; and construction and lease-up may not be completed on schedule,
resulting in increased debt service and construction costs.
Total Budgeted Cost includes all capitalized costs incurred and projected to be
incurred to develop the respective community presented in accordance with
generally accepted accounting principles, including land acquisition costs,
construction costs, real estate taxes, interest and loan fees, permits,
professional fees, allocated development overhead, and other regulatory fees.
Stabilized occupancy is defined as the earlier to occur of (i) 93% physical
occupancy or (ii) one year after completion of construction.
</FN>
Page-14
CURRENT COMMUNITY FEATURES AS OF DECEMBER 31, 1997
Number of Approximate Year Average Scheduled Rent
Apartment Rentable Total Constructed/ Year Unit Size Occupancy @ 12/31/97 Per
Community Name (1) Homes Sq. Ft. (2) Acreage Renovated Acquired (Sq. Ft.) 12/31/97 Unit Sq. Ft.
- ------------------ ----- ----------- ------- --------- -------- --------- -------- ---- -------
HOUSTON, TX
Baybrook Village ............... 776 620,428 26.4 1981 1990 800 99% $ 562 $ 0.70
Gables Bradford Place .......... 372 320,322 13.3 1991 -- 861 95% 717 0.83
Gables Bradford Pointe ......... 360 276,417 13.5 1990 -- 768 96% 629 0.82
Gables Champions ............... 404 367,588 29.7 1995 1997 910 96% 774 0.85
Gables CityPlaza ............... 246 217,374 7.5 1995 -- 884 98% 848 0.96
Gables Cityscape ............... 252 214,824 6.8 1991 -- 852 93% 895 1.05
Gables CityWalk/Waterford Square 317 255,823 8.7 1990/85 --/1992 807 94% 893 1.11
Gables Edgewater ............... 292 257,339 12.2 1990 -- 881 93% 816 0.93
Gables Meyer Park .............. 345 297,054 11.0 1993 -- 861 95% 852 0.99
Gables of First Colony ......... 324 321,848 13.3 1996 1997 993 94% 919 0.93
Gables Piney Point ............. 246 227,880 7.5 1994 -- 926 97% 907 0.98
Gables Pin Oak Green ........... 582 593,478 14.4 1990 1996 1,020 93% 944 0.93
Gables Pin Oak Park ............ 477 486,308 11.9 1992 1996 1,020 95% 975 0.96
Gables River Oaks .............. 228 277,908 5.7 1993 1996 1,219 98% 1,332 1.09
Metropolitan Uptown (3) ........ 318 290,141 8.9 1995 -- 912 94% 986 1.08
Rivercrest ..................... 140 118,020 5.1 1982 1987 843 99% 710 0.84
Westhollow Park ................ 412 370,640 18.3 1978-79 1990 900 92% 591 0.66
------- -------- ------ ---- ---- ----- -----
Totals/ Weighted Averages .... 6,091 5,513,392 214.2 905 95% $ 819 $0.90
======= ========= ====== ==== ==== ===== =====
ATLANTA, GA
Briarcliff Gables .............. 104 128,976 5.2 1995 -- 1,240 96% 1,081 0.87
Buckhead Gables ................ 162 122,548 3.5 1994 (4) 1994 756 99% 783 1.04
Dunwoody Gables ................ 311 290,396 10.4 1995 -- 934 98% 797 0.85
Gables Cinnamon Ridge .......... 200 192,016 14.5 1980 1994 960 96% 637 0.66
Gables Cityscape ............... 192 159,360 5.5 1989 1994 830 95% 805 0.97
Gables Mill .................... 438 406,676 36.1 1988 1997 928 95% 787 0.85
Gables Northcliff .............. 82 127,990 12.7 1978 1997 1,561 100% 1,097 0.70
Gables Over Peachtree .......... 263 239,814(5) 1.4 1996 (4) 1995 912 94% 1,009 1.11
Gables Vinings ................. 315 336,735 15.2 1997 -- 1,069 97% 939 0.88
Gables Walk .................... 310 367,226 19.7 1996-97 1997 1,185 89% 974 0.82
Gables Wood Arbor .............. 140 127,540 9.9 1987 -- 911 98% 683 0.75
Gables Wood Crossing ........... 268 257,012 22.3 1985-86 -- 959 97% 735 0.77
Gables Wood Glen ............... 380 377,340 23.8 1983 -- 993 94% 653 0.66
Gables Wood Knoll .............. 312 311,064 19.6 1984 -- 997 92% 679 0.68
Lakes at Indian Creek .......... 603 552,384 49.8 1969-72 1993 916 94% 563 0.61
Rock Springs Estates ........... 295 298,302 28.7 1945-92 1997 1,011 96% 871 0.86
Roswell Gables I ............... 384 417,288 28.3 1995 -- 1,087 95% 793 0.73
Roswell Gables II .............. 284 334,268 28.3 1997 -- 1,177 93% 831 0.71
Spalding Gables ................ 252 249,333 11.2 1995 -- 989 99% 839 0.85
Wildwood Gables ................ 546 619,710 37.9 1992-93 (4) 1991 1,135 95% 822 0.72
------ --------- ------ ------- ---- ----- -----
Totals/ Weighted Averages .... 5,841 5,915,978 384.0 1,013 95% $ 790 $0.78
====== ========= ====== ======= ==== ===== =====
DALLAS, TX
Arborstone ..................... 536 383,360 24.5 1985 1993 715 96% 480 0.67
Gables at Pearl Street ......... 108 117,688 3.6 1995 -- 1,090 96% 1,390 1.28
Gables CityPlace ............... 232 244,056 7.1 1995 1997 1,052 99% 1,324 1.26
Gables Green Oaks I ............ 300 286,740 12.8 1996 -- 956 95% 822 0.86
Gables Mirabella ............... 126 114,902 1.4 1996 1997 912 97% 1,190 1.30
Gables Preston ................. 126 138,107 10.6 1995 -- 1,096 93% 1,030 0.94
Gables Spring Park ............. 188 198,178 12.3 1996 -- 1,054 97% 939 0.89
Gables Turtle Creek ............ 150 150,930 3.1 1995 1996 1,006 95% 1,165 1.16
Gables Valley Ranch ............ 319 325,534 14.8 1994 -- 1,020 97% 927 0.91
----- --------- ----- ------ ---- ----- -----
Totals/ Weighted Averages .... 2,085 1,959,495 90.2 940 96% $ 906 $0.96
===== ========= ===== ====== ==== ===== =====
Page-15
CURRENT COMMUNITY FEATURES AS OF DECEMBER 31, 1997
Number of Approximate Year Average Scheduled Rent
Apartment Rentable Total Constructed/ Year Unit Size Occupancy @ 12/31/97 Per
Community Name (1) Homes Sq. Ft.(2) Acreage Renovated Acquired (Sq. Ft.) 12/31/97 Unit Sq. Ft.
- ------------------ ----- ------- ------- --------- ------------------ -------- ---- -------
MEMPHIS, TN
Arbors of Harbortown (3) ....... 345 341,258 15.0 1991 -- 989 96% 841 0.85
Gables Cordova ................. 464 434,461 32.2 1986 -- 936 98% 661 0.71
Gables Germantown .............. 252 293,012 30.5 1997 -- 1,163 98% 906 0.78
Gables Quail Ridge ............. 238 283,848 20.3 1997 -- 1,193 94% 794 0.67
Gables Stonebridge ............. 500 439,646 34.0 1993-96 1996 879 95% 634 0.72
----- --------- ------ ------ ---- ----- -----
Totals/ Weighted Averages .... 1,799 1,792,225 132.0 996 96% $ 740 $0.74
===== ========= ====== ====== ==== ===== =====
NASHVILLE, TN
Brentwood Gables .......... 254 287,594 14.5 1996 -- 1,132 96% 977 0.86
Gables Hendersonville ..... 364 342,982 21.0 1991 -- 942 97% 650 0.69
Gables Hickory Hollow I ... 272 247,322 19.0 1988 -- 909 93% 618 0.68
Gables Hickory Hollow II .. 276 259,704 18.0 1987 -- 941 93% 618 0.66
----- --------- ------ ------ ---- ----- -----
Totals/ Weighted Averages 1,166 1,137,602 72.5 976 95% $ 684 $0.70
===== ========= ====== ====== ==== ===== =====
AUSTIN, TX
Gables Central Park ....... 273 257,043 6.9 1997 -- 942 -- (6) 1,087 1.15
Gables Great Hills ........ 276 228,930 23.7 1993 -- 829 92% 793 0.96
Gables Park Mesa .......... 148 161,540 24.3 1992 1997 1,091 90% 1,092 1.00
Gables Town Lake .......... 256 239,264 12.0 1996 -- 935 94% 1,083 1.16
----- ------- ----- ------ ---- ------ -----
Totals/ Weighted Averages 953 886,777 66.9 931 93% $1,001 $1.08
===== ======= ===== ====== ==== ====== =====
SAN ANTONIO, TX
Gables Colonnade I ........ 312 284,196 12.0 1995 -- 911 95% 785 0.86
Gables Wall Street ........ 232 220,180 16.2 1996 -- 949 94% 799 0.84
----- ------- ----- ------ ---- ------ -----
Totals/ Weighted Averages 544 504,376 28.2 927 94% $ 791 $ 0.85
===== ======= ===== ====== ==== ====== =====
GRAND TOTALS/WEIGHTED AVERAGES 18,479 17,709,845 988 958 95% $ 812 $ 0.85
====== ========== ===== ====== ==== ====== =====
<FN>
(1) Except as noted in footnote (3) hereof, Gables holds fee simple title to
each of the Communities.
(2) In the Atlanta and Tennessee markets, rentable area is measured including
any patio or balcony. In the Texas markets, rentable area is measured using
only the heated area. In the Florida market, rentable area is measured
using only the air conditioned area.
(3) Gables holds an indirect 25% general partner interest in these communities.
(4) Year renovated; these communities were originally constructed as follows:
Buckhead Gables: 1964; Gables Over Peachtree: 1969-1970; and Wildwood
Gables: 1972.
(5) This rentable area is exclusive of approximately 18,000 square feet of
rentable commercial space.
(6) This Community is in the lease-up stage and as of December 31, 1997 it was
85% occupied.
</FN>
Page-16
DEBT SUMMARY AS OF DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
Projected
Projected Annual
Principal Principal Interest Scheduled Principal Payments
Interest Maturity Balance Amortization Payment at Maturity There-
Property Collateral Rate Date (1) 12/31/97 (2) 1998 1998 1998 1999 2000 2001 2002 after
- ------------------- ---- -------- ------------ ---- ---- ---- ---- ---- ---- ---- -----
SECURED CONVENTIONAL FIXED RATE
Gables Cityscape ............. 7.13% 02/10/04 $9,099 $124 $ 635 $-- $-- $ -- $-- $-- $ 8,191
Gables Citywalk/Waterford Sq . 7.13% 02/10/04 11,528 156 805 -- -- -- -- -- 10,377
Gables Stonebridge ........... 7.50% 05/01/03 19,419 265 1,425 -- -- -- -- -- 17,746
NWML Properties (3) .......... 8.77% 12/01/09 52,385 670 4,501 -- -- -- -- -- 38,940
Gables Northcliff ............ 8.16% 12/01/20 3,704 58 295 -- -- -- -- -- --
------- ----- ----- ---- ---- ---- ---- ---- -------
SUBTOTAL 96,135 1,273 7,661 0 0 0 0 0 75,254
------- ----- ----- ---- ---- ---- ---- ---- -------
UNSECURED CONVENTIONAL FIXED RATE
Unsecured term loan .......... 6.15%(4) 11/22/01 40,000 -- 2,460 -- -- -- 40,000 -- --
Unsecured TIAA Note 1 ........ 8.30% 12/31/02 86,346 621 7,083 -- -- -- -- 82,392 --
Unsecured TIAA Note 2 ........ 8.62% 12/31/07 29,681 200 2,529 -- -- -- -- -- 26,398
Unsecured other............... 6.10% 10/01/16 2,499 80 152 -- -- -- -- -- --
------- ----- ------ ---- ---- ---- ------ ------ ------
SUBTOTAL 158,526 901 12,224 0 0 0 40,000 82,392 26,398
------- ----- ------ ---- ---- ---- ------ ------ ------
TAX-EXEMPT FIXED RATE
Providian Properties (5) ..... 6.38% 08/01/04 48,365 538 (6) 3,083 -- -- -- -- -- 48,365
Lakes at Indian Creek ........ 7.03%(7) 01/31/25 11,785 155 802 -- -- -- -- -- --
------- ----- ------ ---- ---- ---- ---- ---- ------
SUBTOTAL 60,150 693 3,885 0 0 0 0 0 48,365
------- ----- ------ ---- ---- ---- ---- ---- ------
TAX-EXEMPT FLOATING RATE
Gables Wood Crossing ......... (8) 10/01/02(9) 11,650 -- 437 -- -- -- -- 11,650 --
Gables Wood Arbor ............ (8) 10/01/02(9) 7,130 -- 267 -- -- -- -- 7,130 --
Gables Hickory Hollow I ..... (8) 10/01/02(9) 12,750 -- 503 -- -- -- -- 12,750 --
Gables Hickory Hollow II ..... (8) 10/01/02(9) 13,400 -- 478 -- -- -- -- 13,400 --
------- ---- ----- ---- ---- ----- ----- ------ ------
SUBTOTAL 44,930 0 1,685 0 0 0 0 44,930 0
------- ---- ----- ---- ---- ----- ----- ------ ------
CREDIT FACILITIES
$175 million unsecured ... LIBOR+0.80% 03/22/00(10) 60,000 -- Varies(11) -- -- 60,000 -- -- --
$20 million unsecured ... LIBOR+0.80% 10/09/98(12) 15,621 -- Varies(11) 15,621 -- -- -- -- --
------ ---- ------- ------ ---- ------ ---- ----- ------
SUBTOTAL 75,621 0 Varies(11) 15,621 0 60,000 0 0 0
------ ---- ------- ------ ---- ------ ---- ----- ------
TOTAL INDEBTEDNESS (13) $ 435,362 $ 2,867 $25,455 $15,621 0 $60,000 $40,000 $127,322 $150,017
========= ======= ======= ======= ==== ======= ======= ======== ========
Page-17
NOTES TO DEBT SUMMARY AS OF DECEMBER 31, 1997
- ---------------------------------------------
(1) All of the mortgages can be prepaid at any time without penalty or premium,
except for the unsecured TIAA Notes and the mortgages encumbering the
Providian Properties, Lakes at Indian Creek, Gables Cityscape, Gables
CityWalk/Waterford Square and Gables Stonebridge.
(2) All of the debt is recourse to Gables in whole or in part except for the
mortgages encumbering Gables Cityscape, Gables CityWalk/Waterford Square,
Gables Stonebridge and Gables Northcliff.
(3) The NWML Properties (Wildwood Gables, Gables Valley Ranch and Gables Piney
Point) together secure the $53 million mortgage loan from Northwestern
Mutual Life Insurance Co.
(4) This $40 million term loan currently bears interest at LIBOR plus 0.80%.
This financing is effectively fixed at 6.15% after application of $40
million of the $44.53 million interest rate swap and cap agreements
described elsewhere herein.
(5) The Providian Properties together secure the $48.4 million mortgage loan
from Providian Corporation and are comprised of three properties induced
for tax-exempt bond financing (Gables Wood Glen, Gables Wood Knoll and
Gables Cordova) and three additional properties (Gables Bradford Pointe,
Gables Hendersonville and Rivercrest).
(6) Principal amortization payments are retained in an escrow account and are
not applied to reduce the outstanding principal balance of the loan.
Interest earned on the escrow account accrues to Gables' benefit.
(7) The interest rate does not include credit enhancement fees of 0.60% per
annum, which fees were prepaid in January, 1995 for a period of ten years.
In addition, certain of the bond documents require the payment of certain
other customary fees ranging up to approximately 0.25% per annum.
(8) These bonds bear interest at a variable rate of interest, adjusted weekly
based upon a negotiated rate. The payment schedules reflect a 3.75% rate
which represents Gables' budgeted rate for 1998. The average rate
experienced for 1997 and 1996 were 3.7% and 3.5%, respectively. The
interest rates do not include the payment of credit enhancement fees which
are currently 0.95% per annum. In addition, certain of the bond documents
require the payment of certain other customary fees ranging up to
approximately 0.25% per annum.
(9) The maturity date noted represents the date on which the credit enhancement
facility for the bonds expires. Such facility may be extended pursuant to
Gables' unlimited one-year extension options. The stated maturity date for
the loans range from December, 2007 to August, 2024.
(10) Gables has two remaining one-year extension options.
(11) Debt service will be variable based on the principal balance which will be
outstanding.
(12) Gables has unlimited one-year extension options.
(13) Excludes $16.4 million of tax-exempt bonds and $17.9 million of
conventional indebtedness related to joint ventures in which Gables has an
indirect 25% general partner interest.
Joint Venture Indebtedness
- --------------------------
The Arbors of Harbortown apartment community secures a $16.4 million tax-exempt
bond obligation, which is recourse to Gables up to $1.0 million (this amount is
fully cash-collateralized and is held by the Arbors of Harbortown JV), bears
interest at a variable low-floater rate, has a maturity date of April, 2013, and
is payable in monthly installments of interest only. The credit enhancement for
the bond obligation expires in May, 2001. The Metropolitan Uptown apartment
community secures a conventional fixed-rate loan with $17.9 million outstanding
at December 31, 1997, 25% of which has been guaranteed by Gables. The loan has a
maturity date of December 31, 2002, and bears interest at a rate of 7.18%.
Page-18
ITEM 3. LEGAL PROCEEDINGS
Neither Gables nor any of the Communities is presently subject to any material
litigation or, to Gables' knowledge, is any litigation threatened against Gables
or any of the Communities, other than routine actions for negligence or other
claims and administrative proceedings arising in the ordinary course of
business, some of which are expected to be covered by liability insurance and
all of which collectively are not expected to have a material adverse effect on
the business or financial condition of Gables.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Units. As of March 20,
1998, there were 63 holders of record of Units.
The following table sets forth the quarterly distributions per Unit to holders
of its Units for the period indicated.
Distribution
Quarter Ended Declared
- ------------- ------------
March 31, 1996 $0.48
June 30, 1996 0.48
September 30, 1996 0.49
December 31, 1996 0.49
March 31, 1997 0.49
June 30, 1997 0.49
September 30, 1997 0.50
December 31, 1997 0.50
March 31, 1998 0.50
The Operating Partnership currently intends to make quarterly distributions to
holders of its Units. Distributions are declared at the discretion of the Board
of Directors of GGPI, the general partner of the Operating Partnership, and will
depend on actual funds from operations of the Operating Partnership, its
financial condition, capital requirements, the annual distribution requirements
under the REIT provisions of the Code and such other factors as the board of
directors may deem relevant. The Board of Directors may modify the Operating
Partnership's distribution policy from time to time.
Certain of the Operating Partnership's loan agreements contain customary
representations, covenants and events of default, including covenants which
restrict the ability of the Operating Partnership to make distributions in
excess of stated amounts. In general, during any fiscal year the Operating
Partnership may only distribute up to 95% of the Operating Partnership's
consolidated income available for distribution (as defined in the related
agreement) exclusive of distributions of capital gains for such year. The
applicable loan agreements contain exceptions to these limitations to allow the
Operating Partnership to make any distributions necessary to allow the Company
to maintain its status as a REIT. The Operating Partnership does not anticipate
that this provision will adversely effect the ability of the Operating
Partnership to make distributions, as currently anticipated.
October 17, 1997, the Operating Partnership issued 453,272 Units (valued at
approximately $12,180,000 at the time of issuance) in connection with the
acquisition of an apartment community comprising 295 apartment homes. Such Units
were issued in reliance on an exemption from registration under Section 4(2) of
the Securities Act and the rules and regulation promulgated thereunder.
Page-19
Each time the Company issues shares of beneficial interest, it contributes the
proceeds of such issuance to the Operating Partnership in return for a like
number of Units with rights and preferences analogous to the shares issued.
During the period commencing on October 1, 1997 and ending on December 31, 1997,
in connection with such issuances of shares by the Company during that time
period, the Operating Partnership issued an aggregate 1,745,938 Units to the
Company. Such Units were issued in reliance on an exemption from registration
under Section 4(2) of the Securities Act and the rules and regulations
promulgated thereunder.
ITEM 6. SELECTED FINANCIAL AND OPERATING INFORMATION
The following table sets forth selected financial and operating information on a
historical basis for the Operating Partnership and on a combined historical and
pro forma basis for the Operating Partnership's predecessors as applicable. The
following information should be read in conjunction with all of the financial
statements and notes thereto included elsewhere herein. The consolidated
operating information of the Operating Partnership for the years ended December
31, 1997, 1996 and 1995 have been derived from the financial statements audited
by Arthur Andersen LLP, independent public accountants, whose report with
respect thereto is included elsewhere herein. The consolidated operating
information of the Operating Partnership for the period from January 26, 1994 to
December 31, 1994 and the combined operating information of the Group for the
period from January 1, 1994 to January 25, 1994 and for the year ended December
31, 1993 has been derived from audited financial statements not included in such
report.
The unaudited selected pro forma financial operating information is presented as
if the Initial Offering and Formation Transactions occurred as of the beginning
of the period presented. The pro forma financial information is not necessarily
indicative of what the actual financial position and results of operations of
the Operating Partnership would have been as of the date or for the period
indicated, nor does it purport to represent the Operating Partnership's future
financial position and results of operations.
Page-20
SELECTED FINANCIAL AND OPERATING INFORMATION
Gables Realty Limited Partnership and its Predecessors
------------------------------------------------------
Historical Pro Forma Historical
1997 1996 1995 1994 (1) 1994 (2) 1993
---- ---- ---- -------- -------- ----
(Unaudited)
(in thousands, except property and per Unit information)
OPERATING INFORMATION:
Rental revenues .................................... $ 132,371 $ 104,543 $72,703 $57,291 $57,201 $41,330
Other property revenues ............................ 6,322 4,928 3,268 2,228 2,225 1,462
------- ------- ------- ------- -------- -------
Total property revenues ....................... 138,693 109,471 75,971 59,519 59,426 42,792
Other revenues ..................................... 4,745 6,710 5,789 7,350 7,396 8,373
------- ------- ------- ------- -------- -------
Total revenues ................................ 143,438 116,181 81,760 66,869 66,822 51,165
------- ------- ------- ------- -------- -------
Property operating and maintenance expenses
(exclusive of items shown separately below) ...... 47,592 38,693 28,228 22,868 22,847 18,295
Depreciation and amortization ...................... 25,194 18,892 12,669 9,974 9,906 7,635
Property management expenses (owned and third party) 5,696 5,617 5,348 5,603 5,774 6,175
General and administrative expenses ................ 3,248 3,045 2,869 1,779 1,742 1,078
Interest and credit enhancement fees ............... 25,313 21,688 13,798 9,584 10,084 12,844
Amortization of deferred financing costs ........... 992 1,348 932 1,057 1,127 1,132
Loss on treasury lock extension ....................(3) 1,178 0 0 0 0 0
------- ------- ------- ------- -------- -------
Total expenses ................................ 109,213 89,283 63,844 50,865 51,480 47,159
------- ------- ------- ------- -------- -------
Equity in income of joint ventures ................. 320 280 64 270 270 251
Interest income .................................... 371 363 389 268 268 263
------- ------- ------- ------- -------- -------
Income before gain on sale of real estate assets ... 34,916 27,541 18,369 16,542 15,880 4,520
Gain on sale of real estate assets ................. 5,349 0 0 0 0 0
------- ------- ------- ------- -------- -------
Income before extraordinary loss ................... 40,265 27,541 18,369 16,542 15,880 4,520
Extraordinary loss ................................. (712) (631) (955) (148) (148) 0
------- ------- ------- ------- -------- -------
Net income ......................................... 39,553 26,910 17,414 16,394 15,732 4,520
Dividends to preferred unitholders ................. (4,163) 0 0 0 0 0
------- ------- ------- ------- -------- -------
Net income available to common unitholders ......... $35,390 $26,910 $17,414 $16,394 $15,732 $4,520
======= ======= ======= ======= ======== =======
Weighted average common Units outstanding - basic .. 23,441 20,194 14,644 13,435 13,442
Weighted average common Units outstanding - diluted 23,591 20,283 14,660 13,452 13,459
Per Common Unit Information:
Income before extraordinary loss - basic .......... $ 1.54 $ 1.36 $ 1.25 $ 1.23 $ 1.19
Net income - basic ................................. 1.51 1.33 1.19 1.22 1.18
Income before extraordinary loss - diluted ........ 1.53 1.35 1.25 1.23 1.19
Net income - diluted ............................... 1.50 1.32 1.18 1.22 1.18
Distributions paid .................................(4) 2.47 1.93 1.83 N/A 1.225
Distributions declared .............................(4) 1.98 1.94 1.86 N/A 1.675
Other Information:
Cash flows provided by operating activities ........ $69,519 $51,629 $29,088 $28,868 $28,868 $13,407
Cash flows used in investing activities ............ (228,969) (213,596) (148,234) (150,534) (150,534) (67,043)
Cash flows provided by financing activities ........ 158,244 157,823 123,619 114,245 114,245 54,054
Funds from operations ..............................(5) 56,866 46,238 30,927 26,313 25,561 11,749
Gross operating margin .............................(6) 65.7% 64.7% 62.8% 61.6% 61.6% 57.3%
Completed communities at year-end .................. 61 48 38 29 29 24
Apartment homes in completed communities at year-end 18,479 15,244 11,946 9,785 9,785 8,666
Average monthly revenue per apartment home .........(7) $ 755 $ 700 $ 620 $ 574 $ 574 $ 560
Balance Sheet Information:
Real estate, before accumulated depreciation .......(8)$ 1,056,228 $ 784,600 $ 591,233 $ 437,782 $ 437,782 $ 290,903
Total assets .......................................(8) 981,167 759,660 562,827 416,847 416,847 277,420
Total debt ......................................... 435,362 390,321 286,259 229,305 229,305 261,294
Limited partners' capital interest at redemption
value/predecessors' equity ....................... 110,866 98,482 75,314 67,188 67,188 1,236
Partners' capital .................................. 402,631 234,426 171,107 92,966 92,966 0
Funds From Operations Reconciliation:
Net income available to common unitholders ......... $35,390 $26,910 $17,414 $16,394 $15,732 $4,520
Extraordinary loss .................................(9) 712 631 1,003 148 148 0
Gain on sale of real estate assets ................. (5,349) 0 0 0 0 0
Loss on treasury lock extension ....................(3) 1,178 0 0 0 0 0
Real estate depreciation ...........................(9) 24,935 18,697 12,510 9,771 9,681 7,229
------- ------- ------- ------- ------ -------
Funds from operations .............................. $56,866 $46,238 $30,927 $26,313 $25,561 $11,749
======= ======= ======= ======= ====== =======
Page-21
NOTES TO SELECTED FINANCIAL AND OPERATING INFORMATION
(In Thousands, except Property and Per Unit Information)
(1) The pro forma information reflects adjustments to the historical
information of the Operating Partnership's predecessors from January 1, 1994 to
January 25, 1994 related to the Initial Offering and Formation Transactions
principally for the acquisition of certain properties and additional expenses
associated with reporting as a public company, reduction of interest expense due
to debt repayment and increased depreciation.
(2) The historical information for the year ended December 31, 1994
represents the combined historical information of the Operating Partnership's
predecessors from January 1, 1994 to January 25, 1994 and the consolidated
historical information of the Operating Partnership from January 26, 1994 to
December 31, 1994. The weighted average number of Units outstanding and the per
Unit information pertains only to the period from January 26, 1994 to December
31, 1994.
(3) Gables extended its $75 million forward seven-year treasury lock
agreement in December, 1997. The loss recognized for GAAP purposes in connection
with such extension is added back for FFO purposes as Gables intends to account
for such amount for FFO purposes as a finance cost which will be amortized over
the life of the debt transaction for which the treasury lock is intended to
hedge.
(4) The Operating Partnership's distributions paid and declared include the
Operating Partnership's first quarterly distribution of $0.325 per Unit for the
period January 26, 1994 to March 31, 1994. These distributions were the
equivalent of a $1.80 per Unit distribution for the year.
(5) Gables considers funds from operations ("FFO") to be a useful
performance measure of the operating performance of an equity REIT because,
together with net income and cash flows, FFO provides investors with an
additional basis to evaluate the ability of a REIT to incur and service debt and
to fund acquisitions and other capital expenditures. Gables believes that in
order to facilitate a clear understanding of its operating results, FFO should
be examined in conjunction with net income as presented in the financial
statements and data included elsewhere in this report. Gables computes FFO in
accordance with standards established by the National Association of Real Estate
Investment Trusts ("NAREIT"). FFO as defined by NAREIT represents net income
(loss) determined in accordance with GAAP, excluding gains or losses from sales
of assets or debt restructuring, plus certain non-cash items, primarily real
estate depreciation, and after adjustments for unconsolidated partnerships and
joint ventures. FFO presented herein is not necessarily comparable to FFO
presented by other real estate companies due to the fact that not all real
estate companies use the same definition. However, Gables' FFO is comparable to
the FFO of real estate companies that use the NAREIT definition. FFO should not
be considered as an alternative to net income as an indicator of Gables'
operating performance or as an alternative to cash flows as measures of
liquidity. FFO does not measure whether cash flow is sufficient to fund all of
Gables' cash needs including principal amortization, capital expenditures, and
distributions to shareholders and unitholders. Additionally, FFO does not
represent cash flows from operating, investing or financing activities as
defined by GAAP. Reference is made to "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
for a discussion of Gables' cash needs and cash flows.
(6) Gross operating margin represents (i) total property revenues less
property operating and maintenance expenses (exclusive of depreciation expense)
as a percentage of (ii) total property revenues.
(7) Average monthly revenue per apartment home is equal to the average
monthly rental revenue collected during the period, divided by the average
monthly number of apartment homes occupied during the period.
(8) In an UPREIT structure, the value attributed to Units issued to
controlling, continuing investors is not reflected because such accounting is
not allowed under GAAP. On a pro forma basis, the real estate assets before
accumulated depreciation and total assets as of December 31, 1997 would be
$1,168,722 and $1,093,661, respectively, if such value (exclusive of the effect
of depreciation) was reflected.
(9) Reflects extraordinary loss and real estate depreciation for both
wholly-owned communities and joint ventures, as applicable.
Page-22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollars in Thousands, Except Per Unit Amounts)
OVERVIEW
- --------
The Operating Partnership is the entity through which the Company, a
self-administered and self-managed real estate investment trust (a "REIT")
focused within the multifamily industry in the Sunbelt Region of the United
States, conducts substantially all of its business and owns (either directly or
through subsidiaries) substantially all of its assets. Gables' operating
performance relies predominantly on net operating income from its apartment
communities. Gables' net operating income is influenced by operating expenses
and rental revenues, which are affected by the supply and demand dynamics within
Gables' markets. Gables' performance is also affected by the general
availability and cost of capital and by its ability to develop and to acquire
additional apartment communities with returns in excess of its blended cost of
equity and debt capital.
The Company's objective is to increase shareowner value by being a dominant
owner and operator of Class A multifamily communities in the Sunbelt Region. To
achieve its objective, Gables employs a number of strategies including operating
high quality, well-located assets in a diverse set of select Sunbelt markets
which have similar demographic characteristics such as diverse economies with
projected job growth. Gables' primary target customer is the more affluent
renter-by-choice, which requires a focus on customer service through highly
trained associates and the maintenance of Gables' assets to a high standard.
Gables intends to grow cash flow from operating communities through innovative,
proactive property management that focuses on resident satisfaction and
retention, increases in rents and occupancy levels, and the control of operating
expenses through improved economies of scale. Due to the cyclical nature of the
real estate markets, Gables has adopted an investment strategy based on strong
local presence and expertise which will allow for growth in assets through both
acquisition and development as warranted by underlying market fundamentals, and
that will provide for both favorable initial returns and long-term growth
prospects. Gables believes the successful execution of these operating and
investment strategies will result in consistent high quality growth in operating
cash flow.
Gables believes that it is well positioned to achieve its objective as a result
of its long-established presence as a fully integrated real estate management,
development, construction and acquisition company in each of Gables' core
markets for the past fifteen years. Gables believes that this long-term, local
market presence gives it a competitive advantage with regard to its ability to
generate increased cash flow from property operations during different economic
cycles and to new investment opportunities that involve site selection, market
information and requests for entitlements and zoning petitions. The core markets
are geographically independent, rely on diverse economic foundations and have
experienced job growth substantially above national averages. Gables recently
entered the Orlando market which has the common growth characteristics of the
core markets.
Portfolio wide occupancy levels have remained high and portfolio wide rental
rates have continued to increase during each of the last several years. Gables
expects portfolio wide rental expenses to increase at a rate slightly ahead of
inflation, but less than the increase in property revenues, for the coming
twelve months. In certain situations, management's evaluation of the growth
prospects for a specific asset may result in a determination to dispose of the
asset. In this event, management would intend to sell the asset and utilize the
net proceeds from any such sale to invest in new assets which are expected to
have better growth prospects or to reduce indebtedness. Gables maintains
staffing levels sufficient to meet the existing construction, acquisition, and
leasing activities. If market conditions warrant, management would anticipate
adjusting staffing levels to mitigate a negative impact on results of
operations.
The following discussion and analysis of the financial condition and results of
operations should be read in conjunction with the accompanying consolidated
financial statements and the notes thereto.
This Report on Form 10-K contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results or developments
could differ materially from those projected in such statements as a result of
the risk factors set forth in the relevant paragraphs of "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this report.
Page-23
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
GABLES REALTY LIMITED PARTNERSHIP AND INITIAL PUBLIC OFFERING OF GABLES
- --------------------------------------------------------------------------------
RESIDENTIAL TRUST
- -----------------
Gables Realty Limited Partnership (the "Operating Partnership"), a Delaware
limited partnership, was formed in 1993 to conduct the multifamily apartment
community management, development, construction and acquisition operations for
Gables Residential Trust (the "Company"). On January 26, 1994, the Company
completed its initial public offering (the "IPO") and, in connection therewith,
sold 9,430,000 Common Shares at a price to the public of $22.50 per Common
Share. The net proceeds from such sale totaled approximately $190 million, a
portion of which was used by the Company to acquire an economic and voting
interest in the Operating Partnership, which was formed to succeed to
substantially all of the interests of its privately owned predecessor
organization. The Company, a self-administered and self-managed real estate
investment trust (a "REIT"), became the majority owner of the Operating
Partnership upon the completion of the IPO. The term "Gables Residential Group"
or "Group" as used herein refers to the privately owned predecessor organization
prior to the completion of the Company's IPO and the concurrent completion of
the various transactions that occurred simultaneously therewith (the "Formation
Transactions"). The term "Operating Partnership" or "Gables" as used herein
means Gables Realty Limited Partnership and its subsidiaries on a consolidated
basis or, where the context so requires, Gables Realty Limited Partnership only,
and, as the context may require, their predecessors.
SECONDARY OFFERINGS AND ISSUANCES OF OPERATING PARTNERSHIP UNITS
- ----------------------------------------------------------------
SECONDARY OFFERINGS
- -------------------
Since the IPO, the Company has had the following Common Share offerings:
Number of Net
Closing Date Shares Issued Proceeds
- ------------ ------------- --------
October 7, 1994 444,500 $ 9,876
========= =======
October 31, 1995 4,600,000 $94,364
========= =======
March 25, 1996 879,068 $20,630
September 17, 1996 1,725,000 38,600
September 27, 1996 1,435,000 34,254
--------- -------
1996 Totals 4,039,068 $93,484
========= =======
September 16, 1997 737,040 $18,698
December 1, 1997 1,700,000 43,819
--------- -------
1997 Totals 2,437,040 $62,517
========= ========
The net proceeds from these offerings were contributed to the Operating
Partnership in exchange for units of limited partnership interest in the
Operating Partnership ("Units") and the Operating Partnership used the proceeds
(i) to reduce outstanding indebtedness under interim financing vehicles utilized
to fund Gables' development and acquisition activities and (ii) for general
working capital purposes including funding of future development and acquisition
activities.
PREFERRED SHARE OFFERING
- ------------------------
On July 24, 1997, the Company issued 4,600,000 shares of 8.30% Series A
Cumulative Redeemable Preferred Shares (liquidation preference $25.00 per share)
(the "Series A Preferred Shares"). The net proceeds from this offering of
approximately $111.2 million were contributed to the Operating Partnership in
exchange for preferred Units (the "Series A Preferred Units") which, in general,
have, with respect to other Units, rights and preferences that are analogous to
the rights and preferences that the Series A Preferred Shares have with respect
to the Common Shares. The Operating Partnership used the proceeds from this
offering to reduce outstanding indebtedness under the interim financing vehicles
discussed above.
Page-24
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
ADDITIONAL ISSUANCES OF OPERATING PARTNERSHIP UNITS
- ---------------------------------------------------
On December 5, 1995, Gables acquired a parcel of land for the development of an
apartment community, financed in part through the issuance of 111,074 Units. On
July 26, 1996, Gables acquired an apartment community comprising 500 apartment
homes, financed in part through the issuance of 243,787 Units. On August 21,
1997, Gables acquired an apartment community comprising 82 apartment homes,
financed in part through the issuance of 94,869 Units. On October 17, 1997,
Gables acquired an apartment community comprising 295 apartment homes, financed
in part through the issuance of 453,272 Units.
RESULTS OF OPERATIONS
- ---------------------
COMPARISON OF OPERATING RESULTS OF GABLES FOR THE YEAR ENDED DECEMBER 31, 1997
(THE "1997 PERIOD") TO THE YEAR ENDED DECEMBER 31, 1996 (THE "1996 PERIOD").
Gables' net income is generated primarily from the operation of its apartment
communities. For purposes of evaluating comparative operating performance,
Gables categorizes its operating communities based on the period in which each
community reaches stabilized occupancy. A community is considered by Gables to
have achieved stabilized occupancy on the earlier to occur of (i) attainment of
93% physical occupancy or (ii) one year after completion of construction. The
operating performance for all of Gables' apartment communities combined for the
years ended December 31, 1997 and 1996 is summarized as follows:
Years Ended December 31,
----------- ----------- ----------- --------------
$ %
1997 1996 Change Change
----------- ----------- ----------- --------------
Rental and other revenue:
Same store communities (1) $73,973 $71,983 $1,990 2.8%
Communities stabilized during the 1997 Period, but not during the 1996 20,848 19,220 1,628 8.5%
Period (2)
Development and lease-up communities (3) 13,103 3,920 9,183 234.3%
Acquired communities (4) 30,591 11,009 19,582 177.9%
Sold communities (5) 178 3,339 -3,161 -94.7%
-------- ------- -------- -------
Total property revenues $138,693 $109,471 $29,222 26.7%
-------- ------- -------- -------
Property operating and maintenance expense (exclusive of depreciation and
amortization):
Same store communities (1) $26,434 $25,637 $797 3.1%
Communities stabilized during the 1997 Period, but not during the 1996 6,360 6,223 137 2.2%
Period (2)
Development and lease-up communities (3) 4,703 1,476 3,227 218.6%
Acquired communities (4) 9,980 3,887 6,093 156.8%
Sold communities (5) 115 1,470 -1,355 -92.2%
-------- ------- ------ -------
Total specified expenses $47,592 $38,693 $8,899 23.0%
-------- ------- ------ -------
Revenues in excess of specified expenses $91,101 $70,778 $20,323 28.7%
======== ======= ======= =======
Revenues in excess of specified expenses as a percentage of total 65.7% 64.7% --- 1.0%
property revenues ======== ======= ======= =======
<FN>
(1) Communities which were owned and fully stabilized throughout both the 1997
Period and 1996 Period.
(2) Communities which were completed and fully stabilized during all of the
1997 Period, but were not completed and fully stabilized during all of the
1996 Period.
(3) Communities in the development/lease-up phase which were not fully
stabilized during all or any of the 1997 Period.
(4) Communities which were acquired subsequent to January 1, 1996.
(5) Communities which were sold subsequent to January 1, 1996.
</FN>
Page-25
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
Total property revenues increased $29,222, or 26.7%, from $109,471 to $138,693
due primarily to increases in the number of apartment homes resulting from the
development and acquisition of additional communities and to increases in rental
rates on communities stabilized throughout both periods ("same store"). Below is
additional information regarding the increases in total property revenues for
three of the five community categories presented in the preceding table:
Same store communities:
Percent
Increase Increase
(Decrease) (Decrease) Increase
Number of in Total in Total Occupancy (Decrease)
Number of Apartment Percent Property Property During the in
Market Properties Homes of Total Revenues Revenues 1997 Period Occupancy
------ ---------- ----- -------- -------- -------- ----------- ---------
Houston 10 3,512 37% $1,125 4.3% 94.3% -0.8%
Atlanta 11 3,159 33% 597 2.4% 94.7% 0.1%
Dallas 4 1,089 12% 245 2.8% 94.0% 0.0%
Nashville 3 912 10% -7 -0.1% 95.9% 0.0%
Memphis 1 464 5% 44 1.4% 94.5% 0.0%
Austin 1 276 3% -14 -0.6% 92.3% 0.7%
-- ----- --- ------ --- ---- ---
30 9,412 100% $1,990 2.8% 94.5% -0.2%
== ===== === ====== === ==== ===
Communities stabilized during the 1997 Period but not during the 1996 Period:
Increase
(Decrease)
Number of in Total Occupancy
Number of Apartment Percent Property During the
Market Properties Homes of Total Revenues 1997 Period
- ------ ---------- ----- -------- -------- -----------
Atlanta 2 695 32% $-45 95.0%
San Antonio 2 544 25% 497 92.9%
Austin 1 256 12% 327 95.6%
Nashville 1 254 12% 338 96.1%
Houston 1 246 11% 205 95.0%
Dallas 1 188 8% 306 93.4%
- ----- --- ------ ----
8 2,183 100% $1,628 94.6%
= ===== === ====== ====
Development and lease-up communities:
Increase
Number of in Total Occupancy
Number of Apartment Percent Property During the
Market Properties Homes of Total Revenues 1997 Period
------ ---------- ----- -------- -------- -----------
Atlanta 3 862 40% $2,985 55.5%
Austin 2 529 24% 1,586 42.0%
Memphis 2 490 22% 3,185 84.6%
Dallas 1 300 14% 1,427 87.4%
- ----- --- ------ ----
8 2,181 100% $9,183 64.3%
= ===== === ====== ====
Page-26
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
Other revenues decreased $1,965, or 29.3%, from $6,710 to $4,745 due to (i) $900
of non-recurring net revenues generated from certain corporate apartment home
leases entered into in connection with the 1996 Olympic games held in Atlanta,
(ii) $557 of interest earned on an investment Gables made in an apartment
community on October 1, 1996 via a mortgage note receivable (in January, 1997,
Gables acquired the apartment community from the borrower and the mortgage note
receivable was repaid in full), and (iii) a decrease in property management
revenues of $839, or 21.7%, from $3,871 to $3,032 resulting from a net decrease
of properties managed by Gables for third parties primarily due to these
properties being sold by the owners. Such decreases were offset in part by an
increase in revenues in the 1997 Period related to the provision of certain
ancillary services.
Property operating and maintenance expense (exclusive of depreciation and
amortization) increased $8,899, or 23.0%, from $38,693 to $47,592 due to an
increase in apartment homes resulting from the development and acquisition of
additional communities and an increase in property operating and maintenance
expense for same store communities of 3.1%. The same store increase in operating
expenses represents inflationary increases in expenses and increased marketing
and redecorating expenses in certain of Gables' markets. Such same store
increases have been offset in part by certain decreases in landscape and
utilities costs. Gables anticipates that property operating and maintenance
expense for same store communities will generally increase at a rate slightly
ahead of inflation for the coming twelve months.
Depreciation and amortization expense increased $6,302, or 33.4%, from $18,892
to $25,194 due primarily to the completion of newly developed communities and
acquisition of other communities.
Property management expense for owned communities and third/related party
properties on a combined basis increased $79, or 1.4%, from $5,617 to $5,696 due
primarily to inflationary increases in expenses, offset in part by certain
non-recurring expense savings in the 1997 Period. Gables allocates property
management expenses to both owned communities and third/related party properties
based on the proportionate share of total apartment homes and units managed.
General and administrative expense increased $203, or 6.7%, from $3,045 to
$3,248 due primarily to increases in certain costs associated with increases in
Gables' size and inflationary increases in expenses.
Interest expense increased $3,692, or 17.5%, from $21,112 to $24,804 due to an
increase in operating debt associated with newly developed or acquired
communities in addition to communities currently in the lease-up phase. These
increases in interest expense have been offset in part as a result of the
offerings the Company has consummated between periods, the proceeds of which
have been contributed to the Operating Partnership and used primarily to reduce
indebtedness.
Loss on treasury lock extension of $1,178 in the 1997 Period represents the
amount Gables would have paid in December, 1997 to settle its $75 million
forward seven-year treasury lock agreement had it not been extended. Generally
accepted accounting principles ("GAAP") requires that such amount be recorded as
an expense upon extension and that the market rate in effect on the date of
extension be used as the "locked-in rate" for purposes of recording interest
expense over the life of the debt instrument the treasury lock was originally
intended to hedge.
Gain on sale of real estate assets of $5,349 in the 1997 Period represents the
gain generated in connection with (i) the January, 1997 sale of Club Candlewood,
a community comprised of 486 apartment homes and (ii) the July, 1997 sale of 2
acres of Gables' 12-acre Gables Colonnade Phase II land parcel.
Extraordinary loss of $712 in the 1997 Period represents (i) the write-off of
unamortized deferred financing costs and prepaid credit enhancement fees
associated with the defeasance of the tax-exempt bond financing encumbering the
Club Candlewood property that was sold in January, 1997 and (ii) the write-off
of unamortized deferred financing costs associated with the February 28, 1997
retirement of a conventional mortgage note payable that was scheduled to mature
on September 1, 1997.
Net income available to common unitholders increased $8,480, or 31.5%, from
$26,910 to $35,390 primarily due to the reasons discussed above.
Page-27
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
COMPARISON OF OPERATING RESULTS OF GABLES FOR THE YEAR ENDED DECEMBER 31, 1996
(THE "1996 PERIOD") TO THE YEAR ENDED DECEMBER 31, 1995 (THE "1995 PERIOD").
Gables' net income is generated primarily from the operation of its apartment
communities. For purposes of evaluating comparative operating performance,
Gables categorizes its operating communities based on the period in which each
community reaches stabilized occupancy. A community is considered by Gables to
have achieved stabilized occupancy on the earlier to occur of (i) attainment of
93% physical occupancy or (ii) one year after completion of construction. The
operating performance for all of Gables' apartment communities combined for the
years ended December 31, 1996 and 1995 is summarized as follows:
Years Ended December 31,
---------- --------- ----------- ----------
$ %
1996 1995 Change Change
---------- --------- ----------- ----------
Rental and other revenue:
Fully stabilized communities (1) $68,610 $66,755 $1,855 2.8%
Communities stabilized during the 1996 Period, but not during the 1995 6,495 2,626 3,869 147.3%
Period (2)
Development and lease-up communities (3) 23,141 5,699 17,442 306.1%
Acquired communities (4) 11,007 0 11,007 --
Sold community (5) 218 891 -673 -75.5%
--------- --------- ------- -------
Total property revenues $109,471 $75,971 $33,500 44.1%
--------- --------- -------- -------
Property operating and maintenance expense (exclusive of depreciation and
amortization):
Fully stabilized communities (1) $25,088 $25,108 $-20 - 0.1%
Communities stabilized during the 1996 Period, but not during the 1995 1,966 869 1,097 126.2%
Period (2)
Development and lease-up communities (3) 7,624 1,815 5,809 320.1%
Acquired communities (4) 3,887 0 3,887 --
Sold community (5) 128 436 -308 -70.6%
--------- --------- --------- -------
Total specified expenses $38,693 $28,228 $10,465 37.1%
--------- --------- --------- -------
Revenues in excess of specified expenses $70,778 $47,743 $23,035 48.2%
========= ========= ========= =======
Revenues in excess of specified expenses as a percentage of total property
revenues 64.7% 62.8% -- 1.9%
========= ========= ========= =======
<FN>
(1) Communities which were owned and fully stabilized throughout both the 1996
Period and 1995 Period.
(2) Communities which were completed and fully stabilized during all of the
1996 Period, but were not completed and fully stabilized during all of the
1995 Period.
(3) Communities in the development and/or lease-up phase which were not fully
stabilized during all or any of the 1996 Period.
(4) Communities which were acquired subsequent to January 1, 1995.
(5) Community which was sold subsequent to January 1, 1995.
</FN>
Page-28
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
Total property revenues increased $33,500, or 44.1%, from $75,971 to $109,471
due primarily to increases in the number of apartment homes resulting from the
development and acquisition of additional communities and to increases in rental
rates on communities stabilized throughout both periods ("same store"). Below is
additional information regarding the increases in total property revenues for
three of the five community categories presented in the preceding table:
Fully stabilized communities ("same store"):
Percent
Increase Increase
Number (Decrease) (Decrease) Occupancy
of in Total in Total During the Increase
Apartment Percent Property Property 1996 (Decrease)in
Market Homes of Total Revenues Revenues Period Occupancy
- ------ ----- -------- -------- -------- ------ ---------
Houston 3,512 38% $444 1.7% 95.2% 0.6%
Atlanta 3,289 35% 1,040 4.4% 94.3% -0.3%
Nashville 912 10% 198 3.1% 95.9% 0.1%
Dallas 855 9% 107 1.9% 92.9% -1.3%
Memphis 464 5% 106 3.4% 94.6% 0.6%
Austin 276 3% -40 -1.7% 91.6% -1.2%
------ ------ ----- ------ ----- -----
9,308 100% $1,855 2.8% 94.6% 0.0%
====== ====== ===== ====== ===== =====
Communities stabilized during the 1996 Period but not during the 1995 Period:
Increase
Number of in Total Occupancy
Apartment Percent Property During the
Market Homes of Total Revenues 1996 Period
- ------ ----- -------- -------- -----------
Atlanta 356 60% $2,218 96.0%
Dallas 234 40% 1,651 94.9%
--- ---- ----- -----
590 100% $3,869 95.5%
=== ==== ===== =====
Development and lease-up communities:
Increase
Number of In Total Occupancy
Apartment Percent Property During the
Market Homes of Total Revenues 1996 Period
- ------ ----- -------- -------- -----------
Atlanta 958 30% $5,364 82.8%
San Antonio 544 17% 2,904 84.7%
Memphis 490 15% 759 22.6%
Dallas 488 15% 2,405 54.1%
Austin 256 8% 2,615 89.5%
Nashville 254 8% 2,092 83.0%
Houston 246 7% 1,303 89.9%
----- ----- ------- -----
3,236 100% $17,442 79.4%
===== ===== ======= =====
Other revenues increased $921, or 15.9%, from $5,789 to $6,710 due to (i) $900
of non-recurring net revenues generated from certain corporate apartment home
leases entered into in connection with the 1996 Olympic games held in Atlanta
and (ii) $557 of interest earned on an investment Gables made in an apartment
community on October 1, 1996 via a mortgage note receivable. In January, 1997,
Gables acquired the apartment community from the borrower, and the mortgage note
receivable was repaid in full. Such increases in other revenues were offset in
part by a decrease in property management revenues of $418, or 9.8%, from $4,289
to $3,871 due primarily to a net decrease of properties managed by Gables for
third parties primarily as a result of these properties being sold by the
owners.
Page-29
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
Property operating and maintenance expense (exclusive of depreciation and
amortization) increased $10,465, or 37.1%, from $28,228 to $38,693 due to an
increase in apartment homes resulting from the development and acquisition of
additional communities partially offset by a decrease in property operating and
maintenance expense for same store communities of 0.1%. The same store decrease
in operating expenses represents reduced health and workers compensation
expenses, offset by inflationary increases in expenses. Gables anticipates that
property operating and maintenance expense for same store communities will
generally increase at a rate slightly ahead of inflation.
Depreciation and amortization expense increased $6,223, or 49.1%, from $12,669
to $18,892 due primarily to the completion of newly developed communities and
acquisition of other communities.
Property management expense for owned communities and third/related party
properties on a combined basis increased $269, or 5.0%, from $5,348 to $5,617
due primarily to increased data processing costs. Gables allocates property
management expenses to both owned communities and third/related party properties
based on the proportionate share of total apartment homes and units managed.
General and administrative expense increased $176, or 6.1%, from $2,869 to
$3,045 due to increased personnel and administrative costs associated primarily
with the appointment of the new Chief Operating Officer and Vice President of
Portfolio Management positions effective January 1, 1996, offset in part by
certain non-recurring costs incurred during the 1995 Period that were not
incurred during the 1996 Period.
Interest expense increased $8,024, or 61.3%, from $13,088 to $21,112 due to an
increase in operating debt associated with newly developed or acquired
communities in addition to communities currently in the lease-up phase.
Additionally, interest costs increased due to the refinancing of certain
variable rate debt to a higher fixed rate cost structure. These increases in
interest expense have been offset in part as a result of the offerings the
Company has consummated between periods, the proceeds of which have been
contributed to the Operating Partnership and used primarily to reduce
indebtedness.
Extraordinary loss of $631 for the year ended December 31, 1996 represents the
write-off of unamortized deferred financing costs associated with the early
retirement of Gables' Original Credit Facility. The Original Credit Facility
that was scheduled to mature in January, 1997, was refinanced in March, 1996
with a new $175 million unsecured revolving credit facility (the "New Credit
Facility").
Net income increased $9,496, or 54.5%, from $17,414 to $26,910 primarily due to
the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Gables' net cash provided by operating activities increased from $51,629 for the
year ended December 31, 1996 to $69,519 for the year ended December 31, 1997,
due to (i) an increase of $14,625 in income before certain non-cash items
including depreciation, amortization, equity in income of joint ventures, gain
on sale of real estate assets, long-term compensation expense, loss on treasury
lock extension and extraordinary losses and (ii) the change in restricted cash
between periods of $6,982. Such increases were offset in part by (i) the change
in other assets between periods of $773 and (ii) the change in other liabilities
between periods of $2,944.
Gables' net cash used in investing activities increased from $213,596 for the
year ended December 31, 1996 to $228,969 for the year ended December 31, 1997,
due primarily to increased development and acquisition activities in 1997 when
compared to 1996, offset in part by increased net proceeds from the sale of real
estate assets in 1997 when compared to 1996. During the year ended December 31,
1997, Gables expended approximately $93.6 million related to development
expenditures, including related land acquisitions; approximately $137.9 million
for the acquisition of existing apartment communities; approximately $4.9
million related to capital expenditures for operating apartment communities; and
approximately $5.2 million related to renovation expenditures.
Gables' net cash provided by financing activities increased from $157,823 for
the year ended December 31, 1996 to $158,244 for the year ended December 31,
1997. During the year ended December 31, 1997, Gables had net borrowings of
$45.0 million which were used in conjunction with $173.5 million of proceeds
from the common and preferred share offerings primarily to fund Gables'
development and acquisition activities discussed previously. These proceeds from
financing activities were offset in part by the payment of distributions
totaling approximately $62.4 million.
Page-30
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
As of December 31, 1997, Gables had total indebtedness of $435,362, cash and
cash equivalents of $3,179 and principal escrow deposits reflected in restricted
cash of $1,902. Gables' indebtedness includes $96,135 in conventional fixed-rate
mortgage notes payable secured by individual properties, $118,526 in
conventional fixed-rate unsecured notes payable, a $40,000 unsecured term loan,
$105,080 in tax-exempt bond indebtedness and $75,621 in borrowings outstanding
under its Credit Facilities. Gables' indebtedness has an average of 6.6 years to
maturity at December 31, 1997. Excluding monthly principal amortization
payments, over the next five years Gables has the following scheduled debt
maturities for indebtedness outstanding at December 31, 1997:
1998 $15,621
1999 0
2000 60,000
2001 40,000
2002 127,322
The debt maturities in 1998 of $15,621 relate to outstanding indebtedness under
the $20 Million Credit Facility which has unlimited one-year extension options.
The debt maturities in 2000 of $60,000 relate to outstanding indebtedness under
the $175 Million Credit Facility which has two remaining one-year extension
options. The debt maturities in 2002 include $44,930 of tax-exempt bond
indebtedness credit-enhanced through a letter of credit facility which has
unlimited one-year extension options.
Gables' distributions through the fourth quarter of 1997 have been paid from
cash provided by operating activities. Gables anticipates that distributions
will continue to be paid on a quarterly basis from cash provided by operating
activities.
In March, 1998, Gables closed a $100.0 million offering of its senior unsecured
notes and used the net proceeds of approximately $98.8 million to reduce
borrowings under its Credit Facilities. The notes will bear interest at 6.80%
and will mature in March, 2005.
Gables has met and expects to continue to meet its short-term liquidity
requirements generally through net cash provided by operations. Gables' net cash
provided by operations has been adequate and Gables believes that it will
continue to be adequate to meet both operating requirements and payment of
dividends in accordance with REIT requirements. The budgeted expenditures for
improvements and renovations to the communities, in addition to monthly
principal amortization payments, are also expected to be funded from net cash
provided by operations. Gables anticipates construction and development
activities and land purchases will be initially funded primarily through
borrowings under its Credit Facilities described below.
Gables expects to meet certain of its long-term liquidity requirements, such as
scheduled debt maturities, repayment of short-term financing of construction and
development activities and possible property acquisitions, through long-term
secured and unsecured borrowings and the issuance of debt securities or
additional equity securities or through the disposition of assets which, in
management's evaluation, may no longer meet Gables' investment requirements.
$175 MILLION CREDIT FACILITY
- ----------------------------
In conjunction with the IPO, Gables closed a $175 million three-year revolving
credit facility (the "Original Credit Facility") which had an initial maturity
of January, 1997. In March, 1996, Gables closed a new $175 million unsecured
revolving credit facility (the "New Credit Facility" or "$175 Million Credit
Facility") that replaced the Original Credit Facility. Although the New Credit
Facility is unsecured, there were certain designated real estate assets that had
escrowed mortgages that were released promptly after the attainment of implied
senior unsecured debt ratings of BBB from Standard and Poor's and Baa2 from
Moody's Investors Service (the "Credit Ratings"). The New Credit Facility has an
initial term of three years and three one-year extension options. Gables has
exercised the first of its one-year extension options resulting in a maturity
date for the facility of March, 2000.
Borrowings bore interest at LIBOR plus 1.50% (reduced from 1.65% in November,
1996) through April, 1997. In April, 1997, Gables' borrowing costs under the
facility were reduced to LIBOR plus 1.10% in connection with the attainment of
the Credit Ratings. In August, 1997, Gables' borrowing costs were renegotiated
and were reduced to LIBOR plus 0.80%. Additionally, a competitive bid option was
added for up to 50% of the $175 million commitment.
Page-31
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
Gables' availability under the facility is limited to the lesser of the total
$175 million commitment or the borrowing base. The borrowing base available
under the facility is currently based on the value of Gables' unencumbered real
estate assets as compared to the amount of Gables' unsecured indebtedness. As of
December 31, 1997, Gables had $60 million in borrowings outstanding under the
facility and, therefore, had $115 million of remaining capacity on the $175
million available commitment.
$20 MILLION CREDIT FACILITY
- ---------------------------
In November, 1996, Gables closed an unsecured revolving credit facility that
currently provides for up to $20 million in borrowings. This facility has an
initial term of one year and has unlimited one-year extension options. Gables
has exercised the first of its one-year extension options resulting in a
maturity date for the facility of October, 1998. Borrowings bore interest under
this facility at LIBOR plus 1.50% through April, 1997. In April, 1997, Gables'
borrowing costs were reduced to LIBOR plus 1.10% in connection with the
attainment of the Credit Ratings. In August, 1997, Gables' borrowing costs were
renegotiated and were reduced to LIBOR plus 0.80%. As of December 31, 1997,
Gables had approximately $15.6 million in borrowings outstanding under this
facility.
RESTRICTIVE COVENANTS
- ---------------------
Certain of Gables' debt agreements contain customary representations, covenants
and events of default, including covenants which restrict the ability of the
Operating Partnership to make distributions in excess of stated amounts, which
in turn restricts the discretion of the Company to declare and pay dividends. In
general, during any fiscal year the Operating Partnership may only distribute up
to 95% of the Operating Partnership's consolidated income available for
distribution (as defined in the related agreement) exclusive of distributions of
capital gains for such year. The applicable debt agreements contain exceptions
to these limitations to allow the Operating Partnership to make any
distributions necessary to allow the Company to maintain its status as a REIT.
Gables does not anticipate that this provision will adversely effect the ability
of the Operating Partnership to make distributions or the Company to declare
dividends, as currently anticipated.
Page-32
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
PORTFOLIO INDEBTEDNESS SUMMARY AND INTEREST RATE PROTECTION AGREEMENT SUMMARY
A summary of Gables' portfolio indebtedness and interest rate protection
agreements as of December 31, 1997 follows:
PORTFOLIO INDEBTEDNESS SUMMARY
Percentage Interest Total Years to
Type of Indebtedness Balance of Total Rate (1) Rate (2) Maturity
- -------------------- ------- -------- -------- -------- --------
Secured conventional fixed-rate $96,135 22.1% 8.14% 8.14% 9.84
Unsecured conventional fixed-rate (3) 158,526 36.4% 7.78% 7.78% 5.94
Tax-exempt fixed-rate 60,150 13.8% 6.50% 6.62% 10.67
-------- ------- ------ ------- ------
Total fixed-rate $314,811 72.3% 7.65% 7.67% 8.03
-------- ------- ------ ------- ------
Tax-exempt variable-rate $44,930 10.3% 4.20% 5.15% 4.67
-------- ------- ------ ------- ------
Unsecured credit facilities $75,621 17.4% 6.62% 6.62% 1.94
-------- ------- ------ ------- ------
Total portfolio debt (4), (5) $435,362 100.0% 7.11% 7.23% 6.63
======== ======= ====== ======= ======
<FN>
(1) Interest Rate represents the weighted average interest rate incurred on the
indebtedness, exclusive of deferred financing cost amortization and credit
enhancement fees, as applicable.
(2) Total Rate represents the Interest Rate (1) plus credit enhancement fees,
as applicable.
(3) Unsecured conventional fixed-rate debt includes $40,000 of financing which
bears interest at LIBOR plus a spread of 0.80%. Such financing is
effectively fixed at an all-in rate of 6.15% after the application of
$40,000 of the $44,530 interest rate cap and swap agreements described
below.
(4) Interest associated with construction activities is capitalized as a cost
of development and does not impact current earnings. The qualifying
construction expenditures at December 31, 1997 for purposes of interest
capitalization were $74,225.
(5) Excludes $16.4 million of tax-exempt bonds and $17.9 million of outstanding
conventional indebtedness related to joint ventures in which Gables owns a
25% interest.
</FN>
INTEREST RATE PROTECTION AGREEMENT SUMMARY
Notional Strike/Swap/ Effective Termination
Description of Agreement Amount Lock Price Date Date
- ------------------------ ------ ---------- ---- ----
LIBOR, 30-day - "Rate Cap" $44,530 6.25% (6) 01/27/94 01/30/99
LIBOR, 30-day - "Rate Swap" $44,530 5.35% (6) 08/30/96 08/30/99 (7)
LIBOR, 30-day - "Rate Swap" $25,000 5.76% (6) 02/27/98 02/27/00 (8)
Treasury, 7-year - "Treasury Lock" $75,000 6.18% 09/22/97 05/28/98
Treasury, 7-year - "Treasury Lock" $25,000 5.88% 12/17/97 05/28/98
<FN>
(6) The 30-day LIBOR rate in effect at December 31, 1997 was 6.0%.
(7) This is a knock-out swap agreement which fixes Gables' underlying 30-day
LIBOR rate at 5.35%. The swap terminates upon the earlier to occur of (i)
the termination date or (ii) a rate reset date on which the 30-day LIBOR
rate is 6.26% or higher.
(8) This is a knock-out swap agreement which fixes Gables' underlying 30-day
LIBOR rate at 5.76%. The swap terminates upon the earlier to occur of (i)
the termination date or (ii) a rate reset date on which the 30-day LIBOR
rate is 6.70% or higher.
</FN>
Page-33
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
BOOK VALUE OF ASSETS AND PARTNERS' CAPITAL
- ------------------------------------------
The application of historical cost accounting in accordance with GAAP for
Gables' UPREIT structure results in an understatement of total assets and
partners' capital compared to the amounts that would be recorded via the
application of purchase accounting in accordance with GAAP had Gables not been
organized as an UPREIT. Management believes it is imperative to understand this
difference when evaluating the book value of assets and partners' capital. The
understatement of basis related to this difference in organizational structure
at December 31, 1997 is $112,494, exclusive of the effect of depreciation.
Accordingly, on a pro forma basis, the real estate assets before accumulated
depreciation, total assets and partners' capital (including limited partners'
capital interest at redemption value) as of December 31, 1997 would be
$1,168,722, $1,093,661 and $625,991, respectively, if such $112,494 value was
reflected.
INFLATION
- ---------
Substantially all of Gables' leases at the communities are for a term of one
year or less, which may enable Gables to seek increased rents upon renewal of
existing leases or commencement of new leases in times of rising prices. The
short-term nature of these leases generally serves to lessen the impact of cost
increases arising from inflation.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
- --------------------------------------------------
This Report on Form 10-K contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The words "believe," "expect,"
"anticipate," "intend," "estimate," "assume" and other similar expressions which
are predictions of or indicate future events and trends and which do not relate
solely to historical matters identify forward-looking statements. Reliance
should not be placed on forward-looking statements because they involve known
and unknown risks, uncertainties and other factors, which are in some cases
beyond the control of Gables and may cause the actual results, performance or
achievements of Gables to differ materially from anticipated future results,
performance or achievements expressed or implied by such forward-looking
statements.
Factors that might cause such a difference include, but are not limited to, the
following: Gables may fail to secure or abandon development opportunities;
construction costs of a community may exceed original estimates; construction
and lease-up may not be completed on schedule, resulting in increased debt
service expense and construction costs and reduced rental revenues; occupancy
rates and market rents may be adversely affected by local economic and market
conditions which are beyond management's control; financing may not be
available, or may not be available on favorable terms; Gables' cash flow may be
insufficient to meet required payments of principal and interest; and existing
indebtedness may mature in an unfavorable credit environment, preventing such
indebtedness from being refinanced, or, if financed, causing such refinancing to
occur on terms that are not as favorable as the terms of existing indebtedness.
OTHER MATTERS
- -------------
Gables has assessed the impact of the year 2000 issue on its computer systems
and is in the process of remediating the affected hardware and software. The
year 2000 issue is the result of many computer programs recognizing a date
ending with "00" as the year 1900 rather than the year 2000, causing potential
system failures or miscalculations which could result in disruptions of normal
business operations. Gables' primary financial and operating systems are
supplied by third party suppliers and its hardware and software systems are
either currently year 2000 compliant or will be compliant well in advance of
January 1, 2000. Gables' costs of addressing the year 2000 issue are not
expected to be material and will relate primarily to costs of existing
information system personnel.
Page-34
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
SUPPLEMENTAL DISCUSSION - Funds From Operations and Adjusted Funds From
Operations
Gables considers funds from operations ("FFO") to be a useful performance
measure of the operating performance of an equity REIT because, together with
net income and cash flows, FFO provides investors with an additional basis to
evaluate the ability of a REIT to incur and service debt and to fund
acquisitions and other capital expenditures. Gables believes that in order to
facilitate a clear understanding of its operating results, FFO should be
examined in conjunction with net income as presented in the financial statements
and data included elsewhere in this report. Gables computes FFO in accordance
with standards established by the National Association of Real Estate Investment
Trusts ("NAREIT"). FFO as defined by NAREIT represents net income (loss)
determined in accordance with GAAP, excluding gains or losses from sales of
assets or debt restructuring, plus certain non-cash items, primarily real estate
depreciation, and after adjustments for unconsolidated partnerships and joint
ventures. FFO presented herein is not necessarily comparable to FFO presented by
other real estate companies due to the fact that not all real estate companies
use the same definition. However, Gables' FFO is comparable to the FFO of real
estate companies that use the NAREIT definition. Adjusted funds from operations
("AFFO") is defined as FFO less capital expenditures funded by operations. FFO
and AFFO should not be considered as alternatives to net income as indicators of
Gables' operating performance or as alternatives to cash flows as measures of
liquidity. FFO does not measure whether cash flow is sufficient to fund all of
Gables' cash needs including principal amortization, capital expenditures, and
distributions to shareholders and unitholders. Additionally, FFO does not
represent cash flows from operating, investing or financing activities as
defined by GAAP. Reference is made to "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
for a discussion of Gables' cash needs and cash flows.
A reconciliation of funds from operations and adjusted funds from operations
follows:
Years ended December 31,
1997 1996
---- ----
Net income available to common unitholders $35,390 $26,910
Extraordinary loss 712 631
Loss on treasury lock extension (1) 1,178 0
Gain on sale of real estate assets (5,349) 0
Real estate asset depreciation:
Wholly-owned real estate assets 24,712 18,477
Joint venture real estate assets 223 220
------ -------
Total 24,935 18,697
------ -------
FUNDS FROM OPERATIONS $56,866 $46,238
====== ======
Capital expenditures for operating apartment communities:
Carpet 1,860 1,245
Roofing 139 297
Exterior painting 283 145
Appliances 204 179
Other additions and improvements 2,392 1,988
------- -------
Total 4,878 3,854
------- -------
ADJUSTED FUNDS FROM OPERATIONS $51,988 $42,384
======= =======
(1) Gables extended its $75 million forward seven-year treasury lock agreement
in December, 1997. The loss recognized for GAAP purposes in connection with
such extension is added back for FFO purposes as Gables intends to account
for such amount for FFO purposes as a finance cost which will be amortized
over the life of the debt transaction for which the treasury lock is
intended to hedge.
Page-35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are listed under Item 14(a) and
filed as part of this report on the pages indicated.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
GGPI, the sole general partner of the Registrant, is a wholly-owned subsidiary
of Gables Residential Trust. The members of the Board of Directors of GGPI are
the same as the members of the Board of Trustees of Gables Residential Trust.
The "executive officers" of GGPI are the same as the "executive officers" of
Gables Residential Trust. Other than Gables Residential Trust, which
beneficially owns 84.5% of the Registrant's outstanding Units as of March 20,
1998, no person beneficially owns more than 5% of the Registrant's outstanding
Units. All information required by this Part III with respect to the Registrant
will be included in Gables Residential Trust's Proxy Statement to be filed in
connection with its 1998 Annual Meeting of Shareholders.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Directors and Executive Officers of the
Registrant required by Item 10 shall be included in Gables Residential Trust's
Proxy Statement to be filed relating to its 1998 Annual Meeting of Shareholders
and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information concerning Executive Compensation required by Item 11 shall be
included in Gables Residential Trust's Proxy Statement to be filed relating to
its 1998 Annual Meeting of Shareholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information concerning Security Ownership of Certain Beneficial Owners and
Management required by Item 12 shall be included in Gables Residential Trust's
Proxy Statement to be filed relating to its 1998 Annual Meeting of Shareholders
and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information concerning Certain Relationships and Related Transactions
required by Item 13 shall be included in Gables Residential Trust's Proxy
Statement to be filed relating to its 1998 Annual Meeting of Shareholders and is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULE AND REPORTS ON
FORM 8-K
14(A)(1)AND(2) FINANCIAL STATEMENTS AND SCHEDULE
The financial statements and schedule listed below are filed as part of this
annual report on the pages indicated.
Report of Independent Public Accountants 39
Consolidated Balance Sheets as of December 31, 1997 and
December 31, 1996 40
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 41
Consolidated Statements of Partners' Capital for the years
ended December 31, 1997, 1996 and 1995 42
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 43
Notes to Consolidated Financial Statements 44
Schedule III - Real Estate Investments and Accumulated Depreciation 56
as of December 31, 1997
Page-36
14(a)(3) Exhibits
Certain of the exhibits required by Item 601 of Regulation S-K have been filed
with previous reports by the Registrant or the Company (File No. 1-12590) and
are incorporated herein by reference to the filing in the corresponding numbered
footnote.
Exhibit No. Description
- ---------- -----------
3.1 --- Second Amended and Restated Agreement of Limited
Partnership of the Operating Partnership (1)
3.2 --- Amended and Restated Declaration of Trust of the
Company (2)
3.3 --- Articles Supplementary to the Company's Amended
and Restated Declaration of Trust creating a series
of preferred shares of beneficial interest, par
value $0.01 per share, called the 8.30% Series A
Cumulative Redeemable Preferred Shares (3)
3.4 --- Second Amended and Restated Bylaws of the Company (4)
3.5 --- Articles of Incorporation of Gables GP, Inc. (5)
3.6 --- Bylaws of Gables GP, Inc. (5)
10.1 --- Articles of Incorporation of East Apartment
Management, Inc. (5)
10.2 --- Bylaws of East Apartment Management, Inc. (5)
10.3 --- Articles of Incorporation of Central Apartment
Management, Inc. (5)
10.4 --- Bylaws of Central Apartment Management, Inc. (5)
10.5 --- Interest rate protection agreement (notional
amount of $44,530,000) between the Operating
Partnership and NationsBank of North Carolina, N.A.
dated January 25, 1994 (6)
10.6 --- Interest rate protection agreement (notional amount
of $44,530,000) between the Operating Partnership and
First Union National Bank of Georgia, dated August
21, 1996 (7)
10.7 --- Interest rate protection agreement (notional amount
of $25,000,000) between the Operating Partnership and
First Union National Bank of Georgia, dated as of
May 23, 1997 (8)
10.8 --- Forward Treasury Lock Agreement (notional amount of
$75,000,000) between the Operating Partnership and
J.P. Morgan Securities, Inc. dated as of September
22, 1997 (8)
10.9 --- Forward Treasury Lock Agreement (notional amount of
$75,000,000) between the Operating Partnership and
J.P. Morgan Securities, Inc. dated as of September
22, 1997 and amended on December 17, 1997 (9)
10.10 --- Forward Treasury Lock Agreement (notional amount of
$75,000,000) between the Operating Partnership and
J.P. Morgan Securities, Inc. dated as of September
22, 1997 and amended on February 11, 1998 (9)
10.11 --- Forward Treasury Lock Agreement (notional amount of
$25,000,000) between the Operating Partnership and
J.P. Morgan Securities, Inc. dated as of December
17, 1997 (9)
10.12 --- Forward Treasury Lock Agreement (notional amount of
$25,000,000) between the Operating Partnership and
J.P. Morgan Securities, Inc. dated as of December
17, 1997 and amended on February 11, 1998 (9)
10.13 --- Loan Application and Commitment Agreement between
Teachers Insurance and Annuity Association of America
("lender") and the Operating Partnership and
Gables-Tennessee Properties (the "Tennessee
Partnership")(collectively, the borrower) for a
$130,689,000 loan (10)
10.14 --- Loan Agreement, Conversion and Note Agreement,
Security Deed Note and Deed of Trust Notes between
Teachers Insurance and Annuity Association of
America ("lender")and the Operating Partnership and
the Tennessee Partnership(collectively, the borrower)
for a $130,689,000 loan, dated December 29, 1995 (11)
10.15 --- First Amendment to Conversion and Note Agreement
effective December 30, 1996 between the Operating
Partnership, the Tennessee Partnership, the Company
and Teachers Insurance and Annuity Association of
America (8)
10.16 --- Second Amendment to Conversion and Note Agreement
effective August 13, 1997 between the Operating
Partnership, the Tennessee Partnership, the Company
and Teachers Insurance and Annuity Association of
America (8)
10.17 --- Unsecured Note No. 1 for $86,346,000 date August 13,
1997 between the Operating Partnership, the Tennessee
Partnership and Teachers Insurance and Annuity
Association of America (8)
10.18 --- Unsecured Note No. 2 for $29,681,000 dated August
13, 1997 between the Operating Partnership, the
Tennessee Partnership and Teachers Insurance and
Annuity Association of America (8)
Page-37
Exhibit No. Description
- ---------- -----------
10.19 --- $175,000,000 Credit Agreement dated as of March 28,
1996 among the Operating Partnership (as Borrower)
and Wachovia Bank of Georgia, N.A., First Union
National Bank of Georgia, Guaranty Federal Bank,
AmSouth Bank of Alabama, and Commerzbank AG,
Atlanta Agency (collectively, as Lenders) and
Wachovia Bank of Georgia, N.A. (as Agent)(12)
10.20 --- Guaranty Agreement dated as of March 28, 1996
among Gables GP, Inc., the Company and the
Tennessee Partnership in favor of the Agent, for
the ratable benefit of the Lenders, under the
$175,000,000 Credit Agreement dated as of March 28,
1996 (12)
10.21 --- First Amendment to the $175,000,000 Credit Agreement
dated as of November 22, 1996 among the Operating
Partnership and the Lenders (7)
10.22 --- Second Amendment to the $175,000,000 Credit Amendment
dated as of March 18, 1997 among the Operating
Partnership and the Lenders (7)
10.23 --- $175,000,000 Amended and Restated Credit Agreement
dated as of August 5, 1997 among the Operating
Partnership and the Lenders (8)
10.24 --- $45,820,180 Letter of Credit Facility Reimbursement
Agreement dated as of October 1, 1997 among the
Operating Partnership (as Borrower), and Wachovia
Bank, N.A., Guaranty Federal Bank, F.S.B. and
AmSouth Bank of Alabama (as Lenders) and Wachovia
Bank, N.A. (as Agent) (8)
10.25 --- $40,000,000 Term Loan Credit Agreement dated as of
November 20, 1996 between the Operating Partnership
(as Borrower) and Wachovia Bank of Georgia, N.A.
(as Agent and Lender) (7)
10.26 --- First Amendment to the $40,000,000 Term Loan Credit
Agreement dated as of August 5, 1997 between the
Operating Partnership and Wachovia Bank of Georgia,
N.A. (8)
10.27 --- Promissory Note dated November 29, 1994 for a
$53,000,000 mortgage loan from the Northwestern
Mutual Life Insurance Company to the Operating
Partnership (6)
21.1 * --- Schedule of Subsidiaries of the Operating Partnership
23.1 * --- Consent of Arthur Andersen LLP
27.1 * --- Financial Data Schedule for the fiscal year ended
December 31, 1997
27.2 * --- Financial Data Schedule for the fiscal year ended
December 31, 1996, the three months ended March 31,
1997, the six months ended June 30, 1997 and the
nine months ended September 30, 1997
- --------------------------
* Filed herewith
(1) The Operating Partnership's Registration Statement on Form 10/A-1
(2) The Company's Registration Statement on Form S-11 (File No. 33-70570), as
amended
(3) The Company's Current Report on Form 8-K dated July 24, 1997
(4) The Company's Registration Statement on Form 8-A/A-2
(5) The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1993
(6) The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1994
(7) The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996
(8) The Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1997
(9) The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997
(10) The Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1995
(11) The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995
(12) The Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996
Gables Residential Trust's proxy statement is to be filed with the Commission on
or about March 31, 1998.
14(B) REPORTS ON FORM 8-K
A Form 8-K dated November 24, 1997 was filed with the Commission with the
required financial information regarding the acquisition of certain apartment
communities.
14(C) EXHIBITS
See Item 14(a)(3) above.
Page-38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Gables GP, Inc., as general partner of Gables Realty
Limited Partnership, certifies that it has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
GABLES REALTY LIMITED PARTNERSHIP
By: Gables GP, Inc.
Its: General Partner
By: /s/ Marcus E. Bromley
--------------------------------
Marcus E. Bromley, Chairman
of the Board of Directors and
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of Gables GP, Inc., as
general partner of Gables Realty Limited Partnership, and in the capacities and
on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Marcus E. Bromley Chairman of the Board of Directors March 25, 1998
- ------------------------ and President
Marcus E. Bromley (Principal Executive Officer)
/s/ Marvin R. Banks, Jr. Chief Financial Officer (Principal Financial March 25, 1998
- ------------------------ Officer and Principal Accounting Officer)
Marvin R. Banks, Jr.
/s/ John T. Rippel President, Chief Operating Officer March 25, 1998
- ------------------------ and Director
John T. Rippel
/s/ David M. Holland Director March 25, 1998
- ------------------------
David M. Holland
/s/ Lauralee E. Martin Director March 25, 1998
- ------------------------
Lauralee E. Martin
/s/ John W. McIntyre Director March 25, 1998
- ------------------------
John W. McIntyre
/s/ D. Raymond Riddle Director March 25, 1998
- ------------------------
D. Raymond Riddle
Page-39
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Gables Realty Limited Partnership:
We have audited the accompanying consolidated balance sheets of Gables Realty
Limited Partnership and subsidiaries as of December 31, 1997 and 1996 and the
related consolidated statements of operations, partners' capital and cash flows
for the years ended December 31, 1997, 1996 and 1995. These financial statements
and schedule are the responsibility of the management of Gables Realty Limited
Partnership. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Gables Realty
Limited Partnership and subsidiaries as of December 31, 1997 and 1996 and the
results of their operations and their cash flows for the years ended December
31, 1997, 1996 and 1995, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Atlanta, Georgia
March 6, 1998
Page-40
GABLES REALTY LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Per Unit Amounts)
December 31,
1997 1996
-------- ---------
ASSETS:
Real estate assets:
Land ....................................................................... $ 150,894 $102,762
Buildings ................................................................... 770,305 558,569
Furniture, fixtures and equipment ........................................... 60,015 45,830
Construction in progress .................................................... 53,240 74,690
Land held for future development ............................................ 21,774 2,749
--------- --------
Real estate assets before accumulated depreciation ....................... 1,056,228 784,600
Less: accumulated depreciation ............................................. (98,236) (74,903)
--------- --------
Net real estate assets .................................................... 957,992 709,697
Cash and cash equivalents ...................................................... 3,179 4,385
Restricted cash ................................................................ 4,498 8,430
Deferred charges, net of accumulated amortization of $2,735 and
$3,328 at December 31, 1997 and 1996, respectively ........................... 4,194 5,412
Other assets, net .............................................................. 11,304 31,736
--------- ---------
Total assets .............................................................. $ 981,167 $ 759,660
========= =========
LIABILITIES AND PARTNERS' CAPITAL:
Notes payable .................................................................. $ 435,362 $ 390,321
Accrued interest payable ....................................................... 1,999 1,811
Common distributions payable ................................................... 0 11,194
Preferred distributions payable................................................. 424 0
Real estate taxes payable ...................................................... 13,568 9,785
Accounts payable and accrued expenses - construction ........................... 8,505 6,218
Accounts payable and accrued expenses - operating .............................. 5,552 5,455
Security deposits .............................................................. 2,260 1,968
-------- --------
Total liabilities ......................................................... 467,670 426,752
-------- --------
Limited partners' capital interest (4,056 and 3,528 common Units),
at redemption value ......................................................... 110,866 98,482
-------- --------
Commitments and contingencies
Partners' capital:
Preferred partners (4,600 and 0 preferred Units), at $25.00
liquidation preference ..................................................... 115,000 0
General partner (260 and 228 common Units) ................................... 3,907 3,245
Limited partner (21,730 and 19,089 common Units) ............................. 283,724 231,181
--------- ---------
Total partners' capital ..................................................... 402,631 234,426
--------- ---------
Total liabilities, limited partners' capital interest and partner's capital $ 981,167 $ 759,660
========= =========
<FN>
The accompanying notes are an integral part of these balance sheets.
</FN>
Page-41
GABLES REALTY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Per Unit Amounts)
Years ended December 31,
1997 1996 1995
------ ------ ------
Rental revenues .................................................... $ 132,371 $ 104,543 $ 72,703
Other property revenues ............................................ 6,322 4,928 3,268
------- ------- -------
Total property revenues ....................................... 138,693 109,471 75,971
------- ------- -------
Property management - third party .................................. 2,173 2,960 3,324
Property management - related party ................................ 859 911 965
------- ------- -------
Total property management revenues ............................... 3,032 3,871 4,289
Non-recurring Olympic revenues, net ................................ 0 900 0
Other .............................................................. 1,713 1,939 1,500
------- ------- -------
Total other revenues .......................................... 4,745 6,710 5,789
------- ------- -------
Total revenues ................................................ 143,438 116,181 81,760
------- ------- -------
Property operating and maintenance (exclusive of items shown
separately below) ............................................. 47,592 38,693 28,228
Depreciation and amortization ...................................... 25,194 18,892 12,669
Amortization of deferred financing costs ........................... 992 1,348 932
Property management - owned ........................................ 3,364 2,824 2,170
Property management - third/related party .......................... 2,332 2,793 3,178
General and administrative ......................................... 3,248 3,045 2,869
Interest ........................................................... 24,804 21,112 13,088
Credit enhancement fees ............................................ 509 576 710
Loss on treasury lock extension .................................... 1,178 0 0
-------- ------- -------
Total expenses ................................................ 109,213 89,283 63,844
-------- ------- -------
Income before equity in income of joint ventures and interest income 34,225 26,898 17,916
Equity in income of joint ventures ................................. 320 280 64
Interest income .................................................... 371 363 389
-------- ------- -------
Income before gain on sale of real estate assets ................... 34,916 27,541 18,369
Gain on sale of real estate assets ................................. 5,349 0 0
-------- ------- -------
Income before extraordinary loss ................................... 40,265 27,541 18,369
Extraordinary loss ................................................. (712) (631) (955)
-------- ------- -------
Net income ......................................................... 39,553 26,910 17,414
Dividends to preferred unitholders ................................. (4,163) 0 0
-------- ------- -------
Net income available to common unitholders ......................... $ 35,390 $ 26,910 $ 17,414
======== ======= =======
Weighted average number of common Units outstanding - basic ........ 23,441 20,194 14,644
Weighted average number of common Units outstanding - diluted ...... 23,591 20,283 14,660
PER COMMON UNIT INFORMATION:
Income before extraordinary loss - basic ........................... $ 1.54 $ 1.36 $ 1.25
Extraordinary loss - basic ......................................... ($ 0.03) ($ 0.03) ($ 0.06)
Net income - basic ................................................. $ 1.51 $ 1.33 $ 1.19
Income before extraordinary loss - diluted ......................... $ 1.53 $ 1.35 $ 1.25
Extraordinary loss - diluted ....................................... ($ 0.03) ($ 0.03) ($ 0.07)
Net income - diluted ............................................... $ 1.50 $ 1.32 $ 1.18
<FN>
The accompanying notes are an integral part of these statements.
</FN>
Page-42
GABLES REALTY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(Amounts in Thousands, Except Per Unit Amounts)
Limited
Total Partners'
General Limited Preferred Partners' Capital
Partner Partner Partners Capital Interest
------- ------- -------- ------- --------
BALANCE, DECEMBER 31, 1994 ................................. $ 1,792 $ 91,174 $ 0 $ 92,966 $ 67,188
Proceeds of 4,600 common share offering, net of under-
writing discounts and issuance costs of $6,261 .......... 944 93,420 0 94,364 0
Proceeds from Share Builder Plan ......................... 2 175 0 177 0
Filing costs for Share Builder Plan, Profit Sharing
Plan and $200,000 shelf registration statement ......... (2) (235) 0 (237) 0
Contribution related to land acquisition ................. 24 (24) 0 0 2,437
Net income ............................................... 174 13,382 0 13,556 3,858
Distributions paid ($1.38 per Unit) ...................... (190) (14,406) 0 (14,596) (4,415)
Distributions declared ($0.48 per Unit) .................. (89) (7,199) 0 (7,288) (1,589)
Adjustment to reflect limited partners' redeemable capital
at redemption value at balance sheet date ............... (78) (7,757) 0 (7,835) 7,835
------- ------- ------ ------- --------
BALANCE, DECEMBER 31, 1995 ................................. 2,577 168,530 0 171,107 75,314
Proceeds of 4,039 common share offerings, net of under-
writing discounts and issuance costs of $3,302 .......... 935 92,549 0 93,484 0
Proceeds from exercise of share options .................. 14 1,416 0 1,430 0
Proceeds from Share Builder Plan ......................... 0 32 0 32 0
Filing costs for $300,000 shelf registration statement ... (1) (96) 0 (97) 0
Contribution related to apartment community acquisition .. 57 (57) 0 0 5,697
Conversion of redeemable Units to common shares .......... 25 2,516 0 2,541 (2,541)
Net income ............................................... 269 22,112 0 22,381 4,529
Distributions paid ($1.45 per Unit) ...................... (298) (24,603) 0 (24,901) (4,874)
Distributions declared ($0.49 per Unit) .................. (112) (9,353) 0 (9,465) (1,729)
Adjustment to reflect limited partners' redeemable capital
at redemption value at balance sheet date ............... (221) (21,865) 0 (22,086) 22,086
------- ------- ------ -------- -------
BALANCE, DECEMBER 31, 1996 ................................. 3,245 231,181 0 234,426 98,482
Proceeds from exercise of share options .................. 31 3,090 0 3,121 0
Proceeds from Share Builder Plan ......................... 0 60 0 60 0
Proceeds of 2,437 common share offerings, net of under-
writing discounts and issuance costs of $3,463 .......... 625 61,892 0 62,517 0
Proceeds of 4,600 preferred share offering ............... (40) (3,969) 115,000 110,991 0
Contributions related to property acquisitions ........... 147 (147) 0 0 14,725
Issuance of shares for trustee compensation .............. 0 25 0 25 0
Conversion of redeemable Units to common shares .......... 5 528 0 533 (533)
Net income ............................................... 354 29,535 0 29,889 5,501
Issuance of share grants, net of deferred compensation ... 12 1,178 0 1,190 0
Distributions paid ($1.98 per Unit) ...................... (474) (39,659) 0 (40,133) (7,297)
Adjustment to reflect limited partners' redeemable capital
at redemption value at balance sheet date ............... 2 10 0 12 (12)
------- ------- ------- ------- --------
BALANCE, DECEMBER 31, 1997 ................................. $ 3,907 $ 283,724 $ 115,000 $ 402,631 $ 110,866
======= ======= ======= ======= ========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
Page-43
GABLES REALTY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands, Except Per Unit Amounts)
Years Ended December 31,
1997 1996 1995
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................... $ 39,553 $ 26,910 $ 17,414
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ............................. 26,186 20,240 13,601
Equity in income of joint ventures ........................ (320) (280) (64)
Gain on sale of real estate assets ........................ (5,349) 0 0
Long-term compensation expense ............................ 574 408 0
Loss on treasury lock extension ........................... 1,178 0 0
Extraordinary loss ........................................ 712 631 955
Change in operating assets and liabilities:
Restricted cash ......................................... 4,616 (2,366) (1,695)
Other assets ............................................ (1,055) (282) (260)
Other liabilities, net .................................. 3,424 6,368 (863)
--------- -------- --------
Net cash provided by operating activities .......... 69,519 51,629 29,088
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase and construction of real estate assets .............. (241,585) (194,886) (148,475)
Investment in mortgage note receivable ....................... 0 (21,505) 0
Net proceeds from sale of real estate assets ................. 13,174 3,968 0
Long-term land lease payments ................................ (1,000) (1,500) 0
Distributions received from joint ventures ................... 442 327 241
-------- ------- -------
Net cash used in investing activities ................... (228,969) (213,596) (148,234)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common share offerings, net of issuance costs .. 62,517 93,484 94,364
Proceeds from preferred share offering, net of issuance costs. 110,991 0 0
Payment of filing costs for shelf registration statement ..... 0 (97) (237)
Proceeds from the exercise of share options .................. 3,121 1,430 0
Share Builder Plan contributions ............................. 61 32 177
Payments of deferred financing costs ......................... (440) (1,668) (1,777)
Notes payable proceeds ....................................... 233,849 282,569 281,597
Notes payable repayments ..................................... (188,808) (178,507) (224,643)
Principal escrow deposits .................................... (684) (768) (652)
Preferred distributions paid ................................. (3,739) 0 0
Common distributions paid ($2.47, $1.93 and $1.83 per Unit) .. (58,624) (38,652) (25,210)
-------- -------- --------
Net cash provided by financing activities ............... 158,244 157,823 123,619
-------- -------- --------
Net change in cash and cash equivalents ...................... (1,206) (4,144) 4,473
Cash and cash equivalents, beginning of period ............... 4,385 8,529 4,056
-------- -------- --------
Cash and cash equivalents, end of period ..................... $ 3,179 $ 4,385 $ 8,529
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest .................................. $ 29,777 $ 24,749 $ 20,669
Interest capitalized .................................... 5,161 4,373 7,481
-------- -------- --------
Cash paid for interest, net of amounts capitalized ...... $ 24,616 $ 20,376 $ 13,188
======== ======== ========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
Page-44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Thousands, Except Property and Per Unit Information
- ---------------------------------------------------------------
1. ORGANIZATION AND FORMATION OF THE OPERATING PARTNERSHIP
Gables Realty Limited Partnership (the "Operating Partnership") is the entity
through which Gables Residential Trust (the "Company"), a self-administered and
self-managed real estate investment trust (a "REIT"), conducts substantially all
of its business and owns (either directly or through subsidiaries) substantially
all of its assets. In 1993, the Company was formed under Maryland law and the
Operating Partnership was organized as a Delaware limited partnership to
continue and to expand the multifamily apartment community management,
development, construction and acquisition operations of its privately owned
predecessor organization. The term "Gables Residential Group" or "Group" as used
herein refers to the privately owned predecessor organization prior to the
Company's initial public offering in January, 1994 (the "IPO") and the
concurrent completion of the transactions that occured simultaneously therewith
(the "Formation Transactions"). The term "Operating Partnership" or "Gables" as
used herein means Gables Realty Limited Partnership and its subsidiaries on a
consolidated basis, or, where the context so requires, Gables Realty Limited
Partnership only. The Operating Partnership's third party management businesses
are conducted through two subsidiaries, Central Apartment Management, Inc., a
Texas corporation, and East Apartment Management, Inc., a Georgia corporation
(each, a "Management Company").
The Company was an 84.4% economic owner of the Operating Partnership as of
December 31, 1997 (excluding the Company's direct or indirect ownership of 100%
of the Operating Partnership's Series A Preferred Units). The Company controls
the Operating Partnership through Gables GP, Inc. ("GGPI"), a wholly-owned
subsidiary of the Company and the sole general partner of the Operating
Partnership (this structure is commonly referred to as an umbrella partnership
REIT or "UPREIT"). The board of directors of GGPI, the members of which are the
same as the members of the Board of Trustees of the Company, manages the affairs
of the Operating Partnership by directing the affairs of GGPI. The Company's
limited partner and indirect general partner interests in the Operating
Partnership entitle it to share in cash distributions from, and in the profits
and losses of, the Operating Partnership in proportion to its ownership interest
therein and entitle the Company to vote on all matters requiring a vote of the
limited partners.
The other limited partners of the Operating Partnership are persons who
contributed their direct or indirect interests in certain properties to the
Operating Partnership primarily in connection with the Formation Transactions.
The Operating Partnership is obligated to redeem each unit of limited
partnership interest ("Unit") held by a person other than the Company, at the
request of the holder thereof, for cash equal to the fair market value of a
share of the Company's common shares of beneficial interest, par value $.01 per
share, at the time of such redemption, provided that the Company at its option
may elect to acquire any such Unit presented for redemption for one common share
or cash. The Company presently anticipates that it will elect to issue its
common shares to acquire Units presented for redemption, rather than paying
cash. Such limited partners' redemption rights are reflected in "limited
partners' capital interest" in the accompanying consolidated balance sheets at
the cash redemption amount at the balance sheet date. With each such redemption
the Company's percentage ownership interest in the Operating Partnership will
increase. In addition, whenever the Company issues common shares or preferred
shares of beneficial interest, par value $.01 per share, the Company is
obligated to contribute any net proceeds therefrom to the Operating Partnership
and the Operating Partnership is obligated to issue an equivalent number of
Units to the Company.
Distributions to holders of Units are made to enable distributions to be made to
the Company's shareholders under its dividend policy. Federal income tax laws
require the Company, as a REIT, to distribute 95% of its ordinary taxable
income. The Operating Partnership makes distributions to the Company to enable
it to satisfy this requirement.
As of December 31, 1997, Gables owned 59 completed multifamily apartment
communities comprising 17,816 apartment homes, of which 35 were developed and 24
were acquired by Gables, and an indirect 25% general partner interest in two
apartment communities developed by Gables comprising 663 apartment homes. One of
the completed communities comprising 273 apartment homes was in the lease-up
stage at December 31, 1997. Gables also owned five multifamily apartment
communities that were under construction at December 31, 1997 that are expected
to comprise 1,409 apartment homes upon completion. As of December 31, 1997,
Gables owned parcels of land for the future development of seven apartment
communities expected to comprise an estimated 1,792 apartment homes.
Additionally, Gables has contracts or options to acquire additional parcels of
land. There can be no assurance that Gables will acquire these land parcels,
however it is Gables' intent to develop an apartment community on each such land
parcel, if purchased.
Page-45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Thousands, Except Property and Per Unit Information
- ---------------------------------------------------------------
On February 18, 1998, Gables entered into contribution agreements with four
partnerships under common control pursuant to which Gables expects to acquire
four multifamily apartment communities comprising a total of 913 apartment homes
located in Houston, Texas. In connection with such acquisition, Gables will
assume approximately $28 million of indebtedness and issue Units valued at up to
approximately $21 million, of which approximately $2 million will be deferred
for up to two years.
On March 11, 1998, Gables entered into an agreement to acquire a multifamily
apartment community in Austin, Texas comprising 308 apartment homes.
Gables has entered into a Contribution Agreement with an effective date of March
16, 1998 (the "Contribution Agreement") to acquire the properties and operations
of Trammell Crow Residential South Florida ("TCR/SF"), which consist of up to 15
multifamily apartment communities (the "South Florida Communities") containing a
total of 4,197 apartment homes (assuming completion of three South Florida
Communities currently under construction), and all of TCR/SF's residential
construction and development and third party management activities in South
Florida (collectively, the "South Florida Transaction"). In consideration for
such properties and operations, the Company will (i) pay approximately $149.0
million in cash, (ii) assume approximately $135.9 million of tax-exempt debt and
(iii) issue Units valued at up to approximately $83.6 million, of which $12.5
million will be deferred until January 1, 2000. The South Florida Communities
are located in Palm Beach County, Broward County and Dade County and encompass
the metropolitan areas of Palm Beach, Ft. Lauderdale and Miami, respectively.
The South Florida Transaction is expected to be consummated in the second
quarter of 1998.
There can be no assurance that the acquisitions described above will close as
contemplated, or that the acquisitions will be consummated at all. Gables is
pursuing other acquisition opportunities in the ordinary course of business
which have not yet been, or may never be, put under contract.
2. SECONDARY OFFERINGS AND ISSUANCES OF OPERATING PARTNERSHIP UNITS
Secondary Common Share Offerings
- --------------------------------
Since the IPO, the Company has issued a total of 11,521 common shares in seven
offerings generating $260,241 in net proceeds which were contributed to the
Operating Partnership in exchange for an equal number of common Units and were
generally used (i) to reduce outstanding indebtedness under interim financing
vehicles utilized to fund Gables' development and acquisition activities and
(ii) for general working capital purposes including funding of future
development and acquisition activities.
Preferred Share Offering
- ------------------------
On July 24, 1997, the Company issued 4,600 shares of 8.30% Series A Cumulative
Redeemable Preferred Shares (liquidation preference $25.00 per share) (the
"Series A Preferred Shares"). The net proceeds from this offering of
approximately $111 million were contributed to the Operating Partnership in
exchange for an equal number of preferred Units with similar economic rights and
preferences and Gables used the net proceeds to reduce outstanding indebtedness
under the interim financing vehicles discussed above. The Series A Preferred
Shares, which may be redeemed by the Company at $25.00 per share, plus accrued
and unpaid dividends, on or after July 24, 2002, have no stated maturity,
sinking fund or mandatory redemption and are not convertible into any other
securities of the Company.
Additional Issuances of Operating Partnership Units
- ---------------------------------------------------
On December 5, 1995, Gables acquired a parcel of land for the development of an
apartment community, financed in part through the issuance of 111 Units. On July
26, 1996, Gables acquired an apartment community comprising 500 apartment homes,
financed in part through the issuance of 244 Units. On August 21, 1997, Gables
acquired an apartment community comprising 82 apartment homes, financed in part
through the issuance of 95 Units. On October 17, 1997, Gables acquired an
apartment community comprising 295 apartment homes, financed in part through the
issuance of 453 Units.
Page-46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Thousands, Except Property and Per Unit Information
- ---------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
- --------------------
Gables engages in the multifamily apartment community management, development,
construction, and acquisition businesses, including the provision of related
brokerage and corporate rental housing services. Gables' operating performance
relies predominantly on net operating income from the multifamily apartment
communities it owns which are located in seven core cities in Texas, Georgia,
and Tennessee. Gables recently entered an eighth market, Orlando, Florida,
through an association with a subsidiary of the Walt Disney Company, and in
connection therewith currently has two communities under development in Orlando.
Basis of Presentation
- ---------------------
The accompanying consolidated financial statements of Gables Realty Limited
Partnership include the consolidated accounts of Gables Realty Limited
Partnership and its subsidiaries. As a result of the structure of the business
combination, certain partners and owners of the entities in Gables Residential
Group received common shares of the Company and/or Units in the Operating
Partnership. Purchase accounting was applied to the acquisition of all
non-controlled interests. The acquisition of all other interests was accounted
for as a reorganization of entities under common control and, accordingly, was
reflected at historical cost in a manner similar to that in pooling of interests
accounting. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Real Estate Assets and Depreciation
- -----------------------------------
Real estate assets are stated at depreciated cost. The cost of buildings and
improvements includes interest, property taxes, insurance and allocated
development overhead incurred during the construction period. Ordinary repairs
and maintenance are expensed as incurred; major replacements and betterments are
capitalized and depreciated over their useful lives. Depreciation is computed on
a straight-line basis over the useful lives of the real estate assets (buildings
and improvements 19-40 years; furniture, fixtures and equipment 5-10 years).
Gables adopted Statement of Financial Accounting Standards No. 121 (FAS 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," effective January 1, 1996. FAS 121 established new standards
for determining when impairment losses on long-lived assets have occurred and
how impairment losses should be measured. There was no financial statement
impact resulting from the adoption of FAS 121. In addition, Gables has
determined that no impairment provision is necessary at December 31, 1997.
Other Assets
- ------------
Gables invested $21.5 million in an apartment community comprising 232 apartment
homes on October 1, 1996 via a mortgage note receivable. The note receivable and
related costs are included in other assets in the accompanying balance sheet at
December 31, 1996 and interest income earned thereon is included in other
revenues in the accompanying statement of operations for the year ended December
31, 1996. In January, 1997, Gables acquired the apartment community from the
borrower, and the mortgage note receivable was repaid in full.
Investment in Joint Ventures
- ----------------------------
Gables' 25% general partner interests in Arbors of Harbortown JV and
Metropolitan Apartments JV are accounted for on the equity method of accounting.
Page-47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Thousands, Except Property and Per Unit Information
- ---------------------------------------------------------------
Revenue Recognition
- -------------------
Rental: Gables leases its residential properties under operating leases
with terms generally equal to one year or less. Rental income is recognized when
earned which materially approximates revenue recognition on a straight-line
basis.
Property management: Gables provides property management services for
properties in which it does not own a controlling interest. Income is recognized
when earned.
Development and construction services: Gables periodically provides
development and construction services for properties in which it does not own a
controlling interest. Income is recognized when earned on a percentage of
completion basis.
Cash and Cash Equivalents
- -------------------------
For purposes of the statement of cash flows, all investments purchased with an
original maturity of three months or less are considered to be cash equivalents.
Restricted Cash
- ---------------
Restricted cash is primarily comprised of residential security deposits, tax
escrow funds, repairs and maintenance reserve funds, and principal escrow bond
funds.
Deferred Financing Costs and Amortization
- -----------------------------------------
Deferred financing costs include fees and costs incurred to obtain financing and
are capitalized and amortized over the terms of the related notes payable and
are written off upon the expiration thereof.
Interest Rate Protection Agreements
- -----------------------------------
Gables uses interest rate protection agreements in the form of "rate caps" and
"rate swaps" to manage its exposure to interest rate changes. These agreements
are considered hedges of Gables' borrowings. Upfront amounts paid to purchase
rate cap agreements are capitalized and amortized over the terms of the related
agreements and are written off upon the expiration thereof. Such amortization is
included in amortization of deferred financing costs in the accompanying
statements of operations. Monthly amounts paid or received under rate cap and
rate swap agreements are recognized as adjustments to interest expense.
Gables uses forward treasury lock agreements to lock-in its effective borrowing
rate for prospectve debt transactions. Payments made or received upon settlement
of such agreements that represent an effective hedge of a specific borrowing are
deferred and amortized as an adjustment to interest expense over the life of the
related debt instrument. To the extent a forward treasury lock agreement does
not represent an effective hedge of a specific borrowing, the settlement amount
is recorded as a gain or loss upon settlement. In December, 1997, Gables
extended its $75 million forward seven-year treasury lock agreement. On the
extension date, Gables would have paid $1,178 to settle the treasury lock
agreement had it not been extended. Such amount was recorded as a loss on
treasury lock extension in December, 1997 and Gables will use the market rate in
effect on the extension date as its "locked-in rate" for purposes of recording
interest expense over the life of the debt instrument the treasury lock was
originally intended to hedge. Gables currently expects that the debt transaction
for which the treasury lock was originally intended to hedge will be consummated
in 1998.
Property Management Expenses
- ----------------------------
Gables manages its owned properties, as well as properties owned by third and
related parties for which Gables provides services for a fee. Property
management expenses have been allocated between owned and third/related party
properties in the accompanying statements of operations based on the
proportionate number of owned and third/related party apartment homes managed by
Gables during the applicable periods.
Page-48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Thousands, Except Property and Per Unit Information
- ---------------------------------------------------------------
Income Taxes
- ------------
No federal or state income taxes are reflected in the accompanying financial
statements since Gables Realty Limited Partnership is a partnership and its
partners are required to include their respective share of profits and losses in
their income tax returns. Additionally, certain subsidiaries of Gables, formed
to provide management and other services to third and related parties, are taxed
based on reportable income. The tax attributes of these entities are immaterial
to the accompanying consolidated financial statements.
4. NOTES PAYABLE
Notes payable consist of the following:
December 31,
1997 1996
---- ----
Secured conventional fixed-rate $96,135 $219,046
Unsecured conventional fixed-rate 158,526 40,000
Tax-exempt fixed-rate 60,150 67,270
------- --------
Total fixed-rate 314,811 326,316
Tax-exempt variable-rate 44,930 44,930
Unsecured credit facilities 75,621 19,075
-------- --------
Total notes payable $435,362 $390,321
======== ========
Secured Conventional Fixed-Rate Notes Payable
- ---------------------------------------------
At December 31, 1996, the fixed-rate notes payable were comprised of thirteen
loans collateralized by fifteen apartment communities included in real estate
assets. At December 31, 1996, the interest rates on these notes payable ranged
from 7.00% to 8.77% (weighted average of 8.11%) and the maturity dates ranged
from September, 1997 through December, 2009.
In February, 1997, Gables repaid a $9,452 loan which was scheduled to mature in
September, 1997. In August, 1997, eight loans financed with Teachers Insurance
and Annuity Association totaling $116,027 (the "TIAA Loans") were converted from
secured to unsecured as a result of Gables' attainment of senior unsecured debt
ratings of BBB from Standard and Poor's and Baa2 from Moody's Investors Service
(the "Credit Ratings"). Accordingly, this indebtedness is included in the
unsecured conventional fixed-rate category at December 31, 1997. In August,
1997, Gables acquired an apartment community and assumed a $3,722 mortgage note
payable in connection with that acquisition.
At December 31, 1997, the fixed-rate notes payable are comprised of five loans
collateralized by seven apartment communities included in real estate assets. At
December 31, 1997, the interest rates on these notes payable ranged from 7.13%
to 8.77% (weighted average of 8.14%) and the maturity dates ranged from May,
2003 to December, 2020. Principal amortization payments are required on a
monthly basis for all notes payable based on amortization schedules ranging from
25 to 27 years.
Unsecured Conventional Fixed-Rate Notes Payable
- -----------------------------------------------
At December 31, 1996, the unsecured conventional fixed-rate indebtedness
represented a five-year $40,000 term loan with a maturity of November, 2001,
that bore interest at LIBOR plus 1.25%. In April, 1997, the borrowing costs on
this loan were reduced to LIBOR plus 1.10% in connection with the attainment of
the Credit Ratings. In August, 1997, the borrowing costs were renegotiated and
were reduced to LIBOR plus 0.80%. At December 31, 1997, this loan is effectively
fixed at an all-in rate of 6.15% after application of $40,000 of the $44,530
interest rate protection agreements discussed elsewhere herein.
In January, 1997, Gables acquired a parcel of land and assumed $2,646 of
indebtedness associated with that acquisition. Such indebtedness bears interest
at 6.10%, requires annual principal amortization payments over its 20 year term,
and has a maturity of October, 2016.
Page-49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Thousands, Except Property and Per Unit Information
- ---------------------------------------------------------------
In August, 1997, the eight TIAA Loans were converted into two unsecured notes
payable. The first such note payable for $86,346 bears interest at 8.30% and
matures in December, 2002. The second such note payable for $29,681 bears
interest at 8.62% and matures in December, 2007. Beginning February, 1998,
monthly principal amortization payments will be required for these notes payable
based on a 30 year amortization schedule.
Tax-Exempt Fixed-Rate Notes Payable
- -----------------------------------
At December 31, 1997 and 1996, the tax-exempt, fixed-rate indebtedness was
comprised of two and three loans, respectively. One such loan outstanding at
December 31, 1997 and 1996 has a principal balance of $48,365, and is
collateralized by three communities induced for tax-exempt financing and three
additional communities. Principal amortization payments based on a 30 year
amortization schedule are required on a monthly basis. These payments are
retained in an escrow account and are not applied to reduce the outstanding
principal balance of the loan. Principal payments through December 31, 1997 and
1996 are included in restricted cash in the accompanying balance sheets. The
note payable bears interest at 6.38% and matures in August, 2004. The three
underlying tax-exempt bond issues mature in August, 2024. The other two loans
outstanding at December 31, 1996 represented a $19,020 tax-exempt bond financing
secured by two apartment communities. Both bond issues were credit enhanced for
an annual fee of 0.60%. The bonds bear interest at a weighted average rate of
7.03% on a fixed basis for 30 years. Principal amortization payments are due in
January each year pursuant to the terms of the bond documents. Gables is
required to make monthly escrow payments each year totaling the annual principal
payment due to the bondholders in the month of January thereafter. Monthly
principal escrow payments are included in restricted cash until the January
payments are made. One of these loans, with an outstanding principal balance of
$6,975 at December 31, 1996, was economically defeased in January, 1997 in
connection with the sale of the property. The tax-exempt bonds contain certain
covenants which require minimum rentals to individuals based upon income levels
specified by U.S. government programs, as defined.
Tax-Exempt Variable-Rate Notes Payable
- --------------------------------------
At December 31, 1997 and 1996, the variable-rate mortgage notes payable securing
tax-exempt bonds were comprised of four loans, each of which is collateralized
by an apartment community included in real estate assets. The tax-exempt bonds
contain certain covenants which require minimum rentals to individuals based
upon income levels specified by U.S. government programs, as defined. These
bonds bear interest at a variable rate of interest, adjusted weekly based upon a
negotiated rate. The interest rate in effect at December 31, 1997 and 1996 was
4.2%. Tax-exempt variable rates are, and historically have been, significantly
higher at year-end than during the year. The effective interest rates were 3.7%,
3.5% and 3.9% for the years ended December 31, 1997, 1996 and 1995. The bonds
are currently secured by four letters of credit provided by a letter of credit
facility entered into in October, 1997. The fee for these letters of credit was
1.5% per annum through June 30, 1995, 1.25% per annum through March, 1996, 1.0%
through September, 1997 and is currently 0.95% per annum. The letter of credit
facility has an initial term of 5 years and has unlimited one-year extension
options. Three of the underlying bond issues mature in December, 2007 and the
fourth underlying bond issue matures in August, 2024.
$175 Million Credit Facility
- ----------------------------
In conjunction with the IPO, Gables closed a $175 million three-year revolving
credit facility (the "Original Credit Facility") which had an initial maturity
of January, 1997. In March, 1996, Gables closed a new $175 million unsecured
revolving credit facility (the "New Credit Facility" or "$175 Million Credit
Facility") that replaced the Original Credit Facility. Although the New Credit
Facility is unsecured, there were certain designated real estate assets that had
escrowed mortgages that were released promptly after the attainment of the
Credit Rating. The New Credit Facility has an initial term of three years and
three one-year extension options. Gables has exercised the first of its one-year
extension options resulting in a maturity date for the facility of March, 2000.
Borrowings bore interest at LIBOR plus 1.50% (reduced from 1.65% in November,
1996) through April, 1997. In April, 1997, Gables' borrowing costs under the
facility were reduced to LIBOR plus 1.10% in connection with the attainment of
the Credit Ratings. In August, 1997, Gables' borrowing costs were renegotiated
and were reduced to LIBOR plus 0.80%. Additionally, a competitive bid option was
added for up to 50% of the $175 million commitment.
Page-50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Thousands, Except Property and Per Unit Information
- ---------------------------------------------------------------
Gables' availability under the facility is limited to the lesser of the total
$175 million commitment or the borrowing base. The borrowing base available
under the facility is currently based on the value of Gables' unencumbered real
estate assets as compared to the amount of Gables' unsecured indebtedness. As of
December 31, 1997, Gables had $60.0 million in borrowings outstanding under the
facility and, therefore, had $115 .0 million of remaining capacity on the $175
million available commitment.
$20 Million Credit Facility
- ---------------------------
In November, 1996, Gables closed an unsecured revolving credit facility that
currently provides for up to $20 million in borrowings. This facility has an
initial term of one year and has unlimited one-year extension options. Gables
has exercised the first of its one-year extension options resulting in a
maturity date for the facility of October, 1998. Borrowings bore interest under
this facility at LIBOR plus 1.50% through April, 1997. In April, 1997, Gables'
borrowing costs were reduced to LIBOR plus 1.10% in connection with the
attainment of the Credit Ratings. In August, 1997, Gables' borrowing costs were
negotiated and were reduced to LIBOR plus 0.80%. As of December 31, 1997, Gables
had approximately $15.6 million in borrowings outstanding under this facility.
Restrictive Covenants
- ---------------------
Certain of the Gables' debt agreements contain customary representations,
covenants and events of default, including covenants which restrict the ability
of the Operating Partnership to make distributions in excess of stated amounts,
which in turn restricts the discretion of the Company to declare and pay
dividends. In general, during any fiscal year the Operating Partnership may only
distribute up to 95% of the Operating Partnership's consolidated income
available for distribution (as defined in the related agreement) exclusive of
distributions of capital gains for such year. The applicable debt agreements
contain exceptions to these limitations to allow the Operating Partnership to
make any distributions necessary to allow the Company to maintain its status as
a REIT. Gables does not anticipate that this provision will adversely effect the
ability of the Operating Partnership to make distributions or the Company to
declare dividends, as currently anticipated.
Maturities
- ----------
The aggregate maturities of notes payable at December 31, 1997 are as follows:
1998 $17,950
1999 2,596
2000 62,810
2001 43,046
2002 130,620
2003 and thereafter 178,340
-------
$435,362
=======
The debt maturities in 1998 include $15,621 of outstanding indebtedness under
the $20 Million Credit Facility which has unlimited one-year extension options.
The debt maturities in 2000 include $60,000 of outstanding indebtedness under
the $175 Million Credit Facility which has two remaining one-year extension
options. The debt maturities in 2002 include $44,930 of tax-exempt bond
indebtedness credit-enhanced through a letter of credit facility which has
unlimited one-year extension options. Three of the underlying bond issues mature
in December, 2007 and the fourth underlying bond issue matures in August, 2024.
Joint Venture Indebtedness
- --------------------------
The Arbors of Harbortown apartment community secures a $16.4 million tax-exempt
bond obligation, which is recourse to Gables up to $1.0 million (this amount is
fully cash-collateralized and is held by the Arbors of Harbortown JV), bears
interest at a variable low-floater rate, has a maturity date of April, 2013, and
is payable in monthly installments of interest only. The credit enhancement for
the bond obligation expires in May, 2001.
Page-51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Thousands, Except Property and Per Unit Information
- ---------------------------------------------------------------
The Metropolitan Uptown apartment community secures a conventional fixed-rate
loan with $17.9million outstanding at December 31, 1997, 25% of which has been
guaranteed by Gables. The loan has a maturity date of December 31, 2002 and
bears interest at a rate of 7.18%.
Interest Rate Protection Agreements
- -----------------------------------
Gables has five interest rate protection agreements in place at December 31,
1997, the current terms of which are discussed below:
Notional Strike Effective Termination
Description of Agreement Amount Price Date Date
------------------------ ------- ------ -------- ---------
LIBOR, 30-day - "Rate Cap" $44,530 6.25%(a) 01/27/94 01/30/99
LIBOR, 30-day - "Knock-out Rate Swap" $44,530 5.35%(a) 08/30/96 08/30/99 (b)
LIBOR, 30-day - "Knock-out Rate Swap" $25,000 5.76%(a) 02/27/98 02/27/00 (c)
Treasury, 7-year - "Treasury Lock" $75,000 6.18% 09/22/97 05/28/98
Treasury, 7-year - "Treasury Lock" $25,000 5.88% 12/17/97 05/28/98
(a) The 30-day LIBOR rate in effect at December 31, 1997 was 6.0%.
(b) This agreement fixes Gables' underlying 30-day LIBOR rate at 5.35% and
terminates upon the earlier to occur of (i) the termination date or (ii) a
rate reset date on which the 30-day LIBOR rate is 6.26% or higher.
(c) This agreement fixes Gables' underlying 30-day LIBOR rate at 5.76% and
terminates upon the earlier to occur of (i) the termination date or (ii) a
rate reset date on which the 30-day LIBOR rate is 6.70% or higher.
5. COMMITMENTS AND CONTINGENCIES
Office Leases
- -------------
Gables is party to office operating leases with various terms. Future minimum
lease payments and rent expense for such leases are not material.
Contingencies
- -------------
The various entities comprising Gables are subject to various legal proceedings
and claims that arise in the ordinary course of business. These matters are
generally covered by insurance. While the resolution of these matters cannot be
predicted with certainty, management believes that the final outcome of such
matters will not have a material adverse effect on the financial position or
results of operations of Gables.
6. EXTRAORDINARY LOSS
Extraordinary loss of $712 for the year ended December 31, 1997 represents (i)
the write-off of unamortized deferred financing costs and prepaid credit
enhancement fees associated with the defeasance of the tax-exempt bond financing
encumbering the Club Candlewood property that was sold in January, 1997 and (ii)
the write-off of unamortized deferred financing costs associated with the
February 28, 1997 retirement of a conventional mortgage note payable that was
scheduled to mature on September 1, 1997.
Extraordinary loss of $631 for the year ended December 31, 1996 represents the
write-off of unamortized deferred financing costs associated with the early
retirement of Gables' Original Credit Facility. The Original Credit Facility
that was scheduled to mature in January, 1997, was refinanced in March, 1996
with the New Credit Facility.
Extraordinary loss of $955 for the year ended December 31, 1995 represents the
write-off of unamortized deferred financing costs associated with the early
retirement of Gables' construction loans.
Page-52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Thousands, Except Property and Per Unit Information
- ---------------------------------------------------------------
7. EARNINGS PER UNIT
Basic earnings per Unit are computed based on net income available to common
unitholders and the weighted average number of common Units outstanding. Diluted
earnings per Unit reflect the assumed issuance of common Units under share
option and incentive plans. In February, 1997, the FASB issued SFAS No. 128,
"Earnings Per Share," which specifies the computation, presentation and
disclosure requirements for earnings per share. Gables adopted SFAS No. 128 for
the year ended December 31, 1997. All prior period earnings per Unit data were
restated to conform with the provisions of SFAS No. 128. The per Unit amounts
reported under SFAS No. 128 are not materially different from those calculated
and presented under APB Opinion No. 15.
The numerator and denominator used for both basic and diluted earnings per Unit
computations are as follows:
Years Ended December 31,
1997 1996 1995
-------- -------- --------
BASIC AND DILUTED INCOME AVAILABLE TO
COMMON UNITHOLDERS (NUMERATOR):
Income before extraordinary loss $36,102 $27,541 $18,369
Extraordinary loss (712) (631) (955)
Net income 35,390 26,910 17,414
COMMON UNITS (DENOMINATOR):
Average Units outstanding - basic 23,441 20,194 14,644
Incremental Units from assumed
conversions of stock options 150 89 16
-------- -------- --------
Average Units outstanding - diluted 23,591 20,283 14,660
======== ======== ========
8. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Disclosure about the estimated fair value of financial instruments is based on
pertinent information available to management as of December 31, 1997. Such
amounts have not been comprehensively revalued for purposes of these financial
statements since that date and current estimates of fair value may differ
significantly from the amounts presented herein.
Cash equivalents
- ----------------
Gables estimates that the fair value of cash equivalents approximates carrying
value due to the relatively short maturity of these instruments.
Notes payable
- -------------
Gables estimates that the fair value of notes payable approximates carrying
value based upon its effective current borrowing rate for issuance of debt with
similar terms and remaining maturities.
Interest rate protection agreements
- -----------------------------------
The estimated fair value and the net carrying value of the $44,530 interest rate
cap agreement at December 31, 1997 is $31 and $186, respectively. The estimated
fair value of the two interest rate swap agreements is $404 at December 31,
1997. The estimated fair value for these agreements is based on the value of
cash flows arising in the difference in the strike price per the agreements and
projected LIBOR rates over the remaining term of these agreements.
The estimated fair value of the $75,000 and $25,000 forward seven-year treasury
lock agreements at December 31, 1997 is ($1,717) and ($136), respectively. In
December, 1997, the $75,000 treasury lock agreement was extended, and a loss of
$1,178 was accrued as of December 31, 1997. The estimated fair value for these
agreements is based on the difference between the seven-year treasury rate in
effect on December 31, 1997 and the locked-in rate per the agreements.
Page-53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Thousands, Except Property and Per Unit Information
- ---------------------------------------------------------------
9. PROFIT SHARING PLAN
Eligible employees of Gables may participate in a profit sharing plan pursuant
to Section 401(k) of the Internal Revenue Code. Under the plan, employees may
defer a portion of their salary on a pre-tax basis. Gables also has the
discretion to make matching contributions, currently equal to 50% of an
employee's first 4% salary deferral contribution. Expenses under this plan for
the years ended December 31, 1997, 1996 and 1995 were not material.
During January, 1996, the Company added the Gables Residential Trust Stock Fund
(the "Fund") as an investment option for the plan. The Fund is comprised of
common shares of the Company. In connection therewith, 100 common shares were
registered for issuance under the plan. The plan trustee will purchase common
shares of the Company for the Fund, at the direction of the plan investment
committee, either on the open market or directly from the Company.
10. DIVIDENDS AND SHARE BUILDER PLAN
The Operating Partnership has declared and paid distributions for the years
ended December 31, 1997, 1996 and 1995 as follows:
Per Share Distributions
-----------------------
First Qtr. to Fourth
Year Fourth Qtr. Qtr.
---- --------- ------
1997 $1.98 $0.50 (a)
1996 1.94 0.49 (b)
1995 1.86 0.48 (b)
(a) The fourth quarter distributions in 1997 were declared and paid in
December.
(b) The fourth quarter distributions for each year denoted were declared in
December of the related year and were paid in the January thereafter.
In 1995, the Company implemented its Share Builder Plan, a dividend reinvestment
and share purchase program that provides its shareholders a method, without
brokerage commissions or service charges, of investing cash dividends or
optional cash payments in additional common shares. Under the plan, shareholders
may elect to reinvest dividends in additional common shares at a 2% discount to
the then current market price of common shares and may purchase additional
common shares for cash (up to $20 per quarter) at 100% of the then current
market price.
11. 1994 SHARE OPTION AND INCENTIVE PLAN
The Company adopted the 1994 Share Option and Incentive Plan (the "Plan") to
provide incentives to officers, employees and non-employee trustees. The Plan
provides for the grant of options to purchase a specified number of common
shares ("Options") or the grant of restricted or unrestricted common shares
("Restricted Shares" or "Unrestricted Shares"). Under the Plan, as amended, the
total number of shares available for grant is 8% of the total number of common
shares and Units (other than common shares or Units held by the Company or its
subsidiaries) outstanding at any time, and the number of common shares which may
be issued as Restricted Shares or Unrestricted Shares is equal to 50% of the
number of shares available for issuance under the Plan at such time. The
Operating Partnership will issue a Unit for each common share of the Company
issued under the Plan.
To date, Options have been granted in two series during each of 1994, 1995, 1996
and 1997 with an exercise price equal to the fair value of the Company's common
shares on the dates the Options were granted. The Options granted are generally
exercisable in installments over three years beginning one year after the date
of grant. At December 31, 1997, 937 common shares are subject to outstanding
Options granted to officers, employees and trustees of the Company, of which
Options to purchase approximately 550 shares are currently exercisable.
The total number of common shares reserved for issuance under the Plan at
December 31, 1997 is 2,084, which is equal to 8% of the total number of common
shares and Units outstanding at that time.
Page-54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Thousands, Except Property and Per Unit Information
- ---------------------------------------------------------------
A summary of the Options activity for the years ended December 31, 1997, 1996
and 1995 is as follows:
1997 1996 1995
---- ---- ----
Balance, beginning of year 904 773 678
Granted 235 270 110
Forfeited (55) (72) (15)
Exercised (147) (67) 0
----- ----- -----
Balance, end of year 937 904 773
===== ===== =====
Option prices:
Granted $25.000- $25.50 $22.750- $23.00 $19.125 - $20.375
Forfeited 19.500- 25.50 19.500- 22.75 19.500 - 22.500
Exercised 19.500- 22.75 19.500- 22.50 N/A
Balance, end of year 19.125- 25.50 19.125- 23.00 19.125 - 22.500
Gables accounts for stock options issued under the Plan in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees," under which no
compensation cost has been recognized, since all options have been granted with
an exercise price equal to the fair value of the Company's common shares on the
date of grant. Had compensation cost for these plans been determined consistent
with Statement of Financial Accounting Standards No. 123 (FAS 123) "Accounting
for Stock-Based Compensation," the Operating Partnership's net income and
earnings per Unit would have been reduced to the following pro forma amounts:
1997 1996 1995
---- ---- ----
Net income available to
common unitholders: As Reported $35,390 $26,910 $17,414
Pro Forma 35,130 26,762 17,370
Basic earnings per Unit: As Reported 1.51 1.33 1.19
Pro Forma 1.50 1.33 1.19
Diluted earnings per Unit: As Reported 1.50 1.32 1.18
Pro Forma 1.49 1.32 1.18
Because the FAS 123 method of accounting has not been applied to options granted
prior to January 1, 1995, the resulting pro forma compensation cost may not be
representative of that to be expected in future years.
The weighted average fair value of options granted is $2.14, $1.91 and $1.45 for
1997, 1996 and 1995, respectively. The fair value of each option grant as of the
date of grant has been estimated using the Black-Scholes option pricing models
with the following weighted-average assumptions for grants in 1997, 1996 and
1995, respectively: risk free interest rates of 6.45%, 6.44% and 6.42%; expected
lives of 3.91, 4.90 and 6.64; dividend yields of 7.99%, 8.43% and 8.94%, and
expected volatility of 18%, 19% and 19%.
On February 21, 1997, the Company granted 23 Unrestricted Shares and 46
Restricted Shares (collectively, the "1997 Share Grants") to certain officers
and employees of Gables. The 1997 Share Grants were awarded based on the closing
price of the Company's common shares on February 21, 1997 of $25.875. Gables had
accrued $595 as of December 31, 1996 equal to the value of the Unrestricted
Shares. The Restricted Shares vest in two equal annual installments beginning on
January 1, 1998. Upon issuance of the Share Grants, the $1,784 value of the 1997
Share Grants was recorded in partners' capital and the approximate $1,189 value
of the Restricted Shares was recorded as a reduction to partners' capital as
deferred compensation. Such deferred compensation is being amortized ratably
over the two-year vesting period.
On February 12, 1998, the Company granted 13 Unrestricted Shares and 40
Restricted Shares (collectively, the "1998 Share Grants") to certain officers
and employees of Gables. The 1998 Share Grants were awarded based on the closing
price of the Company's common shares on February 12, 1998 of $26.6875. Gables
has accrued approximately $350 as of December 31, 1997 equal to the value of the
Unrestricted Shares. The Restricted Shares vest in three equal annual
Page-55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Thousands, Except Property and Per Unit Information
- ---------------------------------------------------------------
installments beginning on January 1, 1999. Upon issuance of the Share Grants in
1998, the approximate $1,400 value of the Share Grants will be recorded in
partners' capital and the approximate $1,050 value of the Restricted Shares will
be recorded as a reduction to partners' capital as deferred compensation. Such
deferred compensation will be amortized ratably over the three-year vesting
period.
12. QUARTERLY FINANCIAL INFORMATION (Unaudited)
Quarterly financial information for the years ended December 31, 1997 and 1996
is as follows:
Year Ended December 31, 1997
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- -------- --------- --------
Total revenues $32,232 $33,741 $36,893 $40,572
Gain on sale of real estate assets 4,858 0 491 0
Loss on treasury lock extension 0 0 0 (1,178)
Income before extraordinary loss 12,310 7,925 10,594 9,436
Extraordinary loss (712) 0 0 0
Net income 11,598 7,925 10,594 9,436
Net income available to common unitholders 11,598 7,925 8,819 7,048
Basic earnings per common Unit:
Income before extraordinary loss 0.54 0.34 0.38 0.28
Net income 0.51 0.34 0.38 0.28
Diluted earnings per common Unit:
Income before extraordinary loss 0.53 0.34 0.38 0.28
Net income 0.50 0.34 0.38 0.28
Year Ended December 31, 1996
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- -------- --------- --------
Total revenues $24,442 $28,143 $31,768 $31,828
Non-recurring Olympic revenues, net 0 230 670 0
Income before extraordinary loss 6,326 6,549 7,005 7,661
Extraordinary loss (631) 0 0 0
Net income 5,695 6,549 7,005 7,661
Basic earnings per common Unit:
Income before extraordinary loss 0.34 0.34 0.35 0.33
Net income 0.31 0.34 0.35 0.33
Diluted earnings per common Unit:
Income before extraordinary loss 0.33 0.34 0.35 0.33
Net income 0.30 0.34 0.35 0.33
Page-56
GABLES REALTY LIMITED PARTNERSHIP SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
Gross Amount at Which Year
Initial Costs Costs Cap- Carried at Close of Period Construction/
Number of Related ------------- italized Sub- ------------------------ Substantial Acqui-
Apartment Encum- Bldg.and sequent to Bldg.and Accum. Renovation Year sition
Apartment Description Homes brances Land Improvement Acquisition Land Improvement Total Deprec. Complete Acquired Comments
- --------------------- -------- ------- ---- ----------- ----------- ---- ----------- ----- ------- -------- -------- --------
Completed Communities:
- ----------------------
HOUSTON, TEXAS
Baybrook Village ............ 776 $ -- $2,875 $17,479 $3,223 $ 2,875 $20,702 $23,577 $4,936 1981 1990 (3)
Gables Bradford Place ....... 372 -- 2,072 0 15,375 2,072 15,375 17,447 2,959 1991 1990 (4)
Gables Bradford Pointe ...... 360 7,637(1) 1,660 0 9,694 1,660 9,694 11,354 2,508 1990 1989 (4)
Gables Champions ............ 404 -- 3,463 19,038 133 3,463 19,171 22,634 214 1995 1997 (3)
Gables CityPlaza ............ 246 -- 2,889 0 10,476 2,889 10,476 13,365 991 1995 1994 (4)
Gables Cityscape ............ 252 9,100 4,313 0 12,665 4,313 12,665 16,978 2,336 1991 1990 (4)
Gables CityWalk/Waterford Sq. 317 11,528 4,246 3,441 12,050 5,055 14,682 19,737 3,006 1990/85 1989/92 (4),(3)
Gables Edgewater ............ 292 -- 1,607 0 11,441 1,838 11,210 13,048 2,337 1990 1990 (4)
Gables Meyer Park ........... 345 -- 3,398 0 13,679 3,418 13,659 17,077 2,370 1993 1992 (4)
Gables of First Colony ...... 324 -- 2,607 19,875 111 2,607 19,986 22,593 167 1996 1997 (3)
Gables Piney Point .......... 246 10,965(2) 2,794 0 10,868 2,794 10,868 13,662 1,495 1994 1992 (4)
Gables Pin Oak Green ........ 582 -- 7,511 28,543 351 7,511 28,894 36,405 1,700 1990 1996 (3)
Gables Pin Oak Park ......... 477 -- 6,234 23,288 288 6,234 23,576 29,810 1,393 1992 1996 (3)
Gables River Oaks ........... 228 -- 4,935 16,200 430 4,935 16,630 21,565 920 1993 1996 (3)
Rivercrest .................. 140 3,403(1) 500 3,706 1,043 582 4,667 5,249 1,287 1982 1987 (3)
Westhollow Park ............. 412 -- 2,000 5,790 2,899 2,000 8,689 10,689 2,037 1978-79 1990 (4)
ATLANTA, GEORGIA
Briarcliff Gables ........... 104 -- 1,322 0 6,505 1,322 6,505 7,827 570 1995 1994 (4)
Buckhead Gables ............. 162 -- 2,978 993 3,731 2,978 4,724 7,702 661 1964/94 1993 (3),(5)
Dunwoody Gables ... ......... 311 -- 3,567 0 14,295 3,567 14,295 17,862 1,067 1995 1994 (4)
Gables Cinnamon Ridge........ 200 -- 1,500 6,239 474 1,500 6,713 8,213 889 1980 1994 (3)
Gables Cityscape ............ 192 -- 2,250 5,750 767 2,250 6,517 8,767 1,028 1989 1994 (3)
Gables Mill ................. 438 -- 6,570 22,381 386 6,570 22,767 29,337 462 1988 1997 (3)
Gables Northcliff ........... 82 3,704 1,230 5,366 97 1,230 5,463 6,693 69 1978 1997 (3)
Gables Over Peachtree........ 263 -- 2,644 8,400 9,522 2,644 17,922 20,566 1,468 1970/96 1995 (3),(5)
Gables Vinings .............. 315 -- 3,679 0 20,547 3,718 20,508 24,226 312 1997 1995 (4)
Gables Walk ................. 310 -- 4,650 22,667 59 4,650 22,726 27,376 192 1997 1997 (3)
Gables Wood Arbor ........... 140 7,130 915 0 6,079 915 6,079 6,994 1,972 1987 1985 (4)
Gables Wood Crossing......... 268 11,650 1,605 0 12,339 1,605 12,339 13,944 4,591 1985-86 1983 (4)
Gables Wood Glen ............ 380 9,387(1) 1,323 0 16,510 1,487 16,346 17,833 5,499 1983 1983 (4)
Gables Wood Knoll ........... 312 7,744(1) 1,865 10,856 1,921 1,865 12,777 14,642 3,049 1984 1990 (6)
Lakes at Indian Creek........ 603 11,785 1,400 9,100 3,704 1,391 12,813 14,204 2,463 1969-72 1993 (3)
Rock Springs Estates......... 295 -- 11,822 7,932 29 11,822 7,961 19,783 61 1945, 1997 (3)
87,92
Roswell Gables I ............ 384 -- 3,231 0 18,180 3,231 18,180 21,411 1,476 1995 1994 (4)
Roswell Gables II ........... 284 -- 3,275 0 18,005 3,313 17,967 21,280 183 1997 1996 (4)
Spalding Gables.............. 252 -- 2,292 0 13,908 2,292 13,908 16,200 1,071 1995 1994 (4)
Wildwood Gables.............. 546 27,173(2) 4,810 1,100 22,198 4,810 23,298 28,108 3,742 1972/ 1991 (3),(5)
92-93
DALLAS, TEXAS
Arborstone .................. 536 -- 1,022 7,815 1,642 1,022 9,457 10,479 1,393 1985 1993 (3)
Gables at Pearl Street....... 108 -- 1,680 0 7,486 1,680 7,486 9,166 694 1995 1994 (4)
Gables CityPlace ............ 232 -- 4,914 16,511 147 4,914 16,658 21,572 520 1995 1997 (3)
Gables Green Oaks ........... 300 -- 737 0 15,704 737 15,704 16,441 783 1996 1994 (4)
Gables Mirabella ............ 126 -- 1,917 10,722 61 1,917 10,783 12,700 152 1996 1997 (3)
Gables Preston .............. 126 -- 1,056 0 7,839 1,056 7,839 8,895 625 1995 1994 (4)
Gables Spring Park........... 188 -- 901 0 11,375 901 11,375 12,276 750 1996 1994 (4)
Gables Turtle Creek.......... 150 -- 2,181 11,001 47 2,181 11,048 13,229 487 1995 1996 (3)
Gables Valley Ranch.......... 319 14,247(2) 1,899 0 14,721 1,899 14,721 16,620 1,798 1994 1993 (4)
Page-57
GABLES REALTY LIMIED PARTNERSHIP SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
Gross Amount at Which Year
Initial Costs Costs Cap- Carried at Close of Period Construction/
Number of Related ------------- italized Sub- ------------------------ Substantial Acqui-
Apartment Encum- Bldg.and sequent to Bldg.and Accum. Renovation Year sition
Apartment Description Homes brances Land Improvement Acquisition Land Improvement Total Deprec. Complete Acquired Comments
- --------------------- -------- ------- ---- ----------- ----------- ---- ----------- ----- ------- -------- -------- --------
Completed Communities:
- ----------------------
MEMPHIS, TENNESSEE
Gables Cordova ............. 464 $10,487(1)$1,865 0 $24,231 $1,865 $24,231 $26,096 $7,648 1986 1985 (4)
Gables Germantown .......... 252 -- 1,478 0 18,430 1,478 18,430 19,908 676 1997 1994 (4)
Gables Quail Ridge ......... 238 -- 1,053 0 16,109 1,053 16,109 17,162 585 1997 1994 (4)
Gables Stonebridge ......... 500 19,419 2,312 23,674 954 2,312 24,628 26,940 1,285 1993-96 1996 (3)
NASHVILLE, TENNESSEE
Brentwood Gables ........... 254 -- 849 0 15,690 849 15,690 16,539 994 1996 1994 (4)
Gables Hendersonville ...... 364 9,706(1) 1,182 0 14,801 1,237 14,746 15,983 3,359 1991 1989 (4)
Gables Hickory Hollow I 272 12,750 974 0 12,521 974 12,521 13,495 4,802 1988 1985 (4)
Gables Hickory Hollow II ... 276 13,400 1,027 0 12,539 1,027 12,539 13,566 5,221 1987 1985 (4)
SAN ANTONIO, TEXAS
Gables Colonnade I ......... 312 -- 1,616 0 13,734 1,616 13,734 15,350 1,209 1995 1994 (4)
Gables Wall Street ......... 232 -- 1,223 0 11,410 1,223 11,410 12,633 873 1996 1994 (4)
AUSTIN, TEXAS
Gables Central Park ........ 273 -- 0 0 15,986 0 15,986 15,986 280 1997 1996 (4),(7)
Gables Great Hills ......... 276 -- 1,475 0 10,277 1,475 10,277 11,752 1,541 1993 1992 (4)
Gables Park Mesa ........... 148 -- 2,072 10,331 137 2,072 10,468 12,540 116 1992 1997 (3)
Gables Town Lake ........... 256 -- 0 0 13,728 0 13,728 13,728 964 1996 1994 (4),(7)
------- ------- -------- ------- --------- ------- ------- ------- ----
Category Total ............17,816 $201,215 $149,465 $318,198 $513,551 $150,894 $830,320 $981,214 $98,236
======= ======== ======== ======== ======= ======= ======= ======= ======
DEVELOPMENT COMMUNITIES:
ATLANTA, GEORGIA
Gables at Sugarloaf ....... 386 -- 3,249 0 7,511 3,249 7,511 10,760 0 1999(8) 1996 (4)
AUSTIN, TEXAS
Gables Bluffstone ......... 256 -- 2,129 0 14,217 2,129 14,217 16,346 0 1998(8) 1996 (4)
HOUSTON, TEXAS
Gables New Territory....... 256 -- 1,338 0 3,806 1,338 3,806 5,144 0 1998(8) 1997 (4)
ORLANDO, FLORIDA
Gables Celebration ........ 231 -- 3,235 0 4,704 3,235 4,704 7,939 0 1998(8) 1997 (4)
The Commons at Little
Lake Bryan I ........ 280 -- 2,477 0 10,574 2,477 10,574 13,051 0 1998(8) 1996 (4)
----- ----- ------- ----- ------- ------- ------- ------- ------
Category Total ............ 1,409 0 $12,428 $0 $40,812 $12,428 $40,812 $53,240 $0
===== ===== ======= ===== ======= ======= ======= ======= ======
LAND HELD FOR FUTURE DEVELOPMENT:
ATLANTA, GEORGIA
Gables Metropolitan I and II 720 -- 12,452 0 0 12,452 0 12,452 0 (9) 1997 (4)
DALLAS, TEXAS
Gables Green Oaks II ....... 250 -- 606 0 0 606 0 606 0 (9) 1994 (4)
Gables State Thomas ........ 202 -- 4,120 0 0 4,120 0 4,120 0 (9) 1997 (4)
Gables at the Galleria ..... 222 -- 2,800 0 0 2,800 0 2,800 0 (9) 1997 (4)
SAN ANTONIO, TEXAS
Gables Colonnade II ........ 250 -- 1,549 0 (353) 1,196 0 1,196 0 (9) 1994 (4)
MEMPHIS, TENNESSEE
Gables Quail Ridge II ...... 148 -- 600 0 0 600 0 600 0 (9) 1996 (4)
------ ------ ------- ----- ------ ------- ------- ------- ------
Category Total .............1,792 $ 0 $22,127 $0 ($353) $21,774 $0 $21,774 $0
====== ====== ======= ===== ======= ======= ======= ======= ======
GRAND TOTALS ........... 21,017 $201,215 $184,020 $318,198 $554,010 $185,096 $871,132 $1,056,228 $98,236
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Page-58
<FN>
SCHEDULE III
GABLES REALTY LIMITED PARTNERSHIP
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
Notes to preceding two pages:
(1) These properties together secure a $48,365 tax-exempt fixed rate mortgage
note payable. The principal balance outstanding under the note has been
allocated to these properties proportionately based on each property's 1997
net operating income (equal to total property revenues less property
operating and maintenance expenses, exclusive of depreciation expense).
(2) These properties together secure a $52,385 conventional fixed rate mortgage
note payable. The principal balance outstanding under the note has been
allocated to these properties proportionately based on each property's 1997
net operating income (equal to total property revenues less property
operating and maintenance expenses, exclusive of depreciation expense).
(3) Acquisition of existing apartment community.
(4) Acquisition of land for development.
(5) Property was substantially renovated following acquisition.
(6) Property was developed by Gables, sold and subsequently reacquired through
foreclosure.
(7) Land subject to a long-term lease.
(8) Represents the year in which construction is expected to be completed.
(9) The development timetable has not yet been determined for these
communities.
Depreciation is calculated on a straight line basis over an estimated useful
life ranging from 19 to 40 years for buildings and improvements and an estimated
useful life ranging from 5 to 10 years for furniture, fixtures and equipment.
A summary of activity for real estate investments and accumulated depreciation
is as follows:
</FN>
Years ended December 31
-----------------------
1997 1996 1995
---- ---- ----
REAL ESTATE INVESTMENTS:
Balance, beginning of year ...................................... $ 784,600 $ 591,233 $ 437,782
Additions:
Acquisitions, including renovation expenditures ............... 179,346 128,472 18,727
Development costs incurred, including related land acquisitions 96,551 65,867 131,725
Capital expenditures for completed communities ................ 4,878 3,854 2,999
--------- -------- --------
Total additions ............................................. 280,775 198,193 153,451
Sales ........................................................... (9,147) (4,826) 0
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Balance, end of year ............................................ $ 1,056,228 $ 784,600 $ 591,233
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ACCUMULATED DEPRECIATION:
Balance, beginning of year ...................................... $ 74,903 $ 57,343 $45,010
Depreciation .................................................... 24,655 18,457 12,333
Sales ........................................................... (1,322) (897) 0
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Balance, end of year ............................................ $98,236 $ 74,903 $57,343
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