<Page>
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2001
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 August 1, 2001, 134,631,445 of the Registrant's Common Shares of Beneficial
Interest were outstanding.
<Page>
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT FOR SHARE AMOUNTS)
(UNAUDITED)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2001 2000
--------------- ---------------
ASSETS
Investment in real estate
Land $ 1,772,184 $ 1,770,019
Depreciable property 10,732,614 10,782,311
Construction in progress 60,971 39,130
--------------- ---------------
12,565,769 12,591,460
Accumulated depreciation (1,535,333) (1,352,236)
--------------- ---------------
Investment in real estate, net of accumulated depreciation 11,030,436 11,239,224
Real estate held for disposition 38,741 51,637
Cash and cash equivalents 26,614 23,772
Investment in mortgage notes, net 73,765 77,184
Investments in unconsolidated entities 328,231 316,540
Rents receivable 2,497 1,801
Deposits - restricted 235,619 231,639
Escrow deposits - mortgage 72,287 70,470
Deferred financing costs, net 29,177 29,706
Rental furniture, net 54,366 60,183
Property and equipment, net 7,989 7,620
Goodwill, net 75,288 67,589
Other assets 102,726 86,601
--------------- ---------------
Total assets $ 12,077,736 $ 12,263,966
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 3,040,281 $ 3,230,611
Notes, net 2,417,307 2,120,079
Lines of credit 133,000 355,462
Accounts payable and accrued expenses 108,415 107,818
Accrued interest payable 63,503 51,877
Rents received in advance and other liabilities 68,896 100,819
Security deposits 46,775 46,272
Distributions payable 136,511 18,863
--------------- ---------------
Total liabilities 6,014,688 6,031,801
--------------- ---------------
COMMITMENTS AND CONTINGENCIES
Minority Interests:
Operating Partnership 638,107 609,734
Partially Owned Properties 2,457 2,884
--------------- ---------------
Total Minority Interests 640,564 612,618
--------------- ---------------
Shareholders' equity:
Preferred Shares of beneficial interest, $.01 par value;
100,000,000 shares authorized; 11,457,518 shares issued and
outstanding as of June 30, 2001 and 20,003,166 shares
issued and outstanding as of December 31, 2000 969,495 1,183,136
Common Shares of beneficial interest, $.01 par value;
350,000,000 shares authorized; 134,393,787 shares issued and
outstanding as of June 30, 2001 and 132,616,375 shares
issued and outstanding as of December 31, 2000 1,344 1,326
Paid in capital 4,802,073 4,739,782
Employee notes (4,201) (4,346)
Distributions in excess of accumulated earnings (337,723) (300,351)
Accumulated other comprehensive income (8,504) -
--------------- ---------------
Total shareholders' equity 5,422,484 5,619,547
--------------- ---------------
Total liabilities and shareholders' equity $ 12,077,736 $ 12,263,966
=============== ===============
</Table>
See accompanying notes
2
<Page>
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30, QUARTER ENDED JUNE 30,
-------------------------- --------------------------------
2001 2000 2001 2000
-------------------------- --------------------------------
REVENUES
Rental income $ 1,027,671 $ 952,740 $ 515,860 $ 479,193
Fee and asset management 4,140 2,835 2,168 1,435
Interest income - investment in mortgage notes 8,763 5,499 6,019 2,737
Interest and other income 11,711 8,385 5,209 4,907
Furniture income 30,027 -- 15,155 --
----------- ----------- ----------- -----------
Total revenues 1,082,312 969,459 544,411 488,272
----------- ----------- ----------- -----------
EXPENSES
Property and maintenance 280,783 227,845 143,746 113,977
Real estate taxes and insurance 96,775 95,001 48,754 46,667
Property management 36,364 37,760 17,686 18,846
Fee and asset management 3,648 2,102 1,764 1,036
Depreciation 225,878 224,512 113,350 112,626
Interest:
Expense incurred 190,383 190,263 95,107 95,152
Amortization of deferred financing costs 2,810 2,703 1,413 1,362
General and administrative 14,079 13,216 7,325 6,518
Furniture expenses 30,496 -- 15,668 --
Amortization of goodwill 1,924 -- 991 --
----------- ----------- ----------- -----------
Total expenses 883,140 793,402 445,804 396,184
----------- ----------- ----------- -----------
Income before allocation to Minority Interests, income from
investments in unconsolidated entities, net gain on sales of
real estate, extraordinary items and cumulative effect of
change in accounting principle 199,172 176,057 98,607 92,088
Allocation to Minority Interests:
Operating Partnership (16,474) (19,132) (6,678) (12,036)
Partially Owned Properties (238) 157 (133) 112
Income from investments in unconsolidated entities 10,350 9,064 6,553 4,841
Net gain on sales of real estate 46,565 87,652 4,787 67,654
----------- ----------- ----------- -----------
Income before extraordinary items and cumulative effect of
change in accounting principle 239,375 253,798 103,136 152,659
Extraordinary items 106 -- (205) --
Cumulative effect of change in accounting principle (1,270) -- -- --
----------- ----------- ----------- -----------
Net income 238,211 253,798 102,931 152,659
Preferred distributions (57,419) (55,654) (28,893) (27,266)
----------- ----------- ----------- -----------
Net income available to Common Shares $ 180,792 $ 198,144 $ 74,038 $ 125,393
=========== =========== =========== ===========
Net income per share - basic $ 1.36 $ 1.54 $ 0.56 $ 0.97
=========== =========== =========== ===========
Net income per share - diluted $ 1.34 $ 1.54 $ 0.55 $ 0.96
=========== =========== =========== ===========
Weighted average Common Shares outstanding - basic 132,890 128,435 133,179 129,072
=========== =========== =========== ===========
Weighted average Common Shares outstanding - diluted 146,909 141,633 146,970 146,510
=========== =========== =========== ===========
Distributions declared per Common Share outstanding $ 1.63 $ 1.52 $ 0.815 $ 0.76
=========== =========== =========== ===========
</Table>
See accompanying notes
3
<Page>
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30,
-------------------------
2001 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 238,211 $ 253,798
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
ALLOCATION TO MINORITY INTERESTS:
Operating Partnership 16,474 19,132
Partially Owned Properties 238 (157)
Cumulative effect of change in accounting principle 1,270 --
Depreciation 230,805 224,512
Amortization of deferred financing costs 2,810 2,703
Amortization of discount on investment in mortgage notes (2,256) --
Amortization of goodwill 1,924 --
Amortization of discounts and premiums on debt (1,007) (1,153)
Amortization of deferred settlements on interest rate protection agreements 317 246
Income from investments in unconsolidated entities (10,350) (9,064)
Net gain on sales of real estate (46,565) (87,652)
Extraordinary items (106) --
Unrealized gain on interest rate protection agreements (132) --
Book value of furniture sales and rental buy outs 5,497 --
Compensation paid with Company Common Shares 6,741 2,845
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in rents receivable (705) 535
(Increase) in deposits - restricted (12,574) (3,510)
Additions to rental furniture (14,532) --
(Increase) in other assets (15,585) (1,808)
Increase in accounts payable and accrued expenses 597 16,769
Increase in accrued interest payable 11,626 818
(Decrease) in rents received in advance and other liabilities (4) (5,378)
Increase (decrease) in security deposits 522 (803)
--------- ---------
Net cash provided by operating activities 413,216 411,833
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate (218,531) (143,680)
Improvements to real estate (63,269) (58,360)
Additions to non-real estate property (3,520) (2,399)
Interest capitalized for real estate under construction (1,408) (480)
Proceeds from disposition of real estate, net 345,039 219,409
Investment in property and equipment (1,626) --
Principal receipts on investment in mortgage notes 5,675 3,200
Investments in unconsolidated entities (43,167) (87,105)
Distributions from unconsolidated entities 16,711 9,845
Proceeds from refinancing of unconsolidated entities 4,450 1,000
Proceeds from disposition of unconsolidated entities 359 4,400
Decrease (increase) in deposits on real estate acquisitions, net 8,594 (35,854)
(Increase) decrease in mortgage deposits (2,344) 2,461
Purchase of management contract rights -- (779)
Business combinations, net of cash acquired (7,603) (4,261)
Other investing activities, net (15) (11,827)
--------- ---------
Net cash provided by (used for) investing activities 39,345 (104,430)
--------- ---------
</Table>
See accompanying notes
4
<Page>
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30,
----------------------
2001 2000
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan and bond acquisition costs $ (3,948) $ (2,005)
MORTGAGE NOTES PAYABLE:
Proceeds, net 45,118 378,318
Lump sum payoffs (237,040) (104,484)
Scheduled principal repayments (16,367) (14,126)
Prepayment premiums (202) --
NOTES, NET:
Proceeds, net 299,316 --
Scheduled principal repayments (147) --
LINES OF CREDIT:
Proceeds 316,491 162,000
Repayments (538,953) (462,000)
(Payments) proceeds from settlement of interest rate protection agreements (7,360) 7,055
Proceeds from sale of Common Shares 5,383 4,575
Proceeds from sale of Preferred Shares/Units 48,500 87,000
Proceeds from exercise of options 29,468 9,473
Redemption of Preferred Shares (210,500) --
Payment of offering costs (1,317) (2,240)
DISTRIBUTIONS:
Common Shares (109,189) (97,486)
Preferred Shares/Units (58,503) (55,444)
Minority Interests - Operating Partnership (9,949) (9,592)
Minority Interests - Partially Owned Properties (665) (617)
Principal receipts on employee notes, net 145 119
--------- ---------
Net cash (used for) financing activities (449,719) (99,454)
--------- ---------
Net increase in cash and cash equivalents 2,842 207,949
Cash and cash equivalents, beginning of period 23,772 29,117
--------- ---------
Cash and cash equivalents, end of period $ 26,614 $ 237,066
========= =========
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $ 187,195 $ 190,854
========= =========
Mortgage loans assumed through real estate acquisitions $ 45,918 $ --
========= =========
Net real estate contributed in exchange for OP Units or
preference units $ -- $ 636
========= =========
Mortgage loans (assumed) by purchaser in real estate dispositions $ (27,358) $(220,000)
========= =========
Transfers to real estate held for disposition $ 38,741 $ 55,997
========= =========
Mortgage loans recorded as a result of consolidation of previously
Unconsolidated Properties $ -- $ 65,095
========= =========
Net liabilities recorded as a result of consolidation of previously
Unconsolidated Properties $ -- $ 792
========= =========
</Table>
See accompanying notes
5
<Page>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BUSINESS
Equity Residential Properties Trust, formed in March 1993 ("EQR"), is a
self-administered and self-managed equity real estate investment trust ("REIT").
As used herein, the term "Company" means EQR, and its subsidiaries, as the
survivor of the mergers between EQR and each of Wellsford Residential Property
Trust, Evans Withycombe Residential, Inc., Merry Land & Investment Company, Inc.
and Lexford Residential Trust (collectively, the "Mergers"). The Company also
includes the businesses formerly operated by Globe Business Resources, Inc.
("Globe"), Temporary Quarters, Inc. ("TQ") and Grove Property Trust ("Grove").
The Company has elected to be taxed as a REIT under Section 856(c) of the
Internal Revenue Code 1986, as amended (the "Code").
The Company is engaged in the acquisition, disposition, ownership,
management and operation of multifamily properties. As of June 30, 2001, the
Company owned or had interests in a portfolio of 1,086 multifamily properties
containing 226,150 apartment units (individually a "Property" and collectively
the "Properties") consisting of the following:
<Table>
<Caption>
Number of Number of
Properties Units
---------------- -----------------
Wholly Owned Properties 968 202,501
Partially Owned Properties 15 3,067
Unconsolidated Properties 103 20,582
---------------- -----------------
Total Properties 1,086 226,150
================ =================
</Table>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals) and
certain reclassifications considered necessary for a fair presentation have been
included. Certain reclassifications have been made to the prior period financial
statements in order to conform to the current year presentation. Operating
results for the six months ended June 30, 2001 are not necessarily indicative of
the results that may be expected for the year ended December 31, 2001.
The balance sheet at December 31, 2000 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements.
For further information, including definitions for capitalized terms,
refer to the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended December 31, 2000.
6
<Page>
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In the normal course of business, the Company is exposed to the effect
of interest rate changes. The Company limits these risks by following
established risk management policies and procedures including the use of
derivatives.
The Company has a policy of only entering into contracts with major
financial institutions based upon their credit ratings and other factors. When
viewed in conjunction with the underlying and offsetting exposure that the
derivatives are designed to hedge, the Company has not sustained a material loss
from those instruments nor does it anticipate any material adverse effect on its
net income or financial position in the future from the use of derivatives.
On January 1, 2001, the Company adopted SFAS No. 133/138, which
requires an entity to recognize all derivatives as either assets or liabilities
in the statement of financial position and to measure those instruments at fair
value. Additionally, the fair value adjustments will affect either shareholders'
equity or net income depending on whether the derivative instruments qualify as
a hedge for accounting purposes and, if so, the nature of the hedging activity.
When the terms of an underlying transaction are modified, or when the underlying
transaction is terminated or completed, all changes in the fair value of the
instrument are marked-to-market with changes in value included in net income
each period until the instrument matures. Any derivative instrument used for
risk management that does not meet the hedging criteria is marked-to-market each
period.
As of January 1, 2001, the adoption of the new standard resulted in
derivative instruments reported on the balance sheet as liabilities of
approximately $6.6 million; an adjustment of approximately $5.3 million to
"Accumulated Other Comprehensive Income", which are gains and losses not
affecting retained earnings in the Consolidated Statement of Shareholders'
Equity; and a charge of approximately $1.3 million as a cumulative effect of
change in accounting principle in the Consolidated Statement of Operations.
The Company employs derivative financial instruments to hedge
qualifying anticipated transactions. Gains and losses are deferred and
recognized in net income in the same period that the underlying transaction
occurs, expires or is otherwise terminated. As of June 30, 2001, there were
approximately $8.5 million in deferred losses, net, included in accumulated
other comprehensive income.
As of June 30, 2001, the Company has entered into swaps which have been
designated as cash flow hedges with an aggregate notional amount of $927.9
million at interest rates ranging from 3.65125% to 6.74% maturing at various
dates ranging from 2001 to 2007 with a net liability fair value of $7.6 million;
and swaps which have been designated as fair value hedges with an aggregate
notional amount of $296.4 million at interest rates ranging from 4.458% to 7.25%
maturing at various dates ranging from 2003 to 2005 with a net asset fair value
of $3.9 million.
On June 30, 2001, the net derivative instruments were reported at their
fair value as other liabilities of approximately $3.7 million. Within the next
twelve months the Company expects to recognize an estimated $3.9 million of
accumulated other comprehensive income as additional interest expense.
7
<Page>
3. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS
The following table presents the changes in the Company's issued and
outstanding Common Shares for the six months ended June 30, 2001:
<Table>
<Caption>
2001
------------------------------------------------------ ----------------
Common Shares outstanding at January 1, 132,616,375
COMMON SHARES ISSUED:
--------------------
Conversion of Series E Preferred Shares 67,764
Conversion of Series H Preferred Shares 2,745
Employee Share Purchase Plan 106,441
Dividend Reinvestment - DRIP Plan 7,804
Share Purchase - DRIP Plan 6,415
Exercise of options 749,653
Restricted share grants, net 332,177
Conversion of OP Units 504,413
------------------------------------------------------ ----------------
Common Shares outstanding at June 30, 134,393,787
------------------------------------------------------ ----------------
</Table>
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 -
Operating Partnership". As of June 30, 2001, the Minority Interests - Operating
Partnership held 12,002,294 OP Units. As a result, the Minority Interests -
Operating Partnership had an 8.20% interest in the Operating Partnership at June
30, 2001. Assuming conversion of all OP Units into Common Shares, total Common
Shares outstanding at June 30, 2001 would have been 146,396,081.
Net proceeds from the Company's Common Share and Preferred 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 from Common Shares are allocated between shareholders' equity and
Minority Interests - Operating Partnership to account for the change in their
respective percentage ownership of the underlying equity of the Operating
Partnership.
During the six months ended June 30, 2001, the Company, through a
subsidiary of the Operating Partnership, issued preference units with an equity
value of $48.5 million, receiving net proceeds of $47.3 million:
O 510,000 7.875% Series G Cumulative Redeemable Preference Units (known
as "Preference Interests") with an equity value of $25.5 million. The
liquidation value of these units is $50 per unit. The 510,000 units are
exchangeable into 510,000 shares of 7.875% Series M-4 Cumulative
Redeemable Preferred Shares of Beneficial Interest of the Company.
Dividends for the Series G Preference Interests or the Series M-4
Preferred Shares are payable quarterly at the rate of $3.9375 per
unit/share per year.
O 190,000 7.625% Series H Cumulative Convertible Redeemable Preference
Units with an equity value of $9.5 million. The liquidation value of
these units is $50 per unit. The 190,000 units are exchangeable into
190,000 shares of 7.625% Series M-5 Convertible Cumulative Redeemable
Preferred Shares of Beneficial Interest of the Company or 143,526
Common Shares beginning March 2011. Dividends for the Series H
Preference Interests or the Series M-5 Preferred Shares are payable
quarterly at the rate of $3.8125 per unit/share per year.
O 270,000 7.625% Series I Cumulative Convertible Redeemable Preference
Units with an equity value of $13.5 million. The liquidation value of
these units is $50 per unit. The 270,000 units are exchangeable into
270,000 shares of 7.625% Series M-6 Convertible Cumulative
8
<Page>
Redeemable Preferred Shares of Beneficial Interest of the Company or
196,317 Common Shares beginning June 2011. Dividends for the Series I
Preference Interests or the Series M-6 Preferred Shares are payable
quarterly at the rate of $3.8125 per unit/share per year.
The value of the Preference Interests are included in Minority
Interests - Operating Partnership in the Consolidated Balance Sheets and the
distributions incurred are included in preferred distributions in the
Consolidated Statements of Operations. The Series M-4 Preferred Shares are not
convertible into EQR Common Shares. The Series H Preference Interests and the
Series M-5 Preferred Shares are convertible into EQR Common Shares at a
conversion price ratio of 0.7554 common shares (equal to a conversion price of
$66.19 per share) beginning in March 2011. The Series I Preference Interests and
the Series M-6 Preferred Shares are convertible into EQR Common Shares at a
conversion price ratio of 0.7271 common shares (equal to a conversion price of
$68.76 per share) beginning in June 2011.
The following table presents the Company's issued and outstanding
Preferred Shares as of June 30, 2001 and December 31, 2000:
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------
AMOUNTS IN THOUSANDS
----------------------------
ANNUAL
DIVIDEND
RATE PER JUNE DECEMBER
SHARE (1) 30, 2001 31, 2000
- ---------------------------------------------------------------------------------------------------------------
Preferred Shares of beneficial interest, $.01 par value;
100,000,000 shares authorized:
9 3/8% Series A Cumulative Redeemable Preferred; liquidation (2) $ - $ 153,000
value $25 per share; 0 and 6,120,000 shares issued and
outstanding at June 30, 2001 and December 31, 2000,
respectively
9 1/8% Series B Cumulative Redeemable Preferred; liquidation $22.81252 125,000 125,000
value $250 per share; 500,000 shares issued and outstanding
at June 30, 2001 and December 31, 2000
9 1/8% Series C Cumulative Redeemable Preferred; liquidation $22.81252 115,000 115,000
value $250 per share; 460,000 shares issued and outstanding
at June 30, 2001 and December 31, 2000
8.60% Series D Cumulative Redeemable Preferred; liquidation $21.50000 175,000 175,000
value $250 per share; 700,000 shares issued and outstanding
at June 30, 2001 and December 31, 2000
Series E Cumulative Convertible Preferred; liquidation value $1.75000 86,944 89,990
$25 per share; 3,477,765 and 3,599,615 shares issued and
outstanding at June 30, 2001 and December 31, 2000, respectively
9.65% Series F Cumulative Redeemable Preferred; liquidation (2) - 57,500
value $25 per share; 0 and 2,300,000 shares issued and
outstanding at June 30, 2001 and December 31, 2000, respectively
7 1/4% Series G Convertible Cumulative Preferred; liquidation $18.12500 316,175 316,175
value $250 per share; 1,264,700 shares issued and
outstanding at June 30, 2001 and December 31, 2000
7.00% Series H Cumulative Convertible Preferred; liquidation $1.75000 1,376 1,471
value $25 per share; 55,053 and 58,851 shares issued and
outstanding at June 30, 2001 and December 31, 2000, respectively
8.29% Series K Cumulative Redeemable Preferred; liquidation $4.14500 50,000 50,000
value $50 per share; 1,000,000 shares issued and outstanding
at June 30, 2001 and December 31, 2000
7.625% Series L Cumulative Redeemable Preferred; liquidation $1.90625 100,000 100,000
value $25 per share; 4,000,000 shares issued and outstanding
at June 30, 2001 and December 31, 2000
- -------------------------------------------------------------------- -----------------------------------------
$ 969,495 $ 1,183,136
- -------------------------------------------------------------------- -----------------------------------------
</Table>
9
<Page>
(1) Dividends on all series of Preferred Shares are payable quarterly at
various pay dates. Dividend rates listed for Series B, C, D and G are
Preferred Share rates and the equivalent Depositary Share annual dividend
rates are $2.281252, $2.281252, $2.15 and $1.8125, respectively.
(2) On June 25, 2001, the Company redeemed all of its outstanding Series A and
F Cumulative Redeemable Preferred Shares at their liquidation values for
cash consideration of $210.5 million.
4. REAL ESTATE ACQUISITIONS
During the six months ended June 30, 2001, the Company acquired the
eight properties listed below from unaffiliated parties for a total purchase
price of $232.1 million.
<Table>
<Caption>
-----------------------------------------------------------------------------------------------------------------
ACQUISITION
NUMBER PRICE
DATE ACQUIRED PROPERTY LOCATION OF UNITS (IN THOUSANDS)
--------------- --------------------------------------- -------------------------- ------------ -----------------
01/04/01 Suerte San Diego, CA 272 $ 37,500
02/08/01 Westside Villas VI Los Angeles, CA 18 4,550
02/15/01 Riverview Norwalk, CT 92 9,600
03/15/01 Grand Reserve at Eagle Valley Woodbury, MN 394 54,250
03/22/01 Legends at Preston Morrisville, NC 382 30,200
03/30/01 Mission Hills Oceanside, CA 282 26,750
03/30/01 River Oaks Oceanside, CA 280 26,250
05/18/01 Promenade at Aventura Aventura, FL 296 43,000
--------------- --------------------------------------- -------------------------- ------------ -----------------
2,016 $ 232,100
--------------- --------------------------------------- -------------------------- ------------ -----------------
</Table>
5. REAL ESTATE DISPOSITIONS
During the six months ended June 30, 2001, the Company disposed of the
twenty-seven properties listed below to unaffiliated parties. When combined with
gains from the joint venture, unconsolidated property sale and land sales
discussed below, the Company recognized a net gain of approximately $46.6
million on these sales.
10
<Page>
<Table>
<Caption>
--------------- ---------------------------------- -------------------------- ------------ -----------------
DISPOSITION
NUMBER PRICE
DATE DISPOSED PROPERTY LOCATION OF UNITS (IN THOUSANDS)
--------------- ---------------------------------- -------------------------- ------------ -----------------
01/17/01 Meadowood II Indianapolis, IN 74 $ 1,300
01/31/01 Concorde Bridge Overland Park, KS 248 15,600
02/01/01 Springs of Country Woods Salt Lake City, UT 590 31,000
02/22/01 Riverview Estates Napoleon, OH 90 1,750
02/26/01 Chelsea Court Sandusky, OH 62 1,600
02/27/01 Concord Square Lawrenceburg, IN 48 1,200
02/28/01 Canyon Creek Tucson, AZ 242 9,220
03/06/01 Gentian Oaks Columbus, GA 62 1,620
03/06/01 Holly Park Columbus, GA 66 1,730
03/06/01 Stratford Lane I Columbus, GA 67 1,750
03/07/01 Estate on Quarry Lake Austin, TX 302 25,232
03/08/01 Meadowood Crawfordsville, IN 64 1,300
03/14/01 Mill Run Statesboro, GA 88 2,350
03/15/01 Laurel Court Fremont, OH 69 1,450
03/15/01 Regency Woods West Des Moines, IA 200 9,350
04/16/01 Rosewood Tampa, FL 66 1,650
04/25/01 Parkcrest Southfield, MI 210 12,950
04/27/01 Westwood Newark, OH 14 222
04/30/01 Desert Park Las Vegas, NV 368 9,900
05/15/01 Carleton Court Erie, PA 60 1,461
05/16/01 River Oak Louisville, KY 268 14,650
06/07/01 Willowood Milledgeville, GA 61 1,550
06/14/01 Quail Cove Salt Lake City, UT 420 20,000
06/15/01 Beckford Place Wapakoneta, OH 40 830
06/27/01 The Birches Lima, OH 58 1,120
06/28/01 Pelican Pointe I and II Jacksonville, FL 160 4,150
06/28/01 Camden Way I and II Kingsland, GA 118 2,000
--------------- ---------------------------------- -------------------------- ------------ -----------------
4,115 $ 176,935
--------------- ---------------------------------- -------------------------- ------------ -----------------
</Table>
On February 23, 2001, the Company entered into a joint venture with an
unaffiliated joint venture partner ("JVP"). At closing, the Company sold and/or
contributed eleven wholly owned properties containing 3,011 units valued at
$202.5 million to the joint venture encumbered with $20.2 million in mortgage
loans obtained on February 16, 2001. An additional $123.6 million of mortgage
loans was obtained by the joint venture. The JVP contributed cash in an amount
equal to 75% of the equity in the joint venture, which was then distributed to
the Company. The Company retained a 25% interest in the joint venture along with
the right to manage the properties. In accordance with the respective joint
venture organization documents, the Company and the JVP both shall have the
right, but not the obligation, to infuse additional cash into the joint venture.
There are no other agreements that require the Company or the JVP to infuse cash
into each joint venture. In addition, the Company and the JVP have not
guaranteed the mortgage indebtedness of the joint venture. As a result, the
Company recognized 75% of the gain on the sales and/or contributions of property
to the joint venture, which totaled approximately $36.4 million. The Company has
classified its initial $3.4 million 25% interest in the joint venture (at
carryover basis) as investments in unconsolidated entities and accounted for it
under the equity method of accounting.
In addition, during the six months ended June 30, 2001, the Company
sold its entire interest in one Unconsolidated Property containing 74 units for
approximately $0.4 million and sold vacant parcels of land in Richmond, VA and
Jacksonville, FL for $11.2 million and $0.2 million, respectively.
6. COMMITMENTS TO ACQUIRE/DISPOSE OF REAL ESTATE
As of June 30, 2001, the Company had entered into separate agreements
to acquire eight multifamily properties containing 2,922 units from unaffiliated
parties. The Company expects a combined
11
<Page>
purchase price of approximately $360.1 million, including the assumption of
mortgage indebtedness of approximately $44.8 million.
As of June 30, 2001, in addition to the Properties that were
subsequently disposed of as discussed in Note 15 of the Notes to Consolidated
Financial Statements, the Company had entered into separate agreements to
dispose of fifteen multifamily properties containing 2,995 units to unaffiliated
parties. The Company expects a combined disposition price of approximately
$137.0 million.
The closings of these pending transactions are subject to certain
contingencies and conditions; therefore, there can be no assurance that these
transactions will be consummated or that the final terms thereof will not differ
in material respects from those summarized in the preceding paragraphs.
7. INVESTMENTS IN UNCONSOLIDATED ENTITIES
The Company has entered into two separate joint venture agreements with
third party development companies whereby the Company contributes 25% to 30% of
the development cost to the joint venture in return for preferential returns of
9.0% per annum. The basis of the Company's equity investments in these two joint
ventures was $273.8 million and $235.9 million as of June 30, 2001 and December
31, 2000, respectively.
The Company also has various other investments in unconsolidated
entities with ownership interests ranging from 1.5% to 50.0%. The basis of these
equity investments was $54.4 million and $80.6 million as of June 30, 2001 and
December 31, 2000, respectively.
These investments are accounted for under the equity method of
accounting.
8. DEPOSITS - RESTRICTED
Deposits-restricted as of June 30, 2001 primarily included the
following:
O deposits in the amount of $49.5 million held in third party
escrow accounts to provide collateral for third party
construction financing in connection with joint venture
agreements;
O approximately $151.6 million in tax-deferred (1031) exchange
proceeds; and
O approximately $34.5 million for tenant security, utility, and
other deposits.
9. MORTGAGE NOTES PAYABLE
As of June 30, 2001, the Company had outstanding mortgage indebtedness
of approximately $3.0 billion.
During the six months ended June 30, 2001 the Company:
O repaid $237.0 million of mortgages due at or prior to maturity
and/or at the disposition date of the respective Property;
O assumed $45.9 million of mortgage debt on four properties in
connection with their acquisitions;
O disposed of $27.4 million of mortgage debt assumed by the
purchaser in connection with the disposition of certain
properties;
O obtained $26.0 million of new mortgage debt on previously
unencumbered properties; and
O received $19.1 million in construction loan draw proceeds on
two properties.
12
<Page>
As of June 30, 2001, scheduled maturities for the Company's outstanding
mortgage indebtedness are at various dates through October 1, 2033. The interest
rate range on the Company's mortgage debt was 2.5% to 12.465% at June 30, 2001.
During the six months ended June 30, 2001, the weighted average interest rate on
the Company's mortgage debt was 6.64%.
10. NOTES
As of June 30, 2001, the Company had outstanding unsecured notes of
approximately $2.4 billion.
During the six months ended June 30, 2001, the Company issued $300.0
million of ten-year 6.95% fixed-rate public unsecured notes and received net
proceeds of $297.4 million.
As of June 30, 2001, scheduled maturities for the Company's outstanding
notes are at various dates through 2029. The interest rate range on the
Company's notes was 4.75% to 9.375% at June 30, 2001. During the six months
ended June 30, 2001, the weighted average interest rate on the Company's notes
was 6.99%.
11. LINES OF CREDIT
The Company has a revolving credit facility to provide the Operating
Partnership with potential borrowings of up to $700.0 million. As of June 30,
2001, $133.0 million was outstanding under this facility and $60.9 million was
restricted on the line of credit.
In connection with the Globe acquisition, the Company assumed a
revolving credit facility with potential borrowings of up to $55.0 million. On
May 31, 2001, this credit facility was terminated.
During the six months ended June 30, 2001, the weighted average
interest rate on the Company's lines of credit was 6.59%.
13
<Page>
12. CALCULATION OF NET INCOME PER WEIGHTED AVERAGE COMMON SHARE
The following tables set forth the computation of net income per share
- - basic and net income per share - diluted.
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30, QUARTER ENDED JUNE 30,
-----------------------------------------------------------------
2001 2000 2001 2000
-----------------------------------------------------------------
(amounts in thousands except per share amounts)
NUMERATOR:
Income before allocation to Minority Interests, income from
investments in unconsolidated entities, net gain on sales
of real estate, extraordinary items, cumulative effect
of change in accounting principle and preferred
distributions $ 199,172 $ 176,057 $98,607 $ 92,088
Allocation to Minority Interests:
Operating Partnership (16,474) (19,132) (6,678) (12,036)
Partially Owned Properties (238) 157 (133) 112
Income from investments in unconsolidated entities 10,350 9,064 6,553 4,841
Preferred distributions (57,419) (55,654) (28,893) (27,266)
------------------------------------------------------------
Income before net gain on sales of real estate,
extraordinary items and cumulative effect of change in
accounting principle 135,391 110,492 69,456 57,739
Net gain on sales of real estate 46,565 87,652 4,787 67,654
Extraordinary items 106 - (205) -
Cumulative effect of change in accounting principle (1,270) - - -
------------------------------------------------------------
Numerator for net income per share - basic 180,792 198,144 74,038 125,393
Effect of dilutive securities:
Allocation to Minority Interests -
Operating Partnership 16,474 19,132 6,678 12,036
Distributions on convertible preferred shares/units 242 267 - 3,526
------------------------------------------------------------
Numerator for net income per share - diluted $197,508 $217,543 $80,716 $ 140,955
============================================================
DENOMINATOR:
Denominator for net income per share - basic 132,890 128,435 133,179 129,072
Effect of dilutive securities:
OP Units 12,153 12,415 12,076 12,364
Convertible preferred shares/units 185 204 - 4,304
Share options/restricted shares 1,681 579 1,715 770
------------------------------------------------------------
Denominator for net income per share - diluted 146,909 141,633 146,970 146,510
============================================================
Net income per share - basic $ 1.36 $ 1.54 $ 0.56 $ 0.97
============================================================
Net income per share - diluted $ 1.34 $ 1.54 $ 0.55 $ 0.96
============================================================
</Table>
14
<Page>
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30, QUARTER ENDED JUNE 30,
---------------------------------------------------------------
2001 2000 2001 2000
---------------------------------------------------------------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
NET INCOME PER SHARE - BASIC:
Income before net gain on sales of real estate, extraordinary
items and cumulative effect of change in accounting
principle per share - basic $ 1.05 $ 0.92 $ 0.53 $ 0.49
Net gain on sales of real estate 0.32 0.62 0.03 0.48
Extraordinary items - - - -
Cumulative effect of change in accounting principle (0.01) - - -
---------------------------------------------------------------
Net income per share - basic $ 1.36 $ 1.54 $ 0.56 $ 0.97
===============================================================
NET INCOME PER SHARE - DILUTED:
Income before net gain on sales of real estate, extraordinary
items and cumulative effect of change in accounting
principle per share - diluted $ 1.03 $ 0.92 $ 0.52 $ 0.50
Net gain on sales of real estate 0.32 0.62 0.03 0.46
Extraordinary items - - - -
Cumulative effect of change in accounting principle (0.01) - - -
---------------------------------------------------------------
Net income per share - diluted $ 1.34 $ 1.54 $ 0.55 $ 0.96
===============================================================
</Table>
CONVERTIBLE PREFERRED SHARES/UNITS THAT COULD BE CONVERTED INTO 7,460,692 AND
9,970,878 WEIGHTED AVERAGE COMMON SHARES FOR THE SIX MONTHS ENDED JUNE 30, 2001
AND 2000, RESPECTIVELY, AND 7,689,955 AND 5,402,779 WEIGHTED AVERAGE COMMON
SHARES FOR THE QUARTERS ENDED JUNE 30, 2001 AND JUNE 30, 2000, RESPECTIVELY,
WERE OUTSTANDING BUT WERE NOT INCLUDED IN THE COMPUTATION OF DILUTED EARNINGS
PER SHARE BECAUSE THE EFFECTS WOULD BE ANTI-DILUTIVE.
13. 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 regards to the funding of Properties in the development and/or
earnout stage and the joint venture agreements with two multifamily residential
real estate developers, the Company funded a total of $71.4 million during the
six months ended June 30, 2001. During the remainder of 2001, the Company
expects to fund approximately $66.0 million in connection with these Properties.
In connection with one joint venture agreement, the Company has an obligation to
fund up to an additional $12.5 million to guarantee third party construction
financing. As of June 30, 2001, the Company has 20 projects under development
with estimated completion dates ranging from September 30, 2001 through June 30,
2003. At any time following the completion of construction of any development
property, the Company's joint venture partners have the right to cause the
Company to acquire their respective interests in the completed projects at a
mutually agreeable price. If the Company and the joint venture
15
<Page>
partner are unable to agree on a price, appraisals will be obtained by both
parties. If the appraised values vary by more than 10%, both the Company and the
joint venture partner will agree on a third appraiser to determine which
original appraisal is closest to its determination of value.
In connection with the Wellsford Merger, the Company provided a credit
enhancement with respect to certain tax-exempt bonds issued to finance certain
public improvements at a multifamily development project. As of June 30, 2001,
this enhancement was still in effect at a commitment amount of $12.7 million.
14. REPORTABLE SEGMENTS
The following tables set forth the reconciliation of net income and
total assets for the Company's reportable segments for the six months and
quarter ended June 30, 2001 and net income for the six months and quarter ended
June 30, 2000.
<Table>
<Caption>
SIX MONTHS ENDED RENTAL REAL CORPORATE/
JUNE 30, 2001 (AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
- ---------------------------------------------------------------------------------------------------------
Rental income $ 1,027,671 $ -- $ 1,027,671
Fee and asset management income -- 4,140 4,140
Furniture income -- 30,027 30,027
Property and maintenance expense (280,783) -- (280,783)
Real estate tax and insurance expense (96,775) -- (96,775)
Property management expense (36,364) -- (36,364)
Fee and asset management expense -- (3,648) (3,648)
Furniture expenses -- (30,496) (30,496)
--------------------------------------------
Net operating income 613,749 23 613,772
Interest income - investment in mortgage notes -- 8,763 8,763
Interest and other income -- 11,711 11,711
Depreciation expense on non-real estate assets -- (3,980) (3,980)
Interest expense:
Expense incurred -- (190,383) (190,383)
Amortization of deferred financing costs -- (2,810) (2,810)
General and administrative expense -- (14,079) (14,079)
Allocation to Minority Interests - Partially
Owned Properties -- (238) (238)
Income from investments in unconsolidated entities -- 10,350 10,350
Preferred distributions -- (57,419) (57,419)
Adjustment for loss on investment in
technology segment -- 6,775 6,775
Adjustment for depreciation expense related
to Unconsolidated and Partially Owned Properties -- 4,729 4,729
--------------------------------------------
Funds from operations available to Common Shares
and OP Units 613,749 (226,558) 387,191
Depreciation/amortization (221,898) (1,924) (223,822)
Net gain on sales of real estate 46,565 -- 46,565
Extraordinary items -- 106 106
Cumulative effect of change in accounting principle -- (1,270) (1,270)
Allocation to Minority Interests - Operating Partnership -- (16,474) (16,474)
Adjustment for loss on investment in
technology segment -- (6,775) (6,775)
Adjustment for depreciation expense related
to Unconsolidated and Partially Owned Properties -- (4,729) (4,729)
--------------------------------------------
Net income available to Common Shares $ 438,416 $ (257,624) $ 180,792
============================================
Investment in real estate, net of accumulated depreciation $ 11,014,139 $ 16,297 $ 11,030,436
============================================
Total assets $ 11,052,880 $ 1,024,856 $ 12,077,736
============================================
</Table>
16
<Page>
<Table>
<Caption>
SIX MONTHS ENDED RENTAL REAL CORPORATE/
JUNE 30, 2000 (AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
- -------------------------------------------------------------------------------------------------------
Rental income $ 952,740 $ -- $ 952,740
Fee and asset management income -- 2,835 2,835
Property and maintenance expense (227,845) -- (227,845)
Real estate tax and insurance expense (95,001) -- (95,001)
Property management expense (37,760) -- (37,760)
Fee and asset management expense -- (2,102) (2,102)
--------------------------------------------
Net operating income 592,134 733 592,867
Interest income - investment in mortgage notes -- 5,499 5,499
Interest and other income -- 8,385 8,385
Depreciation expense on non-real estate assets -- (3,157) (3,157)
Interest expense:
Expense incurred -- (190,263) (190,263)
Amortization of deferred financing costs -- (2,703) (2,703)
General and administrative expense -- (13,216) (13,216)
Allocation to Minority Interests - Partially Owned
Properties -- 157 157
Income from investments in unconsolidated entities -- 9,064 9,064
Preferred distributions -- (55,654) (55,654)
Adjustment for depreciation expense related to
Unconsolidated and Partially Owned Properties -- (491) (491)
--------------------------------------------
Funds from operations available to Common Shares and OP
Units 592,134 (241,646) 350,488
Depreciation expense on real estate assets (221,355) -- (221,355)
Net gain on sales of real estate 87,652 -- 87,652
Allocation to Minority Interests - Operating Partnership -- (19,132) (19,132)
Adjustment for depreciation expense related to
Unconsolidated and Partially Owned Properties -- 491 491
--------------------------------------------
Net income available to Common Shares $ 458,431 $ (260,287) $ 198,144
============================================
</Table>
17
<Page>
<Table>
<Caption>
RENTAL REAL CORPORATE/
QUARTER ENDED JUNE 30, 2001 (AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
--------------------------------------------------------------------------------------------------------
Rental income $ 515,860 $ -- $ 515,860
Fee and asset management income -- 2,168 2,168
Furniture income -- 15,155 15,155
Property and maintenance expense (143,746) -- (143,746)
Real estate tax and insurance expense (48,754) -- (48,754)
Property management expense (17,686) -- (17,686)
Fee and asset management expense -- (1,764) (1,764)
Furniture expenses -- (15,668) (15,668)
--------------------------------------------
Net operating income 305,674 (109) 305,565
Interest income - investment in mortgage notes -- 6,019 6,019
Interest and other income -- 5,209 5,209
Depreciation expense on non-real estate assets -- (1,998) (1,998)
Interest expense:
Expense incurred -- (95,107) (95,107)
Amortization of deferred financing costs -- (1,413) (1,413)
General and administrative expense -- (7,325) (7,325)
Allocation to Minority Interests - Partially Owned
Properties -- (133) (133)
Income from investments in unconsolidated entities -- 6,553 6,553
Preferred distributions -- (28,893) (28,893)
Adjustment for loss on investment in
technology segment -- 3,772 3,772
Adjustment for depreciation expense related to
Unconsolidated and Partially Owned Properties -- 2,734 2,734
--------------------------------------------
Funds from operations available to Common Shares and
OP Units 305,674 (110,691) 194,983
Depreciation/amortization (111,352) (991) (112,343)
Net gain on sales of real estate 4,787 -- 4,787
Extraordinary items -- (205) (205)
Allocation to Minority Interests - Operating Partnership -- (6,678) (6,678)
Adjustment for loss on investment in
technology segment -- (3,772) (3,772)
Adjustment for depreciation expense related
to Unconsolidated and Partially Owned Properties -- (2,734) (2,734)
--------------------------------------------
Net income available to Common Shares $ 199,109 $ (125,071) $ 74,038
============================================
</Table>
18
<Page>
<Table>
<Caption>
RENTAL REAL CORPORATE/
QUARTER ENDED JUNE 30, 2000 (AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
------------------------------------------------------------------------------------------------------
Rental income $ 479,193 $ -- $ 479,193
Fee and asset management income -- 1,435 1,435
Property and maintenance expense (113,977) -- (113,977)
Real estate tax and insurance expense (46,667) -- (46,667)
Property management expense (18,846) -- (18,846)
Fee and asset management expense -- (1,036) (1,036)
--------------------------------------------
Net operating income 299,703 399 300,102
Interest income - investment in mortgage notes -- 2,737 2,737
Interest and other income -- 4,907 4,907
Depreciation expense on non-real estate assets -- (1,590) (1,590)
Interest expense:
Expense incurred -- (95,152) (95,152)
Amortization of deferred financing costs -- (1,362) (1,362)
General and administrative expense -- (6,518) (6,518)
Allocation to Minority Interests - Partially Owned
Properties -- 112 112
Income from investments in unconsolidated entities -- 4,841 4,841
Preferred distributions -- (27,266) (27,266)
Adjustment for depreciation expense related to
Unconsolidated and Partially Owned Properties -- (253) (253)
--------------------------------------------
Funds from operations available to Common Shares and OP
Units 299,703 (119,145) 180,558
Depreciation expense on real estate assets (111,036) -- (111,036)
Net gain on sales of real estate 67,654 -- 67,654
Allocation to Minority Interests - Operating Partnership -- (12,036) (12,036)
Adjustment for depreciation expense related to
Unconsolidated and Partially Owned Properties -- 253 253
--------------------------------------------
Net income available to Common Shares $ 256,321 $ (130,928) $ 125,393
============================================
</Table>
(1) 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 fee and asset management activity, furniture rental/sales activity,
interest income earned on short-term investments and investment in mortgage
notes, investment in technology entities, income earned from investments in
unconsolidated entities, general and administrative expenses, and interest
expense on mortgage notes payable, unsecured note issuances and lines of
credit. The Company's fee and asset management activity and furniture
rental/sales activities are immaterial and do not meet the threshold
requirements of a reportable segment as provided for in SFAS 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.
19
<Page>
15. SUBSEQUENT EVENTS
Subsequent to June 30, 2001 and through August 8, 2001, the Company:
O disposed of seven Properties consisting of 1,081 units for
approximately $54.0 million;
O repaid $9.4 million of mortgage debt at maturity on one property;
O obtained $301.5 million in new first mortgage financing on twenty-one
Unconsolidated Properties, of which $55.7 million of the refinancing
proceeds was used to repay principal on the Company's investment in
mortgage notes;
O funded $11.7 million related to the development, earnout and joint
venture agreements; and
O announced a two-for-one split of its Common Shares and OP Units to be
effective September 21, 2001.
20
<Page>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
For further information including definitions for capitalized terms,
refer to the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended December 31, 2000.
Forward-looking statements in this report are intended to be made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The words "believes", "expects" and "anticipates" and other
similar expressions 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:
o alternative sources of capital to the Company are more expensive than
anticipated;
o occupancy levels and market rents may be adversely affected by local
economic and market conditions, which are beyond the Company's control;
and
o additional factors as discussed in Part I of the Annual Report on
Form 10-K.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
assumes no obligation to update or correct any of these forward-looking
statements, in light of events or circumstances arising or existing after the
date hereof.
RESULTS OF OPERATIONS
The following table summarizes the number of Properties and related
units for the periods presented:
PORTFOLIO SUMMARY
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30,
------------------------------------------------
2001 2000
---- ----
PROPERTIES UNITS PROPERTIES UNITS
---------- -------- ---------- --------
Beginning of period 1,104 227,704 1,064 226,317
Acquisitions 8 2,017 3 952
Dispositions (28) (4,189) (16) (3,356)
Completed Developments 2 618 2 470
-------- -------- -------- --------
End of period 1,086 226,150 1,053 224,383
======== ======== ======== ========
</Table>
In addition, the Company sold and/or contributed eleven wholly owned
Properties containing 3,011 units to a joint venture entity during the six
months ended June 30, 2001. The Company sold and/or contributed 21 wholly owned
properties containing 5,211 units to two joint venture entities during the six
months ended June 30, 2000. The Company retained a 25% interest along with the
rights to manage these joint venture Properties.
21
<Page>
The Company's overall results of operations for the six months and
quarters ended June 30, 2001 and 2000 have been significantly impacted by the
Company's acquisition and disposition activity. The significant changes in
revenues and expenses can primarily be attributed to the acquisition of Globe as
well as the 2001 and the 2000 Acquired Properties, partially offset by the
disposition of the 2001 and the 2000 Disposed Properties. This impact is
discussed in greater detail in the following paragraphs.
Properties that the Company owned for all of both the six month
periods ended June 30, 2001 and June 30, 2000 (the "Six-Month 2001 Same Store
Properties"), which represented 186,443 units, and Properties that the
Company owned for all of both the quarters ended June 30, 2001 and June 30,
2000 (the "Second-Quarter 2001 Same Store Properties"), which represented
186,777 units, also impacted the Company's results of operations. Both the
Six-Month 2001 Same Store Properties and Second-Quarter 2001 Same Store
Properties are discussed in the following paragraphs.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 2001 TO SIX MONTHS ENDED
JUNE 30, 2000
For the six months ended June 30, 2001, income before allocation to
Minority Interests, income from investments in unconsolidated entities, net gain
on sales of real estate, extraordinary items and cumulative effect of change in
accounting principle increased by approximately $23.1 million when compared to
the six months ended June 30, 2000.
Rental income from the Six-Month 2001 Same Store Properties increased
by approximately $44.7 million to $880.0 million or 5.4% 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. For the remainder of 2001, the
Company expects to achieve rental income increases of 4.75% to 5.0% from Same
Store Properties. These estimated increases are subject to certain risks and
uncertainties including, but not limited to, maintaining an overall average
occupancy rate of 94.5%.
Property operating expenses from the Six-Month 2001 Same Store
Properties, which include property and maintenance, real estate taxes and
insurance and an allocation of property management expenses, increased
approximately $14.6 million or 4.8%. The increase in "same store" expenses is
primarily attributable to a $4.9 million, or 10.3%, increase in utilities and a
$4.5 million, or 6.0% increase in payroll costs. For the remainder of 2001, the
Company expects to maintain expense growth at no more than 4.0% to 4.5% for the
Same Store Properties.
Rental income from properties other than Six-Month 2001 Same Store
Properties increased by approximately $30.2 million primarily as a result of
revenue from the Company's corporate housing business and the acquisition of
Properties during the periods presented. The Company expects similar trends in
the future subject to certain risks and uncertainties including that any new
acquisitions perform at the Company's pro forma expectations.
Interest income-investment in mortgage notes increased by approximately
$3.3 million as a result of receiving deferred interest income on certain of the
mortgage notes. The payment of this deferred interest income was triggered by
the refinancing of these mortgage notes subsequent to quarter-end. In addition,
a portion of the proceeds from the refinancing were used to partially repay the
Company's investment in mortgage notes. As a result, the Company anticipates
that the interest income recognized on mortgage notes will decline in future
quarters.
Interest and other income increased by approximately $3.3 million,
primarily as a result of carrying larger balances in various tax deferred 1031
exchange accounts. These proceeds are invested in money market investments and
earn interest income until the Company purchases additional multi-family
properties or the period to reinvest such exchange proceeds expires.
22
<Page>
Property management expenses included off-site expenses associated with
the self-management of the Company's Properties. These expenses decreased by
approximately $1.4 million. This decrease is primarily the result of managing
fewer of the Company's properties and managing more properties that were either
sold and/or contributed to various unconsolidated joint ventures. In addition,
the Company continues to acquire properties in major metropolitan areas and
dispose of assets in smaller multi-family rental markets where the Company does
not have a significant management presence. As a result, the Company is able to
achieve economies of scale by not increasing off-site management expenses as it
acquires additional properties.
Fee and asset management revenues and fee and asset management expenses
increased as a result of the Company continuing to manage Properties that were
sold and/or contributed to various unconsolidated joint venture entities. As of
June 30, 2001 and 2000, the Company managed 19,844 and 18,361 units,
respectively, for third parties and the unconsolidated joint venture entities.
Furniture income and furniture expenses are associated with the
operation of the furniture rental business assumed in connection with the Globe
acquisition, which occurred in July 2000. Furniture expenses include a
depreciation charge on furniture held in inventory and property and equipment
directly related to the furniture business.
Interest expense, including amortization of deferred financing costs,
increased approximately $0.2 million. The effective interest cost on all of the
Company's indebtedness for the six months ending June 30, 2001 was 7.07% as
compared to 7.27% for the six months ended June 30, 2000. For the remainder of
2001, the Company expects interest rates to decrease slightly due to lower
variable rates. In connection with the scheduled maturity of $150 million of
indebtedness due in November 2001, the Company anticipates to refinance this
indebtedness for a similar amount and to incur interest costs approximating
7.0% per annum.
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 and higher overall compensation expenses including a current year
expense associated with the awarding of restricted shares to key employees in
2001.
Net gain on sales of real estate decreased approximately $41.1 million
between the periods under comparison. This decrease is primarily the result of a
fewer number of units sold during the six months ended June 30, 2001 (7,200
units including the joint venture properties) as compared to the six months
ended June 30, 2000 (8,567 units including the joint venture properties). In
addition, the Company sold older and more fully depreciated properties during
the six months ended June 30, 2000 as compared to the six months ended June 30,
2001.
COMPARISON OF QUARTER ENDED JUNE 30, 2001 TO QUARTER ENDED
JUNE 30, 2000
For the quarter ended June 30, 2001, income before allocation to
Minority Interests, income from investments in unconsolidated entities, net gain
on sales of real estate, extraordinary items and cumulative effect of change in
accounting principle increased by approximately $6.5 million when compared to
the quarter ended June 30, 2000.
Rental income from the Second-Quarter 2001 Same Store Properties
increased by approximately $21.7 million to $443.9 million or 5.1% 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. For the remainder of 2001,
the Company expects to achieve rental income increases of 4.75% to 5.0% from
Same Store Properties. These estimated increases are subject to certain risks
and uncertainties including, but not limited to, maintaining an overall average
occupancy rate of 94.5%.
23
<Page>
Property operating expenses from the Second-Quarter 2001 Same Store
Properties, which include property and maintenance, real estate taxes and
insurance and an allocation of property management expenses, increased
approximately $5.9 million or 3.8%. The increase in "same store" expenses is
primarily attributable to a $1.2 million, or 4.9%, increase in utilities and a
$2.4 million, or 6.4% increase in payroll costs. For the remainder of 2001, the
Company expects to maintain expense growth at no more than 4.0% to 4.5% for the
Same Store Properties.
Rental income from properties other than Second-Quarter 2001 Same Store
Properties increased by approximately $15.0 million primarily as a result of
revenue from the Company's corporate housing business and the acquisition of
properties during the periods presented. The Company expects similar trends in
the future subject to certain risks and uncertainties including that any new
acquisitions perform at the Company's pro forma expectations.
Interest income-investment in mortgage notes increased by approximately
$3.3 million as a result of receiving deferred interest income on certain of the
mortgage notes. The payment of this deferred interest income was triggered by
the refinancing of these mortgage notes subsequent to quarter-end. In addition,
a portion of the proceeds from the refinancing were used to partially repay the
Company's investment in mortgage notes. As a result, the Company anticipates
that the interest income recognized on mortgage notes will decline in future
quarters.
Interest and other income increased by approximately $0.3 million,
primarily as a result of carrying larger balances in various tax deferred 1031
exchange accounts. These proceeds are invested in money market investments and
earn interest income until the Company purchases additional multi-family
properties or the period to reinvest such exchange proceeds expires.
Property management expenses included off-site expenses associated with
the self-management of the Company's Properties. These expenses decreased by
approximately $1.4 million. This decrease is primarily the result of managing
fewer of the Company's properties and managing more properties that were either
sold and/or contributed to various unconsolidated joint ventures. In addition,
the Company continues to acquire properties in major metropolitan areas and
dispose of assets in smaller multi-family rental markets where the Company does
not have a significant management presence. As a result, the Company is able to
achieve economies of scale by not increasing off-site management expenses as it
acquires additional properties.
Fee and asset management revenues and fee and asset management expenses
increased slightly as a result of the Company continuing to manage Properties
that were sold and/or contributed to various unconsolidated joint venture
entities.
Furniture income and furniture expenses are associated with the
operation of the furniture rental business assumed in connection with the Globe
acquisition, which occurred in July 2000. Furniture expenses include a
depreciation charge on furniture held in inventory and property and equipment
directly related to the furniture business.
Interest expense, including amortization of deferred financing costs,
increased slightly. The effective interest cost on all of the Company's
indebtedness for the quarter ending June 30, 2001 was 7.07% as compared to 7.39%
for the quarter ended June 30, 2000. For the remainder of 2001, the Company
expects interest rates to decrease slightly due to lower variable rates.
General and administrative expenses, which include corporate operating
expenses, increased approximately $0.8 million between the periods under
comparison. This increase was primarily due to the addition of corporate
personnel and higher overall compensation expenses including a current year
expense associated with the awarding of restricted shares to key employees in
2001.
24
<Page>
Net gain on sales of real estate decreased approximately $62.9 million
between the periods under comparison. This decrease is primarily the result of
fewer units sold during the quarter ended June 30, 2001, which included 1,917
wholly owned units, 74 unconsolidated units and one land sale as compared to
1,194 wholly owned units and 5,211 joint venture units (75% gain recognition)
sold in the quarter ended June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of January 1, 2001, the Company had approximately $23.8 million of
cash and cash equivalents and the amounts available on the Company's lines of
credit were $399.5 million, of which $53.5 million was restricted. After taking
into effect the various transactions discussed in the following paragraphs, the
Company's cash and cash equivalents balance at June 30, 2001 was approximately
$26.6 million and the amount available on the Company's line of credit was
$567.0 million, of which $60.9 million was restricted.
Part of the Company's strategy in funding the purchase of multifamily
properties, funding its Properties in the development and/or earnout stage and
the funding of the Company's investment in two joint ventures with multifamily
real estate developers is to utilize its lines of credit and to subsequently
repay the lines of credit from the disposition of Properties or the issuance of
additional equity or debt securities. Continuing to utilize this strategy during
the first six months of 2001, the Company:
o disposed of twenty-eight properties (including one Unconsolidated
Property) and two vacant parcels of land and received net proceeds of
$177.8 million;
o issued $300.0 million of unsecured debt receiving net proceeds of
$297.4 million;
o sold and/or contributed eleven properties to a joint venture and
received net proceeds of $167.6 million;
o issued $48.5 million of three new series of Preference Interests and
received net proceeds of $47.3 million; and
o obtained $45.1 million in new mortgage financing.
During the six months ended June 30, 2001, the Company:
O reduced its line of credit borrowings by approximately $222.5 million;
O funded $210.5 million to redeem all of its Series A and F Preferred
Shares;
O repaid approximately $237.0 million of mortgage indebtedness;
O funded $71.4 million related to the development, earnout and joint
venture agreements; and
O acquired $232.1 million of additional properties ($45.9 million of
mortgage assumptions and $186.2 million of cash).
25
<Page>
The Company's total debt summary, as of June 30, 2001, included:
- -------------------------------------------------------------------------------
DEBT SUMMARY AS OF 6/30/01
- -------------------------------------------------------------------------------
<Table>
<Caption>
Weighted
$ Millions Average Rate
--------------------- ------------------
Secured 3,040 6.71%
Unsecured 2,550 6.83%
--------------------- ------------------
Total 5,590 6.77%
Fixed Rate 4,860 7.01%
Floating Rate 730 5.15%
--------------------- ------------------
Total 5,590 6.77%
ABOVE TOTALS INCLUDE:
Total Tax Exempt 959 4.96%
Unsecured Revolving Credit Facility
133 4.49%
- -------------------------------------- --------------------- ------------------
</Table>
Subsequent to June 30, 2001 and through August 8, 2001, the Company:
O disposed of seven Properties consisting of 1,081 units for
approximately $54.0 million;
O repaid $9.4 million of mortgage debt at maturity on one property;
O obtained $301.5 million in new mortgage financing on twenty-one
Unconsolidated Properties, of which $55.7 million of the refinancing
proceeds was used to repay principal on the Company's investment in
mortgage notes;
O funded $11.7 million related to the development, earnout, and joint
venture agreements; and
O announced a two-for-one split of its Common Shares and OP Units to be
effective September 21, 2001.
During the remainder of 2001, the Company expects to fund approximately
$66.0 million related to the development, earnout and joint venture agreements.
In connection with one joint venture agreement, the Company has an obligation to
fund up to an additional $12.5 million to guarantee third party construction
financing. As of June 30, 2001, the Company has 20 projects under development
with estimated completion dates ranging from September 30, 2001 through June 30,
2003. At any time following the completion of construction of any development
property, the Company's joint venture partners have the right to cause the
Company to acquire their respective interests in the completed projects at a
mutually agreeable price. If the Company and the joint venture partner are
unable to agree on a price, appraisals will be obtained by both parties. If the
appraised values vary by more than 10%, both the Company and the joint venture
partner will agree on a third appraiser to determine which original appraisal is
closest to its determination of value.
During the six months ended June 30, 2001, the Company's total
improvements to real estate approximated $63.3 million. Replacements, which
includes new carpeting, appliances, mechanical equipment, fixtures, vinyl floors
and blinds inside the unit approximated $25.2 million, or $123 per unit.
Building improvements for the 1999, 2000 and 2001 Acquired Properties
approximated $11.9 million, or $232 per unit. Building improvements for all of
the Company's pre-1999 Acquired Properties approximated $22.9 million or $150
per unit. In addition, approximately $2.2 million was spent on five specific
assets related to major renovations and repositioning of these assets. Also
included in total improvements to real estate was approximately $1.1 million on
commercial/other assets and Partially Owned Properties. Such improvements to
real estate were primarily funded from net cash provided by operating
activities. Total improvements to real estate budgeted for the remainder of 2001
are estimated to be approximately $75.0 million.
26
<Page>
During the six months ended June 30, 2001, the Company's total non-real
estate capital additions, such as computer software, computer equipment, and
furniture and fixtures and leasehold improvements to the Company's property
management offices and its corporate offices, was approximately $3.5 million.
Such additions to non-real estate property were funded from net cash provided by
operating activities. Total additions to non-real estate property budgeted for
the remainder of 2001 are estimated to be approximately $2.5 million.
The Company, through its Globe subsidiary, has a policy of capitalizing
expenditures made for rental furniture and property and equipment. Globe
purchases furniture to replace furniture that has been sold and to maintain
adequate levels of rental furniture to meet existing and new customer needs.
Expenditures for property and equipment that significantly enhance the value of
existing assets or substantially extend the useful life of an asset are also
capitalized. Expenditures for ordinary maintenance and repairs related to
property and equipment are expensed as incurred. For the six months ended June
30, 2001, total additions to rental furniture approximated $14.5 million and
property and equipment approximated $1.6 million. Total additions to rental
furniture and property and equipment budgeted for the remainder of 2001 are
estimated to be approximately $8.9 million. As of June 30, 2001, the Company
recorded a $7.2 million reduction to rental furniture based on a review of the
inventory on hand in its warehouses and the market value of such used furniture.
Correspondingly, the Company recorded an increase in goodwill associated with
the original acquisition of Globe.
Minority Interests as of June 30, 2001 increased by $27.9 million when
compared to December 31, 2000. The primary factors that impacted this account
during the quarter were:
o distributions declared to Minority Interests, which amounted to
$19.7 million for the six months ended June 30, 2001 (excluding
preference unit/interest distributions);
o the allocation of income from operations in the amount of
$16.5 million;
o the allocation of Minority Interests from Partially Owned Properties in
the amount of $0.2 million;
o the conversion of OP Units into Common Shares; and
o the issuance of Common Shares, OP Units and Preference Interests during
the six months ended June 30, 2001.
Total distributions paid in July 2001 amounted to approximately $138.7
million, which included distributions declared for the quarter ended June 30,
2001.
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 line 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,
property acquisitions, financing of construction and development activities and
capital improvements through the issuance of unsecured notes and equity
securities including additional OP Units and proceeds received from the
disposition of certain Properties. In addition, the Company has certain
uncollateralized Properties available to secure 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.
The Company has a revolving credit facility with Bank of America
Securities LLC and Chase Securities Inc. acting as joint lead arrangers to
provide the Operating Partnership with potential borrowings of up to $700
million. As of August 8, 2001, no amounts were outstanding under this facility.
27
<Page>
In connection with the Globe acquisition, the Company assumed a
revolving credit facility with Fifth Third Bank with potential borrowings of up
to $55.0 million. As of May 31, 2001, this credit facility was terminated.
In connection with the Wellsford Merger, the Company provided a credit
enhancement with respect to certain tax-exempt bonds issued to finance certain
public improvements at a multifamily development project. As of August 8, 2001,
this enhancement was still in effect at a commitment amount of $12.7 million.
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, 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In connection with the Annual Meeting of Shareholders of the Company
held on May 15, 2001, the proposal to elect the five nominees for trustee
passed. At the meeting, proxies representing 117,520,271 Common Shares or 88.5%
of the total outstanding shares voted in the following manner:
<Table>
<Caption>
TOTAL VOTE FOR EACH TRUSTEE* TOTAL VOTE WITHHELD FROM EACH TRUSTEE*
---------------------------- --------------------------------------
Douglas Crocker II 93.00% 7.00%
James D Harper, Jr. 93.42% 6.58%
Sheli Z. Rosenberg 93.10% 6.90%
Gerald A. Spector 92.99% 7.01%
Michael N. Thompson 92.99% 7.01%
</Table>
* This percentage represents the number of shares voting in this manner out of
the total number of shares voted at the meeting, not out of the total shares
outstanding.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
12 Computation of Ratio of Earnings to Fixed Charges
(B) Reports on Form 8-K:
None
28
<Page>
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: AUGUST 13, 2001 By: /s/ BRUCE C. STROHM
-----------------------------------------------
Bruce C. Strohm
Executive Vice President, General Counsel
and Secretary
Date: AUGUST 13, 2001 By: /s/ MICHAEL J. MCHUGH
------------------------------------------------
Michael J. McHugh
Executive Vice President, Chief Accounting
Officer and Treasurer
29