<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 SEPTEMBER 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 November 1, 2001, 270,800,114 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>
SEPTEMBER 30, DECEMBER 31,
2001 2000
-------------- ------------
ASSETS
Investment in real estate
Land $ 1,827,926 $ 1,770,019
Depreciable property 10,990,785 10,782,311
Construction in progress 81,062 39,130
-------------- ------------
12,899,773 12,591,460
Accumulated depreciation (1,621,752) (1,352,236)
-------------- ------------
Investment in real estate, net of accumulated depreciation 11,278,021 11,239,224
Real estate held for disposition 4,102 51,637
Cash and cash equivalents 110,807 23,772
Investment in mortgage notes, net - 77,184
Investments in unconsolidated entities 351,947 316,540
Rents receivable 4,070 1,801
Deposits - restricted 157,299 231,639
Escrow deposits - mortgage 79,350 70,470
Deferred financing costs, net 31,588 29,706
Rental furniture, net 23,897 60,183
Property and equipment, net 3,419 7,620
Goodwill, net 48,218 67,589
Other assets 101,899 86,601
-------------- ------------
Total assets $ 12,194,617 $ 12,263,966
============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 3,268,935 $ 3,230,611
Notes, net 2,419,245 2,120,079
Lines of credit - 355,462
Accounts payable and accrued expenses 135,153 107,818
Accrued interest payable 77,769 51,877
Rents received in advance and other liabilities 70,535 100,819
Security deposits 48,632 46,272
Distributions payable 144,535 18,863
-------------- ------------
Total liabilities 6,164,804 6,031,801
-------------- ------------
COMMITMENTS AND CONTINGENCIES
Minority Interests:
Operating Partnership 631,221 609,734
Partially Owned Properties 3,538 2,884
-------------- ------------
Total Minority Interests 634,759 612,618
-------------- ------------
Shareholders' equity:
Preferred Shares of beneficial interest, $.01 par value;
100,000,000 shares authorized; 11,387,345 shares issued
and outstanding as of September 30, 2001 and 20,003,166 shares
issued and outstanding as of December 31, 2000 967,741 1,183,136
Common Shares of beneficial interest, $.005 par value;
350,000,000 shares authorized; 270,375,138 shares issued and
outstanding as of September 30, 2001 and 265,232,750 shares
issued and outstanding as of December 31, 2000 1,352 1,326
Paid in capital 4,840,636 4,739,782
Employee notes (4,127) (4,346)
Distributions in excess of accumulated earnings (385,160) (300,351)
Accumulated other comprehensive income (25,388) -
-------------- ------------
TOTAL SHAREHOLDERS' EQUITY 5,395,054 5,619,547
-------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 12,194,617 $ 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>
NINE MONTHS ENDED QUARTER ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- --------------------------
2001 2000 2001 2000
----------------------------- --------------------------
REVENUES
Rental income $ 1,556,812 $ 1,454,019 $ 529,141 $ 501,279
Fee and asset management 5,805 4,711 1,665 1,876
Interest income - investment in mortgage notes 8,786 8,282 23 2,783
Interest and other income 18,240 19,009 6,529 10,624
Furniture income 45,051 15,167 15,024 15,167
------------ ------------- ----------- -----------
Total revenues 1,634,694 1,501,188 552,382 531,729
------------ ------------- ----------- -----------
EXPENSES
Property and maintenance 420,365 369,452 143,715 141,607
Real estate taxes and insurance 143,015 141,420 46,240 46,419
Property management 56,302 56,204 19,760 18,444
Fee and asset management 5,358 3,647 1,888 1,545
Depreciation 341,014 334,840 115,908 110,328
Interest:
Expense incurred 287,329 285,337 96,946 95,074
Amortization of deferred financing costs 4,338 4,063 1,528 1,360
General and administrative 23,604 19,354 9,525 6,138
Furniture expenses 45,390 10,361 14,891 10,361
Amortization of goodwill 2,852 767 928 767
Impairment on furniture rental business 60,000 - 60,000 -
Impairment on technology investments 7,968 - 1,193 -
------------ ------------- ----------- -----------
Total expenses 1,397,535 1,225,445 512,522 432,043
------------ ------------- ----------- -----------
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 237,159 275,743 39,860 99,686
Allocation to Minority Interests:
Operating Partnership (22,666) (32,388) (6,192) (13,256)
Partially Owned Properties (1,523) 145 (1,285) (12)
Income from investments in unconsolidated entities 20,252 14,589 8,029 5,525
Net gain on sales of real estate 100,132 165,025 53,567 77,373
------------ ------------- ----------- -----------
Income before extraordinary items and cumulative
effect of change in accounting principle 333,354 423,114 93,979 169,316
Extraordinary items (22) - (128) -
Cumulative effect of change in accounting principle (1,270) - - -
------------ ------------- ----------- -----------
Net income 332,062 423,114 93,851 169,316
Preferred distributions (81,759) (83,597) (24,340) (27,943)
------------ ------------- ----------- -----------
Net income available to Common Shares $ 250,303 $ 339,517 $ 69,511 $ 141,373
============ ============= =========== ===========
Net income per share - basic $ 0.94 $ 1.31 $ 0.26 $ 0.54
============ ============= =========== ===========
Net income per share - diluted $ 0.93 $ 1.30 $ 0.26 $ 0.53
============ ============= =========== ===========
Weighted average Common Shares outstanding - basic 266,614 258,870 268,253 262,824
============ ============= =========== ===========
Weighted average Common Shares outstanding - diluted 294,661 289,894 296,391 304,988
============ ============= =========== ===========
Distributions declared per Common Share outstanding $ 1.2475 $ 1.1675 $ 0.4325 $ 0.4075
============ ============= =========== ===========
</Table>
SEE ACCOMPANYING NOTES
3
<Page>
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
2001 2000
-----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 332,062 $ 423,114
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
ALLOCATION TO MINORITY INTERESTS:
Operating Partnership 22,666 32,388
Partially Owned Properties 1,523 (145)
Cumulative effect of change in accounting principle 1,270 -
Depreciation 349,313 335,844
Amortization of deferred financing costs 4,338 4,063
Amortization of discount on investment in mortgage notes (2,256) -
Amortization of goodwill 2,852 767
Amortization of discounts and premiums on debt (1,424) (1,725)
Amortization of deferred settlements on interest rate protection agreements 533 290
Impairment on furniture rental business 60,000 -
Impairment on technology investments 7,968 -
Income from investments in unconsolidated entities (20,252) (14,589)
Net gain on sales of real estate (100,132) (165,025)
Extraordinary items 22 -
Unrealized gain on interest rate protection agreements (161) -
Book value of furniture sales and rental buy outs 8,703 4,802
Compensation paid with Company Common Shares 12,298 4,300
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in rents receivable (2,069) 44
Decrease in deposits - restricted 4,538 3,660
Additions to rental furniture (17,827) (7,477)
(Increase) in other assets (17,630) (7,285)
Increase in accounts payable and accrued expenses 25,535 39,186
Increase in accrued interest payable 25,702 22,612
(Decrease) in rents received in advance and other liabilities (7,628) (9,755)
Increase in security deposits 885 14
----------- -----------
Net cash provided by operating activities 690,829 665,083
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate (296,710) (238,055)
Improvements to real estate (108,310) (100,347)
Additions to non-real estate property (5,210) (3,919)
Interest capitalized for real estate under construction (2,159) (827)
Proceeds from disposition of real estate, net 452,060 416,603
Investment in property and equipment (2,185) (416)
Principal receipts on investment in mortgage notes 61,419 5,287
Investments in unconsolidated entities (69,195) (122,535)
Distributions from unconsolidated entities 26,311 15,077
Proceeds from refinancing of unconsolidated entities, net 5,691 1,695
Proceeds from disposition of unconsolidated entities, net 359 4,602
Decrease (increase) in deposits on real estate acquisitions, net 98,582 (154,711)
(Increase) decrease in mortgage deposits (4,167) 2,283
Purchase of management contract rights - (779)
Consolidation of previously Unconsolidated Properties 52,841 (163)
Business combinations, net of cash acquired (8,231) (71,228)
Other investing activities, net 989 (2,950)
----------- -----------
Net cash provided by (used for) investing activities 202,085 (250,383)
----------- -----------
</Table>
SEE ACCOMPANYING NOTES
4
<Page>
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
2001 2000
---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan and bond acquisition costs $ (4,383) (2,392)
MORTGAGE NOTES PAYABLE:
Proceeds, net 59,312 389,051
Lump sum payoffs (315,302) (119,412)
Scheduled principal repayments (24,210) (19,930)
Prepayment premiums (201) -
NOTES, NET:
Proceeds, net 299,316 -
Lump sum payoffs - (208,000)
Scheduled principal repayments (4,649) -
LINES OF CREDIT:
Proceeds 436,491 209,305
Repayments (791,953) (505,179)
(Payments) proceeds from settlement of interest rate protection agreements (7,360) 7,055
Proceeds from sale of Common Shares 7,277 5,901
Proceeds from sale of Preferred Shares/Units 48,500 137,000
Proceeds from exercise of options 56,326 18,964
Redemption of Preferred Shares (210,500) -
Payment of offering costs (1,535) (3,637)
DISTRIBUTIONS:
Common Shares (218,632) (197,113)
Preferred Shares/Units (82,887) (80,412)
Minority Interests - Operating Partnership (19,738) (18,923)
Minority Interests - Partially Owned Properties (31,970) (617)
Principal receipts on employee notes, net 219 254
Principal receipts on other notes receivable, net - 510
------------ ----------
Net cash (used for) financing activities (805,879) (387,575)
------------ ----------
Net increase in cash and cash equivalents 87,035 27,125
Cash and cash equivalents, beginning of period 23,772 29,117
------------ ----------
Cash and cash equivalents, end of period $ 110,807 $ 56,242
============ ==========
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $ 270,849 264,582
============ ==========
Mortgage loans assumed through real estate acquisitions $ 45,918 $ 38,442
============ ==========
Net real estate contributed in exchange for OP Units or preference units $ - $ 4,707
============ ==========
Mortgage loans (assumed) by purchaser in real estate dispositions $ (28,231) $ (220,000)
============ ==========
Transfers to real estate held for disposition $ 4,102 224,553
============ ==========
Mortgage loans recorded as a result of consolidation of previously
Unconsolidated Properties $ 301,502 $ 65,095
============ ==========
Net (assets) liabilities recorded as a result of consolidation of previously
Unconsolidated Properties $ (20,839) 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 September 30, 2001,
the Company owned or had interests in a portfolio of 1,081 multifamily
properties containing 225,590 apartment units (individually a "Property" and
collectively the "Properties") consisting of the following:
<Table>
<Caption>
Number of Number of
Properties Units
--------------------------------------------------------------
Wholly Owned Properties 961 201,089
Partially Owned Properties 36 6,963
Unconsolidated Properties 84 17,538
--------------------------------------------------------------
Total Properties 1,081 225,590
==============================================================
</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 nine months ended September 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.
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.
6
<Page>
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 September 30, 2001, there were approximately $25.4
million in deferred losses, net, included in accumulated other comprehensive
income.
At September 30, 2001, the Company had entered into swaps which have been
designated as cash flow hedges with an aggregate notional amount of $626.4
million at interest rates ranging from 3.65125% to 6.15% maturing at various
dates ranging from 2003 to 2007 with a net liability fair value of $27.1
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 $13.1 million.
On September 30, 2001, the net derivative instruments were reported at
their fair value as other liabilities of approximately $14.0 million. Within the
next twelve months the Company expects to recognize an estimated $7.6 million of
accumulated other comprehensive income as additional interest expense.
OTHER
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, BUSINESS COMBINATIONS, and SFAS No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS. SFAS Nos. 141 and 142 require companies to account for all
business combinations using the purchase method of accounting and to eliminate
the amortization of goodwill in favor of a periodic impairment based approach.
SFAS Nos. 141 and 142 will be effective for fiscal years beginning after
December 15, 2001. The Company will adopt the standards effective January 1,
2002, and does not anticipate that the adoptions will have a material impact on
the Company's financial condition and results of operations.
In August 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, which is effective for fiscal
years beginning after December 15, 2001. The Company will adopt the standard
effective January 1, 2002, and does not anticipate that the adoption will
have a material impact on the Company's financial condition and results of
operations.
7
<Page>
3. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS
On October 11, 2001, the Company effected a two-for-one split of its
common shares and OP Units to shareholders and unit holders of record as of
September 21, 2001. All Common Shares and OP Units presented have been
retroactively adjusted to reflect the common share and OP Unit split.
The following table presents the changes in the Company's issued and
outstanding Common Shares for the nine months ended September 30, 2001:
<Table>
<Caption>
==========================================================
2001
----------------------------------------------------------
Common Shares outstanding at January 1, 265,232,750
COMMON SHARES ISSUED:
Conversion of Series E Preferred Shares 212,444
Conversion of Series H Preferred Shares 6,972
Employee Share Purchase Plan 266,694
Dividend Reinvestment - DRIP Plan 28,462
Share Purchase - DRIP Plan 21,752
Exercise of options 2,712,714
Restricted share grants, net 756,598
Conversion of OP Units 1,136,752
----------------------------------------------------------
Common Shares outstanding at September 30, 270,375,138
==========================================================
</Table>
The equity positions of various individuals and entities that contributed
their properties to the Operating Partnership in exchange for OP Units are
collectively referred to as the "Minority Interests - Operating Partnership". As
of September 30, 2001, the Minority Interests - Operating Partnership held
23,876,662 OP Units. As a result, the Minority Interests - Operating Partnership
had an 8.11% interest in the Operating Partnership at September 30, 2001.
Assuming conversion of all OP Units into Common Shares, total Common Shares
outstanding at September 30, 2001 would have been 294,251,800.
Net proceeds from the Company's Common Share and Preferred Share
offerings (including proceeds from exercise of options for Common Shares) 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 nine months ended September 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:
- 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.
- 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
8
<Page>
Cumulative Redeemable Preferred Shares of Beneficial Interest of
the Company or 287,052 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.
- 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 Redeemable Preferred Shares of Beneficial
Interest of the Company or 392,634 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 1.5108
common shares (equal to a conversion price of $33.095 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
1.4542 common shares (equal to a conversion price of $34.38 per share) beginning
in June 2011.
The following table presents the Company's issued and outstanding
Preferred Shares as of September 30, 2001 and December 31, 2000:
9
<Page>
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------------
AMOUNTS IN THOUSANDS
-----------------------------
ANNUAL
DIVIDEND
RATE PER SEPTEMBER 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 September 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 September 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 September 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 September 30, 2001 and December 31, 2000
Series E Cumulative Convertible Preferred; liquidation value $ 1.75000 85,215 89,990
$25 per share; 3,408,618 and 3,599,615 shares issued and
outstanding at September 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 September 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 September 30, 2001 and December 31, 2000
7.00% Series H Cumulative Convertible Preferred; liquidation $ 1.75000 1,351 1,471
value $25 per share; 54,027 and 58,851 shares issued and
outstanding at September 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 September 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 September 30, 2001 and December 31, 2000
- ----------------------------------------------------------------------------------------------------------------
$ 967,741 $ 1,183,136
- ----------------------------------------------------------------------------------------------------------------
</Table>
(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 total cash
consideration of $210.5 million.
10
<Page>
4. Real Estate Acquisitions
During the nine months ended September 30, 2001, the Company acquired the
eleven properties and one parcel of land listed below from unaffiliated parties
for a total purchase price of $287.8 million.
<Table>
<Caption>
---------------------------------------------------------------------------------------------------------------
ACQUISITION
DATE NUMBER PRICE
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
08/13/01 Vacant Land Westwood, MA 0 600
08/22/01 Shadetree West Palm Beach, FL 76 1,948
08/22/01 Suntree West Palm Beach, FL 67 1,944
09/26/01 Palladia Hillsboro, OR 497 51,250
---------------------------------------------------------------------------------------------------------------
2,656 $ 287,842
---------------------------------------------------------------------------------------------------------------
</Table>
On July 2, 2001, the Company acquired an additional ownership interest in
21 previously Unconsolidated Properties containing 3,896 units. Prior to July 2,
2001, the Company accounted for this portfolio as in investment in mortgage
notes. As a result of this additional ownership acquisition, the Company
acquired a controlling interest, and as such, now consolidates these properties
for financial reporting purposes. The Company recorded additional investments in
real estate totaling $258.9 million in connection with this transaction.
5. REAL ESTATE DISPOSITIONS
During the nine months ended September 30, 2001, the Company disposed of
the thirty-seven properties and two vacant parcels of land listed below to
unaffiliated parties. When combined with gains from the joint venture and
unconsolidated property sale discussed below, the Company recognized a net gain
of approximately $100.1 million on these sales.
11
<Page>
<Table>
<Caption>
------------------------------------------------------------------------------------------------------------
DISPOSITION
DATE NUMBER PRICE
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
03/22/01 Vacant Land Richmond, VA 0 11,200
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 Vacant Land Jacksonville, FL 0 217
06/28/01 Camden Way I and II Kingsland, GA 118 2,000
07/11/01 Plantation Houston, TX 232 12,875
07/12/01 Wood Crest Villas Westland, MI 458 20,450
07/17/01 Hampshire Court Bluffton, IN 45 1,064
07/17/01 Meadowood Logansport, IN 42 993
07/17/01 Westwood Rochester, IN 42 993
07/19/01 Vista Pointe Irving, TX 231 17,200
07/31/01 Cedarwood Sabina, OH 31 385
08/09/01 Olentangy Commons Columbus, OH 827 53,000
08/31/01 Greenglen II Lima, OH 54 1,095
09/28/01 Glenview Huntsville, AL 90 1,687
------------------------------------------------------------------------------------------------------------
6,167 $ 298,094
------------------------------------------------------------------------------------------------------------
</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
12
<Page>
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.
On May 17, 2001, the Company sold its entire interest in one
Unconsolidated Property containing 74 units for approximately $0.4 million.
6. Commitments to Acquire/Dispose of Real Estate
At September 30, 2001, in addition to the Property that was subsequently
acquired as discussed in Note 16 below, the Company had entered into separate
agreements to acquire two multifamily properties containing 469 units from
unaffiliated parties. The Company expects a combined purchase price of
approximately $76.5 million, including the assumption of mortgage indebtedness
of approximately $45.8 million.
At September 30, 2001, in addition to the Properties that were
subsequently disposed of as discussed in Note 16 below, the Company had entered
into separate agreements to dispose of seven multifamily properties containing
1,460 units, one vacant land parcel and retail space at a consolidated property
to unaffiliated parties. The Company expects a combined disposition price of
approximately $65.6 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 $298.5 million and $235.9 million as of September 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 $53.4 million and $80.6 million as of September 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 September 30, 2001 primarily included the
following:
- deposits in the amount of $55.5 million held in third party
escrow accounts to provide collateral for third party
construction financing in connection with joint venture
agreements;
- approximately $39.2 million in tax-deferred (1031) exchange
proceeds; and
- approximately $62.6 million for tenant security, utility, and
other deposits.
13
<Page>
9. MORTGAGE NOTES PAYABLE
As of September 30, 2001, the Company had outstanding mortgage
indebtedness of approximately $3.3 billion.
During the nine months ended September 30, 2001 the Company:
- repaid $315.3 million of mortgages due at or prior to maturity
and/or at the disposition date of the respective Property;
- assumed $45.9 million of mortgage debt on four properties in
connection with their acquisitions;
- disposed of $28.2 million of mortgage debt assumed by the
purchaser in connection with the disposition of certain
properties;
- obtained $26.0 million of new mortgage debt on previously
unencumbered properties;
- obtained $301.5 million of new mortgage debt on previously
Unconsolidated Properties; and
- received $33.3 million in construction loan draw proceeds on two
properties.
As of September 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 2.15% to 12.465% at
September 30, 2001. During the nine months ended September 30, 2001, the
weighted average interest rate on the Company's mortgage debt was 6.59%.
10. NOTES
As of September 30, 2001, the Company had outstanding unsecured notes of
approximately $2.4 billion.
During the nine months ended September 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 September 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 September 30, 2001. During the nine
months ended September 30, 2001, the weighted average interest rate on the
Company's notes was 6.88%.
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 September
30, 2001, no amounts were outstanding under this facility and $60.0 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.
14
<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>
NINE MONTHS ENDED QUARTER ENDED
SEPTEMBER 30, SEPTEMBER 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 $ 237,159 $ 275,743 $ 39,860 $ 99,686
Allocation to Minority Interests:
Operating Partnership (22,666) (32,388) (6,192) (13,256)
Partially Owned Properties (1,523) 145 (1,285) (12)
Income from investments in unconsolidated entities 20,252 14,589 8,029 5,525
Preferred distributions (81,759) (83,597) (24,340) (27,943)
----------- ------------ ------------ -----------
Income before net gain on sales of real estate,
extraordinary items and cumulative effect of change
in accounting principle 151,463 174,492 16,072 64,000
Net gain on sales of real estate 100,132 165,025 53,567 77,373
Extraordinary items (22) - (128) -
Cumulative effect of change in accounting principle (1,270) - - -
----------- ------------ ------------ -----------
Numerator for net income per share - basic 250,303 339,517 69,511 141,373
Effect of dilutive securities:
Allocation to Minority Interests - Operating Partnership 22,666 32,388 6,192 13,256
Distributions on convertible preferred shares/units 74 5,601 - 7,576
----------- ------------ ----------- -----------
Numerator for net income per share - diluted $ 273,043 $ 377,506 $ 75,703 $ 162,205
=========== ============ =========== ===========
DENOMINATOR:
Denominator for net income per share - basic 266,614 258,870 268,253 262,824
Effect of dilutive securities:
OP Units 24,189 24,766 23,960 24,640
Convertible preferred shares/units 82 4,816 - 15,554
Share options/restricted shares 3,776 1,442 4,178 1,970
----------- ------------ ----------- -----------
Denominator for net income per share - diluted 294,661 289,894 296,391 304,988
=========== ============ =========== ===========
Net income per share - basic $ 0.94 $ 1.31 $ 0.26 $ 0.54
=========== ============ =========== ===========
Net income per share - diluted $ 0.93 $ 1.30 $ 0.26 $ 0.53
=========== ============ =========== ===========
</Table>
15
<Page>
<Table>
<Caption>
NINE MONTHS ENDED QUARTER ENDED
SEPTEMBER 30, SEPTEMBER 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 $ 0.60 $ 0.73 $ 0.08 $ 0.27
Net gain on sales of real estate 0.34 0.58 0.18 0.27
Extraordinary items - - - -
Cumulative effect of change in accounting principle - - - -
----------------------------------------------------------
Net income per share - basic $ 0.94 $ 1.31 $ 0.26 $ 0.54
==========================================================
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 $ 0.59 $ 0.73 $ 0.08 $ 0.28
Net gain on sales of real estate 0.34 0.57 0.18 0.25
Extraordinary items - - - -
Cumulative effect of change in accounting principle - - - -
----------------------------------------------------------
Net income per share - diluted $ 0.93 $ 1.30 $ 0.26 $ 0.53
==========================================================
</Table>
CONVERTIBLE PREFERRED SHARES/UNITS THAT COULD BE CONVERTED INTO
15,322,607 AND 13,922,972 WEIGHTED AVERAGE COMMON SHARES FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 2001 AND 2000, RESPECTIVELY, AND 15,626,902
AND 0 WEIGHTED AVERAGE COMMON SHARES FOR THE QUARTERS ENDED SEPTEMBER 30,
2001 AND 2000, RESPECTIVELY, WERE OUTSTANDING BUT WERE NOT INCLUDED IN
THE COMPUTATION OF DILUTED EARNINGS PER SHARE BECAUSE THE EFFECTS WOULD
BE ANTI-DILUTIVE.
ON OCTOBER 11, 2001, THE COMPANY EFFECTED A TWO-FOR-ONE SPLIT OF ITS
COMMON SHARES TO SHAREHOLDERS OF RECORD AS OF SEPTEMBER 21, 2001. ALL PER
SHARE DATA AND NUMBERS OF COMMON SHARES HAVE BEEN RETROACTIVELY ADJUSTED
TO REFLECT THE COMMON SHARE SPLIT.
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 net total of $109.5 million during the
nine months ended September 30, 2001. During the fourth quarter of 2001, the
Company expects to fund approximately $23.5 million in connection with these
Properties. In
16
<Page>
connection with one joint venture agreement, the Company has an obligation to
fund up to an additional $6.5 million to guarantee third party construction
financing. As of September 30, 2001, the Company has 19 projects under
development with estimated completion dates ranging from December 31, 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.
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 September 30,
2001, this enhancement was still in effect at a commitment amount of $12.7
million.
14. ASSET IMPAIRMENT
As of September 30, 2001, the Company recorded $60.0 million of asset
impairment charges related to its furniture rental business. These charges were
the result of review of the existing intangible and tangible assets reflected on
the consolidated balance sheet as of September 30, 2001. The Company reviewed
the current net book value taking into consideration existing business and
economic conditions as well as projected operating cash flows. The impairment
loss is reflected on the income statement in total expenses and includes the
write-down of the following assets: a) goodwill of approximately $26.0 million;
b) rental furniture, net of approximately $28.6 million; c) property and
equipment, net of approximately $4.5 million; and d) other assets of
approximately $0.9 million.
For the nine months ended September 30, 2001, the Company recorded
approximately $8.0 million of asset impairment charges related to its technology
investments. These charges were the result of review of the existing investments
reflected on the consolidated balance sheet. The Company reviewed the current
relative value of each investment based on existing economic conditions and
current events. These impairment losses are reflected on the income statement in
total expenses and includes the write-down of assets classified as investments
in unconsolidated entities.
15. REPORTABLE SEGMENTS
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by
senior management. Senior management decides how resources are allocated and
assesses performance on a monthly basis.
The 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. Senior
management evaluates the performance of each of our apartment communities on an
individual basis, however, each of our apartment communities has similar
economic characteristics, residents and products and services so they have been
aggregated into one reportable segment. The Company's rental real estate segment
comprises approximately 95.2% and 96.9% of total revenues for the nine months
ended September 30, 2001 and 2000, respectively, and approximately 95.8% and
94.3% of total revenues for the quarters ended September 30, 2001 and 2000,
respectively.
The primary financial measure for the Company's rental real estate
segment is net operating income ("NOI"), which represents rental income less: 1)
property and maintenance expense; 2) real estate
17
<Page>
taxes and insurance expense; and 3) property management expense (all as
reflected in the accompanying statements of operations). Current year NOI is
compared to prior year NOI and current year budgeted NOI as a measure of
financial performance. NOI from our rental real estate totaled approximately
$937.1 million and $886.9 million for the nine months ended September 30,
2001 and 2000, respectively, and approximately $319.4 million and $294.8
million for the quarters ended September 30, 2001 and 2000, respectively.
During the acquisition, development and/or disposition of real estate,
the NOI return on total capitalized costs is the primary measure of financial
performance (capitalization rate) the Company considers.
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.
16. SUBSEQUENT EVENTS
Subsequent to September 30, 2001 and through November 7, 2001, the
Company:
- acquired one Property consisting of 296 units for approximately
$23.7 million;
- disposed of five Properties consisting of 636 units for
approximately $22.1 million;
- repaid $25.1 million of mortgage debt at or prior to maturity
on five Properties; and
- relinquished $1.1 million of mortgage debt assumed by the
purchaser in connection with the disposition of two Properties.
18
<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 that are predictions of or indicate future events and trends
and which do not relate solely to historical matters identify forward-looking
statements. Such forward-looking statements are subject to risks and
uncertainties, which could cause actual results, performance, or achievements of
the 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 more expensive
than anticipated;
- occupancy levels and market rents may be adversely affected by
national and 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
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:
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------------
PORTFOLIO SUMMARY
- ----------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
- ----------------------------------------------------------------------------------------------------------------
2001 2000
---- ----
PROPERTIES UNITS PROPERTIES UNITS
Beginning of period 1,104 227,704 1,064 226,317
Acquisitions 11 2,657 19 3,002
Dispositions (38) (6,241) (30) (7,354)
Completed Developments 4 1,470 3 734
- ----------------------------------------------------------------------------------------------------------------
End of period 1,081 225,590 1,056 222,699
================================================================================================================
</Table>
In addition, the Company sold and/or contributed eleven wholly owned
Properties containing 3,011 units to a joint venture entity during the nine
months ended September 30, 2001. The Company sold and/or contributed 21 wholly
owned properties containing 5,211 units to two joint venture entities during the
nine months ended September 30, 2000. The Company retained a 25% interest along
with the rights to manage these joint venture Properties.
The Company's acquisition and disposition activity has impacted overall
results of operations for the nine months and quarters ended September 30, 2001
and 2000. Significant changes in revenues and expenses have resulted primarily
from the consolidation of previously Unconsolidated Properties and the
acquisition of Globe, as well as the 2001 and the 2000 Acquired Properties,
which have been partially offset by the disposition of the 2001 and the 2000
Disposed Properties. Significant change in expense
19
<Page>
has also resulted from impairment charges (furniture rental and unconsolidated
technology investments) recorded in 2001. This impact is discussed in greater
detail in the following paragraphs.
Properties that the Company owned for all of both the nine month periods
ended September 30, 2001 and September 30, 2000 (the "Nine-Month 2001 Same Store
Properties"), which represented 184,391 units, and Properties that the Company
owned for all of both the quarters ended September 30, 2001 and September 30,
2000 (the "Third-Quarter 2001 Same Store Properties"), which represented 185,759
units, also impacted the Company's results of operations. Both the Nine-Month
2001 Same Store Properties and Third-Quarter 2001 Same Store Properties are
discussed in the following paragraphs.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2001 TO NINE MONTHS ENDED
SEPTEMBER 30, 2000
For the nine months ended September 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 decreased by approximately $38.6 million when compared to
the nine months ended September 30, 2000.
Rental income from the Nine-Month 2001 Same Store Properties increased by
approximately $58.9 million to $1.3 billion, or 4.7%, 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 3.75% to 4.0% from Same Store
Properties. For 2002, the Company expects to see rental income within a range of
being slightly lower by 0.05% to slightly higher by as much as 1.0%. These
estimated increases are subject to certain risks and uncertainties including,
but not limited to, maintaining an overall average occupancy rate of 93.5% to
94.0%.
Property operating expenses from the Nine-Month 2001 Same Store
Properties, which include property and maintenance, real estate taxes and
insurance and an allocation of property management expenses, increased
approximately $20.5 million or 4.5%. The increase in "same store" expenses is
primarily attributable to a $4.8 million, or 6.5%, increase in utilities and a
$8.3 million, or 7.3% increase in payroll costs. For the remainder of 2001, the
Company expects to maintain expense growth at no more than 3.75% to 4.0% for the
Same Store Properties. For 2002, the Company expects to maintain expense growth
between a range of 1.5% to 2.25%.
Rental income from properties other than Nine-Month 2001 Same Store
Properties increased by approximately $43.9 million primarily as a result of
revenue from the Company's corporate housing business and the acquisition of
Properties during 2001, including the consolidation of previously Unconsolidated
Properties.
Interest income-investment in mortgage notes increased by approximately
$0.5 million as a result of receiving deferred interest income on certain of the
mortgage notes. The Company anticipates no additional interest income will be
recognized on these mortgage notes in future quarters as the Company now
consolidates the results related to these previously Unconsolidated Properties.
Interest and other income decreased by approximately $0.8 million,
primarily as a result of lower balances and related interest rates being earned
on these investments.
Property management expenses included off-site expenses associated with
the self-management of the Company's Properties. These expenses increased by
approximately $0.1 million. 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
20
<Page>
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
September 30, 2001, the Company managed 15,948 units 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.
The Company recorded impairment charges totaling approximately $68.0
million, of which $60.0 million is related to the furniture rental business and
approximately $8.0 million is related to certain investments in technology
entities. See Footnote 14 in the Notes to the Consolidated Financial Statements
for further discussion.
Interest expense, including amortization of deferred financing costs,
increased approximately $2.3 million. The effective interest cost on all of the
Company's indebtedness for the nine months ended September 30, 2001 was 6.99% as
compared to 7.25% for the nine months ended September 30, 2000. For the
remainder of 2001, the Company expects its overall interest costs to decrease
slightly due to lower variable interest rates. In connection with the scheduled
maturity of $150 million of indebtedness due in November 2001, the Company
anticipates to initially borrow under its line of credit to repay this
indebtedness. The Company also expects to replace this indebtedness in the first
quarter of 2002 for a similar amount and to incur interest costs approximating
6.5% to 7.0% per annum.
General and administrative expenses, which include corporate operating
expenses, increased approximately $4.3 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 vesting of restricted shares/awards to key employees
in the past three years.
Net gain on sales of real estate decreased approximately $64.9 million
between the periods under comparison. This decrease is primarily the result of a
fewer number of units sold during the nine months ended September 30, 2001
(9,252 units including the joint venture Properties) as compared to the nine
months ended September 30, 2000 (12,565 units including the joint venture
Properties). In addition, the Company sold older and more fully depreciated
Properties during the nine months ended September 30, 2000 as compared to the
nine months ended September 30, 2001.
COMPARISON OF QUARTER ENDED SEPTEMBER 30, 2001 TO QUARTER ENDED SEPTEMBER
30, 2000
For the quarter ended September 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 decreased by approximately $59.8 million when compared to
the quarter ended September 30, 2000.
Rental income from the Third-Quarter 2001 Same Store Properties increased
by approximately $14.8 million to $444.6 million or 3.4% 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 3.75% to 4.0% from Same
Store Properties. For 2002, the Company expects to see rental income within a
range of being slightly lower by 0.05% to slightly higher by as much as 1.0%.
These estimated increases are subject to certain risks and uncertainties
including, but not limited to, maintaining an overall average occupancy rate of
93.5% to 94.0%.
21
<Page>
Property operating expenses from the Third-Quarter 2001 Same Store
Properties, which include property and maintenance, real estate taxes and
insurance and an allocation of property management expenses, increased
approximately $4.6 million or 2.9%. The increase in "same store" expenses is
primarily attributable to a $1.3 million, or 3.4%, increase in real estate taxes
and a $2.4 million, or 6.0% increase in payroll costs. For the remainder of
2001, the Company expects to maintain expense growth at no more than 3.75% to
4.0% for the Same Store Properties. For 2002, the Company expects to maintain
expense growth between a range of 1.5% to 2.25%.
Rental income from properties other than Third-Quarter 2001 Same Store
Properties increased by approximately $13.1 million primarily as a result of
revenue from the Company's corporate housing business and the acquisition of
properties during the third quarter of 2001.
Interest income-investment in mortgage notes decreased by approximately
$2.8 million as a result of the Company receiving the final payment related to
these notes prior to consolidation of these previously Unconsolidated
Properties.
Interest and other income decreased by approximately $4.1 million,
primarily as a result of lower balances and related interest rates being earned
on the Company's short-term investment accounts.
Property management expenses included off-site expenses associated with
the self-management of the Company's Properties. These expenses increased by
approximately $1.3 million, primarily related to higher payroll costs and
increased health costs for employees.
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.
The Company recorded impairment charges totaling approximately $61.2
million, of which $60.0 million is related to the furniture rental business and
approximately $1.2 million is related to certain investments in technology
entities. See Footnote 14 in the Notes to the Consolidated Financial Statements
for further discussion.
Interest expense, including amortization of deferred financing costs,
increased approximately $2.0 million. The effective interest cost on all of the
Company's indebtedness for the quarter ended September 30, 2001 was 6.82% as
compared to 7.28% for the quarter ended September 30, 2000. For the remainder of
2001, the Company expects its overall interest cost to decrease slightly due to
lower variable interest rates.
General and administrative expenses, which include corporate operating
expenses, increased approximately $3.4 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
the past three years.
Net gain on sales of real estate decreased approximately $23.8 million
between the periods under comparison. This decrease is primarily the result of
fewer units sold during the quarter ended September 30, 2001, which included
2,052 wholly owned units as compared to 3,959 wholly owned units sold in the
quarter ended September 30, 2000.
22
<Page>
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 and
the net cash provided by operating activities, the Company's cash and cash
equivalents balance at September 30, 2001 was approximately $110.8 million and
the amount available on the Company's line of credit was $700.0 million, of
which $60.0 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, reinvestment of
retained cash flows or the issuance of additional equity or debt securities.
Continuing to utilize this strategy during the first nine months of 2001, the
Company:
- disposed of thirty-eight properties (including one Unconsolidated
Property) and two vacant parcels of land and received net
proceeds of $284.8 million;
- issued $300.0 million of unsecured debt receiving net proceeds
of $297.4 million;
- sold and/or contributed eleven properties to a joint venture and
received net proceeds of $167.6 million;
- issued $48.5 million of three new series of Preference Interests
and received net proceeds of $47.3 million;
- obtained $59.3 million in new mortgage financing; and
- received a $61.4 million pay-down of second and third
mortgages on previously Unconsolidated Properties.
During the nine months ended September 30, 2001, the Company:
- reduced its line of credit borrowings by approximately
$355.5 million;
- funded $210.5 million to redeem all of its Series A and F
Preferred Shares;
- repaid approximately $315.3 million of mortgages due at or
prior to maturity and/or at the disposition date of respective
properties;
- funded a net of $109.5 million related to the development,
earnout and joint venture agreements; and
- acquired eleven properties and vacant land for $288.9 million
($45.9 million of mortgage assumptions and $243.0 million
of cash).
The Company's total debt summary, as of September 30, 2001, included:
<Table>
<Caption>
------------------------------------------------------------------------------
DEBT SUMMARY AS OF 9/30/01
------------------------------------------------------------------------------
Weighted
$ Millions Average Rate
--------------------------------
Secured 3,269 6.73%
Unsecured 2,419 6.88%
--------------------------------
Total 5,688 6.79%
Fixed Rate 5,123 6.98%
Floating Rate 565 5.02%
--------------------------------
Total 5,688 6.79%
ABOVE TOTALS INCLUDE:
Total Tax Exempt 945 5.00%
Unsecured Revolving Credit Facility - -
------------------------------------------------------------------------------
</Table>
23
<Page>
Subsequent to September 30, 2001 and through November 7, 2001, the Company:
- acquired one Property consisting of 296 units for approximately
$23.7 million;
- disposed of five Properties consisting of 636 units for
approximately $22.1 million;
- repaid $25.1 million of mortgage debt at or prior to maturity on
five Properties; and
- relinquished $1.1 million in mortgage debt assumed by the
purchaser in connection with the disposition of two Properties.
During the fourth quarter of 2001, the Company expects to fund
approximately $23.5 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 $6.5 million to guarantee third
party construction financing. As of September 30, 2001, the Company has 19
projects under development with estimated completion dates ranging from December
31, 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 nine months ended September 30, 2001, the Company's total
improvements to real estate approximated $108.3 million. Replacements, which
includes new carpeting, appliances, mechanical equipment, fixtures, vinyl floors
and blinds inside the unit approximated $42.8 million, or $210 per unit.
Building improvements for the 1999, 2000 and 2001 Acquired Properties
approximated $19.4 million, or $375 per unit. Building improvements for all of
the Company's pre-1999 Acquired Properties approximated $38.9 million or $257
per unit. In addition, approximately $3.6 million was spent on six specific
assets related to major renovations and repositioning of these assets. Also
included in total improvements to real estate was approximately $3.6 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 $25.0 million.
During the nine months ended September 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 $5.2 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 $0.9 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 nine months ended
September 30, 2001, total additions to rental furniture approximated $17.8
million and property and equipment approximated $2.2 million. Total additions to
rental furniture and property and equipment budgeted for the remainder of 2001
are estimated to be approximately $1.0 million.
Minority Interests as of September 30, 2001 increased by $22.1 million
when compared to December 31, 2000. The primary factors that impacted this
account during the quarter were:
24
<Page>
- distributions declared to Minority Interests, which
amounted to $30.1 million for the nine months ended September 30, 2001
(excluding preference unit/interest distributions);
- the allocation of income from operations in the amount of $22.7 million;
- the allocation of Minority Interests from Partially Owned Properties
in the amount of $1.5 million;
- the conversion of OP Units into Common Shares; and
- the issuance of Common Shares, OP Units and Preference Interests
during the nine months ended September 30, 2001.
Total distributions paid in October 2001 amounted to approximately $146.4
million, which included distributions declared for the quarter ended September
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 November 9, 2001, $35.0 million was outstanding under this
facility.
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. This credit facility was terminated on May 31, 2001.
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 November 7,
2001, this enhancement was still in effect at a commitment amount of $12.7
million.
25
<Page>
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
3.1 Fourth Amended and Restated Bylaws
12 Computation of Ratio of Earnings to Fixed Charges
(B) Reports on Form 8-K:
None
26
<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: NOVEMBER 12, 2001 By: /s/ Bruce C. Strohm
-----------------------------
Bruce C. Strohm
Executive Vice President, General Counsel
and Secretary
Date: NOVEMBER 12, 2001 By: /s/ Michael J. Mchugh
-----------------------------
Michael J. McHugh
Executive Vice President, Chief Accounting
Officer and Treasurer
27