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 SEPTEMBER 30, 2000MARCH 31, 2001
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)
September 30, DecemberMARCH 31, DECEMBER 31,
2001 2000
1999
----------------- ----------------------------------- ------------------
ASSETS
Investment in real estate
Land $ 1,543,4541,769,111 $ 1,550,3781,770,019
Depreciable property 10,296,305 10,670,55010,748,240 10,782,311
Construction in progress 30,093 18,035
----------------- -----------------
11,869,852 12,238,96343,108 39,130
------------------ ------------------
12,560,459 12,591,460
Accumulated depreciation (1,273,394) (1,070,487)
----------------- -----------------(1,433,394) (1,352,236)
------------------ ------------------
Investment in real estate, net of accumulated depreciation 10,596,458 11,168,47611,127,065 11,239,224
Real estate held for disposition 224,553 12,86821,886 51,637
Cash and cash equivalents 56,242 29,117104,831 23,772
Investment in mortgage notes, net 79,690 84,97774,347 77,184
Investments in unconsolidated joint ventures 270,391 140,284entities 333,170 316,540
Rents receivable 1,611 1,7311,980 1,801
Deposits - restricted 263,661 111,270254,802 231,639
Escrow deposits - mortgage 73,186 75,32869,073 70,470
Deferred financing costs, net 30,343 33,96830,456 29,706
Rental furniture, net 59,069 -61,380 60,183
Property and equipment, net 7,664 -7,676 7,620
Goodwill, and other intangibles, net 70,844 -70,357 67,589
Other assets 87,150 57,670
----------------- -----------------88,472 86,601
------------------ ------------------
TOTAL ASSETS $ 11,820,86212,245,495 $ 11,715,689
================= =================12,263,966
================== ==================
LIABILITIES AND PARTNERS' CAPITALSHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable net $ 3,017,4493,097,033 $ 2,883,5833,230,611
Notes, net 2,121,118 2,290,2852,418,911 2,120,079
Lines of credit 33,631 300,000- 355,462
Accounts payable and accrued expenses 149,892 102,95598,665 107,818
Accrued interest payable 69,995 44,25771,629 51,877
Rents received in advance and other liabilities 77,126 74,196108,319 100,819
Security deposits 40,946 39,68746,595 46,272
Distributions payable 138,821 18,813
----------------- -----------------140,210 18,863
------------------ ------------------
TOTAL LIABILITIES 5,648,978 5,753,776
----------------- -----------------5,981,362 6,031,801
------------------ ------------------
COMMITMENTS AND CONTINGENCIES
Minority Interests - Partially Owned Properties 2,903 -
----------------- -----------------2,881 2,884
------------------ ------------------
Partners' capital:
Junior Convertible Preference Units 7,896 7,896
----------------- -----------------
Cumulative Convertible Redeemable Preference Interests 177,000 40,000
----------------- -----------------221,000 186,000
Cumulative Convertible or Redeemable Preference Units 1,189,959 1,310,266
----------------- -----------------1,181,697 1,183,136
General Partner 4,389,402 4,194,6684,462,177 4,436,411
Limited Partners 404,724 409,083
----------------- -----------------
Total General Partner and Limited Partners capital 4,794,126 4,603,751
----------------- -----------------405,515 415,838
Accumulated other comprehensive income (17,033) -
------------------ ------------------
TOTAL PARTNERS' CAPITAL 6,168,981 5,961,913
----------------- -----------------6,261,252 6,229,281
------------------ ------------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 11,820,86212,245,495 $ 11,715,689
================= =================12,263,966
================== ==================
SEE ACCOMPANYING NOTES
2
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER OP UNIT DATA)
(UNAUDITED)
NINE MONTHS ENDED QUARTER ENDED SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------MARCH 31,
------------------------------
2001 2000
1999 2000 1999
---------------------------- ----------------------------------------- ---------------
REVENUES
Rental income $ 1,454,958514,137 $ 1,243,958 $ 502,218 $ 424,780473,547
Fee and asset management 4,711 3,432 1,876 1,0181,972 1,400
Interest income-investmentincome - investment in mortgage notes 8,282 8,502 2,783 2,858
Income from investments in unconsolidated joint ventures 14,589 7,042 5,525 2,6912,744 2,762
Interest and other income 19,009 10,613 10,624 3,8416,502 3,478
Furniture income 14,22812,546 -
14,228 -
------------ ------------ ------------- ---------------------------
Total revenues 1,515,777 1,273,547 537,254 435,188
------------ ------------537,901 481,187
------------- ---------------------------
EXPENSES
Property and maintenance 368,291 300,798 140,446 103,933141,864 113,868
Real estate taxes and insurance 141,830 126,304 46,829 41,78948,021 48,334
Property management 56,204 42,817 18,444 14,84418,687 18,914
Fee and asset management 3,647 2,301 1,545 6771,875 1,066
Depreciation 335,844 297,505 111,332 100,371112,805 111,886
Interest:
Expense incurred 285,337 241,516 95,074 83,01795,276 95,111
Amortization of deferred financing costs 4,063 2,773 1,360 1,1121,397 1,341
General and administrative 19,439 15,736 6,223 5,0226,754 6,698
Furniture operating costs 9,505 - 9,505expenses 9,724 -
Amortization of goodwill and other intangibles 767933 -
767 -
------------ ------------ ------------- ---------------------------
Total expenses 1,224,927 1,029,750 431,525 350,765
------------ ------------437,336 397,218
------------- ---------------------------
Income before gain on disposition of properties, net,
extraordinary item, allocation to Minority Interests,
income from investments in unconsolidated entities,
net gain on sales of real estate, extraordinary items and
provision for income taxes 290,850 243,797 105,729 84,423
Gain on dispositioncumulative effect of properties, net 205,121 64,315 117,469 18,508
Loss on early extinguishment of debt - (451) - -change in accounting principle 100,565 83,969
Allocation to Minority Interests - Partially Owned Properties 145(105) 45
Income from investments in unconsolidated entities 3,797 4,223
Net gain on sales of real estate 41,778 19,998
------------- ---------------
Income before extraordinary items and cumulative effect of
change in accounting principle 146,035 108,235
Extraordinary items 311 -
(12)Cumulative effect of change in accounting principle (1,270) -
Provision for income taxes (518) - (518) -
------------ ------------ ------------- ---------------------------
Net income $ 495,598145,076 $ 307,661 $ 222,668 $ 102,931
============ ============108,235
============= ===========================
ALLOCATION OF NET INCOME:
Junior Convertible Preference Units $ 327 $ 240 $ 109 $ 240
============ ============108
============= ===========================
Cumulative Convertible Redeemable Preference Interests $ 6,9003,958 $ 36 $ 3,233 $ 36
============ ============1,169
============= ===========================
Cumulative Convertible or Redeemable Preference Units $ 76,37024,459 $ 84,842 $ 24,601 $ 27,731
============ ============27,111
============= ===========================
General Partner $ 376,176106,754 $ 200,989 $ 178,032 $ 67,88472,751
Limited Partners 35,825 21,554 16,693 7,040
------------ ------------9,796 7,096
------------- ---------------------------
Net income available to OP Unit holders $ 412,001116,550 $ 222,543 $ 194,725 $ 74,924
============ ============79,847
============= ===========================
Net income per OP Unit - basic $ 2.910.81 $ 1.67 $ 1.35 $ 0.56
============ ============0.57
============= ===========================
Net income per OP Unit - diluted $ 2.880.80 $ 1.66 $ 1.33 $ 0.55
============ ============0.57
============= ===========================
Weighted average OP Units outstanding - basic 141,818 133,490 143,732 134,993
============ ============144,830 140,264
============= ===========================
Weighted average OP Units outstanding - diluted 148,592 140,686
============= ===============
SEE ACCOMPANYING NOTES
3
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
NINE MONTHSQUARTER ENDED SEPTEMBER 30,
----------------------------------MARCH 31,
-----------------------------------
2001 2000
1999
--------------------------------------------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 495,598145,076 $ 307,661108,235
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Allocation to Minority Interests - Partially Owned Properties (145)105 (45)
Cumulative effect of change in accounting principle 1,270 -
Depreciation 335,844 297,505115,029 111,886
Amortization of deferred financing costs 4,063 2,7731,397 1,341
Amortization of discount on investment in mortgage notes (161) -
Amortization of goodwill and other intangibles 767933 -
Amortization of discounts and premiums on debt (1,725) (1,746)(590) (576)
Amortization of deferred settlements on interest rate protection
agreements 290 768
Equity101 201
Income from earnings of investments in unconsolidated joint ventures (459) (3,092)
Gainentities (3,797) (4,223)
Net gain on dispositionsales of properties, net (205,121) (64,315)
Compensation paid with Company Common Shares 4,300real estate (41,778) (19,998)
Extraordinary items (311) -
Provision for income taxes 518Unrealized gain on interest rate protection agreements (71) -
Book value of furniture sales and rental buyouts 4,802buy outs 2,851 -
Compensation paid with Company Common Shares 2,867 1,422
CHANGES IN ASSETS AND LIABILITIES:
Decrease(Increase) decrease in rents receivable 44 2,480(188) 723
Decrease (increase) in deposits - restricted 3,660 (4,344)5,343 (2,802)
Additions to rental furniture (6,272) -
(Increase) decrease in other assets (7,285) 41,030
Increase(1,872) (2,025)
(Decrease) increase in accounts payable and accrued expenses 39,186 32,010(9,153) 1,944
Increase in accrued interest payable 22,612 16,439
(Decrease) increase19,752 16,683
Increase (decrease) in rents received in advance and other liabilities (10,273) 7,727219 (2,652)
Increase (decrease) in security deposits 14 (1,735)
---------------343 80
----------------- ---------------
Net cash provided by operating activities 686,690 633,161
---------------231,093 210,194
----------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate, net (238,218) (469,585)(157,157) (18,307)
Improvements to real estate (100,347) (93,456)(28,166) (27,193)
Additions to non-real estate property (3,919) (5,922)
Additions to rental furniture (7,477) -
Investment in property and equipment (416) -(1,830) (1,038)
Interest capitalized for real estate under construction (827) (1,157)(667) (236)
Proceeds from disposition of real estate, net 416,603 197,125280,448 92,241
Investment in property and equipment (673) -
Principal receipts on investment in mortgage notes 5,287 2,746
Investment2,998 1,687
Investments in unconsolidated joint ventures,entities, net (119,893) (77,641)(16,613) (47,315)
Distributions from unconsolidated entities, net 8,364 4,801
Proceeds from disposition of unconsolidated joint ventures,entities, net 4,602 54,060- 4,400
(Increase) in deposits on real estate acquisitions, net (154,711) (55,201)(28,506) (51,948)
Decrease (increase) in mortgage deposits 2,283 (4,750)
Decrease in mortgage receivables - 7,150870 4,596
Purchase of management contract rights - (779) (285)
Business combinations, net of cash acquired (61,754) -
Merger costs paid after initial business combinations (9,474) (4,598)(5,538) (3,472)
Other investing activities, net (2,950) (15,075)
---------------(48) (772)
----------------- ---------------
Net cash provided by (used for) investing activities (271,990) (466,589)
---------------53,482 (43,335)
----------------- ---------------
SEE ACCOMPANYING NOTES
4
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
NINE MONTHSQUARTER ENDED SEPTEMBER 30,
-----------------------------------MARCH 31,
---------------------------------
2001 2000
1999
-------------------------------------------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan and bond acquisition costs $ (2,392)(3,390) $ (8,423)(574)
MORTGAGE NOTES PAYABLE:
Proceeds, net 389,051 188,56929,052 147,683
Lump sum payoffs (119,412) (54,231)(176,746) (12,801)
Scheduled principal payments (19,930) (13,041)repayments (8,451) (7,509)
NOTES, NET:
Proceeds, net 299,316 -
298,014
Payoffs (208,000) (125,000)Scheduled principal repayments (119) -
LINES OF CREDIT:
Proceeds 209,305 959,000176,686 48,000
Repayments (505,179) (1,159,000)
Proceeds(532,148) (348,000)
(Payments) proceeds from settlement of interest rate protection agreements (7,360) 7,055 -
Capital contributions from General Partner, net 24,653 34,21511,413 6,868
Proceeds from the sale of preference units/interests, net 133,575 39,000
DISTRIBUTIONS:
General and Limited Partners (216,036) (189,931)
Preference units/interests (80,412) (84,979)34,125 64,350
Distributions paid to partners (25,857) (28,597)
Distributions to Minority Interests - Partially Owned Properties (617)(108) -
Principal receipts on employee notes, net 254 144
Principal receipts on other notes receivable, net 510 7,93171 59
--------------- -------------------------------
Net cash (used for) financing activities (387,575) (107,732)(203,516) (123,466)
--------------- -------------------------------
Net increase in cash and cash equivalents 27,125 58,84081,059 43,393
Cash and cash equivalents, beginning of period 23,772 29,117
3,965
--------------- -------------------------------
Cash and cash equivalents, end of period $ 56,242104,831 $ 62,80572,510
=============== ===============================
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $ 264,58276,777 $ 226,23478,961
=============== ===============================
Mortgage loans assumed and/or entered into through
acquisitions of real estate $ 38,44245,918 $ 69,885-
=============== ===============================
Net real estate contributed in exchange for OP Units or
Junior
Convertible Preference Units $ 4,707- $ 28,232636
=============== ===============================
Mortgage loans assumed by purchaser in real estate dispositions $ (220,000)(22,815) $ -
=============== ===============================
Transfers to real estate held for disposition $ 224,55321,886 $ 13,457
--------------- ---------------
Refinancing29,183
=============== ================
Mortgage loans recorded as a result of mortgage notes payable in favorconsolidation of notes, netpreviously
Unconsolidated Properties $ - $ 75,790
--------------- ---------------
Mortgage loans assumed through65,095
=============== ================
Net liabilities recorded as a result of consolidation of Partially Ownedpreviously
Unconsolidated 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"("ERPOP"), 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.ERPOP. As used herein, the term "Company" means EQR, and"Operating Partnership"
also includes its subsidiaries, as the survivorincluding entities that own residential real
property and other assets acquired by virtue 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, IncInc. ("MRY") (the "MRY Merger"), and Lexford
Residential Trust ("LFT") ("the LFT Merger") (collectively, the "Mergers").
The term "Company"Operating Partnership also includes Globe Business Resources, Inc.
("Globe") (the "Globe Merger") and, Temporary Quarters, Inc. ("TQ") and Grove Operating, L.P.
("Grove"). As used herein, the term "Company" means EQR and the Operating
Partnership. EQR has elected to be taxed as a REIT under Section 856(c) of
the Internal Revenue Code 1986, as amended (the "TQ" Merger)"Code").
The Operating Partnership is engaged in the acquisition,
disposition, ownership, management and operation of multifamily properties.
As of September
30, 2000,March 31, 2001, the Operating Partnership owned or had interests in a
portfolio of 1,0561,096 multifamily properties containing 222,699227,153 apartment units
(individually a "Property" and collectively the "Properties") consisting of
the following:
Number of Number of
Properties Units
- ---------------------------------- --------------------------------- -----------------
Wholly Owned Properties 953 204,610979 204,048
Partially Owned Properties 14 2,99515 3,067
Unconsolidated Properties 89 15,094
----------------102 20,038
----------------- -----------------
Total Properties 1,056 222,699
================1,096 227,153
================= =================
The "Partially Owned Properties" are controlled and partially owned by
the Operating Partnership but have partners with minority interests (see further
discussion in Notes 4 and 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 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. 133,2. SUMMARY OF SIGNIFICANT 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.POLICIES
BASIS OF PRESENTATION
The balance sheet and statements of operations and cash flows as of
and for the nine months and quarter ended September 30, 2000 represent theaccompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the Operating Partnershipinformation and its
subsidiaries.
Due tofootnotes
required by accounting principles generally accepted in the Operating Partnership's ability to control either through
ownership or by contract a seriesUnited States for
complete financial statements. In the opinion of management, limited partnerships and
companies (collectively, the "Management Partnerships" or the "Management
Companies"), the Financing Partnerships, the LLC's, Globeall adjustments
(consisting of normal recurring accruals) and certain other
entities, each such entity hasreclassifications
considered necessary for a fair presentation have 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.included. Certain
reclassifications have been made to the prior year'speriods financial statements in
order to conform to the current year presentation. Minority interests representedOperating results for the
three months ended March 31, 2001 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2001.
The balance sheet at December 31, 2000 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by EQR's indirect 1% interest in various
Financing Partnerships and LLCs are immaterial and have not been accounted foraccounting principles generally
accepted in the Consolidated Financial Statements. In addition, certain amounts due from
EQRUnited States for its 1% interest in the Financing Partnerships has not been reflected in
the Consolidated Balance Sheets since such amounts are immaterialcomplete financial statements.
For further information including capitalized terms, refer to the
Consolidated Balance Sheets.
These unaudited Consolidated Financial Statements of the Operating
Partnership have been prepared pursuant to the Securitiesconsolidated financial statements and Exchange
Commission ("SEC") rules and regulations and should be read in conjunction with
the Financial Statements and Notesfootnotes thereto included in the
Operating Partnership's Annual Reportannual report on Form 10-K. The following Notes to Consolidated
Financial Statements highlight significant changes10-K for the year ended
December 31, 2000.
6
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In the normal course of business, the Operating Partnership is
exposed to the notes includedeffect of interest rate changes. The Operating Partnership
limits these risks by following established risk management policies and
procedures including the use of derivatives.
The Operating Partnership has a policy of only entering into
contracts with major financial institutions based upon their credit ratings
and other factors. When viewed in conjunction with the underlying and
offsetting exposure that the derivatives are designed to hedge, the Operating
Partnership has not sustained a material loss from those instruments nor does
it anticipate any material adverse effect on its net income or financial
position in the Form 10-K and present interim disclosuresfuture from the use of derivatives.
On January 1, 2001, the Operating Partnership adopted SFAS No.
133/138, which requires an entity to recognize all derivatives as required by the SEC. The
accompanying Consolidated Financial Statements reflect,either
assets or liabilities in the opinionstatement of management, allfinancial position and to measure
those instruments at fair value. Additionally, the fair value adjustments
necessarywill affect either partners' capital or net income depending on whether the
derivative instruments qualify as a hedge for a fair presentationaccounting purposes and, if so,
the nature of the interim
financial statements. All such adjustmentshedging activity. When the terms of an underlying
transaction are of a normal and recurring nature.
3. BUSINESS COMBINATIONS
On July 11, 2000,modified, or when the Company acquired Globeunderlying transaction is terminated or
completed, all changes 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 covenantsthe instrument are
marked-to-market with changes in value included in net income each period
until the instrument matures. Any derivative instrument used for risk
management that does not meet the hedging criteria is marked-to-market each
period.
As of January 1, 2001, the adoption of the new standard resulted in
derivative instruments reported on the balance sheet as liabilities of
approximately $6.6 million; an adjustment of approximately $5.3 million to
compete"Accumulated Other Comprehensive Income", which are gains and losses not
affecting retained earnings in the Consolidated Statement of Partners'
Capital; and a charge of approximately $1.3 million as a cumulative effect of
change in accounting principle in the Consolidated Statement of Operations.
The Operating Partnership employs derivative financial instruments
to hedge qualifying anticipated transactions. Gains and losses are deferred
and recognized in net income in the same period that the underlying
transaction occurs, expires or is otherwise terminated. As of March 31, 2001,
there were approximately $17.0 million in deferred losses, net, included in
accumulated other comprehensive income.
As of March 31, 2001, the Operating Partnership has entered into
swaps, which have been designated as cash flow hedges with an aggregate
notional amount of $626.4 million at the merger date;
- Recorded merger costsinterest rates ranging from 3.65125% to
6.15% maturing at various dates ranging from 2003 to 2007 with a net
liability fair value of $4.5$16.5 million; and - Assumed $70.8swaps which have been designated
as fair value hedges with an aggregate notional amount of $176.4 million in debt, which included $1.4 million in mortgage
debt, $39.9 million in unsecured notes, and Globe's lineat
interest rates ranging from 4.458% to 4.830% maturing at various dates
ranging from 2003 to 2004 with a net asset fair value of credit
totaling $29.5$5.6 million.
On July 21, 2000,March 31, 2001, the Company, through its Globe subsidiary,
acquired TQ,net derivative instruments were reported at
their fair value as other liabilities of approximately $10.9 million. Within
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 bothnext twelve months the Globe Merger and the
TQ Merger as purchases in accordance with Accounting Principals Board Opinion
No. 16. Significant accounting policies relatingOperating Partnership expects 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 approximaterecognize an
estimated useful life$4.0 million 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 andaccumulated 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 forcomprehensive income 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.additional interest expense.
3. PARTNERS' CAPITAL
The following table presents the changes in the Operating
Partnership's issued and outstanding OP Units for the nine monthsquarter ended September 30, 2000:
8March 31,
2001:
7
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
- ----------------------------------------------------------------------- ---------------
2000------------------------------------------------------------------- ----------------
2001
- ----------------------------------------------------------------------- ---------------------------------------------------------------------------------- ----------------
Operating Partnership's OP Units outstanding at January 1, 139,934,540
Issued to General Partner:
- --------------------------145,045,126
ISSUED TO GENERAL PARTNER:
Conversion of Series E Preferred Shares 69,011
Conversion of Series G Preferred Shares 1,28031,532
Conversion of Series H Preferred Shares 62,278
Conversion of Series J Preferred Shares 2,822,012650
Employee Share Purchase Plan 130,30571,142
Dividend Reinvestment - DRIP Plan 18,09976
Share Purchase - DRIP Plan 10,3583,183
Exercise of EQR options 497,681189,502
Restricted EQR share grants, net 232,161
Issued339,053
ISSUED TO LIMITED PARTNERS:
Issuance pursuant to Limited Partners:acquisition of remaining minority interest in
Globe 34,716
- ---------------------------
Issuance through acquisitions 100,170
- ----------------------------------------------------------------------- ---------------------------------------------------------------------------------- ----------------
Operating Partnership's OP Units outstanding at September 30, 143,877,895March 31, 145,714,980
- ----------------------------------------------------------------------- ===============------------------------------------------------------------------- ----------------
As of September 30, 2000, OP Units outstanding totaled 143,877,895.March 31, 2001, EQR (as the general partner) had an
approximate 91.64% interest and the Limited Partners had an approximate 8.36%
interest in the Operating Partnership. The limited partners of the Operating
Partnership as of September 30, 2000March 31, 2001 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
12,302,69812,186,865 OP Units.
As of
September 30, 2000, EQR (as the "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,contributes all 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 (on a one-for-one common share per
OP Unit basis), 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.
The Guilford portfolio properties (see further discussion in Note 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 assets, liabilities, revenues and expenses
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 September 30, 2000March 31, 2001 and
December 31, 1999:
9
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)2000:
- -------------------------------------------------------------- ------------------ ---------------------------
AMOUNTS IN THOUSANDS
----------------------------------------------
ANNUAL MARCH DECEMBER
DIVIDEND SEPTEMBER DECEMBER31, 2001 31, 2000
RATE PER UNIT
(1) 30, 2000 31, 1999
- -------------------------------------------------------------- ------------------ ------------- ------------------------------------------------------------------- -------------- ------------ -----------
Junior Convertible Preference Units:
Series A Junior Convertible Preference Units; liquidation $5.469344 $ 7,712 $ 7,712
liquidation value $100 per unit;
77,123 units issued and outstanding at
September 30, 2000March 31, 2001 and December 31, 19992000
Series B Junior Convertible Preference Units; liquidation $2.000000 184 184
liquidation value $25 per unit;
7,367 units issued and outstanding
at September 30, 2000March 31, 2001 and December 31, 19992000
- -------------------------------------------------------------- ------------------ ------------- ------------------------------------------------------------------- -------------- ------------ -----------
$ 7,896 $ 7,896
- -------------------------------------------------------------- ------------------ ------------- ------------------------------------------------------------------- -------------- ------------ -----------
(1) Dividends on both series of Junior Convertible Preference Units are
payable quarterly at various pay dates.
OnDuring the quarter ended March 3, 2000, Lexford Properties, L.P.,31, 2001, a subsidiary of the
Operating Partnership issued 1.1preference units with an equity value of $35
million, unitsreceiving net proceeds of 8.50%$34.1 million:
o 510,000 7.875% Series BG Cumulative
Convertible Redeemable Preference Units (collectively known(known
as "Preference Interests") with an equity value of $55.0$25.5 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 million510,000 units
are exchangeable into 1.1 million510,000 shares of 8.50%7.875% Series M-1M-4 Cumulative
8
Redeemable Preferred Shares of Beneficial Interest of the Company. The Series M-1 Preferred Shares
are not convertible into EQR Common Shares.EQR. Dividends
for the Series BG Preference Interests or the Series M-1M-4 Preferred
Shares are payable quarterly at the rate of $4.25$3.9375 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%o 190,000 7.625% Series CH Cumulative Convertible Redeemable Preference
Units with an equity value of $11.0$9.5 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 220,000190,000 units are exchangeable into
220,000190,000 shares of 8.50%7.625% Series M-1M-5 Convertible Cumulative Redeemable
Preferred Shares of Beneficial Interest of EQR or 143,526 EQR Common
Shares beginning March 2011. Dividends for the Company.Series H Preference
Interests or the Series M-5 Preferred Shares are payable quarterly at
the rate of $3.8125 per unit/share per year.
The Series M-1M-4 Preferred Shares are not convertible into EQR Common
Shares. Dividends forThe Series H Preference Interests and the Series C Preference Interests or the Series M-1M-5 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 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 ratea conversion price ratio of $4.18750.7554
common shares (equal to a conversion price of $66.19 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 millionshare) beginning 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.March 2011.
The following table presents Lexford Properties, L.P.'sthe Operating Partnership's issued and
outstanding Preference Interests as of September 30, 2000March 31, 2001 and December 31, 1999:2000:
- --------------------------------------------------------------------- ------------------------------------------------------------------------------------ ------------- ---------------------------
AMOUNTS IN THOUSANDS
---------------------------------------- -------------
ANNUAL
DIVIDEND
RATE PER SEPTEMBERMARCH DECEMBER
UNIT (1) 30,31, 2001 31, 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 September 30, 2000March 31, 2001 and December 31, 19992000
8.50% Series B Cumulative Convertible Redeemable Preference $ 4.2500$4.2500 55,000 -55,000
Units; liquidation value $50 per unit; 1,100,000 units issued
and outstanding at September 30,March 31, 2001 and December 31, 2000
8.50% Series C Cumulative Convertible Redeemable Preference $ 4.2500$4.2500 11,000 -11,000
Units; liquidation value $50 per unit; 220,000 units issued
and outstanding at September 30,March 31, 2001 and December 31, 2000
8.375% Series D Cumulative Convertible Redeemable Preference $4.1875 21,000 21,000
Units; liquidation value $50 per unit; 420,000 units issued
and outstanding at September 30,March 31, 2001 and December 31, 2000 $ 4.1875 21,000 -
8.50% Series E Cumulative Convertible Redeemable Preference Units,$4.2500 50,000 50,000
Units; liquidation value $50 per unit,unit; 1,000,000 units issued
and outstanding at September 30,March 31, 2001 and December 31, 2000
$ 4.2500 50,0008.375% Series F Cumulative Redeemable Preference $4.1875 9,000 9,000
Units; liquidation value $50 per unit; 180,000 units issued
and outstanding at March 31, 2001 and December 31, 2000
7.875% Series G Cumulative Redeemable Preference $3.9375 25,500 -
Units; liquidation value $50 per unit; 510,000 units issued
and outstanding at March 31, 2001
7.625% Series H Cumulative Convertible Redeemable $3.8125 9,500 -
--------------------------------------------------------------------- -----------------Preference Units; liquidation value $50 per unit; 190,000 units
issued and outstanding at March 31, 2001
- ------------------------------------------------------------------- ------------- ------------- $177,000 $ 40,000-------------
$221,000 $186,000
- --------------------------------------------------------------------- ------------------------------------------------------------------------------------ ------------- ------------- -------------
(1) Dividends on all series of Preference Interests are payable quarterly
at various pay dates.
119
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 September 30, 2000March
31, 2001 and December 31, 1999:2000:
- ----------------------------------------------------------------------- ------------------ -------------------------------------------------------------------------------------------------------------------------------------
AMOUNTS IN THOUSANDS
-------------------------
ANNUAL
DIVIDEND
SEPTEMBER DECEMBER
RATE PER MARCH DECEMBER
UNIT (1) 30,31, 2001 31, 2000
31, 1999
- ----------------------------------------------------------------------- -------------------------------------------------------------------------------------- ------------- ------------ ------------
Cumulative Convertible or Redeemable Preference Units:
9 3/8% Series A Cumulative Redeemable Preference Units; liquidation $ 2.34375 $ 153,000 $ 153,000$2.34375 $153,000 $153,000
value $25 per unit; 6,120,000 units issued and outstanding at
September 30, 2000March 31, 2001 and December 31, 19992000
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
September 30, 2000March 31, 2001 and December 31, 19992000
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 September 30, 2000March 31, 2001 and December 31, 19992000
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 September 30, 2000March 31, 2001 and December 31, 19992000
Series E Cumulative Convertible Preference Units; liquidation value $ 1.75000 96,748 99,850$1.75000 88,573 89,990
$25 per unit; 3,869,9403,542,915 and 3,994,0003,599,615 units issued and outstanding
at September 30, 2000March 31, 2001 and December 31, 1999,2000, 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
September 30, 2000March 31, 2001 and December 31, 19992000
7 1/4% Series G Convertible Cumulative Preference Units; liquidation $18.12500 316,175 316,250316,175
value $250 per unit; 1,264,700 and 1,265,000 units issued and outstanding at
September 30, 2000March 31, 2001 and December 31, 1999, respectively2000
7.00% Series H Cumulative Convertible Preference Units; liquidation $ 1.75000 1,536 3,686$1.75000 1,449 1,471
value $25 per unit; 61,42457,951 and 147,45258,851 units issued and outstanding
at September 30, 2000March 31, 2001 and December 31, 1999,2000, respectively
8.60% Series J Cumulative Convertible Preference Units; liquidation $ 2.15000 - 114,980
value $25 per unit; 0 and 4,599,200 units issued and outstanding
at September 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
September 30, 2000March 31, 2001 and December 31, 19992000
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
September 30, 2000March 31, 2001 and December 31, 19992000
- ----------------------------------------------------------------------- -------------------------------------------------------------------------------------- ------------- ------------ ------------
$1,189,959 $1,310,266$1,181,697 $1,183,136
- ----------------------------------------------------------------------- -------------------------------------------------------------------------------------- ------------- ------------ ------------
(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.
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 September 30,March 31, 2001 and 2000 and 1999 (AMOUNTS ARE IN THOUSANDS):
10
NINE MONTHS ENDED QUARTER ENDED SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------------------MARCH 31,
--------------------------------
2001 2000
1999 2000 1999
-------------------------- ------------------------------------------ ---------------
ALLOCATION OF NET INCOME:
9 3/8% Series A Cumulative Redeemable
Preference Units $10,758 $10,758 $ 3,586 $ 3,586
9 1/8% Series B Cumulative Redeemable
Preference Units 8,555 8,555 2,852 2,852
9 1/8% Series C Cumulative Redeemable
Preference Units 7,870 7,870 2,623 2,623
8.60% Series D Cumulative Redeemable
Preference Units 11,288 11,288 3,762 3,7623,763 3,763
Series E Cumulative Convertible Preference Units 5,184 5,245 1,693 1,7481,550 1,747
9.65% Series F Cumulative Redeemable
Preference Units 4,161 4,161 1,387 1,387
7 1/4% Series G Convertible Cumulative
Preference Units 17,194 17,196 5,7305,731 5,732
7.00% Series H Cumulative Convertible
Preference Units 81 196 26 65
8.82% Series I Cumulative Convertible
Preference Units - 3,329 - 56225 28
8.60% Series J Cumulative Convertible
Preference Units 2,451 7,416 - 2,4722,451
8.29% Series K Cumulative Redeemable
Preference Units 3,109 3,109 1,036 1,036
7.625% Series L Cumulative Redeemable
Preference Units 5,719 5,719 1,906 1,906
------- ------- ------- ---------------------- ---------------
Cumulative Convertible or Redeemable Preference Units $76,370 $84,842 $24,601 $27,731
======= ======= ======= =======$ 24,459 $ 27,111
=============== ===============
5. REAL ESTATE ACQUISITIONS4. Real Estate Acquisitions
During the nine monthsquarter ended September 30, 2000March 31, 2001, the Operating Partnership
acquired the eighteen Propertiesseven properties listed below from unaffiliated parties. In connection with certainparties for a
total purchase price 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$189.1 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)
- --------------- --------------------------------- --------------------------- ------------- ------------------------------------------------------------------------------------------------------------------------------------
ACQUISITION
DATE NUMBER OF PURCHASE PRICE
ACQUIRED PROPERTY LOCATION OF UNITS (IN THOUSANDS)
- --------------- --------------------------------- --------------------------- ------------- ---------------------------------- --------------------------------------- -------------------------- ------------ -----------------
01/19/00 Windmont Atlanta, GA 17804/01 Suerte San Diego, CA 272 $ 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
09/14/0037,500
02/08/01 Westside Villas I-VVI Los Angeles, CA 176 42,000
09/27/00 Millburn Court I Dayton, OH 65 1,50018 4,550
02/15/01 Riverview Norwalk, CT 92 9,600
03/15/01 Grand Reserve at Eagle Valley Woodbury, MN 394 54,250
03/22/01 Legends at Preston Morrisville, NC 382 30,200
03/30/01 Mission Hills Oceanside, CA 282 26,750
03/30/01 River Oaks Oceanside, CA 280 26,250
- ------------- ------------------------------- ----------------------------- --------- ----------
2,738 $257,109---------------- --------------------------------------- -------------------------- ------------ -----------------
1,720 $189,100
- ------------- -------------------------------- ----------------------------- --------- -------------------------- --------------------------------------- -------------------------- ------------ -----------------
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 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.
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 DISPOSITIONS5. Real Estate Dispositions
During the nine monthsquarter ended September 30, 2000,March 31, 2001, the Operating Partnership
disposed of the twenty-sevenfifteen properties listed below to unaffiliated parties.
TheIncluding the joint venture and land sale discussed below, the Operating
Partnership recognized a net gain for financial reporting
purposes of approximately $155.8 million.
14$41.8 million on these
sales.
11
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 17501/17/01 Meadowood II Indianapolis, IN 74 $ 10,0001,300
01/31/01 Concorde Bridge Overland Park, KS 248 15,600
02/09/00 Sonnet Cove01/01 Springs of Country Woods Salt Lake City, UT 590 31,000
02/22/01 Riverview Estates Napoleon, OH 90 1,750
02/26/01 Chelsea Court Sandusky, OH 62 1,600
02/27/01 Concord Square Lawrenceburg, IN 48 1,200
02/28/01 Canyon Creek Tucson, AZ 242 9,220
03/06/01 Gentian Oaks Columbus, GA 62 1,620
03/06/01 Holly Park Columbus, GA 66 1,730
03/06/01 Stratford Lane I & II Lexington, KY 331 12,300
02/25/00 YumaColumbus, GA 67 1,750
03/07/01 Estate on Quarry Lake Austin, TX 302 25,232
03/08/01 Meadowood Crawfordsville, IN 64 1,300
03/14/01 Mill Run Statesboro, GA 88 2,350
03/15/01 Laurel 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 7,800Fremont, OH 69 1,450
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 Grand15/01 Regency Woods West 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 8,030200 9,350
- ---------------- ---------------------------------- ------------------------- --------------------------------------- ------------ -----------------
6,977 $355,7832,272 $106,452
- ---------------- ---------------------------------- ------------------------- --------------------------------------- ------------ -----------------
On June 30, 2000,February 23, 2001, the Operating Partnership entered into two
separatea joint
venturesventure with an unaffiliated party.joint venture partner ("JVP"). At closing, the
Operating Partnership sold and/or contributed twenty-oneeleven wholly owned properties
containing 5,2113,011 units valued at $303.4$202.5 million to the joint venturesventure
encumbered with $220.0$20.2 million in mortgage loans obtained on June 26, 2000
(see further discussionFebruary 16,
2001. An additional $123.6 million of mortgage loans was obtained by the
joint venture. The JVP contributed cash in Note 9). The unaffiliated party acquired aan amount equal to 75% interestof the
equity in the joint ventures whileventure, which was then distributed to the Operating
Partnership. The Operating Partnership retained a 25% interest in the joint
venture along with the right to manage the properties. In accordance with the
respective joint venture organization documents, the Operating Partnership
and the JVP both shall have the right, but not the obligation, to infuse
additional cash into the joint venture. There are no other agreements that
require the Operating Partnership or the JVP to infuse cash into each joint
venture. In addition, the Operating Partnership and the JVP have not
guaranteed the mortgage indebtedness of the joint venture. As a result, the
Operating Partnership recognized 75% of the gain on the sales and/or
contributions of property to the joint venture, which totaled approximately
$36.5 million. The Operating Partnership has classified its initial $3.4
million 25% interest in the joint venturesventure (at carryover basis) as investments
in unconsolidated joint venturesentities and accounted for themit under the equity method of
accounting.
The Operating Partnership recognized a net gain
for financial reporting purposes of approximately $49.3 million.
In addition, during the ninethree months ended September 30, 2000,March 31, 2001, the
Operating Partnership sold its entire interesta vacant parcel of land in three Unconsolidated
Properties containing 377 unitsRichmond, VA for approximately $4.6$11.2
million.
7.6. COMMITMENTS TO ACQUIRE/DISPOSE OF REAL ESTATE
As of September 30, 2000, in addition to the Properties that were
subsequently acquired as discussed in Note 15 of the Notes to Consolidated
Financial Statements,March 31, 2001, the Operating Partnership entered into a
separate agreementsagreement to acquire eightone multifamily propertiesproperty containing 1,698125 units
from an unaffiliated parties.party. The Operating Partnership expects a combined purchase
price of approximately $283.5 million, including the assumption of mortgage indebtedness
of approximately $24.7$13.5 million.
15
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
As of September 30, 2000,March 31, 2001, in addition to the Properties that were
subsequently disposed of as discussed in Note 15 of the Notes to Consolidated
Financial Statements, the Operating Partnership entered into separate
agreements to dispose of sevenseventeen multifamily properties containing 1,1173,161
units to unaffiliated parties. The Operating Partnership expects a combined
disposition price of approximately $53.3$137.2 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.paragraphs.
12
7. INVESTMENTS IN UNCONSOLIDATED ENTITIES
The Operating Partnership has entered into two separate joint
venture agreements with third party development companies whereby the
Operating Partnership contributes 25% to 30% of the development cost to the
joint venture in return for preferential returns of 9.0% per annum. The basis
of the Operating Partnership's equity investments in these two joint ventures
was $252.4 million and $235.9 million as of March 31, 2001 and December 31,
2000, respectively.
The Operating Partnership also has various other investments in
unconsolidated entities with ownership interests ranging from 1.5% to 50.0%.
The basis of these equity investments was $80.8 million and $80.6 million as
of March 31, 2001 and December 31, 2000, respectively.
These investments are accounted for under the equity method of
accounting.
8. DEPOSITS - RESTRICTED
Deposits-restricted as of September 30, 2000March 31, 2001 primarily included the
following:
-o deposits in the amount of $29.5$39.5 million held in third party
escrow accounts to provide collateral for third party
construction financing in connection with two separate joint
venture agreements;
-o approximately $195.3$180.2 million held in third party escrow accounts,
representing proceeds received in connection with the Operating
Partnership's disposition of twenty-two properties1031 exchange proceeds; and
earnest money
deposits made for eight additional acquisitions;
-o approximately $33.4$35.1 million for tenant security, utility deposits, and
other deposits for certain of the Operating Partnership's Properties;
and
- approximately $5.5 million of
other deposits.
9. MORTGAGE NOTES PAYABLE
As of September 30, 2000,March 31, 2001, the Operating Partnership had outstanding
mortgage indebtedness of approximately $3.0 billion encumbering 510 of the
Properties and one warehouse acquired in the Globe Merger. The carrying value of
such Properties (net of accumulated depreciation of $555.0 million) was
approximately $4.8$3.1 billion. The mortgage notes payables are generally due in
monthly installments of principal and interest.
During the nine monthsquarter ended September 30, 2000March 31, 2001 the Operating Partnership:
- recorded additional third-party mortgage debt totaling $65.1o repaid $176.7 million in connection withof mortgages due at or prior to maturity
and/or at the consolidationdisposition date of the Guilford portfolio on
January 1, 2000 (see Note 5);
- repaid the outstanding mortgage balances on sixty-one Properties in
the aggregate amountrespective Property;
o assumed $45.9 million of $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 on
March 20, 2000;
- 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 6);
- assumed mortgage debt on sixfour properties in the amount of $38.4 million in
connection with their acquisitions;
o disposed of $22.8 million of mortgage debt assumed by the
purchaser in connection with the disposition of certain
properties;
o obtained $20.2 million of new mortgage debt on previously
unencumbered properties; and
- obtained approximately $88.3o received $8.8 million in construction loan commitmentsdraw proceeds on two
properties, of which $20.7 million was currently
outstanding.properties.
As of September 30, 2000,March 31, 2001, 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%2.65% to 10.67%12.465% at September 30, 2000.March 31, 2001. During the nine monthsquarter
ended September 30, 2000,March 31, 2001, the weighted average interest rate on the Operating
Partnership's mortgage debt was 6.85%6.62%.
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 nine months ended September 30, 2000:
Weighted
September 30, 2000 Net Principal Interest Rate Average Maturity Date
(AMOUNTS IN THOUSANDS) Balance Ranges Interest Rate Ranges
- ------------------------------------------------------------------------------------------------------------------
Fixed Rate Public Notes $ 1,893,538 6.150% - 9.375% 7.07% 2000 - 2026
Floating Rate Public Notes 99,800 (1) 7.26% 2003
Fixed Rate Tax-Exempt Bonds 127,780 4.750% - 5.200% 5.08% 2024 - 2029
------------------- ---------------
Totals $ 2,121,118 6.96%
=================== ===============
(1) As of September 30, 2000, floating rate public notes consisted of one
note. The interest rate on this note was LIBOR (reset quarterly) plus
a spread (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 September 30, 2000,March 31, 2001, the Operating Partnership had outstanding
unsecured notes of approximately $2.1 billion$2.4 billion.
During the quarter ended March 31, 2001, the Operating Partnership
issued $300.0 million of ten-year 6.95% fixed-rate public unsecured notes and
received net proceeds of a $3.9 million discount and
including a $5.5 million premium.$297.4 million.
As of September 30, 2000,March 31, 2001, scheduled maturities for the remaining unamortized balance of deferred
settlement receipts and payments from treasury locks andOperating
Partnership's outstanding notes are at
13
various dates through 2029. The interest rate protection agreementsrange on the Operating
Partnership's notes was $9.0 million and $2.5 million, respectively.4.75% to 9.375 % at March 31, 2001. During the
quarter ended March 31, 2001, the weighted average interest rate on the
Operating Partnership's notes was 7.04%.
11. 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 $700.0 million.
As of September 30, 2000,March 31, 2001 no amounts were outstanding under this facility and
$51.3$54.9 million was restricted on thisthe line of credit. During the
nine months ended September 30, 2000, the weighted average interest rate on this
revolving credit facility was 6.58%.
In connection with the Globe Merger,acquisition, the CompanyOperating Partnership
assumed a second
line ofrevolving 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 wasMarch 31, 2001, no amounts were outstanding under this
facility.
FromDuring the period July 11, 2000
(Globe Merger date) through September 30, 2000,quarter ended March 31, 2001, the weighted average
interest rate on this revolvingthe Operating Partnership's lines of credit facility was 8.78%6.65%.
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.
NINE MONTHS ENDED QUARTER ENDED SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- --------------------------------MARCH 31,
-----------------------------------
2001 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 taxesfrom
investments in unconsolidated entities, net gain on sales of real
estate, extraordinary items, cumulative effect of change in
accounting principle and allocation to preference unit/interest
distributions $ 290,850100,565 $ 243,797 $ 105,729 $ 84,42383,969
Allocation to Minority Interests - Partially Owned Properties 145 - (12) -
Provision for income taxes (518) - (518) -(105) 45
Income from investments in unconsolidated entities 3,797 4,223
Allocation to Junior Convertible Preference Units (327) (240) (109) (240)(108)
Allocation to Cumulative Convertible Redeemable Preference Interests (6,900) (36) (3,233) (36)(3,958) (1,169)
Allocation to Redeemable Preference Units (76,370) (84,842) (24,601) (27,731)
---------------------------- ---------------------------(24,459) (27,111)
---------------- ----------------
Income before net gain on dispositionsales of properties, netreal estate, extraordinary items
and extraordinary item 206,880 158,679 77,256 56,416
Gaincumulative effect of change in accounting principle 75,731 59,849
Net gain on dispositionsales of properties, net 205,121 64,315 117,469 18,508
Loss on early extinguishmentreal estate 41,778 19,998
Extraordinary items 311 -
Cumulative effect of debtchange in accounting principle (1,270) -
(451) - -
---------------------------- ------------------------------------------- ----------------
Numerator for net income per OP Unit - basic 412,001 222,543 194,725 74,924116,550 79,847
Effect of dilutive securities:
Distributions toon convertible preference units/interests 9,7131,692 -
7,576 -
---------------------------- ------------------------------------------- ----------------
Numerator for net income per OP Unit - diluted $ 421,714118,242 $ 222,543 $ 202,301 $ 74,924
============================ ============================79,847
================ ================
DENOMINATOR:
Denominator for net income per OP Unit - basic 141,818 133,490 143,732 134,993144,830 140,264
Effect of dilutive securities:
Dilution for OP Units issuable upon assumed exerciseexercise/vesting
of the Company's stock options 721 714 985 660options/restricted shares 1,577 422
Convertible preference units/interests 3,9672,185 -
7,777 -
--------------------------- ------------------------------------------- ----------------
Denominator for net income per OP Unit - diluted 146,506 134,204 152,494 135,653
============================ ============================Unit--diluted 148,592 140,686
================ ================
Net income per OP Unit - basicUnit--basic $ 2.910.81 $ 1.67 $ 1.35 $ 0.56
============================ ============================0.57
================ ================
Net income per OP Unit - dilutedUnit--diluted $ 2.880.80 $ 1.66 $ 1.33 $ 0.55
============================ ============================0.57
================ ================
1814
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NINE MONTHS ENDED QUARTER ENDED SEPTEMBER 30, SEPTEMBER 30,
------------------------------ --------------------------------MARCH 31,
-------------------------------
2001 2000
1999 2000 1999
------------------------------ ----------------------------------------------- ------------
(AMOUNTS IN THOUSANDS EXCEPT
PER OP UNIT AMOUNTS)
NET INCOME PER OP UNIT - BASIC:
Income before net gain on dispositionsales of properties, netreal estate, extraordinary items and
extraordinary itemcumulative effect of change in accounting principle
per OP Unit - basic $ 1.46 $ 1.19 $ 0.53 $ 0.42
Gain0.43
Net gain on dispositionsales of properties, net 1.45 0.48 0.82real estate 0.29 0.14
Loss on early extinguishment of debtExtraordinary items - -
Cumulative effect of change in accounting principle (0.01) - -
------------- -------------
-------------- --------------
Net income per OP Unit - basic $ 2.910.81 $ 1.67 $ 1.35 $ 0.56
============= =============0.57
============== ==============
NET INCOME PER OP UNIT - DILUTED:
Income before net gain on dispositionsales of properties, netreal estate, extraordinary items and
extraordinary itemcumulative effect of change in accounting principle
per OP Unit - diluted $ 1.480.52 $ 1.18 $ 0.56 $ 0.42
Gain0.43
Net gain on dispositionsales of properties, net 1.40 0.48 0.77 0.13
Loss on early extinguishment of debtreal estate 0.29 0.14
Extraordinary items - -
Cumulative effect of change in accounting principle (0.01) - -
------------- -------------
-------------- --------------
Net income per OP Unit - diluted $ 2.880.80 $ 1.66 $ 1.33 $ 0.55
============= =============0.57
============== ==============
CONVERTIBLE PREFERENCE UNITS THAT COULD BE CONVERTED INTO 5,402,6995,415,852 AND
12,357,12410,643,083 WEIGHTED AVERAGE COMMON SHARES (WHICH WOULD BE CONTRIBUTED TO
THE OPERATING PARTNERSHIP IN EXCHANGE FOR OP UNITS) FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999, RESPECTIVELY, AND 0 AND 11,365,744 WEIGHTED AVERAGE
COMMON SHARES FOR THE QUARTERS ENDED
SEPTEMBER 30,MARCH 31, 2001 AND 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.
12.13. COMMITMENTS AND CONTINGENCIES
The Operating Partnership, as an owner of real estate, is subject to
various environmental laws of Federal state and local environmental laws and regulations.governments. 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, the costs and
expenses of mostsome 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 $103.3$26.4 million during the nine monthsquarter ended September 30, 2000.March 31, 2001. During the
remainder of 2000,2001, the Operating Partnership expects to fund approximately
$55.4$70.2 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 termsAs 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,March 31, 2001, the Operating Partnership has no
further obligations19 projects
under this agreement.development with estimated completion dates ranging from June 30, 2001
through March 31, 2003. At any time following the completion of construction
of any development property, the Operating Partnership's joint venture
partners have the right to cause the Operating Partnership to acquire their
respective interests in the completed projects at a mutually agreeable price.
If the Operating Partnership and the joint venture partner are unable to
agree on a price, both parties will obtain appraisals. If the appraised
values vary by more than 10%, both the
15
Operating Partnership and the joint venture partner will agree on a third
appraiser to determine which original appraisal is closest to its
determination of value.
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 September 30, 2000,March 31, 2001, this enhancement was still in effect.
Pursuant to the termseffect at a commitment
amount 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.$12.7 million.
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
nine
monthsquarters ended March 31, 2001 and quarter ended September 30, 2000 and net income for the nine months
and quarter ended September 30, 1999.
20
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)2000.
NINE MONTHS ENDED SEPTEMBER 30, 2000 RENTAL REAL CORPORATE/
MARCH 31, 2001 (AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Rental income $ 1,454,958514,137 $ - $ 1,454,958514,137
Fee and asset management income - 4,711 4,7111,972 1,972
Furniture income - 14,228 14,22812,546 12,546
Property and maintenance expense (368,291)(141,864) - (368,291)(141,864)
Real estate tax and insurance expense (141,830)(48,021) - (141,830)(48,021)
Property management expense (56,204)(18,687) - (56,204)(18,687)
Fee and asset management expense - (3,647) (3,647)(1,875) (1,875)
Furniture operating costsexpenses - (9,505) (9,505)
------------------------------------------------------(9,724) (9,724)
-----------------------------------------------------
Net operating income 888,633 5,787 894,420305,565 2,919 308,484
Interest income - investment in mortgage notes - 8,282 8,282
Income from investments in unconsolidated joint ventures - 14,589 14,5892,744 2,744
Interest and other income - 19,009 19,0096,502 6,502
Depreciation expense on non-real estate assets - (5,830) (5,830)(2,259) (2,259)
Interest expense:
Expense incurred - (285,337) (285,337)(95,276) (95,276)
Amortization of deferred financing costs - (4,063) (4,063)(1,397) (1,397)
General and administrative expense - (19,439) (19,439)
Amortization of goodwill and other intangibles - (767) (767)(6,754) (6,754)
Allocation to Minority Interests - Partially Owned
Properties - 145 145
Provision for income taxes(105) (105)
Income from investments in unconsolidated entities - (518) (518)3,797 3,797
Allocation to preference unit/interest holders - (83,597) (83,597)(28,526) (28,526)
Adjustment for loss on investment in technology segment - 3,003 3,003
Adjustment for depreciation expense related to
Unconsolidated and Partially Owned Properties - (193) (193)
------------------------------------------------------1,995 1,995
-----------------------------------------------------
Funds from operations available to OP Units 888,633 (351,932) 536,701
Depreciation expense305,565 (113,357) 192,208
Depreciation/amortization (110,546) (933) (111,479)
Net gain on sales of real estate assets (330,014)41,778 - (330,014)
Gain41,778
Extraordinary items - 311 311
Cumulative effect of change in accounting principle - (1,270) (1,270)
Adjustment for loss on disposition of properties, net 205,121investment in technology segment - 205,121(3,003) (3,003)
Adjustment for depreciation expense related to
Unconsolidated and Partially Owned Properties - 193 193
------------------------------------------------------(1,995) (1,995)
-----------------------------------------------------
Net income available to OP Unit holders $ 763,740236,797 $(120,247) $ (351,739) $ 412,001
======================================================116,550
=====================================================
Investment in real estate, net of accumulated depreciation $ 10,580,07011,110,846 $ 16,38816,219 $ 10,596,458
======================================================11,127,065
=====================================================
Total assets $ 10,804,62311,132,732 $1,112,763 $ 1,016,239 $ 11,820,862
======================================================12,245,495
=====================================================
2116
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 RENTAL REAL CORPORATE/
MARCH 31, 2000 (AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Rental income $ 1,243,958473,547 $ - $ 1,243,958473,547
Fee and asset management income - 3,432 3,4321,400 1,400
Property and maintenance expense (300,798)(113,868) - (300,798)(113,868)
Real estate tax and insurance expense (126,304)(48,334) - (126,304)(48,334)
Property management expense (42,817)(18,914) - (42,817)(18,914)
Fee and asset management expense - (2,301) (2,301)
------------------------------------------------------(1,066) (1,066)
-----------------------------------------------------
Net operating income 774,039 1,131 775,170292,431 334 292,765
Interest income - investment in mortgage notes - 8,502 8,502
Income from investments in unconsolidated joint ventures - 7,042 7,0422,762 2,762
Interest and other income - 10,613 10,6133,478 3,478
Depreciation expense on non-real estate assets - (5,125) (5,125)(1,567) (1,567)
Interest expense:
Expense incurred - (241,516) (241,516)(95,111) (95,111)
Amortization of deferred financing costs - (2,773) (2,773)(1,341) (1,341)
General and administrative expense - (15,736) (15,736)
Allocation to preference unit/interest holders - (85,118) (85,118)
Adjustment for depreciation expense related to
Unconsolidated Properties - 710 710
------------------------------------------------------
Funds from operations available to OP Units 774,039 (322,270) 451,769
Depreciation expense on real estate assets (292,380) - (292,380)
Gain on disposition of properties, net 64,315 - 64,315
Loss on early extinguishment of debt - (451) (451)
Adjustment for depreciation expense related to
Unconsolidated Properties - (710) (710)
------------------------------------------------------
Net income available to OP Unit holders $ 545,974 $ (323,431) $ 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)(6,698) (6,698)
Allocation to Minority Interests - Partially Owned
Properties - (12) (12)
Provision for income taxes45 45
Income from investments in unconsolidated entities - (518) (518)4,223 4,223
Allocation to preference unit/interest holders - (27,943) (27,943)(28,388) (28,388)
Adjustment for depreciation expense related to
Unconsolidated and Partially Owned Properties - 298 298
------------------------------------------------------(238) (238)
-----------------------------------------------------
Funds from operations available to OP Units 296,499 (110,286) 186,213292,431 (122,501) 169,930
Depreciation expense on real estate assets (108,659)(110,319) - (108,659)
Gain(110,319)
Net gain on dispositionsales of properties, net 117,469real estate 19,998 - 117,46919,998
Adjustment for depreciation expense related to
Unconsolidated and Partially Owned Properties - (298) (298)
------------------------------------------------------238 238
-----------------------------------------------------
Net income available to OP Unit holders $ 305,309 $(110,584)202,110 $(122,263) $ 194,72579,847
=====================================================
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's primary reportable business segment 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
and investment in mortgage notes, investment in technology entities,
income earned from investments in unconsolidated joint ventures,entities, general and
administrative expenses, and interest expense on mortgage notes payable,
unsecured notesnote issuances and lines of credit. The Operating Partnership's
fee and asset management activity and furniture rental/sales activities
are immaterial and do not meet the threshold requirements of a reportable
segmentssegment as provided for in StatementSFAS No. 131. Interest expense on debt is not
allocated to individual Properties, even if the Properties secure such
debt. 24Further, income allocated to Minority Interests is not allocated to
the Properties.
17
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
15. SUBSEQUENT EVENTS
Subsequent to September 30, 2000 and through November 3, 2000,March 31, 2001, the Operating Partnership has:
o disposed of the seventeen properties listed below to
unaffiliated parties. A portionfour Properties consisting of these proceeds were used to pay658 units for approximately
$24.7 million;
o paid off $6.7 million of mortgage debt onat or prior to maturity and/or
at disposition of one property approximating $9.1 million. The purchaser assumedproperty;
o funded $5.9 million related to the development, earnout and joint
venture agreements; and
o disposed of $0.9 million of mortgage debt on twoassumed by the purchaser in
connection with the disposition of these 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 October 11, 2000, the Operating Partnership acquired Waterford at
Manderin II, a vacant land parcel located adjacent to Waterford at Manderin
Phase I in Jacksonville, FL, from an unaffiliated party for a total purchase
price of approximately $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 in cash and issued approximately 0.3 million 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 November 1, 2000, the Operating Partnership acquired Centre Club
Apartments, a 312-unit multifamily property located in Ontario, CA, from an
unaffiliated party for a total purchase price of approximately $31.1 million.
25one property.
18
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. DueFor further information including capitalized terms, refer to the
Operating Partnership's ability to control the Management Partnershipsconsolidated financial statements 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 definedfootnotes thereto included in the
Operating Partnership's Annual Reportannual report on Form 10-K for the year ended
December 31, 1999.2000.
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 whichthat 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 obtaino alternative sources of capital to the Operating Partnership are highermore
expensive than anticipated;
-o occupancy levels and market rents may be adversely affected by local
economic and market conditions, which are beyond the Operating
Partnership's control; and
-o 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 undertakesassumes 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
PERIOD Properties Units Properties Units
--------------------------- ---------------- ----------------- --------------- ---------------- --------------------------------------------------------------------------------------------------------------------------
PORTFOLIO SUMMARY
- --------------------------------------------------------------------------------------------------------------------------
QUARTER ENDED MARCH 31,
--------------------------------------------------------------------------------------------
2001 2000
---- ----
PROPERTIES UNITS PROPERTIES UNITS
---------------------- ----------------------- ---------------------- ----------------------
1999 366 35,450 36 7,886
YTD 9/30/00 18 2,738 27 6,977Beginning of period 1,104 227,704 1,062 225,708
Acquisitions 7 1,721 1 178
Dispositions (15) (2,272) (11) (2,162)
---------------------- ----------------------- ---------------------- ----------------------
End of period 1,096 227,153 1,052 223,724
- ----------------------------- ====================== ======================= ====================== ======================
26In addition, the Operating Partnership sold and/or contributed
eleven wholly owned Properties containing 3,011 units to a joint venture
entity during the quarter ended March 31, 2001. The Operating Partnership
retained a 25% interest along with the rights to manage the joint venture
Properties.
19
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
nine
monthsquarters ended September 30,March 31, 2001 and 2000 and 1999 have been significantly impacted by
the Operating Partnership's acquisition and disposition activity, including the
Globe Merger.activity. The
significant changes in rental revenues property and maintenance expenses real estate taxes and insurance, depreciation expense,
property management and interest expense can primarily be attributed to
the acquisition of Globe, the 1999 Acquired Properties,2001 and the 2000 Acquired Properties, and
the Globe Merger,
partially offset by the disposition of the 1999 Disposed
Properties2001 and the 2000 Disposed
Properties. This impact is discussed in greater detail in the following
paragraphs.
Properties that the Operating Partnership owned for all of both the nine-month periodsquarter ended
September 30,March 31, 2001 and March 31, 2000 and September 30, 1999 (the "Nine-Month 2000"First Quarter 2001 Same Store
Properties"), which represented 163,368188,220 units, also impacted the Operating
Partnership's results of operations. Properties that the
Operating Partnership owned for all of both the quarters ended September 30,
2000operations and September 30, 1999 (the "Third-Quarter 2000 Same Store Properties"),
which represented 167,740 units, also impacted the Operating Partnership's
results of operations. Both the Nine-Month 2000 Same Store Properties and
Third-Quarter 2000 Same Store Properties are discussed as well in the
following paragraphs.
COMPARISON OF NINE MONTHSQUARTER ENDED SEPTEMBER 30,MARCH 31, 2001 TO QUARTER ENDED MARCH 31, 2000 TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
For the nine monthsquarter ended September 30, 2000,March 31, 2001, income before gain on
disposition of properties, net, extraordinary item, allocation to
Minority Interests, income from investments in unconsolidated entities, net
gain on sales of real estate, extraordinary items and provision for income taxescumulative effect of
change in accounting principle increased by approximately $47.1$16.6 million when
compared to the nine monthsquarter ended September 30, 1999. This increase
was primarily due toMarch 31, 2000.
Rental income from 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 Nine-Month 2000First Quarter 2001 Same Store Properties
total revenues
increased by approximately $47.5$22.8 million to $1.1 billion$439.9 million or 4.34%5.46% 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-operatingFor the
remainder of 2001, the Operating Partnership expects to achieve rental income
increases of 4.5% to 5.0% from Same Store Properties. These estimated
increases are subject to certain risks and uncertainties including, but not
limited to, maintaining an overall average occupancy rate of 95%.
Property operating expenses from the First Quarter 2001 Same Store
Properties, which include property and maintenance, real estate taxes and
insurance and an allocation of property management expenses, increased
approximately $9.0$8.9 million or 2.22%5.97%. ThisThe increase wasin "same store" expenses is
primarily attributable to a $3.6 million, or 14.8% increase in utilities and
a $2.1 million, or 5.7% increase in payroll. For the remainder of 2001, the
Operating Partnership expects to maintain expense growth at no more than
4.25% to 4.75%.
Rental income from non-First Quarter 2001 Same Store Properties
increased by approximately $17.8 million primarily as a result of higher expenses for on-site compensation costsrevenue
from the Globe corporate housing business and an increasethe acquisition of Properties
during the periods presented. The Operating Partnership expects similar
trends in real estate
taxes onthe future subject to certain properties, but was partially offsetrisks and uncertainties including
that any new acquisitions perform at the Operating Partnership's pro forma
expectations.
Interest and other income increased by lower leasing and
advertising, administrative, maintenance, building and insurance costs.approximately $3.0 million,
primarily as a result of disposition proceeds earning interest in various tax
deferred 1031 exchange accounts. These proceeds are invested in money market
investments until the Operating Partnership purchases additional multi-family
properties.
Property management represents expenses associated with the
self-management of the Operating Partnership's Properties. These expenses
increaseddecreased by approximately $13.4 million primarily due$0.2 million. The Operating Partnership continues
to acquire properties in major metropolitan areas and dispose of assets in
smaller multi-family rental markets where the operationsOperating Partnership does not
have a significant management presence. As a result, the Operating
Partnership is able to achieve economies of the
propertyscale by not increasing off-site
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.expenses as it acquires additional properties.
Fee and asset management revenues and fee and asset management
expenses increased as a result of the Operating Partnership continuing to
manage Properties that were sold and/or contributed to various joint venture
entities. As of March 31, 2001, the Operating Partnership currently manages
20,300 units for third
20
parties and the joint venture entities.
Furniture income and furniture expenses are associated with the
managementoperation of Unconsolidated Properties. These revenues
increased by approximately $1.3 million, but were offset by an increasethe furniture rental business assumed in connection with the
Globe acquisition, which occurred in July 2000. Furniture 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)include a
depreciation charge on furniture held in inventory.
Interest expense, including amortization of deferred financing
costs, increased by approximately $45.1$0.2 million. This increase was primarily
the result of a $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 nine months ended September 30,
2000 was 7.23% as compared to 6.97% for the nine months ended September 30,
1999.
General and administrative expenses, which include corporate operating
expenses, increased approximately $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 1.28% for the nine months ended September 30,
2000 compared to 1.24% of total revenues for the nine months ended September 30,
1999.
COMPARISON OF QUARTER ENDED SEPTEMBER 30, 2000 TO QUARTER ENDED SEPTEMBER
30, 1999
For the quarter ended September 30, 2000, income before gain on
disposition of properties, net, extraordinary item, allocation to Minority
Interests and provision for income taxes increased by approximately $21.3
million when compared to the quarter ended September 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 Third-Quarter 2000 Same Store Properties, total
revenues increased by approximately $19.4 million or 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-operating
expenses, which include property and maintenance, real estate taxes and
insurance and an allocation of property management expenses, increased
approximately $4.5 million or 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, maintenance and insurance costs.
Property management represents expenses associated with the
self-management of the Operating Partnership's Properties. These expenses
increased by approximately $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 Unconsolidated Properties. These revenues
increased by approximately $0.9 million, but were offset by an increase in
expenses 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 $12.3 million. This increase was primarily
the result of a $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 ended September 30, 2000ending March
31, 2001 was 7.25%7.07% as compared to 6.95%7.17% for the quarter 28
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.March 31, 2000.
For the remainder of 2001, the Operating Partnership expects interest rates
to decrease slightly due to lower variable rates. In connection with the
refinancing of $280.0 million of indebtedness, the Operating Partnership
expects to incur interest costs approximating 7.5% per annum.
General and administrative expenses, which include corporate
operating expenses, increased approximately $1.2$0.1 million between the periods
under comparison. However, by gaining certain economies of scale with a much
larger operation, these expenses as a percentage of total revenues were 1.26%
for the quarter ended March 31, 2001 compared to 1.39% of total revenues for
the quarter ended March 31, 2000.
Net gain on sales of real estate increased approximately $21.8
million between the periods under comparison. This increase wasis primarily due to recording higher compensation
expense associated with the
issuanceresult of restricted shares. These expenses as a
percentage of total revenues were 1.16% foradditional Properties sold during the quarter ended September 30, 2000March 31, 2001,
which included fifteen wholly owned Properties, eleven joint venture
Properties (75% gain recognition) and one land sale as compared to 1.15% of total revenues foreleven
wholly owned Properties sold in the quarter ended September 30, 1999.March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of January 1, 2000,2001, the Operating Partnership had approximately
$29.1$23.8 million of cash and cash equivalents and the amountamounts available on the
Operating Partnership's linelines of credit was $400 million, of which $65.8$53.5
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 September 30, 2000March 31, 2001 was approximately $56.2$104.8 million
and the amountamounts available on the Operating Partnership's lines of credit was
$721.4$755 million, of which $51.3$54.9 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
lines of credit and to subsequently repay the lines of credit from the
disposition of Properties or the issuance of additional equity or debt
securities. Utilizing this strategy during the first ninethree months of 2000,2001,
the Operating Partnership:
- obtained new mortgage financing on eleven previously unencumberedo disposed of fifteen properties and a vacant parcel of land and received
net proceeds of $147.7$115.4 million;
- disposedo issued $300 million of thirtyunsecured debt receiving net proceeds of $297.4
million;
o sold and/or contributed eleven properties (including the sale of the Operating
Partnership's entire interest in three Unconsolidated Properties)to a joint venture and
received net proceeds of $360.4$190.0 million;
- sold and/or contributed twenty-one properties too issued $35 million of two separate joint
venturesnew series of Preference Interests and
received net proceeds of $60.5 million;
- issued approximately 0.9 million OP Units and received net proceeds of
$24.9 million;
- issued the Series B, C, D and E Cumulative Convertible Redeemable
Preference Units and received net proceeds of $133.6 million; and
- obtained new mortgage financing on twenty-one previously unencumbered
properties and received net proceeds of $217.2$34.1 million.
All of these proceeds were utilized to either:
-o repay the lines of credit;
-o repay mortgage indebtedness on certain Properties and/or repay
unsecured notes;
- provide funding for propertiesselected Properties;
o invest in the development and/or earnout stage
including properties subject to the joint venture agreements; and/or
-unconsolidated entities;
o purchase additional properties.
2921
ERP OPERATING LIMITED PARTNERSHIP
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
During the nine monthsquarter ended September 30, 2000,March 31, 2001, the Operating Partnership:
- repaid four unsecured notes totaling $208.0 million;
-o repaid approximately $119.4$176.7 million of mortgage indebtedness on
sixty-one Properties;
- settled on a $100 million interest rate protection agreement and
received approximately $7.1indebtedness;
o invested $1 million in connection therewith. This
amount is being amortized overa corporate entity;
o loaned $2.6 million to an unconsolidated entity;
o funded $26.4 million related to the lifedevelopment, earnout and joint
venture agreements.
The Operating Partnership's total debt summary, as of March 31, 2001, included:
---------------------------------------------------------------------------
DEBT SUMMARY AS OF 3/31/01
---------------------------------------------------------------------------
WEIGHTED
$ MILLIONS AVERAGE RATE
------------------ -----------------
Secured $ 3,097 6.72%
Unsecured $ 2,419 7.04%
------------------ -----------------
Total $ 5,516 6.86%
Fixed Rate $ 5,048 7.06%
Floating Rate $ 468 4.72%
------------------ -----------------
Total $ 5,516 6.86%
ABOVE TOTALS INCLUDE:
Total Tax Exempt $ 959 4.80%
Unsecured Revolving Credit
Facility $ - N/A
---------------------------------------------------------------------------
Subsequent to March 31, 2001 and through May 1, 2001, the financingOperating Partnership:
o disposed of four Properties consisting of 658 units for the
eleven previously unencumbered Properties that occurred on March 20,
2000;
-approximately
$24.7 million;
o repaid $6.7 million of mortgage debt at or prior to maturity and/or
disposition of a Property;
o funded $103.3$5.9 million related to the development, earnout and joint
venture agreements;
- purchased eighteen Properties for a total purchase priceo disposed of approximately $257.0 million;
- funded $1.25 million to acquire an additional ownership interest in
LFT's Guilford portfolio; and
- acquired $25.0$0.9 million of 8.25% preferred securities of WRP
Convertible Trust I, an affiliate of WRP Newco.
As of September 30, 2000, the Operating Partnership had total
indebtedness of approximately $5.2 billion, which included mortgage indebtedness
of $3.0 billion (including premiums of $2.6 million), of which $836.6 million
represented tax-exempt bond indebtedness, and unsecured debt of $2.1 billion
(including net discounts and premiums in the amount of $1.6 million), of which
$127.8 million represented tax-exempt bond indebtedness.
Subsequent to September 30, 2000 and through November 6, 2000, the
Company and the Operating Partnership:
- repaid and/orassumed by the purchaser assumedin
connection with the outstanding mortgage balance
on three Properties totaling approximately $10.6 million;
- disposeddisposition of seventeen properties for a total sales price of $245.0
million;
- acquired one property containing 312 units and a vacant land parcel
for a total purchase price of approximately $31.6 million; and
- acquired Grove for cash of approximately $174.0 million and assumed
approximately $241.4 million in Grove debt, of which $45.8 million was
paid off immediately following the close of the merger.property.
During the remainder of 2000,2001, the Operating Partnership expects to
fund $55.4approximately $70.2 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. The Operating Partnership has a policyAs 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
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,March 31,
2001, the Operating Partnership has determined that it generally
spends $1,000 per unit during its first three years19 projects under development with
estimated completion dates ranging from June 30, 2001 through March 31, 2003.
At any time following the completion 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 meetconstruction of any development
property, the Operating Partnership's standards. In regardjoint venture partners have the right
to replacement-type items described above,cause the Operating Partnership generally expects to spend $250 per unitacquire their respective interests in
the completed projects at a mutually agreeable price. If the Operating
Partnership and the joint venture partner are unable to agree on an annual
recurring basis.a price,
both parties will obtain appraisals. If the appraised values vary by more
than 10%, both the Operating Partnership and the joint venture partner will
agree on a third appraiser to determine which original appraisal is closest
to its determination of value.
During the nine monthsquarter ended September 30, 2000,March 31, 2001, the Operating Partnership's
total improvements to real estate approximated $100.3$28.2 million. Of this amount,
approximately $24.8$4.5 million, or $254$89 per unit, related to capital improvements
and major repairs for the 1998, 1999, 2000 and 20002001 Acquired Properties. Capital
improvements and major repairs for all of the Operating Partnership's
pre-EQR IPO properties and 1993, 1994, 1995, 1996 and 1997pre-1999 Acquired Properties approximated $25.5$9.9 million or $227$64 per unit.
Capital spent for replacement-type items approximated $42.5$11.4 million, or $202$56
per unit. In addition, approximately $5.3$1.7 million was spent on eightseven specific
assets related to major renovations and repositioning of these assets. Also
included in total improvements to real estate was approximately $0.7 million
spent on commercial/other assets $1.4 million spent on theand Partially Owned Properties and $0.1 million spent on properties that were sold priorProperties.
22
Such improvements to 2000.
Such capital expendituresreal estate were primarily funded from working capital reserves
and from net cash provided
by operating activities. Total improvements to real estate budgeted for the
remaining portionremainder of 20002001 is estimated to be approximately $110.0 million.
Also included in total capital expenditures for the Operating
Partnership was approximately $1.8 million for non-real estate additions such
as computer software, computer equipment, and furniture and fixtures and
leasehold improvements to the Operating Partnership's property management
offices and its corporate offices. Such additions to non-real estate property
were primarily funded from net cash provided by operating activities. Total
additions to non-real estate property budgeted for the remainder of 2001 are
estimated to be approximately $16.4$4.2 million.
The Company,Operating Partnership, through its Globe subsidiary, has a
policy forof capitalizing expenditures made for rental furniture and property
and equipment, including new acquisitions and the costs associated with placing
these assets into service.equipment. 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 also 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,quarter ended March 31, 2001, total additions to rental
furniture approximated $6.3 million 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.$0.7 million. Total additions to rental furniture and property and equipment
budgeted for the remaining portionremainder of 20002001 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$18.0
million.
Total distributions paid in October 2000April 2001 amounted to approximately
$141.5$143.3 million, which included distributions declared for the quarter ended
September 30, 2000.March 31, 2001.
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 lines 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.Units as well as from undistributed FFO
and proceeds received from the disposition of certain Properties. In
addition, the Operating Partnership has certain uncollateralized Properties
available for additional mortgage borrowings in the event that the 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 November 6, 2000, $250 million wasMay 1, 2001, no amounts were outstanding under this
facility at a weighted average interest rate of 7.06%.facility.
In connection with the Globe Merger,acquisition, the CompanyOperating Partnership
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 November 6,
2000, $42.2 million wasMay 1, 2001, no amounts were
outstanding under this facility 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)facility.
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 November 6, 2000,May 1, 2001, this enhancement was still in effect.
Pursuant to the termseffect at a commitment
amount 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.$12.7 million.
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
23
sales of property and investments in technology segments, 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".
32
ERP OPERATING LIMITED PARTNERSHIP
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
For the nine monthsquarter ended September 30, 2000,March 31, 2001, FFO available to OP
UnitsUnits-basic increased by $84.9$22.3 million, or 18.8%, and FFO per OP Unit - diluted increased by
$0.39, or 11.7%, when compared to the nine months ended September 30, 1999.
For the quarter ended September 30, 2000, FFO available to OP Units
increased by $31.0 million, or 19.9%, and FFO per OP Unit - diluted increased by
$0.14, or 12.4%,13.1% when compared to the quarter
ended September 30, 1999.March 31, 2000.
The following is a reconciliation of net income to FFO available to
OP Units for the nine months and quarters ended September 30,March 31, 2001 and 2000 and 1999:(amounts in thousands
except per OP Unit amounts):
NINE MONTHS ENDED QUARTER ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- ----------------------------MARCH 31,
--------------------------------
2001 2000
1999 2000 1999
----------------------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER OP UNIT AMOUNTS)--------------- ---------------
STATEMENTS OF FUNDS FROM OPERATIONS
Net income $ 495,598145,076 $ 307,661 $ 222,668 $ 102,931108,235
Adjustments:
DepreciationDepreciation/amortization 113,474 110,081
Net gain on sales of real estate assets* 329,821 293,090 108,957 98,828(41,778) (19,998)
Extraordinary items (311) -
Cumulative effect of change in accounting principle* 1,270 -
Loss on early extinguishment of debtinvestment in technology segment** 3,003 -
451 - -
Gain on disposition of properties, net (205,121) (64,315) (117,469) (18,508)
--------- --------- --------- ------------------------ ---------------
FFO 620,298 536,887 214,156 183,251220,734 198,318
Allocation to preference unit/interest holders (83,597) (85,118) (27,943) (28,007)
--------- --------- --------- ---------(28,526) (28,388)
--------------- ---------------
FFO available to OP Units $ 536,701 $ 451,769 $ 186,213 $ 155,244
========= ========= ========= =========
FFO per OP Unit - basic $ 3.78192,208 $ 3.38 $ 1.30 $ 1.15
========= ========= ========= =========169,930
=============== ===============
FFO peravailable to OP UnitUnits - diluted $ 3.71199,653 $ 3.32 $ 1.27 $ 1.13
========= ========= ========= =========180,012
=============== ===============
Weighted average OP Units outstanding - basic 141,817 133,490 143,732 134,993
========= ========= ========= =========144,829 140,264
=============== ===============
Weighted average OP Units outstanding - diluted 154,008 151,329
=============== ===============
* INCLUDES $890 AND $710 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999,
RESPECTIVELY, AND $680 AND $159 FOR THE QUARTERS ENDED SEPTEMBER 30, 2000 AND
1999, RESPECTIVELY, RELATED TO THE OPERATING PARTNERSHIP'S SHARE OF DEPRECIATION
FROM UNCONSOLIDATED PROPERTIES. EXCLUDES $1,083 FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND $382 FOR THE QUARTER ENDED SEPTEMBER 30, 2000 RELATED TO
THE MINORITY INTERESTS' SHARE OF DEPRECIATION FROM PARTIALLY OWNED PROPERTIES.
33Represents the effect related to the Operating Partnership's adoption of
SFAS No. 133/138 on January 1, 2001.
** Represents the Operating Partnership's portion of losses related to its
investments in four technology companies.
24
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, 1999.2000.
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.
34A Report on Form 8-K dated March 2, 2001 regarding additional
information on the prospectus supplement for the Operating
Partnership's $300 million unsecured note offering.
25
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: November 13, 2000May 14, 2001 By: /s/ Bruce C. Strohm
----------------- --------------------------------------------------- --------------------------------------------
Bruce C. Strohm
Executive Vice President, General Counsel
and Secretary
Date: November 13, 2000May 14, 2001 By: /s/ Michael J. McHugh
------------------ --------------------------------------------------- --------------------------------------------
Michael J. McHugh
Executive Vice President, Chief Accounting
Officer and Treasurer
35
26