FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNESEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-24920
ERP OPERATING LIMITED PARTNERSHIP
(Exact Name of Registrant as Specified in Its Charter)
ILLINOIS 36-3894853
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
TWO NORTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
(Address of Principal Executive Offices) (Zip Code)
(312) 474-1300
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X_X_ No -- --___
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
JUNESeptember 30, DECEMBERDecember 31,
2000 1999
----------- ---------------------------- -----------------
ASSETS
Investment in real estate
Land $ 1,534,8121,543,454 $ 1,550,378
Depreciable property 10,462,30910,296,305 10,670,550
Construction in progress 28,75530,093 18,035
----------- -----------
12,025,876----------------- -----------------
11,869,852 12,238,963
Accumulated depreciation (1,208,331)(1,273,394) (1,070,487)
----------- ---------------------------- -----------------
Investment in real estate, net of accumulated depreciation 10,817,54510,596,458 11,168,476
Real estate held for disposition 55,997224,553 12,868
Cash and cash equivalents 237,06656,242 29,117
Investment in mortgage notes, net 81,77779,690 84,977
Investments in unconsolidated joint ventures 270,391 140,284
Rents receivable 1,4081,611 1,731
Deposits - restricted 150,579263,661 111,270
Escrow deposits - mortgage 73,00873,186 75,328
Deferred financing costs, net 31,78430,343 33,968
Rental furniture, net 59,069 -
Property and equipment, net 7,664 -
Goodwill and other intangibles, net 70,844 -
Other assets 297,579 197,954
----------- -----------87,150 57,670
----------------- -----------------
TOTAL ASSETS $11,746,743 $11,715,689
=========== ===========$ 11,820,862 $ 11,715,689
================= =================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage notes payable, net $ 2,987,9213,017,449 $ 2,883,583
Notes, net 2,289,6802,121,118 2,290,285
LineLines of credit -33,631 300,000
Accounts payable and accrued expenses 119,214149,892 102,955
Accrued interest payable 47,18269,995 44,257
Rents received in advance and other liabilities 71,50977,126 74,196
Security deposits 39,07740,946 39,687
Distributions payable 127,594138,821 18,813
----------- ---------------------------- -----------------
TOTAL LIABILITIES 5,682,1775,648,978 5,753,776
----------- ---------------------------- -----------------
COMMITMENTS AND CONTINGENCIES
Minority Interests - Partially Owned Properties 2,8912,903 -
----------- ---------------------------- -----------------
Partners' capital:
Junior Convertible Preference Units 7,896 7,896
----------- ---------------------------- -----------------
Cumulative Convertible Redeemable Preference Interests 127,000177,000 40,000
----------- ---------------------------- -----------------
Cumulative Convertible or Redeemable Preference Units 1,193,0531,189,959 1,310,266
----------- ---------------------------- -----------------
General Partner 4,334,6324,389,402 4,194,668
Limited Partners 399,094404,724 409,083
----------- ---------------------------- -----------------
Total General Partner and Limited Partners capital 4,733,7264,794,126 4,603,751
----------- ---------------------------- -----------------
TOTAL PARTNERS' CAPITAL 6,061,6756,168,981 5,961,913
----------- ---------------------------- -----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $11,746,743 $11,715,689
=========== ===========$ 11,820,862 $ 11,715,689
================= =================
SEE ACCOMPANYING NOTES
2
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER OP UNIT DATA)
(UNAUDITED)
SIXNINE MONTHS ENDED QUARTER ENDED
JUNESEPTEMBER 30, JUNESEPTEMBER 30,
-------------------------- ------------------------------------------------------ ----------------------------
2000 1999 2000 1999
-------------------------- ------------------------------------------------------ ----------------------------
REVENUES
Rental income $952,740 $819,178 $479,193 $413,116$ 1,454,958 $ 1,243,958 $ 502,218 $ 424,780
Fee and asset management 2,632 2,414 1,334 1,1804,711 3,432 1,876 1,018
Interest income-investment in mortgage notes 5,499 5,644 2,737 2,7498,282 8,502 2,783 2,858
Income from investments in unconsolidated joint ventures 14,589 7,042 5,525 2,691
Interest and other income 17,652 11,123 9,849 5,177
-------- -------- -------- --------19,009 10,613 10,624 3,841
Furniture income 14,228 - 14,228 -
------------ ------------ ------------- ------------
Total revenues 978,523 838,359 493,113 422,222
-------- -------- -------- --------1,515,777 1,273,547 537,254 435,188
------------ ------------ ------------- ------------
EXPENSES
Property and maintenance 227,845 196,865 113,977 99,818368,291 300,798 140,446 103,933
Real estate taxes and insurance 95,001 84,515 46,667 42,467141,830 126,304 46,829 41,789
Property management 37,760 27,973 18,846 13,77256,204 42,817 18,444 14,844
Fee and asset management 2,102 1,624 1,036 7573,647 2,301 1,545 677
Depreciation 224,512 197,134 112,626 100,233335,844 297,505 111,332 100,371
Interest:
Expense incurred 190,263 158,499 95,152 79,302285,337 241,516 95,074 83,017
Amortization of deferred financing costs 2,703 1,661 1,362 8164,063 2,773 1,360 1,112
General and administrative 13,216 10,714 6,518 4,947
-------- -------- -------- --------19,439 15,736 6,223 5,022
Furniture operating costs 9,505 - 9,505 -
Amortization of goodwill and other intangibles 767 - 767 -
------------ ------------ ------------- ------------
Total expenses 793,402 678,985 396,184 342,112
-------- -------- -------- --------1,224,927 1,029,750 431,525 350,765
------------ ------------ ------------- ------------
Income before gain on disposition of properties, net,
extraordinary item, and allocation to Minority Interests,
185,121 159,374 96,929 80,110and provision for income taxes 290,850 243,797 105,729 84,423
Gain on disposition of properties, net 87,652 45,807 67,654 24,391205,121 64,315 117,469 18,508
Loss on early extinguishment of debt - (451) - (451)-
Allocation to Minority Interests - Partially Owned Properties 157145 - 112(12) -
-------- -------- -------- --------Provision for income taxes (518) - (518) -
------------ ------------ ------------- ------------
Net income $272,930 $204,730 $164,695 $104,050
======== ======== ======== ========$ 495,598 $ 307,661 $ 222,668 $ 102,931
============ ============ ============= ============
ALLOCATION OF NET INCOME:
Junior Convertible Preference Units $ 218327 $ -240 $ 110109 $ -
======== ======== ======== ========240
============ ============ ============= ============
Cumulative Convertible Redeemable Preference Interests $ 3,6676,900 $ -36 $ 2,4983,233 $ -
======== ======== ======== ========36
============ ============ ============= ============
Cumulative Convertible or Redeemable Preference Units $ 51,76976,370 $ 57,111 24,65884,842 $ 27,734
======== ======== ======== ========24,601 $ 27,731
============ ============ ============= ============
General Partner $198,144 $133,105 $125,393 $ 68,928376,176 $ 200,989 $ 178,032 $ 67,884
Limited Partners 19,132 14,514 12,036 7,388
-------- -------- -------- --------35,825 21,554 16,693 7,040
------------ ------------ ------------- ------------
Net income available to OP Unit holders $217,276 $147,619 $137,429 $ 76,316
======== ======== ======== ========
Weighted average OP Units outstanding - basic 140,850 132,826 141,436 133,478
======== ======== ======== ========412,001 $ 222,543 $ 194,725 $ 74,924
============ ============ ============= ============
Net income per OP Unit - basic $ 1.542.91 $ 1.111.67 $ 0.971.35 $ 0.57
======== ======== ======== ========0.56
============ ============ ============= ============
Net income per OP Unit - diluted $ 1.542.88 $ 1.111.66 $ 0.961.33 $ 0.57
======== ======== ======== ========0.55
============ ============ ============= ============
Weighted average OP Units outstanding - basic 141,818 133,490 143,732 134,993
============ ============ ============= ============
SEE ACCOMPANYING NOTES
3
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
SIXNINE MONTHS ENDED
JUNESEPTEMBER 30,
----------------------------------
2000 1999
----------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 272,930495,598 $ 204,730307,661
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Allocation to Minority Interests - Partially Owned Properties (157)(145) -
Depreciation 224,512 197,134335,844 297,505
Amortization of deferred financing costs 2,703 1,6614,063 2,773
Amortization of goodwill and other intangibles 767 -
Amortization of discounts and premiums on debt (1,153) (1,172)(1,725) (1,746)
Amortization of deferred settlements on interest rate protection agreements 246 513290 768
Equity from earnings of investments in unconsolidated joint ventures (459) (3,092)
Gain on disposition of properties, net (87,652) (45,807)(205,121) (64,315)
Compensation paid with Company Common Shares 2,8454,300 -
Provision for income taxes 518 -
Book value of furniture sales and rental buyouts 4,802 -
CHANGES IN ASSETS AND LIABILITIES:
Decrease in rents receivable 535 3,428
(Increase)44 2,480
Decrease (increase) in deposits - restricted (3,510) (4,342)3,660 (4,344)
(Increase) decrease in other assets (1,808) 51,052(7,285) 41,030
Increase in accounts payable and accrued expenses 16,769 6,93639,186 32,010
Increase (decrease) in accrued interest payable 818 (1,176)22,612 16,439
(Decrease) increase in rents received in advance and other liabilities (5,378) 6,411
(Decrease)(10,273) 7,727
Increase (decrease) in security deposits (803) (1,577)
--------- ---------14 (1,735)
--------------- ---------------
Net cash provided by operating activities 420,897 417,791
--------- ---------686,690 633,161
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate, net (143,680) (200,613)(238,218) (469,585)
Improvements to real estate (58,360) (55,783)(100,347) (93,456)
Additions to non-real estate property (2,399) (3,640)(3,919) (5,922)
Additions to rental furniture (7,477) -
Investment in property and equipment (416) -
Interest capitalized for real estate under construction (480) (943)(827) (1,157)
Proceeds from disposition of real estate, net 219,409 125,150416,603 197,125
Principal receipts on investment in mortgage notes 3,200 2,1595,287 2,746
Investment in unconsolidated joint ventures, net (119,893) (77,641)
Proceeds from disposition of unconsolidated joint ventures, net 4,602 54,060
(Increase) decrease in deposits on real estate acquisitions, net (35,854) 2,961(154,711) (55,201)
Decrease (increase) in mortgage deposits 2,283 (4,750)
Decrease in mortgage deposits 2,461 131
Investment in joint ventures, net (84,875) (44,314)
Investment in limited partnerships and other, net (449)receivables - Proceeds from disposition of Unconsolidated Properties, net 4,400 -7,150
Purchase of management contract rights (779) (285)
Costs related to Mergers (4,261) (4,002)Business combinations, net of cash acquired (61,754) -
Merger costs paid after initial business combinations (9,474) (4,598)
Other investing activities, net (11,827) 603
--------- ---------(2,950) (15,075)
--------------- ---------------
Net cash (used for) investing activities (113,494) (178,576)
--------- ---------(271,990) (466,589)
--------------- ---------------
SEE ACCOMPANYING NOTES
4
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
SIXNINE MONTHS ENDED
JUNESEPTEMBER 30,
-----------------------------------
2000 1999
-----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan and bond acquisition costs $ (2,005)(2,392) $ (2,055)(8,423)
MORTGAGE NOTES PAYABLE:
Proceeds, net 378,318 62,885389,051 188,569
Lump sum payoffs (104,484)(119,412) (54,231)
Scheduled principal payments (14,126) (8,400)(19,930) (13,041)
NOTES, NET:
Proceeds - 298,014
Payoffs -(208,000) (125,000)
LINES OF CREDIT:
Proceeds 162,000 689,000209,305 959,000
Repayments (462,000) (894,000)
Loss on early extinguishment of debt - 451(505,179) (1,159,000)
Proceeds from settlement of interest rate protection agreements 7,055 -
Capital contributions from General Partner, net 13,983 29,61924,653 34,215
Proceeds from the sale of preference units/interests, net 84,825 -133,575 39,000
DISTRIBUTIONS:
General and Limited Partners (107,078) (94,326)(216,036) (189,931)
Preference units/interests (55,444) (57,111)(80,412) (84,979)
Minority Interests - Partially Owned Properties (617) -
Principal receipts on employee notes, net 119 95254 144
Principal receipts on other notes receivable, net - 7,375
--------- ---------510 7,931
--------------- ---------------
Net cash (used for) financing activities (99,454) (147,684)
--------- ---------(387,575) (107,732)
--------------- ---------------
Net increase in cash and cash equivalents 207,949 91,53127,125 58,840
Cash and cash equivalents, beginning of period 29,117 3,965
--------- ------------------------ ---------------
Cash and cash equivalents, end of period $ 237,06656,242 $ 95,496
========= =========62,805
=============== ===============
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $ 190,854264,582 $ 161,277
========= =========
Transfers to226,234
=============== ===============
Mortgage loans assumed and/or entered into through acquisitions of real estate held for disposition $ 55,99738,442 $ 32,844
========= =========69,885
=============== ===============
Net real estate contributed in exchange for OP Units or Junior
Convertible Preference Units $ 6364,707 $ 14,183
========= =========
Mortgage loans assumed and/or entered into through acquisitions of real estate $ - $ 58,320
========= =========28,232
=============== ===============
Mortgage loans assumed by purchaser in real estate dispositions $(220,000)$ (220,000) $ -
========= ======================== ===============
Transfers to real estate held for disposition $ 224,553 $ 13,457
--------------- ---------------
Refinancing of mortgage notes payable in favor of notes, net $ - $ 75,790
========= =========--------------- ---------------
Mortgage loans assumed through consolidation of Partially Owned Properties $ 65,095 $ -
========= ======================== ===============
Net liabilities assumed through consolidation of Partially Owned Properties $ 792 $ -
========= ======================== ===============
SEE ACCOMPANYING NOTES
5
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DEFINITION OF SPECIAL TERMS:
Capitalized terms used but not defined in this Quarterly Report on Form
10-Q are as defined in the Operating Partnership's Annual Report on Form 10-K
for the year ended December 31, 1999 ("Form 10-K").
1. BUSINESS
ERP Operating Limited Partnership (the "Operating Partnership"), an
Illinois limited partnership, was formed to conduct the multifamily residential
property business of Equity Residential Properties Trust ("EQR"). EQR is a
Maryland real estate investment trust ("REIT") formed on March 31, 1993 and is
the general partner of the Operating Partnership. As used herein, the term
"Company" means EQR, and its subsidiaries, as the survivor of the mergers
between EQR and each of Wellsford Residential Property Trust ("Wellsford") (the
"Wellsford Merger"), Evans Withycombe Residential, Inc. ("EWR") (the "EWR
Merger"), Merry Land & Investment Company, Inc ("MRY") (the "MRY Merger"), and
Lexford Residential Trust ("LFT") ("the LFT Merger"). The term "Company" also
includes Globe Business Resources, Inc. ("Globe") (the "Globe Merger") and
Temporary Quarters, Inc. ("TQ") (the "TQ" Merger).
The Operating Partnership is engaged in the acquisition, disposition,
ownership, management and operation of multifamily properties. As of JuneSeptember
30, 2000, the Operating Partnership owned or had interests in a portfolio of
1,0531,056 multifamily properties containing 224,383222,699 apartment units (individually a
"Property" and collectively the "Properties") consisting of the following:
Number of Number of
Properties Units
---------------------------------- ---------------- -----------------
Wholly Owned Properties 951 206,783953 204,610
Partially Owned Properties 14 2,995
Unconsolidated Properties 88 14,60589 15,094
---------------- -----------------
Total Properties 1,053 224,3831,056 222,699
================ =================
The "Partially Owned Properties" are controlled and partially owned by
the Operating Partnership but have partners with minority interests (see further
discussion in Notes 34 and 4)5). The "Unconsolidated Properties" are partially
owned but not controlled by the Operating Partnership and consist of investments
in partnership interests and/or subordinated mortgages.mortgages that are accounted for
under the equity method of accounting. The Properties are located in 35 states
throughout the United States.
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("Statement No. 133").
Statement No. 133 requires recording all derivative instruments as assets or
liabilities, measured at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the
hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized
in earnings. The ineffective portion of a derivative's change in fair value
will be immediately recognized in earnings. The standard's effective date was
deferred by FASB Statement No. 137 to all fiscal quarters of all fiscal years
beginning after June 15, 2000. The Operating Partnership will adopt the
standard effective January 1, 2001, and does not anticipate that the adoption
will have a material impact on the Operating Partnership's financial
condition and results of operations.
6
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. BASIS OF PRESENTATION
The balance sheet and statements of operations and cash flows as of
and for the sixnine months and quarter ended JuneSeptember 30, 2000 represent the
consolidated financial information of the Operating Partnership and its
subsidiaries.
Due to the Operating Partnership's ability to control either through
ownership or by contract a series of management limited partnerships and
companies (collectively, the "Management Partnerships" or the "Management
Companies"), the Financing Partnerships, the LLC's, Globe and certain other
entities, each such entity has been consolidated with the Operating Partnership
for financial reporting purposes. In regard to the Management Companies, the
Operating Partnership does not have legal control; however, these entities are
consolidated for financial reporting purposes, the effects of which are
immaterial. Certain reclassifications have been made to the prior year's
financial statements in order to conform to the current year presentation.
6
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Minority interests represented by EQR's indirect 1% interest in various
Financing Partnerships and LLCs are immaterial and have not been accounted for
in the Consolidated Financial Statements. In addition, certain amounts due from
EQR for its 1% interest in the Financing Partnerships has not been reflected in
the Consolidated Balance Sheets since such amounts are immaterial to the
Consolidated Balance Sheets.
These unaudited Consolidated Financial Statements of the Operating
Partnership have been prepared pursuant to the Securities and Exchange
Commission ("SEC") rules and regulations and should be read in conjunction with
the Financial Statements and Notes thereto included in the Operating
Partnership's Annual Report on Form 10-K. The following Notes to Consolidated
Financial Statements highlight significant changes to the notes included in the
Form 10-K and present interim disclosures as required by the SEC. The
accompanying Consolidated Financial Statements reflect, in the opinion of
management, all adjustments necessary for a fair presentation of the interim
financial statements. All such adjustments are of a normal and recurring nature.
3. BUSINESS COMBINATIONS
On July 11, 2000, the Company acquired Globe in an all cash and debt
transaction. Globe provides fully furnished short-term housing through an
inventory of leased housing units to transferring or temporarily assigned
corporate personnel, new hires, trainees, consultants and individual
customers throughout the United States. Additionally, Globe rents and sells
furniture to a diversified base of commercial and residential customers
throughout the United States. Shareholders of Globe received $13.00 per
share, which approximated $58.7 million in cash based on the 4.5 million
Globe shares outstanding. In addition, the Company:
- Acquired $94.8 million in other Globe assets and assumed $29.2 million
in other Globe liabilities;
- Allocated $68.0 million to goodwill and $0.4 million to intangible
assets, representing the estimated fair value of existing covenants
not to compete at the merger date;
- Recorded merger costs of $4.5 million; and
- Assumed $70.8 million in debt, which included $1.4 million in mortgage
debt, $39.9 million in unsecured notes, and Globe's line of credit
totaling $29.5 million.
On July 21, 2000, the Company, through its Globe subsidiary,
acquired TQ, the leading corporate housing provider in Atlanta, Georgia, in a
$3.3 million all cash transaction.
7
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Company accounted for both the Globe Merger and the
TQ Merger as purchases in accordance with Accounting Principals Board Opinion
No. 16. Significant accounting policies relating to corporate housing and
furniture rental/sales are as follows:
RENTAL FURNITURE
Rental furniture is stated at cost and depreciated on a straight-line
basis at a rate of 1% per month, which is designed to approximate an estimated
useful life of four years with provision for a 50% residual value.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation expense is
provided on a straight-line basis over estimated useful lives of three to ten
years.
GOODWILL AND OTHER INTANGIBLES
Goodwill is amortized on a straight-line basis over a period of 20
years. Other intangibles are amortized on a straight-line basis over periods
ranging from 3 to 5 years. The Company periodically reviews goodwill and
other intangibles for impairment. If a permanent decline in value has
occurred, such impairment would be calculated based on discounted cash flows.
Accumulated amortization of goodwill and other intangibles was $0.8 million
at September 30, 2000.
REVENUE RECOGNITION
Leased housing unit rentals vary in terms from a few days to several
months. Leases of furniture generally have an initial term of three to six
months in duration and can be extended by the customer on a month-to-month
basis. Leased housing unit rentals and furniture rentals are accounted for as
operating leases, and revenue is recorded in the month earned. For sales of
furniture, as well as rental buyouts, revenue and related cost of sales are
recorded when the furniture is delivered or taken off lease. Revenues from both
furniture rentals and sales are included in furniture income while the
associated costs of those rentals and sales are included in furniture operating
costs in the consolidated statements of operations.
INCOME TAXES
In accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", deferred taxes are provided for all differences
between the financial statement basis and the tax basis of assets and
liabilities using the enacted tax rate. A valuation allowance is provided for
deferred tax assets, which are more likely than not unrealizable.
4. PARTNERS' CAPITAL
The following table presents the changes in the Operating Partnership's
issued and outstanding OP Units for the sixnine months ended JuneSeptember 30, 2000:
8
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------------------------- ---------------
2000
- ----------------------------------------------------------------------------------------------------------------------------------------------- ---------------
Operating Partnership's OP Units outstanding at January 1, 139,934,540
ISSUED TO GENERAL PARTNER:Issued to General Partner:
- --------------------------
Conversion of Series E Preferred Shares 2,33369,011
Conversion of Series G Preferred Shares 1,280
Conversion of Series H Preferred Shares 61,62862,278
Conversion of Series J Preferred Shares 2,822,012
Employee Share Purchase Plan 110,373130,305
Dividend Reinvestment - DRIP Plan 9,91718,099
Share Purchase - DRIP Plan 7,77810,358
Exercise of options 240,886497,681
Restricted share grants, net 232,161
ISSUED TO LIMITED PARTNERS:Issued to Limited Partners:
- ---------------------------
Issuance through acquisitions 17,088100,170
- ----------------------------------------------------------------------------------------------------------------------------------------------- ---------------
OPERATING PARTNERSHIP'SOperating Partnership's OP UNITS OUTSTANDING AT JUNEUnits outstanding at September 30, 143,438,716143,877,895
- ------------------------------------------------------------------------ -------------------------------------------------------------------------------------- ===============
As of JuneSeptember 30, 2000, OP Units outstanding totaled 143,438,716.143,877,895.
The limited partners of the Operating Partnership as of JuneSeptember 30, 2000
include various individuals and entities that contributed their properties to
the Operating Partnership in exchange for a partnership interest (the
"Limited Partners") and are represented by 12,258,53012,302,698 OP Units. As of
JuneSeptember 30, 2000, EQR (as the general partner)"General Partner") had an approximate 91.45%
interest and the Limited Partners had an approximate 8.55% interest in the
Operating Partnership.
In regards to the general partner, net proceeds from the various
equity offerings of EQR have been contributed by EQR to the Operating
Partnership in return for an increased ownership percentage. Due to the
Limited Partners' ability to convert their interest into an ownership
interest in the general partner, the net offering proceeds are allocated
between EQR (as general partner) and the Limited Partners (to the extent
represented by OP Units) to account for the change in their respective
percentage ownership of the equity of the Operating Partnership.
7
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Guilford portfolio properties (see further discussion in Note 4)5)
are controlled and partially owned by the Operating Partnership but have
partners with minority interests. Effective January 1, 2000, the Operating
Partnership has included 100% of the financial conditionassets, liabilities, revenues and results of
operationsexpenses
of these Partially Owned Properties in the Consolidated Financial Statements due
to an increased ownership interest in these properties. The equity interests of
the unaffiliated partners are reflected as Minority Interests - Partially Owned
Properties.
The following table presents the Operating Partnership's issued and
outstanding Junior Convertible Preference Units as of JuneSeptember 30, 2000 and
December 31, 1999:
9
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
- -------------------------------------------------------------- ------------------------------ ---------------------------
AMOUNTS ARE IN THOUSANDS
-------------------------------------------------
ANNUAL DIVIDEND SEPTEMBER DECEMBER
RATE PER JUNE DECEMBER UNIT (1) 30, 2000 31, 1999
- -------------------------------------------------------------- ------------ ------------ -------------------------------- ------------- -------------
Junior Convertible Preference Units:
Series A Junior Convertible Preference Units; liquidation $5.469344 $ 7,712 $ 7,712
value $100 per unit; 77,123 units issued and outstanding
at JuneSeptember 30, 2000 and December 31, 1999
Series B Junior Convertible Preference Units; liquidation $2.000000 184 184
value $25 per unit; 7,367 units issued and outstanding at
JuneSeptember 30, 2000 and December 31, 1999
- -------------------------------------------------------------- ------------ ------------ -------------------------------- ------------- -------------
$ 7,896 $ 7,896
- -------------------------------------------------------------- ------------ ------------ -------------------------------- ------------- -------------
(1) Dividends on both series of Junior Convertible Preference Units are
payable quarterly at various pay dates.
On March 3, 2000, Lexford Properties, L.P., a subsidiary of the
Operating Partnership, issued 1.1 million units of 8.50% Series B Cumulative
Convertible Redeemable Preference Units (collectively known as "Preference
Interests") with an equity value of $55.0 million. Lexford Properties, L.P.
received $53.6 million in net proceeds from this transaction. The liquidation
value of these units is $50 per unit. The 1.1 million units are exchangeable
into 1.1 million shares of 8.50% Series M-1 Cumulative Redeemable Preferred
Shares of Beneficial Interest of the Company. The Series M-1 Preferred Shares
are not convertible into EQR Common Shares. Dividends for the Series B
Preference Interests or the Series M-1 Preferred Shares are payable quarterly at
the rate of $4.25 per unit/share per year.
On March 23, 2000, Lexford Properties, L.P., a subsidiary of the
Operating Partnership, issued 220,000 units of 8.50% Series C Cumulative
Convertible Redeemable Preference Units with an equity value of $11.0 million.
Lexford Properties, L.P. received $10.7 million in net proceeds from this
transaction. The liquidation value of these units is $50 per unit. The 220,000
units are exchangeable into 220,000 shares of 8.50% Series M-1 Cumulative
Redeemable Preferred Shares of Beneficial Interest of the Company. The Series
M-1 Preferred Shares are not convertible into EQR Common Shares. Dividends for
the Series C Preference Interests or the Series M-1 Preferred Shares are payable
quarterly at the rate of $4.25 per unit/share per year.
On May 1, 2000, Lexford Properties, L.P., a subsidiary of the Operating
Partnership, issued 420,000 units of 8.375% Series D Cumulative Convertible
Redeemable Preference Units with an equity value of $21.0 million. Lexford
Properties, L.P. received $20.5 million in net proceeds from this transaction.
The liquidation value of these units is $50 per unit. The 420,000 units are
exchangeable into 420,000 shares of 8.375% Series M-2 Cumulative Redeemable
Preferred Shares of Beneficial Interest of 8
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
the Company. The Series M-2 Preferred
Shares are not convertible into EQR Common Shares. Dividends for the Series D
Preference Interests or the Series M-2 Preferred Shares are payable quarterly at
the rate of $4.1875 per unit/share per year.
On August 11, 2000, Lexford Properties, L.P., a subsidiary of the
Operating Partnership, issued 1,000,000 units of 8.50% Series E Cumulative
Convertible Redeemable Preference Units with an equity value of $50.0 million.
Lexford Properties, L.P. received $48.8 million in net proceeds from this
transaction. The liquidation value of these units is $50 per unit. The 1,000,000
units are exchangeable into 1,000,000 shares of 8.50% Series M-3 Cumulative
Redeemable Preferred Shares of Beneficial Interest of the Company. Dividends for
the Series E Preference Interests or the Series M-3 Preferred
10
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Shares are payable quarterly at the rate of $4.25 per unit/share per year.
The following table presents Lexford Properties, L.P.'s issued and
outstanding Preference Interests as of JuneSeptember 30, 2000 and December 31, 1999:
- ------------------------------------------------------------------- ------------- ----------------------------------------------------------------------------------------------- ----------------- ---------------------------
AMOUNTS ARE IN THOUSANDS
-----------------------------------------------------
ANNUAL
DIVIDEND RATE PER JUNESEPTEMBER DECEMBER
UNIT (1) 30, 2000 31, 1999
- ---------------------------------------------------------------------------------------------------------------------------------------- ----------------- ------------- ------------ -------------
Preference Interests:
8.00% Series A Cumulative Convertible Redeemable Preference $4.0000$ 4.0000 $ 40,000 $ 40,000
Interests; liquidation value $50 per unit; 800,000 units issued
and outstanding at JuneSeptember 30, 2000 and December 31, 1999
8.50% Series B Cumulative Convertible Redeemable Preference $4.2500$ 4.2500 55,000 -
Units; liquidation value $50 per unit; 1,100,000 units issued
and outstanding at JuneSeptember 30, 2000
8.50% Series C Cumulative Convertible Redeemable Preference $4.2500$ 4.2500 11,000 -
Units; liquidation value $50 per unit; 220,000 units issued
and outstanding at JuneSeptember 30, 2000
8.375% Series D Cumulative Convertible Redeemable
Preference Units; liquidation value $50 per unit; 420,000
units issued and outstanding at JuneSeptember 30, 2000 $4.1875$ 4.1875 21,000 -
8.50% Series E Cumulative Convertible Redeemable Preference
Units, liquidation value $50 per unit, 1,000,000 units issued
and outstanding at September 30, 2000 $ 4.2500 50,000 -
-------------------------------------------------------------------- --------------------------------------------------------------------- ----------------- ------------- ------------ -------------
$127,000$177,000 $ 40,000
- ---------------------------------------------------------------------------------------------------------------------------------------- ----------------- ------------- ------------ -------------
(1) Dividends on all series of Preference Interests are payable quarterly
at various pay dates.
11
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The following table presents the Operating Partnership's issued and
outstanding Cumulative Convertible or Redeemable Preference Units as of
JuneSeptember 30, 2000 and December 31, 1999:
9
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
- -------------------------------------------------------------------- ------------------------------------------------------------------------------------ ------------------ -------------------------
AMOUNTS ARE IN THOUSANDS
-------------------------
ANNUAL DIVIDEND SEPTEMBER DECEMBER
RATE PER JUNE DECEMBER UNIT (1) 30, 2000 31, 1999
- -------------------------------------------------------------------- ------------------------------------------------------------------------------------ ------------------ ------------ ------------
Cumulative Convertible or Redeemable Preference Units:
9 3/8% Series A Cumulative Redeemable Preference Units; liquidation $2.34375$ 2.34375 $ 153,000 $ 153,000
value $25 per unit; 6,120,000 units issued and outstanding at
JuneSeptember 30, 2000 and December 31, 1999
9 1/8% Series B Cumulative Redeemable Preference Units; liquidation $22.81252 125,000 125,000
value $250 per unit; 500,000 units issued and outstanding at
JuneSeptember 30, 2000 and December 31, 1999
9 1/8% Series C Cumulative Redeemable Preference Units; liquidation $22.81252 115,000 115,000
value $250 per unit; 460,000 units issued and outstanding
at JuneSeptember 30, 2000 and December 31, 1999
8.60% Series D Cumulative Redeemable Preference Units; liquidation $21.50000 175,000 175,000
value $250 per unit; 700,000 units issued and outstanding
at JuneSeptember 30, 2000 and December 31, 1999
Series E Cumulative Convertible Preference Units; liquidation value $1.75000 99,745$ 1.75000 96,748 99,850
$25 per unit; 3,989,8003,869,940 and 3,994,000 units issued and outstanding at
JuneSeptember 30, 2000 and December 31, 1999, respectively
9.65% Series F Cumulative Redeemable Preference Units; liquidation $2.41250$ 2.41250 57,500 57,500
value $25 per unit; 2,300,000 units issued and outstanding at
JuneSeptember 30, 2000 and December 31, 1999
7 1/4% Series G Convertible Cumulative Preference Units; liquidation $18.12500 316,250316,175 316,250
value $250 per unit; 1,264,700 and 1,265,000 units issued and
outstanding at JuneSeptember 30, 2000 and December 31, 1999, respectively
7.00% Series H Cumulative Convertible Preference Units; liquidation $1.75000 1,558$ 1.75000 1,536 3,686
value $25 per unit; 62,32461,424 and 147,452 units issued and outstanding at
JuneSeptember 30, 2000 and December 31, 1999, respectively
8.60% Series J Cumulative Convertible Preference Units; liquidation $2.15000$ 2.15000 - 114,980
value $25 per unit; 0 and 4,599,200 units issued and outstanding
at JuneSeptember 30, 2000 and December 31, 1999, respectively (2)
8.29% Series K Cumulative Redeemable Preference Units; liquidation $4.14500$ 4.14500 50,000 50,000
value $50 per unit; 1,000,000 units issued and outstanding at
JuneSeptember 30, 2000 and December 31, 1999
7.625% Series L Cumulative Redeemable Preference Units; liquidation $1.90625$ 1.90625 100,000 100,000
value $25 per unit; 4,000,000 units issued and outstanding at
JuneSeptember 30, 2000 and December 31, 1999
- -------------------------------------------------------------------- ------------------------------------------------------------------------------------ ------------------ ------------ ------------
$1,193,053$1,189,959 $1,310,266
- -------------------------------------------------------------------- ------------------------------------------------------------------------------------ ------------------ ------------ ------------
(1) Dividends on all series of preference units are payable quarterly at
various pay dates. Dividend rates listed for Series B, C, D and G are
preference unit rates and the equivalent depositary unit annual dividend
rates are $2.281252, $2.281252, $2.15 and $1.8125, respectively.
12
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(2) On June 2, 2000, the Operating Partnership redeemed all of its remaining
issued and outstanding Series J Cumulative Convertible Preference Units
in conjunction with the conversion of the Series J Preferred Shares of
EQR.
10
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The following table presents the Operating Partnership's allocation of
net income among Cumulative Convertible or Redeemable Preference Units for the
nine months and quarters ended JuneSeptember 30, 2000 and 1999 (AMOUNTS ARE IN
THOUSANDS):
SIXNINE MONTHS ENDED QUARTER ENDED
JUNESEPTEMBER 30, JUNESEPTEMBER 30,
-------------------------- ---------------------------
2000 1999 2000 1999
-------------------------- ---------------------------
ALLOCATION OF NET INCOME:
9 3/8% Series A Cumulative Redeemable
Preference Units $ 7,172 $ 7,172$10,758 $10,758 $ 3,586 $ 3,586
9 1/8% Series B Cumulative Redeemable
Preference Units 5,703 5,703 2,8518,555 8,555 2,852 2,852
9 1/8% Series C Cumulative Redeemable
Preference Units 5,247 5,247 2,6247,870 7,870 2,623 2,623
8.60% Series D Cumulative Redeemable
Preference Units 7,526 7,526 3,763 3,76311,288 11,288 3,762 3,762
Series E Cumulative Convertible Preference Units 3,491 3,497 1,744 1,7495,184 5,245 1,693 1,748
9.65% Series F Cumulative Redeemable
Preference Units 2,774 2,7744,161 4,161 1,387 1,387
7 1/4% Series G Convertible Cumulative
Preference Units 11,464 11,464 5,73217,194 17,196 5,730 5,732
7.00% Series H Cumulative Convertible
Preference Units 55 131 27 6681 196 26 65
8.82% Series I Cumulative Convertible
Preference Units - 2,7673,329 - 562
8.60% Series J Cumulative Convertible
Preference Units 2,451 4,9447,416 - 2,472
8.29% Series K Cumulative Redeemable
Preference Units 2,073 2,073 1,0373,109 3,109 1,036 1,036
7.625% Series L Cumulative Redeemable
Preference Units 3,813 3,813 1,9075,719 5,719 1,906 1,906
------- ------- ------- -------
Cumulative Convertible or Redeemable
Preference Units $51,769 $57,111 $24,658 $27,734$76,370 $84,842 $24,601 $27,731
======= ======= ======= =======
4.5. REAL ESTATE ACQUISITIONS
During the sixnine months ended JuneSeptember 30, 2000 the Operating
Partnership acquired the threeeighteen Properties listed below from unaffiliated
parties. In connection with certain of the acquisitions listed below, the
Operating Partnership assumed and/or entered into new mortgage indebtedness of
approximately $38.4 million and issued OP Units having a value of approximately
$4.1 million. The cash portion of these transactions was funded from proceeds
received from the disposition of properties and working capital.
13
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
- --------------- --------------------------------- ------------------------------ ----------------------------------------- ------------- ------------------
PURCHASE
DATE NUMBER OF PURCHASE PRICE
ACQUIRED PROPERTY LOCATION UNITS (IN THOUSANDS)
- --------------- --------------------------------- ------------------------------ ----------------------------------------- ------------- ------------------
01/19/00 Windmont Atlanta, GA 178 $ 10,310
04/05/00 Alborada Fremont, CA 442 83,500
06/30/00 Jefferson at Wyndham Lakes Coral Springs, FL 332 33,340
07/12/00 Ambergate West Palm Beach, FL 72 2,362
07/12/00 Greengate West Palm Beach, FL 120 4,019
07/12/00 Jupiter Cove II Juno Beach, FL 61 1,663
07/12/00 Oakland Hills Margate, FL 189 7,800
07/12/00 Summit Center West Palm Beach, FL 87 2,347
07/12/00 Whispering Pines Fort Pierce, FL 64 978
07/25/00 Harbour Town Boca Raton, FL 392 31,940
09/13/00 Madison at Wells Branch Austin, TX 300 18,750
09/13/00 Madison at Scofield Farms Austin, TX 260 16,510
09/14/00 Westside Villas I-V Los Angeles, CA 176 42,000
09/27/00 Millburn Court I Dayton, OH 65 1,500
- --------------- --------------------------------- ------------------------------ -------------- ------------------
952 $127,150------------- ------------------------------- ----------------------------- --------- ----------
2,738 $257,109
- --------------- --------------------------------- ------------------------------ -------------- ------------------------------- -------------------------------- ----------------------------- --------- ----------
On January 19, 2000, the Operating Partnership paid $1.25 million to
acquire an additional ownership interest in LFT's Guilford portfolio (14
properties containing 2,995 units located in four states). The transaction was
effective on January 1, 2000. Prior to January 1, 2000, the Operating
Partnership
11
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED) accounted for this portfolio under the equity method of accounting.
As a result of this additional ownership acquisition, the Operating Partnership
acquired a controlling interest, and as such, now consolidates these properties
for financial reporting purposes. The Operating Partnership recorded additional
investments in real estate totaling $69.4 million in connection with this
transaction.
5.On August 7, 2000, the Operating Partnership funded approximately
$30.9 million for an ownership interest in Laguna Clara Apartments, a
264-unit property located in Santa Clara, California. As the Operating
Partnership cannot exercise unilateral control over major decisions, this
property has been classified as an investment in unconsolidated joint venture
and accounted for under the equity method.
6. REAL ESTATE DISPOSITIONS
During the sixnine months ended JuneSeptember 30, 2000, the Operating
Partnership disposed of the fourteentwenty-seven properties listed below to unaffiliated
parties. The Operating Partnership recognized a net gain for financial reporting
purposes of approximately $38.1$155.8 million.
14
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
--------------- ------------------------------------------------- ---------------------------------- ------------------------- ----------- -------------------------------- -----------------
DISPOSITION
DATE NUMBER PRICE
DISPOSED PROPERTY LOCATION OF UNITS (IN THOUSANDS)
--------------- ------------------------------------------------- ---------------------------------- ------------------------- ----------- -------------------------------- -----------------
02/04/00 Lakeridge at the Moors Miami, FL 175 $ 10,000
02/09/00 Sonnet Cove I & II Lexington, KY 331 12,300
02/25/00 Yuma Court Colorado Springs, CO 40 2,350
02/25/00 Indigo Plantation Daytona Beach, FL 304 14,200
02/25/00 The Oaks of Lakebridge Ormond Beach, FL 170 7,800
03/23/00 Tanglewood Lake Oswego, OR 158 10,750
03/30/00 Preston Lake Tucker, GA 320 17,325
03/31/00 Cypress Cove Melbourne, FL 326 18,800
04/20/00 Village of Sycamore Ridge Memphis, TN 114 5,200
04/28/00 Towne Centre III & IV Laurel, MD 562 29,244
05/11/00 3000 Grand Des Moines, IA 186 9,625
06/14/00 Villa Madeira Scottsdale, AZ 332 17,500
--------------- ---------------------------------07/06/00 Idlewood Indianapolis, IN 320 15,600
07/25/00 Sabal Palm Pompano Beach, FL 416 27,200
07/27/00 Lake in the Woods Ypsilanti, MI 1,028 57,000
07/28/00 Windmill Colorado Springs, CO 304 12,358
07/28/00 Cheyenne Crest Colorado Springs, CO 208 12,286
07/28/00 Lamplight Court London, OH 53 738
08/24/00 Huntington Hollow Tulsa, OK 288 7,100
08/24/00 Hunter Glen Springfield, IL 64 1,750
08/29/00 Glenridge Colorado Springs, CO 220 13,127
09/18/00 Greenwich Woods/Hollyview Silver Springs, MD 606 37,500
09/26/00 The Hollows Columbia, SC 212 8,000
09/26/00 Tamarind at Stoneridge Columbia, SC 240 8,030
---------------- ---------------------------------- ------------------------- ----------- -------------------
3,018 $155,094
--------------- ---------------------------------------------- -----------------
6,977 $355,783
---------------- ---------------------------------- ------------------------- ----------- -------------------------------- -----------------
Also, onOn June 30, 2000, the Operating Partnership entered into two
separate joint ventures with an unaffiliated party. At closing, the CompanyOperating
Partnership sold and/or contributed twenty-one wholly owned properties
containing 5,211 units in
eight states valued at $303.4 million to the joint ventures
encumbered with $220$220.0 million in mortgage loans obtained on June 26, 2000
(see further discussion in Note 8)9). The unaffiliated party acquired a 75%
interest in the joint ventures while the Operating Partnership retained a 25%
interest along with the right to manage the properties. The Operating
Partnership will account forhas classified its 25% interest in the joint ventures as
investments in unconsolidated joint ventures and accounted for them under the
equity method of accounting. The Operating Partnership recognized a net gain
for financial reporting purposes of approximately $49.6$49.3 million.
In addition, during the sixnine months ended JuneSeptember 30, 2000, the
Operating Partnership sold its entire interest in twothree Unconsolidated
Properties containing 338377 units for approximately $4.4$4.6 million.
6.7. COMMITMENTS TO ACQUIRE/DISPOSE OF REAL ESTATE
As of JuneSeptember 30, 2000, in addition to the Properties that were
subsequently acquired as discussed in Note 1415 of the Notes to Consolidated
Financial Statements, the Operating Partnership entered into separate agreements
to acquire twoeight multifamily propertyproperties containing 5601,698 units from unaffiliated
parties. The Operating Partnership expects a combined purchase price of
approximately $35.3$283.5 million, including the assumption of mortgage indebtedness
of approximately $27.1$24.7 million.
15
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
As of JuneSeptember 30, 2000, in addition to the Properties that were
subsequently disposed of as discussed in 12
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Note 1415 of the Notes to Consolidated
Financial Statements, the Operating Partnership entered into separate agreements
to dispose of eighteenseven multifamily properties containing 4,4141,117 units to
unaffiliated parties. The Operating Partnership expects a combined disposition
price of approximately $222.5$53.3 million.
The closings of these pending transactions are subject to certain
contingencies and conditions; therefore, there can be no assurance that these
transactions will be consummated or that the final terms thereof will not differ
in material respects from those summarized in the preceding paragraph.
7.8. DEPOSITS - RESTRICTED
Deposits-restricted as of JuneSeptember 30, 2000 primarily included the following:
- deposits in the amount of $29.5 million held in third party escrow
accounts to provide collateral for third party construction financing
in connection with two separate joint venture agreements;
- approximately $76.0$195.3 million held in third party escrow accounts,
representing proceeds received in connection with the Operating
Partnership's disposition of sixteentwenty-two properties and earnest money
deposits made for nineeight additional acquisitions;
- approximately $32.9$33.4 million for tenant security, utility deposits, and
other deposits for certain of the Operating Partnership's Properties;
and
- approximately $12.2$5.5 million of other deposits.
8.9. MORTGAGE NOTES PAYABLE
As of JuneSeptember 30, 2000, the Operating Partnership had outstanding
mortgage indebtedness of approximately $3.0 billion encumbering 514510 of the
Properties.Properties and one warehouse acquired in the Globe Merger. The carrying value of
such Properties (net of accumulated depreciation of $525.9$555.0 million) was
approximately $4.7$4.8 billion. The mortgage notes payables are generally due in
monthly installments of principal and interest.
During the sixnine months ended JuneSeptember 30, 2000 the Operating
Partnership:
- recorded additional third-party mortgage debt totaling $65.1 million
in connection with the consolidation of the Guilford portfolio on
January 1, 2000 (see Note 4)5);
- repaid the outstanding mortgage balances on fifty-sixsixty-one Properties in
the aggregate amount of $104.5$119.4 million;
- obtained new mortgage financing on eleven previously unencumbered
properties in the amount of $148.3 million on March 20, 2000;
- settled on a $100 million forward starting swap and received $7.1
million. This amount is being amortized over the life of the financing
for the eleven previously unencumbered Properties that occurred inon
March 20, 2000; and
- obtained new mortgage financings on twenty-one previously unencumbered
properties in the amount of $220 million on June 26, 2000. These
mortgage loans were assumed by the joint ventures that closed on June
30, 2000 (see Note 5).6);
- assumed mortgage debt on six properties in the amount of $38.4 million
in connection with their acquisitions; and
- obtained approximately $88.3 million in construction loan
commitments on two properties, of which $20.7 million was currently
outstanding.
As of JuneSeptember 30, 2000, scheduled maturities for the Operating
Partnership's outstanding mortgage indebtedness are at various dates through
October 1, 2033. The interest rate range on the
16
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Operating Partnership's mortgage debt was 4.00% to 10.67% at JuneSeptember 30, 2000.
During the sixnine months ended JuneSeptember 30, 2000, the weighted average interest
rate on the Operating Partnership's mortgage debt was 7.33%6.85%.
13
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
9.10. NOTES
The following tables summarize the Operating Partnership's unsecured
note balances and certain interest rate and maturity date information as of and
for the sixnine months ended JuneSeptember 30, 2000:
Weighted
JuneSeptember 30, 2000 Net Principal Interest Rate Average Maturity Date
(AMOUNTS ARE IN THOUSANDS) Balance Ranges Interest Rate Ranges
- ------------------------------------------------------------------------------------------------------------------
Fixed Rate Public Notes $ 2,062,1181,893,538 6.150% - 9.375% 7.07% 2000 - 2026
Floating Rate Public Notes 99,78299,800 (1) 7.09%7.26% 2003
Fixed Rate Tax-Exempt Bonds 127,780 4.750% - 5.200% 5.10%5.08% 2024 - 2029
------------------- ---------------
Totals $ 2,289,680 6.97%2,121,118 6.96%
=================== ===============
(1) As of JuneSeptember 30, 2000, floating rate public notes consisted of one
note. The interest rate on this note was LIBOR (reset quarterly) plus
a spread equal to 0.75% at June 30, 2000
(reset annually in August). equal to 0.65% at September 30,
2000.
During the nine months ended September 30, 2000 the Operating
Partnership:
- assumed $39.9 million of fixed rate public notes in the Globe Merger;
- paid off at maturity fixed rate 7.25% public notes of $55.0 million;
- paid off at maturity fixed rate 6.15% public notes of $145.0 million;
and
- paid off $8.0 million in fixed rate public notes assumed in the Globe
Merger.
As of JuneSeptember 30, 2000, the Operating Partnership had outstanding
unsecured notes of approximately $2.3$2.1 billion net of a $4.1$3.9 million discount and
including a $6.0$5.5 million premium.
As of JuneSeptember 30, 2000, the remaining unamortized balance of deferred
settlement receipts and payments from treasury locks and interest rate
protection agreements was $9.1$9.0 million and $2.9$2.5 million, respectively.
10. LINE11. LINES OF CREDIT
The Operating Partnership has a revolving credit facility with Bank of
America Securities LLC and Chase Securities Inc. acting as joint lead arrangers
to provide the Operating Partnership with potential borrowings of up to $700$700.0
million. As of JuneSeptember 30, 2000, no amounts were outstanding under this
facility and $51.4$51.3 million was restricted on thethis line of credit. During the
sixnine months ended JuneSeptember 30, 2000, the weighted average interest rate on this
revolving credit facility was 6.58%.
In connection with the Operating
Partnership'sGlobe Merger, the Company assumed a second
line of credit facility with Fifth Third Bank to provide the Company with
potential borrowings of up to $55.0 million. As of September 30, 2000, $33.6
million was 6.58%outstanding under this facility. From the period July 11, 2000
(Globe Merger date) through September 30, 2000, the weighted average interest
rate on this revolving credit facility was 8.78%.
11.17
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
12. CALCULATION OF NET INCOME PER WEIGHTED AVERAGE OP UNIT
The following tables set forth the computation of net income per OP
Unit - basic and net income per OP Unit - diluted.
14
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SIXNINE MONTHS ENDED JUNE 30, QUARTER ENDED
JUNESEPTEMBER 30, SEPTEMBER 30,
--------------------------------- -------------------------------------------------------------
2000 1999 2000 1999
--------------------------------- -------------------------------------------------------------
(AMOUNTS IN THOUSANDS EXCEPT PER OP UNIT AMOUNTS)
NUMERATOR:
Income before gain on disposition of properties, net,
extraordinary item, allocation to Minority
Interests, provision for income taxes and
allocation to preference $ 185,121 $ 159,374 $ 96,929 $ 80,110 unit/interest distributions $ 290,850 $ 243,797 $ 105,729 $ 84,423
Allocation to Minority Interests - Partially Owned
Properties 157145 - 112(12) -
Provision for income taxes (518) - (518) -
Allocation to Junior Convertible Preference Units (218) - (110) -(327) (240) (109) (240)
Allocation to Cumulative Convertible Redeemable
Preference Interests (3,667) - (2,498) -(6,900) (36) (3,233) (36)
Allocation to Redeemable Preference Units (51,769) (57,111) (24,658) (27,734)
--------- --------- ---------- ---------(76,370) (84,842) (24,601) (27,731)
---------------------------- ---------------------------
Income before gain on disposition of properties, net
and extraordinary item 129,624 102,263 69,775 52,376206,880 158,679 77,256 56,416
Gain on disposition of properties, net 87,652 45,807 67,654 24,391205,121 64,315 117,469 18,508
Loss on early extinguishment of debt - (451) - (451)
--------- --------- ---------- ----------
---------------------------- ---------------------------
Numerator for net income per OP Unit - basic 217,276 147,619 137,429 76,316412,001 222,543 194,725 74,924
Effect of dilutive securities:
Distributions to convertible preference
units/interests 2679,713 - 3,5267,576 -
--------- --------- ---------- ------------------------------------- ---------------------------
Numerator for net income per OP Unit - diluted $ 217,543421,714 $ 147,619222,543 $ 140,955202,301 $ 76,316
========= ========= ========= =========74,924
============================ ============================
DENOMINATOR:
Denominator for net income per OP Unit - basic 140,850 132,826 141,436 133,478141,818 133,490 143,732 134,993
Effect of dilutive securities:
Dilution for OP Units issuable upon assumed
exercise of the Company's stock options 579 742 770 908721 714 985 660
Convertible preference units/interests 2043,967 - 4,3047,777 -
--------- --------- ---------- ------------------------------------ ---------------------------
Denominator for net income per OP Unit - diluted 141,633 133,568 146,510 134,386
========= ========= ========== =========146,506 134,204 152,494 135,653
============================ ============================
Net income per OP Unit - basic $ 1.542.91 $ 1.111.67 $ 0.971.35 $ 0.57
========= ========= ========== =========0.56
============================ ============================
Net income per OP Unit - diluted $ 1.542.88 $ 1.111.66 $ 0.961.33 $ 0.57
========= ========= ========== =========0.55
============================ ============================
1518
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SIXNINE MONTHS ENDED JUNE 30, QUARTER ENDED
JUNESEPTEMBER 30, ------------------------- -----------------------SEPTEMBER 30,
------------------------------ --------------------------------
2000 1999 2000 1999
------------------------- ----------------------------------------------------- --------------------------------
(AMOUNTS IN THOUSANDS EXCEPT PER OP UNIT AMOUNTS)
NET INCOME PER OP UNIT - BASIC:
Income before gain on disposition of properties, net
and extraordinary item per OP Unit - basic $0.92 $0.77 $0.49 $0.39$ 1.46 $ 1.19 $ 0.53 $ 0.42
Gain on disposition of properties, net 0.62 0.341.45 0.48 0.180.82 0.14
Loss on early extinguishment of debt - - - -
----- ----- ----- ------------------ ------------- -------------- --------------
Net income per OP Unit - basic $1.54 $1.11 $0.97 $0.57
===== ===== ===== =====$ 2.91 $ 1.67 $ 1.35 $ 0.56
============= ============= ============== ==============
NET INCOME PER OP UNIT - DILUTED:
Income before gain on disposition of properties, net
and extraordinary item per OP Unit - diluted $0.92 $0.77 $0.50 $0.39$ 1.48 $ 1.18 $ 0.56 $ 0.42
Gain on disposition of properties, net 0.62 0.34 0.46 0.181.40 0.48 0.77 0.13
Loss on early extinguishment of debt - - - -
----- ----- ----- ------------------ ------------- -------------- --------------
Net income per OP Unit - diluted $1.54 $1.11 $0.96 $0.57
===== ===== ===== =====$ 2.88 $ 1.66 $ 1.33 $ 0.55
============= ============= ============== ==============
CONVERTIBLE PREFERENCE UNITS THAT COULD BE CONVERTED INTO 9,970,8785,402,699 AND
12,761,75712,357,124 WEIGHTED AVERAGE COMMON SHARES (WHICH WOULD BE CONTRIBUTED TO THE
OPERATING PARTNERSHIP IN EXCHANGE FOR OP UNITS) FOR THE SIXNINE MONTHS ENDED
JUNESEPTEMBER 30, 2000 AND 1999, RESPECTIVELY, AND 5,402,7790 AND 12,404,42211,365,744 WEIGHTED AVERAGE
COMMON SHARES FOR THE QUARTERS ENDED JUNESEPTEMBER 30, 2000 AND 1999, RESPECTIVELY,
WERE OUTSTANDING BUT WERE NOT INCLUDED IN THE COMPUTATION OF DILUTED EARNINGS
PER OP UNIT BECAUSE THE EFFECTS WOULD BE ANTI-DILUTIVE.
12. COMMITMENTS AND CONTINGENCIES
The Operating Partnership, as an owner of real estate, is subject to
various Federal, state and local environmental laws of Federal and local governments.regulations. Compliance
by the Operating Partnership with existing laws has not had a material adverse
effect on the Operating Partnership's financial condition and results of
operations. However, the Operating Partnership cannot predict the impact of new
or changed laws or regulations on its current Propertiesproperties or on properties that
it may acquire in the future.
The Operating Partnership does not believe there is any litigation
pending or threatened against the Operating Partnership other than routine
litigation arising out of the ordinary course of business, somethe costs and
expenses of most of which is expected to be covered by liability insurance, none
of which is expected to have a material adverse effect on the consolidated
financial statements of the Operating Partnership.
In regards to the funding of Properties in the development and/or
earnout stage and the joint venture agreements with two multifamily residential
real estate developers, the Operating Partnership funded a total of $91.7$103.3
million during the sixnine months ended JuneSeptember 30, 2000. During the remainder of
2000, the Operating Partnership expects to fund approximately $63.8$55.4 million in
connection with these Properties. In connection with one joint venture
agreement, the Operating Partnership has an obligation to fund up to an
additional $17.5 million to guarantee third party construction financing.
19
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Pursuant to the terms of a Stock Purchase Agreement with Wellsford Real
Properties, Inc. ("WRP Newco"), the Operating Partnership had agreed to purchase
up to 1,000,000 shares of WRP Newco Series A 16
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Preferred at $25.00 per share on a
standby basis over a three-year period ending on May 31,30, 2000. This agreement
was terminated on May 5, 2000, and, as such, the Operating Partnership has no
further obligations under this agreement.
In connection with the Wellsford Merger, the Operating Partnership
provided a $14.8 million credit enhancement with respect to certain tax-exempt
bonds issued to finance certain public improvements at a multifamily development
project. As of JuneSeptember 30, 2000, this enhancement was still in effect.
13.Pursuant to the terms of a capital investment in Constellation Real
Technologies, LLC ("Constellation"), the Operating Partnership has a funding
commitment of $12.3 million as of September 30, 2000. Constellation's primary
objectives will be to serve as an incubator for real estate technology
companies and to provide a platform for pooling of its investor's purchasing
power. The Operating Partnership's current equity ownership interest in
Constellation is 9.999% as of September 30, 2000.
14. REPORTABLE SEGMENTS
The following tables set forth the reconciliation of net income and
total assets for the Operating Partnership's reportable segments for the sixnine
months and quarter ended JuneSeptember 30, 2000 and net income for the sixnine months
and quarter ended JuneSeptember 30, 1999.
SIX MONTHS ENDED JUNE 30, 2000 RENTAL REAL CORPORATE/
(AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
--------------------------------------------------------------------------------------------------------------------
Rental income $ 952,740 $ - $ 952,740
Property and maintenance expense (227,845) - (227,845)
Real estate tax and insurance expense (95,001) - (95,001)
Property management expense (37,760) - (37,760)
------------ ------------ ------------
Net operating income 592,134 - 592,134
Fee and asset management income - 2,632 2,632
Interest income - investment in mortgage notes - 5,499 5,499
Interest and other income - 17,652 17,652
Fee and asset management expense - (2,102) (2,102)
Depreciation expense on non-real estate assets - (3,157) (3,157)
Interest expense:
Expense incurred - (190,263) (190,263)
Amortization of deferred financing costs - (2,703) (2,703)
General and administrative expense - (13,216) (13,216)
Allocation to preference unit/interest holders - (55,654) (55,654)
Allocation to Minority Interests - Partially Owned
Properties - 157 157
Adjustment for depreciation expense related to
Unconsolidated and Partially Owned Properties - (491) (491)
------------ ------------ ------------
Funds from operations available to OP Units 592,134 (241,646) 350,488
Depreciation expense on real estate assets (221,355) - (221,355)
Gain on disposition of properties, net 87,652 - 87,652
Adjustment for depreciation expense related
to Unconsolidated and Partially Owned Properties - 491 491
------------ ------------ ------------
Net income available to OP Unit holders $ 458,431 $ (241,155) $ 217,276
============ ============ ============
Investment in real estate, net of accumulated
depreciation $ 10,801,004 $ 16,541 $ 10,817,545
============ ============ ============
Total assets $ 10,857,001 $ 889,742 $ 11,746,743
============ ============ ============
1720
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2000 RENTAL REAL CORPORATE/
(AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
- ---------------------------------------------------------------------------------------------------------------------
Rental income $ 1,454,958 $ - $ 1,454,958
Fee and asset management income - 4,711 4,711
Furniture income - 14,228 14,228
Property and maintenance expense (368,291) - (368,291)
Real estate tax and insurance expense (141,830) - (141,830)
Property management expense (56,204) - (56,204)
Fee and asset management expense - (3,647) (3,647)
Furniture operating costs - (9,505) (9,505)
------------------------------------------------------
Net operating income 888,633 5,787 894,420
Interest income - investment in mortgage notes - 8,282 8,282
Income from investments in unconsolidated joint ventures - 14,589 14,589
Interest and other income - 19,009 19,009
Depreciation expense on non-real estate assets - (5,830) (5,830)
Interest expense:
Expense incurred - (285,337) (285,337)
Amortization of deferred financing costs - (4,063) (4,063)
General and administrative expense - (19,439) (19,439)
Amortization of goodwill and other intangibles - (767) (767)
Allocation to Minority Interests - Partially Owned
Properties - 145 145
Provision for income taxes - (518) (518)
Allocation to preference unit/interest holders - (83,597) (83,597)
Adjustment for depreciation expense related to
Unconsolidated and Partially Owned Properties - (193) (193)
------------------------------------------------------
Funds from operations available to OP Units 888,633 (351,932) 536,701
Depreciation expense on real estate assets (330,014) - (330,014)
Gain on disposition of properties, net 205,121 - 205,121
Adjustment for depreciation expense related to
Unconsolidated and Partially Owned Properties - 193 193
------------------------------------------------------
Net income available to OP Unit holders $ 763,740 $ (351,739) $ 412,001
======================================================
Investment in real estate, net of accumulated depreciation $ 10,580,070 $ 16,388 $ 10,596,458
======================================================
Total assets $ 10,804,623 $ 1,016,239 $ 11,820,862
======================================================
21
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 RENTAL REAL CORPORATE/
(AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Rental income $ 819,1781,243,958 $ - $ 819,1781,243,958
Fee and asset management income - 3,432 3,432
Property and maintenance expense (196,865)(300,798) - (196,865)(300,798)
Real estate tax and insurance expense (84,515)(126,304) - (84,515)(126,304)
Property management expense (27,973)(42,817) - (27,973)
------------ ------------ ------------
Net operating income 509,825 - 509,825(42,817)
Fee and asset management expense - (2,301) (2,301)
------------------------------------------------------
Net operating income - 2,414 2,414774,039 1,131 775,170
Interest income - investment in mortgage notes - 5,644 5,6448,502 8,502
Income from investments in unconsolidated joint ventures - 7,042 7,042
Interest and other income - 11,123 11,123
Fee and asset management expense - (1,624) (1,624)10,613 10,613
Depreciation expense on non-real estate assets - (3,423) (3,423)(5,125) (5,125)
Interest expense:
Expense incurred - (158,499) (158,499)(241,516) (241,516)
Amortization of deferred financing costs - (1,661) (1,661)(2,773) (2,773)
General and administrative expense - (10,714) (10,714)(15,736) (15,736)
Allocation to preference unit/interest holders - (57,111) (57,111)(85,118) (85,118)
Adjustment for depreciation expense related to
Unconsolidated Properties - 551 551
------------ ------------ ------------710 710
------------------------------------------------------
Funds from operations available to OP Units 509,825 (213,300) 296,525774,039 (322,270) 451,769
Depreciation expense on real estate assets (193,711)(292,380) - (193,711)(292,380)
Gain on disposition of properties, net 45,80764,315 - 45,807
Loss on early extinguishment of debt (451) (451)
Adjustment for depreciation expense related to
Unconsolidated Properties - (551) (551)
------------ ------------ ------------
Net income available to OP Unit holders $ 361,921 $ (214,302) $ 147,619
============ ============ ============
18
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
QUARTER ENDED JUNE 30, 2000 RENTAL REAL CORPORATE/
(AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------
Rental income $ 479,193 $- $ 479,193
Property and maintenance expense (113,977) - (113,977)
Real estate tax and insurance expense (46,667) - (46,667)
Property management expense (18,846) - (18,846)
------------ ------------ ------------
Net operating income 299,703 - 299,703
Fee and asset management income - 1,334 1,334
Interest income - investment in mortgage notes - 2,737 2,737
Interest and other income - 9,849 9,849
Fee and asset management expense - (1,036) (1,036)
Depreciation expense on non-real estate assets - (1,590) (1,590)
Interest expense:
Expense incurred - (95,152) (95,152)
Amortization of deferred financing costs - (1,362) (1,362)
General and administrative expense - (6,518) (6,518)
Allocation to preference unit/interest holders - (27,266) (27,266)
Allocation to Minority Interests - Partially Owned
Properties - 112 112
Adjustment for depreciation expense related to
Unconsolidated and Partially Owned Properties - (253) (253)
------------ ------------ ------------
Funds from operations available to OP Units 299,703 (119,145) 180,558
Depreciation expense on real estate assets (111,036) - (111,036)
Gain on disposition of properties, net 67,654 - 67,654
Adjustment for depreciation expense related to
Unconsolidated and Partially Owned Properties - 253 253
------------ ------------ ------------
Net income available to OP Unit holders $ 256,321 $ (118,892) $ 137,429
============ ============ ============
19
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
QUARTER ENDED JUNE 30, 1999 RENTAL REAL CORPORATE/
(AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
- -------------------------------------------------------------------------------------------------------------------
Rental income $ 413,116 $ - $ 413,116
Property and maintenance expense (99,818) - (99,818)
Real estate tax and insurance expense (42,467) - (42,467)
Property management expense (13,772) - (13,772)
------------ ----------- ------------
Net operating income 257,059 - 257,059
Fee and asset management income - 1,180 1,180
Interest income - investment in mortgage notes - 2,749 2,749
Interest and other income - 5,177 5,177
Fee and asset management expense - (757) (757)
Depreciation expense on non-real estate assets - (1,719) (1,719)
Interest expense:
Expense incurred - (79,302) (79,302)
Amortization of deferred financing costs - (816) (816)
General and administrative expense - (4,947) (4,947)
Allocation to preference unit/interest holders - (27,734) (27,734)
Adjustment for depreciation expense related to Unconsolidated
Properties - 276 276
------------ ----------- ------------
Funds from operations available to OP Units 257,059 (105,893) 151,166
Depreciation expense on real estate assets (98,514) - (98,514)
Gain on disposition of properties, net 24,391 - 24,39164,315
Loss on early extinguishment of debt - (451) (451)
Adjustment for depreciation expense related to
Unconsolidated Properties - (276) (276)
------------ ----------- ------------(710) (710)
------------------------------------------------------
Net income available to OP Unit holders $ 182,936545,974 $ (106,620)(323,431) $ 76,316
============ ============ ============222,543
=========== =========== ===========
22
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
QUARTER ENDED SEPTEMBER 30, 2000 RENTAL REAL CORPORATE/
(AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
- -----------------------------------------------------------------------------------------------------------------------
Rental income $ 502,218 $ - $ 502,218
Fee and asset management income - 1,876 1,876
Furniture income - 14,228 14,228
Property and maintenance expense (140,446) - (140,446)
Real estate tax and insurance expense (46,829) - (46,829)
Property management expense (18,444) - (18,444)
Fee and asset management expense - (1,545) (1,545)
Furniture operating costs - (9,505) (9,505)
------------------------------------------------------
Net operating income 296,499 5,054 301,553
Interest income - investment in mortgage notes - 2,783 2,783
Income from investments in unconsolidated joint ventures - 5,525 5,525
Interest and other income - 10,624 10,624
Depreciation expense on non-real estate assets - (2,673) (2,673)
Interest expense:
Expense incurred - (95,074) (95,074)
Amortization of deferred financing costs - (1,360) (1,360)
General and administrative expense - (6,223) (6,223)
Amortization of goodwill and other intangibles - (767) (767)
Allocation to Minority Interests - Partially Owned
Properties - (12) (12)
Provision for income taxes - (518) (518)
Allocation to preference unit/interest holders - (27,943) (27,943)
Adjustment for depreciation expense related to
Unconsolidated and Partially Owned Properties - 298 298
------------------------------------------------------
Funds from operations available to OP Units 296,499 (110,286) 186,213
Depreciation expense on real estate assets (108,659) - (108,659)
Gain on disposition of properties, net 117,469 - 117,469
Adjustment for depreciation expense related to
Unconsolidated and Partially Owned Properties - (298) (298)
------------------------------------------------------
Net income available to OP Unit holders $ 305,309 $(110,584) $ 194,725
=====================================================
23
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
QUARTER ENDED SEPTEMBER 30, 1999 RENTAL REAL CORPORATE/
(AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
------------------------------------------------------------------------------------------------------------------
Rental income $ 424,780 $ - $ 424,780
Fee and asset management income - 1,018 1,018
Property and maintenance expense (103,933) - (103,933)
Real estate tax and insurance expense (41,789) - (41,789)
Property management expense (14,844) - (14,844)
Fee and asset management expense - (677) (677)
----------------------------------------------
Net operating income 264,214 341 264,555
Interest income - investment in mortgage notes - 2,858 2,858
Income from investments in unconsolidated joint ventures - 2,691 2,691
Interest and other income - 3,841 3,841
Depreciation expense on non-real estate assets - (1,702) (1,702)
Interest expense:
Expense incurred - (83,017) (83,017)
Amortization of deferred financing costs - (1,112) (1,112)
General and administrative expense - (5,022) (5,022)
Allocation to preference unit/interest holders - (28,007) (28,007)
Adjustment for depreciation expense related
to Unconsolidated Properties - 159 159
----------------------------------------------
Funds from operations available to OP Units 264,214 (108,970) 155,244
Depreciation expense on real estate assets (98,669) - (98,669)
Gain on disposition of properties, net 18,508 - 18,508
Adjustment for depreciation expense related
to Unconsolidated Properties - (159) (159)
----------------------------------------------
Net income available to OP Unit holders $ 184,053 $(109,129) $ 74,924
==============================================
(1) The Operating Partnership has onePartnership's primary reportable business segment
which consists of investment in rental real estate. The Operating
Partnership's primary business is owning,
managing, and operating multifamily residential properties which includes
the generation of rental and other related income through the leasing of
apartment units to tenants.
(2) The Operating Partnership has a segment for corporate level activity
including such items as fee and asset management activity, furniture
rental/sales activity, interest income earned on short-term investments interest income earned onand
investment in mortgage notes, income earned from investments in
unconsolidated joint ventures, general and administrative expenses, and
interest expense on mortgage notes payable, unsecured notes and unsecured note issuances. In addition, thelines of
credit. The Operating Partnership has a
segment for third partyPartnership's fee and asset management activity that isand furniture
rental/sales activities are immaterial and doesdo not meet the threshold
requirements of a reportable segmentsegments as provided for in Statement No. 131.
Interest expense on debt is not allocated to individual Properties, even if
the Properties secure such debt.
14. SUBSEQUENT EVENTS
On July 11, 2000, the Company closed on its acquisition, in an all cash
and debt transaction, of Globe Business Resources, Inc. ("Globe"), one of the
nation's largest providers of temporary corporate housing and furniture rental.
Shareholders of Globe received $13.00 per share, which approximated $58.7
million in cash based on the Globe shares outstanding. In addition, the
Operating Partnership assumed approximately $70.8 million in debt.
2024
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
On July 6,15. SUBSEQUENT EVENTS
Subsequent to September 30, 2000 and through November 3, 2000, the
Operating Partnership disposed of Idlewood
Apartments, a 320-unit multifamilythe seventeen properties listed below to
unaffiliated parties. A portion of these proceeds were used to pay off mortgage
debt on one property located in Indianapolis, IN, to
an unaffiliated party for a total sales priceapproximating $9.1 million. The purchaser assumed the
mortgage debt on two of $15.6these properties totaling $1.6 million.
--------------- ------------------------------ ------------------------- ------------ -----------------
DISPOSITION
DATE NUMBER PRICE
DISPOSED PROPERTY LOCATION OF UNITS (IN THOUSANDS)
--------------- ------------------------------ ------------------------- ------------ -----------------
10/02/00 Villa Serenas Tucson, AZ 611 $ 20,850
10/03/00 Camellia Court Carrollton, KY 55 1,550
10/03/00 Millston I, II & III Aberdeen, OH 93 1,194
10/03/00 Springwood Maysville, KY 54 1,026
10/03/00 Willowood Owensboro, KY 55 1,200
10/17/00 Mission Palms Tucson, AZ 360 20,700
10/19/00 Del Coronado Mesa, AZ 419 23,575
10/19/00 Rancho Murietta Tempe, AZ 292 17,075
10/20/00 Crossings at Green Valley Las Vegas, NV 384 20,738
10/20/00 Reflections at the Lake Las Vegas, NV 326 19,665
10/20/00 The Trails Las Vegas, NV 440 29,410
10/23/00 Augustine Club Tallahassee, FL 222 9,925
10/23/00 Plantations at Killearn Tallahassee, FL 184 9,150
10/23/00 Woodlake at Killearn Tallahassee, FL 352 14,475
10/25/00 La Valencia Mesa, AZ 361 19,925
10/25/00 Towne Square Chandler, AZ 584 33,300
10/31/00 Willow Run Willard, OH 61 1,250
--------------- ------------------------------ ------------------------- ------------ -----------------
4,853 $245,008
--------------- ------------------------------ ------------------------- ------------ -----------------
On JulyOctober 11, 2000, the Operating Partnership repaid the outstanding
mortgage balance on one Property totaling $5.9 million.
On July 12, 2000, the Operating Partnership acquired Ambergate
Villas Apartments,Waterford at
Manderin II, a 72-unit multifamily propertyvacant land parcel located adjacent to Waterford at Manderin
Phase I in West Palm Beach,Jacksonville, FL, from an unaffiliated party for a total purchase
price of approximately $2.4$0.5 million.
On October 31, 2000, the Company closed on its acquisition of Grove
Property Trust ("Grove"). Grove's portfolio of 60 properties contains 7,308
units located in three New England states. As provided in the Company's
merger agreement with Grove, each Grove common share was exchanged for $17.00
(cash) and each Grove operating partnership unit was exchanged for cash in
the same amount or 0.3696 units in the Operating Partnership at the option of
the holder. As a result, the Company and the Operating Partnership paid
approximately $174.0 million which included the issuance ofin cash and issued approximately $0.40.3 million of OP
Units. In addition, the Operating Partnership assumed approximately $241.4
million in Grove debt, of which $45.8 million was paid off immediately
following the close of the merger.
On July 12,November 1, 2000, the Operating Partnership acquired Greengate
VillasCentre Club
Apartments, a 120-unit312-unit multifamily property located in West Palm
Beach, FL,Ontario, CA, from an
unaffiliated party for a total purchase price of approximately $4.0 million, which included the assumption of mortgage
indebtedness of approximately $2.7 million and the issuance of approximately
$1.2 million of OP Units.
On July 12, 2000, the Operating Partnership acquired Jupiter Sound
Villas Apartments, a 61-unit multifamily property located in Juno Beach, FL,
from an unaffiliated party for a total purchase price of approximately $1.7
million, which included the assumption of mortgage indebtedness of
approximately $1.6 million and the issuance of approximately $10,000 of OP
Units.
On July 12, 2000, the Operating Partnership acquired Oakland Hills
Apartments, a 189-unit multifamily property located in Margate, FL, from an
unaffiliated party for a total purchase price of approximately $7.8 million,
which included the assumption of mortgage indebtedness of approximately $5.0
million and the issuance of approximately $2.4 million of OP Units.
On July 12, 2000, the Operating Partnership acquired Summit Center
Apartments, a 87-unit multifamily property located in West Palm Beach, FL,
from an unaffiliated party for a total purchase price of approximately $2.4
million, which included the assumption of mortgage indebtedness of
approximately $2.3 million and the issuance of approximately $10,000 of OP
Units.
On July 12, 2000, the Operating Partnership acquired Whispering
Pines Apartments, a 64-unit multifamily property located in Fort Pierce, FL,
from an unaffiliated party for a total purchase price of approximately $1.0
million, which included the issuance of approximately $0.1 million of OP
Units.
On July 17, 2000, the Company announced that it has entered into a
definitive agreement and plan of merger with Grove Property Trust ("Grove").
Grove's portfolio of 60 properties contains 7,296 units located in three New
England states. The transaction values Grove at approximately $461 million,
including the assumption of approximately $244 million in debt. This merger
is expected to close during the fourth quarter of 2000 and does not require
EQR shareholder approval.
On July$31.1 million.
25 2000, the Operating Partnership acquired Harbour Town
Apartments, a 392-unit multifamily property located in Boca Raton, FL, from
an unaffiliated party for a total purchase price of approximately $31.9
million.
On July 25, 2000, the Operating Partnership disposed of Sabal Palms
Apartments, a 416-unit multifamily property located in Pompano Beach, FL, to
an unaffiliated party for a total sales price of $27.2 million.
21
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
On July 27, 2000, the Operating Partnership disposed of Lake in the
Woods Apartments, a 1,028-unit multifamily property located in Ypsilanti, MI,
to an unaffiliated party for a total sales price of $57.0 million.
On July 28, 2000, the Operating Partnership disposed of Lamplight
Court Apartments, a 53-unit multifamily property located in London, OH, to an
unaffiliated party for a total sales price of $0.7 million.
On July 28, 2000, the Operating Partnership disposed of Cheyenne
Crest Apartments, a 208-unit multifamily property located in Colorado
Springs, CO, to an unaffiliated party for a total sales price of $12.3
million.
On July 28, 2000, the Operating Partnership disposed of Windmill
Apartments, a 304-unit multifamily property located in Colorado Springs, CO,
to an unaffiliated party for a total sales price of $12.4 million.
On July 28, 2000, the Operating Partnership sold its entire interest
in an Unconsolidated Property containing 39 units for approximately $0.2
million.
22
ERP OPERATING LIMITED PARTNERSHIP
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion and analysis of the results of operations
and financial condition of the Operating Partnership should be read in
conjunction with the Consolidated Financial Statements and Notes thereto. Due
to the Operating Partnership's ability to control the Management Partnerships
and Management Companies, the Financing Partnerships, the LLC's, Globe, and
certain other entities, each entity has been consolidated with the Operating
Partnership for financial reporting purposes. Capitalized terms used herein
and not defined are as defined in the Operating Partnership's Annual Report
on Form 10-K for the year ended December 31, 1999.
Forward-looking statements in this report are intended to be made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The words "believes", "expects" and "anticipates" 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. Such forward-looking statements are subject to risks
and uncertainties, which could cause actual results, performance, or
achievements of the Operating Partnership to differ materially from anticipated
future results, performance or achievements expressed or implied by such
forward-looking statements. Factors that might cause such differences include,
but are not limited to, the following:
- costs to obtain alternative sources of capital to the Operating
Partnership are higher than anticipated;
- occupancy levels and market rents may be adversely affected by local
economic and market conditions, which are beyond the Operating
Partnership's control; and
- additional factors as discussed in Part I of the Annual Report on Form
10-K.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The
Operating Partnership undertakes no obligation to publicly release any revisions
to these forward-looking statements, which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
RESULTS OF OPERATIONS
The acquired properties are presented in the Consolidated Financial
Statements of the Operating Partnership from the date of each acquisition or the
closing dates of the Mergers. The following table summarizes the number of
Wholly Owned Acquired and Disposed Properties and related units for the periods
presented:
ACQUISITIONS DISPOSITIONS
--------------------------- --------------------------------------------------------------- -------------------------------
Number of Number of Number of Number of
YEARPERIOD Properties Units Properties Units
------- ------------ ------------- ----------- -------------------------------------- ---------------- ----------------- --------------- ---------------
1999 366 35,450 36 7,886
2000 3 952 35 8,229YTD 9/30/00 18 2,738 27 6,977
In addition, during the quarter ended June 30, 2000, the Operating
Partnership sold its entire interest in two Unconsolidated Properties containing
338 units for approximately $4.4 million.
2326
ERP OPERATING LIMITED PARTNERSHIP
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The Operating Partnership's overall results of operations for the sixnine
months ended JuneSeptember 30, 2000 and 1999 have been significantly impacted by the
Operating Partnership's acquisition and disposition activity.activity, including the
Globe Merger. The significant changes in rental revenues, property and
maintenance expenses, real estate taxes and insurance, depreciation expense,
property management and interest expense can all primarily be attributed to the
acquisition of the 1999 Acquired Properties, and the 2000 Acquired Properties and
the Globe Merger, partially offset by the disposition of the 1999 Disposed
Properties and the 2000 Disposed Properties.
The impact of the 1999 Acquired Properties and the 2000
Acquired Properties, the 1999 Disposed Properties and the 2000 Disposed
Properties are discussed in greater detail in the following paragraphs.
Properties that the Operating Partnership owned for all of both the
six-monthnine-month periods ended JuneSeptember 30, 2000 and JuneSeptember 30, 1999 (the
"Six-Month"Nine-Month 2000 Same Store Properties"), which represented 167,210163,368 units, also
impacted the Operating Partnership's results of operations. Properties that the
Operating Partnership owned for all of both the quarters ended JuneSeptember 30,
2000 and JuneSeptember 30, 1999 (the "Second-Quarter"Third-Quarter 2000 Same Store Properties"),
which represented 168,634167,740 units, also impacted the Operating Partnership's
results of operations. Both the Six-MonthNine-Month 2000 Same Store Properties and
Second-QuarterThird-Quarter 2000 Same Store Properties are discussed in the following
paragraphs.
COMPARISON OF SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2000 TO SIXNINE MONTHS ENDED
JUNESEPTEMBER 30, 1999
For the sixnine months ended JuneSeptember 30, 2000, income before gain on
disposition of properties, net, extraordinary item, and allocation to Minority
Interests and provision for income taxes increased by approximately $25.7$47.1
million when compared to the sixnine months ended JuneSeptember 30, 1999. This increase
was primarily due to the acquisition of the 1999 Acquired Properties, the 2000
Acquired Properties and the Globe Merger, as well as increases in rental
revenues net of increases in property and maintenance expenses, real estate
taxes and insurance, property management expenses, depreciation expense,
interest expense and general and administrative expenses.
In regard to the Six-MonthNine-Month 2000 Same Store Properties, total revenues
increased by approximately $29.0$47.5 million to $770.5 million$1.1 billion or 3.92%4.34% primarily as a
result of higher rental rates charged to new tenants and tenant renewals and an
increase in income from billing tenants for their share of utility costs as well
as other ancillary services provided to tenants. Overall, property operatingproperty-operating
expenses, which include property and maintenance, real estate taxes and
insurance and an allocation of property management expenses, increased
approximately $5.3$9.0 million or 1.96%2.22%. This increase was primarily the result of
higher expenses for on-site compensation costs and an increase in real estate
taxes on certain properties, but was partially offset by lower leasing and
advertising, administrative, maintenance, building and insurance costs.
Property management represents expenses associated with the
self-management of the Operating Partnership's Properties. These expenses
increased by approximately $9.8$13.4 million primarily due to the operations of the
property management business obtained through the LFT Merger and a current year
compensation charge associated with the issuance of restricted shares to our
property management personnel.
Fee and asset management revenues and fee and asset management expenses
are associated with the management of properties not owned by the
Operating Partnership that are managed for affiliates.Unconsolidated Properties. These revenues and
expenses increased slightly.
Interest expense, including amortization of deferred financing costs,
increased by approximately 24$1.3 million, but were offset by an increase in
expenses of approximately $1.3 million when compared to the nine months ended
September 30, 1999.
27
ERP OPERATING LIMITED PARTNERSHIP
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
$32.8Interest expense, including amortization of deferred financing
costs, increased by approximately $45.1 million. This increase was primarily
the result of a $719.2$661.7 million increase in the Operating Partnership's
average indebtedness outstanding. The effective interest cost on all of the
Operating Partnership's indebtedness for the sixnine months ending Juneended September 30,
2000 was 7.26%7.23% as compared to 6.98%6.97% for the sixnine months ended JuneSeptember 30,
1999.
General and administrative expenses, which include corporate operating
expenses, increased approximately $2.5$3.7 million between the periods under
comparison. This increase was primarily due to recording higher compensation
expense associated with the issuance of restricted shares. These expenses as a
percentage of total revenues were 1.35%1.28% for the sixnine months ended JuneSeptember 30,
2000 compared to 1.28%1.24% of total revenues for the sixnine months ended JuneSeptember 30,
1999.
COMPARISON OF QUARTER ENDED JUNESEPTEMBER 30, 2000 TO QUARTER ENDED JUNESEPTEMBER
30, 1999
For the quarter ended JuneSeptember 30, 2000, income before gain on
disposition of properties, net, extraordinary item, and allocation to Minority
Interests and provision for income taxes increased by approximately $16.8$21.3
million when compared to the quarter ended JuneSeptember 30, 1999. This increase was
primarily due to the acquisition of the 1999 Acquired Properties, the 2000
Acquired Properties and the Globe Merger, as well as increases in rental
revenues net of increases in property and maintenance expenses, real estate
taxes and insurance, property management expenses, depreciation expense,
interest expense and general and administrative expenses.
In regard to the Second-QuarterThird-Quarter 2000 Same Store Properties, total
revenues increased by approximately $15.3$19.4 million or 4.08%5.12% primarily as a result
of higher rental rates charged to new tenants and tenant renewals and an
increase in income from billing tenants for their share of utility costs as well
as other ancillary services provided to tenants. Overall, property
operatingproperty-operating
expenses, which include property and maintenance, real estate taxes and
insurance and an allocation of property management expenses, increased
approximately $3.1$4.5 million or 2.24%3.12%. This increase was primarily the result of
higher expenses for on-site compensation costs and an increase in real estate
taxes on certain properties, but was partially offset by lower leasing and
advertising, administrative, buildingmaintenance and insurance costs.
Property management represents expenses associated with the
self-management of the Operating Partnership's Properties. These expenses
increased by approximately $5.1$3.6 million primarily due to the operations of the
property management business obtained through the LFT Merger and a current year
compensation charge associated with the issuance of restricted shares to our
property management personnel.
Fee and asset management revenues and fee and asset management expenses
are associated with the management of properties not owned by the
Operating Partnership that are managed for affiliates.Unconsolidated Properties. These revenues
andincreased by approximately $0.9 million, but were offset by an increase in
expenses increased slightly.of approximately $0.9 million when compared to the quarter ended
September 30, 1999.
Interest expense, including amortization of deferred financing
costs, increased by approximately $16.4$12.3 million. This increase was primarily
the result of a $625.0$491.4 million increase in the Operating Partnership's
average indebtedness outstanding. The effective interest cost on all of the
Operating Partnership's indebtedness for the quarter ending Juneended September 30, 2000
was 7.37%7.25% as compared to 6.92%6.95% for the quarter
ended June 30, 1999.
General and administrative expenses, which include corporate operating
expenses, increased
2528
ERP OPERATING LIMITED PARTNERSHIP
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
ended September 30, 1999.
General and administrative expenses, which include corporate operating
expenses, increased approximately $1.6$1.2 million between the periods under
comparison. This increase was primarily due to recording higher compensation
expense associated with the issuance of restricted shares. These expenses as a
percentage of total revenues were 1.32%1.16% for the quarter ended JuneSeptember 30, 2000
compared to 1.17%1.15% of total revenues for the quarter ended JuneSeptember 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of January 1, 2000, the Operating Partnership had approximately
$29.1 million of cash and cash equivalents and the amount available on the
Operating Partnership's line of credit was $400 million, of which $65.8 million
was restricted. After taking into effect the various transactions discussed in
the following paragraphs, the Operating Partnership's cash and cash equivalents
balance at JuneSeptember 30, 2000 was approximately $237.1$56.2 million and the amount
available on the Operating Partnership's linelines of credit was $700$721.4 million, of
which $51.4$51.3 million was restricted. The following discussion also explains the
changes in net cash provided by operating activities, net cash (used for)
investing activities and net cash (used for) financing activities, all of which
are presented in the Operating Partnership's Statements of Cash Flows.
Part of the Operating Partnership's strategy in funding the purchase of
multifamily properties, funding its Properties in the development and/or earnout
stage and the funding of the Operating Partnership's investment in two joint
ventures with multifamily real estate developers is to utilize its linelines of
credit and to subsequently repay the linelines of credit from the disposition of
Properties or the issuance of additional equity or debt securities. Utilizing
this strategy during the first sixnine months of 2000, the Operating Partnership:
- obtained new mortgage financing on eleven previously unencumbered
properties and received net proceeds of $147.7 million;
- disposed of sixteenthirty properties (including the sale of the Operating
Partnership's entire interest in twothree Unconsolidated Properties) and
received net proceeds of $159.5$360.4 million;
- sold and/or contributed twenty-one properties to two separate joint
ventures and received net proceeds of $60.5 million;
- issued approximately 0.40.9 million OP Units and received net proceeds of
$14.1$24.9 million;
- issued the Series B, C, D and DE Cumulative Convertible Redeemable
Preference Units and received net proceeds of $84.8$133.6 million; and
- obtained new mortgage financing on twenty-one previously unencumbered
properties and received net proceeds of $217.2 million.
All of these proceeds were utilized to either:
- repay the linelines of credit;
- repay mortgage indebtedness on certain Properties;Properties and/or repay
unsecured notes;
- provide funding for properties in the development and/or earnout stage
including properties subject to the joint venture agreements; and/or
- purchase additional properties.
2629
ERP OPERATING LIMITED PARTNERSHIP
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
During the sixnine months ended JuneSeptember 30, 2000, the Operating
Partnership:
- repaid four unsecured notes totaling $208.0 million;
- repaid approximately $104.5$119.4 million of mortgage indebtedness on
fifty sixsixty-one Properties;
- settled on a $100 million interest rate protection agreement and
received approximately $7.1 million in connection therewith. This
amount is being amortized over the life of the financing for the
eleven previously unencumbered Properties that occurred inon March 20,
2000;
- funded $91.7$103.3 million related to the development, earnout and joint
venture agreements;
- purchased threeeighteen Properties for a total purchase price of
approximately $127.2$257.0 million;
- funded $1.25 million to acquire an additional ownership interest in
LFT's Guilford portfolio; and
- acquired $25.0 million of 8.25% preferred securities of WRP
Convertible Trust I, an affiliate of WRP Newco.
As of JuneSeptember 30, 2000, the Operating Partnership had total
indebtedness of approximately $5.3$5.2 billion, which included mortgage indebtedness
of $3.0 billion (including premiums of $2.9$2.6 million), of which $837.1$836.6 million
represented tax-exempt bond indebtedness, and unsecured debt of $2.3$2.1 billion
(including net discounts and premiums in the amount of $1.9$1.6 million), of which
$127.8 million represented tax-exempt bond indebtedness.
Subsequent to JuneSeptember 30, 2000 and through August 9,November 6, 2000, the
Company and/orand the Operating Partnership:
- repaid and/or the purchaser assumed the outstanding mortgage balance
on one Propertythree Properties totaling approximately $5.9$10.6 million;
- disposed of sevenseventeen properties (including the sale of the
Operating Partnership's entire interest in one Unconsolidated
Property) for a total sales price of $125.4$245.0
million;
- acquired seven propertiesone property containing 985312 units and a vacant land parcel
for a total purchase price of approximately $51.1 million, including the
assumption of mortgage indebtedness of approximately $11.5
million and the issuance of OP Units with a value of
approximately $4.1$31.6 million; and
- acquired Globe Business Resources, Inc. ("Globe")Grove for cash of approximately $58.7$174.0 million plusand assumed
approximately $241.4 million in Grove debt, of which $45.8 million was
paid off immediately following the assumptionclose of mortgage
indebtedness of approximately $70.8 million.the merger.
During the remainder of 2000, the Operating Partnership expects to fund
$63.8$55.4 million related to the development, earnout and joint venture agreements.
In connection with one joint venture agreement, the Operating Partnership has an
obligation to fund up to an additional $17.5 million to guarantee third party
construction financing.
In addition, during the remainder of 2000, the Company and/or the Operating
Partnership expects to fund the:
- repayment of total indebtedness related to scheduled unsecured
note and mortgage note maturities in the amount of
approximately $215.0 million; and
- acquisition of Grove Property Trust for cash of approximately
$210.0 million.
The Operating Partnership has a policy of capitalizing expenditures
made for new real estate assets, including newly acquired properties and the
costs associated with placing these assets into service. Expenditures for
improvements and renovations to real estate that significantly enhance the value
of existing assets or substantially extend the useful life of an asset are also
capitalized. Expenditures for in-the-unit replacement-type items such as
27
ERP OPERATING LIMITED PARTNERSHIP
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
appliances, draperies, carpeting and floor coverings, mechanical equipment and
certain furniture and fixtures are also capitalized. Expenditures for ordinary
maintenance and repairs are expensed to operations as incurred. With respect to
acquired properties, the Operating Partnership has determined that it generally
spends $1,000 per unit during its first three years of ownership
30
ERP OPERATING LIMITED PARTNERSHIP
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
to fully improve and enhance these properties to meet the Operating
Partnership's standards. In regard to replacement-type items described above,
the Operating Partnership generally expects to spend $250 per unit on an annual
recurring basis.
During the sixnine months ended JuneSeptember 30, 2000, total capital
expenditures for the Operating
PartnershipPartnership's total improvements to real estate approximated $60.7$100.3 million.
Of this amount, approximately $12.5$24.8 million, or $137$254 per unit, related to
capital improvements and major repairs for the 1998, 1999 and 2000 Acquired
Properties. Capital improvements and major repairs for all of the Operating
Partnership's pre-EQR IPO properties and 1993, 1994, 1995, 1996 and 1997
Acquired Properties approximated $14.7$25.5 million, or $122$227 per unit. Capital
spent for replacement-type items approximated $25.4$42.5 million, or $119$202 per
unit. In addition, approximately $4.4$5.3 million was spent on nineeight specific
assets related to major renovations and repositioning of these assets. Also
included in total capital expendituresimprovements to real estate was approximately $2.4 million
expended for non-real estate additions such as computer software, computer
equipment, and furniture and fixtures and leasehold improvements for the
Operating Partnership's property management offices and its corporate
headquarters, $0.4$0.7 million
spent on commercial/other assets, $0.8$1.4 million spent on the Partially Owned
Properties and $0.1 million was spent on properties that were sold prior to 2000.
Such capital expenditures were primarily funded from working capital reserves
and from net cash provided by operating activities. Total capital expendituresimprovements to
real estate for the remaining portion of 2000 are estimated to be
approximately $61.3$16.4 million.
The Company, through its Globe subsidiary, has a policy for
capitalizing expenditures made for rental furniture and property and
equipment, including new acquisitions and the costs associated with placing
these assets into service. Globe purchases furniture to replace furniture
that has been sold and to maintain adequate levels of rental furniture to
meet existing and new customer needs. Expenditures for property and equipment
that significantly enhance the value of existing assets or substantially
extend the useful life of an asset are capitalized. Expenditures for ordinary
maintenance and repairs related to property and equipment are expensed as
incurred. For the period July 11, 2000 through September 30, 2000, total
additions to rental furniture and property and equipment approximated $7.5
million and $0.4 million, respectively. Such additions to rental furniture
and property and equipment were primarily funded from working capital
reserves and from net cash provided by operating activities. Total additions
to rental furniture and property and equipment for the remaining portion of
2000 are estimated to be approximately $6.4 million.
Also included in total capital expenditures was approximately $3.9
million expended for non-real estate additions such as computer software,
computer equipment, and furniture and fixtures and leasehold improvements for
the Company's property management offices and its corporate headquarters.
Such additions to non-real estate property were primarily funded from working
capital reserves and from net cash provided by operating activities. Total
additions to non-real estate property for the remaining portion of 2000 are
estimated to be approximately $1.3 million.
Total distributions paid in JulyOctober 2000 amounted to approximately
$130.4$141.5 million, which included distributions declared for the quarter ended
JuneSeptember 30, 2000.
The Operating Partnership expects to meet its short-term liquidity
requirements, including capital expenditures related to maintaining its existing
Properties and certain scheduled unsecured note and mortgage note repayments,
generally through its working capital, net cash provided by operating activities
and borrowings under its linelines of credit. The Operating Partnership considers
its cash provided by operating activities to be adequate to meet operating
requirements and payments of distributions. The Operating Partnership also
expects to meet its long-term liquidity requirements, such as scheduled
unsecured note and mortgage debt maturities, property acquisitions, financing of
construction and development activities and capital improvements, through
undistributed FFO and proceeds received from the disposition of certain
Properties and/or through the issuance of unsecured notes and equity securities
including additional OP Units. In addition, the Operating Partnership has
certain uncollateralized Properties available for additional mortgage borrowings
in the event that the public capital markets are unavailable to the Operating
Partnership or the cost of alternative sources of capital to the Operating
Partnership is too high.
The Operating Partnership has a revolving credit facility with Bank of
America Securities LLC and Chase Securities Inc. acting as joint lead arrangers
to provide the Operating Partnership with potential borrowings of up to $700
million. As of August 9,November 6, 2000, no amounts were$250 million was outstanding under this
facility.facility at a weighted average interest rate of 7.06%.
In connection with the Globe merger,Merger, the Operating PartnershipCompany assumed a revolving
credit facility with Fifth Third Bank with potential borrowings of up to
$55.0 million. This line of credit matures on May 31, 2003. As of August 9,November 6,
2000, $40.3$42.2 million was outstanding under this facility.
28facility at a weighted average
interest rate of 8.92%.
31
ERP OPERATING LIMITED PARTNERSHIP
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
In connection with the Wellsford Merger, the Operating Partnership
provided a $14.8 million credit enhancement with respect to certain tax-exempt
bonds issued to finance certain public improvements at a multifamily development
project. As of August 9,November 6, 2000, this enhancement was still in effect.
Pursuant to the terms of a capital investment in Constellation Real
Technologies, LLC ("Constellation"), the Operating Partnership has a funding
commitment of $12.3 million as of September 30, 2000. Constellation's primary
objectives will be to serve as an incubator for real estate technology
companies and to provide a platform for pooling of its investor's purchasing
power. The Operating Partnership's current equity ownership interest in
Constellation is 9.999% as of November 6, 2000.
Pursuant to the terms of a Stock Purchase Agreement with Wellsford Real
Properties, Inc. ("WRP Newco"), the Operating Partnership had agreed to purchase
up to 1,000,000 shares of WRP Newco Series A Preferred at $25.00 per share on a
standby basis over a three-year period ending on May 30, 2000. This agreement
was terminated on May 5, 2000, and, as such, the Operating Partnership has no
further obligations under this agreement.
On May 5, 2000, the Operating Partnership acquired $25.0 million of
8.25% preferred securities of WRP Convertible Trust I, an affiliate of WRP
Newco. These preferred securities are indirectly convertible into WRP Newco
common shares under certain circumstances.
FUNDS FROM OPERATIONS
Funds from Operations ("FFO") represents net income (loss) (computed in
accordance with accounting principles generally accepted in the United States
("GAAP")), excluding gains or losses from sales of property, plus depreciation
and amortization, and after adjustments for unconsolidated partnerships and
joint ventures. Adjustments for unconsolidated partnerships and joint ventures
will be calculated to reflect funds from operations on the same basis. This
definition of FFO is in accordance with the National Association of Real Estate
Investment Trust's ("NAREIT") recommended definition. NAREIT modified this
definition effective January 1, 2000. However, as a result of this modification,
no changes were required to the Operating Partnership's calculation of FFO for
either the current or prior periods presented.
The Operating Partnership believes that FFO is helpful to investors as
a supplemental measure of the operating performance of a real estate company
because, along with cash flows from operating activities, financing activities
and investing activities, it provides investors an understanding of the ability
of the Operating Partnership to incur and service debt and to make capital
expenditures. FFO in and of itself does not represent cash generated from
operating activities in accordance with GAAP and therefore should not be
considered an alternative to net income as an indication of the Operating
Partnership's performance or to net cash flows from operating activities as
determined by GAAP as a measure of liquidity and is not necessarily indicative
of cash available to fund cash needs. The Operating Partnership's calculation of
FFO may differ from the methodology for calculating FFO utilized by other real
estate companies and may differ as a result of differences between the Operating
Partnership's and other real estate company's accounting policies for
replacement type items and, accordingly, may not be comparable to such other
real estate companies.
FFO per OP Unit is presented giving affect to the Statement of
Financial Accounting Standards No. 128 "Earnings Per Share".
2932
ERP OPERATING LIMITED PARTNERSHIP
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
For the sixnine months ended JuneSeptember 30, 2000, FFO available to OP Units
increased by $54.0$84.9 million, or 18.2%18.8%, and FFO per OP Unit - diluted increased by
$0.25,$0.39, or 11.4%11.7%, when compared to the sixnine months ended JuneSeptember 30, 1999.
For the quarter ended JuneSeptember 30, 2000, FFO available to OP Units
increased by $29.4$31.0 million, or 19.4%19.9%, and FFO per OP Unit - diluted increased by
$0.14, or 12.6%12.4%, when compared to the quarter ended JuneSeptember 30, 1999.
The following is a reconciliation of net income to FFO available to OP
Units for the sixnine months and quarters ended JuneSeptember 30, 2000 and 1999:
SIXNINE MONTHS ENDED JUNE 30, QUARTER ENDED
JUNESEPTEMBER 30, ------------------------- ----------------------SEPTEMBER 30,
------------------------------- ----------------------------
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER OP UNIT AMOUNTS)
STATEMENTS OF FUNDS FROM OPERATIONS
Net income $272,930 $204,730 $164,695 $104,050$ 495,598 $ 307,661 $ 222,668 $ 102,931
Adjustments:
Depreciation on real estate assets* 220,864 194,262 110,783 98,790329,821 293,090 108,957 98,828
Loss on early extinguishment of debt - 451 - 451-
Gain on disposition of properties, net (87,652) (45,807) (67,654) (24,391)
-------- -------- -------- --------(205,121) (64,315) (117,469) (18,508)
--------- --------- --------- ---------
FFO 406,142 353,636 207,824 178,900620,298 536,887 214,156 183,251
Allocation to preference unit/interest holders (55,654) (57,111) (27,266) (27,734)
-------- -------- -------- --------(83,597) (85,118) (27,943) (28,007)
--------- --------- --------- ---------
FFO available to OP Units $350,488 $296,525 $180,558 $151,166
======== ======== ======== ========$ 536,701 $ 451,769 $ 186,213 $ 155,244
========= ========= ========= =========
FFO per OP Unit - basic $ 3.78 $ 3.38 $ 1.30 $ 1.15
========= ========= ========= =========
FFO per OP Unit - diluted $ 3.71 $ 3.32 $ 1.27 $ 1.13
========= ========= ========= =========
Weighted average OP Units outstanding - basic 140,850 132,825 141,436 133,478
======== ======== ======== ========
FFO per OP Unit - basic $ 2.49 $ 2.23 $ 1.28 $ 1.13
======== ======== ======== ========
FFO per OP Unit - diluted $ 2.44 $ 2.19 $ 1.25 $ 1.11
======== ======== ======== ========141,817 133,490 143,732 134,993
========= ========= ========= =========
* INCLUDES $210,000$890 AND $551,000$710 FOR THE SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2000 AND 1999,
RESPECTIVELY, AND $105,000$680 AND $276,000$159 FOR THE QUARTERS ENDED JUNESEPTEMBER 30, 2000 AND
1999, RESPECTIVELY, RELATED TO THE OPERATING PARTNERSHIP'S SHARE OF DEPRECIATION
FROM UNCONSOLIDATED PROPERTIES. EXCLUDES $701,000$1,083 FOR THE SIXNINE MONTHS ENDED
JUNESEPTEMBER 30, 2000 AND $358,000$382 FOR THE QUARTER ENDED JUNESEPTEMBER 30, 2000 RELATED TO
THE MINORITY INTERESTS' SHARE OF DEPRECIATION FROM PARTIALLY OWNED PROPERTIES.
3033
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no new or significant developments related to the legal
proceedings that were discussed in Part I, Item III of the Operating
Partnership's Form 10-K for the year ended December 31, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(B) Reports on Form 8-K:
None.
3134
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ERP OPERATING LIMITED PARTNERSHIP
BY: EQUITY RESIDENTIAL PROPERTIES TRUST,
ITS GENERAL PARTNER
Date: AUGUST 9,November 13, 2000 By: /s/ Bruce C. Strohm
----------------------------------------------------------- --------------------------------------
Bruce C. Strohm
Executive Vice President, General Counsel
and Secretary
Date: AUGUST 9,November 13, 2000 By: /s/ Michael J. McHugh
------------------------------------------------------------ --------------------------------------
Michael J. McHugh
Executive Vice President, Chief Accounting
Officer and Treasurer
3235