FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR THE SECURITIES EXCHANGE ACT OF 1934 |
For the | |
OR | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 0-24920
ERP OPERATING LIMITED PARTNERSHIP(Exact name of registrant as specified in its charter)
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 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) | ||
http://www.equityapartments.com | ||
(Registrant’s web site) |
(312) 474-1300(Registrant's Telephone Number, Including Area Code)
http://www.equityapartments.com (Registrant's web site)
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. Yesý No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý No o
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
| September 30, 2002 | December 31, 2001 | |||||||
---|---|---|---|---|---|---|---|---|---|
ASSETS | |||||||||
Investment in real estate | |||||||||
Land | $ | 1,854,750 | $ | 1,840,170 | |||||
Depreciable property | 11,228,526 | 11,096,847 | |||||||
Construction in progress | 124,811 | 79,166 | |||||||
13,208,087 | 13,016,183 | ||||||||
Accumulated depreciation | (2,026,010 | ) | (1,718,845 | ) | |||||
Investment in real estate, net of accumulated depreciation | 11,182,077 | 11,297,338 | |||||||
Real estate held for disposition | — | 3,371 | |||||||
Cash and cash equivalents | 21,756 | 51,603 | |||||||
Investments in unconsolidated entities | 435,701 | 397,237 | |||||||
Rents receivable | 2,951 | 2,400 | |||||||
Deposits — restricted | 168,108 | 218,557 | |||||||
Escrow deposits — mortgage | 58,343 | 76,700 | |||||||
Deferred financing costs, net | 32,881 | 27,011 | |||||||
Rental furniture, net | — | 20,168 | |||||||
Property and equipment, net | — | 3,063 | |||||||
Goodwill, net | 30,000 | 47,291 | |||||||
Other assets | 66,379 | 90,886 | |||||||
Total assets | $ | 11,998,196 | $ | 12,235,625 | |||||
LIABILITIES AND PARTNERS' CAPITAL | |||||||||
Liabilities: | |||||||||
Mortgage notes payable | $ | 3,088,798 | $ | 3,286,814 | |||||
Notes, net | 2,446,779 | 2,260,944 | |||||||
Line of credit | 35,000 | 195,000 | |||||||
Accounts payable and accrued expenses | 139,268 | 108,254 | |||||||
Accrued interest payable | 67,725 | 62,360 | |||||||
Rents received in advance and other liabilities | 71,037 | 83,005 | |||||||
Security deposits | 46,250 | 47,644 | |||||||
Distributions payable | 143,008 | 141,832 | |||||||
Total liabilities | 6,037,865 | 6,185,853 | |||||||
Commitments and contingencies | |||||||||
Minority Interests — Partially Owned Properties | 10,568 | 4,078 | |||||||
Partners' capital: | |||||||||
Preference Units | 946,544 | 966,671 | |||||||
Preference Interests | 246,000 | 246,000 | |||||||
Junior Preference Units | 5,846 | 5,846 | |||||||
General Partner | 4,464,081 | 4,506,097 | |||||||
Limited Partners | 358,729 | 379,898 | |||||||
Deferred compensation | (26,407 | ) | (25,778 | ) | |||||
Accumulated other comprehensive loss | (45,030 | ) | (33,040 | ) | |||||
Total partners' capital | 5,949,763 | 6,045,694 | |||||||
Total liabilities and partners' capital | $ | 11,998,196 | $ | 12,235,625 | |||||
|
| March 31, |
| December 31, |
| ||
ASSETS |
|
|
|
|
| ||
Investment in real estate |
|
|
|
|
| ||
Land |
| $ | 1,807,226 |
| $ | 1,803,577 |
|
Depreciable property |
| 11,227,980 |
| 11,240,245 |
| ||
Construction in progress |
| 2,428 |
| 2,441 |
| ||
|
| 13,037,634 |
| 13,046,263 |
| ||
Accumulated depreciation |
| (2,194,190 | ) | (2,112,017 | ) | ||
Investment in real estate, net of accumulated depreciation |
| 10,843,444 |
| 10,934,246 |
| ||
|
|
|
|
|
| ||
Cash and cash equivalents |
| 310,309 |
| 29,875 |
| ||
Investments in unconsolidated entities |
| 515,741 |
| 509,789 |
| ||
Rents receivable |
| 1,410 |
| 2,926 |
| ||
Deposits – restricted |
| 173,121 |
| 141,278 |
| ||
Escrow deposits – mortgage |
| 44,688 |
| 50,565 |
| ||
Deferred financing costs, net |
| 33,780 |
| 32,144 |
| ||
Goodwill, net |
| 30,000 |
| 30,000 |
| ||
Other assets |
| 78,277 |
| 80,094 |
| ||
Total assets |
| $ | 12,030,770 |
| $ | 11,810,917 |
|
|
|
|
|
|
| ||
LIABILITIES AND PARTNERS’ CAPITAL |
|
|
|
|
| ||
Liabilities: |
|
|
|
|
| ||
Mortgage notes payable |
| $ | 2,901,117 |
| $ | 2,927,614 |
|
Notes, net |
| 2,854,319 |
| 2,456,085 |
| ||
Line of credit |
| — |
| 140,000 |
| ||
Accounts payable and accrued expenses |
| 66,234 |
| 64,369 |
| ||
Accrued interest payable |
| 64,987 |
| 63,151 |
| ||
Rents received in advance and other liabilities |
| 167,641 |
| 165,095 |
| ||
Security deposits |
| 45,192 |
| 45,333 |
| ||
Distributions payable |
| 141,413 |
| 140,844 |
| ||
Total liabilities |
| 6,240,903 |
| 6,002,491 |
| ||
|
|
|
|
|
| ||
Commitments and contingencies |
|
|
|
|
| ||
Minority Interests – Partially Owned Properties |
| 9,395 |
| 9,811 |
| ||
|
|
|
|
|
| ||
Partners’ capital: |
|
|
|
|
| ||
Preference Units |
| 946,076 |
| 946,157 |
| ||
Preference Interests |
| 246,000 |
| 246,000 |
| ||
Junior Preference Units |
| 5,846 |
| 5,846 |
| ||
General Partner |
| 4,288,627 |
| 4,306,873 |
| ||
Limited Partners |
| 345,983 |
| 349,646 |
| ||
Deferred compensation |
| (9,832 | ) | (12,118 | ) | ||
Accumulated other comprehensive loss |
| (42,228 | ) | (43,789 | ) | ||
Total partners’ capital |
| 5,780,472 |
| 5,798,615 |
| ||
Total liabilities and partners’ capital |
| $ | 12,030,770 |
| $ | 11,810,917 |
|
See accompanying notes
2
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per OP Unit data)
(Unaudited)
| Nine Months Ended September 30, | Quarter Ended September 30, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2002 | 2001 | 2002 | 2001 | |||||||||||
REVENUES | |||||||||||||||
Rental income | $ | 1,504,274 | $ | 1,523,723 | $ | 501,853 | $ | 518,096 | |||||||
Fee and asset management | 6,957 | 5,805 | 2,647 | 1,665 | |||||||||||
Interest and other income | 11,551 | 17,685 | 2,235 | 6,166 | |||||||||||
Interest income—investment in mortgage notes | — | 8,786 | — | 23 | |||||||||||
Total revenues | 1,522,782 | 1,555,999 | 506,735 | 525,950 | |||||||||||
EXPENSES | |||||||||||||||
Property and maintenance | 390,241 | 411,370 | 136,104 | 140,573 | |||||||||||
Real estate taxes and insurance | 153,127 | 139,827 | 50,698 | 45,173 | |||||||||||
Property management | 55,767 | 56,302 | 17,565 | 19,760 | |||||||||||
Fee and asset management | 5,366 | 5,358 | 1,702 | 1,888 | |||||||||||
Depreciation | 348,947 | 333,041 | 118,120 | 113,300 | |||||||||||
Interest: | |||||||||||||||
Expense incurred, net | 255,693 | 267,572 | 84,153 | 89,212 | |||||||||||
Amortization of deferred financing costs | 4,344 | 4,328 | 1,362 | 1,524 | |||||||||||
General and administrative | 33,000 | 23,604 | 10,673 | 9,525 | |||||||||||
Impairment on corporate housing business | 17,122 | — | 17,122 | — | |||||||||||
Impairment on technology investments | 872 | 7,968 | 291 | 1,193 | |||||||||||
Amortization of goodwill | — | 1,862 | — | 581 | |||||||||||
Total expenses | 1,264,479 | 1,251,232 | 437,790 | 422,729 | |||||||||||
Income before allocation to Minority Interests, income (loss) from investments in unconsolidated entities, net gain (loss) on sales of unconsolidated entities, discontinued operations, extraordinary items and cumulative effect of change in accounting principle | 258,303 | 304,767 | 68,945 | 103,221 | |||||||||||
Allocation to Minority Interests—Partially Owned Properties | (1,584 | ) | (1,523 | ) | (259 | ) | (1,285 | ) | |||||||
Income (loss) from investments in unconsolidated entities | (1,746 | ) | 1,885 | (1,979 | ) | 925 | |||||||||
Net gain (loss) on sales of unconsolidated entities | (626 | ) | 339 | (5,872 | ) | — | |||||||||
Income before discontinued operations, extraordinary items and cumulative effect of change in accounting principle | 254,347 | 305,468 | 60,835 | 102,861 | |||||||||||
Net gain on sales of discontinued operations | 61,209 | 99,793 | 32,763 | 53,567 | |||||||||||
Discontinued operations, net | 6,815 | (49,241 | ) | 346 | (56,257 | ) | |||||||||
Income before extraordinary items and cumulative effect of change in accounting principle | 322,371 | 356,020 | 93,944 | 100,171 | |||||||||||
Extraordinary items | (468 | ) | (22 | ) | — | (128 | ) | ||||||||
Cumulative effect of change in accounting principle | — | (1,270 | ) | — | — | ||||||||||
Net income | $ | 321,903 | $ | 354,728 | $ | 93,944 | $ | 100,043 | |||||||
ALLOCATION OF NET INCOME: | |||||||||||||||
Preference Units | $ | 57,568 | $ | 68,097 | $ | 19,055 | $ | 19,425 | |||||||
Preference Interests | $ | 15,158 | $ | 13,390 | $ | 5,052 | $ | 4,833 | |||||||
Junior Preference Units | $ | 243 | $ | 272 | $ | 81 | $ | 82 | |||||||
General Partner | $ | 229,867 | $ | 250,303 | $ | 64,473 | $ | 69,511 | |||||||
Limited Partners | 19,067 | 22,666 | 5,283 | 6,192 | |||||||||||
Net income available to OP Units | $ | 248,934 | $ | 272,969 | $ | 69,756 | $ | 75,703 | |||||||
Net income per OP Unit—basic | $ | 0.84 | $ | 0.94 | $ | 0.24 | $ | 0.26 | |||||||
Net income per OP Unit—diluted | $ | 0.83 | $ | 0.93 | $ | 0.23 | $ | 0.26 | |||||||
Weighted average OP Units outstanding—basic | 295,483 | 290,803 | 296,519 | 292,213 | |||||||||||
Weighted average OP Units outstanding—diluted | 298,690 | 294,661 | 299,057 | 296,391 | |||||||||||
Distributions declared per OP Unit outstanding | $ | 1.2975 | $ | 1.2475 | $ | 0.4325 | $ | 0.4325 | |||||||
|
| Quarter Ended March 31, |
| |||||
|
| 2003 |
| 2002 |
| |||
REVENUES |
|
|
|
|
| |||
Rental income |
| $ | 480,219 |
| $ | 485,144 |
| |
Fee and asset management |
| 2,488 |
| 1,718 |
| |||
Interest and other income |
| 3,343 |
| 4,100 |
| |||
Total revenues |
| 486,050 |
| 490,962 |
| |||
|
|
|
|
|
| |||
EXPENSES |
|
|
|
|
| |||
Property and maintenance |
| 132,281 |
| 122,578 |
| |||
Real estate taxes and insurance |
| 52,433 |
| 49,771 |
| |||
Property management |
| 15,901 |
| 19,490 |
| |||
Fee and asset management |
| 1,770 |
| 1,862 |
| |||
Depreciation |
| 117,816 |
| 110,992 |
| |||
Interest: |
|
|
|
|
| |||
Expense incurred, net |
| 80,809 |
| 84,331 |
| |||
Amortization of deferred financing costs |
| 1,408 |
| 1,385 |
| |||
General and administrative |
| 11,176 |
| 10,800 |
| |||
Impairment on technology investments |
| 291 |
| 291 |
| |||
Total expenses |
| 413,885 |
| 401,500 |
| |||
|
|
|
|
|
| |||
Income before allocation to Minority Interests, income from investments in unconsolidated entities, net gain on sales of unconsolidated entities and discontinued operations |
| 72,165 |
| 89,462 |
| |||
Allocation to Minority Interests – Partially Owned Properties |
| (115 | ) | (806 | ) | |||
Income from investments in unconsolidated entities |
| 107 |
| 226 |
| |||
Net gain on sales of unconsolidated entities |
| 1,212 |
| 5,657 |
| |||
Income before discontinued operations |
| 73,369 |
| 94,539 |
| |||
Net gain on sales of discontinued operations |
| 70,672 |
| 2,816 |
| |||
Discontinued operations, net |
| 416 |
| 9,964 |
| |||
Net income |
| $ | 144,457 |
| $ | 107,319 |
| |
|
|
|
|
|
| |||
ALLOCATION OF NET INCOME: |
|
|
|
|
| |||
Preference Units |
| $ | 19,046 |
| $ | 19,391 |
| |
Preference Interests |
| $ | 5,053 |
| $ | 5,053 |
| |
Junior Preference Units |
| $ | 81 |
| $ | 81 |
| |
|
|
|
|
|
|
|
| |
General Partner |
| $ | 111,167 |
| $ | 76,353 |
| |
Limited Partners |
| 9,110 |
| 6,441 |
| |||
Net income available to OP Units |
| $ | 120,277 |
| $ | 82,794 |
| |
Net income per OP Unit – basic |
| $ | 0.41 |
| $ | 0.28 |
| |
Net income per OP Unit – diluted |
| $ | 0.41 |
| $ | 0.28 |
| |
Weighted average OP Units outstanding – basic |
| 292,949 |
| 294,106 |
| |||
Weighted average OP Units outstanding – diluted |
| 297,646 |
| 297,229 |
| |||
Distributions declared per OP Unit outstanding |
| $ | 0.4325 |
| $ | 0.4325 |
| |
See accompanying notes
3
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(Amounts in thousands except per OP Unit data)
(Unaudited)
| Nine Months Ended September 30, | Quarter Ended September 30, | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2002 | 2001 | 2002 | 2001 | ||||||||||||
Comprehensive income: | ||||||||||||||||
Net income | $ | 321,903 | $ | 354,728 | $ | 93,944 | $ | 100,043 | ||||||||
Other comprehensive income (loss)—derivative instruments: | ||||||||||||||||
Cumulative effect of change in accounting principle | — | (5,334 | ) | — | — | |||||||||||
Unrealized holding gains (losses) arising during the period | (12,605 | ) | (20,451 | ) | (14,595 | ) | (17,055 | ) | ||||||||
Losses reclassified into earnings from other comprehensive income | 615 | 397 | 230 | 171 | ||||||||||||
Comprehensive income | $ | 309,913 | $ | 329,340 | $ | 79,579 | $ | 83,159 | ||||||||
|
| Quarter Ended March 31, |
| ||||
|
| 2003 |
| 2002 |
| ||
|
|
|
|
|
| ||
Comprehensive income: |
|
|
|
|
| ||
Net income |
| $ | 144,457 |
| $ | 107,319 |
|
Other comprehensive income – derivative instruments: |
|
|
|
|
| ||
Unrealized holding gains arising during the period |
| 137 |
| 4,176 |
| ||
Equity in unrealized holding gains arising during the period – unconsolidated entities |
| 1,194 |
| 3,033 |
| ||
Losses reclassified into earnings from other comprehensive income |
| 230 |
| 168 |
| ||
Comprehensive income |
| $ | 146,018 |
| $ | 114,696 |
|
See accompanying notes
4
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
| Nine Months Ended September 30, | ||||||
---|---|---|---|---|---|---|---|
| 2002 | 2001 | |||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income | $ | 321,903 | $ | 354,728 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Allocation to Minority Interests — Partially Owned Properties | 1,584 | 1,523 | |||||
Cumulative effect of change in accounting principle | — | 1,270 | |||||
Depreciation | 353,206 | 349,313 | |||||
Amortization of deferred financing costs | 4,350 | 4,338 | |||||
Amortization of discount on investment in mortgage notes | — | (2,256 | ) | ||||
Amortization of goodwill | — | 2,852 | |||||
Amortization of discounts and premiums on debt | (589 | ) | (1,424 | ) | |||
Amortization of deferred settlements on interest rate protection agreements | (238 | ) | 533 | ||||
Impairment on corporate housing business | 17,122 | — | |||||
Impairment on furniture rental business | — | 60,000 | |||||
Impairment on technology investments | 872 | 7,968 | |||||
Loss (income) from investments in unconsolidated entities | 1,746 | (1,885 | ) | ||||
Net gain on sales of discontinued operations | (61,209 | ) | (99,793 | ) | |||
Net loss (gain) on sales of unconsolidated entities | 626 | (339 | ) | ||||
Extraordinary items | 468 | 22 | |||||
Unrealized loss (gain) on interest rate protection agreements | 383 | (161 | ) | ||||
Book value of furniture sales and rental buyouts | — | 8,703 | |||||
Compensation paid with Company Common Shares | 15,158 | 12,298 | |||||
Changes in assets and liabilities: | |||||||
(Increase) in rents receivable | (551 | ) | (2,069 | ) | |||
Decrease in deposits — restricted | 8,186 | 4,538 | |||||
Additions to rental furniture | — | (17,827 | ) | ||||
Decrease (increase) in other assets | 11,849 | (17,124 | ) | ||||
Increase in accounts payable and accrued expenses | 32,102 | 25,535 | |||||
Increase in accrued interest payable | 5,365 | 25,702 | |||||
(Decrease) in rents received in advance and other liabilities | (579 | ) | (7,628 | ) | |||
(Decrease) increase in security deposits | (1,037 | ) | 885 | ||||
Net cash provided by operating activities | 710,717 | 709,702 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Investment in real estate — acquisitions | (232,097 | ) | (242,366 | ) | |||
Investment in real estate — development | (86,115 | ) | (54,344 | ) | |||
Improvements to real estate | (110,291 | ) | (107,263 | ) | |||
Additions to non-real estate property | (5,562 | ) | (5,210 | ) | |||
Interest capitalized for real estate under development | (6,952 | ) | (6,651 | ) | |||
Interest capitalized for unconsolidated entities under development | (12,492 | ) | (14,381 | ) | |||
Proceeds from disposition of real estate, net | 291,368 | 452,060 | |||||
Proceeds from disposition of furniture rental business | 28,741 | — | |||||
Proceeds from disposition of unconsolidated entities | 34,796 | 359 | |||||
Proceeds from refinancing of unconsolidated entities | 4,375 | 5,691 | |||||
Investments in unconsolidated entities | (97,582 | ) | (69,195 | ) | |||
Distributions from unconsolidated entities | 31,021 | 26,311 | |||||
Decrease in deposits on real estate acquisitions, net | 42,046 | 98,582 | |||||
Decrease (increase) in mortgage deposits | 19,605 | (4,167 | ) | ||||
Business combinations, net of cash acquired | (658 | ) | (8,231 | ) | |||
Consolidation of previously Unconsolidated Properties | — | 52,841 | |||||
Investment in property and equipment | — | (2,185 | ) | ||||
Principal receipts on investment in mortgage notes | — | 61,419 | |||||
Other investing activities, net | 192 | (58 | ) | ||||
Net cash (used for) provided by investing activities | (99,605 | ) | 183,212 | ||||
|
| Quarter Ended March 31, |
| ||||
|
| 2003 |
| 2002 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
| ||
Net income |
| $ | 144,457 |
| $ | 107,319 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Allocation to Minority Interests – Partially Owned Properties |
| 115 |
| 806 |
| ||
Depreciation |
| 118,918 |
| 116,768 |
| ||
Amortization of deferred financing costs |
| 1,408 |
| 1,391 |
| ||
Amortization of discounts and premiums on debt |
| (239 | ) | (327 | ) | ||
Amortization of deferred settlements on interest rate protection agreements |
| (68 | ) | (101 | ) | ||
Impairment on technology investments |
| 291 |
| 291 |
| ||
(Income) from investments in unconsolidated entities |
| (107 | ) | (226 | ) | ||
Net (gain) on sales of discontinued operations |
| (70,672 | ) | (2,816 | ) | ||
Net (gain) on sales of unconsolidated entities |
| (1,212 | ) | (5,657 | ) | ||
Debt extinguishments – prepayment premiums/fees |
| 183 |
| 97 |
| ||
Unrealized (gain) on interest rate protection agreements |
| (44 | ) | (62 | ) | ||
Compensation paid with Company Common Shares |
| 4,445 |
| 4,964 |
| ||
|
|
|
|
|
| ||
Changes in assets and liabilities: |
|
|
|
|
| ||
Decrease in rents receivable |
| 1,516 |
| 1,045 |
| ||
(Increase) decrease in deposits – restricted |
| (2,283 | ) | 14,133 |
| ||
Decrease in other assets |
| 322 |
| 18,446 |
| ||
Increase (decrease) in accounts payable and accrued expenses |
| 1,865 |
| (7,498 | ) | ||
Increase in accrued interest payable |
| 1,836 |
| 9,963 |
| ||
(Decrease) increase in rents received in advance and other liabilities |
| (6,770 | ) | 4,566 |
| ||
(Decrease) increase in security deposits |
| (141 | ) | 287 |
| ||
Net cash provided by operating activities |
| 193,820 |
| 263,389 |
| ||
|
|
|
|
|
| ||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
| ||
Investment in real estate – acquisitions |
| (76,692 | ) | (26,100 | ) | ||
Investment in real estate – development/other |
| (2,057 | ) | (24,338 | ) | ||
Improvements to real estate |
| (33,602 | ) | (27,697 | ) | ||
Additions to non-real estate property |
| (908 | ) | (3,004 | ) | ||
Interest capitalized for real estate under development |
| — |
| (2,068 | ) | ||
Interest capitalized for unconsolidated entities under development |
| (5,437 | ) | (3,816 | ) | ||
Proceeds from disposition of real estate, net |
| 190,906 |
| 31,722 |
| ||
Proceeds from disposition of furniture rental business |
| — |
| 28,741 |
| ||
Proceeds from disposition of unconsolidated entities |
| 1,213 |
| 11,317 |
| ||
Investments in unconsolidated entities |
| (4,227 | ) | (12,099 | ) | ||
Distributions from unconsolidated entities |
| 6,041 |
| 14,765 |
| ||
(Increase) in deposits on real estate acquisitions, net |
| (29,560 | ) | (6,288 | ) | ||
Decrease in mortgage deposits |
| 5,877 |
| 4,105 |
| ||
Business combinations, net of cash acquired |
| (18 | ) | (207 | ) | ||
Other investing activities, net |
| — |
| 193 |
| ||
Net cash provided by (used for) investing activities |
| 51,536 |
| (14,774 | ) | ||
See accompanying notes
5
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)
(Unaudited)
| Nine Months Ended September 30, | |||||||
---|---|---|---|---|---|---|---|---|
| 2002 | 2001 | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Loan and bond acquisition costs | $ | (10,495 | ) | $ | (4,383 | ) | ||
Mortgage notes payable: | ||||||||
Proceeds | 104,572 | 59,312 | ||||||
Lump sum payoffs | (283,681 | ) | (315,302 | ) | ||||
Scheduled principal repayments | (24,351 | ) | (24,210 | ) | ||||
Prepayment premiums/fees | (468 | ) | (201 | ) | ||||
Notes, net: | ||||||||
Proceeds | 397,064 | 299,316 | ||||||
Lump sum payoffs | (225,000 | ) | — | |||||
Scheduled principal repayments | (4,669 | ) | (4,649 | ) | ||||
Line of credit: | ||||||||
Proceeds | 368,500 | 436,491 | ||||||
Repayments | (528,500 | ) | (791,953 | ) | ||||
(Payments) from settlement of interest rate protection agreements | (1,534 | ) | (7,360 | ) | ||||
Proceeds from sale of OP Units | 8,425 | 7,277 | ||||||
Proceeds from sale of Preference Interests | — | 48,500 | ||||||
Proceeds from exercise of EQR options | 28,542 | 56,326 | ||||||
Redemption of Preference Units | — | (210,500 | ) | |||||
Payment of offering costs | (170 | ) | (1,535 | ) | ||||
Distributions: | ||||||||
OP Units — General Partner | (354,683 | ) | (218,632 | ) | ||||
Preference Units | (57,919 | ) | (69,359 | ) | ||||
Preference Interests | (15,185 | ) | (13,338 | ) | ||||
Junior Preference Units | (243 | ) | (190 | ) | ||||
OP Units — Limited Partners | (29,859 | ) | (19,738 | ) | ||||
Minority Interests — Partially Owned Properties | (11,568 | ) | (31,970 | ) | ||||
Principal receipts on employee notes, net | 263 | 219 | ||||||
Net cash (used for) financing activities | (640,959 | ) | (805,879 | ) | ||||
Net (decrease) increase in cash and cash equivalents | (29,847 | ) | 87,035 | |||||
Cash and cash equivalents, beginning of period | 51,603 | 23,772 | ||||||
Cash and cash equivalents, end of period | $ | 21,756 | $ | 110,807 | ||||
SUPPLEMENTAL INFORMATION: | ||||||||
Cash paid during the period for interest | $ | 270,885 | $ | 270,849 | ||||
Mortgage loans assumed through real estate acquisitions | $ | 14,000 | $ | 45,918 | ||||
Mortgage loans (assumed) by purchaser in real estate and furniture rental business dispositions | $ | (8,840 | ) | $ | (28,231 | ) | ||
Transfers to real estate held for disposition | $ | — | $ | 4,102 | ||||
Mortgage loans recorded as a result of consolidation of previously Unconsolidated Properties | $ | — | $ | 301,502 | ||||
Net (assets) liabilities recorded as a result of consolidation of previously Unconsolidated Properties | $ | — | $ | (20,839 | ) | |||
|
| Quarter Ended March 31, |
| ||||
|
| 2003 |
| 2002 |
| ||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
| ||
Loan and bond acquisition costs |
| $ | (3,153 | ) | $ | (3,040 | ) |
Mortgage notes payable: |
|
|
|
|
| ||
Proceeds |
| 48,680 |
| 20,772 |
| ||
Lump sum payoffs |
| (101,793 | ) | (18,267 | ) | ||
Scheduled principal repayments |
| (8,285 | ) | (8,469 | ) | ||
Prepayment premiums/fees |
| (183 | ) | (97 | ) | ||
Notes, net: |
|
|
|
|
| ||
Proceeds |
| 398,816 |
| 397,064 |
| ||
Lump sum payoffs |
| — |
| (100,000 | ) | ||
Scheduled principal repayments |
| (192 | ) | — |
| ||
Line of credit: |
|
|
|
|
| ||
Proceeds |
| 172,000 |
| 245,000 |
| ||
Repayments |
| (312,000 | ) | (440,000 | ) | ||
(Payments on) proceeds from settlement of interest rate protection agreements |
| (12,999 | ) | 835 |
| ||
Proceeds from sale of OP Units |
| 2,606 |
| 4,236 |
| ||
Proceeds from exercise of EQR options |
| 4,270 |
| 9,777 |
| ||
Payment of offering costs |
| (71 | ) | (141 | ) | ||
Distributions: |
|
|
|
|
| ||
OP Units – General Partner |
| (117,242 | ) | (117,338 | ) | ||
Preference Units |
| (19,048 | ) | (16,441 | ) | ||
Preference Interests |
| (5,053 | ) | (5,080 | ) | ||
Junior Preference Units |
| (81 | ) | (81 | ) | ||
OP Units – Limited Partners |
| (9,645 | ) | (10,151 | ) | ||
Minority Interests – Partially Owned Properties |
| (1,549 | ) | (9,120 | ) | ||
Principal receipts on employee notes, net |
| — |
| 85 |
| ||
Net cash provided by (used for) financing activities |
| 35,078 |
| (50,456 | ) | ||
|
|
|
|
|
| ||
Net increase in cash and cash equivalents |
| 280,434 |
| 198,159 |
| ||
Cash and cash equivalents, beginning of period |
| 29,875 |
| 51,603 |
| ||
Cash and cash equivalents, end of period |
| $ | 310,309 |
| $ | 249,762 |
|
|
|
|
|
|
| ||
SUPPLEMENTAL INFORMATION: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Cash paid during the period for interest |
| $ | 83,579 |
| $ | 81,566 |
|
|
|
|
|
|
| ||
Mortgage loans assumed through real estate acquisitions |
| $ | 34,968 |
| $ | — |
|
|
|
|
|
|
| ||
Mortgage loans (assumed) by purchaser in real estate and furniture rental business dispositions |
| $ | — |
| $ | (1,680 | ) |
|
|
|
|
|
| ||
Transfers to real estate held for disposition |
| $ | — |
| $ | 3,505 |
|
See accompanying notes
6
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Business of the Company
1. Business
ERP Operating Limited Partnership ("ERPOP"(“ERPOP”), an Illinois limited partnership, was formed in May 1993 to conduct the multifamily residential property business of Equity Residential ("EQR"(“EQR”). EQR is a Maryland real estate investment trust ("REIT"(“REIT”) formed onin March 31, 1993 and is a fully integrated real estate company engaged in the acquisition, ownership, management and operation of multifamily properties.properties.
EQR is the general partner of, and as of September 30, 2002,March 31, 2003, owned an approximate 92.4% ownership interest in ERPOP. The Company conducts substantially all of its business and owns substantially all of its assets through ERPOP. ERPOP is, in turn, directly or indirectly, a partner, member or shareholder of numerous partnerships, limited liability companies and corporations which have been established primarily to own fee simple title to multifamily properties or to conduct property management activities and other businesses related to the ownership and operation of multifamily residential real estate. As used herein, the term "Operating Partnership"“Operating Partnership” includes ERPOP and those entities owned or controlled by it. As used herein, the term "Company"“Company” means EQR and the Operating Partnership.
As of September 30, 2002,March 31, 2003, the Operating Partnership owned or had interestsinvestments in a portfolio of 1,059 multifamily 1,027properties containing 227,426 apartment units located in 36 states consisting of the following:221,249 units. An ownership breakdown includes:
| Number of Properties | Number of Units | ||
---|---|---|---|---|
Wholly Owned Properties | 934 | 197,354 | ||
Partially Owned Properties (Consolidated) | 36 | 6,931 | ||
Unconsolidated Properties | 89 | 23,141 | ||
Total Properties | 1,059 | 227,426 | ||
|
| Number of |
| Number of |
|
Wholly Owned Properties |
| 906 |
| 191,875 |
|
Partially Owned Properties (Consolidated) |
| 36 |
| 6,931 |
|
Unconsolidated Properties |
| 85 |
| 22,443 |
|
Total Properties |
| 1,027 |
| 221,249 |
|
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying 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 information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and certain reclassifications considered necessary for a fair presentation have been included. Certain reclassifications have been made to the prior period financial statements in order to conform to the current year presentation. Operating results for the ninethree months ended September 30, 2002March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.2003.
The balance sheet at December 31, 20012002 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.
7
For further information, including definition of capitalized terms not defined herein, refer to the consolidated financial statements and footnotes thereto included in the Operating Partnership'sPartnership’s annual report on Form 10-K for the year ended December 31, 2001.2002.
Other
In June 2001, the FASB issued SFAS No. 141,Business Combinations. SFAS No. 141 requires companies to account for all business combinations using the purchase method of accounting. SFAS No. 141 is effective for fiscal years beginning after December 15, 2001. The Operating Partnership adopted the standard effective January 1, 2002.
In June 2001, the FASB issued SFAS No. 142,Goodwill and Other Intangible Assets. SFAS No. 142 requires companies to eliminate the amortization of goodwill in favor of a periodic impairment based approach. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. The Operating Partnership adopted the standard effective January 1, 2002. See Note 16 for further discussion.
In April 2002, the FASB issued SFAS No. 145,Rescission of FASB Statements No. 4, 44 and 64,
7
Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145, among other items, rescinds the automatic classification of costs incurred on debt extinguishment as extraordinary charges. Instead, gains and losses from debt extinguishment should only be classified as extraordinary if they meet the "unusual“unusual and infrequently occurring"occurring” criteria outlined in APB No. 30. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. The Operating Partnership will adoptadopted the standard effective January 1, 2003.
In January 2003, the FASB issued Interpretation (“FIN”) No. 46, Consolidation of Variable Interest Entities. FIN No. 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. The consolidation requirements of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003 and apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. The Operating Partnership will adopt FIN No. 46 in the third quarter of 2003 but doeshas not expect it toyet determined the effect that adoption will have a material impact on its consolidated financial conditionposition and results of operations.
3. Partners' Partners’ Capital
The following table presents the changes in the Operating Partnership'sPartnership’s issued and outstanding units of limited partnership interest ("(“OP Units"Units”) for the nine monthsquarter ended September 30, 2002:March 31, 2003:
| ||||||
Operating | 293,396,124 | |||||
Issued to General | ||||||
Conversion of Series E Preference Units | 3,613 | |||||
Employee Share Purchase Plan | 126,273 | |||||
Exercise of EQR options | 218,980 | |||||
Restricted EQR share grants, net | 996,815 | |||||
| ||||||
Operating | ||||||
294,741,805 |
The limited partners of the Operating Partnership as of September 30, 2002March 31, 2003 include various individuals and entities that contributed their properties to the Operating Partnership in exchange for OP Units (the "Limited Partners"“Limited Partners”) and own an approximate 7.6% ownership interest in ERPOP. Subject to applicable securities law restrictions, the Limited Partners may exchange their OP Units for EQR Common Shares on a one-for-one basis.
8
EQR contributes all net proceeds from its various equity offerings (including proceeds from exercise of options for EQR Common Shares) to the Operating Partnership. In return for those contributions, EQR receives a number of OP Units in ERPOP equal to the number of Common Shares it has issued in the equity offering (or in the case of a preferred equity offering, a number of preference units in ERPOP equal in number and having the same terms as the preferred shares issued in the equity offering).
The following table presents the Operating Partnership'sPartnership’s issued and outstanding "Preference Units"“Preference Units” as of September 30, 2002March 31, 2003 and December 31, 2001:2002:
| | Amounts in thousands | |||||||
---|---|---|---|---|---|---|---|---|---|
| Annual Dividend Rate per Unit (1) | ||||||||
| September 30, 2002 | December 31, 2001 | |||||||
Preference Units: | |||||||||
91/8% Series B Cumulative Redeemable Preference Units; liquidation value $250 per unit; 500,000 units issued and outstanding at September 30, 2002 and December 31, 2001 | $ | 22.81252 | $ | 125,000 | $ | 125,000 | |||
91/8% Series C Cumulative Redeemable Preference Units; liquidation value $250 per unit; 460,000 units issued and outstanding at September 30, 2002 and December 31, 2001 | $ | 22.81252 | 115,000 | 115,000 | |||||
8.60% Series D Cumulative Redeemable Preference Units; liquidation value $250 per unit; 700,000 units issued and outstanding at September 30, 2002 and December 31, 2001 | $ | 21.50000 | 175,000 | 175,000 | |||||
7.00% Series E Cumulative Convertible Preference Units; liquidation value $25 per unit; 2,563,614 and 3,365,794 units issued and outstanding at September 30, 2002 and December 31, 2001, respectively | $ | 1.75000 | 64,090 | 84,145 | |||||
71/4% Series G Convertible Cumulative Preference Units; liquidation value $250 per unit; 1,264,692 and 1,264,700 units issued and outstanding at September 30, 2002 and December 31, 2001, respectively | $ | 18.12500 | 316,173 | 316,175 | |||||
7.00% Series H Cumulative Convertible Preference Units, liquidation value $25 per unit; 51,228 and 54,027 units issued and outstanding at September 30, 2002 and December 31, 2001, respectively | $ | 1.75000 | 1,281 | 1,351 | |||||
8.29% Series K Cumulative Redeemable Preference Units; liquidation value $50 per unit; 1,000,000 units issued and outstanding at September 30, 2002 and December 31, 2001 | $ | 4.14500 | 50,000 | 50,000 | |||||
7.625% Series L Cumulative Redeemable Preference Units; liquidation value $25 per unit; 4,000,000 units issued and outstanding at September 30, 2002 and December 31, 2001 | $ | 1.90625 | 100,000 | 100,000 | |||||
$ | 946,544 | $ | 966,671 | ||||||
8
|
| Annual |
|
|
| |||||
Amounts in thousands | ||||||||||
March |
| December | ||||||||
Preference Units: |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| |||
9 1/8% Series B Cumulative Redeemable Preference Units; liquidation value $250 per unit; 500,000 units issued and outstanding at March 31, 2003 and December 31, 2002 |
| $ | 22.81252 |
| $ | 125,000 |
| $ | 125,000 |
|
|
|
|
|
|
|
|
| |||
9 1/8% Series C Cumulative Redeemable Preference Units; liquidation value $250 per unit; 460,000 units issued and outstanding at March 31, 2003 and December 31, 2002 |
| $ | 22.81252 |
| 115,000 |
| 115,000 |
| ||
|
|
|
|
|
|
|
| |||
8.60% Series D Cumulative Redeemable Preference Units; liquidation value $250 per unit; 700,000 units issued and outstanding at March 31, 2003 and December 31, 2002 |
| $ | 21.50000 |
| 175,000 |
| 175,000 |
| ||
|
|
|
|
|
|
|
| |||
7.00% Series E Cumulative Convertible Preference Units; liquidation value $25 per unit; 2,544,864 and 2,548,114 units issued and outstanding at March 31, 2003 and December 31, 2002, respectively |
| $ | 1.75000 |
| 63,622 |
| 63,703 |
| ||
|
|
|
|
|
|
|
| |||
7 ¼% Series G Convertible Cumulative Preference Units; liquidation value $250 per unit; 1,264,692 units issued and outstanding at March 31, 2003 and December 31, 2002 |
| $ | 18.12500 |
| 316,173 |
| 316,173 |
| ||
|
|
|
|
|
|
|
| |||
7.00% Series H Cumulative Convertible Preference Units; liquidation value $25 per unit; 51,228 units issued and outstanding at March 31, 2003 and December 31, 2002 |
| $ | 1.75000 |
| 1,281 |
| 1,281 |
| ||
|
|
|
|
|
|
|
| |||
8.29% Series K Cumulative Redeemable Preference Units; liquidation value $50 per unit; 1,000,000 units issued and outstanding at March 31, 2003 and December 31, 2002 |
| $ | 4.14500 |
| 50,000 |
| 50,000 |
| ||
|
|
|
|
|
|
|
| |||
7.625% Series L Cumulative Redeemable Preference Units; liquidation value $25 per unit; 4,000,000 units issued and outstanding at March 31, 2003 and December 31, 2002 |
| $ | 1.90625 |
| 100,000 |
| 100,000 |
| ||
|
|
|
|
|
|
|
| |||
|
|
|
| $ | 946,076 |
| $ | 946,157 |
|
(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.
9
The following table presents the issued and outstanding "Preference Interests"“Preference Interests” as of September 30, 2002March 31, 2003 and December 31, 2001:2002:
9
| | Amounts in thousands | |||||||
---|---|---|---|---|---|---|---|---|---|
| Annual Dividend Rate per Unit (1) | ||||||||
| September 30, 2002 | December 31, 2001 | |||||||
Preference Interests: | |||||||||
8.00% Series A Cumulative Redeemable Preference Interests; liquidation value $50 per unit; 800,000 units issued and outstanding at September 30, 2002 and December 31, 2001 | $ | 4.0000 | $ | 40,000 | $ | 40,000 | |||
8.50% Series B Cumulative Redeemable Preference Units; liquidation value $50 per unit; 1,100,000 units issued and outstanding at September 30, 2002 and December 31, 2001 | $ | 4.2500 | 55,000 | 55,000 | |||||
8.50% Series C Cumulative Redeemable Preference Units; liquidation value $50 per unit; 220,000 units issued and outstanding at September 30, 2002 and December 31, 2001 | $ | 4.2500 | 11,000 | 11,000 | |||||
8.375% Series D Cumulative Redeemable Preference Units; liquidation value $50 per unit; 420,000 units issued and outstanding at September 30, 2002 and December 31, 2001 | $ | 4.1875 | 21,000 | 21,000 | |||||
8.50% Series E Cumulative Redeemable Preference Units; liquidation value $50 per unit; 1,000,000 units issued and outstanding at September 30, 2002 and December 31, 2001 | $ | 4.2500 | 50,000 | 50,000 | |||||
8.375% Series F Cumulative Redeemable Preference Units; liquidation value $50 per unit; 180,000 units issued and outstanding at September 30, 2002 and December 31, 2001 | $ | 4.1875 | 9,000 | 9,000 | |||||
7.875% Series G Cumulative Redeemable Preference Units; liquidation value $50 per unit; 510,000 units issued and outstanding at September 30, 2002 and December 31, 2001 | $ | 3.9375 | 25,500 | 25,500 | |||||
7.625% Series H Cumulative Convertible Redeemable Preference Units; liquidation value $50 per unit; 190,000 units issued and outstanding at September 30, 2002 and December 31, 2001 | $ | 3.8125 | 9,500 | 9,500 | |||||
7.625% Series I Cumulative Convertible Redeemable Preference Units; liquidation value $50 per unit; 270,000 units issued and outstanding at September 30, 2002 and December 31, 2001 | $ | 3.8125 | 13,500 | 13,500 | |||||
7.625% Series J Cumulative Convertible Redeemable Preference Units; liquidation value $50 per unit; 230,000 units issued and outstanding at September 30, 2002 and December 31, 2001 | $ | 3.8125 | 11,500 | 11,500 | |||||
$ | 246,000 | $ | 246,000 | ||||||
|
| Annual |
|
|
| |||||
Amounts in thousands | ||||||||||
March |
| December | ||||||||
Preference Interests: |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| |||
8.00% Series A Cumulative Redeemable Preference Interests; liquidation value $50 per unit; 800,000 units issued and outstanding at March 31, 2003 and December 31, 2002 |
| $ | 4.0000 |
| $ | 40,000 |
| $ | 40,000 |
|
|
|
|
|
|
|
|
| |||
8.50% Series B Cumulative Redeemable Preference Units; liquidation value $50 per unit; 1,100,000 units issued and outstanding at March 31, 2003 and December 31, 2002 |
| $ | 4.2500 |
| 55,000 |
| 55,000 |
| ||
|
|
|
|
|
|
|
| |||
8.50% Series C Cumulative Redeemable Preference Units; liquidation value $50 per unit; 220,000 units issued and outstanding at March 31, 2003 and December 31, 2002 |
| $ | 4.2500 |
| 11,000 |
| 11,000 |
| ||
|
|
|
|
|
|
|
| |||
8.375% Series D Cumulative Redeemable Preference Units; liquidation value $50 per unit; 420,000 units issued and outstanding at March 31, 2003 and December 31, 2002 |
| $ | 4.1875 |
| 21,000 |
| 21,000 |
| ||
|
|
|
|
|
|
|
| |||
8.50% Series E Cumulative Redeemable Preference Units; liquidation value $50 per unit; 1,000,000 units issued and outstanding at March 31, 2003 and December 31, 2002 |
| $ | 4.2500 |
| 50,000 |
| 50,000 |
| ||
|
|
|
|
|
|
|
| |||
8.375% Series F Cumulative Redeemable Preference Units; liquidation value $50 per unit; 180,000 units issued and outstanding at March 31, 2003 and December 31, 2002 |
| $ | 4.1875 |
| 9,000 |
| 9,000 |
| ||
|
|
|
|
|
|
|
| |||
7.875% Series G Cumulative Redeemable Preference Units; liquidation value $50 per unit; 510,000 units issued and outstanding at March 31, 2003 and December 31, 2002 |
| $ | 3.9375 |
| 25,500 |
| 25,500 |
| ||
|
|
|
|
|
|
|
| |||
7.625% Series H Cumulative Convertible Redeemable Preference Units; liquidation value $50 per unit; 190,000 units issued and outstanding at March 31, 2003 and December 31, 2002 |
| $ | 3.8125 |
| 9,500 |
| 9,500 |
| ||
|
|
|
|
|
|
|
| |||
7.625% Series I Cumulative Convertible Redeemable Preference Units; liquidation value $50 per unit; 270,000 units issued and outstanding at March 31, 2003 and December 31, 2002 |
| $ | 3.8125 |
| 13,500 |
| 13,500 |
| ||
|
|
|
|
|
|
|
| |||
7.625% Series J Cumulative Convertible Redeemable Preference Units; liquidation value $50 per unit; 230,000 units issued and outstanding at March 31, 2003 and December 31, 2002 |
| $ | 3.8125 |
| 11,500 |
| 11,500 |
| ||
|
|
|
|
|
|
|
| |||
|
|
|
| $ | 246,000 |
| $ | 246,000 |
|
(1)
10
The following table presents the Operating Partnership'sPartnership’s issued and outstanding Junior Convertible Preference Units (the "Junior“Junior Preference Units"Units”) as of September 30, 2002March 31, 2003 and December 31, 2001:2002:
10
| | Amounts in thousands | |||||||
---|---|---|---|---|---|---|---|---|---|
| Annual Dividend Rate per Unit (1) | ||||||||
| September 30, 2002 | December 31, 2001 | |||||||
Junior Preference Units: | |||||||||
Series A Junior Convertible Preference Units; liquidation value $100 per unit; 56,616 units issued and outstanding at September 30, 2002 and December 31, 2001 | $ | 5.46934 | $ | 5,662 | $ | 5,662 | |||
Series B Junior Convertible Preference Units; liquidation value $25 per unit; 7,367 units issued and outstanding at September 30, 2002 and December 31, 2001 | $ | 2.00000 | 184 | 184 | |||||
$ | 5,846 | $ | 5,846 | ||||||
|
| Annual |
|
|
| |||||
Amounts in thousands | ||||||||||
March |
| December | ||||||||
Junior Preference Units: |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| |||
Series A Junior Convertible Preference Units; liquidation value $100 per unit; 56,616 units issued and outstanding at March 31, 2003 and December 31, 2002 |
| $ | 5.46934 |
| $ | 5,662 |
| $ | 5,662 |
|
|
|
|
|
|
|
|
| |||
Series B Junior Convertible Preference Units; liquidation value $25 per unit; 7,367 units issued and outstanding at March 31, 2003 and December 31, 2002 |
| $ | 2.00000 |
| 184 |
| 184 |
| ||
|
|
|
|
|
|
|
| |||
|
|
|
| $ | 5,846 |
| $ | 5,846 |
|
(1)Dividends on both series of Junior Preference Units are payable quarterly at various pay dates.
4. Real Estate Acquisitions
During the nine monthsquarter ended September 30, 2002,March 31, 2003, the Operating Partnership acquired the entire equity interest in the tenthree properties listed below from unaffiliated parties and one additional unit at an existing property, for a total purchase price of $245.4$111.5 million.
Date Acquired | Property | Location | Number of Units | Acquisition Price (in thousands) | |||||
---|---|---|---|---|---|---|---|---|---|
03/28/02 | Isles at Sawgrass | Sunrise, FL | 368 | $ | 26,000 | ||||
04/24/02 | Center Pointe | Beaverton, OR | 264 | 19,100 | |||||
04/30/02 | Mira Flores | Palm Beach Gardens, FL | 352 | 29,250 | |||||
05/15/02 | Gramercy Park | Houston, TX | 384 | 26,000 | |||||
05/31/02 | Enclave at Winston Park | Coconut Creek, FL | 278 | 25,450 | |||||
05/31/02 | St. Andrews at Winston Park | Coconut Creek, FL | 284 | 25,450 | |||||
06/21/02 | Westside Villas VII | Los Angeles, CA | 53 | 15,250 | |||||
07/17/02 | Savannah Lakes | Boynton Beach, FL | 466 | 37,400 | |||||
08/01/02 | Cove at Fisher's Landing | Vancouver, WA | 253 | 17,800 | |||||
08/08/02 | Avon Place (condo unit) | Avon, CT | 1 | 69 | |||||
08/09/02 | Montevista | Dallas, TX | 350 | 23,675 | |||||
3,053 | $ | 245,444 | |||||||
11
Date |
| Property |
| Location |
| Number of |
| Acquisition Price |
| |
01/30/03 |
| The Reserve @ Eisenhower |
| Alexandria, VA |
| 226 |
| $ | 41,000 |
|
02/14/03 |
| Artisan Square |
| Northridge, CA |
| 140 |
| 27,466 |
| |
03/05/03 |
| LaSalle |
| Beaverton, OR |
| 554 |
| 43,000 |
| |
|
|
|
|
|
| 920 |
| $ | 111,466 |
|
5. Real Estate Dispositions
During the nine monthsquarter ended September 30, 2002,March 31, 2003, the Operating Partnership disposed of the thirty-fiveseventeen properties listed below to unaffiliated parties. The Operating Partnership recognized a net gain on sales of discontinued operations of approximately $61.2$70.7 million and a net lossgain on sales of unconsolidated entities of approximately $0.6$1.2 million.
Date Disposed | Property | Location | Number of Units | Disposition Price (in thousands) | |||||
---|---|---|---|---|---|---|---|---|---|
01/17/02 | Ravenwood | Mauldin, SC | 82 | $ | 2,425 | ||||
01/24/02 | Larkspur I & II | Moraine, OH | 45 | 899 | |||||
01/31/02 | Springwood II | Austintown, OH | 43 | 900 | |||||
02/21/02 | Scottsdale Courtyards | Scottsdale, AZ | 274 | 26,500 | |||||
04/11/02 | Applegate | Lordstown, OH | 39 | 723 | |||||
04/11/02 | Applerun | Warren, OH | 48 | 1,054 | |||||
04/11/02 | Brunswick | Cortland, OH | 59 | 1,424 | |||||
05/01/02 | The Landings | Memphis, TN | 292 | 10,300 | |||||
05/03/02 | Waterbury | Clarksville, TN | 54 | 1,385 | |||||
05/09/02 | Arboretum | Tucson, AZ | 496 | 25,000 | |||||
05/09/02 | Orange Grove Village | Tucson, AZ | 400 | 17,400 | |||||
05/09/02 | Village at Tanque Verde | Tucson, AZ | 217 | 9,100 | |||||
05/14/02 | Canyon Crest Views | Riverside, CA | 178 | 20,450 | |||||
05/14/02 | Merrimac Woods | Costa Mesa, CA | 123 | 12,950 | |||||
05/14/02 | Sierra Canyon | Santa Clarita, CA | 232 | 23,500 | |||||
05/15/02 | Meadowood | Wellsville, OH | 40 | 812 | |||||
05/23/02 | Pine Meadow | Greensboro, NC | 204 | 7,550 | |||||
05/23/02 | Palms at South Shore | League City, TX | 240 | 12,850 | |||||
05/31/02 | California Gardens | Jacksonville, FL | 71 | 1,468 | |||||
05/31/02 | Westcreek | Jacksonville, FL | 86 | 2,282 | |||||
06/19/02 | Apple Run | Hillsdale, MI | 39 | 1,047 | |||||
07/02/02 | Cedar Ridge | Arlington, TX | 121 | 5,500 | |||||
07/02/02 | Fielder Crossing | Arlington, TX | 119 | 4,100 | |||||
07/09/02 | Vacant Land | Detroit, MI | — | 10 | |||||
07/11/02 | Stonehenge | Tecumseh, MI | 48 | 1,238 | |||||
07/11/02 | Ashgrove | Marshall, MI | 51 | 1,314 | |||||
07/12/02 | Mill Village | Randolph, MA | 311 | 31,800 | |||||
07/18/02 | Meadowood I | Jackson, MI | 47 | 1,450 | |||||
07/24/02 | Mountain Run | Albuquerque, NM | 472 | 21,500 | |||||
07/30/02 | Celebration at Westchase | Houston, TX | 367 | 16,150 | |||||
07/30/02 | Pleasant Ridge | Arlington, TX | 63 | 2,605 | |||||
07/31/02 | Cedargate I & II | Bowling Green, KY | 117 | 3,020 | |||||
08/15/02 | The Cedars | Charlotte, NC | 360 | 14,800 | |||||
08/29/02 | Bourbon Square (Retail) | Palatine, IL | — | 1,200 | |||||
09/30/02 | River Bend | Tampa, FL | 296 | 11,200 | |||||
Various | Four Lakes Condo Units | Lisle, IL | 77 | 8,191 | |||||
Wholly Owned Properties | 5,711 | 304,097 | |||||||
01/31/02 | Mount Laurel Crossing* | Mt. Laurel, NJ | 296 | 11,317 | |||||
04/23/02 | Foxton* | Seymour, IN | 39 | — | |||||
08/13/02 | Chase Knolls* | Los Angeles, CA | — | 23,479 | |||||
Unconsolidated Properties | 335 | 34,796 | |||||||
Total | 6,046 | $ | 338,893 | ||||||
Date |
| Property |
| Location |
| Number Of |
| Disposition |
| |
01/14/03 |
| Strawberry Place |
| Plant City, FL |
| 55 |
| $ | 1,400 |
|
01/14/03 |
| Smoketree Polo Club |
| Indio, CA |
| 288 |
| 18,900 |
| |
01/29/03 |
| Amberwood I |
| Lake City, FL |
| 50 |
| 1,175 |
| |
01/30/03 |
| Emerald Place |
| Bermuda Dunes, CA |
| 240 |
| 20,125 |
| |
01/30/03 |
| Rolido Parque |
| Houston, TX |
| 369 |
| 14,660 |
| |
02/27/03 |
| Fox Hill Commons |
| Vernon, CT |
| 74 |
| 4,700 |
| |
02/27/03 |
| The Landings |
| Winter Haven, FL |
| 60 |
| 1,475 |
| |
02/27/03 |
| Morningside |
| Titusville, FL |
| 183 |
| 3,980 |
| |
03/04/03 |
| Colony Woods |
| Birmingham, AL |
| 414 |
| 25,000 |
| |
03/04/03 |
| Hearthstone |
| San Antonio, TX |
| 252 |
| 7,700 |
| |
03/04/03 |
| Northgate Village |
| San Antonio, TX |
| 264 |
| 10,150 |
| |
03/19/03 |
| Lincoln Green I, II & III |
| San Antonio, TX |
| 680 |
| 24,900 |
| |
03/20/03 |
| Meadows on the Lake |
| Birmingham, AL |
| 200 |
| 10,900 |
| |
03/20/03 |
| Meadows in the Park |
| Birmingham, AL |
| 200 |
| 10,900 |
| |
03/20/03 |
| Shoal Run |
| Birmingham, AL |
| 276 |
|
| 14,350 |
|
03/31/03 |
| Colony Place |
| Fort Myers, FL |
| 300 |
| 20,600 |
| |
Various |
| Four Lakes Condo Units |
| Lisle, IL |
| 26 |
| 3,161 |
| |
|
| Wholly Owned Properties |
|
|
| 3,931 |
| 194,076 |
| |
02/28/03 |
| Kings Crossing I* |
| Jacksonville, FL |
| 69 |
| 963 |
| |
|
| Unconsolidated Properties |
|
|
| 69 |
| 963 |
| |
Total |
|
|
|
|
| 4,000 |
| $ | 195,039 |
|
11
*
12
6. Commitments to Acquire/Dispose of Real Estate
As of September 30, 2002,March 31, 2003, the Operating Partnership had entered into separate agreements to acquire two multifamily properties containing 581719 units from unaffiliated parties. The Operating Partnership expects a combined purchase price of approximately $44.5 million, including the assumption of mortgage indebtedness of approximately $18.4$114.5 million.
As of September 30, 2002,March 31, 2003, in addition to the properties that were subsequently disposed of as discussed in Note 18,19, the Operating Partnership had entered into separate agreements to dispose of seventeentwenty-four multifamily properties containing 3,3384,079 units to unaffiliated parties. The Operating Partnership expects a combined disposition price of approximately $148.9$186.2 million.
The closings of these pending transactions are subject to certain contingencies and conditions;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 paragraphs.
7. Investments in Unconsolidated Entities
The Operating Partnership has entered intoco-invested in various agreementsproperties with unrelated third party companies.parties. The following table summarizes the Operating Partnership'sPartnership’s investments in unconsolidated entities as of September 30, 2002March 31, 2003 (amounts in thousands except for project and unit amounts):
|
| Institutional |
| Stabilized |
| Projects |
| Lexford/ |
| Totals |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total projects |
| 45 |
| 12 |
| 17 |
| 22 |
| 96 | (2) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total units |
| 10,846 |
| 3,805 |
| 4,659 |
| 2,704 |
| 22,014 | (2) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating Partnership’s percentage ownership of outstanding debt |
| 25.0 | % | 100.0 | % | 100.0 | % | 11.1 | % |
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating Partnership’s share of outstanding debt(4) |
| $ | 121,200 |
| $ | 295,103 |
| $ | 505,587 | (3) | $ | 5,386 |
| $ | 927,276 |
|
| Institutional Joint Ventures | Stabilized Development Projects (1) | Projects Under Development | Lexford/ Other | Totals | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total projects | 45 | 13 | 15 | 26 | 99 | (2) | ||||||||||
Total units | 10,846 | 4,116 | 4,445 | 3,313 | 22,720 | (2) | ||||||||||
ERPOP's percentage ownership of outstanding debt | 25.0 | % | 97.4 | % | 100.0 | % | 21.1 | % | ||||||||
ERPOP's share of outstanding debt (4) | $ | 121,200 | $ | 335,810 | $ | 317,898 | (3) | $ | 14,702 | $ | 789,610 |
(1)
(2)
12
Operating Partnership'sPartnership’s property/unit counts at September 30, 2002.March 31, 2003. Totals also exclude Fort Lewis Military Housing consisting of 1one property and 3,637 units.
(3)
(4)
Investments in unconsolidated entities include the Unconsolidated Properties as well as various development properties under construction or pending construction. The Operating Partnership does not consolidate these entities as it does not have sole control of the major decisions (such as sale and/or financing/refinancing). The Operating Partnership'sPartnership’s common equity ownership interests in these entities range from 4.5% to 57.0%50.0% at September 30, 2002.March 31, 2003.
These investments are accounted for utilizing the equity method of accounting. Under the equity method of accounting, the net equity investment of the Operating Partnership is reflected on the consolidated balance sheets and after the project is completed, the consolidated statements of operations include the Operating Partnership'sPartnership’s share of net income or loss from the unconsolidated
13
entity. Prior to the project being completed, the Operating Partnership capitalizes interest on its equity contribution in accordance with the provisions of SFAS No. 58,Capitalization of Interest Cost in Financial Statements That Include Investments Accounted for by the Equity Method. During the nine monthsquarters ended September 30,March 31, 2003 and 2002, and 2001, the Operating Partnership capitalized $12.5$5.4 million and $14.4$3.8 million, respectively, in interest cost related to its unconsolidated development projects (which reduced interest expense incurred in the consolidated statements of operations).
The Operating Partnership generally contributes between 25% and 35% of the project cost of the unconsolidated projects under development, with the remaining cost financed through third-party construction mortgages.
8. Deposits— Deposits - - Restricted
As of September 30, 2002,March 31, 2003, deposits-restricted totaled $168.1$173.1 million and primarily included the following:
•
•
•
9. Mortgage Notes Payable
As of September 30, 2002,March 31, 2003, the Operating Partnership had outstanding mortgage indebtedness of approximately $3.1$2.9 billion.
During the nine monthsquarter ended September 30, 2002,March 31, 2003, the Operating Partnership:
•
•
•
As of September 30, 2002,March 31, 2003, scheduled maturities for the Operating Partnership'sPartnership’s outstanding mortgage
13
indebtedness were at various dates through October 1, 2033. TheAt March 31, 2003, the interest rate range on the Operating Partnership'sPartnership’s mortgage debt was 1.55%1.09% to 12.465% at September 30, 2002.. During the nine monthsquarter ended September 30, 2002,March 31, 2003, the weighted average interest rate on the Operating Partnership’s mortgage debt was 6.37%6.02%.
10. Notes
As of September 30, 2002,March 31, 2003, the Operating Partnership had outstanding unsecured notes of approximately $2.4 billion.$2.9 billion net of a $7.0 million discount and including an $8.3 million premium.
During the nine monthsquarter ended September 30, 2002,March 31, 2003, the Operating Partnership:
•
14$397.5 million.
As of September 30, 2002,March 31, 2003, scheduled maturities for the Operating Partnership'sPartnership’s outstanding notes arewere at various dates through 2029. TheAt March 31, 2003, the interest rate range on the Operating Partnership'sPartnership’s notes was 4.75% to 7.75% at September 30, 2002.. During the nine monthsquarter ended September 30, 2002,March 31, 2003, the weighted average interest rate on the Operating Partnership’s notes was 6.47%5.73%.
11. Line of Credit
On May 30, 2002, the
The Operating Partnership obtainedhas a new three-year $700.0 million unsecured revolving credit facility maturing May 29, 2005. The new linewith potential borrowings of credit replaced the Operating Partnership'sup to $700.0 million unsecured revolving credit facility that was scheduled to expire in August 2002. The prior existing revolving credit facility was terminated upon the closing of the new facility. Advances under the new credit facility bear interest at variable rates based upon LIBOR at various interest periods, plus a spread dependent upon the Operating Partnership's credit rating, or based upon bids received from the lending group.million. As of September 30, 2002, $35.0 million wasMarch 31, 2003, no amounts were outstanding and $83.3$53.3 million was restricted (dedicated to support letters of credit and not available for borrowing) on the line of credit. During the nine monthsquarter ended September 30, 2002,March 31, 2003, the weighted average interest rate on borrowings underwas 1.85%. EQR has guaranteed the former and new linesOperating Partnership’s line of credit was 2.49%.up to the maximum amount and for the full term of the facility.
12. Derivative Instruments and Hedging Activities
The following table summarizes the Operating Partnership's consolidated derivative instruments and hedging activities at September 30, 2002 (amountsMarch 31, 2003 (dollar amounts are in thousands):
| Cash Flow Hedges | Fair Value Hedges | Forward Starting Swaps | Offsetting Receive Floating Swaps/Caps | Offsetting Pay Floating Swaps/Caps | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Current Notional Balance | $ | 400,000 | $ | 220,000 | $ | 250,000 | $ | 255,117 | $ | 255,117 | ||||||
Lowest Possible Notional | $ | 400,000 | $ | 220,000 | $ | 250,000 | $ | 251,410 | $ | 251,410 | ||||||
Highest Possible Notional | $ | 400,000 | $ | 220,000 | $ | 250,000 | $ | 431,444 | $ | 431,444 | ||||||
Lowest Interest Rate | 3.65125 | % | 5.33250 | % | 5.06375 | % | 4.52800 | % | 4.45800 | % | ||||||
Highest Interest Rate | 5.81000 | % | 7.25000 | % | 5.42600 | % | 6.00000 | % | 6.00000 | % | ||||||
Earliest Maturity Date | 2003 | 2005 | 2013 | 2003 | 2003 | |||||||||||
Latest Maturity Date | 2005 | 2011 | 2013 | 2007 | 2007 | |||||||||||
Estimated Asset (Liability) | ||||||||||||||||
Fair Value | $ | (16,244 | ) | $ | 16,567 | $ | (9,174 | ) | $ | (4,708 | ) | $ | 4,529 |
|
| Cash Flow |
| Fair Value |
| Interest |
| Offsetting |
| Offsetting |
| |||||
Current Notional Balance |
| $ | 400,000 |
| $ | 120,000 |
| $ | 37,000 |
| $ | 255,119 |
| $ | 255,119 |
|
Lowest Possible Notional |
| $ | 400,000 |
| $ | 120,000 |
| $ | 37,000 |
| $ | 251,410 |
| $ | 251,410 |
|
Highest Possible Notional |
| $ | 400,000 |
| $ | 120,000 |
| $ | 37,000 |
| $ | 431,444 |
| $ | 431,444 |
|
Lowest Interest Rate |
| 3.65125 | % | 7.25000 | % | 6.5 | % | 4.52800 | % | 4.45800 | % | |||||
Highest Interest Rate |
| 5.81000 | % | 7.25000 | % | 6.5 | % | 6.00000 | % | 6.00000 | % | |||||
Earliest Maturity Date |
| 2003 |
| 2005 |
| 2004 |
| 2003 |
| 2003 |
| |||||
Latest Maturity Date |
| 2005 |
| 2005 |
| 2004 |
| 2007 |
| 2007 |
| |||||
Estimated Asset (Liability) Fair Value |
| $ | (12,123 | ) | $ | 8,851 |
| $ | — |
| $ | (2,261 | ) | $ | 2,184 |
|
During the quarter ended March 31, 2003, the Company paid approximately $13.0 million to terminate eight forward starting interest rate swaps in conjunction with the issuance of $400.0 million of ten-year unsecured notes. The $13.0 million payment will be deferred and recognized as additional interest expense over the ten-year life of the unsecured notes.
At September 30, 2002,March 31, 2003, certain unconsolidated development partnerships in which the Operating Partnership invested had entered into swaps to hedge the interest rate risk exposure on unconsolidated floating rate construction mortgage loans. The Operating Partnership has recorded its proportionate share of these hedges on its consolidated balance sheets. These swaps have been designated as cash flow
14
hedges with a current aggregate notional amount of $427.7 $363.2million (notional amounts range from $166.5 $142.1million to $552.4 $456.2million over the terms of the swaps) at interest rates ranging from 2.25%1.78% to 6.94% maturing at various dates ranging from 2003 to 2005 with a net liability fair value of $15.0 $12.1million. During the nine monthsquarter ended September 30, 2002,March 31, 2003, the Operating Partnership recognized an unrealized lossgain of $0.8$0.7 million due to ineffectiveness of certain of these unconsolidated development derivatives (included in income (loss) from investments in unconsolidated entities).
On September 30, 2002,March 31, 2003, the net derivative instruments were reported at their fair value as other liabilities of approximately $9.0$3.3 million and as a reduction to investments in unconsolidated entities of approximately $15.0$12.1 million. As of September 30, 2002,March 31, 2003, there were approximately $44.2$40.9 million in deferred losses, net, included in accumulated other comprehensive loss. Based on the estimated fair values of the net derivative instruments at September 30, 2002,March 31, 2003, the Operating Partnership may recognize an estimated $19.3$17.4 million of accumulated other comprehensive loss as additional interest expense during the twelve months ending September 30, 2003,March 31, 2004, of which $8.0$8.1 million is related to the unconsolidated development partnerships.
15
13. Calculation of Net Income Per Weighted Average OP Unit
The following tables set forth the computation of net income per OP Unit—Unit – basic and net income per OP Unit—Unit – diluted:
| Nine Months Ended September 30, | Quarter Ended September 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2002 | 2001 | 2002 | 2001 | ||||||||||
| (Amounts in thousands except per OP Unit amounts) | |||||||||||||
Numerator: | ||||||||||||||
Income before allocation to Minority Interests, income (loss) from investments in unconsolidated entities, net gain (loss) on sales of unconsolidated entities, discontinued operations, extraordinary items, cumulative effect of change in accounting principle and allocation to preference unit/interest distributions | $ | 258,303 | $ | 304,767 | $ | 68,945 | $ | 103,221 | ||||||
Allocation to Minority Interests—Partially Owned Properties | (1,584 | ) | (1,523 | ) | (259 | ) | (1,285 | ) | ||||||
Income (loss) from investments in unconsolidated entities | (1,746 | ) | 1,885 | (1,979 | ) | 925 | ||||||||
Allocation to Preference Units | (57,568 | ) | (68,097 | ) | (19,055 | ) | (19,425 | ) | ||||||
Allocation to Preference Interests | (15,158 | ) | (13,390 | ) | (5,052 | ) | (4,833 | ) | ||||||
Allocation to Junior Preference Units | (243 | ) | (272 | ) | (81 | ) | (82 | ) | ||||||
Income before net gain (loss) on sales of unconsolidated entities, discontinued operations, extraordinary items and cumulative effect of change in accounting principle | 182,004 | 223,370 | 42,519 | 78,521 | ||||||||||
Net gain (loss) on sales of unconsolidated entities | (626 | ) | 339 | (5,872 | ) | — | ||||||||
Net gain on sales of discontinued operations | 61,209 | 99,793 | 32,763 | 53,567 | ||||||||||
Discontinued operations, net | 6,815 | (49,241 | ) | 346 | (56,257 | ) | ||||||||
Extraordinary items | (468 | ) | (22 | ) | — | (128 | ) | |||||||
Cumulative effect of change in accounting principle | — | (1,270 | ) | — | — | |||||||||
Numerator for net income per OP Unit—basic | 248,934 | 272,969 | 69,756 | 75,703 | ||||||||||
Effect of dilutive securities: | ||||||||||||||
Distributions on convertible preference units/interests | — | 74 | — | — | ||||||||||
Numerator for net income per OP Unit—diluted | $ | 248,934 | $ | 273,043 | $ | 69,756 | $ | 75,703 | ||||||
Denominator: | ||||||||||||||
Denominator for net income per OP Unit—basic | 295,483 | 290,803 | 296,519 | 292,213 | ||||||||||
Effect of dilutive securities: | ||||||||||||||
Convertible preference units/interests | — | 82 | — | — | ||||||||||
Dilution for OP Units issuable upon assumed exercise/vesting of the Company's share options/restricted shares | 3,207 | 3,776 | 2,538 | 4,178 | ||||||||||
Denominator for net income per OP Unit—diluted | 298,690 | 294,661 | 299,057 | 296,391 | ||||||||||
Net income per OP Unit—basic | $ | 0.84 | $ | 0.94 | $ | 0.24 | $ | 0.26 | ||||||
Net income per OP Unit—diluted | $ | 0.83 | $ | 0.93 | $ | 0.23 | $ | 0.26 | ||||||
16
|
| Quarter Ended March 31, |
| ||||
|
| 2003 |
| 2002 |
| ||
|
| (Amounts in thousands except per |
| ||||
Numerator: |
|
|
|
|
| ||
Income before allocation to Minority Interests, income from investments in unconsolidated entities, net gain on sales of unconsolidated entities, discontinued operations and allocation to preference unit/interest distributions |
| $ | 72,165 |
| $ | 89,462 |
|
|
|
|
|
|
| ||
Allocation to Minority Interests – Partially Owned Properties |
| (115 | ) | (806 | ) | ||
Income from investments in unconsolidated entities |
| 107 |
| 226 |
| ||
Allocation to Preference Units |
| (19,046 | ) | (19,391 | ) | ||
Allocation to Preference Interests |
| (5,053 | ) | (5,053 | ) | ||
Allocation to Junior Preference Units |
| (81 | ) | (81 | ) | ||
|
|
|
|
|
| ||
Income before net gain on sales of unconsolidated entities and discontinued operations |
| 47,977 |
| 64,357 |
| ||
Net gain on sales of unconsolidated entities |
| 1,212 |
| 5,657 |
| ||
Net gain on sales of discontinued operations |
| 70,672 |
| 2,816 |
| ||
Discontinued operations, net |
| 416 |
| 9,964 |
| ||
|
|
|
|
|
| ||
Numerator for net income per OP Unit – basic |
| 120,277 |
| 82,794 |
| ||
Effect of dilutive securities: |
|
|
|
|
| ||
Distributions on convertible preference units/interests |
| 1,214 |
| — |
| ||
|
|
|
|
|
| ||
Numerator for net income per OP Unit – diluted |
| $ | 121,491 |
| $ | 82,794 |
|
|
|
|
|
|
| ||
Denominator: |
|
|
|
|
| ||
Denominator for net income per OP Unit – basic |
| 292,949 |
| 294,106 |
| ||
|
|
|
|
|
| ||
Effect of dilutive securities: |
|
|
|
|
| ||
Convertible preference units/interests |
| 3,139 |
| — |
| ||
Dilution for OP Units issuable upon assumed exercise/vesting of EQR’s share options/restricted shares |
| 1,558 |
| 3,123 |
| ||
Denominator for net income per OP Unit – diluted |
| 297,646 |
| 297,229 |
| ||
|
|
|
|
|
|
|
|
Net income per OP Unit – basic |
| $ | 0.41 |
| $ | 0.28 |
|
|
|
|
|
|
|
|
|
Net income per OP Unit – diluted |
| $ | 0.41 |
| $ | 0.28 |
|
15
|
| Quarter Ended March 31, |
| ||||
|
| 2003 |
| 2002 |
| ||
|
| (Amounts in thousands except per |
| ||||
Net income per OP Unit – basic: |
|
|
|
|
| ||
Income before net gain on sales of unconsolidated entities and discontinued operations per OP Unit – basic |
| $ | 0.17 |
| $ | 0.22 |
|
Net gain on sales of unconsolidated entities |
| — |
| 0.02 |
| ||
Net gain on sales of discontinued operations |
| 0.24 |
| 0.01 |
| ||
Discontinued operations, net |
| — |
| 0.03 |
| ||
Net income per OP Unit – basic |
| $ | 0.41 |
| $ | 0.28 |
|
|
|
|
|
|
| ||
Net income per OP Unit – diluted: |
|
|
|
|
| ||
Income before net gain on sales of unconsolidated entities and discontinued operations per OP Unit – diluted |
| $ | 0.17 |
| $ | 0.22 |
|
Net gain on sales of unconsolidated entities |
| — |
| 0.02 |
| ||
Net gain on sales of discontinued operations |
| 0.24 |
| 0.01 |
| ||
Discontinued operations, net |
| — |
| 0.03 |
| ||
|
|
|
|
|
| ||
Net income per OP Unit – diluted |
| $ | 0.41 |
| $ | 0.28 |
|
| Nine Months Ended September 30, | Quarter Ended September 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2002 | 2001 | 2002 | 2001 | |||||||||
| (Amounts in thousands except per OP Unit amounts) | ||||||||||||
Net income per OP Unit—basic: | |||||||||||||
Income before net gain (loss) on sales of unconsolidated entities, discontinued operations, extraordinary items and cumulative effect of change in accounting principle per OP Unit—basic | $ | 0.61 | $ | 0.77 | $ | 0.15 | $ | 0.27 | |||||
Net gain (loss) on sales of unconsolidated entities | — | — | (0.02 | ) | — | ||||||||
Net gain on sales of discontinued operations | 0.21 | 0.34 | 0.11 | 0.18 | |||||||||
Discontinued operations, net | 0.02 | (0.17 | ) | — | (0.19 | ) | |||||||
Extraordinary items | — | — | — | — | |||||||||
Cumulative effect of change in accounting principle | — | — | — | — | |||||||||
Net income per OP Unit—basic | $ | 0.84 | $ | 0.94 | $ | 0.24 | $ | 0.26 | |||||
Net income per OP Unit—diluted: | |||||||||||||
Income before net gain (loss) on sales of unconsolidated entities, discontinued operations, extraordinary items and cumulative effect of change in accounting principle per OP Unit—diluted | $ | 0.61 | $ | 0.76 | $ | 0.14 | $ | 0.27 | |||||
Net gain (loss) on sales of unconsolidated entities | — | — | (0.02 | ) | — | ||||||||
Net gain on sales of discontinued operations | 0.20 | 0.34 | 0.11 | 0.18 | |||||||||
Discontinued operations, net | 0.02 | (0.17 | ) | — | (0.19 | ) | |||||||
Extraordinary items | — | — | — | — | |||||||||
Cumulative effect of change in accounting principle | — | — | — | — | |||||||||
Net income per OP Unit—diluted | $ | 0.83 | $ | 0.93 | $ | 0.23 | $ | 0.26 |
Convertible preference units/interests that could be converted into 15,461,85511,807,095 and 15,322,60715,853,687 weighted average Common Shares (which would be contributed to the Operating Partnership in exchange for OP Units) for the nine months ended September 30, 2002 and 2001, respectively, and 15,095,576 and 15,626,902 weighted average Common Shares for the quarters ended September 30,March 31, 2003 and 2002, and 2001, respectively, were outstanding but were not included in the computation of diluted earnings per OP Unit because the effects would be anti-dilutive.
On October 11, 2001, the Operating Partnership effected a two-for-one split of its OP Units to unitholders of record as of September 21, 2001. All per OP Unit data and numbers of OP Units have been retroactively adjusted to reflect the OP Unit split.
14. Discontinued Operations
In August 2001, the FASB issued SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets, which is effective for fiscal years beginning after December 15, 2001.
The Operating Partnership adoptedhas presented separately as discontinued operations in all periods the standard effectiveresults of operations for all wholly owned assets disposed of on or after January 1, 2002 which did not have a material effect on the Operating Partnership's financial condition and results(the date of operations.
Under the provisionsadoption of SFAS No. 144, for long-lived assets to be held and used, the Operating Partnership first determines whether any indicators of impairment exist. If indicators exist, the Operating Partnership compares the expected future undiscounted cash flows for the long-lived asset against the carrying amount of that asset. If the sum of the estimated undiscounted cash flows is less than the carrying amount of the asset, an impairment loss would be recorded for the difference between the estimated fair value and the carrying amount of the asset.
17
For long-lived assets to be disposed of, an impairment loss is recognized when the estimated fair value of the asset, less the estimated cost to sell, is less than the carrying amount of the asset measured at the time that the Operating Partnership has determined it will sell the asset. Long-lived assets held for disposition are reported at the lower of their carrying amounts or their estimated fair values, less their costs to sell.144).
Goodwill and investments in unconsolidated entities accounted for under the equity method of accounting are specifically excluded from the scope of SFAS No. 144.
On January 11, 2002, the Operating Partnership disposed of its furniture rental business for $30.0 million and received net proceeds of $28.7 million. No gain/loss on sale was recognized as the net book value at the sale date after giving effect to a previously recorded impairment loss approximated the sales price.
The components of discontinued operations for the nine months and quarters ended September 30, 2002 and 2001, respectively, are outlined below and include the results of operations through the date of each respective sale for the nine monthsrespective periods that the Operating Partnership owned such assets during each of the quarters ended March 31, 2003 and quarter ended September 30, 2002, and a full nine months and quarter of operations for the nine months and quarter ended September 30, 2001, forincluding the following:
•
•The Wholly Owned Properties and the furniture rental business; andbusiness sold during 2002.
16
|
| Quarter Ended March 31, |
| ||||
|
| 2003 |
| 2002 |
| ||
|
| (Amounts in thousands) |
| ||||
REVENUES |
|
|
|
|
| ||
Rental income |
| $ | 5,026 |
| $ | 25,898 |
|
Interest and other income |
| 11 |
| 10 |
| ||
Furniture income |
| — |
| 1,365 |
| ||
Total revenues |
| 5,037 |
| 27,273 |
| ||
|
|
|
|
|
| ||
EXPENSES(1) |
|
|
|
|
| ||
Property and maintenance |
| 2,871 |
| 6,809 |
| ||
Real estate taxes and insurance |
| 587 |
| 2,849 |
| ||
Depreciation |
| 1,102 |
| 5,776 |
| ||
Interest expense incurred, net |
| 61 |
| 566 |
| ||
Amortization of deferred financing costs |
| — |
| 6 |
| ||
Furniture expenses |
| — |
| 1,303 |
| ||
Total expenses |
| 4,621 |
| 17,309 |
| ||
|
|
|
|
|
| ||
Discontinued operations, net |
| $ | 416 |
| $ | 9,964 |
|
(1) Includes trailing expenses for Wholly Owned Properties sold in prior periods related to the Operating Partnership’s period of ownership.
15. Stock-Based Compensation
Prior to 2003, the Company had chosen to account for its stock-based compensation in accordance with APB No. 25, Accounting for Stock Issued to Employees,which resulted in no compensation expense for options issued with an exercise price equal to or exceeding the market value of EQR’s Common Shares on the date of grant (intrinsic method). The Company has elected to expense its stock-based compensation in accordance with SFAS No. 123 and its amendment (SFAS No. 148), Accounting for Stock Based Compensation, effective in the first ninequarter of 2003, which resulted in compensation expense being recorded based on the fair value of the stock compensation granted or modified. Any Common Shares issued pursuant to EQR’s share option/restricted share/ESPP plans will result in the Operating Partnership issuing OP Units to EQR on a one-for-one basis.
SFAS No. 148 provides three transition methods for entities that adopt the fair value recognition provisions of SFAS No. 123. The Company has chosen to use the “Prospective Method”. This method requires that companies apply the recognition provisions of SFAS No. 123 to only employee awards granted or modified after the beginning of the fiscal year in which the recognition provisions are first applied, or January 1, 2003. Compensation expense under all of the Company’s plans is generally recognized over periods ranging from three months to five years. Therefore, the cost related to stock-based employee compensation included in the determination of 2002 (see Note 5).
The following table illustrates the effect on net income and earnings per OP Unit if the fair value based method had been applied to all outstanding and unvested awards in each period presented:
17
| Nine Months Ended September 30, | Quarter Ended September 30, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2002 | 2001 | 2002 | 2001 | |||||||||||
| (Amounts in thousands) | ||||||||||||||
REVENUES | |||||||||||||||
Rental income | $ | 19,759 | $ | 33,089 | $ | 1,595 | $ | 11,045 | |||||||
Interest and other income | 1 | 49 | (4 | ) | 17 | ||||||||||
Furniture income | 1,361 | 45,051 | — | 15,024 | |||||||||||
Total revenues | 21,121 | 78,189 | 1,591 | 26,086 | |||||||||||
EXPENSES | |||||||||||||||
Property and maintenance | 6,191 | 8,995 | 814 | 3,142 | |||||||||||
Real estate taxes and insurance | 2,001 | 3,188 | 134 | 1,067 | |||||||||||
Depreciation | 4,259 | 7,973 | 240 | 2,608 | |||||||||||
Interest expense incurred, net | 546 | 884 | 57 | 284 | |||||||||||
Amortization of deferred financing costs | 6 | 10 | — | 4 | |||||||||||
Amortization of goodwill | — | 990 | — | 347 | |||||||||||
Impairment on furniture rental business | — | 60,000 | — | 60,000 | |||||||||||
Furniture expenses | 1,303 | 45,390 | — | 14,891 | |||||||||||
Total expenses | 14,306 | 127,430 | 1,245 | 82,343 | |||||||||||
Discontinued operations, net | $ | 6,815 | $ | (49,241 | ) | $ | 346 | $ | (56,257 | ) | |||||
|
| Quarter Ended March 31, |
| ||||
|
| 2003 |
| 2002 |
| ||
|
| (Amounts in thousands |
| ||||
Net income available to OP Units, as reported |
| $ | 120,277 |
| $ | 82,794 |
|
Add: Stock-based employee compensation expense included in reported net income: |
|
|
|
|
| ||
EQR’s restricted/performance shares |
| 2,334 |
| 5,084 |
| ||
EQR’s share options(1) |
| 1,707 |
| — |
| ||
EQR’s ESPP discount |
| 490 |
| — |
| ||
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards: |
|
|
|
|
| ||
EQR’s restricted/performance shares |
| (2,334 | ) | (5,084 | ) | ||
EQR’s share options(1) |
| (2,899 | ) | (1,527 | ) | ||
EQR’s ESPP discount |
| (490 | ) | (658 | ) | ||
Pro forma net income available to OP Units |
| $ | 119,085 |
| $ | 80,609 |
|
Earnings per OP Unit: |
|
|
|
|
| ||
Basic – as reported |
| $ | 0.41 |
| $ | 0.28 |
|
Basic – pro forma |
| $ | 0.41 |
| $ | 0.27 |
|
Diluted – as reported |
| $ | 0.41 |
| $ | 0.28 |
|
Diluted – pro forma |
| $ | 0.40 |
| $ | 0.27 |
|
15.(1) Share options for the quarter ended March 31, 2003 included $1.4 million of expense recognition related to options granted in the first quarter of 2003 to EQR's former chief executive officer. These options vested immediately upon grant.
16. Commitments and Contingencies
The Operating Partnership, as an owner of real estate, is subject to various environmental laws of Federal, state and local governments.environmental laws. Compliance by the Operating Partnership with existing laws has not had a material adverse effect on the Operating Partnership'sPartnership’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 properties or on properties that it may acquire in the future.
18
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, some 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 stage and the agreements with multifamily residential real estate developers, the Operating Partnership funded a net total of $65.1 million during the nine months ended September 30, 2002. In connection with one development agreement, the Operating Partnership has an obligation to fund up to an additional $9.5 million to guarantee third party construction financing.
As of September 30, 2002,March 31, 2003, the Operating Partnership has 17 projects in various stages of development (includes two consolidated projects) with estimated completion dates ranging through June 30, 2004. The Operating Partnership funded a net total of $1.7 million during the quarter ended March 31, 2003 for the development of multifamily properties pursuant to its agreements with developers. The Operating Partnership expects to fund approximately $5.0 million in connection with these properties during the remainder of 2003 and in 2004. The three development agreements currently in place have the following key terms:
For one
• The first development agreement, the Operating Partnership's partner has the right, at any time following completion of a project, to stipulate a value for such project and offer to sell its interest in the project to the Operating
18
Partnership based on such value. If the Operating Partnership chooses not to purchase the interest, it must agree to a sale of the project to an unrelated third party at such value. The Operating Partnership'sPartnership’s partner must exercise this right as to all projects within five years after the receipt of the final certificate of occupancy on the last developed property. The Operating Partnership has an obligation to fund up to an additional $13.0 million to guarantee third party construction financing, if required.
Under a
• The second development agreement, the Operating Partnership's partner has the right, at any time following completion of a project, to require the Operating Partnership to purchase the partners'partners’ interest in that project at a mutually agreeable price. If the Operating Partnership and the partner are unable to agree on a price, both parties will obtain appraisals. If the appraised values vary by more than 10%, both the Operating Partnership and its partner will agree on a third appraiser to determine which original appraisal is closest to its determination of value. The Operating Partnership may elect at that time not to purchase the property and instead, authorize its partner to sell the project at or above the agreed-upon value to an unrelated third party. Five years following the receipt of the final certificate of occupancy on the last developed property, the Operating Partnership must purchase, at the agreed-upon price, any projects remaining unsold must be purchased byunsold.
• The third development partner has the exclusive right for six months following stabilization (generally defined as having achieved 90% occupancy for three consecutive months following the substantial completion of a project) to market a project for sale. Thereafter, either the Operating Partnership or its development partner may market a project for sale. If the Operating Partnership’s development partner proposes the sale, the Operating Partnership may elect to purchase the project at the price proposed by its partner or defer the sale until two independent appraisers appraise the project. If the two appraised values vary by more than 5%, a third appraiser will be chosen to determine the fair market value of the property. Once a value has been determined, the Operating Partnership may elect to purchase the property or authorize its development partner to sell the project at the agreed-upon price.value.
The
In connection with one of its mergers, the Operating Partnership provided a credit enhancement with respect to certain tax-exempt bonds issued to finance certain public improvements at a multifamily development project. As of September 30, 2002,March 31, 2003, this enhancement was still in effect at a commitment amount of $12.7 million.
16.17. Asset Impairment
For both the nine monthsquarters ended September 30,March 31, 2003 and 2002, and 2001, the Operating Partnership recorded approximately $0.9$0.3 million and $8.0 million, respectively, of asset impairment charges related to its technology investments. These charges were the result of a review of the existing investments reflected on the consolidated balance sheet. These impairment losses are reflected on the statementconsolidated statements of operations in total expenses and include the write-down of assets classified as other assets and investments in unconsolidated entities.assets.
For the nine months ended September 30, 2002, the Operating Partnership recorded approximately $17.1 million of asset impairment charges related to its corporate housing business. Following the guidance in SFAS No. 142, these charges were the result of the Operating Partnership's decision to reduce the carrying value of its corporate housing business to $30.0 million, given the continued weakness in the economy and management's expectations for near-term performance. This impairment loss is reflected on the consolidated statements of operations as impairment on corporate housing business and on the consolidated balance sheets as a reduction in goodwill, net.
18. Reportable Segments
As of September 30, 2001, the Operating Partnership recorded $60.0 million of asset impairment charges related to its furniture rental business. These charges were the result of a review of the existing
19
intangible and tangible assets reflected on the consolidated balance sheet as of September 30, 2001. The Operating Partnership reviewed the current net book value taking into consideration existing business and economic conditions as well as projected operating cash flows. The impairment loss is reflected on the income statement in discontinued operations, net, and includes the write-down of the following assets: a) goodwill of approximately $26.0 million; b) rental furniture, net of approximately $28.6 million; c) property and equipment, net of approximately $4.5 million; and d) other assets of approximately $0.9 million.
17. Reportable Segments
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by senior management. Senior management decides how resources are allocated and assesses performance on a monthly basis.
The Operating Partnership'sPartnership’s primary business is owning, managing, and operating multifamily residential properties, which includes the generation of rental and other related income through the leasing of apartment units to residents.residents and includes ECH. Senior management evaluates the performance of each of our apartment communities on an individual basis, however, each of our apartment communities has similar economic characteristics, residents, and products and services so they have been aggregated into one reportable segment. The Operating Partnership'sPartnership’s rental real estate segment comprisedcomprises approximately 98.8% and 97.9%
19
of total revenues for the nine months ended September 30, 2002, and 2001, respectively, and approximately 99.0% and 98.5% of total revenues forboth the quarters ended September 30, 2002March 31, 2003 and 2001, respectively.2002. The Operating Partnership'sPartnership’s rental real estate segment comprisedcomprises approximately 99.7%99.8% and 99.4%99.7% of total assets at September 30, 2002March 31, 2003 and December 31, 2001,2002, respectively.
The primary financial measure for the Operating Partnership'sPartnership’s rental real estate segment is net operating income ("NOI"(“NOI”), which represents rental income less: 1) property and maintenance expense; 2) real estate taxes and insurance expense; and 3) property management expense (all as reflected in the accompanying statements of operations). Current year NOI is compared to prior year NOI and current year budgeted NOI as a measure of financial performance. NOI from our rental real estate totaled approximately $905.1 $279.6million and $916.2 million for the nine months ended September 30, 2002 and 2001, respectively, and approximately $297.5 million and $312.6$293.3 million for the quarters ended September 30,March 31, 2003 and 2002, and 2001, respectively.
During the acquisition, development and/or disposition of real estate, the Operating Partnership considers its NOI return on total capitalized costs isinvestment as the primary measure of financial performance the Operating Partnership considers.performance.
The Operating Partnership'sPartnership’s fee and asset management activity is immaterial and does not meet the threshold requirements of a reportable segment as provided for in SFAS No. 131.
All revenues are from external customers and there is no customer who contributed 10% or more of the Operating Partnership’s total revenues during the quarters ended March 31, 2003 or 2002.
18. 19.Subsequent Events/Other
During the nine months ended September 30, 2002, the Operating Partnership entered into an agreement with the U.S. Army with an initial cash investment of $10.0 million and assumed management of 3,637 multifamily units at Fort Lewis, Washington.
Subsequent to September 30, 2002March 31, 2003 and through November 4, 2002,April 30, 2003, the Operating Partnership:
•
•
20
21
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
For further information including definitions for capitalized terms not defined herein, refer to the consolidated financial statements and footnotes thereto included in the Operating Partnership'sPartnership’s annual report on Form 10-K for the year ended December 31, 2001.2002.
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"“believes”, "expects"“estimates”, “expects” and "anticipates"“anticipates” and other similar expressions that 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:
•
•
•
•
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Operating Partnership undertakes no obligation to publicly release any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Forward-looking statements and related uncertainties are also included in Note 6 to the Notes to Consolidated Financial Statements in this report.
22
Results of Operations
The following table summarizes the number of properties and related units for the year-to-date periods presented:
| Properties | Units | Purchase / Sale Price $ Millions | |||||
---|---|---|---|---|---|---|---|---|
At December 31, 2000 | 1,104 | 227,704 | ||||||
Q1/Q2/Q3 2001 Acquisitions | 11 | 2,657 | $ | 288.0 | ||||
Q1/Q2/Q3 2001 Dispositions | (38 | ) | (6,241 | ) | $ | 298.5 | ||
Q1/Q2/Q3 2001 Completed Developments | 4 | 1,470 | ||||||
At September 30, 2001 | 1,081 | 225,590 | ||||||
Q4 2001 Acquisitions | 3 | 766 | $ | 100.1 | ||||
Q4 2001 Dispositions | (11 | ) | (2,566 | ) | $ | 118.4 | ||
Q4 2001 Completed Developments | 3 | 1,035 | ||||||
Q4 2001 Unit Configuration Changes | — | (24 | ) | |||||
At December 31, 2001 | 1,076 | 224,801 | ||||||
Q1/Q2/Q3 2002 Acquisitions | 10 | 3,053 | $ | 245.4 | ||||
Q2 2002 Fort Lewis | 1 | 3,637 | ||||||
Q1/Q2/Q3 2002 Dispositions | (35 | ) | (6,046 | ) | $ | 338.9 | ||
Q1/Q2/Q3 2002 Completed Developments | 7 | 1,966 | ||||||
Q1/Q2/Q3 2002 Unit Configuration Changes | — | 15 | ||||||
At September 30, 2002 | 1,059 | 227,426 | ||||||
The Operating Partnership's acquisition and disposition activity has impacted overall results of operations for the nine months and quarters ended September 30, 2002 and 2001.
21
|
| Properties |
| Units |
| Purchase / |
| |
At December 31, 2001 |
| 1,076 |
| 224,801 |
|
|
| |
Q1 2002 Acquisitions |
| 1 |
| 368 |
| $ | 26.0 |
|
Q1 2002 Dispositions |
| (5 | ) | (757 | ) | $ | 43.7 |
|
Q1 2002 Completed Developments |
| 1 |
| 588 |
|
|
| |
At March 31, 2002 |
| 1,073 |
| 225,000 |
|
|
| |
Q2/Q3/Q4 2002 Acquisitions |
| 11 |
| 3,266 |
| $ | 263.9 |
|
Ft. Lewis Joint Venture |
| 1 |
| 3,652 |
|
|
| |
Q2/Q3/Q4 2002 Dispositions |
| (53 | ) | (9,956 | ) | $ | 502.5 |
|
Q2/Q3/Q4 2002 Completed Developments |
| 7 |
| 1,613 |
|
|
| |
Q2/Q3/Q4 2002 Unit Configuration Changes |
| — |
| 16 |
|
|
| |
At December 31, 2002 |
| 1,039 |
| 223,591 |
|
|
| |
Q1 2003 Acquisitions |
| 3 |
| 920 |
| $ | 111.5 |
|
Q1 2003 Dispositions |
| (17 | ) | (4,000 | ) | $ | 195.0 |
|
Q1 2003 Completed Developments |
| 2 |
| 738 |
|
|
| |
At March 31, 2003 |
| 1,027 |
| 221,249 |
|
|
|
Significant changes in revenues and expensesbetween the quarters presented have resulted primarily from the consolidation of previously Unconsolidated Properties in July 2001, the disposition of the furniture rental business on January 11, 2002, reduced rental income through increased concessions or reduced apartment rents and occupancy at selected properties as well as the properties acquired and developments completed in 2001 and 2002, which have been partially offset by the properties disposed in 2001 and 2002.many of our properties. Significant changes in expenses have also resulted from increases in property and maintenance expenses including payroll, maintenance, building, utilities and leasing and advertising as well as real estate taxes. In addition, the Operating Partnership’s acquisition, disposition and completed development activity has impacted overall results of operations for the quarters ended March 31, 2003 and 2002. These changes in insurance costs, general and administrative costs, impairment charges and variable interest rates. This impact isare discussed in greater detail in the following paragraphs.
Properties that the Operating Partnership owned for allboth of both the nine month periodsquarters ended September 30,March 31, 2003 and March 31, 2002 and September 30, 2001 (the "Nine-Month 2002“First Quarter 2003 Same Store Properties"Properties”), which represented 191,940 units, and properties that the Operating Partnership owned for all of both the quarters ended September 30, 2002 and September 30, 2001 (the "Third Quarter 2002 Same Store Properties"), which represented 197,852191,278 units, also impacted the Operating Partnership'sPartnership’s results of operations. Both the Nine-Month 2002 Same Store Propertiesoperations and Third Quarter 2002 Same Store Properties are discussed as well in the following paragraphs.
Comparison of the nine monthsquarter ended September 30, 2002March 31, 2003 to the nine monthsquarter ended September 30, 2001March 31, 2002
For the nine monthsquarter ended September 30, 2002,March 31, 2003, income before allocation to Minority Interests, income (loss) from investments in unconsolidated entities, net gain (loss) on sales of unconsolidated entities and discontinued operations extraordinary items and cumulative effect of change in accounting principle decreased by approximately $46.5$17.3 million when compared to the nine monthsquarter ended September 30, 2001.March 31, 2002.
23
Revenues from the Nine-Month 2002First Quarter 2003 Same Store Properties decreased primarily as a result of lower overall physical occupancy, increased concessions and lower rental rates charged to both new and renewal residents. Property operating expenses from the Nine-Month 2002First Quarter 2003 Same Store Properties which include propertyincreased mainly due to higher utility, maintenance, building and maintenance, real estate taxes and insurance and an allocation of property management expenses, remained relatively stable with increases in real estate taxes and insurance costs offset by a decrease in utilitypayroll costs. The following tables provide comparative revenue, expense, net operating income ("NOI"(“NOI”) and weighted average occupancy for the Nine-Month 2002First Quarter 2003 Same Store Properties:Properties (NOI represents rental income less: 1) property and maintenance expense; 2) real estate taxes and insurance expense; and 3) property management expense):
September 30, 2002 Year-to-Date "Same Store" Results
22
$ in Millions—191,940 "Same Store" Units | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Description | Revenues | Expenses | NOI | ||||||||
YTD 2002 | $ | 1,356.7 | $ | 506.5 | $ | 850.2 | |||||
YTD 2001 | $ | 1,386.5 | $ | 503.9 | $ | 882.6 | |||||
Change | $ | (29.8 | ) | $ | 2.6 | $ | (32.4 | ) | |||
% Change | (2.1 | %) | 0.5 | % | (3.7 | %) |
"Same Store"
First Quarter 2003 vs. First Quarter 2002
Quarter over Quarter Same-Store Results
$ in Millions – 191,278 Same-Store Units
Description |
| Revenues |
| Expenses |
| NOI |
| |||
|
|
|
|
|
|
|
| |||
Q1 2003 |
| $ | 448.1 |
| $ | 176.8 |
| $ | 271.3 |
|
Q1 2002 |
| $ | 464.3 |
| $ | 164.2 |
| $ | 300.1 |
|
Change |
| $ | (16.2 | ) | $ | 12.6 |
| $ | (28.8 | ) |
Change |
| (3.5 | )% | 7.7 | % | (9.6 | )% |
Same-Store Occupancy Statistics
Q1 2003 | 92.5 | % | ||
Q1 2002 | 94.0 | % | ||
Change | (1.5 | |||
)% |
For properties
The Operating Partnership’s primary financial measure for evaluating each of its apartment communities is NOI. The Operating Partnership believes that NOI is helpful to investors as a supplemental measure of the operating performance of a real estate company because it is a direct measure of the actual operating results of the Operating Partnership acquired prior to January 1, 2001 and expects to continue to own through December 31, 2002, the Operating Partnership anticipates the following operating assumptions for the year ending December 31, 2002:Partnership’s apartment communities.
2002 "Same Store" Operating Assumptions
For properties that the Operating Partnership acquired prior to January 1, 2002 and expects to continue to own through December 31, 2003, the Operating Partnership anticipates the following operating assumptionsresults for the full year ending December 31, 2003:
2003 "Same Store"Same-Store Operating Assumptions
Physical Occupancy | 93.0% | ||
Revenue Change | (3.5%) to | ||
Expense Change | 2.8%) to | ||
NOI Change | (9.2%) to (3.7%) | ||
Dispositions | $700 million |
These 2002 and 2003 operating assumptions are based on current expectations and are forward-looking.
Rental income from properties other than Nine-Month 2002First Quarter 2003 Same Store Properties increased by approximately $10.4$11.3 million primarily as a result of revenue from properties the Operating Partnership
24
acquired in 20012002 and 20022003 and additional Partially Owned Properties that the Operating Partnership consolidated in 2001.the fourth quarter of 2002.
Interest and other income decreased by approximately $6.1$0.8 million, primarily as a result of lower balances available for investment and related interest rates being earned on the Operating Partnership's short-term investment accounts along with lower balances on deposit in tax-deferred exchange accounts.
Interest income—investment in mortgage notes decreased by $8.8 million as a result of the Operating Partnership consolidating previously Unconsolidated Properties in July 2001. No additional interest income will be recognized on such mortgage notes in future years as the Operating Partnership now consolidates the results related to these previously Unconsolidated Properties.
Property management expenses include off-site expenses associated with the self-management of the Operating Partnership'sPartnership’s properties. These expenses decreased by approximately $0.5$3.6 million or 0.1%18.4%. This decrease is primarily attributable to lower expected levelsa reversal of employee bonus anda profit sharing payments for 2002.accrual in the first quarter of 2003 related to the 2002 calendar year as the Operating Partnership didn’t achieve its stated goals and management elected not to make a discretionary contribution to the plan. In addition, the Company recorded lower expense in connection with granting less restricted shares to its employees in the first quarter of 2003.
Fee and asset management revenues, net of fee and asset management expenses, increased by $1.1$0.9 million as a result of the Operating Partnership managing an additional 3,637 units at Fort Lewis, Washington starting in April 2002. As of September 30,
23
March 31, 2003 and 2002, and 2001, the Operating Partnership managed 20,142 18,896units and 15,94816,539 units, respectively, for third parties and unconsolidated entities.
The Operating Partnership recorded impairment charges in 2002 on its corporate housing business and its technology investments of approximately $17.1$0.3 million and $0.9 million, respectively.for both quarters presented. See Note 1617 in the Notes to Consolidated Financial Statements for further discussion.
Interest expense, including amortization of deferred financing costs, decreased approximately $11.9$3.5 million primarily due to lower variable interest rates. During the nine monthsquarter ended September 30, 2002,March 31, 2003, the Operating Partnership capitalized interest costs of approximately $19.4$5.4 million as compared to $21.0$5.9 million for the nine monthsquarter ended September 30, 2001.March 31, 2002. This capitalization of interest primarily related to equity investments in unconsolidated entities engaged in development activities. The effective interest cost on all of the Operating Partnership's indebtedness for the nine monthsquarter ended September 30, 2002March 31, 2003 was 6.60%6.39% as compared to 7.00%6.51% for the nine monthsquarter ended September 30, 2001.March 31, 2002.
General and administrative expenses, which include corporate operating expenses, increased approximately $9.4$0.4 million between the nine monthsperiods under comparison. This increase was primarily due to higher state income taxesthe Company’s election to begin expensing stock-based compensation effective January 1, 2003 (see Note 15 in Michigan and New Jersey, income taxes incurred at onethe Notes to Consolidated Financial Statements) partially offset by lower expenses recorded in connection with granting less restricted shares to employees in the first quarter of the Operating Partnership's taxable REIT subsidiaries which has an ownership interest in properties that in prior periods were classified as Unconsolidated Properties, retirement plan expenses for certain key executives, EQR restricted shares/awards granted to key employees and additional compensation charges and costs associated with EQR's new President.2003.
Income (loss) from investments in unconsolidated entities decreased approximately $3.6$0.1 million between the periods under comparison. This decrease is primarily the result of increased equity losses andpartially offset by unrealized lossesgains on derivative instruments.
Net gain on sales of discontinued operations decreasedincreased approximately $38.6$67.9 million between the periods under comparison. This decreaseincrease is primarily the result of approximately 3,200 fewera greater number of unitsproperties sold during the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001 (includes approximately 3,000 units sold into a joint venture in February 2001).
Comparison of the quarter ended September 30, 2002 toMarch 31, 2003, including two California properties, as well as the quarter ended September 30, 2001
For the quarter ended September 30, 2002, income before allocation to Minority Interests, income (loss) from investments in unconsolidated entities, net gain (loss) on sales of unconsolidated entities,
25
discontinued operations, extraordinary items and cumulative effect of change in accounting principle decreased by approximately $34.3 million when compared to the quarter ended September 30, 2001.fact that many such sold properties were more fully depreciated.
Revenues from
Discontinued operations, net, decreased approximately $9.5 million between the Third Quarter 2002 Same Store Properties decreased primarily as a result of lower rental rates charged new residents, increased concessions and lower overall physical occupancy. Property operating expenses from the Third Quarter 2002 Same Store Properties, which include property and maintenance, real estate taxes and insurance and an allocation of property management expenses, increased $3.5 million or 2.0% primarily as a result of increases in real estate taxes, insurance costs and payroll overtime. The following tables provide comparative revenue, expense, NOI and weighted average occupancy for the Third Quarter 2002 Same Store Properties:
Third Quarter 2002 "Same Store" Results
$ in million—197,852 "Same Store" Units | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Description | Revenues | Expenses | NOI | |||||||
Q3 2002 | $ | 467.4 | $ | 182.0 | $ | 285.4 | ||||
Q3 2001 | $ | 485.4 | $ | 178.5 | $ | 306.9 | ||||
Change | $ | (18.0 | ) | $ | 3.5 | $ | (21.5 | ) | ||
% Change | (3.7 | %) | 2.0 | % | (7.0 | %) |
"Same Store" Occupancy Statistics
Rental income from properties other than Third Quarter 2002 Same Store Properties increased by approximately $1.8 million primarily as a result of revenue from properties the Operating Partnership acquired in the third and fourth quarters of 2001 and during the nine months ended September 30, 2002.
Interest and other income decreased by approximately $3.9 million, primarily as a result of lower balances available for investment and related rates being earned on the Operating Partnership's short term investment accounts along with lower balances on deposit in tax-deferred exchange accounts.
Property management expenses include off-site expenses associated with the self-management of the Operating Partnership's properties. These expenses decreased by approximately $2.2 million or 11.1%. This decrease is primarily attributable to lower expected levels of employee bonus and profit sharing payments for 2002.
Fee and asset management revenues, net of fee and asset management expenses, increased by $1.2 million as a result of the Operating Partnership managing an additional 3,637 units at Fort Lewis starting in April 2002. As of September 30, 2002 and 2001, the Operating Partnership managed 20,142 units and 15,948 units, respectively, for third parties and unconsolidated entities.
The Operating Partnership recorded impairment charges in 2002 on its corporate housing business and its technology investments of approximately $17.1 million and $0.3 million, respectively.periods under comparison. See Note 1614 in the Notes to Consolidated Financial Statements for further discussion.
Interest expense, including amortization of deferred financing costs, decreased approximately $5.2 million primarily due to lower variable interest rates. During the quarter ended September 30, 2002, the Operating Partnership capitalized interest costs of approximately $7.1 million as compared to $8.2 million for the quarter ended September 30, 2001. This capitalization of interest primarily related to investments in unconsolidated entities engaged in development activities. The effective interest cost on
26
all of the Operating Partnership's indebtedness for the quarter ended September 30, 2002 was 6.52% as compared to 6.82% for the quarter ended September 30, 2001.
General and administrative expenses, which include corporate operating expenses, increased approximately $1.1 million between the quarters under comparison. This increase was primarily due to retirement plan expenses for certain key executives, higher state income taxes, EQR restricted shares/awards granted to key employees and additional compensation charges and costs associated with EQR's new President.
Income (loss) from investments in unconsolidated entities decreased approximately $2.9 million between the periods under comparison. This decrease is primarily the result of increased equity losses and unrealized losses on derivative instruments.
Net gain (loss) on sales of unconsolidated entities decreased approximately $5.9 million between the periods under comparison. This decrease is the loss associated with the sale in the third quarter of 2002 of one property held in one of our development entities.
Net gain on sales of discontinued operations decreased approximately $20.8 million between the periods under comparison. This decrease is primarily the result of certain properties sold during the quarter ended September 30, 2001 having a lower net carrying value at sale, which resulted in higher recognition of gain for financial reporting purposes.
Liquidity and Capital Resources
As of January 1, 2002,2003, the Operating Partnership had approximately $51.6$29.9 million of cash and cash equivalents and $505.0$499.2 million available under its line of credit (net of $60.8 million which $59.0 million was restricted (notrestricted/dedicated to support letters of credit and not available for borrowings)borrowing). After taking into effect the various transactions discussed in the following paragraphs and the net cash provided by operating activities, the Operating Partnership'sPartnership’s cash and cash equivalents balance at September 30, 2002March 31, 2003 was approximately $21.8$310.3 million and the amount available on the Operating Partnership'sPartnership’s line of credit was $665.0$646.7 million (net of $53.3 million which $83.3 million was restricted (notrestricted/dedicated to support letters of credit and not available for borrowings)borrowing).
Part of the Operating Partnership'sPartnership’s acquisition and development funding strategy and the funding of the Operating Partnership's investmentinvestments in various unconsolidated entities is to utilize its line of credit and to subsequently repay the line of credit from the disposition of properties, retained cash flows or the issuance of additional equity or debt securities. Continuing to utilize this strategy during the nine monthsquarter ended September 30, 2002,March 31, 2003, the Operating Partnership:
•
•
24
•
•
All of these proceeds were utilized to either:to:
•
• Repay the line of credit;
•
•
27
•
During the nine monthsquarter ended September 30, 2002,March 31, 2003, the Operating Partnership:
•
• Repaid $140.0 million on its line of credit;
•
•
Depending on its analysis of market prices, economic conditions, and other opportunities for the investment of available capital, the Company may repurchase up to an additional $85.0 million in connection withof its agreement withCommon Shares pursuant to its existing share buyback program authorized by the U.S. Army for Fort Lewis military housing; and
Trustees. The Operating Partnership'sPartnership, in turn, would repurchase $85.0 million of its OP Units held by EQR. The Company did not repurchase any of its Common Shares during the quarter ended March 31, 2003.
The Operating Partnership’s total debt summary and debt maturity schedule as of September 30, 2002,March 31, 2003, are as follows:
Debt Summary as of September 30, 2002March 31, 2003
| | $Millions | Weighted Average Rate |
| $ Millions |
| Weighted |
| |||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Secured | Secured | $ | 3,089 | 6.22 | % |
| $ | 2,901 |
| 6.05 | % | ||
Unsecured | Unsecured | 2,482 | 6.41 | % |
| 2,854 |
| 6.36 | % | ||||
Total |
| $ | 5,755 |
| 6.20 | % | |||||||
|
|
|
|
| |||||||||
Fixed Rate* |
| $ | 5,122 |
| 6.70 | % | |||||||
Floating Rate* |
| 633 |
| 2.23 | % | ||||||||
Total* |
| $ | 5,755 |
| 6.20 | % | |||||||
Total | $ | 5,571 | 6.30 | % |
|
|
|
|
| ||||
Fixed Rate * | $ | 4,807 | 6.89 | % | |||||||||
Floating Rate * | 764 | 2.58 | % | ||||||||||
Total * | $ | 5,571 | 6.30 | % | |||||||||
Above Totals Include: | |||||||||||||
Above Totals Include: |
|
|
|
|
| ||||||||
Total Tax Exempt | Total Tax Exempt | $ | 986 | 3.71 | % |
| $ | 973 |
| 3.63 | % | ||
Unsecured Revolving Credit Facility | Unsecured Revolving Credit Facility | $ | 35 | 2.44 | % |
| $ | — |
| — |
| ||
* Net of the effect of interest rate protection agreements. |
28
* Net of the effect of any interest rate protection agreements.
25
Debt Maturity Schedule as of September 30, 2002March 31, 2003
Year | $ Millions | % of Total | ||||
---|---|---|---|---|---|---|
2002 | $ | 111 | 2.0 | % | ||
2003 | 310 | 5.6 | % | |||
2004 | 593 | 10.6 | % | |||
2005* | 676 | 12.1 | % | |||
2006 | 424 | 7.6 | % | |||
2007 | 273 | 4.9 | % | |||
2008 | 536 | 9.6 | % | |||
2009 | 417 | 7.5 | % | |||
2010 | 256 | 4.6 | % | |||
2011+ | 1,975 | 35.5 | % | |||
Total | $ | 5,571 | 100.0 | % | ||
* Includes $300 million with a final maturity of 2015 that is putable/callable in 2005. |
Year |
| $ Millions |
| % of Total |
| |
2003 |
| $ | 294 |
| 5.1 | % |
2004 |
| 656 |
| 11.4 | % | |
2005* |
| 617 |
| 10.7 | % | |
2006 |
| 490 |
| 8.5 | % | |
2007 |
| 300 |
| 5.2 | % | |
2008 |
| 489 |
| 8.5 | % | |
2009 |
| 258 |
| 4.5 | % | |
2010 |
| 199 |
| 3.5 | % | |
2011 |
| 691 |
| 12.0 | % | |
2012+ |
| 1,761 |
| 30.6 | % | |
Total |
| $ | 5,755 |
| 100.0 | % |
* Includes $300 million with a final maturity of 2015 that is putable/callable in 2005.
The Operating Partnership's "ConsolidatedPartnership’s “Consolidated Debt-to-Total Market Capitalization Ratio"Ratio” as of September 30, 2002March 31, 2003 is presented in the following table. The Operating Partnership calculates the equity component of its market capitalization as the sum of (i) the total outstanding OP Units at the equivalent market value of the closing price of EQR'sEQR’s Common Shares on the New York Stock Exchange; (ii) the "OP“OP Unit Equivalent"Equivalent” of all convertible preference interests/units; and (iii) the liquidation value of all perpetual preference interests/units outstanding.
Capitalization as of September 30, 2002March 31, 2003
Total Debt |
|
|
| $ | 5,755,435,646 |
| |
|
|
|
|
|
| ||
OP Units |
| 294,741,805 |
|
|
| ||
OP Unit Equivalents (see below) |
| 14,944,282 |
|
|
| ||
Total Outstanding at quarter-end |
| 309,686,087 |
|
|
| ||
EQR Common Share Price at March 31, 2003 |
| $ | 24.07 |
|
|
| |
|
|
|
| 7,454,144,114 |
| ||
Perpetual Preference Units Liquidation Value |
|
|
| 565,000,000 |
| ||
Perpetual Preference Interests Liquidation Value |
|
|
| 211,500,000 |
| ||
Total Market Capitalization |
|
|
| $ | 13,986,079,760 |
| |
|
|
|
|
|
| ||
Debt/Total Market Capitalization |
|
|
| 41.15 | % | ||
26
| | | |||||
---|---|---|---|---|---|---|---|
Total Debt | $ | 5,570,576,350 | |||||
OP Units | 298,387,904 | ||||||
OP Unit Equivalents (see below) | 14,965,147 | ||||||
Total Outstanding at quarter-end | 313,353,051 | ||||||
EQR Common Share Price at September 30, 2002 | $ | 23.94 | |||||
7,501,672,041 | |||||||
Perpetual Preference Units Liquidation Value | 565,000,000 | ||||||
Perpetual Preference Interests Liquidation Value | 211,500,000 | ||||||
Total Market Capitalization | $ | 13,848,748,391 | |||||
Debt/Total Market Capitalization | 40.22 | % |
29
Convertible Preference Units, Preference Interests
and Junior Preference Units
as of September 30, 2002March 31, 2003
| Units | Conversion Ratio | OP Unit Equivalents | ||||
---|---|---|---|---|---|---|---|
Preference Units: | |||||||
Series E | 2,563,614 | 1.1128 | 2,852,790 | ||||
Series G | 1,264,692 | 8.5360 | 10,795,408 | ||||
Series H | 51,228 | 1.4480 | 74,178 | ||||
Preference Interests: | |||||||
Series H | 190,000 | 1.5108 | 287,052 | ||||
Series I | 270,000 | 1.4542 | 392,634 | ||||
Series J | 230,000 | 1.4108 | 324,484 | ||||
Junior Preference Units: | |||||||
Series A | 56,616 | 4.081600 | 231,084 | ||||
Series B | 7,367 | 1.020408 | 7,517 | ||||
Total | 14,965,147 | ||||||
|
| Units |
| Conversion |
| OP Unit |
|
Preference Units: |
|
|
|
|
|
|
|
Series E |
| 2,544,864 |
| 1.1128 |
| 2,831,925 |
|
Series G |
| 1,264,692 |
| 8.5360 |
| 10,795,408 |
|
Series H |
| 51,228 |
| 1.4480 |
| 74,178 |
|
Preference Interests: |
|
|
|
|
|
|
|
Series H |
| 190,000 |
| 1.5108 |
| 287,052 |
|
Series I |
| 270,000 |
| 1.4542 |
| 392,634 |
|
Series J |
| 230,000 |
| 1.4108 |
| 324,484 |
|
Junior Preference Units: |
|
|
|
|
|
|
|
Series A |
| 56,616 |
| 4.081600 |
| 231,084 |
|
Series B |
| 7,367 |
| 1.020408 |
| 7,517 |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
| 14,944,282 |
|
The Operating Partnership'sPartnership’s policy is to maintain a ratio of consolidated debt-to-total market capitalization of less than 50%.
From OctoberApril 1, 20022003 through November 4, 2002,April 30, 2003, the Operating Partnership:
•
•
Off-Balance Sheet Arrangements and Contractual Obligations
As of 7.25% fixed rate public notes at maturity;
The Company may repurchase up to an additional $85.0 million of its Common Shares pursuant to the common share buy back program authorized by its Board of Trustees. The Operating Partnership, in turn, would repurchase $85.0 million of its OP Units held by EQR. In addition, during the fourth quarter of 2002, the Operating Partnership anticipates closing on an unsecured note offering of up to $250 million.
Investments in Unconsolidated Entities
In connection with one development agreement,March 31, 2003, the Operating Partnership has an obligation to fund up to an additional $9.5 million to guarantee third party construction financing. As17 projects in various stages of September 30, 2002, the Operating Partnership has 15 projects under development with estimated completion dates ranging through March 31,June 30, 2004. The three development agreements currently in place have the following key terms:
For one
•The first development agreement, the Operating Partnership's partner has the right, at any time following completion of a project, to stipulate a value for such project and offer to sell its interest in the project to the Operating Partnership based on such value. If the Operating Partnership chooses not to purchase the interest, it must agree to a sale of the project to an unrelated third party at such value. The Operating Partnership'sPartnership’s partner must exercise this right as to all projects within five years after the receipt of the final certificate of occupancy on the last developed property. The Operating Partnership has an obligation to fund up to an additional $13.0 million to guarantee third party construction financing, if required.
30
Under a•The second development agreement, the Operating Partnership's partner has the right, at any time following completion of a project, to require the Operating Partnership to purchase the partners'partners’ interest in that project at a mutually agreeable price. If the Operating Partnership and the partner are unable to agree on a price, both parties will obtain appraisals. If the appraised values vary by more than 10%, both the Operating Partnership and its partner will agree on a third appraiser to determine which original appraisal is closest to its determination of value. The Operating Partnership may elect at that time not to purchase the property and instead, authorize its partner to sell the project at or above the agreed-upon value to an unrelated third party. Five years following the receipt of the final certificate of occupancy on the last developed property, the Operating Partnership must purchase, at the agreed-upon price, any projects remaining unsold must be purchased byunsold.
• The third development partner has the exclusive right for six months following stabilization
27
(generally defined as having achieved 90% occupancy for three consecutive months following the substantial completion of a project) to market a project for sale. Thereafter, either the Operating Partnership or its development partner may market a project for sale. If the Operating Partnership’s development partner proposes the sale, the Operating Partnership may elect to purchase the project at the price proposed by its partner or defer the sale until two independent appraisers appraise the project. If the two appraised values vary by more than 5%, a third appraiser will be chosen to determine the fair market value of the property. Once a value has been determined, the Operating Partnership may elect to purchase the property or authorize its development partner to sell the project at the agreed-upon price.value.
In connection with one of its mergers, the Operating Partnership provided a credit enhancement with respect to certain tax-exempt bonds issued to finance certain public improvements at a multifamily development project. As of April 30, 2003, this enhancement was still in effect at a commitment amount of $12.7 million.
As of April 30, 2003, the Operating Partnership has a commitment to fund $6.1 million to Constellation Real Technologies, LLC, a real estate technology company.
See also Note 7 and the third paragraph of Note 16 in the Notes to Consolidated Financial Statements for additional discussion regarding the Operating Partnership’s investments in unconsolidated entities.
Capitalization of Fixed Assets and Improvements to Real Estate:Estate
Our policy with respect to capital expenditures is generally to capitalize expenditures that improve the value of the property or extend the useful life of the component asset of the property. We track improvements to real estate in two major categories and several subcategories:
• | Replacements (inside the unit). These include: | |
| • | carpets and hardwood floors; |
• | appliances; | |
• | mechanical equipment such as individual furnace/air units, hot water heaters, etc; | |
• | furniture and fixtures such as kitchen/bath cabinets, light fixtures, ceiling fans, sinks, tubs, toilets, mirrors, countertops, etc; | |
• | flooring such as vinyl, linoleum or tile; and | |
• | blinds/shades |
We typically capitalize for established properties approximately $260 to $270$290 per unit annually for inside the unit replacements. All replacements are depreciated over a five-year estimated useful life. We expense as incurred all maintenance and turnover costs such as cleaning, interior painting of individual units and the repair of any replacement item noted above.
• | Building improvements (outside the unit). These include: | |
| • | roof replacement and major repairs; |
• | paving or major resurfacing of parking lots, curbs and sidewalks; | |
• | amenities and common areas such as pools, exterior sports and playground equipment, lobbies, clubhouses, laundry rooms, alarm and security systems and offices; | |
• | major building mechanical equipment systems; | |
• | interior and exterior structural repair and exterior painting and siding; | |
• | major landscaping and grounds improvement; and | |
• | vehicles and office and maintenance equipment. |
We typically capitalize for established properties approximately $340$380 to $370$390 per unit annually for outside the unit building improvements. All building improvements are depreciated over a five to ten-year
28
estimated useful life. We expense as incurred all recurring expenditures that do not improve the value of the asset or extend its useful life.
31
For the nine monthsquarter ended September 30, 2002,March 31, 2003, our actual improvements to real estate totaled approximately $110.3$33.6 million. This includes the following detail (amounts in thousands except for unit and per unit amounts):
Capitalized Improvements to Real Estate
For the NineThree Months Ended September 30, 2002March 31, 2003
|
| Total Units | Replacements |
| Avg. |
| Building |
| Avg. |
| Total |
| Avg. |
| |||||||
Established Properties(2) |
| 181,447 |
| $ | 12,693 |
| $ | 70 |
| $ | 15,276 |
| $ | 84 |
| $ | 27,969 |
| $ | 154 |
|
New Acquisition Properties(3) |
| 9,443 |
| 432 |
| 48 |
| 1,567 |
| 176 |
| 1,999 |
| 224 |
| ||||||
Other(4) |
| 7,916 |
| 1,466 |
|
|
| 2,168 |
|
|
| 3,634 |
|
|
| ||||||
Total |
| 198,806 |
| $ | 14,591 |
|
|
| $ | 19,011 |
|
|
| $ | 33,602 |
|
|
| |||
(1)
| Total Units (1) | Replacements (2) | Avg. Per Unit | Building Improvements (3) | Avg. Per Unit | Total | Avg. Per Unit | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Established Properties (4) | 176,509 | $ | 37,846 | $ | 214 | $ | 52,417 | $ | 297 | $ | 90,263 | $ | 511 | ||||||
New Acquisition Properties (5) | 20,802 | 3,939 | 209 | 5,644 | 299 | 9,583 | 508 | ||||||||||||
Other (6) | 6,974 | 2,731 | 7,714 | 10,445 | |||||||||||||||
Total | 204,285 | $ | 44,516 | $ | 65,775 | $ | 110,291 | ||||||||||||
(2)
(3)Wholly Owned Properties acquired during 2000, 2001, 2002 and YTD 2002.2003. Per unit amounts are based on a weighted average of 18,8788,914 units.
(4)Includes properties either Partially Owned or sold during the period, commercial space and condominium conversions.
We anticipate capitalizing annually an average of approximately $600$640 to $640$680 per unit annually for inside and outside the unit capital improvementsexpenditures to our real estate. Totalestablished properties. The Operating Partnership expects to fund approximately $110.0 million for capital expenditures for replacements and building improvements to real estatefor all consolidated properties for the remainder of 2002 are estimated to be $22.0 million.2003.
During the nine monthsquarter ended September 30, 2002,March 31, 2003, the Operating Partnership'sPartnership’s total non-real estate capital additions, such as computer software, computer equipment, and furniture and fixtures and leasehold improvements to the Operating Partnership'sPartnership’s property management offices and its corporate offices, was approximately $5.6$0.9 million. TotalThe Operating Partnership expects to fund approximately $4.0 million in total additions to non-real estate property for the remainder of 2002 are estimated at $1.2 million.2003.
Improvements to real estate and additions to non-real estate property for both 2002 and 2001 were funded from net cash provided by operating activities.
Other
Derivative Instruments
In the normal course of business, the Operating Partnership is exposed to the effect of interest rate changes. The Operating Partnership limits these risks by following established risk management policies and procedures including the use of derivatives to hedge interest rate risk on debt instruments.
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 future from the use of derivatives.
See Note 12 in the Notes to Consolidated Financial Statements for additional discussion of derivative instruments at March 31, 2003.
29
Other
Total distributions paid in October 2002April 2003 amounted to $145.2$143.6 million (excluding distributions on Partially Owned Properties), which included certain distributions declared duringin the first quarter ended September 30, 2002.of 2003.
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 line of credit. The Operating Partnership considers its cash provided by operating activities to be adequate to meet operating requirements and payments of distributions.
32
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 the issuance of unsecured notes and equity securities, including additional OP Units, and proceeds received from the disposition of certain properties. In addition, the Operating Partnership has certain unencumbered properties available to secure 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 fair value of these unencumbered properties are in excess of the required value the Operating Partnership must maintain in order to comply with covenants under its unsecured notes and line of credit.
On May 30, 2002 the
The Operating Partnership obtainedhas a new three-year $700.0 million unsecured revolving credit facility. The new line of credit replaces the Operating Partnership's $700.0 million unsecured revolving credit facility that was scheduledwith potential borrowings of up to expire in August 2002. The prior existing revolving credit facility terminated upon the closing of the new facility. $700.0 million. This new facility matures in May 2005 and will be used to fund property acquisitions, costs for certain properties under development and short term liquidity requirements. As of November 7, 2002, $285.0 million wasApril 30, 2003, no amounts were outstanding under this new facility.
The Operating Partnership provided a credit enhancement with respect to certain tax-exempt bonds issued to finance certain public improvements at a multifamily development project. As of November 4, 2002, this enhancement was still in effect at a commitment amount of $12.7 million.
Critical Accounting Policies and Estimates
The Operating Partnership's significant accounting policies are described in Note 2 in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2001. These policies were followed in preparing the unaudited condensed consolidated financial statements for the nine months ended September 30, 2002.
The Operating Partnership has identified six significant accounting policies as critical accounting policies. These critical accounting policies are those that have the most impact on the reporting of our financial condition and those requiring significant judgments and estimates. With respect to these critical accounting policies, management believes that the application of judgments and assessments is consistently applied and produces financial information that fairly presents the results of operations for all periods presented. The six critical accounting policies are:
Impairment of Long-Lived Assets, Including Goodwill
The Operating Partnership periodically evaluates its long-lived assets, including its investments in real estate and goodwill, for impairment indicators. The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions, expected holding period of each asset and legal factors.and environmental concerns. Future events could occur which would cause the Operating Partnership to conclude that impairment indicators exist and an impairment loss is warranted.
Depreciation of Investment in Real Estate
The Operating Partnership depreciates the building component of its investment in real estate over a 30-year estimated useful life, building improvements over a 5-year to 10-year estimated useful life and both the furniture, fixtures and equipment and replacements components over a 5-year estimated useful life, all of which are judgmental determinations.
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Cost Capitalization
See the Capitalization of Fixed Assets and Improvements to Real Estate section for discussion of the policy with respect to capitalization vs. expensing of fixed asset/repair and maintenance costs. In
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addition, the Operating Partnership capitalizes the payroll and associated costs of employees directly responsible for and who spend all of their time on the supervision of major capital projects. These costs are reflected on the balance sheet as an increase to depreciable property.
The Operating Partnership follows the guidance in SFAS No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, for all development projects and uses its professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. The Operating Partnership capitalizes interest, real estate taxes and insurance and payroll and associated costs for those individuals directly responsible for and who spend all of their time on development activities. The Operating Partnership expenses as incurred all payroll costs of employees working directly at our properties, except for costs that are incurred during the initial lease-up phase on a development project. An allocated portion of payroll costs is capitalized based upon the occupancy of the project until stabilized occupancy is achieved. Stabilized occupancy is always deemed to have occurred no later than one year from cessation of major development activities. The incremental payroll and associated costs are capitalized to the projects under development based upon the effort directly identifiable with such projects. These costs are reflected on the balance sheet as either construction in progress or a separate component of investments in unconsolidated entities. The Operating Partnership ceases the capitalization of such costs as the property becomes substantially complete and ready for its intended use.
Fair Value of Financial Instruments, Including Derivative Instruments
The valuation of financial instruments under SFAS No. 107 and SFAS No. 133 and its amendments (SFAS Nos. 137 and 138) requires the Operating Partnership to make estimates and judgments that affect the fair value of the instruments. The Operating Partnership, where possible, bases the fair values of its financial instruments, including its derivative instruments, on listed market prices and third party quotes. Where these are not available, the Operating Partnership bases its estimates on other factors relevant to the financial instruments.
Stock Option Compensation
The Company has chosen to account for its stock option compensation in accordance with APB No. 25, which results in no compensation expense for options issued with an exercise price equal to or exceeding market value of the Company's Common Shares on the date of grant. The Company will elect to expense its stock option compensation in accordance with SFAS No. 123 effective January 1, 2003 which will result in compensation expense being recorded based on the fair value of the stock option compensation issued. Any Common Shares issued pursuant to EQR's share option plan will result in the Operating Partnership issuing OP Units to EQR on a one-for-one basis.
Cost Capitalization
See theCapitalization of Fixed Assets and Improvements to Real Estate section for discussion of the Operating Partnership's policy with respect to capitalization vs. expensing of fixed asset/repair and maintenance costs. The Operating Partnership expenses as incurred all payroll costs of employees working directly at our properties, except that during the initial lease-up phase on a development project, an allocated portion of payroll costs is capitalized based upon the occupancy of the project until stabilized occupancy is achieved. Stabilized occupancy is always deemed to have occurred no later than one year from cessation of major development activities.
The Operating Partnership capitalizes interest, real estate taxes and insurance related to its development projects. The Operating Partnership also capitalizes payroll and associated costs for those individuals directly responsible for and who spend all of their time on development activities. The incremental payroll and associated costs are capitalized to the projects under development based upon the effort directly identifiable with such projects. These costs are reflected on the balance sheet either as construction in progress or a separate component of investments in unconsolidated entities. The Operating Partnership ceases the capitalization of such costs as the property becomes substantially complete and ready for its intended use. In addition, the Operating Partnership capitalizes the payroll and associated costs of employees directly responsible for and who spend all of their time on major capital projects. These costs are reflected on the balance sheet as an increase to building. The Operating Partnership follows the guidance in SFAS No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, and uses its professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred.
Revenue Recognition
Rental income attributable to leases is recorded when due from residents and is recognized monthly as it is earned, which is not materially different than on a straight-line basis. Interest income is recorded on an accrual basis. Leases entered into between a resident and a property for the rental of an apartment unit are generally year-to-year, renewable upon consent of both parties on a year-to-yearan annual or month-to-monthmonthly basis. Interest income is recorded on an accrual basis.
Stock-Based Compensation
Prior to 2003, the Company had chosen to account for its stock-based compensation in accordance with APB No. 25, Accounting for Stock Issued to Employees,which resulted in no compensation expense for options issued with an exercise price equal to or exceeding the market value of EQR’s Common Shares on the date of grant (intrinsic method). The Company has elected to expense its stock-based compensation in accordance with SFAS No. 123 and its amendment (SFAS No. 148), Accounting for Stock Based Compensation, effective in the first quarter of 2003, which resulted in compensation expense being recorded based on the fair value of the stock compensation granted or modified. Any Common Shares issued pursuant to EQR’s share option/restricted share/ESPP plans will result in the Operating Partnership adoptedissuing OP Units to EQR on a one-for-one basis.
SFAS No. 148 provides three transition methods for entities that adopt the fair value recognition provisions of Staff Accounting Bulletin ("SAB")SFAS No. 101,Revenue Recognition, effective October 1, 2000. SAB No. 101 provides guidance on123. The Company has chosen to use the “Prospective Method”. This method requires that companies apply the recognition presentation and disclosureprovisions of revenueSFAS No. 123 to only employee awards granted or modified after the beginning of the fiscal year in financial statements.
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Adjusted Net Incomewhich the recognition provisions are first applied, or January 1, 2003. Compensation expense under all of the Company’s plans is generally recognized over periods ranging from three months to five years. Therefore, the cost related to stock-based
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employee compensation included in the determination of net income for the quarter ended March 31, 2003 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS No. 123. See Note 15 in the Notes to Consolidated Financial Statements for further discussion.
Funds From Operations
For the nine monthsquarter ended September 30, 2002, Adjusted Net Income ("ANI"March 31, 2003, Funds From Operations (“FFO”) available to OP Units decreased $16.0$23.4 million, as compared to the nine months ended September 30, 2001.
For the quarter ended September 30, 2002, ANI available to OP Units decreased $11.7 millionor 12.2%, as compared to the quarter ended September 30, 2001.March 31, 2002.
The following is a reconciliation of net income available to OP Units to ANI available to OP Units for the nine months and quarters ended September 30, 2002 and 2001:
Adjusted Net Income(Amounts in thousands)(Unaudited)
| Nine Months Ended September 30, | Quarter Ended September 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2002 | 2001 | 2002 | 2001 | ||||||||||
Net income available to OP Units | $ | 248,934 | $ | 272,969 | $ | 69,756 | $ | 75,703 | ||||||
Adjustments: | ||||||||||||||
Acquisition cost depreciation (1) | 287,778 | 284,630 | 95,773 | 96,833 | ||||||||||
Amortization of goodwill | — | 2,852 | — | 928 | ||||||||||
Acquisition cost depreciation accumulated on sold properties | (37,541 | ) | (46,145 | ) | (15,009 | ) | (11,371 | ) | ||||||
Extraordinary items | 468 | 22 | — | 128 | ||||||||||
Cumulative effect of change in accounting principle | — | 1,270 | — | — | ||||||||||
ANI available to OP Units—basic(2) | $ | 499,639 | $ | 515,598 | $ | 150,520 | $ | 162,221 | ||||||
Depreciation for replacements and capital improvements | $ | 67,363 | $ | 58,586 | $ | 23,941 | $ | 19,756 | ||||||
The Operating Partnership believes that ANI 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. ANI 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 ANI may differ from the methodology for calculating ANI utilized by other real estate companies and may differ, for example, due to variations among the
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Operating Partnership's and other real estate companies' accounting policies for replacement type items and, accordingly, may not be comparable to such other real estate companies.
Funds From Operations
For the nine months ended September 30, 2002, Funds From Operations ("FFO") available to OP Units decreased $25.0 million as compared to the nine months ended September 30, 2001.
For the quarter ended September 30, 2002, FFO available to OP Units decreased $20.7 million as compared to the quarter ended September 30, 2001.
The following is a reconciliation of net income available to OP Units to FFO available to OP Units for the nine months and quarters ended September 30, 2002March 31, 2003 and 2001:2002:
Funds From OperationsFunds from Operations
(Amounts in thousands)
(Unaudited)
| Nine Months Ended September 30, | Quarter Ended September 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2002 | 2001 | 2002 | 2001 | ||||||||||
Net income available to OP Units | $ | 248,934 | $ | 272,969 | $ | 69,756 | $ | 75,703 | ||||||
Adjustments: | ||||||||||||||
Depreciation/amortization | 355,141 | 346,068 | 119,714 | 117,517 | ||||||||||
Net gain on sales of discontinued operations | (60,011 | ) | (99,793 | ) | (32,435 | ) | (53,567 | ) | ||||||
Net (gain) loss on sales of unconsolidated entities | 626 | (339 | ) | 5,872 | — | |||||||||
Extraordinary items | 468 | 22 | — | 128 | ||||||||||
Cumulative effect of change in accounting principle | — | 1,270 | — | — | ||||||||||
Impairment on corporate housing business | 17,122 | — | 17,122 | — | ||||||||||
Impairment on furniture rental business | — | 60,000 | — | 60,000 | ||||||||||
Impairment on technology investments | 872 | 7,968 | 291 | 1,193 | ||||||||||
FFO available to OP Units—basic(1) | $ | 563,152 | $ | 588,165 | $ | 180,320 | $ | 200,974 | ||||||
|
| Quarter Ended March 31, |
| ||||
|
| 2003 |
| 2002 |
| ||
Net income available to OP Units |
| $ | 120,277 |
| $ | 82,794 |
|
Adjustments: |
|
|
|
|
| ||
Depreciation |
| 117,816 |
| 110,992 |
| ||
Depreciation – Non-real estate additions |
| (2,275 | ) | (1,977 | ) | ||
Depreciation – Partially Owned Properties |
| (2,039 | ) | (1,871 | ) | ||
Depreciation – Unconsolidated Properties |
| 5,195 |
| 4,490 |
| ||
Net gain on sales of unconsolidated entities |
| (1,212 | ) | (5,657 | ) | ||
Discontinued operations: |
|
|
|
|
| ||
Depreciation |
| 1,102 |
| 5,776 |
| ||
Net gain on sales of depreciable property |
| (70,229 | ) | (2,477 | ) | ||
FFO available to OP Units – basic(1)(2) |
| $ | 168,635 |
| $ | 192,070 |
|
(1)(1)
(2)
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'sPartnership’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'sPartnership’s calculation of FFO may differ from the methodology for calculating FFO utilized by other real estate companies and may differ, for example, due to variations among the Operating Partnership'sPartnership’s and other real estate companies'companies’ accounting policies for replacement type items and, accordingly,
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may not be comparable to such other real estate companies.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Operating Partnership'sPartnership’s market risk has not changed materially from the amounts and information reported in Item 7A,Quantitative and Qualitative Disclosures About Market Risk, to the Operating Partnership'sPartnership’s Form 10-K for the year ended DecmeberDecember 31, 2001.2002. See also Note 12 to the Notes to Consolidated Financial Statements for additional discussion on the Operating Partnership'sof derivative instruments and hedging activities.instruments.
Item 4. Disclosure Controls and Procedures
Within 90 days prior to the filing date of this quarterly report on Form 10-Q, the Operating Partnership carried out an evaluation, under the supervision and with the participation of the Operating Partnership'sPartnership’s management including the Chief Executive Officer and Chief Financial Officer of the Operating Partnership's general partner,EQR, of the effectiveness of the design and operation of the Operating Partnership's disclosure controls and procedures pursuant to Exchange Act RuleRules 13a-14 and 15d-14. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of the Operating Partnership's general partner concluded that the Operating Partnership's disclosure controls and procedures are effective in timely alerting them to material information related to the Operating Partnership.information. There have been no significant changes to the internal controls of the Operating Partnership or in other factors that could significantly affect the internal controls subsequent to the completion of this evaluation.
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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'sPartnership’s Form 10-K for the year ended December 31, 2001.2002.
Item 6. Exhibits and Reports on Form 8-K
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12Computation of Ratio of Earnings to Combined Fixed Charges.
99.1Certification pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Bruce W. Duncan, Chief Executive Officer of Registrant’s General Partner.
99.2Certification pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of David J. Neithercut, Chief Financial Officer of Registrant’s General Partner.
(B)Reports on Form 8-K:
A report on Form 8-K dated March 19, 2003 containing additional information on the prospectus supplement for the Operating Partnership’s $400.0 million unsecured note offering.
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SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf by the undersigned thereunto duly authorized.
ERP OPERATING LIMITED PARTNERSHIP | ||||||||||||||
BY: EQUITY RESIDENTIAL, | ||||||||||||||
ITS GENERAL PARTNER | ||||||||||||||
Date: | May 13, | By: | /s/ | David J. Neithercut | ||||||||||
David J. Neithercut | ||||||||||||||
Executive Vice President and | ||||||||||||||
Chief Financial Officer | ||||||||||||||
Date: | May 13, | By: | /s/ | Michael J. McHugh | ||||||||||
Michael J. McHugh | ||||||||||||||
Executive Vice President, | ||||||||||||||
Chief Accounting Officer | ||||||||||||||
and Treasurer | ||||||||||||||
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CERTIFICATIONS
I, Douglas Crocker II, principal executive officerBruce W. Duncan, Chief Executive Officer of Equity Residential, general partner of ERP Operating Limited Partnership, certify that:
1.
2.
3.
4.
a)
b)
c)
5.
a)
b)
6.
Date: May 13, 2003
/s/ Bruce W. Duncan | ||||
Bruce W. Duncan | ||||
Chief Executive Officer |
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CERTIFICATIONS
I, David J. Neithercut, principal financial officerChief Financial Officer of Equity Residential, general partner of ERP Operating Limited Partnership, certify that:
1.
2.
3.
4.
a)
b)
c)
5.
a)
b)
6.
Date: May 13, 2003
/s/ David J. Neithercut | |||||
David J. Neithercut | |||||
Chief Financial Officer |
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Exhibit | Document | ||||
12 | Computation of Ratio of Earnings to Combined Fixed | ||||
99.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of | ||||
99.2 | Certification pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of David J. Neithercut, Chief Financial Officer of |