FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/X/[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31,JUNE 30, 1999
OR
/ /[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-12252
EQUITY RESIDENTIAL PROPERTIES TRUST
(Exact Name of Registrant as Specified in Its Charter)
MARYLAND 13-3675988
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
TWO NORTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
(Address of Principal Executive Offices) (Zip Code)
(312) 474-1300
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE USERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
AT MAY 10,AUGUST 5, 1999, 119,565,664122,299,926 OF THE REGISTRANT'S COMMON SHARES OF BENEFICIAL
INTEREST WERE OUTSTANDING.
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT FOR SHARE AMOUNTS)
(UNAUDITED)
MARCHJUNE 30, DECEMBER 31,
1999 DECEMBER 31, 1998
----------------- ----------------------------------- ----------------
ASSETS
Investment in real estate
Land $ 1,351,3601,373,812 $ 1,326,148
Depreciable property 9,647,8119,730,434 9,519,579
Construction in progress 83,11159,744 96,336
------------- -------------
11,082,282---------------- ----------------
11,163,990 10,942,063
Accumulated depreciation (814,330)(902,351) (718,491)
------------- -------------
------------- ----------------------------- ----------------
Investment in real estate, net of accumulated depreciation 10,267,95210,261,639 10,223,572
Real estate held for disposition --32,844 29,886
Cash and cash equivalents 10,73895,496 3,965
Investment in mortgage notes, net 86,91385,882 88,041
Rents receivable 1,765957 4,758
Deposits - restricted 48,27670,701 69,339
Escrow deposits - mortgage 66,73768,416 68,725
Deferred financing costs, net 26,36328,932 27,569
Other assets 193,217196,942 184,405
------------- ----------------------------- ----------------
TOTAL ASSETS $ 10,701,96110,841,809 $ 10,700,260
------------- -------------
------------- -------------================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 2,353,4792,323,247 $ 2,341,011
Notes, net 2,049,1832,299,497 2,049,516
Lines of credit 165,00085,000
290,000
Accounts payable and accrued expenses 88,299107,763 100,926
Accrued interest payable 60,68545,000 46,176
Rents received in advance and other liabilities 64,24057,943 54,616
Security deposits 37,01335,967 37,439
Distributions payable 112,306114,103 18,755
------------- ----------------------------- ----------------
TOTAL LIABILITIES 4,930,2055,068,520 4,938,439
------------- ----------------------------- ----------------
COMMITMENTS AND CONTINGENCIES
Minority Interests 434,399419,316 431,374
------------- ----------------------------- ----------------
Shareholders' equity:
Preferred Shares of beneficial interest, $.01 par value;
100,000,000 shares authorized; 29,091,55526,110,352 shares issued
and outstanding as of March 31,June 30, 1999 and 29,097,951
shares issued and outstanding as of December 31, 1998 $ 1,410,414 $1,335,884 1,410,574
Common Shares of beneficial interest, $.01 par value;
350,000,000 shares authorized; 119,299,232122,236,781 shares issued
and outstanding as of March 31,June 30, 1999 and 118,230,009
shares issued and outstanding as of December 31, 1998 1,1931,222 1,182
Paid in capital 4,196,5384,305,522 4,169,102
Employee notes (4,826)(4,778) (4,873)
Distributions in excess of accumulated earnings (265,962)(283,877) (245,538)
------------- ----------------------------- ----------------
Total shareholders' equity 5,337,3575,353,973 5,330,447
------------- ----------------------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,701,96110,841,809 $ 10,700,260
------------- -------------
------------- -------------================ ================
SEE ACCOMPANYING NOTES
2
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
SIX MONTHS ENDED QUARTER ENDED
MARCH 31,
-------------------------------------JUNE 30, JUNE 30,
---------------------------- ----------------------------
1999 1998 -------------------------------------1999 1998
---------------------------- ----------------------------
REVENUES
Rental income $ 406,062819,178 $ 277,226571,370 $ 413,116 $ 294,144
Fee and asset management 1,234 1,3602,414 2,790 1,180 1,430
Interest income - investment in mortgage notes 2,895 4,9315,644 10,221 2,749 5,290
Interest and other income 6,046 2,824
--------------- -----------------11,323 9,010 5,277 6,186
------------ ------------- ------------ -----------
Total revenues 416,237 286,341
--------------- -----------------838,559 593,391 422,322 307,050
EXPENSES
Property and maintenance 97,047 66,713196,865 138,303 99,818 71,391
Real estate taxes and insurance 42,048 27,44384,515 56,484 42,467 29,041
Property management 14,201 11,57927,973 25,007 13,772 13,516
Fee and asset management 867 1,0521,624 2,247 757 1,197
Depreciation 96,901 64,390197,134 131,910 100,233 67,520
Interest:
Expense incurred 79,197 50,254158,499 105,651 79,302 55,397
Amortization of deferred financing costs 845 6241,661 1,275 816 651
General and administrative 5,867 4,880
--------------- -----------------10,914 9,974 5,047 5,203
------------ ------------- ------------ -----------
Total expenses 336,973 226,935
--------------- -----------------679,185 470,851 342,212 243,916
Income before gain on disposition of properties, net,
extraordinary item and allocation to Minority 159,374 122,540 80,110 63,134
Interests 79,264 59,406
Gain on disposition of properties, net 21,416 1,869
--------------- -----------------45,807 11,092 24,391 9,223
------------ ------------- ------------ -----------
Income before extraordinary item and allocation to
Minority Interests 205,181 133,632 104,501 72,357
Loss on early extinguishment of debt (451) - (451) -
------------ ------------- ------------ -----------
Income before allocation to Minority Interests 100,680 61,275204,730 133,632 104,050 72,357
Income allocated to Minority Interests (7,126) (3,688)
--------------- -----------------(14,514) (8,310) (7,388) (4,622)
------------ ------------- ------------ -----------
Net income 93,554 57,587190,216 125,322 96,662 67,735
Preferred distributions (29,377)(57,111) (43,384) (27,734) (21,692)
--------------- ----------------------------- ------------- ------------ -----------
Net income available to Common Shares $ 64,177133,105 $ 35,895
--------------- -----------------
--------------- -----------------81,938 $ 68,928 $ 46,043
============ ============= ============ ===========
Weighted average Common Shares outstanding 118,956 93,361
--------------- -----------------
--------------- -----------------119,762 95,394 120,558 97,405
============ ============= ============ ===========
Distributions declared per Common
Share outstanding $ 1.42 $ 1.34 $ 0.71 $ 0.67
--------------- -----------------
--------------- -----------------============ ============= ============ ===========
Net income per weighted average Common Share
outstanding $ 0.541.11 $ 0.38
--------------- -----------------
--------------- -----------------0.86 $ 0.57 $ 0.47
============ ============= ============ ===========
Net income per weighted average Common Share
outstanding - assuming dilution $ 0.541.11 $ 0.38
--------------- -----------------
--------------- -----------------0.85 $ 0.57 $ 0.47
============ ============= ============ ===========
SEE ACCOMPANYING NOTES
3
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
QUARTERSIX MONTHS ENDED
MARCH 31,
------------------------JUNE 30,
-------------------------------------
1999 1998
-------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 93,554190,216 $ 57,587
---------- --------125,322
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Income allocated to Minority Interests 7,126 3,68814,514 8,310
Depreciation 96,901 64,390197,134 131,910
Amortization of deferred financing costs 845 6241,661 1,275
Amortization of discounts and premiums on debt (608) (524)(1,172) (1,026)
Amortization of treasury locks and options on debt 257 398
Interest capitalized to real estate developments (609) --513 976
Amortization of discount on investment in mortgage notes - (1,000)
Gain on disposition of properties, net (21,416) (1,869)(45,807) (11,092)
CHANGES IN ASSETS AND LIABILITIES:
Decrease (increase) in rents receivable 2,661 (496)3,428 (1,825)
(Increase) decrease in deposits - restricted (3,465) 357(4,342) (4,537)
Decrease (increase) in other assets 4,362 (2,093)
(Decrease)51,052 3,000
Increase in accounts payable and accrued expenses (12,627) (912)
Increase6,936 11,466
(Decrease) increase in accrued interest payable 14,509 7,466(1,176) 6,904
(Decrease) increase in security deposits (531) 1,518(1,577) 5,607
Increase (decrease) in rents received in advance and
other liabilities 12,687 3,600
-------- --------6,411 (3,337)
--------------- ---------------
Net cash provided by operating activities 193,646 133,734
-------- --------417,791 271,953
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate, net (107,058) (142,203)(200,613) (499,239)
Improvements to real estate (24,922) (14,091)(55,783) (32,397)
Additions to non-real estate property (2,450) (2,385)(3,640) (4,445)
Interest capitalized to real estate developments (943) (811)
Proceeds from disposition of real estate, net 75,997 16,665125,150 40,488
Purchase of management contract rights (285) (119)
Decrease (increase) in mortgage deposits 1,864 (450)131 (12,791)
Decrease (increase) in deposits on real estate acquisitions, net 24,527 (3,628)2,961 (7,781)
Decrease in investment in mortgage notes 1,128 5312,159 963
Investment in limited partnerships (15,847) (11,094)(44,314) (13,042)
Costs related to Mergers (2,612) (987)(4,002) (1,851)
Other investing activities (355) 20
-------- --------603 (10,583)
--------------- ---------------
Net cash (used for)used by investing activities (50,013) (157,741)
-------- --------(178,576) (541,608)
--------------- ---------------
SEE ACCOMPANYING NOTES
4
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
QUARTERSIX MONTHS ENDED
MARCH 31,
------------------------------------JUNE 30,
-------------------------------------
1999 1998
-------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of Common Shares 2,197 356,8295,661 419,619
Proceeds from exercise of options 15,374 1,56824,254 4,459
Payment of offering costs (182) (10,013)
Distributions to Common Share and Preferred Share owners (29,448) (23,235)
Distributions to Minority Interests (316) (312)(296) (10,314)
Principal receipts on employee notes 47 15895 196
Principal receipts on pledged notes receivable 4,681 --7,375 -
DISTRIBUTIONS:
Common Shares (84,672) (64,258)
Preferred Shares (57,111) (44,894)
Minority Interests (9,654) (6,733)
MORTGAGE NOTES PAYABLE:
Proceeds from lines62,885 -
Payoffs (54,231) (34,141)
Monthly principal payments (8,400) (5,663)
NOTES, NET:
Proceeds 298,014 306,255
Payoffs (125,000) -
LINES OF CREDIT:
Proceeds 689,000 175,000
Payments (894,000) (235,000)
Loss on early extinguishment of credit 298,000 --
Repayments on lines of credit (423,000) (235,000)
Principal payments on mortgage notes payable (4,161) (20,542)debt 451 -
Loan and bond acquisition costs (52) (1,166)
--------- ---------(2,055) (2,251)
---------------- ---------------
Net cash (used for)by) provided by financing activities (136,860) 68,287
--------- ---------(147,684) 502,275
---------------- ---------------
Net increase in cash and cash equivalents 6,773 44,28091,531 232,620
Cash and cash equivalents, beginning of period 3,965 33,295
--------- ------------------------- ---------------
Cash and cash equivalents, end of period $10,738 $77,575
--------- ---------
--------- ---------$ 95,496 $ 265,915
================ ===============
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $65,297 $42,788
--------- ---------
--------- ---------$ 160,618 $ 98,747
================ ===============
Mortgage loans assumed and/or entered into through
acquisitions of real estate $16,903 $93,617
--------- ---------
--------- ---------
Real$ 58,320 $ 232,801
================ ===============
Net real estate contributed in exchange for OP Units
or Preference Units $ 14,183 $ 16,270
================ ===============
Transfers to real estate held for disposition $ 32,844 $ -
================ ===============
Refinancing of mortgage notes payable in favor of notes, net $8,929 $50
--------- ---------
--------- ---------$ 75,790 $ -
================ ===============
SEE ACCOMPANYING NOTES
5
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DEFINITION OF SPECIAL TERMS:
Capitalized terms used but not defined in this Quarterly Report on Form 10-Q are
as defined in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 ("Form 10-K").
1. BUSINESS
As used herein, the term "Company" means Equity Residential
Properties Trust ("EQR") and its subsidiaries as the survivor of the mergers
between EQR and each of Wellsford Residential Property Trust ("Wellsford")
(the "Wellsford Merger"), Evans Withycombe Residential, Inc. ("EWR") (the
"EWR Merger") and Merry Land & Investment Company, Inc. ("MRY") (the "MRY
Merger"). The Company is engaged in the acquisition, ownership and operation
of multifamily properties and is a self-administered and self-managed equity
real estate investment trust ("REIT"). As of March 31,June 30, 1999, the Company
controlled a portfolio of 654659 multifamily properties (individually a
"Property" and collectively the "Properties"). The Company's interest in six
of these Properties at the time of
acquisition thereof consistedconsists solely of ownership of debt collateralized by
such Properties. The Company also has an investment in partnership interests
and subordinated mortgages collateralized by 21 properties and an investment
in six joint ventures consisting of six properties (collectively, the
"Additional Properties").
2. BASIS OF PRESENTATION
The balance sheet and statements of operations and cash flows as of and
for the six months and quarter ended March 31,June 30, 1999 represent the consolidated
financial information of the Company and its subsidiaries.
Due to the Company's ability as general partner to control either
through ownership or by contract the Operating Partnership, the Management
Partnerships, the Financing Partnerships, the LLCs and Merry Land DownREIT I LP,
each such entity has been consolidated with the Company for financial reporting
purposes. In regard to Management Corp., Management Corp. II, Evans Withycombe
Management, Inc. and ML Services, Inc., the Company does not have legal control;
however, these entities are consolidated for financial reporting purposes, the
effects of which are immaterial. Certain reclassifications have been made to the
prior year's financial statements in order to conform to the current year
presentation.
These unaudited Consolidated Financial Statements of the Company have
been prepared pursuant to the Securities and Exchange Commission ("SEC") rules
and regulations and should be read in conjunction with the Financial Statements
and Notes thereto included in the Company's Annual Report on Form 10-K. The
following Notes to Consolidated Financial Statements highlight significant
changes to the notes included in the Form 10-K and present interim disclosures
as required by the SEC. The accompanying Consolidated Financial Statements
reflect, in the opinion of management, all adjustments necessary for a fair
presentation of the interim financial statements. All such adjustments are of a
normal and recurring nature.
6
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS
During the first quarter of 1999, the Company issued 8,543 Common
Shares pursuant to the Share Purchase - DRIP Plan and received net proceeds of
approximately $349,986.
In February 1999, the Company issued 53,488 Common Shares pursuant to
the Employee Share Purchase Plan, at a price of $34.37 per share, and received
net proceeds of approximately $1.8 million.
The following table presents the changes in the Company's issued and
outstanding Common Shares for the quartersix months ended March 31,June 30, 1999:
- --------------------------------------------------------------------------- ------------------
Balance------------------------------------------------------------------------------
Common Shares outstanding at January 1, 1999 118,230,009
COMMON SHARES ISSUED:
Conversion of Series H Preferred Shares 5,495
Conversion of Series I Preferred Shares 1,912,263
Employee Share Purchase Plan 98,483
Dividend Reinvestment - --------------------------------------------------------------------------- ------------------
Common Shares issued throughDRIP Plan 9,838
Share Purchase - DRIP Plan 8,543
Common Shares issued through Dividend Reinvestment - DRIP Plan 201
Common Shares issued through Employee Share Purchase Plan 53,488
Common Shares issued through conversion12,716
Exercise of Series H Preferred Shares 4,627options 705,393
Restricted share grants, net 300,738
Conversion of OP Units into Common Shares 233,792
Common Shares issued through restricted share awards 309,091
Common Shares issued through exercise of options 429,221
Common Shares issued through 931,586
Profit-sharing contribution/401(k) Plan 30,260
- --------------------------------------------------------------------------- ------------------
Balance------------------------------------------------------------------------------
Common Shares outstanding at March 31,June 30, 1999 119,229,232
- --------------------------------------------------------------------------- ------------------
------------------122,236,781
------------------------------------------------------------------------------
Assuming conversion of all OP Units and Junior Convertible Preference
Units into Common Shares, total Common Shares outstanding at March 31, 1999
would have been 132,534,211.
The equity positions of various individuals and entities that
contributed their properties to the Operating Partnership in exchange for a
partnership interest are collectively referred to as the "Minority Interests".
As of March 31,June 30, 1999, the Minority Interests held 13,234,97912,644,403 OP Units, which
included the OP Unit equivalent of 98,626157,382 for the Junior Convertible Preference
Units that were outstanding at March 31,June 30, 1999. As a result, the Minority
Interests had a 9.99%9.37% interest in the Operating Partnership at March 31,June 30, 1999.
Assuming conversion of all OP Units and Junior Convertible Preference
Units into Common Shares, total Common Shares outstanding at June 30, 1999 would
have been 134,881,184.
Net proceeds from the Company's Common Share offerings are contributed
by the Company to the Operating Partnership in return for an increased ownership
percentage and are treated as capital transactions in the Company's Consolidated
Financial Statements. As a result, the net offering proceeds are allocated
between shareholders' equity and Minority Interests to account for the change in
their respective percentage ownership of the underlying equity of the Operating
Partnership.
The following table presents the Company's issued and outstanding
Preferred Shares as of June 30, 1999 and December 31, 1998 (amounts are in
thousands):
7
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The following table presents the Company's issued and outstanding
Preferred Shares as of March 31, 1999 and December 31, 1998:
--------------------------------------------------------------------- -- -------------- -- ---------------
MARCH 31,----------------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
1999 1998
--------------------------------------------------------------------- ----------------- ---------------------------------------------------------------------------------------------------------------------------
Preferred Shares of beneficial interest, $.01 par value; 100,000,000
shares authorized:
9 3/8% Series A Cumulative Redeemable Preferred $ 153,000 $ 153,000
$25 per share, 6,120,000 shares issued and outstanding
at March 31,June 30, 1999 and December 31, 1998
9 1/8% Series B Cumulative Redeemable Preferred 125,000 125,000
$250 per share, 500,000 shares issued and outstanding
at March 31,June 30, 1999 and December 31, 1998
9 1/8% Series C Cumulative Redeemable Preferred 115,000 115,000
$250 per share, 460,000 shares issued and outstanding
at March 31,June 30, 1999 and December 31, 1998
8.60% Series D Cumulative Redeemable Preferred 175,000 175,000
$250 per share, 700,000 shares issued and outstanding
at March 31,June 30, 1999 and December 31, 1998
Series E Cumulative Convertible Preferred 99,925 99,925
$25 per share, 3,997,000 shares issued and outstanding at March
31,June
30, 1999 and December 31, 1998
9.65% Series F Cumulative Redeemable Preferred 57,500 57,500
$25 per share, 2,300,000 shares issued and outstanding
at March 31,June 30, 1999 and December 31, 1998
7 1/4% Series G Convertible Cumulative Preferred 316,250 316,250
$250 per share, 1,265,000 shares issued and outstanding
at March 31,June 30, 1999 and December 31, 1998
7.00% Series H Cumulative Convertible Preferred 3,7543,724 3,914
$25 per share, 150,155148,952 and 156,551 shares issued and
outstanding at March 31,June 30, 1999 and December 31,
1998, respectively
8.82% Series I Cumulative Convertible Preferred 100,00025,500 100,000
$25 per share, 1,020,000 and 4,000,000 shares issued
and outstanding at March 31,June 30, 1999 and
December 31, 1998, respectively
8.60% Series J Cumulative Convertible Preferred 114,985 114,985
$25 per share, 4,599,400 shares issued and outstanding
at March 31,June 30, 1999 and December 31, 1998
8.29% Series K Cumulative Redeemable Preferred 50,000 50,000
$50 per share, 1,000,000 shares issued and outstanding
at March 31,June 30, 1999 and December 31, 1998
7.625% Series L Cumulative Redeemable Preferred 100,000 100,000
$25 per share, 4,000,000 shares issued and outstanding
at March 31,June 30, 1999 and December 31, 1998
-------------------------------------------------------------------- ----------------- ------------------------------------------------------------------------------------------------------------------------
$ 1,410,4141,335,884 $ 1,410,574
-------------------------------------------------------------------- ----------------- --------------
----------------- ------------------------------------------------------------------------------------------------------------------------
8
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The following table summarizes the distributions paid to Preferred and
Depositary Share holdersShareholders and Common Share holders as of the record date of March
19, 1999Shareholders related to the quartersix months ended
March 31,June 30, 1999:
DISTRIBUTIONFOR THE
DIVIDEND QUARTER OR PERIOD RECORD
AMOUNT DATE PAID - ----------------------------- ------------------------ ---------------ENDED DATE
---------------------------------------------------------------------------------------------------------
Series A Preferred Share holders $0.5859380 04/15/99 03/31/99 03/19/99
$0.5859370 07/15/99 06/30/99 06/18/99
Series B Depositary Share holders $0.5703130 04/15/99 03/31/99 03/19/99
$0.5703120 07/15/99 06/30/99 06/18/99
Series C Depositary Share holders $0.5703130 04/15/99 03/31/99 03/19/99
$0.5703120 07/15/99 06/30/99 06/18/99
Series D Depositary Share holders $0.5375000 04/15/99 03/31/99 03/19/99
$0.5375000 07/15/99 06/30/99 06/18/99
Series E Preferred Share holders $0.4375000 04/01/99 03/31/99 03/19/99
$0.4375000 07/01/99 06/30/99 06/18/99
Series F Preferred Share holders $0.6031250 04/15/99 03/31/99 03/19/99
$0.6031250 07/15/99 06/30/99 06/18/99
Series G Depositary Share holders $0.4531250 04/15/99 03/31/99 03/19/99
$0.4531250 07/15/99 06/30/99 06/18/99
Series H DepositaryPreferred Share holders $0.4375000 03/31/99 03/31/99 03/19/99
$0.4375000 06/30/99 06/30/99 06/18/99
Series I DepositaryPreferred Share holders $0.5512500 03/31/99 03/31/99 03/19/99
$0.5512500 06/30/99 06/30/99 06/18/99
Series J DepositaryPreferred Share holders $0.5375000 03/31/99 03/31/99 03/19/99
$0.5375000 06/30/99 06/30/99 06/18/99
Series K DepositaryPreferred Share holders $1.0362500 03/31/99 03/31/99 03/19/99
$1.0362500 06/30/99 06/30/99 06/18/99
Series L DepositaryPreferred Share holders $0.4765625 03/31/99 03/31/99 03/19/99
$0.4765625 06/30/99 06/30/99 06/18/99
Common Shares $ 0.71 04/09/99 03/31/99 03/19/99
$ 0.71 07/09/99 06/30/99 06/18/99
4. REAL ESTATE ACQUISITIONS
During the quartersix months ended March 31,June 30, 1999, the Company acquired the
sevensixteen Properties listed below, of which threenine were acquired from unaffiliated
third parties and fourseven were acquired from an affiliated party. In connection
with certain of the acquisitions listed below, the Company
9
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
assumed mortgage indebtedness of approximately $16.9$58.3 million, and issued OP Units
having a value of approximately $8.9$11.3 million and issued Junior Convertible
Preference Units having a value of approximately $2.9 million. The cash
portion of these transactions was funded primarily from proceeds received
from the disposition of certain properties and working capital.
9
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
- --------------- --------------------- --------------------------- ------------- ---------------------------------------------------------------------------------------------------------------------------------
DATE NUMBER PURCHASE PRICE
ACQUIRED PROPERTY LOCATION OF UNITS (IN THOUSANDS)
- --------------- --------------------- --------------------------- ------------- ---------------------------------------------------------------------------------------------------------------------------------
01/22/99 Fireside Park Rockville, MD 236 $14,279
01/22/99 Mill Pond Glen Burnie, MD 240 11,745
01/28/99 Aspen Crossing Wheaton, MD 192 11,386
02/24/99 Copper Canyon Highlands Ranch, CO 222 16,200
03/04/99 Siena Terrace Lake Forest, CA 356 33,000
03/23/99 Greenbriar Kirkwood, MO 218 12,033
03/24/99 Fairland Gardens Silver Spring, MD 400 25,897
04/28/99 Pine Tree Club Wildwood, MO 150 7,988
04/28/99 Westbrooke Village I & II Manchester, MO 252 12,642
04/29/99 Brookside Frederick, MD 228 10,809
04/30/99 Skyview Rancho Santa Margarita, CA 260 21,800
05/20/99 Lincoln at Defoors Atlanta, GA 300 25,500
05/25/99 Rosecliff Quincy, MA 156 18,263
05/25/99 Canyon Crest Santa Clarita, CA 158 12,500
06/29/99 Greentree I Glen Burnie, MD 350 15,625
06/29/99 Greentree III Glen Burnie, MD 207 9,598
- --------------- --------------------- --------------------------- ------------- -----------------
1,864 $124,540----------------------------------------------------------------------------------------------------------------
3,925 $259,265
- --------------- --------------------- --------------------------- ------------- -----------------
------------- ---------------------------------------------------------------------------------------------------------------------------------
5. REAL ESTATE DISPOSITIONS
During the quartersix months ended March 31,June 30, 1999, the Company disposed of the
propertieseleven Properties listed below. Each property was soldbelow to an unaffiliated third party.parties. The Company
recognized a net gain for financial reporting purposes of approximately $21.4 million on the disposition of these seven properties.$45.8
million.
--------------- ----------------------------- ----------------------- --------------- ------------------------------------------------------------------------------------------------------------------------
DISPOSITION
DATE NUMBER PRICE
DISPOSED PROPERTY LOCATION OF UNITS (IN THOUSANDS)
--------------- ----------------------------- ----------------------- --------------- ------------------------------------------------------------------------------------------------------------------------
01/06/99 Fox Run Little Rock, AR 337 $10,623
01/06/99 Greenwood Forest Little Rock, AR 239 7,533
01/06/99 Walnut Ridge Little Rock, AR 252 7,943
01/06/99 Williamsburg Little Rock, AR 211 6,651
01/27/99 The Hawthorne Phoenix, AZ 276 20,500
03/02/99 The Atrium Durham, NC 208 10,750
03/24/99 Greenbriar Kirkwood, MO 218 12,525
--------------- ----------------------------- ----------------------- --------------- -----------------
1,741 $76,525
--------------- ----------------------------- ----------------------- --------------- -----------------
--------------- -----------------05/06/99 Sandstone at Bear Creek Euless, TX 40 2,075
05/12/99 La Costa Brava/Cedar Cove Jacksonville, FL 464 17,650
05/18/99 Lands End Pacifica , CA 260 30,100
-------------------------------------------------------------------------------------------------------
2,505 $126,350
-------------------------------------------------------------------------------------------------------
10
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. COMMITMENTS TO ACQUIRE/DISPOSE OF REAL ESTATE
As of March 31,June 30, 1999, in addition to the Properties that were
subsequently acquired as discussed in Note 14 of the Notes to Consolidated
Financial Statements, the Company entered into separate agreementsan agreement to acquire fiveone
multifamily propertiesproperty containing 1,254919 units from affiliated andan unaffiliated parties.third party. The
expected combined purchase price is approximately $75.9 million, which includes the assumption of mortgage indebtedness of
approximately $19.6$128 million.
As of March 31,June 30, 1999, in addition to the PropertyProperties that waswere
subsequently disposed of as discussed in Note 14 of the Notes to Consolidated
Financial Statements, the Company entered into separate agreements to dispose of
nineeleven multifamily properties containing 2,6882,522 units to unaffiliated third
parties. The expected combined disposition price is approximately $148.3$88.4 million.
10
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The closings of these pending transactions are subject to certain
contingencies and conditions; therefore, there can be no assurance that these
transactions will be consummated or that the final terms thereof will not differ
in material respects from those summarized in the preceding paragraphs.
7. CALCULATION OF NET INCOME PER WEIGHTED AVERAGE COMMON SHARE
The following tables set forth the computation of net income per
weighted average Common Share outstanding and net income per weighted average
Common Share outstanding - assuming dilution.
11
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, QUARTER ENDED MARCH 31,
-----------------------------------JUNE 30,
--------------------------------- ------------------------------
1999 1998 -----------------------------------1999 1998
--------------------------------- ------------------------------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
NUMERATOR:
Income before gain on disposition of properties, net,
extraordinary item, allocation of income to
Minority Interests and preferred distributions $ 79,264159,374 $ 59,406122,540 $ 80,110 $ 63,134
Allocation of income to Minority Interests
(7,126) (3,688)(14,514) (8,310) (7,388) (4,622)
Distributions to preferred shareholders (29,377)(57,111) (43,384) (27,734) (21,692)
-------------------------------------------------------------------- --------------------------------
Income before gain on disposition of properties, net
42,761 34,026and extraordinary item
87,749 70,846 44,988 36,820
Gain on disposition of properties, net
21,416 1,869
-----------------------------------45,807 11,092 24,391 9,223
Loss on early extinguishment of debt
(451) - (451) -
--------------------------------- --------------------------------
Numerator for net income per weighted average
Common Share outstanding 64,177 35,895133,105 81,938 68,928 46,043
Effect of dilutive securities:
Allocation of income to Minority Interests
7,126 3,688
-----------------------------------14,514 8,310 7,388 4,622
--------------------------------- --------------------------------
Numerator for net income per weighted average
Common Share outstanding - assuming dilution $ 71,303147,619 $ 39,583
-----------------------------------
-----------------------------------90,248 $ 76,316 $ 50,665
================================= ================================
DENOMINATOR:
Denominator for net income per weighted
averageAverage Common Share outstanding $ 118,956 $ 93,361119,762 95,394 120,558 97,405
Effect of dilutive securities:
Contingent incremental employee share options 568 1,152742 1,118 908 1,047
OP Units 13,209 9,587
-----------------------------------13,064 9,683 12,920 9,777
--------------------------------- --------------------------------
Denominator for net income per weighted average
Common Share outstanding - assuming dilution $ 132,733 $ 104,100
-----------------------------------
-----------------------------------133,568 106,195 134,386 108,229
================================= ================================
Net income per weighted average Common
Share outstanding $ 0.541.11 $ 0.38
-----------------------------------
-----------------------------------0.86 $ 0.57 $ 0.47
================================= ================================
Net income per weighted average Common
Share outstanding - assuming dilution $ 0.541.11 $ 0.38
-----------------------------------
-----------------------------------0.85 $ 0.57 $ 0.47
================================= ================================
12
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, QUARTER ENDED MARCH 31,
-----------------------------------JUNE 30,
--------------------------------- ----------------------------
1999 1998 -----------------------------------1999 1998
--------------------------------- ----------------------------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
NET INCOME PER WEIGHTED AVERAGE COMMON SHARE OUTSTANDING:
Income before gain on disposition of properties, net
and extraordinary item per weighted average
Common Share outstanding $ 0.360.77 $ 0.360.75 $ 0.39 $ 0.39
Gain on disposition of properties, net
0.34 0.11 0.18 0.02
---------- ----------0.08
Loss on early extinguishment of debt
- - - -
---------------- --------------- -------------- ---------------
Net income per weighted average Common
Share Outstandingoutstanding $ 0.541.11 $ 0.38
---------- ----------
---------- ----------0.86 $ 0.57 $ 0.47
================ =============== ============== ===============
NET INCOME PER WEIGHTED AVERAGE COMMON SHARE
OUTSTANDING - ASSUMING DILUTION:
Income before gain on disposition of properties, net
and extraordinary item per weighted average
Common Share outstanding - assuming dilution $ 0.360.77 $ 0.360.75 $ 0.39 $ 0.38
Gain on disposition of properties, net
0.34 0.10 0.18 0.02
---------- ----------0.09
Loss on early extinguishment of debt
- - - -
---------------- --------------- -------------- ---------------
Net income per weighted average Common
Share outstanding - assuming dilution $ 0.541.11 $ 0.38
---------- ----------
---------- ----------0.85 $ 0.57 $ 0.47
================ =============== ============== ===============
CONVERTIBLE PREFERRED SHARES THAT COULD BE CONVERTED INTO 13,123,06212,761,757 AND
7,623,7457,623,664 WEIGHTED COMMON SHARES WERE OUTSTANDINGFOR THE SIX MONTHS ENDED JUNE 30, 1999 AND
1998, AND 12,404,422 AND 7,623,507 WEIGHTED COMMON SHARES FOR THE QUARTER ENDED
MARCH
31,JUNE 30, 1999 AND 1998, RESPECTIVELY, WERE OUTSTANDING BUT WERE NOT INCLUDED IN
THE COMPUTATION OF DILUTED EARNINGS PER SHARE BECAUSE THE EFFECTS WOULD BE
ANTI-DILUTIVE.
13
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
8. MORTGAGE NOTES PAYABLE
On June 1, 1999, the Company refinanced the debt on four existing
properties with a net increase in mortgage indebtedness of approximately $18.0
million. During the quarter ended June 30, 1999, the Company repaid the
outstanding mortgage balances on two Properties in the aggregate amount of $9.3
million. In connection with the above transactions, the Company incurred
prepayment penalties of $0.5 million, which have been classified as losses on
early extinguishment of debt.
As of March 31,June 30, 1999, the Company had outstanding mortgage indebtedness
of approximately $2.4$2.3 billion encumbering 218217 of the Properties. The carrying
value of such Properties (net of accumulated depreciation of $286.1$312.7 million) was
approximately $3.8$3.7 billion. The mortgage notes payables are generally due in
monthly installments of principal and interest. In connection with the
Properties acquired during the quartersix months ended March 31,June 30, 1999, the Company
assumed the outstanding mortgage balances on twoseven Properties in the aggregate
amount of $16.9$58.3 million.
As of March 31,June 30, 1999, scheduled maturities for the Company's outstanding
mortgage indebtedness are at various dates through October 1, 2033.2030. During the
quartersix months ended March 31,June 30, 1999, the effective interest cost on all of the
Company's debt was 7.09%7.02%.
9. NOTES
On May 15, 1999, the Company repaid the 1999 Notes.
On June 17, 1999, the Company refinanced the bond indebtedness
collateralized by four existing properties. The bond indebtedness on all four
properties totaling $75.8 million is now unsecured.
In June 1999, the Operating Partnership issued $300 million of
redeemable unsecured fixed rate notes (the "June 2004 Notes") in connection with
the Debt Shelf Registration in a public debt offering (the "Seventh Public Debt
Offering"). The June 2004 Notes were issued at a discount, which is being
amortized over the life of the June 2004 Notes on a straight-line basis. The
June 2004 Notes are due June 23, 2004. The annual interest rate on the June 2004
Notes is 7.10%, which is payable semiannually in arrears on December 23 and June
23, commencing December 23, 1999. The Operating Partnership received net
proceeds of approximately $298 million in connection with this issuance.
As of March 31,June 30, 1999, the Company had outstanding unsecured notes
of approximately $2.0$2.3 billion, net of a $5.0 million discount and
including an $8.6$8.1 million premium.
10. LINES OF CREDIT
The Company has a revolving credit facility with Morgan Guaranty Trust
Company of New York ("Morgan Guaranty") and Bank of America Illinois ("Bank of
America") as co-agents
14
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
to provide the Operating Partnership with potential borrowings of up to $500
million. As of March 31,June 30, 1999, $125$40 million was outstanding under this
facility, bearing interest at a weighted average rate of 5.33%5.40%.
In connection with the MRY Merger, the Company assumed an additional
credit facility with First Union Bank as agent with potential borrowings of up
to $120 million. As of March 31,June 30, 1999, $40$45 million was outstanding under this
facility, bearing interest at a weighted average rate of 5.42%5.46%.
11. DEPOSITS - RESTRICTED
Deposits-restricted as of March 31,June 30, 1999 primarily included a deposit in
the amount of $20$25 million held in a third party escrow account to provide
collateral for third party construction financing in connection with the Joint
Venture Agreement.two
separate joint venture agreements. Also, approximately $2.7$19.3 million was held in
third party escrow accounts, representing proceeds received in connection with
the Company's disposition of one propertythree properties and earnest money deposits made
for additional acquisitions. In addition, approximately $19.8$26.4 million was for
tenant security, utility deposits, and other deposits for certain of the
Company's Properties.
14
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
12. COMMITMENTS AND CONTINGENCIES
The Company, as an owner of real estate, is subject to various
environmental laws of Federal and local governments. Compliance by the Company
with existing laws has not had a material adverse effect on the Company's
financial condition and results of operations. However, the Company 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.
The Company does not believe there is any litigation threatened against
the Company 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 Company.
In regardsregard to the joint venture agreementagreements with atwo multifamily
residential real estate developerdevelopers during the quartersix months ended March 31,June 30, 1999,
the Company funded a total of $15.9$44.3 million and during the remainder of 1999 the
Company expects to fund approximately $48.2$24.1 million in connection with this
agreement.these
agreements. Also in connection with these two agreements, the Company has an
obligation to fund up to an additional $55 million to guarantee third party
construction financing.
In regardsregard to certain other properties that were under development
and/or expansion during the quartersix months ended March 31,June 30, 1999, the Company funded
$5.1$7.9 million. During the remainder of 1999, the Company expects to fund $52.9$43.1
million related to the continued development and/or expansion of as many as five
Properties.
15
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
In regards to certain properties that arewere under earnout/development
agreements, during the quartersix months ended March 31, 1999, $16.2 million was funded
relating to the completion/acquisition of Copper Canyon. In addition, the
Company may be required to fund an additional $1 million earnout payment to the
developer of Copper Canyon if certain specified operation levels are met. During
the remainder ofJune 30, 1999, the Company expects to fund approximately $43.7 million
related to other earnout/development projects. Subsequent to March 31, 1999,funded the
Company has funded $22.7following:
- - $16.2 million relating to the completion/acquisition of Copper Canyon Apartments,
- - $22.8 million relating to the acquisition of Skyview Apartments, which
included a $1.0 million advance of the earnout payment to the developer of
Skyview.Skyview; and
- - $18.3 million relating to the acquisition of Rosecliff Apartments.
Subsequent to June 30, 1999, the Company funded an additional $1
million earnout payment to the developer of Copper Canyon as certain
specified operation levels were achieved. During the remainder of 1999, the
Company expects to fund approximately $3.1 million related to other
earnout/development projects.
In connection with the Wellsford Merger, the Company has provided a
$14.8 million credit enhancement with respect to bonds issued to finance certain
public improvements at a multifamily development project. Pursuant to the terms
of a Stock Purchase Agreement with Wellsford Real Properties, Inc. ("WRP
Newco"), the Company has agreed to purchase up to 1,000,000 shares of WRP Newco
Series A Preferred at $25.00 per share on a standby basis over a three-year
period ending on May 30, 2000. As of March 31,June 30, 1999, no shares of WRP Newco
Series A Preferred had been acquired by the Company.
In connection with the MRY Merger, the Company extended a $25 million,
one year, non-revolving Senior Debt Agreement to MRYP Spinco. At March 31,On June 24, 1999,
approximatelyMRYP Spinco repaid the Senior Note outstanding balance of $18.3 million was outstanding, bearing interest at LIBOR plus 250
basis points. The Company has a potentialand
there is no further obligation to fund up to an additional
$6.7 million under the Senior Debt Agreement.
15
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)by either party in connection with this
agreement.
13. REPORTABLE SEGMENTS
The following tables set forth the reconciliation of net income and
total assets for the Company's reportable segments for the quarterssix months and
quarter ended March
31,June 30, 1999 and net income for the six months and quarter ended
June 30, 1998.
RENTAL REAL CORPORATE/
MARCH 31, 1999 (AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------------
Rental income $ 406,062 $ -- $ 406,062
Property and maintenance expense (97,047) -- (97,047)
Real estate tax and insurance expense (42,048) -- (42,048)
Property management expense (14,201) -- (14,201)
------------- ------------- ------------
Net operating income 252,766 -- 252,766
Fee and asset management income -- 1,234 1,234
Interest income - investment in mortgage notes -- 2,895 2,895
Interest and other income -- 6,046 6,046
Fee and asset management expense -- (867) (867)
Depreciation expense on non-real estate assets -- (1,705) (1,705)
Interest expense:
Expense incurred -- (79,197) (79,197)
Amortization of deferred financing costs -- (845) (845)
General and administrative expense -- (5,867) (5,867)
Preferred distributions -- (29,377) (29,377)
Adjustment for depreciation expense related
to equity in unconsolidated joint ventures -- 276 276
------------- ------------- ------------
Funds from operations available to Common Shares and
OP Units 252,766 (107,407) 145,359
Depreciation expense on real estate assets (95,196) -- (95,196)
Gain on disposition of properties, net 21,416 -- 21,416
Income allocated to Minority Interests -- (7,126) (7,126)
Adjustment for depreciation expense related
to equity in unconsolidated joint ventures -- (276) (276)
------------- ------------- ------------
Net income available to Common Shares $ 178,986 $ (114,809) $ 64,177
------------- ------------- ------------
------------- ------------- ------------
Investment in real estate, net of
accumulated depreciation $ 10,251,871 $ 16,081 $ 10,267,952
------------- ------------- ------------
------------- ------------- ------------
Total assets $ 10,251,871 $ 450,090 $ 10,701,961
------------- ------------- ------------
------------- ------------- ------------
16
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1999 RENTAL REAL CORPORATE/
MARCH 31, 1998
(AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Rental income $ 277,226819,178 $ --- $ 277,226819,178
Property and maintenance expense (66,713) -- (66,713)(196,865) - (196,865)
Real estate tax and insurance expense (27,443) -- (27,443)(84,515) - (84,515)
Property management expense (11,579) -- (11,579)
----------- ----------- -----------(27,973) - (27,973)
-----------------------------------------------------
Net operating income 171,491 -- 171,491509,825 - 509,825
Fee and asset management income -- 1,360 1,360- 2,414 2,414
Interest income - investment in mortgage notes -- 4,931 4,931- 5,644 5,644
Interest and other income -- 2,824 2,824- 11,323 11,323
Fee and asset management expense -- (1,052) (1,052)- (1,624) (1,624)
Depreciation expense on non-real estate assets -- (1,165) (1,165)- (3,423) (3,423)
Interest expense:
Expense incurred -- (50,254) (50,254)- (158,499) (158,499)
Amortization of deferred financing costs -- (624) (624)- (1,661) (1,661)
General and administrative expense -- (4,880) (4,880)- (10,914) (10,914)
Preferred distributions --- (57,111) (57,111)
Adjustment for depreciation expense related to
equity in unconsolidated joint ventures - 551 551
-----------------------------------------------------
Funds from operations available to Common Shares
and OP Units 509,825 (213,300) 296,525
Depreciation expense on real estate assets (193,711) - (193,711)
Gain on disposition of properties, net 45,807 - 45,807
Loss on early extinguishment of debt (451) (451)
Income allocated to Minority Interests - (14,514) (14,514)
Adjustment for depreciation expense related to
equity in unconsolidated joint ventures - (551) (551)
-----------------------------------------------------
Net income available to Common Shares $ 361,921 $ (228,816) $ 133,105
=====================================================
Investment in real estate, net of accumulated depreciation
as of June 30, 1999 $10,246,211 $ 15,428 $ 10,261,639
=====================================================
Total assets as of June 30, 1999 $10,279,055 $ 562,754 $ 10,841,809
=====================================================
17
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998 RENTAL REAL CORPORATE/
(AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
------------------------------------------------------------------------------------------------------------------
Rental income $ 571,370 $ - $ 571,370
Property and maintenance expense (138,303) - (138,303)
Real estate tax and insurance expense (56,484) - (56,484)
Property management expense (25,007) - (25,007)
-------------------------------------------------
Net operating income 351,576 - 351,576
Fee and asset management income - 2,790 2,790
Interest income - investment in mortgage notes - 10,221 10,221
Interest and other income - 9,010 9,010
Fee and asset management expense - (2,247) (2,247)
Depreciation expense on non-real estate assets - (2,523) (2,523)
Interest expense:
Expense incurred - (105,651) (105,651)
Amortization of deferred financing costs - (1,275) (1,275)
General and administrative expense - (9,974) (9,974)
Preferred distributions - (43,384) (43,384)
-
Adjustment for amortization of deferred financing costs
related to predecessor business - 35 35
-------------------------------------------------
Funds from operations available to Common Shares
and OP Units 351,576 (142,998) 208,578
Depreciation expense on real estate assets (129,387) - (129,387)
Gain on disposition of properties, net 11,092 - 11,092
Income allocated to Minority Interests - (8,310) (8,310)
Adjustment for amortization of deferred financing costs
related to predecessor business - (35) (35)
-------------------------------------------------
Net income available to Common Shares $233,281 $(151,343) $ 81,938
=================================================
18
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
QUARTER ENDED JUNE 30, 1999 RENTAL REAL CORPORATE/
(AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
------------------------------------------------------------------------------------------------------------------
Rental income $ 413,116 $ - $ 413,116
Property and maintenance expense (99,818) - (99,818)
Real estate tax and insurance expense (42,467) - (42,467)
Property management expense (13,772) - (13,772)
-------------------------------------------------
Net operating income 257,059 - 257,059
Fee and asset management income - 1,180 1,180
Interest income - investment in mortgage notes - 2,749 2,749
Interest and other income - 5,277 5,277
Fee and asset management expense - (757) (757)
Depreciation expense on non-real estate assets - (1,719) (1,719)
Interest expense:
Expense incurred - (79,302) (79,302)
Amortization of deferred financing costs - (816) (816)
General and administrative expense - (5,047) (5,047)
Preferred distributions - (27,734) (27,734)
Adjustment for depreciation expense related to
equity in unconsolidated joint ventures - 276 276
-------------------------------------------------
Funds from operations available to Common Shares
and OP Units 257,059 (105,893) 151,166
Depreciation expense on real estate assets (98,514) - (98,514)
Gain on disposition of properties, net 24,391 - 24,391
Loss on early extinguishment of debt - (451) (451)
Income allocated to Minority Interests - (7,388) (7,388)
Adjustment for depreciation expense related to
equity in unconsolidated joint ventures - (276) (276)
-------------------------------------------------
Net income available to Common Shares $ 182,936 $(114,008) $ 68,928
=================================================
Investment in real estate, net of accumulated depreciation
as of June 30, 1999 $ 10,246,211 $ 15,428 $ 10,261,639
=================================================
Total assets as of June 30, 1999 $ 10,279,055 $ 562,754 $ 10,841,809
=================================================
19
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
QUARTER ENDED JUNE 30, 1998 RENTAL REAL CORPORATE/
(AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
------------------------------------------------------------------------------------------------------------------
Rental income $ 294,144 $ - $ 294,144
Property and maintenance expense (71,391) - (71,391)
Real estate tax and insurance expense (29,041) - (29,041)
Property management expense (13,516) - (13,516)
-------------------------------------------------
Net operating income 180,196 - 180,196
Fee and asset management income - 1,430 1,430
Interest income - investment in mortgage notes - 5,290 5,290
Interest and other income - 6,186 6,186
Fee and asset management expense - (1,197) (1,197)
Depreciation expense on non-real estate assets - (1,358) (1,358)
Interest expense:
Expense incurred - (55,397) (55,397)
Amortization of deferred financing costs - (651) (651)
General and administrative expense - (5,203) (5,203)
Preferred distributions - (21,692) (21,692)
Adjustment for amortization of deferred financing costs
related to predecessor business -- 12 12
----------- ----------- ------------ 23 23
-------------------------------------------------
Funds from operations available to Common Shares
and OP Units 171,491 (70,540) 100,951180,196 (72,569) 107,627
Depreciation expense on real estate assets (63,225) -- (63,225)(66,162) - (66,162)
Gain on disposition of properties, net 1,869 -- 1,8699,223 - 9,223
Income allocated to Minority Interests -- (3,688) (3,688)- (4,622) (4,622)
Adjustment for amortization of deferred financing costs
related to predecessor business -- (12) (12)
----------- ----------- ------------ (23) (23)
-------------------------------------------------
Net income available to Common Shares $ 110,135123,257 $(77,214) $ (74,240) $ 35,895
----------- ----------- -----------
----------- ----------- -----------
Investment in real estate, net of
accumulated depreciation $ 6,843,693 $ 10,842 $ 6,854,535
----------- ----------- -----------
----------- ----------- -----------
Total assets $ 6,843,693 $ 485,649 $ 7,329,342
----------- ----------- -----------
----------- ----------- -----------46,043
=================================================
(1) The Company has one primary reportable business segment, which consists
of investment in rental real estate. The Company's primary business is
owning, managing, and operating multifamily residential properties which
includes the generation of rental and other related income through the
leasing of apartment units to tenants.
(2) The Company has a segment for corporate level activity including such
items as interest income earned on short-term investments, interest
income earned on investment in mortgage notes, general and administrative
expenses, and interest expense on mortgage notes payable and unsecured
note issuances. In addition, the Company has a segment for third party
management activity that is immaterial and does not meet the threshold
requirements of a reportable segment as provided for in Statement No.
131. Interest expense on debt is not allocated to individual Properties,
even if the Properties secure such debt. Further, income allocated to
Minority Interests is not allocated to the Properties.
1720
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
14. SUBSEQUENT EVENTS
On April 28,July 1, 1999, the Company disposed of The Willows Apartments, a
250-unit multifamily property located in Knoxville, TN, to an unaffiliated third
party for a total sales price of $12 million.
On July 1, 1999, the Company announced that they have entered into a
definitive agreement and plan of merger with Lexford Residential Trust
("Lexford"). The Lexford portfolio of 402 properties consists of 36,609 units in
sixteen states. The tax-free merger calls for EQR to issue approximately 4.4
million new common shares and assume approximately $533 million of debt. The
closing of this pending transaction is subject to entering into a binding
agreement, shareholder approval and certain other contingencies and conditions;
therefore, there can be no assurance that this transaction will be consummated
or that the final terms thereof will not differ in material respects from those
summarized above.
On July 14, 1999, the Company acquired Pine Tree ClubBrookdale Village Apartments, a
150-unit252-unit multifamily property located in Wildwood, Missouri,Naperville, IL, from an unaffiliated
third party for a purchase price of approximately $8.0$19.6 million, which included
the assumption of approximately $5.5$11.6 million of mortgage indebtedness.
On April 28,July 21, 1999, the Company filed a Form S-8 with the SEC to register
an additional 4.5 million common shares for eventual grant and issuance under
EQR's Fifth Amended and Restated 1993 Share Option and Share Award Plan.
On July 23, 1999, the Company filed a Form S-4 with the SEC
representing the joint prospectus/information statement for the merger of EQR
and Lexford.
On July 26, 1999, the Company disposed of Tivoli Lakes Club Apartments,
a 278-unit multifamily property located in Deerfield Beach, FL, to an
unaffiliated third party for a total sales price of $17 million.
On July 29, 1999, the Company acquired Westbrooke Village I & IILongfellow Place Apartments, a
252-unit710-unit multifamily property along with one ten story office building and two
parking garages all located in Manchester, MissouriBoston, MA, from an unaffiliated third party for
a purchase price of approximately $12.6$237 million, which included the assumptionissuance of
OP Units having an approximate value of $13.9 million, the issuance of
Preference Units having an approximate value of $0.2 million and was partially
financed by the issuance of new mortgage indebtedness of approximately $8.5 million of mortgage
indebtedness.
On April 29, 1999, the Company acquired Brookside Apartments, a
228-unit multifamily property located in Frederick, Maryland, from an affiliated
party for a purchase price of approximately $10.8$126.5
million, which included the
assumption of approximately $8.3 million of mortgage indebtedness.is being collateralized by eleven previously unencumbered assets
(not including Longfellow Place).
On April 30, 1999, the Company acquired Skyview Apartments, a 260-unit
multifamily property located in Rancho Santa Margarita, California, from an
unaffiliated third party for a purchase price of approximately $21.8 million. In
addition, the Company funded a $1.0 million advance of the earnout payment to
the developer of Skyview.
In April 1999, the Company sold 1,936 Common Shares pursuant to the
Share Purchase - DRIP Plan and raised net proceeds of $88,168.
On May 6,July 29, 1999, the Company disposed of Sandstone at Bear CreekThe Seasons Apartments, a
40-unit120-unit multifamily property located in Euless, TX,Boise, ID, to an unaffiliated third
party for a total sales price of $2.1$6 million.
18On July 30, 1999, the Company acquired Greentree II Apartments, a
239-unit multifamily property located in Glen Burnie, MD, from an affiliated
party for a purchase price of approximately $10.9 million.
21
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion and analysis of the results of operations and
financial condition of the Company should be read in connection with the
Consolidated Financial Statements and Notes thereto. Due to the Company's
ability to control the Operating Partnership, the Management Partnerships, the
Financing Partnerships, and the LLCs, and Merry Land DownREIT I LP, each entity
has been consolidated with the Company for financial reporting purposes.
Capitalized terms used herein and not defined, are as defined in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
Forward-looking statements in this report are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The
words "believes", "expects" and "anticipates" and other similar expressions
which are predictions of or indicate future events and trends and which do not
relate solely to historical matters, identify forward-looking statements. Such
forward-looking statements are subject to risks and uncertainties, which could
cause actual results, performance, or achievements of the Company 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:
- alternative sources of capital to the Company are higher than
anticipated;
- occupancy levels and market rents may be adversely affected by local
economic and market conditions, which are beyond the Company's
control; and
- additional factors as discussed in Part I of the Annual Report on Form
10-K.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release any revisions to these
forward-looking statements, which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
The acquired properties are presented in the Consolidated Financial Statements
of the Company from the date of each acquisition or the closing dates of the
Mergers. During the year ended 1998, the Company acquired 207 properties
containing 55,143 units and four properties under development representing 1,378
units (the "1998 Acquired Properties"). In addition, during the quartersix months ended
March 31,June 30, 1999, the Company acquired sevensixteen properties containing 1,8643,925 units
(the "1999 Acquired Properties").
The Company also disposed of twenty properties containing 4,719 units
during 1998 (the "1998 Disposed Properties"); and seveneleven properties containing
1,7412,505 units during the quartersix months ended March 31,June 30, 1999 (the "1999 Disposed
Properties").
1922
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The Company's overall results of operations for the quarterssix months ended
March 31,June 30, 1999 and 1998 have been significantly impacted by the Company's
acquisition and disposition activity. The significant changes in rental
revenues, property and maintenance expenses, real estate taxes and insurance,
depreciation expense, property management and interest expense can all primarily
be attributed to the acquisition of the 1998 Acquired Properties and the 1999
Acquired Properties, partially offset by the disposition of the 1998 Disposed
Properties and the 1999 Disposed Properties. The impact of the 1998 Acquired
Properties, the 1999 Acquired Properties, the 1998 Disposed Properties and the
1999 AcquiredDisposed Properties is discussed in greater detail in the following
paragraphs.
Properties that the Company owned for all of the quarterboth six month periods
ended March
31,June 30, 1999 and March 31,June 30, 1998 (the "First Quarter"Six-Month 1999 Same Store
Properties"), which represented 127,514126,790 units, impacted the Company's results of
operations. Properties that the Company owned for all of both the quarters ended
June 30, 1999 and June 30, 1998 (the "Second-Quarter 1999 Same Store
Properties"), which represented 130,182 units, also impacted the Company's
results of operationsoperations. Both the Six-Month 1999 Same Store Properties and
Second-Quarter 1999 Same Store Properties are discussed as well in the following
paragraphs.
COMPARISON OF QUARTERSIX MONTHS ENDED MARCH 31,JUNE 30, 1999 TO QUARTERSIX MONTHS ENDED MARCH 31,JUNE 30, 1998
For the quartersix months ended March 31,June 30, 1999, income before gain on
disposition of properties, net, extraordinary item and allocation to Minority
Interests increased by approximately
$19.9$36.8 million when compared to the quartersix months ended March 31,June
30, 1998. This increase was primarily due to the acquisition of the 1998
Acquired Properties and the 1999 Acquired Properties as well as increases in
rental revenues net of increases in property and maintenance expenses, real
estate taxes and insurance, property management expenses, depreciation expense,
interest expense and general and administrative expenses.
In regard to the First QuarterSix-Month 1999 Same Store Properties, rentaltotal revenues
increased by approximately $10.9$20.1 million to $544.6 million or 4.2%3.83% primarily as
a result of higher rental rates charged to new tenants and tenant renewals a 0.26%
increase in average economic occupancy levels and
a 0.65%an increase in income from billing tenants for their share of utility costs.costs as
well as other ancillary services provided to tenants. Overall, property
operating expenses, which include property and maintenance, real estate taxes
and insurance and an allocation of property management expenses, increased
approximately $1.3$2.7 million or 1.3%1.36%. This increase was primarily the result of
higher on-site compensation costs and an increase in real estate taxes on
certain properties, higher on-site compensation
costs,but was partially offset by lower expenses for leasing and
advertising, costsadministrative, maintenance and utility charges.start-up costs.
Property management represents expenses associated with the
self-management of the Company's Properties. These expenses increased by
approximately $2.6$3 million primarily due to the continued expansion of the
Company's property management business.
Fee and asset management revenues and fee and asset management expenses
are associated
23
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
with the management of properties not owned by the Company that are managed
for affiliates. These revenues and expenses decreased due to the Company
acquiring certain of these properties that were formerly only fee-managed.
Interest expense, including amortization of deferred financing costs,
increased by approximately $53.2 million. This increase was primarily the result
of an increase in the Company's average indebtedness outstanding which increased
by $1.6 billion. However, the Company's effective interest costs decreased from
7.23% for the six months ended June 30, 1998 to 7.02% for the six months ended
June 30, 1999.
General and administrative expenses, which include corporate operating
expenses, increased approximately $0.9 million between the periods under
comparison. This increase was primarily due to the addition of corporate
personnel. However, by gaining certain economies of scale with a much larger
operation these expenses as a percentage of total revenues were 1.30% for the
six months ended June 30, 1999 compared to 1.68% of total revenues for the six
months ended June 30, 1998.
COMPARISON OF QUARTER ENDED JUNE 30, 1999 TO QUARTER ENDED JUNE 30, 1998
For the quarter ended June 30, 1999, income before gain on disposition
of properties, net, extraordinary item and allocation to Minority Interests
increased by approximately $17 million when compared to the quarter ended June
30, 1998. This increase was primarily due to the acquisition of the 1998
Acquired Properties and the 1999 Acquired Properties as well as increases in
rental revenues net of increases in property and maintenance expenses, real
estate taxes and insurance, property management expenses, depreciation expense,
and interest expense.
In regard to the Second Quarter 1999 Same Store Properties, total
revenues increased by approximately $9.7 million or 3.57% primarily as a result
of higher rental rates charged to new tenants and tenant renewals and an
increase in income from billing tenants for their share of utility costs as well
as other ancillary services provided to tenants. Overall, property operating
expenses, which include property and maintenance, real estate taxes and
insurance and an allocation of property management expenses, increased
approximately $0.4 million or 0.38%. This increase was primarily the result of
higher on-site compensation costs and an increase in real estate taxes on
certain properties, but was partially offset by lower expenses for leasing and
advertising, administrative and maintenance.
Property management represents expenses associated with the
self-management of the Company's Properties. These expenses increased by
approximately $0.3 million primarily due to the continued expansion of the
Company's property management business.
Fee and asset management revenues and fee and asset management expenses
are associated with the management of properties not owned by the Company that
are managed for affiliates. These revenues and expenses decreased due to the
Company acquiring certain of these properties
that were formerly only
fee-managed.
Interest expense, including amortization of deferred financing costs,
increased by approximately $29.2 million. This increase was primarily the result
of an increase in the Company's average indebtedness outstanding which increased
by $1.8 billion. However, the
2024
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
that were formerly only fee-managed.
Interest expense, including amortization of deferred financing costs,
increased by approximately $24.1 million. This increase was primarily the result
of an increase in the Company's average indebtedness outstanding which increased
by $1.5 billion. However, the Company's effective interest costs decreased from
7.27%7.20% for the quarter ended March 31,June 30, 1998 to 7.09%6.95% for the quarter ended March 31,June
30, 1999.
General and administrative expenses, which include corporate operating
expenses, increaseddecreased approximately $1.0$0.2 million between the periods under
comparison. This increase was primarily due to the addition of corporate
personnel in the Company's Human Resources, Accounting, Legal and Information
Systems groups as well as higher compensation costs, shareholder reporting costs
and professional fees. However, by gaining certain economies of scale with a
much larger operation, theseThese expenses as a percentage of total revenues were 1.41%1.20% for the
quarter ended March 31,June 30, 1999 compared to 1.70%1.69% of total revenues for the quarter
ended March 31,June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of January 1, 1999, the Company had approximately $4 million of cash
and cash equivalents and $330 million available on its linelines of credit, of which
$12 million was restricted. After taking into effect the various transactions
discussed in the following paragraphs, the Company's cash and cash equivalents
balance at March 31,June 30, 1999 was approximately $10.7$95.5 million and the amount
available on the Company's linelines of credit was $455$535 million, of which $12
million was restricted. The following discussion also explains the changes in
net cash provided by operating activities, net cash (used for)used by investing activities
and net cash provided by (used for)by) financing activities, all of which are
presented in the Company's Statements of Cash Flows.
With respectPart of the Company's strategy in funding the purchase of multifamily
properties, funding its Properties in the development stage and the funding of
the Company's investment in two joint ventures with multifamily real estate
developers is to Property acquisitions duringutilize its lines of credit and to subsequently repay the quarter, the Company
purchased seven Properties containing 1,864 units for a total purchase pricelines
of approximately $124.5 million, including the assumption of and/or new mortgage
indebtedness of approximately $16.9 million andcredit from the issuance of OP Units with a
value of $8.9 million. These acquisitions were primarily funded from proceeds
received fromadditional equity or debt securities or the
disposition of certainProperties. Utilizing this strategy during the first six months
of 1999, the Company:
- - issued the June 2004 Notes and received net proceeds of $298 million;
- - refinanced four Properties and received additional net proceeds of $18
million;
- - disposed of eleven properties and working capital.
Subsequentreceived net proceeds of $125.2 million;
and
- - issued approximately 0.8 million Common Shares and received net
proceeds of $29.6 million.
All of these proceeds were utilized to March 31, 1999 and through May 12, 1999,either:
- - purchase additional properties;
- - provide funding for properties in the Company
acquired four additional properties containing 890 units for a total purchase
price of approximately $53.2 million and the assumption of mortgage indebtedness
of approximately $22.3 million. These acquisitions were primarily funded with
proceeds from the disposition of certain properties,development stage; and/or
- - repay the lines of credit and working capital.
During the quarter ended March 31, 1999, the Company disposed of seven
properties that generated net proceeds of $76 million. These proceeds were or
will be ultimately applied to purchase additional properties.
Subsequent to March 31, 1999 and through May 12, 1999, the Company
disposed of one property for a total sales price of $2.1 million. These proceeds
will be utilized to purchase additional properties. The Company anticipates that
it will continue to sellmortgage indebtedness on certain
properties in
21Properties.
25
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
With respect to the 1999 Acquired Properties, the Company assumed
and/or entered into new mortgage indebtedness of approximately $58.3 million,
issued OP Units with a value of $11.3 million and issued Junior Convertible
Preference Units with a value of $2.9 million. The total purchase price of the
1999 Acquired Properties was approximately $259.3 million.
Subsequent to June 30, 1999 and through August 9, 1999, the Company
acquired three additional properties containing 1,201 units for a total
purchase price of approximately $267.5 million, which included the assumption
of and/or issuance of new mortgage indebtedness of approximately $138.1 million,
the issuance of OP Units having an approximate value of $13.9 million and the
issuance of Junior Convertible Preference Units having an approximate value
of $0.2 million.
Subsequent to June 30, 1999 and through August 9, 1999, the Company
disposed of three properties for a total sales price of $35 million. These
proceeds will be utilized to purchase additional properties. The Company
anticipates that it will continue to sell certain Properties in the portfolio.
In regardsregard to the joint venture agreementagreements with atwo multifamily
residential real estate developerdevelopers during the quartersix months ended March 31,June 30, 1999,
the Company funded a total of $15.9$44.3 million and during the remainder of 1999 the
Company expects to fund approximately $48.2$24.1 million in connection with this
agreement.these
agreements. Also in connection with these two agreements, the Company has an
obligation to fund up to an additional $55 million to guarantee third party
construction financing.
In regardsregard to certain other properties that were under development
and/or expansion during the quartersix months ended March 31,June 30, 1999, the Company funded
$5.1$7.9 million. During the remainder of 1999, the Company expects to fund $52.9$43.1
million related to the continued development and/or expansion of as many as five
Properties.
In regards to certain properties that arewere under earnout/development
agreements, during the quartersix months ended March 31, 1999, $16.2 million was funded
relating to the completion/acquisition of Copper Canyon. In addition, the
Company may be required to fund an additional $1 million earnout payment to the
developer of Copper Canyon if certain specified operation levels are met. During
the remainder ofJune 30, 1999, the Company expects to fund approximately $43.7 million
related to other earnout/development projects. Subsequent to March 31, 1999,funded the
Company has funded $22.7following:
- - $16.2 million relating to the completion/acquisition of Copper Canyon Apartments,
- - $22.8 million relating to the acquisition of Skyview Apartments, which
included a $1.0 million advance of the earnout payment to the
developer of Skyview.
AsSkyview; and
- - $18.3 million relating to the acquisition of March 31,Rosecliff Apartments.
Subsequent to June 30, 1999, the Company had total indebtednessfunded an additional $1
million earnout payment to the developer of Copper Canyon as certain
specified operation levels were achieved. During the remainder of 1999, the
Company expects to fund approximately $4.6 billion, which included mortgage indebtedness of $2.4 billion
(including premiums of $4.2 million), of which $930.4$3.1 million represented
tax-exempt bond indebtedness, and unsecured debt of $2.0 billion, including net
discounts and premiums in the amount of $3.6 million.related to other
earnout/development projects.
26
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
In May 1999, the Company expects to repayrepaid its 1999 Notes that maturematured on May 15,
1999. The $125 million repayment will be initiallywas funded from borrowings under the Company's
lines of credit. In addition, on June 1,during the first six months of 1999, the Company
anticipates repaying the principal balancerepaid $9.3 million of mortgage indebtedness on onetwo of its Properties. These
repayments were funded from the Company's lines of credit and/or from
disposition proceeds.
As of June 30, 1999, the Company had total indebtedness of
approximately $4.7 billion, which included mortgage notesindebtedness of $2.3 billion
(including premiums of $3.9 million), of which $840.7 million represented
tax-exempt bond indebtedness, and unsecured debt of $2.3 billion (including net
discounts and premiums in the amount of $8.0 million. This repayment will also be primarily
funded from additional borrowings under the lines$3.1 million), of credit.which $111.4 million
represented tax-exempt bond indebtedness.
The Company has a policy of capitalizing expenditures made for new
assets, including newly acquired properties and the costs associated with
placing these assets into service. Expenditures for improvements and renovations
that significantly enhance the value of existing assets or substantially extend
the useful life of an asset are also capitalized. Capital spent for
replacement-type items such as appliances, draperies, carpeting and floor
coverings, mechanical equipment and certain furniture and fixtures is also
capitalized. Expenditures for ordinary maintenance and repairs are expensed to
operations as incurred. With respect to acquired properties, the Company has
determined that it generally spends $1,000 per unit during its first 22
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
three years
of ownership to fully improve and enhance these properties to meet the Company's
standards. In regard to replacement-type items described above, the Company
generally expects to spend $250 per unit on an annual recurring basis.
During the quartersix months ended March 31,June 30, 1999, total capital expenditures
for the Company approximated $27.4$59.4 million. Of this amount, approximately $8.8$21.1
million, or $73$175 per unit, related to capital improvements and major repairs for
the 1997, 1998 and 1999 Acquired Properties. Capital improvements and major
repairs for all of the Company's pre-EQR IPO properties and 1993, 1994, 1995 and
1996 Acquired Properties approximated $5.9$12.7 million, or $92$198 per unit. Capital
spent for replacement-type items approximated $10.2$22 million, or $55$119 per unit.
Also included in total capital expenditures was approximately $2.5$3.6 million
expended for non-real estate additions such as computer software, computer
equipment, and furniture and fixtures and leasehold improvements for the
Company's property management offices and its corporate headquarters. Such
capital expenditures were primarily funded from working capital reserves and
from net cash provided by operating activities. Total capital expenditures for
the remaining portion of 1999 are budgeted to be approximately $90$60 million.
Minority Interests as of March 31,June 30, 1999 increaseddecreased by $2.9$12.1 million when
compared to December 31, 1998. The primary factors that impacted this account
during the threesix month period were distributions declared to Minority Interests,
which amounted to $9.3$18.3 million for the threesix month period, the allocation of
income from operations in the amount of $7.1$14.5 million and the conversion of OP
Units into Common Shares and the issuancesissuance of Common Shares and OP Units during
the quarter.six months ended June 30, 1999.
27
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Total distributions paid in AprilJuly 1999 amounted to approximately
$115.2$117 million, which included distributions declared for the quarter ended
March 31,June 30, 1999.
In April 1999, the Company sold 1,936 Common Shares pursuant to the
Share Purchase - DRIP Plan and received net proceeds of $88,168 therefrom.
The Company expects to meet its short-term liquidity requirements,
including capital expenditures related to maintaining its existing Properties
and certain scheduled unsecured note and mortgage note repayments, generally
through its working capital, net cash provided by operating activities and
borrowings under its lines of credit. The Company considers its cash provided by
operating activities to be adequate to meet operating requirements and payments
of distributions. The Company also expects to meet its long-term liquidity
requirements, such as scheduled unsecured note and mortgage debt maturities,
reduction of outstanding amounts under its linelines of credit, property
acquisitions, financing of construction and development activities and capital
improvements through the issuance of unsecured notes and equity securities
including additional OP Units as well as from undistributed FFO and proceeds
received from the disposition of certain Properties. In addition, the Company
has certain uncollateralized Properties available for additional mortgage
borrowings in the event that the public capital markets are unavailable to the
Company or the cost of alternative sources of capital to the Company is too
high.
23
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The Company has a revolving credit facility with Morgan Guaranty and
Bank of America as co-agents to provide the Operating Partnership, with
potential borrowings of up to $500 million. This credit facility matures in
November 1999 and will continue to be used to fund property acquisitions, costs
for certain Properties under development and short term liquidity requirements.
As of May 11,August 9, 1999, $175$90 million was outstanding under this facility.
In connection with the MRY Merger, the Company assumed a second
revolving credit facility with First Union Bank as agent with potential
borrowings of up to $120 million. This credit facility matures in September 2000
and will also be used to fund property acquisitions, costs for certain
Properties under development and short term liquidity requirements. As of May
11,August
9, 1999, $27 million wasno amounts were outstanding under this facility.
The Company anticipates closing on a new revolving credit facility in
mid-August 1999 for potential borrowings of up to $700 million. The existing
revolving credit facilities will be repaid in full and terminated upon the
closing of the new facility.
In connection with the Wellsford Merger, the Company provided a $14.8
million credit enhancement with respect to bonds issued to finance certain
public improvements at a multifamily development project. Pursuant to the terms
of a Stock Purchase Agreement with Wellsford Real Properties, Inc. ("WRP
Newco"), the Company has agreed to purchase up to 1,000,000 shares of WRP Newco
Series A Preferred at $25.00 per share on a standby basis over a three-year
period ending on May 30, 2000. As of May 12,August 9, 1999, no shares of WRP Newco
Series A Preferred had been acquired by the Company.
In conjunction with the MRY Merger in October 1998, the Company entered
into six
28
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
joint venture agreements with MRYP Spinco, the entity spun-off in the
MRY Merger. The Company contributed six properties with an initial value of
$52.7 million in return for a 50% ownership interest in each joint venture. In
return for the spin-off of certain assets and liabilities to MRYP Spinco, the
Company received (from MRYP Spinco) a Subordinated Note receivable totaling $20
million, a preferred stock investment with an initial value of $5 million and a
$25 million, one year, non-revolving Senior Note receivable. At March 31,receivable with an initial
value of $18.3 million. On June 24, 1999, approximately $18.3 million was outstanding onthe Subordinated Note receivable, the
preferred stock investment and the Senior Note bearing interest
at LIBOR plus 250 basis points. The Company hasreceivable were all repaid by
MRYP Spinco for a potentialtotal amount of $41 million, which represented a discount of
$2.3 million on the combined outstanding balance of these instruments and there
is no further obligation to fund
up to an additional $6.7 million under the Senior Note.by either party in connection therewith.
YEAR 2000 ISSUE
The year 2000 issue ("Year 2000") is the result of computer programs
being written using two digits rather than four to define the applicable year.
Any of the Company's computer programs that have time-sensitive hardware and
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, collect rents, or engage in similar normal business
activities.
The Company believes that it has identified all of its information
technology ("IT") and non-IT systems to assess their Year 2000 readiness.
Critical systems include, but are not limited to: accounts receivable and rent
collections, accounts payable and general ledger, human 24
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
resources and payroll
(both property and corporate levels), cash management, fixed assets, all IT
hardware (such as desktop/laptop computers, data networking equipment, telephone
systems, fax machines, copy machines, etc.) and software, and property
environmental, health safety and security systems (such as elevators and alarm
systems).
The Company anticipates that previously scheduled system upgrades to
many of its IT systems will remediate any existing Year 2000 problems. The
Company is currently in the process of testing and implementing the majority of
its Year 2000 IT and non-IT system projects with completion anticipated during
the second or third quarter of 1999. The Company has estimated that the total Year 2000
project cost will approximate $1 million, of which approximately 80%90% has been
incurred as of March 31,June 30, 1999. During the first quartersix months of 1999, the primary
focus of the Year 2000 remediation efforts has been on implementing and testing
the previously scheduled upgrades and Year 2000 compliant versions of existing
IT systems as well as continuing the assessment of the Company's exposure
regarding non-IT systems at property sites. Of the remaining $200,000$100,000 budgeted
to complete the Company's Year 2000 remediation project, approximately $50,000
has been allocated to engage Year 2000 consultants to help the Company monitor
its IT compliance progress and to complete final IT testing and implementation.
The remaining $150,000$50,000 has been allocated to remediate non-IT systems at various
property sites. The estimates are based on management's best estimates, which
were derived utilizing numerous assumptions of future events, and there can be
no guarantees that these estimates will be
29
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
achieved.
In some cases, various third party vendors have been queried on their
Year 2000 readiness. The Company continues to query its significant suppliers
and vendors to determine the extent to which the Company's interface systems are
vulnerable to those third parties' failure to remediate their own Year 2000
issues. To date, the Company is not aware of any significant suppliers or
vendors with a Year 2000 issue that would materially impact the Company's
results of operations, liquidity, or capital resources. However, there can be no
assurances that the systems of other companies, on which the Company's systems
rely, will be timely converted and would not have an adverse effect on the
Company's systems.
Management of the Company believes it has an effective program in place
to resolve the Year 2000 issue in a timely manner. In addition, the Company is
developing its contingency plans for critical operational areas that might be
affected by the Year 2000 issue if compliance by the Company is delayed. Aside
from catastrophic failure of utility companies, banks or governmental agencies,
the Company believes that it could continue its normal business operations if
compliance by the Company is delayed. The Company does not believe that the Year
2000 issue will materially impact its results of operations, liquidity or
capital resources.
FUNDS FROM OPERATIONS
The Company generally considers Funds From Operations ("FFO") to be one
measure of the performance of real estate companies including an equity REIT.companies. The resolution adopted by
25
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
the Board of Governors of NAREIT defines FFO as net income (loss) (computed in
accordance with GAAP), excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation on real estate assets, and after
adjustments for unconsolidated partnerships and joint ventures. Adjustments for
unconsolidated partnerships and joint ventures are calculated to reflect FFO on
the same basis. The Company believes that FFO is helpful to investors as a
measure of the performance of an equity REITa 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 Company 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 Company'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 Company's calculation of FFO
represents net income available to Common Shares, excluding gains on
dispositions of properties gainsand gains/losses on early extinguishment of debt, and write-off
of unamortized costs on refinanced debt,
plus depreciation on real estate assets, income allocated to Minority Interests
and amortization of deferred financing costs related to the Predecessor
Business. The Company's calculation of FFO may differ from the methodology for
calculating FFO utilized by other REIT'sreal estate companies and, accordingly, may
not be comparable to such other REIT's.real estate companies.
For the six months ended June 30, 1999, FFO increased by $87.9 million
representing a
30
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
42.2% increase when compared to the six months ended June 30, 1998. For the
quarter ended March 31,June 30, 1999, FFO increased by $44.4$43.5 million representing a
44%40.5% increase when compared to the quarter ended March 31,June 30, 1998.
The following is a reconciliation of net income available to Common
Shares to FFO available to Common Shares and OP Units for the six months and
quarters ended March 31,June 30, 1999 and 1998:
----------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------
Six Months Six Months Quarter Quarter
Ended 3/31/Ended Ended Ended
6/30/99 Ended 3/31/6/30/98 ----------------------------------------------------------------------------------6/30/99 6/30/98
- ----------------------------------------------------------------------------------------------------------------------
Net income available to Common Shares $ 64,177133,105 $ 35,89581,938 $ 68,928 $ 46,043
Adjustments:
Income allocated to Minority Interests 7,126 3,68814,514 8,310 7,388 4,622
Depreciation on real estate assets* 95,472 63,225194,262 129,387 98,790 66,162
Amortization of deferred financing
costs related to predecessor business -- 12- 35 - 23
Loss on early extinguishment of debt 451 - 451 -
Gain on disposition of properties, (21,416) (1,869)
----------- ----------net (45,807) (11,092) (24,391) (9,223)
- ----------------------------------------------------------------------------------------------------------------------
FFO available to Common Shares and
OP Units $ 145,359296,525 $ 100,951
----------- ----------
----------------------------------------------------------------------------------208,578 $ 151,166 $ 107,627
- ----------------------------------------------------------------------------------------------------------------------
* Includes $275,603$551 and $276 related to the Company's share of depreciation from
unconsolidated joint ventures for the six months and quarter ended MarchJune 30,
1999, respectively.
31 1999.
26
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no new or significant developments related to the legal
proceedings that were discussed in Part I, Item III of the Company's Form 10-K
for the year ended December 31, 1998.
ITEM 5. OTHER INFORMATION
Any proposal which a stockholder intends to present at the annual
meeting of stockholders in 2000 must be received by the Company by December 1,
1999 in order to be eligible for inclusion in the proxy statement and proxy form
relating to such meeting. In addition, if any business should properly come
before such annual meeting other than that which is stated in such proxy
statement, then, if the Company does not receive timely notice of the matter,
the persons designated in such proxy form will vote or refrain from voting in
respect thereof in accordance with the judgment of the persons voting such
proxies. To be timely, a shareholder's notice shall be delivered to the
secretary of the Company at the Company's principal executive offices no later
than January 1, 2000 and no earlier than December 1, 1999. Such notice also must
otherwise comply with the provisions of the Company's bylaws.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
3.2 Third Amended and Restated bylaws of Equity Residential Properties
Trust.
12 Computation of Ratio of Earnings to Fixed Charges.
(B) Reports on Form 8-K:
A Report on Form 8-K dated February 24, 1999, reporting the risk factors
relating to the ownership of the Company's Common Shares and Preferred Shares
and the Operating Partnership's OP Units.
27None.
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EQUITY RESIDENTIAL PROPERTIES TRUST
Date: MayAugust 12, 1999 By: /s/ Bruce C. Strohm
--------------------------- ------------------------------------------
Bruce C. Strohm
Executive Vice President, General Counsel
and Secretary
Date: MayAugust 12, 1999 By: /s/ Michael J. McHugh
------------ --------------------------------------------------------- -------------------------------------------
Michael J. McHugh
Executive Vice President, Chief Accounting
Officer and Treasurer
2833