-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bbwe7u7q42QTe1jh3EDFPaI6tNHFDyXNVqGo3C25zDLAEhKkLNAuAYxofcPOsuh2 q5UitRPVGilZ+EVxwqTzyA== 0000950131-96-001185.txt : 19960325 0000950131-96-001185.hdr.sgml : 19960325 ACCESSION NUMBER: 0000950131-96-001185 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960322 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SECURITY CAPITAL PACIFIC TRUST CENTRAL INDEX KEY: 0000080737 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 746056896 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10272 FILM NUMBER: 96537335 BUSINESS ADDRESS: STREET 1: 7777 MARKET CENTER AVE CITY: EL PASO STATE: TX ZIP: 79912 BUSINESS PHONE: 9158773900 MAIL ADDRESS: STREET 1: 7777 MARKET CENTER AVE CITY: EL PASO STATE: TX ZIP: 79912 FORMER COMPANY: FORMER CONFORMED NAME: PROPERTY TRUST OF AMERICA DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: EL PASO REAL ESTATE INVESTMENT TRUST DATE OF NAME CHANGE: 19700108 10-K 1 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO . COMMISSION FILE NUMBER 1-10272 SECURITY CAPITAL PACIFIC TRUST (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MARYLAND 74-6056896 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 7777 MARKET CENTER AVENUE EL PASO, TEXAS 79912 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE) (915) 877-3900 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Shares of Beneficial Interest, par value New York Stock Exchange $1.00 per share Cumulative Convertible Series A Preferred Shares New York Stock Exchange of Beneficial Interest, par value $1.00 per share Series B Cumulative Redeemable Preferred Shares New York Stock Exchange of Beneficial Interest, par value $1.00 per share Preferred Share Purchase Rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] Based on the closing price of the registrant's shares on March 20, 1996, the aggregate market value of the voting shares held by non-affiliates of the registrant was $971,468,531.25. At March 20, 1996, there were outstanding approximately 72,210,918 Common Shares of Beneficial Interest of the registrant. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement for the 1996 annual meeting of its shareholders are incorporated by reference in Part III of this report. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
ITEM DESCRIPTION PAGE ---- ------------------------------------------------------------------- ---- PART I 1. Business........................................................... 3 Security Capital Pacific Trust..................................... 3 Strategy for Cash Flow and Distribution Growth..................... 4 Multifamily Properties............................................. 5 Non-Multifamily Properties......................................... 6 Investment Analysis................................................ 7 Strategic Accomplishments.......................................... 7 The REIT Manager................................................... 10 Officers of PTR and Directors and Officers of the REIT Manager and Relevant Affiliates............................................. 12 Insurance.......................................................... 18 Competition........................................................ 18 Environmental Matters.............................................. 18 Employees.......................................................... 19 Executive Officers................................................. 19 2. Properties......................................................... 19 Portfolio Composition.............................................. 28 Geographic Distribution............................................ 29 3. Legal Proceedings.................................................. 29 4. Submission of Matters to a Vote of Security Holders................ 29 PART II 5. Market for the Registrant's Common Equity and Related Stockholder Matters........................................................... 30 6. Selected Financial Data............................................ 32 7. Management's Discussion and Analysis of Financial Condition and Re- sults of Operations............................................... 33 Overview........................................................... 33 Merger and Concurrent Subscription Offering........................ 33 Results of Operations.............................................. 33 Environmental Matters.............................................. 38 Liquidity and Capital Resources.................................... 38 REIT Management Agreement.......................................... 41 8. Financial Statements and Supplementary Data........................ 42 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Matters....................... 42 PART III 10. Directors and Executive Officers of the Registrant................. 42 11. Executive Compensation............................................. 42 12. Security Ownership of Certain Beneficial Owners and Management..... 42 13. Certain Relationships and Related Transactions..................... 42 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 43
2 PART I ITEM 1. BUSINESS SECURITY CAPITAL PACIFIC TRUST The objective of Security Capital Pacific Trust ("PTR") is to be the preeminent real estate operating company focusing on multifamily property in its western United States target market. PTR's REIT manager is Security Capital Pacific Incorporated (the "REIT Manager" or "REIT Management"). Through its REIT Manager, PTR is a fully integrated operating company which focuses on development, acquisition, operation and long-term ownership of multifamily properties. At January 31, 1996, PTR owned and operated or was developing 55,445 multifamily units with a total expected cost of $2.3 billion, including budgeted costs of planned renovations and development expenditures. PTR's recent investment activity is focused primarily on the following metropolitan areas: Portland, Oregon; Salt Lake City, Utah; San Diego, California; San Francisco (Bay Area), California; and Seattle, Washington. PTR's properties are located in 23 metropolitan areas in 12 states. See "Item 2. Properties." PTR seeks to achieve long-term sustainable growth in cash flow by maximizing the operating performance of its core portfolio through value-added operating systems and concentrating its experienced team of professionals on developing and acquiring industry-leading product in targeted submarkets exhibiting strong job growth and favorable demographic trends. PTR highlights include: . Net operating income increased 7.8% in 1995 for PTR's multifamily properties that were fully operating throughout both 1994 and 1995. At January 31, 1996, PTR's operating multifamily properties were 95.9% leased. . PTR believes that development of multifamily properties that are built for long-term ownership and that target an underserved market (moderate income households, defined as those households earning 65% to 90% of a submarket's median income; for PTR's submarkets, $25,870 to $35,821 based on a weighted average median income using the number of households in each submarket) will provide a substantial source of long-term cash flow growth. At January 31, 1996, PTR had completed $326.6 million of multifamily developments, had $316.8 million of developments under construction, had $391.8 million of developments in planning for which construction is anticipated to commence within 12 months and owned $30.0 million of land held for future development. See "Item 1. Business-- Strategy for Cash Flow and Distribution Growth--Development." . Security Capital Group Incorporated ("SCG"), PTR's largest shareholder, which owned 37.9% of PTR's common shares of beneficial interest, par value $1.00 per share (the "Common Shares"), at March 18, 1996, is the owner of the REIT Manager and has provided common equity investment capital to PTR, at the same times and on the same terms made available to public investors. . Based on forecasts published by Woods & Poole Economics, Inc., the projected growth in population of PTR's target market cities is 29.2% for the years 1995-2015, whereas the projected growth in population in the United States as a whole for such period is 18.0%. For the same time period, job growth is projected to be 26.4% in PTR's target market cities, and 20.8% in the United States as a whole. . PTR develops and acquires properties with a view to effective long-term operation and ownership. The REIT Manager utilizes its affiliate, Security Capital Investment Research Incorporated ("Security Capital Investment Research"), to conduct comprehensive evaluations of PTR's target market to identify those submarkets and product types that offer above average prospects for long-term cash flow growth. These detailed market evaluations, combined with PTR's extensive development experience, and as one of the largest multifamily property owners in its target market, assist PTR in identifying the submarkets and product types that will offer above average opportunities for long-term cash flow growth. 3 . The REIT Manager provides both strategic and day-to-day management for PTR, including research, investment analysis, acquisition and development services, asset management, capital markets services, disposition of assets and legal and accounting services. As of March 20, 1996, 134 professionals were employed by the REIT Manager and its specialized service affiliates, including 6 professionals focused solely on research and 64 professionals focused on property development, acquisition, disposition and due diligence. Through the REIT Manager and its affiliates, PTR functions as a fully integrated operating company. . The REIT Manager, through its affiliated capital markets group, has arranged for over $1.5 billion of capital for PTR since PTR's inception, including $835.1 million in common equity financing, $335 million in preferred equity financing and $350 million in long-term debt financing (including $150 million in long-term debt financing raised in February 1996). . PTR's long-term debt as a percentage of total long-term undepreciated book capitalization (the sum of long-term debt and shareholders' equity after adding back accumulated depreciation) was 21% at December 31, 1995 on an historical basis and 27% at January 31, 1996 on a pro forma basis, giving effect to PTR's offering of $150 million of long-term unsecured senior debt in February 1996 and the application of the net proceeds therefrom. At March 20, 1996, PTR had $30.5 million of outstanding borrowings under its $350 million unsecured bank line of credit. PTR has elected to be taxed as a real estate investment trust ("REIT") for federal income tax purposes. PTR was formed in 1963 and is a real estate investment trust organized under the laws of Maryland. Its principal executive offices are located at 7777 Market Center Avenue, El Paso, Texas 79912, and its telephone number is (915) 877-3900. STRATEGY FOR CASH FLOW AND DISTRIBUTION GROWTH PTR seeks to achieve long-term sustainable growth in cash flow by maximizing the operating performance of its core portfolio through value-added operating systems and concentrating its experienced team of professionals on developing and acquiring industry-leading product in targeted submarkets exhibiting strong job growth and favorable demographic trends. Commitment to Fundamental Real Estate Research. The REIT Manager utilizes its affiliate, Security Capital Investment Research, to conduct comprehensive evaluations of PTR's target market to identify those submarkets and product types that offer above average prospects for long-term cash flow growth. These detailed market evaluations, combined with PTR's extensive development experience, and as one of the largest multifamily property owners in its target market, assist PTR in identifying the submarkets and product types that will offer above average opportunities for long-term cash flow growth. Asset Review and Reallocation. PTR develops and acquires properties with a view to effective long-term operation and ownership. Each year, REIT Management actively reviews PTR's asset base. These reviews generate operating and capital plans and, with guidance from Security Capital Investment Research, identify submarkets and product types that PTR believes represent above average long- term growth opportunities. For each submarket, PTR's research evaluates 24 key variables that PTR has identified as having the most impact on multifamily operating performance. This research provides PTR with the information needed to target specific resident profiles and identify unit mix, density and amenities for each community which will provide the greatest opportunity for consistent rental increases and high occupancies. Based upon PTR's market research and in an effort to optimize its portfolio composition, PTR may from time to time seek to dispose of assets that in management's view do not meet PTR's long-term investment criteria. The proceeds therefrom will be redeployed, preferably through like-kind exchanges, into assets that are more consistent with PTR's investment objectives. Development. At January 31, 1996, PTR had completed $326.6 million of multifamily developments, had $316.8 million of developments under construction and had $391.8 million of developments in planning. 4 The term "in planning" means developments owned or under control (land which is under control through contingent contract or letter of intent) with construction anticipated to commence within 12 months. At January 31, 1996, PTR also owned $30.0 million of land held for future development. PTR has engaged in multifamily development since 1970. PTR has developed from the ground up, or has in development, a total of $1.0 billion of properties which represent 44.5%, based on expected cost, of its multifamily portfolio as of January 31, 1996. Historically, actual operating results on properties developed by PTR have generally exceeded projected operating results and the results available from properties that were acquired rather than developed by PTR. PTR's development strategy is to focus on developing state of the art product in attractive submarkets to address specific renter preferences and demographic trends. PTR believes that developing communities designed for long-term appeal to the largest segment of the renter population (moderate income households) will allow PTR to achieve more consistent rental increases and higher occupancies over the long-term and, thereby, realize cash flow growth. Moderate income residents are typically longer-term residents due, in part, to the financial resources required to purchase single-family homes. As a result, turnover expenses associated with properties designed for moderate income households are generally lower than those designed for upper middle or middle income households. PTR carefully manages development risks by obtaining zoning and public approvals prior to purchasing land. PTR does not take construction risk, but instead uses qualified third party general contractors to build its properties, using guaranteed maximum price contracts. To enhance its flexibility in developing and acquiring properties, PTR may also from time to time enter into presale agreements with third party owner-developers to acquire properties developed by such owner-developers where the developments meet PTR's investment criteria. PTR targets development in submarkets with high occupancy rates where population and job growth trends indicate increasing future demand. PTR cannot eliminate all development risk but believes that the opportunities to better control product and realize higher returns from development properties more than compensate for the retained risk. Development opportunities also permit PTR to incorporate into multifamily communities proprietary technologies and designs aimed at enhancing long-term rental growth while reducing ongoing maintenance costs. PTR has had the opportunity to evaluate and refine its multifamily product through its long history of development. PTR, unlike a typical merchant builder, intends to own the properties that it develops for the long-term. Hence, PTR emphasizes long- term durability by using materials and designs with an added view towards minimizing long-term operating and maintenance costs. REIT Management believes that development of multifamily units that are built from the ground up for long-term ownership and are designed to address specific renter preferences and demographic trends will provide a substantial source of long-term cash flow growth. Therefore, while land prices are favorable, PTR has acquired and will acquire, on an unleveraged basis, prudent amounts of land zoned for future multifamily development. For purposes of the property chart and other information contained herein, land held for these future developments, which approximates 2% of assets, based on cost, has not been aggregated with the multifamily properties. MULTIFAMILY PROPERTIES PTR categorizes operating multifamily properties (which include all properties not in development) as either "stabilized" or "pre-stabilized." The term "stabilized" means that renovation, repositioning, new management and new marketing programs (or development and marketing in the case of newly-developed properties) have been completed and in effect for a sufficient period of time (but in no case longer than 12 months or, in the case of properties requiring major rehabilitation, as long as 18 months) to achieve 93% occupancy at market rents. Prior to being "stabilized," an acquired property is considered "pre- stabilized." For operating properties that PTR has acquired, stabilized operations generally have been achieved six to twelve months after acquisition. For properties that PTR has developed, stabilized operations generally have been achieved 12 to 18 months after construction commenced. Due to its active development and acquisition 5 programs, 88.0% of PTR's operating multifamily properties, based on expected cost, were classified by PTR as stabilized as of January 31, 1996. At January 31, 1996, PTR's operating multifamily properties were 95.9% leased and PTR's stabilized multifamily properties were 96.6% leased. PTR's multifamily properties are primarily garden style, two-story multifamily dwellings that range in size from 84 units to 896 units. Resident leases are generally for six-month to twelve-month terms and require security deposits. PTR believes that its multifamily communities generally occupy strategic locations in growing submarkets. PTR also develops and operates Homestead Village(R) properties that are comprised of moderately priced corporate efficiency units which are rented for terms generally shorter than six months. As of January 31, 1996, PTR owned 20 operating Homestead Village properties and had 29 Homestead Village properties in development. After a detailed review of Homestead Village's performance, the Board of Trustees (the "Board") has asked REIT Management to evaluate all options relating to the operation of Homestead Village assets in order to maximize PTR shareholder value. The analysis will include whether Homestead Village assets should continue to be developed within PTR, be spun out as a new stand-alone entity with a target market extending beyond PTR's current market area, or be offered for sale, merger or disposition to a national operator. The Board has asked that the analysis be completed during 1996 and has engaged Goldman, Sachs & Co. to advise it on this matter. It is possible that certain actions, if pursued, may require approval of the Board and possible shareholder vote. A special committee of independent Trustees has been appointed to consider this matter. At January 31, 1996, excluding Homestead Village properties, the average unit size for properties operating and in development was 838 square feet, with 53.5% of the units having two or more bedrooms. Many units have washer/dryer connections and walk-in closets, which REIT Management believes substantially enhance marketability. PTR enhances attractiveness by investing in extensive landscaping when developing or repositioning multifamily units. Other features frequently included in PTR's multifamily communities are playgrounds, fitness centers and community rooms. PTR expects to continue to focus a large portion of its future development and acquisition efforts on moderate income multifamily housing priced to appeal to the largest segment of the renter population, based on income, age and household size. NON-MULTIFAMILY PROPERTIES PTR focuses its investment and development activities on multifamily properties. It will continue to aggressively manage its non-multifamily properties in order to maximize cash flow, and periodic sales of non- multifamily properties may occur as opportunities arise. The percentage of PTR's rental income generated by non-multifamily properties was less than 2% of total rental income during 1995. Hotel. PTR owns a 338-room, five-story hotel building and land located in the Fisherman's Wharf area of San Francisco, California. The hotel building is leased to Holiday Inns of America, Inc. The lease expires in 2018. The effective annual rent is 25% of the hotel's gross room revenues and 5% of gross food and beverage sales. Holiday Inns operates this building jointly with its 243-room building across the street, and PTR's rental income is based on total revenues for both buildings, prorated based on the number of rooms in PTR's building. Average occupancy for the one-year period ended December 31, 1995 was 87.7%, at an average daily room rate of $92.35. Office/Industrial. In October 1995, a single asset partnership in which PTR owns a 40% interest sold its only real estate asset, an office building located in the Dallas, Texas metropolitan area. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations--1995 Compared to 1994--Gains and Provision for Loss on Real Estate and Investments." PTR owns three industrial properties which are warehouse/showroom facilities located in Texas and California, ranging in size from 37,200 square feet to 130,000 square feet and were 100% leased at December 31, 1995. 6 INVESTMENT ANALYSIS Prospective property investments are analyzed pursuant to several underwriting criteria, including purchase price, competition and other market factors, and prospects for long-term growth in cash flow. PTR's investment decision is based upon the expected contribution of the property to long-term cash flow growth on an unleveraged basis. The expected economic contribution is based on an estimate of all cash revenues from leases and other revenue sources, minus expenses incurred in operating the property (generally, real estate taxes, insurance, maintenance, personnel costs and utility charges, but excluding depreciation, debt service and amortization of loan costs) and a reserve for capital expenditures. The economic contribution of properties cannot be predicted with certainty, and no assurance can be given that developed or acquired properties will contribute to increased cash flow, or that developments and acquisitions will be available on comparable terms in the future. STRATEGIC ACCOMPLISHMENTS Developments and Acquisitions The REIT Manager's development and acquisition professionals are each assigned to a specific metropolitan area within PTR's target market where they review available properties, meet with potential sellers, process planning approvals and monitor construction in progress. PTR has selectively developed and acquired multifamily properties where land costs, demographic trends and market trends indicate a high likelihood of achieving expected operating results. This system has produced multifamily property developments and acquisitions on favorable terms. As of January 31, 1996, the multifamily portfolio consisted of the following (dollars in thousands):
NUMBER OF TOTAL EXPECTED UNITS COST(1) ------ -------------- Properties Acquired................................. 33,571 $1,291,694 Developments Completed.............................. 8,356 326,617 Developments Under Construction..................... 6,252 316,792 Developments in Planning: Developments Owned................................ 3,271 188,901 Developments Under Control........................ 3,995 202,853 ------ ---------- Total Developments in Planning.................. 7,266 391,754 ------ ---------- Totals........................................ 55,445 $2,326,857 ====== ==========
- -------- (1) Represents cost, including planned renovations, for properties owned or in planning and under control at January 31, 1996. Represents budgeted development cost, which includes the cost of land, fees, permits, payments to contractors, architectural and engineering fees and interest and property taxes to be capitalized during the construction period, for properties in development. Does not include land held for future development, which approximates 2% of assets based on cost. Property Management The REIT Manager believes that a successful REIT must actively manage its properties in order to increase cash flow and enhance the long-term economic performance of the properties. Prior to retaining the REIT Manager, PTR's properties were managed by several different property managers for whom PTR was one of many customers. In order to gain more control over multifamily operations, the REIT Manager retained SCG Realty Services Incorporated ("SCG Realty Services") to replace other firms as the property manager for most of PTR's garden style properties and Homestead Realty Services Incorporated ("Homestead Realty Services") as property manager for all of PTR's Homestead Village properties. SCG 7 owns each of SCG Realty Services and Homestead Realty Services. At January 31, 1996, SCG Realty Services and Homestead Realty Services managed 88.8% of PTR's operating multifamily properties, based on expected cost, with the balance in various stages of transition to SCG Realty Services' management. SCG Realty Services has over 950 employees dedicated to the management of PTR's properties. SCG Realty Services emphasizes locally-based management of PTR's properties and has opened 11 local offices to serve PTR's target market. Homestead Realty Services has over 270 employees dedicated to the management of PTR's Homestead Village properties and has opened seven local offices to serve PTR's target market. This network improves SCG Realty Services' and Homestead Realty Services' ability to respond to changes in local market conditions and resident needs. The REIT Manager believes that SCG Realty Services and Homestead Realty Services have developed superior marketing programs, operating procedures, financial controls, information systems and training programs, which it expects to positively affect rental returns and occupancy rates. In addition, incentive compensation programs have been implemented for on-site property managers to further improve the performance of the properties. Rates for services performed by SCG Realty Services and Homestead Realty Services are subject to annual approval by PTR's independent Trustees (who receive an annual review from an independent third party) and are at rates prevailing in the markets in which PTR operates. During 1995, PTR paid aggregate fees of $7,894,000 and $1,018,000 to SCG Realty Services and Homestead Realty Services, respectively. Capital Markets REIT Management believes that a successful REIT must have the ability to access the capital markets efficiently, expeditiously and cost effectively. PTR's capital markets ability permits it to capitalize on the development and acquisition opportunities that PTR believes exist in its target market. In order to maximize this function and enhance relationships with major institutional sources of capital, SCG has formed a registered broker-dealer subsidiary, Security Capital Markets Group Incorporated ("Capital Markets Group"). Capital Markets Group's services are included in the REIT Manager's fee and do not result in a separate charge to PTR. Capital Markets Group and the REIT Manager have arranged innovative public offering structures, underwritten offerings and substantial credit facilities for PTR, including: In June 1991, PTR raised $21.4 million of net proceeds from a rights offering to holders of Common Shares; In November 1991, PTR raised $45.6 million of net proceeds from a public offering of Common Shares to shareholders and institutions; In April 1992, PTR raised $69.8 million of net proceeds from a public offering of Common Shares that was 71% underwritten by a syndicate of investment banks; In October 1992, PTR raised $73.4 million of net proceeds from a rights offering to holders of Common Shares and a public offering of Common Shares to institutional investors; In February and March 1993, PTR raised $129.5 million of net proceeds from a public offering of Common Shares that was 82% underwritten by a syndicate of investment banks; In September 1993, PTR raised $165.3 million of net proceeds from a rights offering to holders of Common Shares and a public offering of Common Shares to institutional investors; In November 1993, PTR raised $219.7 million of net proceeds from an underwritten public offering of Cumulative Convertible Series A Preferred Shares of Beneficial Interest, par value $1.00 per share ("Series A Preferred Shares"); In February 1994, PTR raised $196.4 million of net proceeds from an underwritten public offering of fully amortizing, long-term unsecured senior debt securities; In August 1994, PTR raised $101.8 million of net proceeds from a rights offering to holders of Common Shares; 8 In March 1995, PTR raised $216.3 million of net proceeds from a subscription offering for Common Shares that closed concurrently with the merger (the "Merger") between PTR and Security Capital Pacific Incorporated ("PACIFIC") (see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Merger and Concurrent Subscription Offering"); In May 1995, PTR raised $101.4 million of net proceeds from an underwritten public offering of Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $1.00 per share ("Series B Preferred Shares"); and In February 1996, PTR raised $148.2 million of net proceeds from an underwritten public offering of fully amortizing, long-term unsecured senior debt securities. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Financing Activities." For the Common Share offerings, PTR's underwriting commissions (all of which were paid to unaffiliated underwriters) have been $8.8 million, representing 1.05% of gross proceeds of $835.1 million, compared to an average commission cost of 5.47% for all public equity REIT offerings of common shares, other than initial public offerings, from January 1, 1991 through December 31, 1995. When the REIT Manager was retained, PTR had $14.3 million of lines of credit available to it for developments and acquisitions. The REIT Manager has arranged increases in PTR's borrowing capacity as follows: In October 1991, the REIT Manager negotiated a $20 million line of credit for PTR from Texas Commerce Bank National Association ("TCB") at an interest rate of prime plus 1/2 of 1%; In August 1992, with the REIT Manager's assistance in the syndication process, TCB arranged with a group of banks to increase this line of credit to $72 million at an interest rate of prime plus 1/4 of 1%; In February 1993, the REIT Manager negotiated and assisted in syndicating an increase in the line of credit to $125 million; In November 1993, the REIT Manager negotiated and assisted in syndicating an extension of the maturity of this line of credit from August 1994 to August 1995 and an increase to $200 million, with a reduction in interest rate to prime or, at PTR's option, LIBOR plus 2.0%; In August 1994, the REIT Manager negotiated and assisted in converting the line of credit to an unsecured facility; In October 1994, the REIT Manager negotiated and assisted in syndicating an extension of the maturity of the line of credit from August 1995 to August 1996 and an increase to $275 million, with a reduction in interest rate to the greater of prime or the federal funds rate plus 0.5% or, at PTR's option, LIBOR plus 1.75% (varying based upon the rating of PTR's senior unsecured debt from LIBOR plus 1.75% to LIBOR plus 2.0%); In March 1995, the REIT Manager negotiated and assisted in syndicating an increase in the line of credit to $350 million and negotiated a reduction in the interest rate to the greater of prime or the federal funds rate plus 0.5% or, at PTR's option, LIBOR plus 1.625% (varying based upon the rating of PTR's senior unsecured debt from LIBOR plus 1.25% to LIBOR plus 2.0%); and In August 1995, the REIT Manager negotiated a reduction in the interest rate to the greater of prime or the federal funds rate plus 0.5% or, at PTR's option, LIBOR plus 1.375% (which can vary from LIBOR plus 1.0% to LIBOR plus 1.75% based upon the rating of PTR's senior unsecured debt). PTR's increased borrowing capacity enables it to develop and acquire multifamily properties prior to securities offerings and to eliminate or minimize the amount of cash it must invest in short term investments at low yields. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 9 PTR's strategy includes maintaining a conservative ratio of long-term debt to total long-term undepreciated book capitalization (the sum of long-term debt and shareholders' equity after adding back accumulated depreciation) (21% at December 31, 1995 on an historical basis and 27% at January 31, 1996 on a pro forma basis, giving effect to PTR's offering of $150 million of long-term unsecured senior debt in February 1996 and the application of the net proceeds therefrom). PTR believes its current conservative leverage provides considerable flexibility to prudently increase its capital base by utilizing long-term debt as a financing tool in the future. THE REIT MANAGER The REIT Manager provides both strategic and day-to-day management for PTR, including research, investment analysis, acquisition and development services, asset management, capital markets services, disposition of assets and legal and accounting services, all of which are included in the REIT Management fee. Hence, PTR depends upon the quality of the management provided by the REIT Manager. As of March 20, 1996, 134 professionals were employed by the REIT Manager and its specialized service affiliates. The REIT Manager also provides office and other facilities for PTR's needs. The REIT Manager believes that the quality of management should be assessed in light of the following factors: Management Depth/Succession. Management should have several senior executives with the leadership, operational, investment and financial skills and experience to oversee the entire operations of the REIT. The REIT Manager believes that several of its senior officers could serve as the principal executive officer and continue PTR's performance. See "-- Officers of PTR and Directors and Officers of the REIT Manager and Relevant Affiliates." Strategic Vision. Management should have the strategic vision to determine an investment focus that provides both favorable initial yields and strong long-term growth prospects. The REIT Manager has demonstrated its strategic vision by focusing PTR on multifamily properties in target markets where demographic and supply factors have permitted high occupancies at increasing rents. This favorable environment was enhanced by financing constraints for competitors, which permitted investments by PTR on attractive terms. See "--Strategic Accomplishments--Developments and Acquisitions" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." Research Capability. Management should have the means for researching both markets and products to determine appropriate investment opportunities. PTR divides its target market into a total of 298 submarkets for analysis purposes. The REIT Manager and its affiliate, Security Capital Investment Research, have several professionals devoting substantial time to research, on a submarket-by-submarket basis, who are closely supervised by the Managing Directors of the REIT Manager; hence, the REIT Manager's research has provided important guidance for PTR's investment decisions. Investment Committee Process. Investment committees should provide discipline and guidance for the investment activities of the REIT in order to achieve its long-term strategic objectives. The five members of the REIT Manager's Investment Committee have a combined 84 years of experience in the real estate industry. See "--Officers of PTR and Directors and Officers of the REIT Manager and Relevant Affiliates." The Investment Committee receives detailed written analyses and research, in a standardized format, from the REIT Manager's development and acquisition personnel and evaluates all prospective investments pursuant to uniform underwriting criteria prior to submission of investment recommendations to the Board. The quality of the REIT Manager's Investment Committee process is evident from the ability of PTR to achieve its investment goals, generally exceeding its projected initial returns and growth from multifamily investments. Development/Redevelopment and Acquisition Capability. Development returns are generally higher than acquisition returns. Additionally, PTR can exert better control over the quality of developed properties than acquired properties. Hence, development is an important source of cash flow growth even 10 during attractive acquisition markets. By internally developing projects and redeveloping well located operating properties, management can capture for the REIT the value that normally escapes through sales premiums paid to successful developers. The REIT Manager's personnel have substantial development and redevelopment experience, as described in "--Officers of PTR and Directors and Officers of the REIT Manager and Relevant Affiliates." The REIT Manager has 52 full-time professionals committed to development and acquisition activities. The REIT Manager has arranged for over $1.3 billion of successful acquisitions. At January 31, 1996, the REIT Manager had 6,252 multifamily units under construction with a total expected cost of $316.8 million and had 7,266 multifamily units in planning with a total expected cost of $391.8 million. The REIT Manager has engaged in substantial development on behalf of PTR at attractive yields that have generally exceeded projections. See "--Multifamily Properties" and "-- Strategic Accomplishments--Developments and Acquisitions." Due Diligence Process. Management should have experienced personnel dedicated to performing intelligent and thorough due diligence. The REIT Manager has 10 full-time due diligence professionals and has developed uniform systems and procedures for due diligence. Capital Markets Capability. Management must be able to effectively raise capital for the REIT in order for the REIT to execute its investment strategy. The REIT Manager has arranged for over $1.5 billion of capital for PTR, including approximately $253.3 million raised from SCG. Operating Capability. Management can substantially improve cash flow by actively and effectively managing assets. The REIT Manager and its affiliates have devoted substantial personnel and financial resources to developing value-added operating systems, which control and effectively administer the operation of PTR's multifamily assets. Communications/Shareholder Relations Capability. A REIT's success in capital markets and asset acquisition and development activities can be enhanced by management's ability to effectively communicate the REIT's strategy and performance to investors, sellers of property and the financial media. The REIT Manager believes that PTR has now generally established an excellent reputation among these constituencies through its performance and the REIT Manager's communications ability. The REIT Manager provides at its expense full-time personnel who prepare informational materials for and conduct periodic meetings with shareholders, the investment community and analysts. Successfully combining the foregoing attributes can establish for a REIT the ability to increase cash flow and the market valuation of the REIT's portfolio. PTR's cash flow and market valuation have both increased substantially under the REIT Manager's administration. 11 OFFICERS OF PTR AND DIRECTORS AND OFFICERS OF THE REIT MANAGER AND RELEVANT AFFILIATES Directors and Senior Officers of the REIT Manager. Members of the REIT Manager's Investment Committee are designated by an asterisk. *C. RONALD BLANKENSHIP--46--Chairman of PTR; since March 1991, Chairman of the REIT Manager and Managing Director of SCG; from June 1988 to March 1991, Regional Partner, Trammell Crow Residential, Chicago, Illinois (multifamily real estate development and property management); prior thereto, Executive Vice President and Chief Financial Officer, The Mischer Corporation, Houston, Texas (multibusiness holding company with investments primarily in real estate). While with Trammell Crow Residential, Mr. Blankenship was on the Management Board for Trammell Crow Residential Services, a property management company that managed approximately 90,000 multifamily units nationwide, and was chief executive officer of Trammell Crow Residential Services-North, which managed 10,000 multifamily units in the Midwest and Northeast. In his various positions prior to his affiliation with the REIT Manager, Mr. Blankenship supervised the development of approximately 9,300 multifamily units. Mr. Blankenship supervises the overall operations of PTR and the REIT Manager. *DAVID C. DRESSLER, JR.--42--Director and Chairman of Homestead Village Incorporated ("Homestead Village") since April 1995, Managing Director of PTR since May 1993 and Director and Managing Director of the REIT Manager since April 1992, where he supervises the overall operations of Homestead Village properties on behalf of PTR; from 1984 to May 1991, Regional Partner, Trammell Crow Residential, Boston, Massachusetts (multifamily real estate development and property management). While with Trammell Crow Residential, Mr. Dressler was on the Management Board for Trammell Crow Residential Services (managing 90,000 multifamily units nationwide) and was co-founder and a board member of Trammell Crow Residential Services-North, which managed 10,000 multifamily units in the Midwest and Northeast. In his various positions prior to his affiliation with the REIT Manager, Mr. Dressler supervised the development of approximately 6,500 multifamily units. Mr. Dressler is also a Managing Director of Security Capital Atlantic Incorporated ("ATLANTIC") and its REIT manager where he supervises the overall operation of Homestead Village properties on behalf of ATLANTIC. *R. SCOT SELLERS--39--Managing Director of PTR and Director and Managing Director of the REIT Manager since September 1994, where he has overall responsibility for PTR's investment program, and from May 1994 to September 1994, Senior Vice President of PTR; from April 1993 to May 1994, Senior Vice President of SCG, where he was responsible for national multifamily acquisitions; from September 1981 to April 1993, Mr. Sellers was an operating partner and Vice President of Lincoln Property Company (LPC) (development, acquisition and management of multifamily properties) where he was responsible, among other things, for the development of more than 6,500 apartment units in a number of different markets. *PATRICK R. WHELAN--39--Managing Director of PTR and the REIT Manager since December 1995, Director of the REIT Manager since February 1995; since October 1994, President of SCG Realty Services, where he is responsible for overall property management; from February 1994 to October 1994, Senior Vice President and Co-Manager of Multifamily Acquisitions of SCG; from July 1986 to January 1994, Senior Vice President of Trammell Crow Company (development, acquisition and management of commercial properties). *JOHN H. GARDNER, JR.--42--Director of the REIT Manager since February 1995; Senior Vice President of PTR and the REIT Manager since September 1994, where he has overall responsibility for multifamily dispositions; from December 1984 to January 1993, Vice President of Asset Management and through September 1994, Managing Director and Principal of Copley Real Estate Advisors in Boston, where he had overall responsibility for the portfolio management function for eight accounts valued at $7.5 billion; prior thereto, Real Estate Manager of Equity Real Estate at John Hancock Companies. Mr. Gardner is also a Senior Vice President of ATLANTIC and its REIT manager where he is responsible for overall multifamily dispositions. 12 JEFFREY B. ALLEN--47--Senior Vice President of PTR since September 1995 and the REIT Manager since July 1995, where he has overall responsibility for investments and operations in the Western Region; from October 1981 to July 1995, Managing Director of Paragon Group, where he was responsible for the company's commercial and residential development and management operations in the western region; prior thereto, Vice President of Cabot, Cabot and Forbes Co., where he was responsible for commercial development in the Los Angeles area. JAY S. JACOBSON--43--Vice President of PTR since July 1993 and the REIT Manager since March 1994, where he has overall responsibility for investments and operations in the Central Region; from 1988 to June 1993, Vice President-- Residential Development for Michael Swerdlow Companies, Inc. and Hollywood Inc., South Florida real estate development/management companies under common control, where he was responsible for the planning and development of over 2,200 multifamily units as well as other development projects; from 1981 to 1988, General Partner and Chief Executive Officer of Meridian Land Company, a Denver-based real estate development company. JEFFREY A. KLOPF--47--Senior Vice President and Secretary of PTR, the REIT Manager and SCG since January 1996, where he provides securities offerings and corporate acquisition services and oversees the provision of legal services for affiliates of the firm; from January 1988 to December 1995, partner of Mayer, Brown & Platt where he practiced corporate and securities law. MARK N. TENNISON--35--Vice President of PTR since July 1992 and the REIT Manager since March 1994, where he has overall responsibility for investment and operations in the Northwest Region; from May 1991 to July 1992, Executive Vice President/Chief Operating Officer of Metro Concap, Inc., an operator of over 7,100 multifamily units; from January 1991 to May 1991, attorney for the Federal Deposit Insurance Corporation; and from August 1987 to December 1990, Partner with Trammell Crow Residential (development, construction and management of multifamily properties). K. BRUCE WEBSTER--39--Senior Vice President of PTR and the REIT Manager since March 1995, where he has overall responsibility for investments and operations in the Southwest Region; from November 1994 to March 1995, Senior Vice President of PACIFIC, where he had responsibility for PACIFIC's portfolio performance and asset management; from June 1993 to November 1994, Vice President of Asset Management at Irvine Apartment Communities, with responsibility for property operations, portfolio performance and long-term positioning; prior thereto, President and Chief Operating Officer of Trammell Crow Residential Services North, where he had responsibility and accountability for management company operations and property performance in the midwestern and northeastern United States. Other Officers. FRANK R. ANDERSON--37--Vice President of PTR and the REIT Manager since June 1995, where he is a Project Manager in the Northwest Region; prior thereto Vice President, Acquisitions and Land Development of Shea Homes, a single and multifamily developer in San Diego. ARIEL AMIR--36--Vice President of SCG since June 1994; from September 1985 to April 1994, an attorney with the law firm of Weil, Gotshal & Manges, New York, New York where he practiced securities and corporate law for eight years. Mr. Amir provides securities offerings and corporate acquisition services to PTR. ANTHONY R. ARNEST--45--Vice President of PTR and the REIT Manager since November 1994, where he is the head of the due diligence group; from December 1990 to September 1994, Mr. Arnest maintained a private law practice specializing in real estate, development and business and financial consulting; from March 1990 to November 1990, Director of Infill Acquisitions with Lewis Homes of California; from January 1986 to March 1990, Vice President Director of Acquisitions and Forward Planning/Due Diligence with Wesco Development; prior thereto, House Counsel for Torino Development. 13 DARCY B. BORIS--33--Vice President of Security Capital Investment Research since June 1995, where she conducts strategic market analysis for PTR and affiliated companies; from August 1993 to June 1995, Ms. Boris worked for Capital Markets Group; from January 1987 to September 1991, Project Manager with Marcus & Millichap, Inc. in Palo Alto, California, where she coordinated development of residential real estate projects. JAMES C. BORMANN--43--Vice President of PTR since December 1995 and the REIT Manager since June 1995, where he is responsible for production activities in the Central Region; from August 1992 to May 1995, Vice President of construction with Roseland Property Company (formerly Lincoln Property Company Northeast); prior thereto, Construction Superintendent with Toll Brothers, Inc. Mr. Bormann is a licensed real estate salesperson in Pennsylvania. MARK J. CHAPMAN--38--Vice President of Security Capital Investment Research since November 1995, where he is the director of the group and conducts strategic market analysis for PTR and affiliated companies; from March 1995 to November 1995, Vice President of PTR, with asset management responsibilities in five major markets; from November 1994 to March 1995, Vice President of PACIFIC; from July 1989 to November 1994, Vice President at Copley Real Estate Advisors, Inc. where he directed asset management for Copley assets located from Connecticut to Virginia, valued in excess of $1.5 billion; prior thereto, Director of Asset Management for Liberty Real Estate, with responsibility for assets east of the Mississippi River, including multifamily, office and retail properties. MARK G. CONROE--38--Vice President of PTR and the REIT Manager since January 1995 and Senior Vice President of Homestead Village since June 1995, where he has overall responsibility for the development program of Homestead Village properties; since February 1994, Vice President of ATLANTIC and its REIT manager, where he was a member of the development group, and where he has overall responsibility for the development program of Homestead Village properties; from October 1991 to February 1994, President of Classic Communities, Inc., a home building company; prior thereto, General Partner and Executive Vice President of the Mozart Development Company, a real estate development company. RICHARD W. DICKASON--39--Vice President of PTR and the REIT Manager since March 1995, where he has overall responsibility for PTR's investment activity in the Northwest Region; from December 1993 to March 1995, Vice President of PACIFIC; from July 1992 to September 1993, President at J.M. Peters Company/Capital Pacific Homes, where he acquired property for the development of single-family homes and apartments; from May 1980 to January 1992, Partner and Vice President of Lincoln Property Company N.C. Inc., where he was responsible for the acquisition, development, construction and management of a sizable multifamily residential portfolio in the California marketplace; prior thereto, Mr. Dickason represented private investors in the development of condominiums, townhouses, shopping centers and single-family homes throughout California. JOSEPH G. DI CRISTINA--36--Vice President of PTR and the REIT Manager since March 1995, where he has overall responsibility for PTR's investment activity in the Central Region; from August 1994 to March 1995, Vice President of PACIFIC; prior thereto, Vice President of Forward Planning at Robertson Homes. G. STEPHEN DONOHUE--38--Vice President of PTR since December 1995 and SCG Realty Services since July 1995, where he has overall asset management responsibility for properties in San Antonio and Austin, Texas; from December 1994 to June 1995, Regional Vice President of Insignia Management, where he had asset management responsibilities for 13,000 units (55 properties) in Texas; prior thereto, Vice President/District Manager for Insignia Management in Colorado Springs, Colorado, where he had asset management responsibilities for 3,300 units in the western United States. KATHY B. FARR--41--Vice President of PTR and the REIT Manager since June 1995, where she is responsible for multifamily dispositions; from January 1994 to April 1995, Vice President of Corporate 14 Finance with Irvine Apartment Communities, where she was responsible for all aspects of financing, including the company's working capital line of credit and construction financings for all new development activity; prior thereto, Senior Director Project Finance with The Irvine Company, where she was responsible for negotiating and closing construction and permanent financings on residential and commercial properties. Ms. Farr is also a Vice President of ATLANTIC and its REIT manager where she is responsible for multifamily dispositions. PETER M. GRIMM--53--Vice President of PTR since 1975 and the REIT Manager since March 1991, where he is a Project Manager in the Central Region. LAURA L. HAMILTON--32--Vice President of PTR and the REIT Manager since June 1995 and Homestead Village since January 1996, where she supervises Homestead Village's due diligence group, and a member of the due diligence group since April 1992; prior thereto Ms. Hamilton was a real estate paralegal with the law firm of Poole, Kelly & Ramo in Albuquerque, New Mexico. Ms. Hamilton is also a Vice President of ATLANTIC and its REIT manager where she is responsible for Homestead Village due diligence. CHRISTOPHER C. HARNESS--43--Vice President of PTR and the REIT Manager since December 1995, and a member of the development group since June 1994, where he has overall responsibility for PTR's investment activity in the Southwest Region; from August 1993 to June 1994, Senior Analyst for Due Diligence at SCG Realty Services; prior thereto, Mr. Harness was responsible for development of commercial properties in eight Texas markets for Affiliated Builders. NELSON L. HENRY--60--Vice President of PTR since December 1994 and the REIT Manager since January 1995, where he is responsible for production activity in the Western Region; from January 1983 to September 1993, Construction Vice President for Lincoln Property Company N.C. Inc., where he was responsible for the coordination of development in Colorado and California; prior thereto, President of Royal Investment Corporation, a regional multifamily and single- family developer. W. GEOFFREY JEWETT--47--Vice President of PTR and the REIT Manager since March 1995 and Homestead Village since January 1996, where he is responsible for strategic operations for Homestead Village properties; from November 1994 to March 1995, Vice President of PACIFIC, where he was involved with and had overall responsibility for acquisitions; from May 1994 to November 1994, Vice President of ATLANTIC, where he had overall responsibility for the acquisitions group; from September 1993 to April 1994, member of the acquisition group of PACIFIC; prior thereto, Vice President of LaSalle Partners Limited in its acquisitions and property finance group, where he provided investment property sale, financing and acquisition services on behalf of corporate and institutional clients throughout the western United States. Mr. Jewett is also a Vice President of ATLANTIC and its REIT manager where he is responsible for strategic operations for Homestead Village properties. JOHN JORDANO III--39--Vice President of PTR and the REIT Manager since March 1995, where he has overall responsibility for PTR's investment activity in the Western Region; from August 1994 to March 1995, Vice President of PACIFIC; from January 1992 to July 1994, Senior Vice President of Prospect Partners, where he was responsible for identifying and advising individual and corporate clients on financial institution and Resolution Trust Corporation REO apartment acquisition and investment opportunities in the western United States; prior thereto, Partner with Trammell Crow Residential Company where he established the Sacramento office and was responsible for the development of multifamily projects. JAMES W. KLUBER--45--Vice President and Controller for PTR and the REIT Manager since January 1996, where he supervises accounting and financial reporting for PTR; from June 1993 to December 1995, Vice President and Controller for Security Capital Industrial Trust; from August 1989 to June 1993, Senior Vice President of Finance of Rouse & Associates in Philadelphia, where he had financial and accounting responsibility for more than 200 operating properties, totalling approximately $2.5 billion and comprising 18 million square feet of commercial real estate space. 15 LAWRENCE S. LEVITT--39--Vice President of PTR since September 1995 and the REIT Manager since December 1995, where he is a member of the acquisitions group in the Western Region; from May 1992 to August 1995, Vice President-- Director of Residential Acquisitions of Sares-Regis Group, where he managed the residential acquisitions division; from August 1991 to May 1992, Principal of Integrated Mortgage Resources, a commercial and residential mortgage banking firm; prior thereto, Vice President of Con Am Management Corporation, where he directed major transactions. DANIEL W. OGDEN--35--Vice President of PTR since December 1995 and SCG Realty Services since March 1995, where he has overall asset management responsibility for properties in Dallas and Houston, Texas, and Oklahoma; from June 1994 to February 1995, Executive Vice President of Mutual Real Estate Corporation in Dallas, where he was responsible for a portfolio located in seven states; prior thereto, Regional Vice President of Lincoln Property Company where he was responsible for the supervision of multifamily units located in twelve mid- Atlantic/Midwest states. JOHN R. PATTERSON--44--Vice President of PTR and the REIT Manager since January 1995 and Senior Vice President of Homestead Village since June 1995, where he has overall responsibility for operations and asset management of Homestead Village properties; from July 1993 to January 1995, a Senior Vice President in business development at NationsBank in Atlanta; prior thereto, Division President and Partner of Trammell Crow Residential Services. Mr. Patterson is also a Vice President of ATLANTIC and its REIT manager where he has overall responsibility for operations and asset management of Homestead Village properties. MARK P. PEPPERCORN--33--Vice President of PTR and the REIT Manager since February 1995, where he is a member of the acquisitions group in the Western Region; from September 1994 to February 1995, he was a member of the acquisitions group for ATLANTIC and previously, for PTR; from March 1991 to June 1993, Mr. Peppercorn was responsible for the multifamily brokerage division of Transwestern Property Company in Houston; and prior thereto, an Associate Vice President of Eastdil Realty Incorporated. GREGG A. PLOUFF--38--Vice President of PTR and the REIT Manager since March 1995 and Homestead Village since June 1995; from July 1994 to March 1995, Vice President of PACIFIC; from November 1993 to July 1994, a member of the acquisitions group; prior to November 1993, Mr. Plouff served in an acquisitions consulting capacity for PTR; prior thereto, Mr. Plouff was with Trammell Crow Residential, most recently as a partner, where he was involved with residential development in the Dallas, Chicago and Southern California markets. THOMAS L. POE--38--Vice President of PTR since June 1994 and the REIT Manager since April 1992, where he is responsible for accounting and financial reporting; from 1988 to 1992, Vice President of Finance for the Mischer Corporation, Houston, Texas (real estate investments). JERRY D. QUINN--52--Vice President of PTR and the REIT Manager since December 1995, where he is responsible for production activities in the Central Region, and a member of the development group since July 1994; from April 1992 to July 1994, Vice President of Construction with C.F. Jordan Residential; prior thereto, Vice President of Construction with Lincoln Property Company's multifamily development. HAROLD D. RILEY--59--Vice President of PTR since 1974 and the REIT Manager since March 1991, where he provides accounting and financial reporting services. DAVID K. ROBBINS--44--Vice President of PTR and the REIT Manager since March 1995, where he is a Project Manager in the Western Region; from June 1994 to January 1995, Vice President of ATLANTIC, where he was a member of the development group; from December 1992 to May 1994, Vice President of 16 PTR, where he had overall responsibility for the due diligence group; from January 1988 to December 1992, partner in the law firm of Hill, Farrer & Burrill in Los Angeles, where his practice focused on real estate acquisitions and development. He also served as general counsel to Hollywood Park Racetrak, where he was involved in forming Hollywood Park's public REIT. SALLY J. ROWLING--42--Vice President of PTR since December 1995 and SCG Realty Services since January 1996, where she has overall asset management responsibility for properties in the Northwest Region; from August 1993 to December 1995, a member of the development group of PTR; prior thereto, she was Senior Analyst for Acquisitions at SCG Realty Services, and has more than 18 years experience in property management. GARY L. TRUITT--45--Vice President of PTR and the REIT Manager since December 1995 and a member of the development group since January 1995, where he is responsible for production activity in the Northwest Region; from July 1994 to January 1995, Project Manager of C.F. Jordan Inc.; prior thereto, Superintendent of Benchmark Contractors, where he had supervision and code and specifications compliance responsibilities. DAVID B. WOODWARD--29--Vice President of PTR since November 1993 and SCG Realty Services since January 1995, where he has overall asset management responsibility for properties in the Western Region; from June 1993 to October 1993, Mr. Woodward was with PTR where he was responsible for property management; prior thereto, asset manager with USF&G's Real Estate Division. K. DOUGLAS WRIGHT--49--Vice President of PTR and the REIT Manager since July 1995, where he is a Project Manager in the Western Region; from December 1991 to June 1995, Mr. Wright was a real estate consultant and managed a real estate portfolio; prior thereto, he was president of Summit Development Company. In addition, an affiliate of the REIT Manager employs a number of accounting professionals who provide centralized accounting services for PTR. Shareholder Relations and Capital Markets. The following persons provide shareholder relations and capital markets services to PTR: K. SCOTT CANON--34--President of Capital Markets Group since January 1996, Vice President of Capital Markets Group since August 1993 and a member of Capital Markets Group since March 1992, where he participates in capital markets and institutional investor relations; from September 1991 to March 1992, a personal account director for Chase Manhattan Investment Services; from August 1987 to September 1991, a member of private client services for Goldman, Sachs & Co. Mr. Canon is registered with the National Association of Securities Dealers, Inc. JEFFREY A. COZAD--31--Senior Vice President of Capital Markets Group since December 1994, Vice President from September 1992 to November 1994 (in its New York office since June 1993) and a member of Capital Markets Group since March 1992; from August 1991 to August 1992, a member of SCG; in June 1991, Mr. Cozad obtained a M.B.A. from The University of Chicago; prior thereto, an analyst with LaSalle Partners Limited, where he provided corporate real estate services to major institutions from 1986 to 1989. Mr. Cozad is registered with the National Association of Securities Dealers, Inc. JAMES J. EVANS JR.--42--Senior Vice President of Capital Markets Group since December 1994, where he provides capital markets services for affiliates of the firm; from December 1992 to November 1994, Managing Director of Copley Real Estate Advisors, where he was responsible for acquisitions in the western United States, and worked on new business initiatives (designing and marketing business products), raising capital and asset management; from December 1988 to December 1992, Vice President and Principal of Copley Real Estate Advisors, where he was responsible for new investments in Southern California; prior thereto, Associate at Copley Real Estate Advisors. Mr. Evans is registered with the National Association of Securities Dealers, Inc. 17 ROBERT H. FIPPINGER--52--Vice President of Capital Markets Group since June 1995 and with SCG since October 1994, where he directs corporate communications services for affiliates of the firm; from November 1991 to October 1994, he was with Grubb & Ellis where he represented corporate clients and provided tenant advisory services; prior thereto, Executive Director of Techmart, where he was responsible for management, marketing, operations, leasing and program development of commercial properties. GERARD DE GUNZBURG--48--Vice President of Capital Markets Group in its New York office since January 1993; from June 1988 to December 1992, a consultant to American and European companies; prior thereto, Director and Partner of Lincoln Property Company, Europe, where he arranged real estate financing from 1976 to 1988. Mr. de Gunzburg is registered with the National Association of Securities Dealers, Inc. ALISON C. HEFELE--36--Vice President of Capital Markets Group since February 1994, where she provides capital markets services for affiliates of the firm; from January 1990 to February 1994, Vice President with Prudential Real Estate Investors (strategic planning and business development for institutional real estate investment management services); from September 1985 to January 1990, a management consultant with McKinsey & Company; prior thereto, a financial analyst with Morgan Stanley Realty Inc. Ms. Hefele is registered with the National Association of Securities Dealers, Inc. BRADFORD W. HOWE--31--Vice President of Capital Markets Group since January 1996, where he provides capital markets services for affiliates of the firm and where he has been an associate since December 1994; from March 1993 to December 1994, Assistant Vice President in the real estate investment banking group of Kidder Peabody & Co., Incorporated; prior thereto, real estate consultant at Coopers & Lybrand. Mr. Howe is registered with the National Association of Securities Dealers, Inc. JAMES H. POLK III--53--Trustee of PTR; Managing Director of Capital Markets Group since August 1992. Mr. Polk has been affiliated with the REIT Manager since March 1991; prior thereto, he was President and Chief Executive Officer of PTR for sixteen years. He is registered with the National Association of Securities Dealers, Inc. and is a past President and Trustee of the National Association of Real Estate Investment Trusts, Inc. INSURANCE PTR carries comprehensive general liability coverage on its owned properties, with limits of liability of $100 million per property and per occurrence (subject to appropriate deductibles), to insure against liability claims and related defense costs. Similarly, PTR is insured against the risk of direct physical damage in amounts necessary to reimburse PTR on a replacement cost basis for costs incurred to repair or rebuild each property, including loss of rental income during the reconstruction period (up to a six month period). COMPETITION Within its geographic areas of operation, PTR is subject to competition from a variety of investors, including insurance companies, pension funds, corporate and individual real estate developers and investors and other REITs with investment objectives similar to those of PTR. Some of these competitors have substantial financial resources and staffs and long operating histories. As an owner of real estate properties, PTR competes with other owners of similar properties in connection with their financing, sale, lease or other disposition and use. ENVIRONMENTAL MATTERS Many jurisdictions have adopted laws and regulations relating to environmental controls and the development of real estate. Such laws and regulations could affect existing PTR properties and/or operate to reduce the number and attractiveness of investment opportunities available to PTR. The effect upon PTR of the application of such laws and regulations cannot be predicted. Such laws and regulations have not had a 18 material effect on PTR's financial condition and results of operations to date. PTR is not aware of any environmental condition on any of its properties which is likely to have a material adverse effect on PTR's financial condition or results of operations. EMPLOYEES All management activities of PTR are performed by the REIT Manager. PTR has no employees. EXECUTIVE OFFICERS All executive functions of PTR are performed by the REIT Manager. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--REIT Management Agreement." The executive officers of the REIT Manager are:
NAME AGE TITLE ---- --- ----- C. Ronald Blankenship............ 46 Chairman David C. Dressler, Jr............ 42 Managing Director R. Scot Sellers.................. 39 Managing Director Patrick R. Whelan................ 39 Managing Director Jeffrey B. Allen................. 47 Senior Vice President John H. Gardner, Jr.............. 42 Senior Vice President Jeffrey A. Klopf................. 47 Senior Vice President and Secretary K. Bruce Webster................. 39 Senior Vice President Jay S. Jacobson.................. 43 Vice President Mark N. Tennison................. 35 Vice President
See "--Officers of PTR and Directors and Officers of the REIT Manager and Relevant Affiliates" for descriptions of the REIT Manager's executive officers. ITEM 2. PROPERTIES The information in the following table is as of December 31, 1995 for properties owned at December 31, 1995, and as of January 31, 1996 for properties acquired since December 31, 1995 or in planning and under control at January 31, 1996 (dollars in thousands).
RENTABLE UNITS OR TOTAL YEAR ACQUIRED PERCENTAGE SQUARE PTR EXPECTED OR COMPLETED LEASED FOOTAGE INVESTMENT COST(1) ------------- ---------- -------- ---------- ---------- PROPERTIES OWNED AT DE- CEMBER 31, 1995: PROPERTIES STABILIZED AT DECEMBER 31, 1995: (2) Albuquerque, New Mexi- co: Commanche Wells....... 1994 98.9% 179 $ 5,100 $ 5,100 Corrales Pointe....... 1993 100.0 208 6,688 6,688 Entrada Pointe........ 1994 99.0 208 7,563 7,563 Pavilions*............ (3) 95.8 240 15,408 15,408 Sandia Ridge.......... 1992 99.6 272 7,495 7,495 Vista del Sol......... 1993 95.8 168 5,951 5,951 Wellington Place...... 1993 97.5 280 10,002 10,002 Austin, Texas: Anderson Mill Oaks.... 1993 96.9 350 12,226 12,226 Cannon Place.......... 1993 96.2 184 6,824 6,824 La Mirage*............ 1994 98.6 348 17,018 17,018
(see notes following table) 19
RENTABLE UNITS OR TOTAL YEAR ACQUIRED PERCENTAGE SQUARE PTR EXPECTED OR COMPLETED LEASED FOOTAGE INVESTMENT COST(1) ------------- ---------- -------- ---------- ---------- Homestead Village-- Burnet*.............. 1995 (4) 133 $ 4,068 $ 4,148 Hunters Run*.......... 1995 98.3% 240 11,382 11,511 The Ridge............. 1993 98.8 326 10,420 10,420 Rock Creek............ 1993 99.4 314 10,161 10,161 Saddlebrook*.......... 1994 99.0 308 13,284 13,284 Shadowood............. 1993 99.1 235 6,545 6,545 Spyglass.............. 1992 99.3 298 10,473 10,473 Dallas, Texas: Apple Ridge........... 1993 99.0 304 11,052 11,052 Custer Crossing....... 1993 96.7 244 10,378 10,378 Homestead Village-- Coit Road(5)*........ 1994 87.7 133 3,386 3,386 Homestead Village-- North Arlington*..... 1995 (4) 137 3,985 4,030 Homestead Village-- North Richland Hills(5)*............ 1994 85.0 133 3,490 3,490 Homestead Village-- Skillman Road(5)*.... 1992 84.0 131 3,083 3,083 Homestead Village-- South Arlington*..... 1995 (4) 141 3,824 3,884 Homestead Village-- Stemmons Freeway(5)*. (6) 85.4 189 4,492 4,612 Homestead Village-- Tollway(5)*.......... 1993 96.8 119 2,718 2,718 Indian Creek.......... 1993 96.3 328 10,800 10,800 Post Oak Ridge........ 1993 96.7 486 15,121 15,121 Quail Run............. 1993 96.0 278 10,922 10,922 Somerset.............. 1993 98.7 372 15,065 15,065 Summerstone........... 1993 99.5 192 7,012 7,012 Timber Ridge.......... 1994 98.1 160 6,950 6,950 Woodland Park......... 1993 97.7 216 7,238 7,238 Denver, Colorado: Cambrian.............. 1993 98.2 383 12,001 12,001 The Cedars............ 1993 99.8 408 17,044 17,044 Fox Creek Phase I..... 1993 99.4 175 6,149 6,149 Hickory Ridge......... 1992 99.4 688 23,403 23,403 Reflections Phase I... 1993 98.6 208 8,738 8,738 Silvercliff(7)........ 1994 95.5 312 16,285 16,285 Sunwood............... 1992 98.1 156 6,087 6,087 El Paso, Texas: Acacia Park*.......... 1995 98.8 336 13,894 13,970 The Crest*............ 1992 95.3 232 7,977 7,977 Double Tree........... 1993 96.5 284 6,155 6,155 Las Flores*........... (8) 94.4 468 8,110 8,110 Mountain Village...... 1992 95.5 288 7,185 7,185 Park Place*........... (9) 97.3 292 8,705 8,705 The Phoenix*.......... 1993 97.3 336 10,095 10,095 Shadow Ridge*......... (10) 94.9 352 12,244 12,244 Spring Park(11)*...... 1990 98.9 180 5,239 5,239 Tigua Village*........ (12) 95.1 184 2,283 2,283 Houston, Texas: Beverly Palms......... 1994 98.3 362 9,986 9,986 Braeswood Park(13).... 1993 96.3 240 12,560 12,560
(see notes following table) 20
RENTABLE UNITS OR TOTAL YEAR ACQUIRED PERCENTAGE SQUARE PTR EXPECTED OR COMPLETED LEASED FOOTAGE INVESTMENT COST(1) ------------- ---------- -------- ---------- ---------- Chasewood(14)......... 1994 97.3% 260 $ 13,540 $ 13,540 Cranbrook Forest...... 1993 95.8 261 6,886 6,886 Homestead Village-- Bammel-Westfield(5)*. 1994 73.3 135 3,475 3,475 Homestead Village--Fu- qua(5)*.............. 1994 84.1 133 3,345 3,345 Homestead Village-- Park Ten(5)*......... 1994 82.8 134 3,893 3,893 Homestead Village-- Stafford(5)*......... 1995 83.3 133 3,667 3,667 Homestead Village-- West by North- west(5)*............. 1994 83.3 133 3,432 3,432 Homestead Village-- Westheimer(5)*....... 1994 89.9 133 4,001 4,001 Pineloch.............. 1993 95.7 440 13,598 13,598 Plaza Del Oro......... 1994 98.3 348 11,907 11,907 Seahawk(15)........... 1994 99.1 224 8,607 8,607 Weslayan Oaks......... 1993 97.6 84 3,979 3,979 Woodside Village...... 1975 94.9 196 6,560 6,560 Las Vegas, Nevada: The Hamptons.......... 1995 97.8 492 20,684 20,684 Horizons at Peccole Ranch................ 1995 97.8 408 21,334 21,334 King's Crossing....... 1995 97.7 440 19,334 19,334 Sunterra(16).......... 1995 93.7 444 14,004 14,004 Oklahoma City, Oklaho- ma: Cimarron Trail........ 1994 96.9 228 6,753 6,753 Warrington............ 1993 96.1 204 5,986 5,986 Omaha, Nebraska: Apple Creek(17)....... 1994 98.2 384 13,572 13,572 Phoenix, Arizona: Bay Club.............. 1993 94.7 472 14,918 14,918 Foxfire............... 1994 97.3 188 7,277 7,277 Homestead Village-- Scottsdale*.......... 1995 (4) 120 4,259 4,275 Moorings at Mesa Cove. 1992 99.0 406 17,152 17,152 North Mountain Vil- lage................. 1994 97.0 568 18,357 18,357 Papago Crossing....... 1992 97.8 180 3,808 3,808 Peaks at Papago Park Phase I.............. 1994 98.6 624 28,128 28,128 Pheasant Run.......... 1993 96.4 248 8,632 8,632 Presidio at South Mountain(18)......... 1993 98.7 600 31,356 31,356 The Ridge............. 1993 98.4 380 12,662 12,662 San Antigua*.......... 1994 99.7 320 23,799 23,799 San Marin*............ 1993 99.6 276 17,939 17,939 San Marina............ 1992 100.0 400 6,891 6,891 San Marquis North*.... 1995 100.0 208 9,888 10,748 San Marquis South*.... 1994 100.0 264 13,449 13,449 Scottsdale Greens..... 1994 98.1 644 27,685 27,685 Sunstone.............. 1993 99.2 242 10,595 10,595 Superstition Park..... 1992 97.3 376 12,498 12,498 Portland, Oregon: Club at the Green..... 1995 99.6 254 11,076 11,076 Double Tree Phase I... 1995 94.7 245 10,386 10,386 Knight's Castle(19)... 1995 90.2 296 13,137 13,137
(see notes following table) 21
RENTABLE UNITS OR TOTAL YEAR ACQUIRED PERCENTAGE SQUARE PTR EXPECTED OR COMPLETED LEASED FOOTAGE INVESTMENT COST(1) ------------- ---------- -------- ---------- ---------- Meridian at Murrayhill........... 1995 93.3% 312 $ 16,896 $ 16,896 Riverwood Heights..... 1995 100.0 240 10,015 10,015 Squire's Court........ 1995 96.6 235 10,907 10,907 Salt Lake City, Utah: Cherry Creek(20)...... 1995 99.1 225 8,919 8,919 Greenpointe(21)....... 1995 90.6 192 6,056 6,056 Mountain Shadow(22)... 1995 98.3 174 5,636 5,636 San Antonio, Texas: Applegate............. 1993 97.7 344 9,985 9,985 Austin Point.......... 1993 96.3 328 11,905 11,905 Camino Real........... 1993 93.2 176 6,196 6,196 Cobblestone Village... 1992 95.7 184 4,551 4,551 Contour Place......... 1992 99.2 126 2,602 2,602 The Crescent*......... 1994 99.7 306 15,599 15,599 Dymaxion Phase I...... 1994 97.9 190 4,555 4,555 The Gables............ 1993 92.7 192 7,060 7,060 Homestead Village-- Fredricksburg(5)*.... 1994 74.6 135 4,038 4,038 Lakeside Villas....... 1992 93.5 292 13,651 13,651 Marbach Park.......... 1993 96.4 304 7,987 7,987 Oakhampton Place...... 1992 93.9 280 12,174 12,174 Palisades Park........ 1993 91.2 328 8,144 8,144 Panther Springs....... 1993 90.9 88 3,982 3,982 Rancho Mirage......... 1993 96.5 254 4,854 4,854 Sterling Heights*..... 1995 96.0 224 11,992 12,075 Towne East Village.... 1993 95.0 100 2,483 2,483 Villas of Castle Hills................ 1993 93.3 163 5,876 5,876 Villas of St. Tropez.. 1992 89.0 273 10,863 10,863 The Waters of Northern Hills................ 1994 96.1 305 9,046 9,046 San Diego, California: Scripps Landing....... 1994 97.5 160 9,122 9,122 Tierrasanta Ridge..... 1994 97.9 340 19,481 19,481 Santa Fe, New Mexico: The Enclave........... 1992 96.6 204 9,748 9,748 The Meadows of Santa Fe*.................. 1994 97.6 296 12,471 12,471 Rancho Vizcaya........ 1991 97.2 212 12,093 12,093 Seattle, Washington: Logan's Ridge......... 1995 93.4 258 13,148 13,148 Matanza Creek......... 1995 86.8 152 6,928 6,928 Walden Pond........... 1995 90.5 316 13,736 13,736 Tucson, Arizona: Ashton Meadows........ 1993 92.6 272 7,141 7,141 Cobble Creek.......... 1992 94.0 301 7,728 7,728 Craycroft Gardens..... 1992 99.0 101 1,941 1,941 Rio Cancion........... 1994 93.4 379 19,393 19,393 Sonoran Terraces...... 1992 91.7 374 17,818 17,818 Sundown Village*...... (23) 92.1 330 12,924 12,924 Tierra Antigua........ 1992 93.9 147 5,466 5,466 Villa Caprice......... 1993 97.0 268 8,801 8,801
(see notes following table) 22
RENTABLE UNITS OR TOTAL YEAR ACQUIRED PERCENTAGE SQUARE PTR EXPECTED OR COMPLETED LEASED FOOTAGE INVESTMENT COST(1) ------------- ---------- -------- ---------- ---------- Windsail(24).......... 1993 93.7% 300 $ 9,875 $ 9,875 Tulsa, Oklahoma: Southern Slope........ 1993 95.1 142 5,333 5,333 ---- ------ ---------- ---------- Subtotals/Average..... 96.2% 36,785 $1,375,832 $1,377,301 ---- ------ ---------- ---------- PROPERTIES PRE-STABI- LIZED AT DECEMBER 31, 1995(2): El Paso, Texas: Cielo Vista........... 1993 92.6% 378 $ 6,646 $ 8,668 Houston, Texas: Brompton Court(25).... 1994 98.9 794 30,528 31,624 Homestead Village--As- trodome*............. 1995 (4) 165 5,295 5,447 Homestead Village-- Willowbrook*......... 1995 (4) 137 3,925 4,017 Los Angeles, Califor- nia: Miramonte............. 1995 91.0 290 15,721 16,130 Las Vegas, Nevada: La Tierra at the Lakes(26)............ 1995 97.5 896 40,967 42,818 Omaha, Nebraska: Oak Brook............. 1995 93.8 162 7,489 7,538 Portland, Oregon: Double Tree Phase II(27)............... 1995 92.7 124 6,615 6,615 Salt Lake City, Utah: Plumtree.............. 1995 95.5 336 14,246 14,896 San Antonio, Texas: Homestead Village-- Bitters*............. 1995 (4) 153 4,729 4,832 Homestead Village-- DeZavala*............ 1995 (4) 141 4,431 4,511 San Francisco (Bay Are- a), California: Treat Commons(28)..... 1995 94.9 510 38,590 38,955 Seattle, Washington: Millwood Estates...... 1995 89.3 300 11,053 11,219 Remington Park........ 1995 95.5 332 18,927 18,977 ---- ------ ---------- ---------- Subtotals/Average..... 95.3% 4,718 $ 209,162 $ 216,247 ---- ------ ---------- ---------- DEVELOPMENTS UNDER CON- STRUCTION AT DECEMBER 31, 1995: Albuquerque, New Mexi- co: Homestead Village-- Osuna................ 1995 N/A 141 $ 3,871 $ 5,203 La Paloma............. 1993 N/A 424 23,087 24,762 La Ventana............ 1994 N/A 232 13,844 15,067 Vistas at Seven Bar(29).............. 1994 N/A 364 6,438 21,639 Austin, Texas: Homestead Village--Mid Town................. 1995 N/A 145 3,735 4,462 Homestead Village-- Pavillion(29)........ 1995 N/A 134 813 5,304 Hunters' Run Phase II(29)............... 1993 N/A 160 1,572 8,867 Monterey Ranch Village II................... 1993 N/A 456 14,283 24,341
(see notes following table) 23
RENTABLE UNITS OR TOTAL YEAR ACQUIRED PERCENTAGE SQUARE PTR EXPECTED OR COMPLETED LEASED FOOTAGE INVESTMENT COST(1) ------------- ---------- -------- ---------- ---------- Dallas/Ft. Worth, Tex- as: Homestead Village-- Fort Worth........... 1994 N/A 97 $ 2,646 $ 2,974 Homestead Village--Las Colinas.............. 1994 N/A 149 4,362 4,624 Denver, Colorado: Homestead Village-- Belleview............ 1994 N/A 157 3,498 5,964 Homestead Village-- Iliff................ 1994 N/A 137 3,525 4,975 Reflections Phase II.. 1993 N/A 208 12,063 12,152 El Paso, Texas: Patriot Apartments.... 1993 N/A 320 11,864 12,321 Houston, Texas: Memorial Heights Phase I.................... 1994 N/A 360 12,319 18,928 Oaks at Medical Cen- ter.................. 1994 N/A 360 15,954 18,672 Phoenix, Arizona: Homestead Village-- Baseline(29)......... 1995 N/A 149 2,500 5,346 Homestead Village-- Dunlap(29)........... 1995 N/A 143 2,068 5,154 Miralago Phase I(29).. 1995 N/A 496 3,260 23,809 Peaks at Papago Park Phase II............. 1994 N/A 144 4,388 7,266 San Palmera(29)....... 1995 N/A 412 4,309 23,846 Portland, Oregon: Preston's Cross- ing(29).............. 1995 N/A 228 4,134 12,068 San Antonio, Texas: Stanford Heights...... 1993 N/A 276 13,165 13,495 Salt Lake City, Utah: Remington............. 1995 N/A 288 4,951 16,412 Seattle, Washington: Pebble Cove........... 1995 N/A 288 4,237 16,949 Tucson, Arizona: San Ventana(29)....... 1994 N/A 408 10,621 26,955 --- ----- ---------- ---------- Subtotals/Average..... N/A 6,676 $ 187,507 $ 341,555 --- ----- ---------- ---------- DEVELOPMENTS IN PLANNING AND OWNED AT DECEMBER 31, 1995(2): Austin, Texas: Hobby Horse........... 1993 N/A 168 $ 1,091 $ 9,517 Denver, Colorado: Fox Creek Phase II.... 1993 N/A 112 69 5,719 Houston, Texas: Memorial Heights Phase II................... 1994 N/A 476 6,229 26,049 Phoenix, Arizona: 22nd & Dunlap Phase I(29)................ 1995 N/A 376 3,617 21,791 Arrowhead Phase I(29). 1995 N/A 248 2,030 16,086 Reno, Nevada: Vista Ridge........... 1994 N/A 324 3,762 20,455 San Antonio, Texas: St. Tropez Phase II... 1994 N/A 96 966 4,409 San Francisco (Bay Are- a), California: Homestead Village--San Mateo................ 1995 N/A 136 1,652 6,709 Homestead Village-- Sunnyvale............ 1995 N/A 144 1,361 6,333
(see notes following table) 24
RENTABLE UNITS OR TOTAL YEAR ACQUIRED PERCENTAGE SQUARE PTR EXPECTED OR COMPLETED LEASED FOOTAGE INVESTMENT COST(1) ------------- ---------- -------- ---------- ---------- Santa Fe, New Mexico: Foothills of Santa Fe Phase I.............. 1995 N/A 248 2,156 14,321 ----- ------- ---------- ---------- Subtotals/Average..... N/A 2,328 $ 22,933 $ 131,389 ----- ------- ---------- ---------- Total Multifamily... 50,507 $1,795,434 $2,066,492 ------- ---------- ---------- LAND HELD FOR FUTURE MULTIFAMILY DEVELOPMENT AT DECEMBER 31, 1995: Austin, Texas: Homestead Village-- Round Rock(30)....... 1995 N/A -- $ 892 $ -- Monterey Ranch Village I(31)................ 1993 N/A -- 1,665 -- Monterey Ranch Village III(32).............. 1993 N/A -- 5,825 -- El Paso, Texas: West Ten(33).......... 1994 N/A -- 1,597 -- Houston, Texas: Oaks at the Medical Center Phase II(34).. 1994 N/A -- 5,229 -- Phoenix, Arizona: 22nd & Dunlap Phase II(35)............... 1995 N/A -- 1,820 -- Arrowhead Phase II(36)............... 1995 N/A -- 1,601 -- San Antonio, Texas: Dymaxion Phase II(37). 1994 N/A -- 556 -- Indian Trails Phase II(38)............... 1994 N/A -- 882 -- Walker Ranch Phase I(39)................ 1994 N/A -- 3,386 -- Walker Ranch Phase II(40)............... 1994 N/A -- 1,982 -- Walker Ranch Phase III(41).............. 1994 N/A -- 783 -- Santa Fe, New Mexico: Foothills of Santa Fe Phase II(42)......... 1995 N/A -- 1,149 -- St. Francis (43)...... 1995 N/A -- 2,321 -- ----- ------- ---------- ---------- Subtotals/Average..... N/A -- $ 29,688 $ -- ----- ------- ---------- ---------- HOTEL (ROOMS) OWNED AT DECEMBER 31, 1995: San Francisco (Bay Are- a), California: Wharf Holiday Inn(44). 1971 87.7% 338 $ 22,870 $ 22,870 ----- ------- ---------- ---------- Subtotals/Average..... 87.7% 338 $ 22,870 $ 22,870 ----- ------- ---------- ---------- INDUSTRIAL (SQUARE FEET) OWNED AT DECEMBER 31, 1995: Dallas, Texas: Irving Building....... 1977 100.0% 37,200 $ 540 $ 540 El Paso, Texas: Vista Industrial...... 1989 100.0 130,000 3,134 3,134 Ontario, California: Ontario Building...... 1987 100.0 127,600 4,137 4,137 ----- ------- ---------- ---------- Subtotals/Average..... 100.0% 294,800 $ 7,811 $ 7,811 ----- ------- ---------- ---------- Other................. 100.0% 10,000 $ 63 $ 63 ----- ------- ---------- ---------- Subtotals/Average..... 100.0% 10,000 $ 63 $ 63 ----- ------- ---------- ---------- Total Properties Owned at December 31, 1995........... $1,855,866 $2,097,236 ---------- ----------
(see notes following table) 25
RENTABLE UNITS OR TOTAL YEAR ACQUIRED PERCENTAGE SQUARE PTR EXPECTED OR COMPLETED LEASED FOOTAGE INVESTMENT COST(1) ------------- ---------- -------- ---------- ---------- PROPERTIES ACQUIRED SINCE DECEMBER 31, 1995 AND THROUGH JANUARY 31, 1996 OR IN PLANNING AND UNDER CONTROL AT JANUARY 31, 1996: DEVELOPMENTS IN PLANNING AND OWNED AT JANUARY 31, 1996(2): San Francisco (Bay Area), California: Homestead Village-- Milipitas............ 1996 N/A 118 $ 1,195 $ 5,301 Seattle, Washington: Canyon Creek.......... 1996 N/A 336 5,746 25,003 Portland, Oregon: Arbor Heights......... 1996 N/A 348 2,760 22,247 Phoenix, Arizona: Homestead Village-- Union Hills(29)...... 1996 N/A 141 922 4,961 ----- ---------- ---------- Subtotal.............. 943 $ 10,623 $ 57,512 ----- ---------- ---------- DEVELOPMENTS IN PLANNING AND UNDER CONTROL AT JANUARY 31, 1996(2): Garden style proper- ties................. N/A N/A 1,725 $ (45) $ 100,714 Homestead Village properties........... N/A N/A 2,270 (45) 102,139 --- ----- ---------- Subtotal/Averages..... 3,995 $ 202,853 ----- ---------- Total Properties Owned or Under Control at January 31, 1996........... $1,866,489 $2,357,601 ========== ==========
- -------- *Property developed by PTR. (1) Represents cost, including planned renovations, for properties owned or in planning and under control at January 31, 1996. Represents budgeted development cost, which includes the cost of land, fees, permits, payments to contractors, architectural and engineering fees and interest and property taxes to be capitalized during the construction period, for properties in development. Does not include land held for future development, which approximates 2% of assets based on cost. (2) For definitions of stabilized and pre-stabilized, see "Business-- Multifamily Properties." For the definition of developments in planning, see "Business--Strategy for Cash Flow and Distribution Growth." (3) Phase I (118 units) was acquired in 1991 and Phase II (122 units) was developed in 1992. (4) Property was in lease-up during 1995, therefore percentage leased is not reflected because it would not be representative of a full year of operations. (5) Percentage leased represents an average economic occupancy (gross room revenue earned divided by potential gross room revenue) for the year ended December 31, 1995. Due to the holiday season, percentage leased at December 31, 1995 would not be representative of prevailing lease levels. (6) Phase I (132 units) was developed in 1992 and Phase II (57 units) was developed in 1995. (7) The Silvercliff apartments are subject to a deed of trust securing long- term mortgage debt of $7.5 million. (8) Phase I (120 units) was developed in 1980, Phase II (60 units) was developed in 1981 and Phase III (288 units) was developed in 1983. The entire project is subject to a deed of trust securing long-term mortgage debt of $5.9 million. 26 (9) Phase I (160 units) was developed in 1989 and Phase II (132 units) was developed in 1991. The entire project is subject to a deed of trust securing long-term mortgage debt of $7.0 million. (10) Phase I (208 units) was acquired in 1991 and Phase II (144 units) was developed in 1994. (11) The Spring Park apartments are subject to a deed of trust securing long- term mortgage debt of $4.3 million. (12) Phase I (84 units) was developed in 1970 and Phase II (100 units) was developed in 1978. The entire project is subject to a deed of trust securing long-term mortgage debt of $694,000. (13) The Braeswood Park apartments are subject to a deed of trust securing long-term mortgage debt of $6.9 million. (14) The Chasewood apartments are subject to a deed of trust securing long-term mortgage debt of $9.5 million. (15) The Seahawk apartments are subject to a deed of trust securing long-term mortgage debt of $5.5 million. (16) The Sunterra apartments are subject to a deed of trust securing long-term mortgage debt of $8.3 million. (17) The Apple Creek apartments are subject to a deed of trust securing long- term mortgage debt of $11.1 million. (18) The Presidio at South Mountain apartments are subject to a deed of trust securing long-term mortgage debt of $14.6 million. (19) The Knight's Castle apartments are subject to a deed of trust securing long-term mortgage debt of $7.6 million. (20) The Cherry Creek apartments are subject to a deed of trust securing long- term mortgage debt of $4.2 million. (21) The Greenpointe apartments are subject to a deed of trust securing long- term mortgage debt of $3.7 million. (22) The Mountain Shadow apartments are subject to a deed of trust securing long-term mortgage debt of $3.4 million. (23) Phase I (250 units) was acquired in 1993 and Phase II (80 units) was developed in 1995. (24) The Windsail apartments are subject to a deed of trust securing long-term mortgage debt of $4.8 million. (25) The Brompton Court apartments are subject to a deed of trust securing long-term mortgage debt of $14.5 million. (26) The La Tierra at the Lakes apartments are subject to a deed of trust securing long-term mortgage debt of $26.4 million. (27) The Double Tree Phase II apartments are subject to a deed of trust securing long-term mortgage debt of $4.8 million. (28) The Treat Commons apartments are subject to a deed of trust securing long- term mortgage debt of $7.3 million. (29) Represents properties owned by third party owner-developers that are subject to presale agreements with PTR to acquire such properties. PTR's investment as of December 31, 1995, for properties owned by PTR as of December 31, 1995, and January 31, 1996, for properties acquired subsequent to December 31, 1995, represents development loans made by PTR to such owner-developers. (30) 3.7 acres of undeveloped land. (31) 19.9 acres of undeveloped land. (32) 53.1 acres of undeveloped land. (33) 25.3 acres of undeveloped land. (34) 13.2 acres of undeveloped land. (35) 7.6 acres of undeveloped land. (36) 11.6 acres of undeveloped land. 27 (37) 18.0 acres of undeveloped land. (38) 25.6 acres of undeveloped land. (39) 38.7 acres of undeveloped land. (40) 30.5 acres of undeveloped land. (41) 10.3 acres of undeveloped land. (42) 19.2 acres of undeveloped land. (43) 10.4 acres of undeveloped land. (44) PTR owns the building and land leased to Holiday Inns of America, Inc. at Fisherman's Wharf in San Francisco. The lease with Holiday Inns expires in 2018. Percentage leased represents average occupancy for the one-year period ended December 31, 1995. (45) PTR's investment as of December 31, 1995 for garden style properties and Homestead Village properties was $760,000 and $806,000, respectively, and is reflected in the "other asset" caption of PTR's balance sheet for the year ended December 31, 1995. PORTFOLIO COMPOSITION The following table indicates the composition of properties owned or under control by PTR at January 31, 1996:
PERCENTAGE OF NUMBER OF ASSETS BASED PROPERTIES ON COST(1) ---------- ------------- Multifamily...................................... 213 99% Industrial....................................... 3 * Hotel............................................ 1 1 --- --- Total........................................ 217 100% === ===
- -------- *Less than 1%. (1) Represents cost, including planned renovations, for properties owned or in planning and under control at January 31, 1996. Represents budgeted development cost, which includes the cost of land, fees, permits, payments to contractors, architectural and engineering fees and interest and property taxes to be capitalized during the construction period, for properties in development. Does not include land held for future development, which approximates 2% of assets based on cost. 28 GEOGRAPHIC DISTRIBUTION PTR's multifamily and non-multifamily properties are located in 23 metropolitan areas in 12 states. The table below demonstrates the geographic distribution of PTR's property investments based on cost at January 31, 1996 for properties owned or under control by PTR on such date:
PERCENTAGE OF NUMBER OF ASSETS BASED PROPERTIES ON COST(1) ---------- ------------- Albuquerque, New Mexico.......................... 12 6% Austin, Texas.................................... 15 7 Dallas/Ft. Worth, Texas.......................... 20 6 Denver, Colorado................................. 13 5 El Paso, Texas/Las Cruces, New Mexico............ 14 4 Houston, Texas................................... 21 9 Kansas City, Kansas.............................. 1 * Las Vegas, Nevada................................ 5 5 Los Angeles, California.......................... 3 1 Oklahoma City, Oklahoma.......................... 2 1 Omaha, Nebraska.................................. 2 1 Ontario, California.............................. 1 * Phoenix, Arizona................................. 26 16 Portland, Oregon/Vancouver, Washington........... 10 6 Reno, Nevada..................................... 2 2 Salt Lake City, Utah............................. 8 4 San Antonio, Texas............................... 26 8 San Diego, California............................ 4 2 San Francisco (Bay Area), California............. 7 4 Santa Fe, New Mexico............................. 5 2 Seattle, Washington.............................. 9 6 Tucson, Arizona.................................. 10 5 Tulsa, Oklahoma.................................. 1 * --- --- Total........................................ 217 100% === ===
- -------- *Less than 1%. (1) Represents cost, including planned renovations, for properties owned or in planning and under control at January 31, 1996. Represents budgeted development cost, which includes the cost of land, fees, permits, payments to contractors, architectural and engineering fees and interest and property taxes to be capitalized during the construction period, for properties in development. Does not include land held for future development, which approximates 2% of assets based on cost. ITEM 3. LEGAL PROCEEDINGS PTR is a party to various claims and routine litigation arising in the ordinary course of business. PTR does not believe that the results of all claims and litigation, individually or in the aggregate, will have a material adverse effect on its business, financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 29 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Shares are listed on the New York Stock Exchange under the symbol "PTR." The following table sets forth the high and low sale prices of the Common Shares as reported in the New York Stock Exchange Composite Tape by CompuServe, and distributions declared, for the periods indicated.
HIGH LOW DISTRIBUTIONS ------- ------- ------------- 1994 First Quarter............................. $21 5/8 $18 1/4 $0.250(1) Second Quarter............................ 20 1/8 17 3/4 0.250 Third Quarter............................. 18 7/8 17 5/8 0.250 Fourth Quarter............................ 18 3/8 15 1/2 0.250 1995 First Quarter............................. $18 3/8 $16 3/8 $0.2875(2) Second Quarter............................ 18 1/8 16 5/8 0.2875 Third Quarter............................. 19 1/4 17 0.2875 Fourth Quarter............................ 20 1/2 17 1/4 0.2875 1996 First Quarter (through March 20).......... $22 1/4 $19 1/4 $0.31(3)
- -------- (1) Declared in the fourth quarter of 1993 and paid in the first quarter of 1994. (2) Declared in the fourth quarter of 1994 and paid in the first quarter of 1995. (3) Declared in the fourth quarter of 1995 and paid in the first quarter of 1996. As of March 20, 1996, PTR had approximately 3,300 record holders of Common Shares and in excess of 24,000 record and beneficial holders of Common Shares. PTR, in order to qualify as a REIT, is required to make distributions (other than capital gain distributions) to its shareholders in amounts at least equal to (i) the sum of (A) 95% of its "REIT taxable income" (computed without regard to the dividends paid deduction and its net capital gain) and (B) 95% of the net income (after tax), if any, from foreclosure property, minus (ii) the sum of certain items of non-cash income. PTR's distribution strategy is to distribute what it believes is a conservative percentage of its cash flow, permitting PTR to retain funds for capital improvements and other investments while funding its distributions. PTR has paid 80 consecutive quarterly cash distributions on Common Shares. PTR announces the following year's projected annual distribution level after the Board's annual budget review and approval in December of each year. At its December 12, 1995 Board meeting, the Board announced a projected increase in the annual distribution level from $1.15 to $1.24 per Common Share. The payment of distributions is subject to the discretion of the Board and is dependent upon the financial condition and operating results of PTR. For federal income tax purposes, distributions may consist of ordinary income, capital gains, non-taxable return of capital or a combination thereof. Distributions that exceed PTR's current and accumulated earnings and profits (calculated for tax purposes) constitute a return of capital rather than a dividend and reduce the shareholder's basis in his or her Common Shares. To the extent that a distribution exceeds both current and accumulated earnings and profits and the shareholder's basis in his or her Common Shares, it will generally be treated as gain from the sale or exchange of that shareholder's Common Shares. PTR annually notifies shareholders of the taxability of distributions paid during the preceding year. The following summarizes the taxability of distributions paid in 1994 and 1993 in respect of the Common Shares and the estimated taxability for 1995: 30
YEAR ENDED DECEMBER 31, ----------------- 1995 1994 1993 ----- ----- ----- Per Common Share: Ordinary income....................................... $0.92 $0.68 $0.65 Capital gains......................................... -- -- 0.11 Return of capital..................................... 0.23 0.32 0.06 ----- ----- ----- Total............................................... $1.15 $1.00 $0.82 ===== ===== =====
On July 21, 1994, in addition to the distributions paid, PTR redeemed the shareholder purchase rights issued pursuant to the Rights Agreement dated as of February 23, 1990, as amended. Pursuant to the redemption, each holder of record at the close of business on July 21, 1994 received $0.01 per shareholder purchase right. The redemption price was paid on August 12, 1994 and is taxable as ordinary income for federal income tax purposes. Under federal income tax rules, PTR's earnings and profits are first allocated to its Series A Preferred Shares and Series B Preferred Shares, which increases the portion of the Common Shares distribution classified as return of capital. The portion of distributions characterized as return of capital results primarily from the excess of distributions over earnings, primarily because non-cash charges such as depreciation are added to earnings in determining distribution levels. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations." For federal income tax purposes, the following summaries reflect the taxability of dividends paid on Series A Preferred Shares and Series B Preferred Shares, respectively, for periods prior to 1995 and the estimated taxability for 1995:
DATE OF ISSUANCE TO 1995 1994 12/31/93 ----- ----- ----------- Per Series A Preferred Share: Ordinary income................................. $1.75 $1.75 $0.1231 Capital gains................................... -- -- 0.0227 ----- ----- ------- Total......................................... $1.75 $1.75 $0.1458 ===== ===== =======
DATE OF ISSUANCE TO 12/31/95 ----------- Per Series B Preferred Share: Ordinary income............................................. $1.3625 Capital gains............................................... -- ------- Total..................................................... $1.3625 =======
PTR's tax return for the year ended December 31, 1995 has not been filed, and the taxability information for 1995 is based upon the best available data. PTR's tax returns have not been examined by the Internal Revenue Service and, therefore, the taxability of distributions and dividends is subject to change. 31 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data relating to the historical financial condition and results of operations of PTR for the years ended December 31, 1995, 1994, 1993, 1992 and 1991. Such summary financial data is qualified in its entirety by, and should be read in conjunction with, the financial statements and related notes thereto incorporated by reference herein (amounts in thousands, except per share data).
YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1995 1994 1993 1992 1991 --------- --------- --------- --------- -------- OPERATIONS SUMMARY: Rental Income........... $ 262,473 $ 183,472 $ 76,129 $ 30,970 $ 14,721 Total Revenues.......... 264,873 186,105 78,418 32,779 15,817 General and Administrative Expenses............... 952 784 660 436 697 REIT Management Fee..... 20,354 13,182 7,073 2,711 793 Earnings from Operations(1).......... 81,696 46,719 23,191 9,037 2,078 Gain (loss) on Sale of Investments............ 2,623 -- 2,302 (51) (611) Preferred Share Dividends Paid......... 21,823 16,100 1,341 -- -- Net Earnings Attributable to Common Shares................. 62,496 30,619 24,152 8,986 1,467 Common Share Distributions Paid..... $ 76,804 $ 46,121 $ 29,162 $ 13,059 $ 4,179 PER SHARE DATA: Net Earnings Attributable to Common Shares................. $ 0.93 $ 0.66 $ 0.66 $ 0.46 $ 0.21 Common Share Distributions Paid..... 1.15 1.00 0.82 0.70 0.64 Series A Preferred Share Dividends Paid......... 1.75 1.75 0.1458 -- -- Series B Preferred Share Dividends Paid......... $ 1.363 $ -- $ -- $ -- $ -- Weighted Average Common Shares Outstanding............ 67,052 46,734 36,549 19,435 7,123 OTHER DATA: Funds from Operations Attributable to Common Shares(2).............. $ 96,978 $ 56,833 $ 34,716 $ 14,922 $ 5,404 Net Cash Provided by Operating Activities... 121,795 94,625 49,247 20,252 6,092 Net Cash Used by Investing Activities... (294,488) (368,515) (529,065) (229,489) (33,553) Net Cash Provided by Financing Activities... $ 191,520 $ 276,457 $ 478,345 $ 185,130 $ 57,259
DECEMBER 31, ------------------------------------------------ 1995 1994 1993 1992 1991 ---------- ---------- -------- -------- -------- FINANCIAL POSITION: Real Estate Owned, at cost... $1,855,866 $1,296,288 $872,610 $337,274 $117,572 Total Assets................. 1,840,999 1,295,778 890,301 342,235 141,020 Line of Credit............... 129,000 102,000 51,500 54,802 101 Long-Term Debt............... 200,000 200,000 -- -- -- Mortgages Payable............ 158,054 93,624 48,872 30,824 35,772 Total Liabilities............ 565,331 455,136 135,284 94,186 38,707 Shareholders' Equity......... $1,275,668 $ 840,642 $755,017 $248,049 $102,313 Number of Common Shares Out- standing.................... 72,211 50,456 44,645 27,034 13,161
- -------- (1) Earnings from operations for the year ended December 31, 1995, 1994 and 1993 reflect a $420,000, $1.6 million and a $2.3 million provision, respectively, for possible losses relating to investments in non- multifamily properties. (2) Funds from operations attributable to Common Shares ("funds from operations") means net earnings computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains (or 32 losses) from debt restructuring and sales of property, plus certain non-cash items, principally property depreciation, and after adjustments for unconsolidated partnerships and joint ventures. PTR believes that funds from operations is helpful in understanding a property portfolio's ability to support interest payments and general operating expenses. Funds from operations should not be considered as an alternative to net earnings or any other GAAP measurement of performance as an indicator of PTR's operating performance or as an alternative to cash flows from operating, investing or financing activities as a measure of liquidity. In July 1994, PTR changed to a more conservative policy of expensing the amortization of loan costs in determining funds from operations. For comparability, funds from operations has been restated to give effect to this policy as if it had been in effect since January 1, 1991. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW PTR's operating results depend primarily upon income from multifamily properties, which is substantially influenced by (i) the demand for and supply of multifamily units in PTR's target market and submarkets, (ii) rental expense levels, (iii) the effectiveness of property level operations and (iv) the pace and price at which PTR can develop and acquire additional multifamily properties. Capital and credit market conditions which affect PTR's cost of capital also influence operating results. PTR's target market and submarkets have benefitted substantially in recent periods from demographic trends (including job and population growth) that increase the demand for multifamily units. Consequently, rental rates for multifamily units have increased more than the inflation rate for the last three years and are expected to continue experiencing such increases for 1996. Expense levels also influence operating results, and rental expenses (other than real estate taxes) as a percentage of revenues for multifamily properties have decreased slightly during 1995 and are expected to increase at approximately the rate of inflation for 1996. MERGER AND CONCURRENT SUBSCRIPTION OFFERING On March 23, 1995, PTR completed the Merger. In the Merger, each outstanding share of PACIFIC common stock was converted into the right to receive 0.611 of a Common Share. As a result, 8,468,460 Common Shares were issued in the Merger in exchange for all of the outstanding shares of PACIFIC common stock. Additionally, PTR changed its name from Property Trust of America to Security Capital Pacific Trust to more accurately reflect its newly expanded target market. The Merger expanded PTR's target market to include a six-state region of the western United States that the REIT Manager believes is expected to provide some of the most attractive multifamily growth opportunities. Concurrently with the consummation of the Merger, PTR completed a subscription offering pursuant to which PTR received net proceeds of $216.3 million (13.2 million Common Shares). The subscription offering was designed to allow shareholders of PTR to purchase Common Shares at the same price PACIFIC shareholders were acquiring Common Shares in the Merger ($16.375 per Common Share). SCG purchased $50 million (3.1 million Common Shares) in the subscription offering pursuant to the oversubscription privilege. RESULTS OF OPERATIONS 1995 COMPARED TO 1994 During 1995, PTR acquired 24 multifamily properties aggregating 7,633 units for a total purchase price, including planned renovations, of approximately $361.0 million. In addition, PTR completed development of 15 multifamily properties aggregating 2,405 units in 1995 with a completion cost of $92.6 million. At December 31, 1995, PTR had 27 multifamily properties under construction with a budgeted completion cost of $341.6 million and had in planning (see "Item 1. Business--Strategy for Cash Flow and Distribution 33 Growth") an estimated 6,150 multifamily units with an aggregate estimated investment cost of $341.0 million. During 1994, PTR acquired 20 multifamily properties aggregating 6,626 units for a total purchase price, including planned renovations, of approximately $266.0 million. In addition, PTR completed development of 15 multifamily properties aggregating 3,061 units in 1994 with a completion cost of $127.9 million. The percentage of PTR's total rental income generated by multifamily properties was 98.6% and 98.3% for the years ended December 31, 1995 and 1994, respectively. This percentage will continue to increase throughout 1996 due to past and ongoing multifamily property developments and acquisitions and the periodic sale of non-multifamily properties. Property Operations Including the newly developed and acquired assets, net earnings increased $37.6 million (80.5%) for 1995 over 1994. The increased net earnings related primarily to property revenue increases of $79.0 million (43.1%), partially offset by higher rental expenses and real estate taxes which increased $25.0 million (31.7%) for the period. Depreciation expense increased $12.1 million (49.0%) for 1995 over 1994. These increases are due to multifamily acquisitions and multifamily developments placed in service and to rental rate increases. For operating multifamily properties, which comprise 98.1% of PTR's total operating properties based on undepreciated cost at December 31, 1995, rental expenses and real estate taxes were 40.0% and 43.6% of rental income during the years ended December 31, 1995 and 1994, respectively. During the period prior to a property being stabilized (see "Item 1. Business--Multifamily Properties"), the REIT Manager and the property managers begin implementing expense controls, reconfigure the resident mix, supervise renovations and implement a strategy to increase rental income. The full benefits of these changes are not reflected until after the properties are stabilized. At December 31, 1995, 86.4% of PTR's operating multifamily properties, based on expected cost, were classified as stabilized as compared to 82.4% at December 31, 1994. Multifamily Properties Fully Operating Throughout Both Periods For the 79 multifamily properties that were fully operating throughout both 1995 and 1994, property level earnings before interest, income taxes, depreciation and amortization ("EBITDA") as a percentage of PTR's aggregate investment in these properties increased to 10.88% in 1995 from 10.22% in 1994. EBITDA is not to be construed as a substitute for "net earnings" in evaluating operating results, nor as a substitute for "cash flow" in evaluating liquidity. This increase in return on investment, which is a function of rental rate growth, occupancy levels, expense rate growth and capital expenditure levels, is attributable primarily to growth in rental rates and the control of operating expense growth. This increase in return on investment was achieved at the same time that PTR increased its investment in these properties by $8.1 million (1.1% of total investment in these properties) as a result of renovation and other capital expenditures. The 7.8% increase in net operating income resulted from a 3.7% rental revenue increase and a 1.5% decrease in rental expenses for such properties for 1995 as compared to 1994. Interest Income Interest income for 1995 decreased 8.9% primarily resulting from the payoff of a $4.6 million mortgage note receivable during the first quarter of 1995 and the sale during the fourth quarter of 1995 of PTR's investment in a $3.2 million purchase money note received from a prior year sale of a non- multifamily property. Interest Expense Interest expense increased $142,000 (0.73%) for 1995 as compared to 1994. The increase is primarily attributable to an increase of $1.5 million (11.9%) resulting from the issuance of $200 million of long-term 34 unsecured notes in February 1994, as more fully discussed under "--Liquidity and Capital Resourses" and an increase in mortgage interest expense of $4.7 million (72.5%) for 1995 compared to 1994 offset by an increase in capitalized interest of $5.7 million (94.7%) for 1995 compared to 1994. The increase in mortgage expense is attributable to the addition of eight mortgage payable notes aggregating $66.5 million acquired upon purchase of multifamily properties or assumed in connection with the Merger. The increase in capitalized interest is attributable to increased levels of multifamily development activity and higher interest rates. Line of credit interest expense for 1995 was $348,000 (5.7%) lower than 1994, principally because of lower average outstanding balances offset by higher interest rates. Average borrowings were approximately $51.9 million (with an average interest rate of 8.0%) during 1995, as compared to average borrowings of $59.9 million (with an average interest rate of 7.0%) during 1994. General and Administrative Expense including REIT Management Fee The REIT Management fee paid by PTR fluctuates with the level of PTR's pre- REIT Management fee cash flow and therefore increased by $7.2 million (54.4%) in 1995 as compared to 1994 because cash flow increased substantially (see "-- REIT Management Agreement" below). As PTR arranges amortizing long-term debt and nonconvertible preferred share financing as more fully described in "-- Liquidity and Capital Resources" below, the REIT Management fee will effectively decline in proportion to PTR's earnings from operations because actual or assumed regularly scheduled principal payments, as defined in such agreement, associated with the long-term debt and distributions actually paid with respect to any nonconvertible preferred shares will be deducted from the cash flow amount on which the REIT Management fee is based. Gains and Provision for Loss on Real Estate and Investments PTR develops and acquires properties with a view to effective long-term operation and ownership. Based upon PTR's market research and in an effort to optimize its portfolio composition, PTR may from time to time seek to dispose of assets that in management's view do not meet PTR's long-term investment criteria and redeploy the proceeds therefrom, preferably through like-kind exchanges, into assets that are more consistent with PTR's investment objectives. During the fourth quarter of 1995, PTR sold one multifamily property, consisting of 166 units. PTR recorded a gain from such sale of $3.2 million for the year ended December 31, 1995. The proceeds from the sale were redeployed through a like-kind exchange into a 290 unit multifamily property. PTR also sold its investment in a mortgage note received upon sale of one of its non-multifamily properties. PTR recorded a loss of $600,000 on such sale for the year ended December 31, 1995. PTR owns a 40% interest in a partnership that in October 1995 sold its only real estate asset, an office building located in the Dallas, Texas metropolitan area. During the first quarter of 1994, the partnership adopted a strategy of disposing of the property rather than continuing to hold the property as a long-term investment. As a result, the managing partner evaluated the building for net realizable value, which resulted in a provision for possible loss of $4 million. PTR's share of the loss provision is $1.6 million as reflected in the December 31, 1994 statement of earnings. During the third quarter of 1995, the partnership approved the sale of the property and as a result, PTR recorded an additional provision of $220,000 as reflected in the December 31, 1995 statement of earnings. This provision has no impact on cash flow from operating activities nor does PTR have any financial obligation to the partnership. PTR also recorded a loss provision of $200,000 for the year ended December 31, 1995 relating to a contingent liability on a non-multifamily property. This provision has no impact on cash flow from operating activity. 35 PTR's strategy is to focus on the ownership of multifamily properties. Periodic sales of multifamily and non-multifamily assets may occur as opportunities arise or investment objectives change. Properties are periodically evaluated for impairment and provisions for possible losses are made if required. Statement of Financial Accounting Standard No. 121 entitled "Accounting For The Impairment Of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of" will be adopted by PTR, as required by the Statement, effective January 1, 1996. In the opinion of management, the adoption of the Statement is not expected to have a material impact on the financial statements at the date of adoption. Preferred Share Dividend In November 1993, PTR issued $230 million of Series A Preferred Shares that are entitled to receive an annual dividend of $1.75 per share (7.0% annual dividend rate), which amounted to $16.1 million for both 1995 and 1994. In May 1995, PTR issued $105 million of Series B Preferred Shares that are entitled to receive an annual dividend of $2.25 per share (9.0% annual dividend rate), which amounted to $5.7 million for 1995. The Preferred Share dividends do not reduce the amount PTR has budgeted for Common Share distributions but do increase the percentage of the Common Share distribution that constitutes a non-taxable return of capital. 1994 COMPARED TO 1993 During 1994, PTR acquired 20 multifamily properties aggregating 6,626 units for a total purchase price, including planned renovations, of approximately $266.0 million. In addition, PTR completed development of 15 multifamily properties aggregating 3,061 units in 1994 with a completion cost of $127.9 million. At December 31, 1994, PTR had 21 multifamily properties under construction with a budgeted completion cost of $205.4 million and had in planning an estimated 8,492 multifamily units with an aggregate estimated investment cost of $403.0 million. During 1993, PTR acquired 53 multifamily properties aggregating 13,772 units for a total purchase price, including planned renovations, of approximately $453.7 million, most of which was invested in the fourth quarter of 1993. In addition, PTR completed development of three multifamily properties aggregating 732 units in 1993. The percentage of PTR's total rental income generated by multifamily properties was 98.3% and 93.2% for the years ended December 31, 1994 and 1993, respectively. At December 31, 1994, 82.4% of PTR's operating multifamily properties based on expected cost were classified as stabilized as compared to 47% at December 31, 1993. Property Operations Including the newly developed and acquired assets, net earnings increased $21.2 million (83.3%) for 1994 over 1993. The increased net earnings related primarily to property revenue increases of $107.3 million (141.0%), partially offset by higher rental expenses and real estate taxes, which increased by $48.5 million (159.2%) for the period. Depreciation expense increased $14.1 million (134.2%) for 1994 over 1993. These increases are due to multifamily acquisitions and multifamily developments placed in service and to rental rate increases. For operating multifamily properties, which comprised 97.1% of PTR's total operating properties based on cost at December 31, 1994, rental expenses and real estate taxes were 43.6% and 42.2% of rental income during the years ended December 31, 1994 and 1993, respectively. Multifamily Properties Fully Operating Throughout Both Periods For the 29 multifamily properties that were fully operating throughout both 1994 and 1993, property level EBITDA as a percentage of PTR's aggregate investment in these properties increased to 11.14% in 1994 from 10.68% in 1993. This increase in return on investment, was achieved at the same time that PTR increased its investment in these properties by $2.8 million (1.1% of total investment in these properties) as a result of renovation and other capital expenditures. The 6.8% increase in rental income (the majority 36 resulting from a 6.42% rental rate increase) for such properties for 1994 as compared to 1993 was offset by increases in rental expenses, primarily due to real estate taxes and turnover expenses. Interest Income Interest income for 1994 increased 15.0%, primarily resulting from the addition of 4 purchase money notes aggregating $12.4 million received in 1993 in conjunction with property sales. Interest Expense Interest expense increased $15.5 million (395.6%) for 1994 as compared to 1993. The increase is primarily attributable to interest expense of $12.9 million resulting from the issuance of $200 million of long-term notes in February 1994, as more fully discussed under "--Liquidity and Capital Resources--Financing Activities." Mortgage interest expense decreased $288,000 (41.6%) for 1994, compared to 1993. The decrease is attributable to interest savings resulting from prepayments and payoffs aggregating $10.5 million on mortgages during 1994 and an increase of $3.2 million (114.0%) in capitalized interest during 1994 over 1993 due to increased levels of multifamily development activity. Line of credit interest expense for 1994 was $2.9 million higher than for 1993, principally because of higher average outstanding balances, higher interest rates and amortization of additional loan costs (commitment fees, title policies and legal expenses) relating to PTR's revolving credit facility which was increased from $200 million to $275 million during 1994. Average borrowings were approximately $59.9 million (with an average interest rate of 7.0%) during 1994, as compared to average borrowings of $40.6 million (with an average interest rate of 6.3%) during 1993. General and Administrative Expense including REIT Management Fee The REIT Management fee paid by PTR fluctuates with the level of PTR's pre- REIT Management fee cash flow and therefore increased by $6.1 million (86.4%) in 1994 as compared to 1993 because cash flow increased substantially (see "-- REIT Management Agreement" below). As PTR arranges amortizing long-term debt and nonconvertible preferred share financing as more fully described in "-- Liquidity and Capital Resources" below, the REIT Management fee will effectively decline in proportion to PTR's earnings from operations because actual or assumed regularly scheduled principal payments, as defined in such agreement, associated with the long-term debt and distributions actually paid with respect to any nonconvertible preferred shares will be deducted from the cash flow amount on which the REIT Management fee is based. Provision for Possible Loss PTR develops and acquires properties with a view to effective long-term operation and ownership. Based upon PTR's market research and in an effort to optimize its portfolio composition, PTR may from time to time seek to dispose of assets that in management's view do not meet PTR's long-term investment criteria and redeploy the proceeds therefrom, preferably through like-kind exchanges, into assets that are more consistent with PTR's investment objectives. PTR owns a 40% interest in a partnership that in October 1995 sold its only real estate asset, an office building located in the Dallas, Texas metropolitan area. See "--1995 Compared to 1994--Gains and Provision for Loss on Real Estate and Investments" above. PTR focuses its investment and development activities on multifamily properties. PTR will continue to aggressively manage its non-multifamily properties in order to maximize cash flow, and dispositions of such non- multifamily properties may occur as opportunities arise. Properties are periodically evaluated for net realizable value and provisions for possible losses are made if required. 37 Preferred Share Dividend In November 1993, PTR issued $230 million of Series A Preferred Shares that are entitled to receive an annual dividend of $1.75 per share (7.0% annual dividend rate), which amounted to $16.1 million for 1994 compared to $1.3 million for 1993. The preferred share dividends do not reduce the amount PTR has budgeted for Common Share distributions but do increase the percentage of the Common Share distribution that constitutes a non-taxable return of capital. ENVIRONMENTAL MATTERS PTR does not expect any environmental condition on its properties to have a material adverse affect upon its results of operations or financial position. LIQUIDITY AND CAPITAL RESOURCES The REIT Manager considers PTR's liquidity and ability to generate cash from operations and financings to be adequate and expects it to continue to be adequate to meet PTR's development, acquisition, operating, debt service and shareholder distribution requirements. Operating Activities Net cash flow provided by operating activities increased by $27.2 million (28.7%) for the year ended December 31, 1995 as compared to 1994. Net cash flow provided by operating activities increased by $45.4 million (92.1%) for 1994 as compared to 1993. These increases are due primarily to multifamily property acquisitions and developments as described under "--Results of Operations" above offset partially by changes in the timing of the payment of accounts payable and accrued expenses and other liabilities in 1995 as compared to 1994 and 1994 as compared to 1993. Investing Activities During the year ended December 31, 1995, PTR invested $501.7 million for the development, acquisition (including properties acquired in the Merger) and renovation of multifamily properties and land, net of $66.5 million in mortgages assumed. During the year ended December 31, 1994, PTR invested $381.2 million for the acquisition, development and renovation of multifamily properties and land, net of $56.6 million in mortgages assumed. Except for the properties acquired in the Merger, which were financed with the issuance of Common Shares, these developments, acquisitions and renovations were financed with cash on hand and borrowings under PTR's revolving line of credit, which were repaid with the proceeds from PTR's equity and debt offerings. PTR's investing activities used $74.0 million (20.1%) less cash in 1995 as compared to 1994 as a result of lower levels of multifamily property acquisitions acquired for cash, and $160.6 million (30.3%) less cash in 1994 as compared to 1993 as a result of lower levels of multifamily investments. At January 31, 1996, PTR had unfunded development commitments for developments under construction of $152.1 million. In addition, PTR had $391.8 million of developments in planning at such date. The foregoing developments are subject to a number of conditions, and PTR cannot predict with certainty that any of them will be consummated. Financing Activities PTR's net financing activities for the year ended December 31, 1995 provided $191.5 million as compared to $276.5 million in 1994. In addition, PTR issued 8,468,460 Common Shares in March 1995 38 valued at $138.7 million in exchange for all of PACIFIC's common stock. The decrease in cash flow provided by financing activities is primarily due to the repayment of revolving credit balances ($302.9 million during 1995 as compared to $215.7 million in 1994) and an increase in distributions to shareholders ($98.6 million for 1995 compared to $62.2 million for 1994) offset slightly by more offering proceeds received during 1995 as compared to 1994 ($317.6 million during 1995 as compared to $301.1 million during 1994). Proceeds from the offerings were used for acquisition, development and renovation of multifamily properties, to repay revolving credit balances incurred for such purposes, and for working capital purposes. Pending additional investment in multifamily properties, PTR has invested the remaining net proceeds in short-term money market instruments. On February 23, 1996, PTR issued $50 million of 7.15% Notes due 2010 (the "2010 Notes") and $100 million of 7.90% Notes due 2016 (the "2016 Notes") which funds were used to reduce the outstanding revolving credit balance. The 2010 Notes bear interest at 7.15% per annum and require annual principal payments of $6.25 million, commencing February 15, 2003. The 2016 Notes bear interest at 7.90% per annum and require aggregate annual principal payments of $10 million in 2011, $12.5 million in 2012, $15 million in 2013, $17.5 million in 2014, $20 million in 2015 and $25 million in 2016. Collectively, the 2010 Notes and 2016 Notes are unsecured and have an average life to maturity of 15.5 years and an average effective interest cost, including offering discounts and issuance costs, of 7.84% per annum. The 2010 Notes and 2016 Notes are redeemable any time at the option of PTR, in whole or in part, at a redemption price equal to the sum of the principal amount of the Notes being redeemed plus accrued interest thereon to the redemption date plus an adjustment, if any, based on the yield to maturity relative to market yields available at redemption. The 2010 Notes and 2016 Notes are governed by the terms and provisions of an indenture agreement dated February 1, 1994, as supplemented (the "Indenture"), between PTR and State Street Bank and Trust Company, as trustee. Under the terms of the Indenture, PTR can incur additional debt only if, after giving effect to the debt being incurred and application of the proceeds therefrom, (i) the ratio of debt to total assets, as defined in the Indenture, does not exceed 60%, (ii) the ratio of secured debt to total assets, as defined in the Indenture, does not exceed 40%, and (iii) PTR's pro forma interest coverage ratio, as defined in the Indenture, for the four preceding fiscal quarters is not less than 1.5:1. PTR is in compliance with all debt covenants. On March 23, 1995, PTR increased its unsecured revolving line of credit facility to $350 million. The line of credit expires August 1997 and may annually be extended for an additional year with the approval of TCB and the other participating lenders. Borrowings bear interest at the greater of prime (8.5% at December 31, 1995) or the federal funds rate plus 0.5% or, at PTR's option, LIBOR (5.719% at December 31, 1995) plus 1.375% (7.094% at December 31, 1995) which can vary from LIBOR plus 1.0% to LIBOR plus 1.75% based upon the rating of PTR's senior unsecured debt. Additionally, there is a commitment fee on the average unfunded line of credit balance. Covenants require that PTR maintain (i) an interest coverage ratio of not less than 2:1, (ii) a debt to tangible net worth ratio no greater than 1:1, (iii) a fixed charge ratio of no less than 1.4:1, (iv) an unencumbered pool of real estate properties of which certain properties must meet certain occupancy requirements and which have an aggregate historical cost of at least 175% of unsecured indebtedness and (v) a tangible net worth of at least $1 billion at all times. PTR is in compliance with all debt covenants. PTR expects to finance developments, acquisitions and renovations with cash on hand and borrowings under its line of credit prior to arranging long-term capital in order to efficiently respond to market opportunities while minimizing the amount of cash invested in short-term investments at lower yields. PTR believes that its current conservative ratio of long-term debt to total long-term undepreciated book capitalization, the sum of long-term debt and shareholders' equity after adding back accumulated depreciation (21% at December 31, 1995 on an historical basis, and 27% at January 31, 1996, on a pro forma basis giving effect to the sale of the 2010 Notes and 2016 Notes and the application of the net proceeds therefrom), provides considerable flexibility to prudently increase its capital base by utilizing long-term debt 39 as a financing tool in the future. PTR expects to fund additional growth for the foreseeable future primarily through the issuance of unsecured long-term, fixed rate amortizing debt securities similar to the 2010 Notes and 2016 Notes and through its asset optimization strategy. To a lesser extent, under certain circumstances, PTR may arrange for debt with different maturities in order to optimize its overall debt maturity schedule. PTR has the ability to finance a significant level of investment activity with its debt issuance capacity, asset optimization strategy and internally generated funds made available as the dividend payout ratio is reduced. Hence, PTR has no current plans to raise additional capital through the common equity markets. No assurance can be given that changes in market conditions or other factors will not affect these plans. On May 17, 1995, PTR raised net proceeds of $101.4 million from the sale of the Series B Preferred Shares. The net proceeds were used for the development and acquisition of additional multifamily properties, for the repayment of indebtedness under PTR's revolving line of credit and for working capital purposes. On March 23, 1995, PTR raised $216.3 million of net proceeds from a subscription offering of 13.2 million Common Shares at a price of $16.375 per Common Share, which was the same price per Common Shares on which the exchange ratio for the Merger was based. The subscription offering closed concurrently with the consummation of the Merger. The subscription offering was designed to allow shareholders the opportunity to purchase Common Shares at the same price at which PACIFIC shareholders acquired Common Shares in the Merger and to maintain PTR's balance sheet ratios. SCG acquired $50 million (3.1 million Common Shares) of the subscription offering pursuant to the oversubscription privilege. On August 16, 1994, PTR raised $101.8 million of net proceeds from a rights offering of 5,593,718 Common Shares at a price of $18.25 per Common Share. SCG exercised in full its rights to acquire Common Shares in the offering at the same price paid by the public ($18.25 per Common Share) and acquired additional rights in the open market. Proceeds from the offering were used to fund developments and to invest in additional multifamily properties in PTR's target market and to repay borrowings under PTR's line of credit. On February 8, 1994, PTR issued $100 million of 6.875% Senior Notes due 2008 (the "2008 Notes") and $100 million of 7.5% Senior Notes due 2014 (the "2014 Notes") which funds were used for acquisition, development and renovation of multifamily properties and to repay revolving credit balances incurred for such purposes. The 2008 Notes bear interest at 6.875% per annum and require annual principal payments of $12.5 million, commencing February 15, 2001. The 2014 Notes bear interest at 7.5% per annum and require aggregate annual principal payments of $10 million in 2009, $12.5 million in 2010, $15 million in 2011, $17.5 million in 2012, $20 million in 2013, and $25 million in 2014. Collectively, the 2008 Notes and 2014 Notes are unsecured and had an original average life to maturity of 14.25 years and an average effective interest cost, inclusive of offering discounts, issuance costs, and the interest rate protection agreement, of 7.37% per annum. The 2008 Notes and 2014 Notes are redeemable any time at the option of PTR, in whole or in part, at a redemption price equal to the sum of the principal amount of the 2008 Notes and 2014 Notes being redeemed plus accrued interest thereon to the redemption date plus an adjustment, if any, based on the yield to maturity relative to market yields available at redemption. The 2008 Notes and 2014 Notes are governed by the terms and provisions of the Indenture. Distributions PTR's current distribution policy is to pay quarterly distributions to holders of Common Shares based upon what it believes to be a prudent percentage of cash flow. Because depreciation is a non-cash expense, cash flow typically will be greater than net earnings attributable to Common Shares. Therefore, quarterly distributions paid will generally be higher than quarterly net earnings attributable to Common Shares. Distributions paid on Common Shares exceeded net earnings attributable to Common Shares by $14.3 million, $15.5 million and $5.0 million for 1995, 1994 and 1993, respectively, resulting in corresponding decreases in shareholders' equity for each of the respective periods. 40 PTR announces the following year's projected annual distribution level after the Board's annual budget review and approval in December of each year. At its December 12, 1995 board meeting, the Board announced a projected increase in the annual distribution level from $1.15 to $1.24 per Common Share. The payment of distributions is subject to the discretion of the Board and is dependent upon the financial condition and operating results of PTR. Pursuant to the terms of the preferred shares, PTR is restricted from declaring or paying any distributions with respect to its Common Shares unless all cumulative distributions with respect to the preferred shares have been paid and sufficient funds have been set aside for distributions that have been declared for the then current distribution period with respect to the preferred shares. Funds from operations represents PTR's net earnings computed in accordance with GAAP, excluding gains (or losses) plus depreciation and provision for possible loss on investments. PTR believes that funds from operations is helpful in understanding a property portfolio's ability to support interest payments and general operating expenses. In July 1994, PTR changed to a more conservative policy of expensing the amortization of loan costs in determining funds from operations. For comparability, funds from operations have been restated to give effect to this policy as if it had been in effect since January 1, 1991. Reflecting such restatement, funds from operations attributable to Common Shares increased $40.1 million (70.6%) to $96.9 million for 1995 from $56.8 million for 1994, and increased 63.7% from $34.7 million to $56.8 million from 1993 to 1994. The increases resulted primarily from increased properties in operation. Funds from operations should not be construed as a substitute for "net earnings" in evaluating operating results nor as a substitute for "cash flow" in evaluating liquidity. REIT MANAGEMENT AGREEMENT Effective March 1, 1991, PTR entered into a REIT management agreement (as amended and restated, the "REIT Management Agreement") with the REIT Manager to provide management services to PTR. All officers of PTR are employees of the REIT Manager and PTR has no employees. See "Item 1. Business--The REIT Manager" for a description of the services included in the REIT Management fee. The REIT Management Agreement requires PTR to pay a base annual fee of $855,000 plus 16% of cash flow as defined in the REIT Management Agreement ("Cash Flow") in excess of $4,837,000. In the REIT Management Agreement, Cash Flow is calculated by reference to PTR's cash flow from operations before deducting (i) fees paid to the REIT Manager, (ii) extraordinary expenses incurred at the request of the independent Trustees of PTR, and (iii) 33% of any interest paid by PTR on convertible subordinated debentures (of which there have been none since inception of the REIT Management Agreement); and, after deducting (iv) actual or assumed regularly scheduled principal and interest payments for long-term debt and (v) distributions actually paid with respect to any nonconvertible preferred shares of beneficial interest of PTR. The REIT Management Agreement provides that the long-term debt described above under "-- Liquidity and Capital Resources" will be treated as having regularly scheduled principal and interest payments similar to 20-year, level monthly payment, fully amortizing mortgage, and the assumed principal and interest payments will be deducted from cash flow in determining the fee for future periods. Cash Flow does not include interest and dividend income from PTR Development Services Incorporated, realized gains from dispositions of investments or income from cash equivalent investments. The REIT Manager also receives a fee of .25% per year on the average daily balance of cash equivalent investments. REIT management fees aggregated $20,354,000, $13,182,000 and $7,073,000 for the years ended December 31, 1995, 1994 and 1993, respectively. PTR is obligated to reimburse the REIT Manager for certain expenses incurred by the REIT Manager on behalf of PTR relating to PTR's operations, primarily including third party legal, accounting and similar fees paid on behalf of PTR, and travel expenses incurred in seeking financing, property acquisitions, property sales, property development, attending Board and shareholder meetings and similar activities on behalf of PTR. 41 The REIT Management Agreement is renewable by PTR annually, subject to a determination by the independent Trustees that the REIT Manager's performance has been satisfactory and that the compensation payable to the REIT Manager is fair. PTR may terminate the REIT Management Agreement on 60 days' notice. Because of the year-to-year nature of the agreement, its maximum effect on PTR's results of operations cannot be predicted, other than that REIT Management fees will generally increase or decrease in proportion to cash flow increases or decreases. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PTR's Balance Sheets as of December 31, 1995 and 1994, its Statements of Earnings, Shareholders' Equity and Cash Flows for each of the years in the three-year period ended December 31, 1995 and Schedule III--Real Estate and Accumulated Depreciation, together with the report of KPMG Peat Marwick LLP, independent auditors, are included under Item 14 of this report and are incorporated herein by reference. Selected quarterly financial data is presented in Note 9 of Notes to Financial Statements. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE MATTERS Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT For information regarding executive officers of PTR's REIT Manager, see "Item 1. Business--Officers of PTR and Directors and Officers of the REIT Manager and Relevant Affiliates." The other information required by this Item 10 is incorporated herein by reference to the description under the captions "Election of Trustees" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in PTR's definitive proxy statement for its 1996 annual meeting of shareholders (the "1996 Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION Incorporated herein by reference to the description under the captions "Trustee Compensation" and "PTR Officers--Employees of the REIT Manager" in the 1996 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference to the description under the captions "Principal Shareholders" and "Election of Trustees" in the 1996 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated herein by reference to the description under the caption "Certain Relationships and Transactions" in the 1996 Proxy Statement. 42 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K The following documents are filed as a part of this report: (a) Financial Statements and Schedules: 1. Financial Statements: See Index to Financial Statements on page 44 of this report. 2. Financial Statement Schedules: Schedule III. All other schedules have been omitted since the required information is presented in the financial statements and the related notes or is not applicable. 3. Exhibits: See Index to Exhibits, which is incorporated herein by reference. (b) Reports on Form 8-K: The following reports on Form 8-K were filed during the last quarter of the period covered by this report: None. (c) Exhibits: The Exhibits required by Item 601 of Regulation S-K are listed in the Index to Exhibits, which is incorporated herein by reference. 43 INDEX TO FINANCIAL STATEMENTS AND SCHEDULE SECURITY CAPITAL PACIFIC TRUST: Independent Auditors' Report............................................. 45 Balance Sheets as of December 31, 1995 and 1994.......................... 46 Statements of Earnings for the years ended December 31, 1995, 1994 and 1993.................................................................... 47 Statements of Shareholders' Equity for the years ended December 31, 1995, 1994 and 1993........................................................... 48 Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993.................................................................... 49 Notes to Financial Statements............................................ 50 Schedule III--Real Estate and Accumulated Depreciation as of December 31, 1995.................................................................... 65
44 INDEPENDENT AUDITORS' REPORT The Board of Trustees and Shareholders SECURITY CAPITAL PACIFIC TRUST: We have audited the financial statements of SECURITY CAPITAL PACIFIC TRUST as listed in the accompanying index. In connection with our audits of the financial statements, we also have audited the financial statement schedule listed in the accompanying index. These financial statements and financial statement schedule are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SECURITY CAPITAL PACIFIC TRUST as of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Chicago, Illinois January 31, 1996, except as to Note 12 which is as of February 23, 1996 45 SECURITY CAPITAL PACIFIC TRUST BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS DECEMBER 31, ------ ---------------------- 1995 1994 ---------- ---------- Real estate............................................ $1,855,866 $1,296,288 Less accumulated depreciation.......................... 81,979 46,199 ---------- ---------- 1,773,887 1,250,089 Mortgage notes receivable.............................. 15,844 22,597 ---------- ---------- Total investments.................................. 1,789,731 1,272,686 Cash and cash equivalents.............................. 26,919 8,092 Accounts receivable.................................... 3,318 1,657 Other assets........................................... 21,031 13,343 ---------- ---------- Total assets....................................... $1,840,999 $1,295,778 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Liabilities: Line of credit....................................... $ 129,000 $ 102,000 Long term debt....................................... 200,000 200,000 Mortgages payable.................................... 158,054 93,624 Distributions payable................................ 22,437 14,506 Accounts payable..................................... 21,040 17,230 Accrued expenses and other liabilities............... 34,800 27,776 ---------- ---------- Total liabilities.................................. 565,331 455,136 ---------- ---------- Shareholders' equity: Series A Preferred shares (9,200,000 convertible shares issued; stated liquidation preference of $25 per share).......................................... 230,000 230,000 Series B Preferred shares (4,200,000 shares issued; stated liquidation preference of $25 per share)..... 105,000 -- Common shares (shares issued--72,375,819 in 1995 and 50,620,516 in 1994)................................. 72,376 50,621 Additional paid-in capital........................... 952,679 622,161 Distributions in excess of net earnings.............. (82,450) (60,211) Treasury shares (164,901 in 1995 and 164,478 in 1994)............................................... (1,937) (1,929) ---------- ---------- Total shareholders' equity......................... 1,275,668 840,642 ---------- ---------- Total liabilities and shareholders' equity......... $1,840,999 $1,295,778 ========== ==========
The accompanying notes are an integral part of the financial statements. 46 SECURITY CAPITAL PACIFIC TRUST STATEMENTS OF EARNINGS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, ------------------------- 1995 1994 1993 -------- -------- ------- Revenues: Rental income...................................... $262,473 $183,472 $76,129 Interest........................................... 2,400 2,633 2,289 -------- -------- ------- 264,873 186,105 78,418 -------- -------- ------- Expenses: Rental expenses, excluding real estate taxes....... 82,720 62,920 24,742 Real estate taxes.................................. 21,326 16,093 5,742 Depreciation....................................... 36,685 24,614 10,509 Interest........................................... 19,584 19,442 3,923 General and administrative, including REIT manage- ment fee.......................................... 21,306 13,966 7,733 Provision for possible loss on investments......... 420 1,600 2,270 Other.............................................. 1,136 751 308 -------- -------- ------- 183,177 139,386 55,227 -------- -------- ------- Earnings from operations............................. 81,696 46,719 23,191 Gain on sale of investments, net..................... 2,623 -- 2,302 -------- -------- ------- Net earnings......................................... 84,319 46,719 25,493 Less Preferred share dividends....................... 21,823 16,100 1,341 -------- -------- ------- Net earnings attributable to common shares......... $ 62,496 $ 30,619 $24,152 ======== ======== ======= Weighted average common shares outstanding........... 67,052 46,734 36,549 ======== ======== ======= Per share net earnings attributable to common shares. $ 0.93 $ 0.66 $ 0.66 ======== ======== =======
The accompanying notes are an integral part of the financial statements. 47 SECURITY CAPITAL PACIFIC TRUST STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995 (IN THOUSANDS)
SHARES OF BENEFICIAL INTEREST $1 PAR VALUE ----------------------- SERIES A SERIES B PREFERRED PREFERRED SHARES AT SHARES AT COMMON AGGREGATE AGGREGATE SHARES ADDITIONAL DISTRIBUTIONS LIQUIDATION LIQUIDATION AT PAR PAID-IN IN EXCESS OF TREASURY PREFERENCE PREFERENCE VALUE CAPITAL NET EARNINGS SHARES TOTAL ----------- ----------- ------- ---------- ------------- -------- ---------- Balances at December 31, 1992................... $ -- $ -- $27,191 $247,418 $(24,745) $(1,815) $ 248,049 Net earnings........... -- -- -- -- 25,493 -- 25,493 Common share distribu- tions paid............ -- -- -- -- (29,162) -- (29,162) Net increase in Common share distributions accrued............... -- -- -- -- (11,161) -- (11,161) Preferred share divi- dends paid............ -- -- -- -- (1,341) -- (1,341) Sale of shares, net of expenses.............. 230,000 -- 17,072 267,122 -- -- 514,194 Dividend Reinvestment and Share Purchase Plan, net............. -- -- 449 7,522 -- -- 7,971 Exercise of stock op- tions, net............ -- -- 97 991 -- -- 1,088 Cost of treasury shares purchased............. -- -- -- -- -- (114) (114) -------- -------- ------- -------- -------- ------- ---------- Balances at December 31, 1993................... 230,000 -- 44,809 523,053 (40,916) (1,929) 755,017 Net earnings........... -- -- -- -- 46,719 -- 46,719 Common share distribu- tions paid............ -- -- -- -- (46,121) -- (46,121) Redemption of share- holder purchase rights................ -- -- -- -- (448) -- (448) Net increase in Common share distributions accrued............... -- -- -- (3,345) (3,345) Preferred share divi- dends paid............ -- -- -- -- (16,100) (16,100) Sale of shares, net of expenses.............. -- -- 5,594 95,482 -- -- 101,076 Dividend Reinvestment and Share Purchase Plan, net............. -- -- 216 3,607 -- -- 3,823 Exercise of stock op- tions, net............ -- -- 2 19 -- -- 21 -------- -------- ------- -------- -------- ------- ---------- Balances at December 31, 1994................... 230,000 -- 50,621 622,161 (60,211) (1,929) 840,642 Net earnings........... -- -- -- -- 84,319 -- 84,319 Common share distribu- tions paid............ -- -- -- -- (76,804) -- (76,804) Net increase in Common share distributions accrued............... -- -- -- -- (7,931) -- (7,931) Preferred share divi- dends paid............ -- -- -- -- (21,823) -- (21,823) Issuance of shares, net of expenses........... -- 105,000 21,694 329,591 -- -- 456,285 Dividend Reinvestment and Share Purchase Plan, net............. -- -- 61 927 -- -- 988 Cost of treasury shares purchased............. -- -- -- -- -- (8) (8) -------- -------- ------- -------- -------- ------- ---------- Balances at December 31, 1995................... $230,000 $105,000 $72,376 $952,679 $(82,450) $(1,937) $1,275,668 ======== ======== ======= ======== ======== ======= ==========
The accompanying notes are an integral part of the financial statements. 48 SECURITY CAPITAL PACIFIC TRUST STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ---------------------------- 1995 1994 1993 -------- -------- -------- Operating activities: Net earnings................................... $ 84,319 $ 46,719 $ 25,493 Adjustments to reconcile net earnings to cash flows provided by operating activities Depreciation and amortization................ 38,228 26,517 12,219 Provision for possible loss on investments... 420 1,600 2,270 Gain on investment properties................ (2,623) -- (2,302) Other, net................................... -- -- 83 Increase in accounts payable................... 2,719 3,463 9,996 Increase in accrued real estate taxes.......... 2,167 7,874 2,156 Increase in accrued interest on long term debt.......................................... -- 5,391 -- Increase in accrued expenses and other liabil- ities......................................... 4,857 4,264 3,039 Net change in other operating assets........... (8,292) (1,203) (3,707) -------- -------- -------- Net cash flow provided by operating activi- ties........................................ 121,795 94,625 49,247 -------- -------- -------- Investing activities: Real estate investments........................ (308,996) (380,688) (536,622) Mortgage notes receivable, net................. 6,753 27 1,323 Sale of investment properties, net............. 7,755 12,146 6,389 Other.......................................... -- -- (155) -------- -------- -------- Net cash flow used in investment activities.. (294,488) (368,515) (529,065) -------- -------- -------- Financing activities: Proceeds from sale of shares, net of expenses.. 317,614 101,076 514,194 Proceeds from line of credit................... 278,000 266,250 282,500 Proceeds from dividend reinvestment and share purchase plan, net........................................... 988 3,823 7,971 Proceeds from long term debt................... -- 200,000 -- Proceeds from exercise of stock options, net... -- 21 1,088 Cash distributions paid on common shares....... (76,804) (46,121) (29,162) Redemption of shareholder purchase rights...... -- (448) -- Cash dividends paid on preferred shares........ (21,823) (16,100) (1,341) Debt issuance costs incurred................... (1,496) (4,422) (3,109) Principal payments on line of credit........... (251,000) (215,750) (285,802) Payoff of PACIFIC's line of credit............. (51,900) -- -- Regularly scheduled principal payments on mortgages payable............................. (1,748) (1,398) (682) Prepayment of mortgages payable................ (303) (10,474) (7,198) Other.......................................... (8) -- (114) -------- -------- -------- Net cash flow provided by financing activi- ties........................................ 191,520 276,457 478,345 -------- -------- -------- Net increase (decrease) in cash and cash equiva- lents.......................................... 18,827 2,567 (1,473) Cash and cash equivalents at beginning of year.. 8,092 5,525 6,998 -------- -------- -------- Cash and cash equivalents at end of year........ $ 26,919 $ 8,092 $ 5,525 ======== ======== ======== Non-cash investing and financing activities: Receipt of purchase money notes from sale of non-multifamily properties.................... $ -- $ -- $ 12,413 Assumption of mortgages payable upon purchase of multifamily properties..................... $ 12,078 $ 56,624 $ 26,952 Accrual of common share distributions.......... $ 22,437 $ 14,506 $ 11,161 Multifamily properties and other net assets ac- quired in connection with the Merger which were funded by: PTR common shares exchanged for all of the outstanding shares of PACIFIC's common stock (Note 2)............... $138,671 $ -- $ -- Mortgage notes assumed......................... 54,403 -- -- Repayment of the outstanding balance on PACIFIC's line of credit...................... 51,900 -- -- -------- -------- -------- Net increase in net assets related to Merger... $244,974 $ -- $ -- ======== ======== ========
The accompanying notes are an integral part of the financial statements. 49 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business SECURITY CAPITAL PACIFIC TRUST ("PTR"), formerly Property Trust of America, is an equity real estate investment trust, organized under the laws of the state of Maryland, which primarily owns, develops, acquires and operates income-producing multifamily properties in the western United States. Principles of Financial Presentation The accounts of PTR and its wholly owned subsidiaries are consolidated in the accompanying financial statements. All significant intercompany accounts and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents PTR considers all cash on hand, demand deposits with financial institutions and short term, highly liquid investments with original maturities of three months or less to be cash equivalents. Real Estate and Depreciation Real estate is carried at cost, which is not in excess of net realizable value. Costs directly related to the acquisition (including certain renovation costs identified during PTR's pre-acquisition due diligence), development or improvement of real estate, are capitalized. Costs incurred in connection with the pursuit of unsuccessful acquisitions or developments are expensed at the time the pursuit is abandoned. Depreciation is computed over the expected useful lives of depreciable property on a straight-line basis. Properties are depreciated principally over the following useful lives: Buildings and improvements... 20-40 years Furnishings and other........ 2-10 years
Repairs and Maintenance Repairs and maintenance, other than acquisition related renovation expenditures, are expensed as incurred. PTR expenses carpet and appliance repairs and replacements after any acquisition related renovation expenditures for such items have been incurred. Interest During 1995, 1994 and 1993, the total interest paid in cash on all outstanding debt, net of interest capitalized, was $17,674,000, $11,949,000 and $2,231,000, respectively. 50 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) PTR capitalizes interest as part of the cost of real estate properties in development. Interest capitalized during 1995, 1994 and 1993 aggregated $11,741,000, $6,029,000 and $2,818,000, respectively. Cost of Raising Capital Costs incurred in connection with the issuance of equity securities are deducted from shareholders' equity. Costs incurred in connection with the incurrence or renewal of debt are capitalized, included with other assets and amortized over the term of the related loan in the case of incurrence costs or twelve months in the case of renewal costs. Amortization of loan costs included in interest expense for the years ended December 31, 1995, 1994 and 1993 was $1,543,000, $1,903,000, and $1,845,000, respectively. Revenue Recognition Rental and interest income are recorded on the accrual method of accounting. A provision for possible loss is made when collection of receivables is considered doubtful. Federal Income Taxes PTR has made an election to be taxed as a real estate investment trust under the Internal Revenue Code of 1986, as amended. PTR believes it qualifies as a real estate investment trust. Accordingly, no provisions have been made for federal income taxes in the accompanying financial statements. Per Share Data Per share data is computed based upon the weighted average number of Common Shares of Beneficial Interest, par value $1.00 per share ("Common Shares"), outstanding during the period. Exercise of the outstanding stock options would not have a material dilutive effect on earnings per share. The assumed conversion of Cumulative Convertible Series A Preferred Shares of Beneficial Interest, par value $1.00 per share ("Series A Preferred Shares"), is anti- dilutive in 1995, 1994 and 1993. Reclassifications Certain of the 1994 and 1993 financial statements and notes to financial statements amounts have been reclassified to conform to the 1995 presentation. (2) MERGER OF SECURITY CAPITAL PACIFIC INCORPORATED AND CONCURRENT SUBSCRIPTION OFFERING On March 23, 1995, PTR consummated a merger (the "Merger") of Security Capital Pacific Incorporated ("PACIFIC"), a Maryland corporation, with and into PTR. PACIFIC was a private multifamily REIT controlled by Security Capital Group Incorporated ("SCG"), PTR's principal shareholder. In the Merger, each outstanding share of PACIFIC common stock was converted into 0.611 of a Common Share. As a result, 8,468,460 Common Shares were issued in the Merger in exchange for all of the outstanding shares of PACIFIC common stock. The Merger has been accounted for as a purchase and, accordingly, the results of operations of PACIFIC have been included in PTR's financial statements from March 23, 1995. In connection with the Merger, PTR paid off the balance outstanding ($51.9 million) on PACIFIC's line of credit and assumed $54.4 million in mortgages. The following summarized pro forma (unaudited) information assumes the Merger occurred on January 1, 1995 and January 1, 1994, respectively, and represent the combined historical operating results of PTR 51 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) and PACIFIC for the respective pro forma periods. No material pro forma adjustments to revenue and expenses were required. The weighted average Common Shares outstanding have been adjusted to reflect the Merger conversion rate (.611 of a Common Share for each PACIFIC common share). The pro forma financial information does not necessarily reflect the results of operations that would have occurred had PACIFIC and PTR constituted a single entity during such period (in thousands, except per share amounts).
DECEMBER 31, ----------------- 1995 1994 -------- -------- Rental Income.......................................... $271,091 $204,337 ======== ======== Net earnings attributable to Common Shares............. $ 64,152 $ 36,512 ======== ======== Weighted average Common Shares outstanding............. 68,955 52,846 ======== ======== Per Common Share amounts: Net earnings attributable to Common Shares........... $ 0.93 $ 0.69 ======== ========
Concurrently with the consummation of the Merger, PTR completed a subscription offering pursuant to which PTR received net proceeds of $216.3 million (13.2 million Common Shares issued). The subscription offering was designed to allow shareholders of PTR to purchase Common Shares at the same price at which PACIFIC shareholders acquired Common Shares in the Merger ($16.375 per Common Share). SCG purchased $50 million (3.1 million Common Shares issued) in the subscription offering at $16.375 per Common Share pursuant to the oversubscription privilege. (3) REAL ESTATE Investments Investments in real estate, at cost, were as follows (dollar amounts in thousands):
DECEMBER 31, -------------------------------------- 1995 1994 ----------------- ----------------- INVESTMENT UNITS INVESTMENT UNITS ---------- ------ ---------- ------ Multifamily: Operating properties......... $1,584,994 41,503 $1,121,301 31,640 Developments under construc- tion........................ 187,507 6,676(1) 100,401 4,526(1) Developments in planning: Developments owned.......... 22,933 2,328(1) 33,194 4,306(1) Developments under con- trol(2).................... -- 3,822(1) -- 4,186(1) ---------- ------ ---------- ------ Total developments in planning.................. 22,933 6,150 33,194 8,492 ---------- ------ ---------- ------ Land held for future develop- ment........................ 29,688 -- 7,977 -- ---------- ------ ---------- ------ Total multifamily.......... 1,825,122 54,329 1,262,873 44,658 ====== ====== Non-multifamily................ 30,744 33,415 ---------- ---------- Total real estate.......... $1,855,866 $1,296,288 ========== ==========
- -------- (1) Unit information is based on management's estimates and is unaudited. (2) PTR's investment as of December 31, 1995 and 1994 for developments in planning and under control was $2.2 million and $1.3 million, respectively, and is reflected in the "other asset" caption of PTR's balance sheets. 52 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The change in investments in real estate, at cost, consisted of the following (in thousands):
1995 1994 1993 ---------- ---------- -------- Balance at January 1................... $1,296,288 $ 872,610 $337,274 Acquisitions and renovation expendi- tures................................. 370,543 270,024 449,500 Development expenditures, including land acquisitions.......................... 192,067 163,826 112,264 Capital improvements................... 5,493 3,912 1,639 Real estate sold....................... (8,402) (12,287) (24,953) Provisions for possible losses......... (220) (1,600) (2,270) Other.................................. 97 (197) (844) ---------- ---------- -------- Balance at December 31................. $1,855,866 $1,296,288 $872,610 ========== ========== ========
At January 31, 1996, PTR had contingent contracts or letters of intent, subject to PTR's final due diligence, to acquire land for the near term development of an estimated 3,995 multifamily units with an aggregate estimated development cost of $202.9 million. At the same date, PTR also had contingent contracts or letters of intent, subject to final due diligence, for the acquisition of 515 additional multifamily units with an aggregate investment cost of $14.3 million, including planned renovations. At January 31, 1996, PTR had unfunded development commitments for developments under construction of $152.1 million. Third Party Owner-Developers To enhance its flexibility in developing and acquiring multifamily properties, PTR has and will enter into presale agreements with third party owner- developers to acquire properties developed by such owner-developers where the developments meet PTR's investment criteria. PTR has and will fund such developments through development loans to such owner-developers. In addition, to provide greater flexibility for the use of land acquired for development and to dispose of excess parcels, PTR will make mortgage loans to PTR Development Services Incorporated ("PTR Development Services") to purchase land for development. PTR owns all of the preferred stock of PTR Development Services, which entitles PTR to substantially all of the net operating cash flow (95%) of PTR Development Services. SCG owned all of the common stock of PTR Development Services during 1995. Effective as of January 1, 1996, SCG transferred such stock to an unaffiliated trust. The common stock is entitled to receive the remaining 5% of net operating cash flow. As of December 31, 1995, the outstanding balance of development and mortgage loans made by PTR to third party owner-developers and PTR Development Services aggregated $41.0 million and none, respectively. The activities of PTR Development Services and development loans are consolidated with PTR's activities and all intercompany transactions have been eliminated in consolidation. Gains and Provision for Loss from Real Estate and Investments PTR develops and acquires properties with a view to effective long term operation and ownership. Based upon PTR's market research and in an effort to optimize its portfolio composition, PTR may from time to time seek to dispose of assets that in management's view do not meet PTR's long term investment criteria and redeploy the proceeds therefrom, preferably through like-kind exchanges, into assets that are more consistent with PTR's investment objectives. 53 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) PTR's strategy is to focus on the ownership of multifamily properties. Periodic sales of multifamily and non-multifamily assets may occur as opportunities arise or investment objectives change. Properties are periodically evaluated for impairment and provisions for possible losses are made if required. Statement of Financial Accounting Standards No. 121 entitled "Accounting For The Impairment Of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of " will be adopted by PTR, as required by the Statement, effective January 1, 1996. In the opinion of management, the adoption of the Statement is not expected to have a material impact on the financial statements at the date of adoption. During the fourth quarter of 1995, PTR sold one multifamily property consisting of 166 units. PTR recorded a gain from the sale of $3.2 million for the year ended December 31, 1995. The proceeds from the sale were redeployed through a like-kind exchange into a 290 unit multifamily property. PTR also sold its investment in a mortgage note received upon prior year sale of one of its non-multifamuly properties. PTR recorded a loss from the sale of $600,000 for the year ended December 31, 1995. In October 1995, a partnership, in which PTR owns a 40% interest, sold its only real estate asset, an office building located in the Dallas, Texas metropolitan area. During the first quarter of 1994, the partnership adopted a strategy of disposing of the property rather than continuing to hold the property as a long term investment. As a result, the managing partner evaluated the building for net realizable value which resulted in a provision for possible loss of $4 million. PTR's share of the loss provision was $1.6 million as reflected in the December 31, 1994 statement of earnings. During the third quarter of 1995 the partnership approved the sale of property and as a result PTR recorded an additional provision of $220,000. This provision has no impact on cash flow from operating activities. PTR also recorded a provision of $200,000 for the year ended December 31, 1995 relating to a contingent liability on non-multifamily property. This provision has no impact on cash flow from operating activities. (4) BORROWINGS Line of Credit Concurrent with the Merger (See Note 2), PTR increased its unsecured revolving line of credit facility with Texas Commerce Bank, National Association, as agent bank for a group of lenders ("TCB") to $350 million, and in August 1995 received a reduction in the interest rate to the greater of prime (8.5% at December 31, 1995) or the federal funds rate plus 0.50%, or at PTR's option, LIBOR (5.719% at December 31, 1995) plus 1.375% which can vary from LIBOR plus 1.0% to LIBOR plus 1.75% (7.094% at December 31, 1995) based upon the rating of PTR's senior unsecured debt. Additionally, there is a commitment fee on the average unfunded line of credit balance. The commitment fee was $501,500, $224,300 and none for the years ended December 31, 1995, 1994 and 1993, respectively. In addition, Wells Fargo Realty Advisors Funding, Incorporated was added as co-agent. The TCB line matures August 1997 and may annually be extended for an additional year with the approval of TCB and the other participating lenders. All debt incurrences are subject to covenants, as more fully described in the loan agreement. PTR was in compliance with all covenants at December 31, 1995. 54 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) A summary of PTR's line of credit borrowings is as follows (dollars in thousands):
YEAR ENDED DECEMBER 31, ---------------------------- 1995 1994 1993 -------- -------- -------- Total line of credit....................... $350,000 $275,000 $200,000 Borrowings outstanding at December 31...... 129,000 102,000 51,500 Weighted average daily borrowings.......... 51,858 59,890 40,555 Maximum borrowings outstanding at any month end....................................... $138,000 $124,000 $ 83,010 Weighted average daily interest rate....... 8.0% 7.0% 6.3% Weighted average interest rate at December 31........................................ 7.3% 7.8% 6.0%
Long Term Debt On February 8, 1994, PTR issued $100 million of 6.875% Senior Notes due 2008 (the "2008 Notes") and $100 million of 7.50% Senior Notes due 2014 (the "2014 Notes" and together with the 2008 Notes, the "2008 and 2014 Notes"). The 2008 Notes bear interest at 6.875% per annum and require annual principal payments of $12.5 million, commencing February 15, 2001. The 2014 Notes bear interest at 7.5% per annum and require annual principal payments of $10 million in 2009, $12.5 million in 2010, $15 million in 2011, $17.5 million in 2012, $20 million in 2013 and $25 million in 2014. Collectively, the 2008 and 2014 Notes are unsecured and had an original average life to maturity of 14.25 years and an average effective interest cost, including offering discounts, issuance costs and proceeds from an interest rate protection agreement, of 7.37% per annum. The 2008 and 2014 Notes are redeemable any time at the option of PTR, in whole or in part, at a redemption price equal to the sum of the principal amount of the 2008 and 2014 Notes being redeemed plus accrued interest thereon to the redemption date plus an adjustment, if any, based on the yield to maturity relative to market yields available at redemption. The 2008 and 2014 Notes are governed by the terms and provisions of a supplemental indenture agreement dated February 2, 1994 ("the Indenture") between PTR and State Street Bank and Trust Company, as trustee (See Note 12). Under the terms of the Indenture, PTR can incur additional debt only if, after giving effect to the debt being incurred and application of proceeds therefrom, (i) the ratio of debt to total assets, as defined in the Indenture, does not exceed 60%, (ii) the ratio of secured debt to total assets, as defined in the Indenture, does not exceed 40%, and (iii) PTR's pro forma interest coverage ratio, as defined in the Indenture, for the four preceding fiscal quarters is not less than 1.5:1. As of December 31, 1995, PTR was in compliance with all debt covenants. 55 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Mortgages Payable Mortgages payable consisted of the following (dollars in thousands):
BALLOON PRINCIPAL PRINCIPAL PERIODIC PAYMENT BALANCE AT BALANCE AT INTEREST MATURITY PAYMENT DUE AT DECEMBER 31, DECEMBER 31, PROPERTY RATE DATE TERMS MATURITY 1995 1994 -------- -------- -------- ------------- -------- ------------ ------------ CONVENTIONAL FIXED RATE Tigua Village I....... 10.000% 08/01/95 (2) $ 303 $ -- $ 305 Knight's Castle(1).... 6.560 10/01/96 (2) 7,498 7,609 n/a Tigua Village II...... 9.750 05/01/97 (2) 677 694 703 Chasewood............. 6.750 06/01/97 (2) 9,303 9,485 9,612 Presidio at South Mountain............. 8.500 10/01/97 (2) 14,337 14,593 14,742 Silvercliff........... 7.650 11/10/97 (2) 7,304 7,469 7,550 Braeswood Park........ 7.500 01/01/98 (2) 6,635 6,889 7,008 Seahawk............... 8.040 01/10/98 (2) 5,350 5,505 5,577 La Tierra at the Lakes(1)............. 7.875 12/01/98 (2) 25,105 26,444 n/a Windsail.............. 8.875 02/01/99 (2) 4,675 4,843 4,888 Greenpointe(1)........ 8.500 03/01/00 (3) -- 3,696 n/a Mountain Shadow(1).... 8.500 03/01/00 (3) -- 3,394 n/a Sunterra(1)........... 8.250 03/01/00 (3) -- 8,274 n/a Brompton Court........ 8.375 09/01/00 (2) 13,340 14,543 14,750 Spring Park........... 10.125 09/27/00 (2) 4,063 4,293 4,330 Park Place I.......... 10.250 11/01/00 (2) 3,320 3,515 3,545 Park Place II......... 10.250 11/01/00 (2) 3,325 3,517 3,546 Treat Commons......... 7.500 09/14/01 (2) 6,578 7,296 n/a Double Tree Phase II.. 8.250 05/01/33 (3) -- 4,770 n/a ------ -------- ------------- -------- ------- 136,829 76,556 -------- ------- TAX EXEMPT FIXED RATE Cherry Creek(1)....... 7.995(4) 11/01/01 (2) 2,630 4,210 n/a -------- ------- TAX EXEMPT FLOATING RATE Apple Creek........... (5) 09/01/07 interest only 11,100 11,100 11,100 -------- ------- COMBINED(6) Las Flores............ 7.750 06/01/24 (3) -- 5,915 5,968 ------ -------- ------- 7.907%(7) $158,054 $93,624 ====== ======== =======
- -------- (1) Mortgage assumed in the Merger (See Note 2). (2) Amortizing monthly with a balloon payment due at maturity. (3) Fully amortizing. (4) Represents the average "all-in" rate over the remaining life of the bonds. (5) Adjusted weekly by the remarketing agent. Weighted average daily interest rate was 6.24% for 1995. (6) In 1990, the Las Flores apartments were refinanced pursuant to multifamily bonds aggregating $6.2 million. The bonds consist of $4.5 million Series A tax exempt fixed rate bonds and $1.7 million Series B taxable fixed rate bonds. The bonds are guaranteed by the GNMA mortgage-backed securities program. (7) Represents the weighted average interest rate for PTR's mortgages payable for the year ended December 31, 1995. Mortgages payable are secured by real estate with an aggregate undepreciated cost of $295,570,000 at December 31, 1995. 56 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The mortgages which secure tax exempt housing bonds contain covenants which require that a minimum percentage of units (generally 20% to 30%) be rented to individuals whose income does not exceed levels specified by U.S. Government programs. The tax exempt floating rate mortgage is secured by a letter of credit of $11,445,000. The fee for this letter of credit is 1.25% per annum of the outstanding mortgage payable balance. This letter of credit contains certain covenants, all of which PTR was in compliance with at December 31, 1995. The change in mortgages payable consisted of the following (in thousands):
1995 1994 1993 -------- ------- ------- Balances at January 1......................... $ 93,624 $48,872 $30,824 Notes originated or assumed................... 66,481 56,624 26,952 Principal payments............................ (2,051) (11,872) (7,880) Liquidated upon sale of properties............ -- -- (1,024) -------- ------- ------- Balance at December 31........................ $158,054 $93,624 $48,872 ======== ======= =======
Scheduled Debt Maturities Approximate principal payments due during each of the years in the five-year period ending December 31, 2000 are as follows (in thousands):
LONG TERM MORTGAGES DEBT TOTAL --------- -------- -------- 1996.......................................... $ 9,639 $ -- $ 9,639 1997.......................................... 45,658 -- 45,658 1998.......................................... 26,798 -- 26,798 1999.......................................... 5,932 -- 5,932 2000.......................................... 39,125 -- 39,125 Thereafter.................................... 30,902 200,000 230,902 -------- -------- -------- $158,054 $200,000 $358,054 ======== ======== ========
(5) DISTRIBUTIONS PTR's current policy is to pay distributions to shareholders based upon funds from operations and aggregating annually at least 95% of its taxable income. Funds from operations is not to be construed as a substitute for "net earnings" in evaluating operating results nor as a substitute for "cash flow" in evaluating liquidity. In July 1994, PTR changed to a more conservative policy of expensing the amortization of loan costs in determining funds from operations. For comparability, funds from operations for the year December 31, 1994 and 1993 have been restated to give effect to this policy as if it had been in effect since January 1993. Funds from operations for the three years ended December 31, 1995 was as follows (dollars in thousands):
1995 1994 1993 ------- ------- ------- Net earnings attributable to Common Shares..... $62,496 $30,619 $24,152 Add (Deduct): Depreciation............................... 36,685 24,614 10,513 Provision for possible loss on investments. 420 1,600 2,270 Gain on sale of investments................ (2,623) -- (2,302) Other...................................... -- -- 83 ------- ------- ------- Funds from operations attributable to Common Shares........................................ 96,978 56,833 34,716 Distributions paid to common shareholders...... 76,804 46,121 29,162 ------- ------- ------- Excess of funds from operations after distribu- tions......................................... $20,174 $10,712 $ 5,554 ======= ======= ======= Weighted average Common Shares outstanding..... 67,052 46,734 36,549 ======= ======= =======
57 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) For federal income tax purposes, the following summarizes the taxability of distributions paid on Common Shares in 1994 and 1993 and the estimated taxability for 1995:
YEAR ENDED DECEMBER 31, ----------------- 1995 1994 1993 ----- ----- ----- Per Common Share: Ordinary income....................................... $0.92 $0.68 $0.65 Capital gains......................................... -- -- 0.11 Return of capital..................................... 0.23 0.32 0.06 ----- ----- ----- Total............................................... $1.15 $1.00 $0.82 ===== ===== =====
On December 12, 1995 PTR declared a distribution of $0.31 per Common Share payable on February 15, 1996 to shareholders of record as of February 2, 1996. At the same time, PTR announced that it plans to pay a total distribution of $1.24 per Common Share in 1996. On July 21, 1994, in addition to the distributions paid, PTR redeemed the shareholder purchase rights issued pursuant to the Rights Agreement dated as of February 23, 1990, as amended. Pursuant to the redemption, each holder of record at the close of business on July 21, 1994 was entitled to receive $0.01 per shareholder purchase right. The redemption price was paid on August 12, 1994 and is taxable as ordinary income for federal income tax purposes. For federal income tax purposes, the following summaries reflect the taxability of dividends paid on Series A Preferred Shares and Series B Cumulative Redeemable Preferred Shares ("Series B Preferred Shares"), respectively, for periods prior to 1995 and the estimated taxability for 1995.
DATE OF ISSUANCE TO 1995 1994 12/31/93 ----- ----- ----------- Per Series A Preferred Share: Ordinary income................................. $1.75 $1.75 $.1231 Capital gains................................... -- -- .0227 ----- ----- ------ Total......................................... $1.75 $1.75 $.1458 ===== ===== ======
DATE OF ISSUANCE TO 12/31/95 ----------- Per Series B Preferred Share: Ordinary income............................................. $1.3625 Capital gains............................................... -- ------- Total..................................................... $1.3625 =======
PTR's tax return for the year ended December 31, 1995 has not been filed, and the taxability information for 1995 is based upon the best available data. PTR's tax returns have not been examined by the Internal Revenue Service and, therefore, the taxability of the dividends is subject to change. 58 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (6) MORTGAGE NOTES RECEIVABLE The change in investments in mortgage notes receivable (which primarily originated in connection with PTR's sale of non-multifamily properties) consisted of the following (in thousands):
1995 1994 1993 ------- ------- ------- Balances at January 1 ......................... $22,597 $22,624 $10,981 Notes originated............................... 1,538 162 12,966 Reduction of principal......................... (8,291) (189) (1,323) ------- ------- ------- Balance at December 31......................... $15,844 $22,597 $22,624 ======= ======= =======
Interest rates on mortgage notes receivable range from 7.5% to 10.5% with a weighted average rate of 8.6%. Maturity dates on mortgage notes receivable range from 1997 to 2008. Aggregate cost for federal income tax purposes was the same as the balance at December 31 for the three years shown above. (7) SHAREHOLDERS' EQUITY Shares of Beneficial Interest At December 31, 1995, 150,000,000 Shares of Beneficial Interest, $1.00 par value per share, were authorized. PTR's Board of Trustees is authorized to issue, from the authorized but unissued shares of PTR, preferred shares in series and to establish from time to time the number of preferred shares to be included in such series and to fix the designation and any preferences, conversion and other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption of the shares of each series. Preferred Shares On May 11, 1995, the Board of Trustees authorized PTR to classify and issue the Series B Preferred Shares. The net proceeds to PTR from the sale of the Series B Preferred Shares were $101.4 million. The net proceeds were used for the development and acquisition of additional multifamily properties, for the repayment of indebtedness under PTR's revolving line of credit and for working capital purposes. On and after May 24, 2000, the Series B Preferred Shares may be redeemed for cash at the option of PTR, in whole or in part at a redemption price of $25.00 per share plus accrued and unpaid distributions, if any, to the redemption date. The redemption price (other than the portion thereof consisting of accrued and unpaid distributions) is payable solely out of the sale proceeds of other capital shares of PTR, which may include shares of other series of preferred shares. The holders of the Series B Preferred Shares have no preemptive rights with respect to any shares of the capital securities of PTR or any other securities of PTR convertible into or carrying rights or options to purchase any such shares. The Series B Preferred Shares have no stated maturity and are not subject to any sinking fund or other obligation of PTR to redeem or retire the Series B Preferred Shares and are not convertible into any other securities of PTR. In addition, holders of the Series B Preferred Shares are entitled to receive, when and as declared by the Board of Trustees, out of funds legally available for the payment of distributions, cumulative preferential cash distributions at the rate of 9% of the liquidation preference per annum (equivalent to $2.25 per share). Such distributions are cumulative from the date of original issue and are payable quarterly in arrears on the last day of each March, June, September and December. 59 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The Series A Preferred Shares issued in November 1993 have a liquidation preference of $25 per share for an aggregate liquidation preference of $230 million plus any accrued but unpaid distributions. The net proceeds (after underwriting commission and other offering costs) of the Series A Preferred Shares issued was $219.7 million. Holders of the Series A Preferred Shares are entitled only to limited voting rights under certain conditions. Each Series A Preferred Share is convertible, in whole or in part, at the option of the holder at any time, unless previously redeemed, into 1.2162 of PTR's Common Shares (a conversion price of $20.56 per share). Distributions on the Series A Preferred Shares are cumulative in an amount per share equal to the greater of $1.75 per annum or the annualized quarterly PTR distribution rate on the Common Shares into which the Series A Preferred Shares are convertible, payable quarterly in arrears on the last day of March, June, September and December of each year. The Series A Preferred Shares are redeemable at the option of PTR after November 30, 2003. The Series A Preferred Shares and the Series B Preferred Shares will rank on a parity as to distributions and liquidation proceeds. Series A Preferred Shares and Series B Preferred Shares are collectively referred to as "Preferred Shares." Option Plan In January 1987, PTR adopted its Share Option Plan for Outside Trustees (the "1987 Plan"). Under the 1987 Plan, there are 126,000 Common Shares approved which can be granted to independent Trustees. All options granted are for a term of five years and are exercisable in whole or in part. The exercise price of the options granted may not be less than the fair market value on the date of grant. At December 31, 1995 there were 20,000 options for Common Shares outstanding and exercisable under the 1987 Plan at exercise prices ranging from $10.625 to $18.875 per Common Share. Ownership Restrictions and Significant Shareholder PTR's Restated Declaration of Trust and the Articles Supplementary restrict beneficial ownership (or ownership generally attributed to a person under the REIT tax rules) of PTR's outstanding shares by a single person, or persons acting as a group, to 9.8% of the Common Shares and 25% of the Preferred Shares. The purpose of these provisions are to assist in protecting and preserving PTR's REIT status and to protect the interests of shareholders in takeover transactions by preventing the acquisition of a substantial block of shares unless the acquiror makes a cash tender offer for all outstanding shares. For PTR to qualify as a REIT under the Internal Revenue Code of 1986, as amended, not more than 50% in value of its outstanding capital shares may be owned by five or fewer individuals at any time during the last half of PTR's taxable year. The provision permits five persons to acquire up to a maximum of 9.8% each of the Common Shares, or an aggregate of 49% of the outstanding Common Shares, and thus assists the Trustees in protecting and preserving PTR's REIT status for tax purposes. Common Shares owned by a person or group of persons in excess of the 9.8% limit are subject to redemption by PTR. The provision does not apply where a majority of the Board of Trustees, in its sole and absolute discretion, waives such limit after determining that the eligibility of PTR to qualify as a REIT for federal income tax purposes will not be jeopardized or the disqualification of PTR as a REIT is advantageous to the shareholders. The Board of Trustees has permitted SCG, the owner of the REIT Manager (see Note 8), to acquire up to 49% of PTR's fully converted Common Shares. SCG's ownership of Common Shares is attributed for tax purposes to its shareholders. SCG owned 37.93% of PTR's total outstanding Common Shares at December 31, 1995. Pursuant to an agreement between SCG and PTR, SCG has agreed to acquire no more than 49% of the fully converted Common Shares except pursuant to an all-cash tender offer for all Common Shares 60 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) held open for 90 days. SCG would have no limitation on making a tender offer if an unrelated third party commences such a tender offer. Shareholder Purchase Rights On February 23, 1990, PTR declared a dividend distribution of one shareholder purchase right ("Right") for each outstanding Common Share to be distributed to all holders of record of the Common Shares on February 23, 1990. Each Right entitled the holder to purchase one Common Share for an exercise price of $32.50 per share, subject to adjustment as provided in the Rights Agreement. The Rights were exercisable only if a person or group acquired 20% or more of PTR's Common Shares (32% in the case of SCG and certain defined affiliates) or announced a tender offer for 25% or more of the Common Shares. Under certain circumstances, including a shareholder acquisition of 20% or more of the Common Shares, each Right would entitle the holder to purchase Common Shares or securities of the acquiring company, which would have a dilutive effect on the acquiring company and deter it from taking coercive actions against PTR shareholders. The Rights held by certain 20% shareholders would be exercisable. On July 11, 1994, the Board of Trustees announced the redemption, effective at the close of business on July 21, 1994, of the shareholder purchase rights issued pursuant to the Rights Agreement, dated as of February 23, 1990, as amended. Pursuant to the redemption, each holder of record at the close of business on July 21, 1994 was entitled to receive $0.01 per shareholder purchase right. The redemption price was paid on August 12, 1994. In addition, the Board of Trustees declared a distribution of one preferred share purchase right (a "Purchase Right") for each Common Share outstanding, payable to holders of Common Shares of record at the close of business on July 21, 1994. Each Purchase Right entitles the holder under certain circumstances to purchase from PTR one one-hundredth of a share of Series B Junior Participating Preferred Share, par value $1.00 per share (the "Participating Preferred Shares"), at a price of $60.00 per one one-hundredth of a Participating Preferred Share, subject to adjustment. Purchase Rights are exercisable when a person or group of persons acquires 20% or more of the fully converted Common Shares (49% in the case of SCG and certain defined affiliates) or announces a tender offer for 25% or more of the outstanding Common Shares. Under certain circumstances, each Purchase Right entitles the holder to purchase, at the Purchase Right's then current exercise price, a number of Common Shares having a market value of twice the Purchase Right's exercise price. The acquisition of PTR pursuant to certain mergers or other business transactions would entitle each holder to purchase, at the Purchase Right's then current exercise price, a number of the acquiring company's common shares having a market value at that time equal to twice the Purchase Right's exercise price. The Purchase Rights will expire in July 2004 and are subject to redemption in whole, but not in part, at a price of $0.01 per Purchase Right payable in cash, shares of PTR or any other form of consideration determined by the Board of Trustees. Shelf Registration On May 13, 1994 and December 1, 1994, PTR filed additional shelf registration statements with the Securities and Exchange Commission. PTR registered an aggregate of $650 million of securities ($325 million of securities in each shelf registration statement) which can be issued in the form of debt securities, preferred shares of beneficial interest, common shares of beneficial interest, shareholder purchase rights or subscription rights for common shares of beneficial interest. As of December 31, 1995, $243.2 million in securities were available to be issued under PTR's shelf registrations (See Note 12). (8) REIT MANAGEMENT AND PROPERTY MANAGEMENT AGREEMENTS Effective March 1, 1991, PTR entered into a REIT management agreement (the "REIT Management Agreement") with Security Capital Pacific Incorporated (the "REIT Manager"), formerly Security Capital 61 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (Southwest) Incorporated to provide management services to PTR. The REIT Manager is a subsidiary of SCG (see Note 7). All officers of PTR are employees of the REIT Manager and PTR has no employees. The REIT Manager provides both strategic and day-to-day management of PTR, including research, investment analysis, acquisition and development, asset management, capital markets, and legal and accounting services. The REIT Management Agreement requires PTR to pay a base annual fee of $855,000 plus 16% of cash flow as defined in the REIT Management Agreement ("Cash Flow") in excess of $4,837,000. In the REIT Management Agreement, Cash Flow is calculated by reference to PTR's cash flow from operations before deducting (i) fees paid to the REIT Manager, (ii) extraordinary expenses incurred at the request of the independent Trustees of PTR, and (iii) 33% of any interest paid by PTR on convertible subordinated debentures (of which there has been none since inception of the REIT Management Agreement); and, after deducting (iv) actual or assumed regularly scheduled principal and interest payments on long term debt and (v) distributions actually paid with respect to any nonconvertible preferred shares of beneficial interest of PTR. The REIT Management Agreement has been amended so that the long term senior notes described in Note 4 and Note 12 will be treated as if they had regularly scheduled principal and interest payments similar to a 20-year level monthly payment, fully amortizing mortgage and the assumed principal and interest payments will be deducted from cash flow in determining the fee for future periods. Cash Flow does not include interest and income from PTR Development Services, realized gains from dispositions of investments or income from cash equivalent investments. The REIT Manager also receives a fee of .25% per year on the average daily balance of cash equivalent investments. REIT management fees aggregated $20,354,000, $13,182,000 and $7,073,000 for the years ended December 31, 1995, 1994 and 1993, respectively. PTR is obligated to reimburse the REIT Manager for certain expenses incurred by the REIT Manager on behalf of PTR relating to PTR's operations, primarily including third party legal, accounting and similar fees paid on behalf of PTR, and travel expenses incurred in connection with financings, property acquisitions, property dispositions, property development, attending Board of Trustees and shareholder meetings and similar activities on behalf of PTR. The REIT Management Agreement is renewable by PTR annually, subject to a determination by the independent Trustees that the REIT Manager's performance has been satisfactory and that the compensation payable to the REIT Manager is fair. PTR may terminate the REIT Management Agreement on 60 days' notice. Because of the year-to-year nature of the agreement, its maximum effect on PTR's results of operations cannot be predicted, other than that REIT management fees will generally increase or decrease in proportion to cash flow increases or decreases. SCG Realty Services Incorporated ("SCG Realty Services") has managed and currently manages a substantial majority of PTR's operating multifamily properties. For the years ended December 31, 1995, 1994 and 1993, PTR paid SCG Realty Services aggregate fees of $7,894,000, $7,148,000 and $3,862,000, respectively. Homestead Realty Services Incorporated ("Homestead Realty Services") manages all of PTR's operating Homestead Village properties. For the year ended December 31, 1995, PTR paid Homestead Realty Services aggregate fees of $1,018,000. In addition to property management, SCG Realty Services has performed certain due diligence services for PTR's acquisitions. Effective October 1, 1994, SCG Realty Services no longer performed due diligence services for PTR. SCG owns each of SCG Realty Services and Homestead Realty Services. Rates for services performed by SCG Realty Services and Homestead Realty Services are subject to annual approval by PTR's independent Trustees (who receive an annual review from an independent third party) and management believes are at rates prevailing in the markets in which PTR operates. 62 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (9) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Selected quarterly financial data (in thousands except for per share amounts) for 1995 and 1994 is as follows:
THREE MONTHS ENDED YEAR ------------------------------- ENDED 3-31 6-30 9-30 12-31 12-31 ------- ------- ------- ------- -------- 1995: Rental Income....................... $53,518 $65,719 $70,176 $73,060 $262,473 ======= ======= ======= ======= ======== Earnings from operations............ 14,540 20,806 23,203 23,147 81,696 Gain on sale of investments......... -- -- -- 2,623 2,623 Less preferred share dividends...... 4,025 5,023 6,387 6,388 21,823 ------- ------- ------- ------- -------- Net earnings attributable to Common Shares............................. $10,515 $15,783 $16,816 $19,382 $ 62,496 ======= ======= ======= ======= ======== Net earnings per Common Share....... $ 0.20 $ 0.22 $ 0.23 $ 0.27 $ 0.93 ======= ======= ======= ======= ======== Funds from operations attributable to Common Shares................... $18,059 $24,909 $26,527 $27,483 $ 96,978 ======= ======= ======= ======= ======== Weighted Average Common Shares out- standing........................... 51,485 72,027 72,211 72,211 67,052 ======= ======= ======= ======= ======== 1994: Rental Income....................... $37,414 $43,390 $50,299 $52,369 $183,472 ======= ======= ======= ======= ======== Earnings from operations............ 9,512 10,765 12,727 13,715 46,719 Less preferred share dividends...... 4,025 4,025 4,025 4,025 16,100 ------- ------- ------- ------- -------- Net earnings attributable to Common Shares............................. $ 5,487 $ 6,740 $ 8,702 $ 9,690 $ 30,619 ======= ======= ======= ======= ======== Net earnings per Common Share....... $ 0.12 $ 0.15 $ 0.18 $ 0.19 $ 0.66 ======= ======= ======= ======= ======== Funds from operations attributable to Common Shares................... $12,037 $12,581 $15,323 $16,892 $ 56,833 ======= ======= ======= ======= ======== Weighted Average Common Shares out- standing........................... 44,668 44,724 47,051 50,413 46,734 ======= ======= ======= ======= ========
(10) COMMITMENTS AND CONTINGENCIES PTR is a party to various claims and routine litigation arising in the ordinary course of business. PTR does not believe that the results of all claims and litigation, individually or in the aggregate, will have a material adverse effect on its business, financial position or results of operations. PTR is subject to environmental regulations related to the ownership, operation, development and acquisition of real estate. As part of due diligence procedures, since 1984 PTR has conducted Phase I environmental assessments on each property prior to acquisition. The cost of complying with environmental regulations was not material to PTR's results of operations for any of the years in the three year period ended December 31, 1995. PTR is not aware of any environmental condition on any of its properties which is likely to have a material adverse effect on PTR's financial condition or results of operations. See Note 3 for development and acquisition commitments. 63 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONCLUDED) (11) FAIR VALUES OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents, other assets, accrued expenses and other liabilities approximates fair value as of December 31, 1995 and 1994 because of the short maturity of these instruments. Similarly, the carrying value of line of credit borrowings approximates fair value as of those dates since the interest rate fluctuates based on published market rates. In the opinion of management, the interest rates associated with the long term debt, mortgages payable and mortgage notes receivable approximate the market interest rates for these types of instruments, and as such, the carrying values approximates fair value at December 31, 1995 and 1994, in all material respects. (12) SUBSEQUENT EVENTS On February 23, 1996, PTR issued $50 million of 7.15% Notes due 2010 (the "2010 Notes") and $100 million of 7.90% Notes due 2016 (the "2016 Notes" and together with the 2010 Notes, the "2010 and 2016 Notes"). The 2010 Notes bear interest at 7.15% per annum and require annual principal payments of $6.25 million, commencing February 15, 2003. The 2016 Notes bear interest at 7.90% per annum and require aggregate annual principal payments of $10 million in 2011, $12.5 million in 2012, $15 million in 2013, $17.5 million in 2014, $20 million in 2015 and $25 million in 2016. Collectively, the 2010 and 2016 Notes are unsecured and have an average life to maturity of 15.5 years and an average effective interest cost, including offering discounts and issuance costs of 7.84% per annum. The 2010 and 2016 Notes are redeemable any time at the option of PTR, in whole or in part, at a redemption price equal to the sum of the principal amount of the Notes being redeemed plus accrued interest thereon to the redemption date plus an adjustment, if any, based on the yield to maturity relating to market yields available at redemption. The 2010 and 2016 Notes are governed by the terms and provisions of the Indenture (See Note 4). As a result of the issuance of the 2010 and 2016 Notes, $93.2 million in securities remain available to be issued under PTR's shelf registration. 64 SCHEDULE III SECURITY CAPITAL PACIFIC TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1995 (IN THOUSANDS)
GROSS AMOUNT AT WHICH CARRIED AT INITIAL COST TO PTR COSTS DECEMBER 31, 1995 --------------------- CAPITALIZED -------------------------------- BUILDINGS SUBSE- BUILDINGS ACCUMU- CON- ENCUM- AND QUENT TO AND LATED DE- STRUCTION YEAR PROPERTIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTALS PRECIATION YEAR ACQUIRED ---------- -------- -------- ------------ ----------- -------- ------------ ---------- ---------- --------- -------- MULTIFAMILY: Albuquerque, New Mexico: Commanche Wells. $ -- $ 719 $ 4,072 $ 309 $ 719 $ 4,381 $ 5,100 $ 202 1985 1994 Corrales Pointe. -- 944 5,351 393 944 5,744 6,688 336 1986 1993 Entrada Pointe.. -- 1,014 5,744 805 1,014 6,549 7,563 326 1986 1994 Homestead Village--Osuna. -- 832 -- 3,039 840 3,031 3,871 (b) (b) 1995 La Paloma....... -- 4,135 -- 18,952 4,287 18,800 23,087 269 (b) 1993 La Ventana...... -- 2,210 -- 11,634 2,320 11,524 13,844 43 (b) 1994 Pavilions ...... -- 2,182 7,624 5,602 2,182 13,226 15,408 1,484 (a) (a) Sandia Ridge.... -- 1,339 5,358 798 1,339 6,156 7,495 686 1986 1992 Vistas at Seven Bar (i) ....... -- 2,597 -- 3,841 2,601 3,837 6,438 (b) (b) 1994 Vista del Sol... -- 1,105 4,419 427 1,105 4,846 5,951 326 1987 1993 Wellington Place.......... -- 1,881 7,523 598 1,881 8,121 10,002 479 1981 1993 Austin, Texas: Anderson Mill Oaks........... -- 1,794 10,165 267 1,794 10,432 12,226 603 1984 1993 Cannon Place.... -- 1,220 4,879 725 1,220 5,604 6,824 304 1984 1993 Hobby Horse..... -- 788 -- 303 801 290 1,091 (b) (b) 1993 Homestead Village-- Burnet......... -- 525 -- 3,543 723 3,345 4,068 66 1995 1994 Homestead Village-- Mid Town....... -- 600 -- 3,135 645 3,090 3,735 (b) (b) 1995 Homestead Village-- Pavilion (i) .. -- 693 -- 120 693 120 813 (b) (b) 1995 Hunters' Run.... -- 1,400 -- 9,982 1,816 9,566 11,382 183 1995 1993 Hunters' Run II (i)............ -- 797 -- 775 861 711 1,572 (b) (b) 1995 La Mirage....... -- 2,350 -- 14,668 2,966 14,052 17,018 843 1994 1992 Monterey Ranch Village II..... -- 1,151 -- 13,132 1,241 13,042 14,283 (b) (b) 1993 The Ridge....... -- 1,669 6,675 2,076 1,669 8,751 10,420 574 1978 1993 Rock Creek...... -- 1,311 7,431 1,419 1,311 8,850 10,161 477 1979 1993 Saddlebrook..... -- 800 -- 12,484 1,148 12,136 13,284 774 1994 1992 Shadowood....... -- 1,197 4,787 561 1,197 5,348 6,545 329 1985 1993 Spyglass........ -- 1,744 6,976 1,753 1,744 8,729 10,473 694 1981 1992 Dallas, Texas: Apple Ridge..... -- 1,986 7,942 1,124 1,986 9,066 11,052 488 1984 1993 Custer Crossing. -- 1,532 8,683 163 1,532 8,846 10,378 506 1985 1993 Homestead Village-- Coit Road...... -- 425 -- 2,961 496 2,890 3,386 301 1994 1993 Homestead Village-- Fort Worth..... -- 350 -- 2,296 372 2,274 2,646 (b) (b) 1994 Homestead Village-- Las Colinas.... -- 800 -- 3,562 805 3,557 4,362 (b) (b) 1994 Homestead Village--North Richland Hills. -- 470 -- 3,020 544 2,946 3,490 301 1994 1993 Homestead Village-- Skillman Road.. -- 400 -- 2,683 400 2,683 3,083 278 1993 1992
(see notes following table) 65
GROSS AMOUNT AT WHICH CARRIED INITIAL COST TO PTR COSTS AT DECEMBER 31, 1995 --------------------- CAPITALIZED ------------------------------- BUILDINGS SUBSE- BUILDINGS ACCUMU- CON- ENCUM- AND QUENT TO AND LATED DE- STRUCTION YEAR PROPERTIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTALS PRECIATION YEAR ACQUIRED ---------- -------- -------- ------------ ----------- -------- ------------ --------- ---------- --------- -------- Homestead Village--South Arlington...... $ $ 550 $ -- $ 3,274 $ 642 $ 3,182 $ 3,824 $ 120 1995 1994 Homestead Village-- Stemmons Freeway........ -- 356 -- 4,136 424 4,068 4,492 296 (c) (c) Homestead Village-- Tollway........ -- 275 -- 2,443 353 2,365 2,718 340 1993 1993 Homestead Village--West Arlington...... -- 585 -- 3,400 652 3,333 3,985 118 1995 1993 Indian Creek.... -- 1,582 8,962 256 1,582 9,218 10,800 520 1985 1993 Post Oak Ridge.. -- 2,137 12,111 873 2,137 12,984 15,121 724 1983 1993 Quail Run....... -- 1,613 9,140 169 1,613 9,309 10,922 533 1983 1993 Somerset........ -- 2,908 11,632 525 2,908 12,157 15,065 674 1986 1993 Summerstone..... -- 1,028 5,823 161 1,028 5,984 7,012 345 1983 1993 Timber Ridge.... -- 997 5,651 302 997 5,953 6,950 184 1984 1994 Woodland Park... -- 1,386 5,543 309 1,386 5,852 7,238 327 1986 1993 Denver, Colorado: Cambrian........ -- 2,256 9,026 719 2,256 9,745 12,001 647 1983 1993 Cedars, The..... -- 3,128 12,512 1,404 3,128 13,916 17,044 925 1984 1993 Fox Creek Phase I.............. -- 1,167 4,669 313 1,167 4,982 6,149 289 1984 1993 Fox Creek Phase II............. -- -- -- 69 -- 69 69 (b) (b) 1995 Hickory Ridge... -- 4,402 17,607 1,394 4,402 19,001 23,403 1,601 1984 1992 Homestead Village-- Belleview ..... -- 876 -- 2,622 921 2,577 3,498 (b) (b) 1994 Homestead Village--Iliff. -- 615 -- 2,910 624 2,901 3,525 (b) (b) 1994 Reflections Phase I........ -- 1,591 6,362 785 1,591 7,147 8,738 476 1980 1993 Reflections Phase II....... -- 805 -- 11,258 845 11,218 12,063 34 (b) 1993 Silvercliff..... 7,469 2,410 13,656 219 2,410 13,875 16,285 640 1991 1994 Sunwood......... -- 1,030 4,596 461 1,030 5,057 6,087 414 1981 1992 El Paso, Texas: Acacia Park..... -- 1,130 -- 12,764 1,475 12,419 13,894 298 1995 1993 Cielo Vista..... -- 1,111 4,445 1,090 1,111 5,535 6,646 324 1962 1993 The Crest....... -- 865 -- 7,112 1,026 6,951 7,977 866 1991 1992 Doubletree...... -- 1,106 4,423 626 1,106 5,049 6,155 349 1980 1993 Las Flores...... 5,915 625 6,624 861 625 7,485 8,110 3,168 (d) (d) Mountain Village........ -- 1,203 4,824 1,158 1,203 5,982 7,185 757 1982 1992 The Patriot .... -- 1,027 -- 10,837 1,103 10,761 11,864 121 (b) 1993 Park Place ..... 7,032 992 7,409 304 993 7,712 8,705 1,461 (e) (e) The Phoenix..... -- 454 -- 9,641 658 9,437 10,095 817 1993 1993 Shadow Ridge ... -- 1,524 3,993 6,727 1,668 10,576 12,244 842 (f) (f) Spring Park..... 4,293 734 4,428 77 734 4,505 5,239 917 1990 1989 Tigua Village... 694 161 146 1,976 161 2,122 2,283 1,151 (g) (g) Houston, Texas: Beverly Palms... -- 1,393 7,893 700 1,393 8,593 9,986 421 1970 1994 Braeswood Park.. 6,889 1,861 10,548 151 1,861 10,699 12,560 611 1984 1993 Brompton Court.. 14,543 4,058 22,993 3,477 4,058 26,470 30,528 967 1972 1994 Chasewood....... 9,485 2,016 11,422 102 2,016 11,524 13,540 530 1992 1994 Cranbrook Forest......... -- 1,326 5,302 258 1,326 5,560 6,886 316 1984 1993 Homestead Village-- Astrodome ..... -- 1,530 -- 3,765 1,669 3,626 5,295 18 1995 1994 Homestead Village-- Bammel- Westfield...... -- 516 -- 2,959 595 2,880 3,475 162 1994 1993 Homestead Village--Fuqua. -- 416 -- 2,929 491 2,854 3,345 250 1994 1993 Homestead Village--Park Ten............ -- 791 -- 3,102 860 3,033 3,893 172 1994 1993
(see notes following table) 66
GROSS AMOUNT AT WHICH CARRIED AT INITIAL COST TO PTR COSTS DECEMBER 31, 1995 --------------------- CAPITALIZED -------------------------------- BUILDINGS SUBSE- BUILDINGS ACCUMU- CON- ENCUM- AND QUENT TO AND LATED DE- STRUCTION YEAR PROPERTIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTALS PRECIATION YEAR ACQUIRED ---------- -------- -------- ------------ ----------- -------- ------------ ---------- ---------- --------- -------- Homestead Village-- Stafford....... $ -- $ 575 $ -- $ 3,092 $ 665 $ 3,002 $ 3,667 $ 168 1994 1993 Homestead Village--West by Northwest... -- 519 -- 2,913 568 2,864 3,432 283 1994 1993 Homestead Village-- Westheimer..... -- 796 -- 3,205 897 3,104 4,001 208 1994 1993 Homestead Village-- Willowbrook.... -- 575 -- 3,350 669 3,256 3,925 51 1995 1994 Memorial Heights Phase I........ -- 3,169 -- 9,150 3,348 8,971 12,319 (b) (b) 1994 Memorial Heights Phase II....... -- 4,190 -- 2,039 4,427 1,802 6,229 (b) (b) 1994 Oaks at Medical Center Phase I. -- 4,210 -- 11,744 4,260 11,694 15,954 3 (b) 1994 Pineloch........ -- 1,980 11,221 397 1,980 11,618 13,598 659 1984 1993 Plaza Del Oro... -- 1,713 9,706 488 1,713 10,194 11,907 414 1984 1994 Seahawk......... 5,505 1,258 7,125 224 1,257 7,350 8,607 335 1984 1994 Weslayan Oaks... -- 581 3,293 105 581 3,398 3,979 198 1984 1993 Woodside Village........ -- 710 2,811 3,039 710 5,850 6,560 2,347 1972 1975 Las Vegas, Nevada Hamptons, The .. -- 2,959 16,790 935 2,959 17,725 20,684 337 1989 1995 Horizons at Peccole Ranch.. -- 3,173 18,048 113 3,173 18,161 21,334 362 1990 1995 King's Crossing ............... -- 2,860 16,272 202 2,860 16,474 19,334 327 1991 1995 La Tierra at the Lakes.......... 26,444 5,904 33,561 1,502 5,904 35,063 40,967 673 1986 1995 Sunterra ....... 8,274 2,086 11,867 51 2,086 11,918 14,004 236 1986 1995 Los Angeles, Cal- ifornia: Miramonte....... -- 2,357 13,364 -- 2,357 13,364 15,721 -- 1989 1995 Oklahoma City, Oklahoma: Cimarron Trails. -- 981 5,591 181 981 5,772 6,753 233 1984 1994 Warrington...... -- 882 4,883 221 882 5,104 5,986 303 1984 1993 Omaha, Nebraska: Apple Creek..... 11,100 1,953 11,069 550 1,953 11,619 13,572 464 1987 1994 Oak Brook ...... -- 1,108 6,307 74 1,108 6,381 7,489 127 1994 1995 Phoenix, Arizona: 22nd & Dunlap Phase I (i).... -- 3,062 -- 555 3,080 537 3,617 (b) (b) 1995 Arrowhead Phase I (i).......... -- 2,019 -- 11 2,019 11 2,030 (b) (b) 1995 Bay Club........ -- 2,797 11,188 933 2,797 12,121 14,918 704 1985 1993 Foxfire......... -- 1,055 5,976 246 1,055 6,222 7,277 284 1985 1994 Homestead Vil- lage--Baseline (i)............ -- 808 -- 1,692 830 1,670 2,500 (b) (b) 1995 Homestead Vil- lage--Dunlap (i)............ -- 915 -- 1,153 933 1,135 2,068 (b) (b) 1995 Homestead Vil- lage--Scotts- dale........... -- 883 -- 3,376 975 3,284 4,259 37 1995 1994 Miralago Phase I (i) ........... -- 2,743 -- 517 2,830 430 3,260 (b) (b) 1995 Moorings at Mesa Cove........... -- 3,261 13,045 846 3,261 13,891 17,152 1,090 1985 1992 North Mountain Village........ -- 2,704 15,323 330 2,704 15,653 18,357 754 1986 1994 Papago Crossing. -- 630 2,519 659 630 3,178 3,808 246 1980 1992 Peaks at Papago Park Phase I... -- 4,131 23,408 589 4,131 23,997 28,128 1,114 1988 1994 Peaks at Papago Park Phase II.. -- 1,000 -- 3,388 1,001 3,387 4,388 (b) (b) 1994
(see notes following table) 67
GROSS AMOUNT AT WHICH INITIAL COST TO PTR COSTS CARRIED AT DECEMBER 31, 1995 --------------------- CAPITALIZED -------------------------------- BUILDINGS SUBSE- BUILDINGS ACCUMU- CON- ENCUM- AND QUENT TO AND LATED DE- STRUCTION YEAR PROPERTIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTALS PRECIATION YEAR ACQUIRED ---------- -------- -------- ------------ ----------- -------- ------------ ---------- ---------- --------- -------- Pheasant Run.... $ -- $ 1,607 $ 6,428 $ 597 $ 1,607 $ 7,025 $ 8,632 $ 408 1985 1993 Presidio at South Mountain. 14,593 4,638 26,280 438 4,638 26,718 31,356 1,530 1989 1993 The Ridge....... -- 1,852 10,492 318 1,852 10,810 12,662 614 1987 1993 San Antigua..... -- 4,200 -- 19,599 4,705 19,094 23,799 1,053 1994 1991 San Marin....... -- 3,332 -- 14,607 3,798 14,141 17,939 1,365 1993 1993 San Marina...... -- 1,208 4,831 852 1,208 5,683 6,891 810 1986 1992 San Marquis North.......... -- 1,215 -- 8,673 1,556 8,332 9,888 285 1994 1993 San Marquis South.......... -- 2,312 -- 11,137 2,665 10,784 13,449 608 1994 1993 San Palmera (i) ............... -- 3,515 -- 794 3,682 627 4,309 (b) (b) 1995 Scottsdale Greens......... -- 3,489 19,774 4,422 3,489 24,196 27,685 1,069 1980 1994 Sunstone........ -- 1,542 8,738 315 1,542 9,053 10,595 512 1986 1993 Superstition Park........... -- 2,340 9,362 796 2,341 10,157 12,498 792 1985 1992 Portland, Oregon: Club at the Green.......... -- 1,640 9,327 109 1,640 9,436 11,076 193 1991 1995 Double Tree Phase I........ -- 1,548 8,810 28 1,548 8,838 10,386 177 1990 1995 Double Tree Phase II....... 4,770 991 5,611 13 991 5,624 6,615 100 1994 1995 Knight's Castle. 7,609 1,963 11,164 10 1,963 11,174 13,137 223 1989 1995 Meridian at Murrayhill..... -- 2,517 14,320 59 2,517 14,379 16,896 287 1990 1995 Preston's Cross- ing (i)........ -- 851 -- 3,283 852 3,282 4,134 (b) (b) 1995 Riverwood Heights........ -- 1,479 8,410 126 1,479 8,536 10,015 169 1990 1995 Squire's Court . -- 1,630 9,249 28 1,630 9,277 10,907 186 1989 1995 Reno, Nevada: Vista Ridge..... -- 2,002 -- 1,760 2,057 1,705 3,762 (b) (b) 1995 Salt Lake City, Utah: Cherry Creek.... 4,210 1,290 7,330 299 1,290 7,629 8,919 147 1986 1995 Greenpointe..... 3,696 891 5,050 115 891 5,165 6,056 102 1985 1995 Mountain Shadow ............... 3,394 832 4,730 74 832 4,804 5,636 95 1985 1995 Plum Tree ...... -- 2,091 11,892 263 2,091 12,155 14,246 239 1979 1995 1995 Remington ...... -- 2,324 -- 2,627 2,359 2,592 4,951 (b) (b) San Antonio, Tex- as: Applegate....... -- 1,455 8,248 282 1,455 8,530 9,985 489 1983 1993 Austin Point.... -- 1,728 9,725 452 1,728 10,177 11,905 579 1982 1993 Camino Real..... -- 1,084 4,338 774 1,084 5,112 6,196 383 1979 1993 Cobblestone Vil- lage........... -- 786 3,120 645 786 3,765 4,551 513 1984 1992 Contour Place... -- 456 1,829 317 456 2,146 2,602 331 1984 1992 The Crescent.... -- 1,145 -- 14,454 1,647 13,952 15,599 912 1994 1992 Dymaxion Phase I.............. -- 683 3,740 132 683 3,872 4,555 115 1984 1994 The Gables...... -- 1,025 5,809 226 1,025 6,035 7,060 343 1983 1993 Homestead Vil- lage-- Bitters........ -- 1,000 -- 3,729 1,198 3,531 4,729 66 1995 1994 Homestead Vil- lage--DeZavala ............... -- 844 -- 3,587 983 3,448 4,431 55 1995 1994 Homestead Vil- lage-- Fredricksburg.. -- 800 -- 3,238 892 3,146 4,038 171 1994 1993 Lakeside Villas. -- 2,597 10,388 666 2,597 11,054 13,651 926 1986 1992 Marbach Park.... -- 1,122 6,361 504 1,123 6,864 7,987 393 1985 1993 Oakhampton Place.......... -- 2,292 9,170 712 2,292 9,882 12,174 834 1984 1992 Palisades Park.. -- 1,167 6,613 364 1,167 6,977 8,144 396 1983 1993 Panther Spring.. -- 585 3,317 80 585 3,397 3,982 196 1985 1993 Rancho Mirage... -- 724 2,871 1,259 724 4,130 4,854 243 1974 1993 Stanford Heights........ -- 1,631 -- 11,534 1,693 11,472 13,165 56 (b) 1993 Sterling Heights........ -- 1,644 -- 10,348 2,212 9,780 11,992 197 1995 1993 St. Tropez Phase I.............. -- 2,013 8,054 796 2,013 8,850 10,863 741 1982 1992 St. Tropez Phase II ............ -- 605 -- 361 632 334 966 (b) (b) 1994 Towne East Vil- lage........... -- 350 1,985 148 350 2,133 2,483 119 1983 1993
(see notes following table) 68
GROSS AMOUNT AT WHICH INITIAL COST TO PTR COSTS CARRIED AT DECEMBER 31, 1995 --------------------- CAPITALIZED -------------------------------- BUILDINGS SUBSE- BUILDINGS ACCUMU- CON- ENCUM- AND QUENT TO AND LATED DE- STRUCTION YEAR PROPERTIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTALS PRECIATION YEAR ACQUIRED ---------- -------- -------- ------------ ----------- -------- ------------ ---------- ---------- --------- -------- Villas of Castle Hills.......... $ -- $ 1,037 $ 4,148 $ 691 $ 1,037 $ 4,839 $ 5,876 $ 289 1971 1993 The Waters of Northern Hills. -- 1,251 7,105 690 1,251 7,795 9,046 377 1982 1994 San Diego, Cali- fornia: Scripps Landing. -- 1,332 7,550 240 1,332 7,790 9,122 421 1985 1994 Tierrasanta Ridge.......... -- 2,859 16,130 492 2,859 16,622 19,481 717 1994 1994 San Francisco (Bay Area), Cal- ifornia: Homestead Vil- lage-- San Mateo...... -- 1,510 -- 142 1,510 142 1,652 (b) (b) 1995 Homestead Vil- lage-- Sunnyvale ..... -- 1,274 -- 87 1,277 84 1,361 (b) (b) 1995 Treat Commons... 7,296 5,788 32,802 -- 5,788 32,802 38,590 -- 1988 1995 Santa Fe, New Mexico: Enclave, The.... -- 1,810 7,242 696 1,810 7,938 9,748 630 1986 1992 Foothills of Santa Fe Phase I.............. -- 1,396 -- 760 1,401 755 2,156 (b) (b) 1995 The Meadows of Santa Fe....... -- 760 -- 11,711 992 11,479 12,471 675 1994 1993 Rancho Vizcaya.. -- 1,906 9,458 729 1,906 10,187 12,093 1,241 1990 1991 Seattle, Washing- ton: Logan's Ridge... -- 1,950 11,118 80 1,950 11,198 13,148 223 1987 1995 Mantanza Creek.. -- 1,016 5,814 98 1,016 5,912 6,928 117 1991 1995 Millwood Es- tates.......... -- 1,593 9,200 260 1,593 9,460 11,053 184 1987 1995 Pebble Cove .... -- 1,895 -- 2,342 2,026 2,211 4,237 (b) (b) 1995 Remington Park.. -- 2,795 15,593 539 2,795 16,132 18,927 249 1990 1995 Walden Pond..... -- 2,033 11,535 168 2,033 11,703 13,736 232 1990 1995 Tucson, Arizona: Ashton Meadows.. -- 966 5,474 701 966 6,175 7,141 348 1979 1993 Cobble Creek.... -- 1,422 5,690 616 1,422 6,306 7,728 802 1980 1992 Craycroft Gar- dens........... -- 348 1,392 201 348 1,593 1,941 179 1963 1992 Rio Cancion..... -- 2,854 16,175 364 2,854 16,539 19,393 797 1984 1994 San Ventana (i). -- 3,177 -- 7,444 3,271 7,350 10,621 (b) (b) 1993 Sonoran Terrac- es............. -- 3,020 14,150 648 3,020 14,798 17,818 2,001 1986 1992 Sundown Village ............... -- 2,009 6,424 4,491 2,110 10,814 12,924 611 (h) (h) Tierra Antigua.. -- 992 3,967 507 992 4,474 5,466 518 1979 1992 Villa Caprice... -- 1,279 7,248 274 1,279 7,522 8,801 427 1972 1993 Windsail........ 4,843 1,852 7,407 616 1,852 8,023 9,875 549 1986 1993 Tulsa, Oklahoma: Southern Slope.. -- 779 4,413 141 779 4,554 5,333 270 1982 1993 -------- -------- ---------- -------- -------- ---------- ---------- ------- Total Multifamily.... $158,054 $299,981 $1,040,137 $455,316 $309,025 $1,486,409 $1,795,434 $77,433 -------- -------- ---------- -------- -------- ---------- ---------- -------
(see notes following table) 69
GROSS AMOUNT AT WHICH INITIAL COST TO PTR COSTS CARRIED AT DECEMBER 31, 1995 --------------------- CAPITALIZED -------------------------------- BUILDINGS SUBSE- BUILDINGS ACCUMU- CON- ENCUM- AND QUENT TO AND LATED DE- STRUCTION PROPERTIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTALS PRECIATION YEAR ---------- -------- -------- ------------ ----------- -------- ------------ ---------- ---------- --------- LAND HELD FOR FU- TURE MULTIFAMILY DEVELOPMENT: Austin, Texas: Homestead Village--Round Rock (j)....... $ -- $ 808 $ -- $ 84 $ 828 $ 64 $ 892 $ -- N/A Monterey Ranch Village I (k).. -- 424 -- 1,241 457 1,208 1,665 -- N/A Monterey Ranch Village III (l)............ -- 1,131 -- 4,694 1,219 4,606 5,825 -- N/A El Paso, Texas: West Ten (m).... -- 1,523 -- 74 1,544 53 1,597 -- N/A Houston, Texas: Oaks at Medical Center Phase II (n)............ -- 3,368 -- 1,861 3,408 1,821 5,229 -- N/A Phoenix, Arizona: 22nd & Dunlap Phase II (o)... -- 1,647 -- 173 1,647 173 1,820 -- N/A Arrowhead Phase II (p)......... -- 1,601 -- -- 1,601 -- 1,601 -- N/A San Antonio, Texas: Dymaxion Phase II (q)......... -- 546 -- 10 545 11 556 -- N/A Indian Trails Phase II (r)... -- 864 -- 18 870 12 882 -- N/A Walker Ranch Phase I (s).... -- 2,230 -- 1,156 2,373 1,013 3,386 -- N/A Walker Ranch Phase II (t)... -- 1,481 -- 501 1,575 407 1,982 -- N/A Walker Ranch Phase III (u). -- 555 -- 228 591 192 783 -- N/A Santa Fe, New Mexico: Foothills of Santa Fe Phase II (v)......... -- 1,114 -- 35 1,114 35 1,149 -- N/A St. Francis (w). -- 1,941 -- 380 1,986 335 2,321 -- N/A -------- -------- ---------- -------- -------- ---------- ---------- ------- Total Development Land........... $ -- $ 19,233 $ -- $ 10,455 $ 19,758 $ 9,930 $ 29,688 $ -- -------- -------- ---------- -------- -------- ---------- ---------- ------- HOTEL: San Francisco, California: Wharf Holiday Inn (x)........ $ -- $ 12,861 $ 1,935 $ 8,074 $ 12,861 $ 10,009 $ 22,870 $ 3,139 1972 -------- -------- ---------- -------- -------- ---------- ---------- ------- OFFICE/INDUSTRIAL: Dallas, Texas: Irving Blvd..... $ -- $ 109 $ 303 $ 128 $ 109 $ 431 $ 540 $ 234 1968 El Paso, Texas: Vista Industrial..... -- 567 2,504 63 567 2,567 3,134 437 1987 Ontario, California: Ontario Industrial Building....... -- 1,200 3,828 (891)(y) 1,200 2,937 4,137 696 1987 -------- -------- ---------- -------- -------- ---------- ---------- ------- Total Office/Industrial. $ -- $ 1,876 $ 6,635 $ (700) $ 1,876 $ 5,935 $ 7,811 $ 1,367 -------- -------- ---------- -------- -------- ---------- ---------- ------- OTHER: -- 16 46 1 16 47 63 38 1971 -------- -------- ---------- -------- -------- ---------- ---------- ------- TOTAL OTHER..... $ -- $ 16 $ 46 $ 1 $ 16 $ 47 $ 63 $ 38 -------- -------- ---------- -------- -------- ---------- ---------- ------- TOTAL........... $158,054 $333,967 $1,048,753 $473,146 $343,536 $1,512,330 $1,855,866 $81,977 ======== ======== ========== ======== ======== ========== ========== ======= YEAR PROPERTIES ACQUIRED ---------- -------- LAND HELD FOR FU- TURE MULTIFAMILY DEVELOPMENT: Austin, Texas: Homestead Village--Round Rock (j)....... 1995 Monterey Ranch Village I (k).. 1993 Monterey Ranch Village III (l)............ 1993 El Paso, Texas: West Ten (m).... 1994 Houston, Texas: Oaks at Medical Center Phase II (n)............ 1994 Phoenix, Arizona: 22nd & Dunlap Phase II (o)... 1995 Arrowhead Phase II (p)......... 1995 San Antonio, Texas: Dymaxion Phase II (q)......... 1994 Indian Trails Phase II (r)... 1994 Walker Ranch Phase I (s).... 1994 Walker Ranch Phase II (t)... 1994 Walker Ranch Phase III (u). 1994 Santa Fe, New Mexico: Foothills of Santa Fe Phase II (v)......... 1995 St. Francis (w). 1994 Total Development Land........... HOTEL: San Francisco, California: Wharf Holiday Inn (x)........ 1975 OFFICE/INDUSTRIAL: Dallas, Texas: Irving Blvd..... 1977 El Paso, Texas: Vista Industrial..... 1989 Ontario, California: Ontario Industrial Building....... 1987 Total Office/Industrial. OTHER: 1972 TOTAL OTHER..... TOTAL...........
- ------- (a) Phase I (118 units) was acquired in 1991 and Phase II (122 units) was developed in 1992. (b) As of 12/31/95, property was undergoing development. (c) Phase I (132 units) was developed in 1992 and Phase II (57 units) was developed in 1995. (d) Phase I (120 units) was developed in 1980, Phase II (60 units) was developed in 1981 and Phase III (288 units) was developed in 1983. (e) Phase I (160 units) was developed in 1989 and Phase II (132 units) was developed in 1991. 70 (f) Phase I (208 units) was acquired in 1991 and Phase II (144 units) was developed in 1994. (g) Phase I (84 units) was developed in 1970 and Phase II (100 units) was developed in 1978. (h) Phase I (250 units) was acquired in 1993 and Phase II (80 units) was developed in 1995. (i) Represents properties owned by third party owner-developers that are subject to presale agreements with PTR to acquire such properties. PTR's investment as of December 31, 1995 represents development loans made by PTR to such owner-developers. (j) 3.7 acres of undeveloped land. (k) 19.9 acres of undeveloped land. (j) 53.1 acres of undeveloped land. (m) 25.3 acres of undeveloped land. (n) 13.2 acres of undeveloped land. (o) 7.6 acres of undeveloped land. (p) 11.6 acres of undeveloped land. (q) 18.0 acres of undeveloped land. (r) 25.6 acres of undeveloped land. (s) 38.7 acres of undeveloped land. (t) 30.5 acres of undeveloped land. (u) 10.3 acres of undeveloped land. (v) 19.2 acres of undeveloped land. (w) 10.4 acres of undeveloped land. (x) PTR owns the building and land leased to Holiday Inns of America, Inc. at Fishermann's Wharf in San Francisco. The lease with Holiday Inns expires in 2018. (y) The Ontario Industrial property was written down by $1,100,000 in June 1993 to more properly reflect the property's net realizable value. The following is a reconciliation of the carrying amount and related accumulated depreciation of PTR's investment in real estate, at cost (in thousands):
DECEMBER 31, -------------------------------- CARRYING AMOUNTS 1995 1994 1993 ---------------- ---------- ---------- -------- Balance at January 1......................... $1,296,288 $ 872,610 $337,274 Acquisitions, including renovation expendi- tures....................................... 370,543 270,024 449,500 Development expenditures, including land ac- quisition................................... 192,067 163,826 112,264 Capital improvements......................... 5,493 3,912 1,639 Real estate sold............................. (8,402) (12,287) (24,953) Provision for possible losses................ (220) (1,600) (2,270) Other........................................ 97 (197) (844) ---------- ---------- -------- Balance at December 31....................... $1,855,866 $1,296,288 $872,610 ========== ========== ======== DECEMBER 31, -------------------------------- ACCUMULATED DEPRECIATION 1995 1994 1993 ------------------------ ---------- ---------- -------- Balance at January 1......................... $ 46,199 $ 22,022 $ 19,360 Depreciation for the year.................... 36,685 24,614 10,241 Accumulated depreciation of real estate sold. (646) (151) (7,429) Other........................................ (259) (286) (150) ---------- ---------- -------- Balance at December 31....................... $ 81,979 $ 46,199 $ 22,022 ========== ========== ========
As of December 31, 1995, the aggregate cost and net investment cost for federal income tax purposes of PTR's investment in real estate amounted to $1,796,983,000 and $1,714,221,000, respectively. 71 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of Security Capital Pacific Trust, a Maryland real estate investment trust, and the undersigned Trustees and officers of Security Capital Pacific Trust, hereby constitutes and appoints C. Ronald Blankenship, James W. Kluber, Jeffrey A. Klopf, Ariel Amir, Edward J. Schneidman and Michael T. Blair its or his true and lawful attorneys-in-fact and agents, for it or him and in its or his name, place and stead, in any and all capacities, with full power to act alone, to sign any and all amendments to this report, and to file each such amendment to this report, with all exhibits thereto, and any and all documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as it or he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them may lawfully do or cause to be done by virtue hereof. 72 SECURITY CAPITAL PACIFIC TRUST SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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. Security Capital Pacific Trust /s/ C. Ronald Blankenship By: _________________________________ C. Ronald Blankenship Chairman (Principal Executive Officer) Date: March 20, 1996 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ C. Ronald Blankenship Chairman (Principal March 20, 1996 ____________________________________ Executive Officer) and C. Ronald Blankenship Trustee /s/ James W. Kluber Vice President (Principal March 20, 1996 ____________________________________ Financial and Accounting James W. Kluber Officer) /s/ James A. Cardwell Trustee March 20, 1996 ____________________________________ James A. Cardwell /s/ John T. Kelley III Trustee March 20, 1996 ____________________________________ John T. Kelley III /s/ Calvin K. Kessler Trustee March 20, 1996 ____________________________________ Calvin K. Kessler /s/ William G. Myers Trustee March 20, 1996 ____________________________________ William G. Myers /s/ James H. Polk III Trustee March 20, 1996 ____________________________________ James H. Polk III /s/ John C. Schweitzer Trustee March 20, 1996 ____________________________________ John C. Schweitzer
73 INDEX TO EXHIBITS Certain of the following documents are filed herewith. Certain other of the following documents have been previously filed with the Securities and Exchange Commission and, pursuant to Rule 12b-32, are incorporated herein by reference.
SEQUENTIALLY NUMBERED NUMBER DESCRIPTION PAGE ------ ----------- ------------ 4.1 Restated Declaration of Trust of PTR (Incorporated by reference to Exhibit 4 to PTR's Form 10-Q for the quarter ended June 30, 1991) 4.2 First Certificate of Amendment of Restated Declara- tion of Trust of PTR (Incorporated by reference to Exhibit 4 to PTR's Form 10-Q for the quarter ended June 30, 1992) 4.3 Second Certificate of Amendment of Restated Declara- tion of Trust of PTR (Incorporated by reference to Exhibit 3.1 to PTR's Form 8-K dated May 3, 1994) 4.4 Third Articles of Amendment of Restated Declaration of Trust of PTR (Incorporated by reference to Exhibit 4.4 to PTR's Registration Statement No. 33-86444) 4.5 Articles Supplementary relating to PTR's Cumulative Convertible Series A Preferred Shares of Beneficial Interest (Incorporated by reference to Exhibit 3.1 to PTR's Form 8-K dated November 22, 1993) 4.6 Articles Supplementary relating to PTR's Series B Cu- mulative Redeemable Series B Preferred Shares of Ben- eficial Interest (Incorporated by reference to Ex- hibit 99.3 to PTR's Form 8-K dated May 18, 1995) 4.7 First Articles of Amendment to Articles Supplementary relating to PTR's Series B Cumulative Redeemable Pre- ferred Shares of Beneficial Interest (Incorporated by reference to Exhibit 3.1 to PTR's Form 10-Q for the quarter ended September 30, 1995) 4.8 Articles of Merger of PACIFIC with and into PTR (In- corporated by reference to Exhibit 4.6 to PTR's Form 10-K for the year ended December 31, 1994) 4.9 Bylaws of PTR (Incorporated by reference to Exhibit 4.1 to PTR's Form 8-K dated November 22, 1993) 4.10 Indenture, dated as of February 1, 1994, between PTR and Morgan Guaranty Trust Company of New York, as Trustee, relating to PTR's unsecured senior debt se- curities (Incorporated by reference to Exhibit 4.2 to PTR's Form 10-K for the year ended December 31, 1993) 4.11 First Supplemental Indenture, dated as of February 2, 1994, among PTR, Morgan Guaranty Trust Company of New York and State Street Bank and Trust Company, as suc- cessor Trustee (Incorporated by reference to Exhibit 4.3 to PTR's Form 10-K for the year ended December 31, 1993) 4.12 6.875% Note due February 15, 2008 (Incorporated by reference to Exhibit 4.4 to PTR's Form 10-K for the year ended December 31, 1994) 4.13 7.5% Note due February 15, 2014 (Incorporated by ref- erence to Exhibit 4.5 to PTR's Form 10-K for the year ended December 31, 1994) 4.14 7.15% Note due February 23, 2010..................... 4.15 7.90% Note due February 23, 2016..................... 4.16 Rights Agreement dated as of July 21, 1994 between PTR and Chemical Bank, including form of Rights Cer- tificate (Incorporated by reference to Exhibit 4.2 to PTR's Form 8-K dated July 19, 1994)
74
SEQUENTIALLY NUMBERED NUMBER DESCRIPTION PAGE ------ ----------- ------------ 4.17 First Amendment dated as of February 8, 1995 to the Rights Agreement (Incorporated by reference to Ex- hibit 4.13 to PTR's Form 10-K for the year ended De- cember 31, 1994) 10.1 1987 Share Option Plan for Outside Trustees, as amended.............................................. 10.2 Form of Indemnification Agreement entered into be- tween PTR and all of its officers and Trustees (In- corporated by reference to Exhibit 10.50 to Registra- tion Statement No. 33-43201) 10.3 Second Amended and Restated Investor Agreement dated as of July 11, 1994 between PTR and SCG (Incorporated by reference to Exhibit 10.1 to PTR's Form 8-K dated July 19, 1994) 10.4 Supplemental Investment Agreement dated as of October 1, 1991, by and between PTR and SCG (Incorporated by reference to Exhibit 10.70 to Registration Statement No. 33-43201) 10.5 Second Supplemental Investment Agreement dated as of December 7, 1993 between PTR and SCG (Incorporated by reference to Exhibit 10.2 to PTR's Form 8-K dated May 3, 1994) 10.6 Third Supplemental Investment Agreement dated as of December 6, 1994 between PTR and SCG (Incorporated by reference to Exhibit 10.6 to PTR's Form 10-K for the year ended December 31, 1994) 10.7 Management Agreement dated as of September 1, 1995 between PTR and SCG Realty Services Incorporated..... 10.8 Amended and Restated Credit Agreement dated August 11, 1995 among PTR, Texas Commerce Bank National As- sociation and Wells Fargo Realty Advisors Funding, Incorporated, as co-agents, and the banks named therein (Incorporated by reference to Exhibit 10.1 to PTR's Form 10-Q for the quarter ended September 30, 1995) 10.9 Fourth Amended and Restated REIT Management Agreement dated as of June 30, 1995 between PTR and the REIT Manager (Incorporated by reference to Exhibit 10 to PTR's Form 10-Q for the quarter ended June 30, 1995) 10.10 First Amendment to the Fourth Amended and Restated REIT Management Agreement dated as of December 12, 1995 between PTR and the REIT Manager (Incorporated by reference to Exhibit 10.1 to PTR's Form 8-K dated February 15, 1996) 10.11 Agreement and Plan of Merger dated as of December 6, 1994 among PTR, PACIFIC and SCG (Incorporated by Ref- erence to Exhibit 2.1 to Registration Statement No. 33-87184) 21.1 Subsidiaries of PTR.................................. 23.1 Consent of KPMG Peat Marwick LLP..................... 24.1 Power of Attorney (included at page 72) 27.1 Financial Data Schedule
75 EX-4.14 2 7.15% NOTE DUE 2/23/2010 Exhibit 4.14 Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Company (as defined below) or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. REGISTERED PRINCIPAL AMOUNT No.: 1 $50,000,000 CUSIP No.: 814141 AA 5 SECURITY CAPITAL PACIFIC TRUST 7.15% NOTE DUE 2010 SECURITY CAPITAL PACIFIC TRUST, a real estate investment trust organized and existing under the laws of the State of Maryland (hereinafter called the "Company," which term shall include any successor under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, upon presentation, the principal sum of FIFTY MILLION DOLLARS on February 15, 2010 (less all previously paid installments of principal which are due and payable as set forth below, commencing on February 15, 2003) and to pay interest on the outstanding principal amount thereon from February 23, 1996, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually in arrears on February 15 and August 15 in each year, commencing on August 15, 1996, at the rate of 7.15% per annum, until the entire principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest which shall be the February 1 or August 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date, and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not more than 15 days and not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Payment of the principal of, Make-Whole Amount, if any, on, and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the City of Boston, Commonwealth of Massachusetts, or elsewhere as provided in the Indenture, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by (i) check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (ii) transfer to an account of the Person entitled thereto located inside the United States. Each Security of this series is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of February 1, 1994, between the Company and Morgan Guaranty Trust Company of New York, as trustee, as supplemented by a First Supplemental Indenture, dated as of February 2, 1994, (as so supplemented, herein called the "Indenture") between the Company and State Street Bank and Trust Company, as successor trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture with respect to the series of which this Security is a part), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the first page hereof, limited in aggregate principal amount to $50,000,000. Installments of principal of $125 will be paid on each $1,000 original principal amount of Securities of this series annually on each February 15, commencing on February 15, 2003 to the Person in whose name this Security is registered in the Security Register on the preceding February 1 (whether or not a Business Day). Securities of this series may be redeemed at any time at the option of the Company, in whole or in part, upon notice of not more than 60 nor less than 30 days prior to the Redemption Date, at a redemption price equal to the sum of (i) the principal amount of the Securities being redeemed plus accrued interest thereon to the Redemption Date and (ii) the Make-Whole Amount, if any, with respect to such Securities. -2- The following definitions apply with respect to any redemption of the Securities of this series at the option of the Company: "Make-Whole Amount" means, in connection with any optional redemption or accelerated payment of any Security, the excess, if any, of (i) the aggregate present value as of the date of such redemption or accelerated payment of each dollar of principal being redeemed or paid and the amount of interest (exclusive of interest accrued to the date of redemption or accelerated payment) that would have been payable in respect of such dollar if such redemption or accelerated payment had not been made, determined by discounting, on a semiannual basis, such principal and interest at the Reinvestment Rate (determined on the third Business Day preceding the date such notice of redemption is given or declaration of acceleration is made) from the respective dates on which such principal and interest would have been payable if such redemption or accelerated payment had not been made, over (ii) the aggregate principal amount of the Securities being redeemed or paid. "Reinvestment Rate" means .25% (one-fourth of one percent) plus the arithmetic mean of the yields under the respective headings "This Week" and "Last Week" published in the Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the remaining life to maturity, as of the payment date of the principal being redeemed or paid. If no maturity exactly corresponds to such maturity, yields for the two published maturities most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For the purposes of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used. "Statistical Release" means the statistical release designated "H.15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded United States government securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination under the Indenture, then such other reasonably comparable index which shall be designated by the Company. The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness of the Company on this Security and (b) certain restrictive covenants and the related defaults and Events of Default applicable to the Company, in each case, -3- upon compliance by the Company with certain conditions set forth in the Indenture, which provisions apply to this Security. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of, and the Make-Whole Amount, if any, on, the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and the Trustee shall have failed to institute any such proceeding for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any interest on or after the respective due dates expressed herein. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series of Securities then Outstanding affected thereby. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. -4- No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, Make-Whole Amount, if any, on, and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any Place of Payment where the principal of, Make-Whole Amount, if any, on, and interest on this Security are payable duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. No recourse under or upon any obligation, covenant or agreement contained in the Indenture or in this Security, or because of any indebtedness evidenced thereby, shall be had against any promoter, as such, or against any past, present or future shareholder, officer or trustee, as such, of the Company or of any successor, either directly or through the Company or any successor, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being -5- expressly waived and released by the acceptance of this Security by the Holder thereof and as part of the consideration for the issue of the Securities of this series. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. THE INDENTURE AND THE SECURITIES, INCLUDING THIS SECURITY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused "CUSIP" numbers to be printed on the Securities of this series as a convenience to the Holders of such Securities. No representation is made as to the correctness or accuracy of such CUSIP numbers as printed on the Securities, and reliance may be placed only on the other identification numbers printed hereon. -6- Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by the undersigned officer. SECURITY CAPITAL PACIFIC TRUST By: /s/ C. Ronald Blankenship ___________________________ C. Ronald Blankenship Chairman Attest: By: /s/ Jeffrey A. Klopf ------------------------- Jeffrey A. Klopf Secretary Dated: February 23, 1996 TRUSTEE'S CERTIFICATE OF AUTHENTICATION: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee BY:________________________ Authorized Officer -7- ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ======================================= ======================================= . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Please Print or Typewrite Name and Address including Zip Code of Assignee) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . the within Security of Security Capital Pacific Trust and hereby does irrevocably constitute and appoint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Attorney to transfer said Security on the books of the within-named Company with full power of substitution in the premises. Dated: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NOTICE: The signature to this assignment must correspond with the name as it appears on the first page of the within Security in every particular, without alteration or enlargement or any change whatever. -8- EX-4.15 3 7.90% NOTE DUE 2/23/2016 Exhibit 4.15 Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Company (as defined below) or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. REGISTERED PRINCIPAL AMOUNT No.: 1 $100,000,000 CUSIP No.: 814141 AB 3 SECURITY CAPITAL PACIFIC TRUST 7.90% NOTE DUE 2016 SECURITY CAPITAL PACIFIC TRUST, a real estate investment trust organized and existing under the laws of the State of Maryland (hereinafter called the "Company," which term shall include any successor under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, upon presentation, the principal sum of ONE HUNDRED MILLION DOLLARS on February 15, 2016 (less all previously paid installments of principal which are due and payable as set forth below, commencing on February 15, 2011) and to pay interest on the outstanding principal amount thereon from February 23, 1996, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually in arrears on February 15 and August 15 in each year, commencing on August 15, 1996, at the rate of 7.90% per annum, until the entire principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest which shall be the February 1 or August 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date, and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not more than 15 days and not less than 10 days prior to such Special Record Date, or may be paid at any time in -1- any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Payment of the principal of, Make-Whole Amount, if any, on, and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the City of Boston, Commonwealth of Massachusetts, or elsewhere as provided in the Indenture, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by (i) check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (ii) transfer to an account of the Person entitled thereto located inside the United States. Each Security of this series is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of February 1, 1994, between the Company and Morgan Guaranty Trust Company of New York, as trustee, as supplemented by a First Supplemental Indenture, dated as of February 2, 1994, (as so supplemented, herein called the "Indenture") between the Company and State Street Bank and Trust Company, as successor trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture with respect to the series of which this Security is a part), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the first page hereof, limited in aggregate principal amount to $100,000,000. Installments of principal on each $1,000 original principal amount of Securities of this series will be paid annually on each February 15, commencing on February 15, 2011, in the following amounts: $100 in 2011, $125 in 2012, $150 in 2013, $175 in 2014, $200 in 2015 and $250 in 2016. In each case, principal on this Security will be payable to the Person in whose name this Security is registered in the Security Register on the preceding February 1 (whether or not a Business Day). Securities of this series may be redeemed at any time at the option of the Company, in whole or in part, upon notice of not more than 60 nor less than 30 days prior to the Redemption Date, at a redemption price equal to the sum of (i) the principal amount of the Securities being redeemed plus accrued interest -2- thereon to the Redemption Date and (ii) the Make-Whole Amount, if any, with respect to such Securities. The following definitions apply with respect to any redemption of the Securities of this series at the option of the Company: "Make-Whole Amount" means, in connection with any optional redemption or accelerated payment of any Security, the excess, if any, of (i) the aggregate present value as of the date of such redemption or accelerated payment of each dollar of principal being redeemed or paid and the amount of interest (exclusive of interest accrued to the date of redemption or accelerated payment) that would have been payable in respect of such dollar if such redemption or accelerated payment had not been made, determined by discounting, on a semiannual basis, such principal and interest at the Reinvestment Rate (determined on the third Business Day preceding the date such notice of redemption is given or declaration of acceleration is made) from the respective dates on which such principal and interest would have been payable if such redemption or accelerated payment had not been made, over (ii) the aggregate principal amount of the Securities being redeemed or paid. "Reinvestment Rate" means .25% (one-fourth of one percent) plus the arithmetic mean of the yields under the respective headings "This Week" and "Last Week" published in the Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the remaining life to maturity, as of the payment date of the principal being redeemed or paid. If no maturity exactly corresponds to such maturity, yields for the two published maturities most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For the purposes of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used. "Statistical Release" means the statistical release designated "H.15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded United States government securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination under the Indenture, then such other reasonably comparable index which shall be designated by the Company. -3- The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness of the Company on this Security and (b) certain restrictive covenants and the related defaults and Events of Default applicable to the Company, in each case, upon compliance by the Company with certain conditions set forth in the Indenture, which provisions apply to this Security. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of, and the Make-Whole Amount, if any, on, the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and the Trustee shall have failed to institute any such proceeding for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any interest on or after the respective due dates expressed herein. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series of Securities then Outstanding affected thereby. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or -4- in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, Make-Whole Amount, if any, on, and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any Place of Payment where the principal of, Make-Whole Amount, if any, on, and interest on this Security are payable duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. No recourse under or upon any obligation, covenant or agreement contained in the Indenture or in this Security, or because of any indebtedness evidenced thereby, shall be had against any promoter, as such, or against any past, present or future shareholder, officer or trustee, as such, of the Company or of any successor, either directly or through the Company or -5- any successor, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance of this Security by the Holder thereof and as part of the consideration for the issue of the Securities of this series. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. THE INDENTURE AND THE SECURITIES, INCLUDING THIS SECURITY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused "CUSIP" numbers to be printed on the Securities of this series as a convenience to the Holders of such Securities. No representation is made as to the correctness or accuracy of such CUSIP numbers as printed on the Securities, and reliance may be placed only on the other identification numbers printed hereon. -6- Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by the undersigned officer. SECURITY CAPITAL PACIFIC TRUST By: /s/ C. Ronald Blankenship ---------------------------- C. Ronald Blankenship Chairman Attest: By: /s/ Jeffrey A. Klopf ----------------------- Jeffrey A. Klopf Secretary Dated: February 23, 1996 TRUSTEE'S CERTIFICATE OF AUTHENTICATION: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee BY:________________________ Authorized Officer -7- ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ====================================== ====================================== . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Please Print or Typewrite Name and Address including Zip Code of Assignee) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . the within Security of Security Capital Pacific Trust and hereby does irrevocably constitute and appoint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Attorney to transfer said Security on the books of the within-named Company with full power of substitution in the premises. Dated: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NOTICE: The signature to this assignment must correspond with the name as it appears on the first page of the within Security in every particular, without alteration or enlargement or any change whatever. -8- EX-10.1 4 SHARE OPTION PLAN FOR OUTSIDE TRUSTEES Exhibit 10.1 PROPERTY TRUST OF AMERICA SHARE OPTION PLAN FOR OUTSIDE TRUSTEES Adopted January 6, 1987 Approved by Shareholders June 12, 1987 Amended October 4, 1988 Amended January 1, 1992 PROPERTY TRUST OF AMERICA SHARE OPTION PLAN FOR OUTSIDE TRUSTEES 1. Purpose of the Plan. This Share Option Plan is intended to advance the interests of Property Trust of America (the "Trust") and its shareholders by affording to the Trustees who are not officers or employees of the Trust or the Advisor or its affiliates an additional opportunity to participate in the ownership of the Trust and to benefit from any appreciation in the market value of the Shares in order to motivate, retain and attract to the highly competent individuals upon whose judgment, initiative, leadership and continued efforts the success of the Trust depends. 2. Definitions. Unless the context otherwise requires, the following words as used herein shall have the following meanings: (a) "Administrator" - The Secretary of the Trust or other person (who is not an outside Trustee) designated by the Board of Trustees of the Trust to administer the Plan. (b) "Advisor" - Southwest Realty Advisors Incorporated. (c) "Annual Meeting" - The annual meeting of shareholders of the Trust. (d) "Disability" - Disability resulting from injury or illness which renders the Optionee unable to serve as a Trustee of the Trust. (e) "Inside Trustee" - A Trustee of the Trust who is also an officer or employee of the Trust. (f) "Option" - An option to purchase Shares granted pursuant to the provisions hereof. (g) "Optionee" - An Outside Trustee who has been granted an option under this Plan and who has executed a written option agreement with the Trust. (h) "Outside Trustee" - A Trustee of the Trust who is not an officer or employee of the Trust, the Advisor or any affiliate of the Advisor. (i) "Plan" - The Share Option Plan for Outside Trustees set forth herein. (j) "Share Option Agreement" - The agreement described in Section 5 between the Trust and the Optionee under which the Optionee may purchase stock hereunder. -2- (k) "Shares" - The Trust's present Shares of Beneficial Interest and any Share or Shares of capital stock or other securities of the Trust hereafter issued or issuable upon, in respect of or in substitution or in exchange therefor. 3. Administration of the Plan. The Plan shall be administered by the Administrator, who shall, in accordance with the provisions hereof, (i) determine which Outside Trustees are not affiliated with the Advisor and who thus participate in the Plan, (ii) calculate the exercise price of the Options, (iii) direct the preparation of any appropriate documentation, including Share Option Agreements, to effectuate the grant of Options, (iv) process and supervise the exercise and termination of Options, (v) make necessary adjustments to the Shares because of changes in capitalization of the Trust and (vi) perform such other ministerial acts as are necessary to carry out the purposes of the Plan. 4. Shares Subject to Plan. There shall be reserved for use upon exercise of Options granted under the Plan 200,000 Shares of the Trust (unless such maximum shall be increased or decreased by reason of changes in capitalization as provided in Section 9 hereof). The Shares subject to the Plan may be authorized but unissued Shares, or may be issued Shares which have been reacquired by the Trust. Shares with respect to which an Option shall have been exercised shall not again be available for option hereunder. If any option shall expire or terminate for any reason without having been exercised in full, new Options may be granted hereunder covering such unpurchased Shares. For purposes of the Plan, Shares subject to Options which are surrendered pursuant to Section 5(d) shall be deemed to be unpurchased Shares. 5. Options. (a) Option Grant and Agreement. After January 1, 1992, Options shall only be granted under the Plan as follows: on each date of the Annual Meeting for the years 1992 through and including 1996, each Outside Trustee on such date (after the election of trustees in the Annual Meeting) shall be granted an Option to purchase 2,000 Shares of the Trust for the exercise price, term and other provisions described below. Each Option granted hereunder shall be evidenced by a written Share Option Agreement dated as of the date of grant and executed by the Trust and the Optionee, which Agreement shall set forth an offer to sell at the Option price, the number of Shares subject to the offer, the period of time during which the offer shall remain open, and such other terms and provisions as may be determined by the Administrator consistent with the Plan. (b) Option Price. The Option price per Share subject to each Option shall be equal to the closing price of Shares on -3- the New York Stock Exchange on the date of the Annual Meeting corresponding to the Option grant, as such price is reported in the Wall Street Journal on the business day immediately following such date. (c) Option Period. The term of each Option shall be five (5) years. Each Option shall be subject to earlier termination as hereinafter provided. (d) Vesting and Shares Appreciation Rights Under Certain Circumstances. (i) In the event of the acquisition of fifty percent (50%) or more of the outstanding Shares of the Trust as a result of any cash tender offer or exchange offer, other than one made by the Trust, the Trust shall give written notice to each Optionee promptly after the date on which the corporation, person or other entity making a cash tender offer or exchange offer acquires fifty percent (50%) or more of the outstanding Shares of the Trust. Each Optionee shall thereafter have the right, for a period of thirty (30) days after the date of receipt of such notice from the Trust, to either (i) exercise his Option in full even though such Option would not otherwise be exercisable under the option vesting schedule (if any), or (ii) surrender his Option, or the unexercised portion thereof, to the Trust in exchange for a cash payment to be made by the Trust to the Optionee within ten (10) days after receipt by the Trust of the Option in an amount representing the difference between the option price per Share under the Option and the cash price paid per Share in the tender offer, or in the event of an exchange offer, the value per Share of the securities and/or other property offered in such exchange offer, less the amount of all federal and state withholding or other employment taxes applicable to the taxable income of such optionee resulting from such surrender. (ii) In the event of the dissolution or liquidation of the Trust, each Option granted under this Plan shall terminate as of a date to be fixed by the Administrator, provided that not less than thirty (30) days prior written notice of the date so fixed shall be given to each Optionee and each such Optionee shall have the right during such period to exercise his Option in full even though such Option would not otherwise be exercisable in full under the option vesting schedule (if any). At the end of such period, any unexercised Option, or any unexercised portion thereof, shall terminate and be of no further effect. -4- 6. Non-Transferability of Options. An Option (and related Share appreciation rights) shall not be transferable otherwise than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code of 1986 as amended or Title I of the Employee Retirement Income Security Act or rules thereunder, and an Option may be exercised, during the lifetime of the Optionee, only by the Optionee or by his guardian or legal representative. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions hereof, or the levy of any execution, attachment or similar process upon the Option (and related Share appreciation rights) shall be null and void and without effect. 7. Exercise of Options; Termination, Death or Disability. Each exercise of an Option, or any part thereof, shall be evidenced by a notice in writing to the Trust. The purchase price of the Shares as to which an Option shall be exercised shall be paid in full in cash or by certified check at the time of exercise, together with the full amount of all federal and state withholding or other employment taxes applicable to the taxable income of such Optionee resulting from such exercise. The holder of an Option shall not have any of the rights of a shareholder of the Trust with respect to the Shares covered by the Option except to the extent that one or more certificates for such Shares shall have been delivered to him, or he has been determined by the Trust's Transfer Agent to be a shareholder of record upon due exercise of the Option. If the Optionee's position as a Trustee shall be terminated for any reason other than death or Disability, the Optionee shall have the right, during the period ending three months after such termination, to exercise such Option to the extent that it was exercisable at the date of such termination and shall not have been exercised (but in any event not more than ten years after the grant of such Option). In the event of the death or Disability of an Optionee, the Optionee or his guardian or legal representative in the event of Disability, or his personal representatives, heirs, legatees or distributees in the event of his death, shall have the right, up to twelve (12) months from the date of Disability or date of death, as the case may be, to exercise the Option to the extent that the Option was not exercised (but in any event not more than five years after the grant of such Option). 8. Compliance with Securities and Other Laws. In no event shall the Trust be required to sell or issue Shares under any Option if the issuance thereof would constitute a violation by either the Optionee or the Trust of any provision of any law or regulation of any governmental authority or any national securities exchange. As a condition of any sale or issuance of Shares under Option, the Trust may place legends on the Shares, issue stop transfer orders and require such agreements or undertakings from -5- the Optionee as the Trust may deem necessary or advisable to assure compliance with any such law or regulation, including, if the Trust or its counsel deems it appropriate, representations from the Optionee that he is acquiring the Shares solely for investment and not with a view to distribution and that no distribution of the Shares acquired by him will be made unless registered pursuant to applicable federal and state securities laws, or in the opinion of counsel of the Trust, such registration is unnecessary. 9. Adjustments Upon Changes in Capitalization. The option price shall be adjusted from time to time as follows: (a) Subject to any required action by shareholders, the number of Shares covered by each outstanding Option, and the option exercise price, shall be proportionately adjusted for any increase or decrease in the number of issued Shares of the Trust resulting from a subdivision or consolidation of Shares or the payment of a stock dividend (but only in Shares) or any other increase or decrease in the number of Shares effected without receipt of consideration by the Trust. (b) Subject to any required action by shareholders, if the Trust shall be the surviving corporation in any merger or consolidation, each outstanding Option shall pertain to and apply to the securities to which a holder of the number of Shares subject to the Option would have been entitled. A merger or consolidation in which the Trust is not the surviving corporation shall cause each outstanding Option to terminate, provided that each Optionee shall, in such event, have the right immediately prior to such merger or consolidation in which the Trust is not the surviving corporation to exercise his Option in full even though such Option would not otherwise be exercisable under the option vesting schedule (if any). (c) In the event of a change in the Shares of the Trust as presently constituted which is limited to a change of all of its authorized Shares with par value into the same number of Shares with a different par value or without par value, the Shares resulting from any such change shall be deemed to be Shares within the meaning of this Plan. To the extent that the foregoing adjustments relate to Shares of the Trust, such adjustments shall be made by the Administrator, whose determination shall be final, binding and conclusive. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Trust to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, -6- liquidate or sell, or transfer all or any part of its business or assets. 10. Adoption and Approval of the Plan. The Plan shall be deemed to be adopted as of January 8, 1987, which is the date of approval by the Board of Trustees of the Trust. The Plan was approved by shareholders of the Trust on June 12, 1987. 11. Amendment of the Plan. All provisions of the Plan (including the form of option agreement) may at any time or from time to time be modified or amended by the Administrator, subject to review and action by the Board of Trustees; provided, however, that (i) modifications or amendments to Section 5 hereof may not be made more than once every six (6) months except to comport with changes to the Internal Revenue Code, the Employee Retirement Income Security Act or the rules thereunder and (ii) no Option at any time outstanding under the Plan may be modified, impaired or cancelled without the consent of the holder thereof, and provided further, the Plan may not be amended (a) to increase the maximum number of Shares subject to the Plan, (b) to reduce the option exercise price of the Shares, contrary to the provisions of the Plan as hereinabove set forth, or (c) to materially modify the requirements as to eligibility for participation in the Plan. 12. Plan Termination. The Plan shall terminate on August 31, 1996 except as to options outstanding on such date and no option shall be granted under this Plan after that date. -7- EX-10.7 5 MANAGEMENT AGREEMENT Exhibit 10.7 MANAGEMENT AGREEMENT THIS MANAGEMENT AGREEMENT (this "Agreement"), made and entered into as of the 1st day of September, 1995, by and between SECURITY CAPITAL PACIFIC TRUST, a Maryland real estate investment trust (the "Owner"), and SCG REALTY SERVICES INCORPORATED, a Texas corporation ("Manager"). W I T N E S S E T H: This Agreement covers the apartment projects listed in Exhibit A (each is individually referred to herein as a "Project"). This Agreement constitutes a separate and independent contract between the Owner of a Project and the Manager for such Project. Owner desires to employ Manager in the management and operation of the Project by turning over to Manager the operation, direction, management and supervision of the Project, as outlined below, and Manager desires to assume such duties upon the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants herein contained, Owner and Manager agree as follows: ARTICLE 1 Definitions ----------- The following terms shall have the following meanings when used in this Agreement: 1.1 Term. The term of this Agreement shall commence on the date hereof and shall, subject to the provisions hereof, terminate on September 30, 1996; provided, however, that unless either Owner or Manager delivers written notice to the other party on or before thirty (30) days prior to the expiration of the initial, or any renewal term, the term of this Agreement shall automatically be extended for successive one year terms. 1.2 Fee. The management fee payable each month by Owner to Manager hereunder shall be an amount equal to 3.5% of the Gross Receipts of the Project for such month if the Project is located in California, Washington, Oregon or Nevada, and 3.75% of the Gross Receipts of Project for such month if the Project is located in any other state. Notwithstanding the foregoing, the management fee payable for any Project identified on Exhibit A as a "construction project" shall commence on the date 30 days prior to the opening of the leasing office or, if earlier, the first delivery of units, and the management fee shall be equal to 90% of the Gross Receipts shown on a rent schedule approved by Owner until the first to occur of (the "Conversion Date") (a) the date 12 months after the commencement of payment of management fees, and (b) the month in which the management fee payable under this sentence first equals or exceeds the management fee that would be due if calculated under the first sentence of this Section. On and after the Conversion Date, the management fee shall be calculated in accordance with the first sentence of this Section. 1.3 Depository. An FDIC or FSLIC insured national or state bank designated by Owner. 1.4 Working Capital Reserve. A reasonable working capital reserve per for each Project, as determined by Owner in its sole discretion, shall be delivered by Owner to Manager concurrently with Owner's execution and delivery hereof, to be maintained by Manager during the term hereof, used in connection with the operation of the Project in accordance with the terms hereof, and restored per the terms of Sections 4.4 and 4.5 hereof. 1.5 Fiscal Year. The year beginning January 1 and ending December 31, which is the fiscal year established by Owner for the Project. 1.6 Budget. A composite of (i) an Operations Budget, which shall be an estimate of receipts and expenditures for the operation of the Project during a Fiscal Year, including a schedule of expected apartment rentals (excluding security deposits) for the period in question and a schedule of expected special repairs and maintenance projects, and (ii) a Capital Budget, which shall be an estimate of capital replacements, substitutions of and additions to the Project for a Fiscal Year. 1.7 Gross Receipts. The entire amount of all receipts, determined on a cash basis, from (a) tenant rentals collected pursuant to tenant leases for each month during the term hereof; provided, however, that there shall be excluded from tenant rentals any tenant security deposits (except as provided below) and any electric utility payments on behalf of tenants on all "BILLS PAID" properties; (b) cleaning, security and damage deposits forfeited by tenants in such period; (c) laundry and vending machine income; (d) any and all receipts from the operation of the Project received and relating to the period in question; (e) proceeds from rental interruption insurance, unless the entire property is destroyed; in which event this agreement will terminate as to such property and Owner will have no further obligation to Manager with respect to such Property; and (f) any other sums and charges collected in connection with termination of the tenant leases. Gross Receipts do not include the proceeds of (i) any sale, exchange, refinancing, condemnation, or other disposition of all or any part of the Project, (ii) any loans to the Owner whether or not secured by all or any part of the Project, (iii) any capital contributions by the Owner, or (iv) any insurance (other than rental interruption insurance) maintained with regard to the Project. 1.8 Project Employees. Those persons employed by Manager as a management staff (i.e., manager, assistant manager, leasing agents, maintenance personnel, and other personnel necessary to be employed in order to maintain and operate the Project). 2 ARTICLE 2 Duties and Rights of Manager ---------------------------- 2.1 Appointment of Manager. During the Term of this Agreement, the Manager agrees, for and in consideration of the compensation hereinafter provided, and the Owner hereby grants to Manager the right, to supervise and direct the leasing, management and operation of the Project. Everything performed by Manager under this Agreement shall be done as an independent contractor of Owner. All obligations or expenses incurred hereunder, including the pro rata portion used in connection with or for the benefit of the Project of all purchases of or contracts for sales or services in bulk or volume which Manager may obtain for discount or convenience in connection with its operation of other apartment projects, shall be for the account of, on behalf of, and at the expense of Owner, expect as otherwise specifically provided; provided, however, Owner shall not be obligated to reimburse Manager for expenses for office equipment or office supplies of Manager (unless incurred for the Project), for any overhead expenses of Manager incurred with respect to its general offices, costs relating to accounting services performed hereunder, or for any salaries of employees of Manager paid with respect to duties performed on a supervisory level (except when Manager's supervisory employees are performing tasks otherwise performed by a resident manager or (to the extent of the savings achieved) where specialists are employed whose involvement creates savings in performance of required duties). Owner shall also have no obligation to reimburse Manager for that portion of the salary of a resident manager which represents payment for services rendered in respect to apartment projects other than the Project. 2.2 General Operation. Subject to the limitations imposed by the Budget from time to time, Manager shall operate the Project in the same manner as is customary and usual in operation of comparable facilities, and shall provide such services as are customarily provided by operators of apartment projects of comparable class and standing consistent with the Project's facilities. In addition to the other obligations of Manager set forth herein, Manager shall render the following services and perform the following duties for Owner in a faithful, diligent and efficient manner: (a) maintain businesslike relations with tenants whose service requests shall be received, considered and recorded in systematic fashion in order to show the action taken with respect to each; (b) collect all monthly rentals due from tenants and rent from users or lessees of other non-dwelling facilities in the Project, if any; request, demand, collect, receive and receipt for any and all charges or rents which become due to Owner, and at Owner's expense take such legal action as may be necessary or desirable to evict tenants delinquent in payment of monthly rental or other charges (security deposits, late charges, etc.); (c) prepare or cause to be prepared for execution by the Owner all forms, reports and returns, if any, required to be filed by the Owner under applicable federal, state or local laws and any other requirements relating to the employment of personnel (anything contained herein to the contrary notwithstanding, however, Manager shall not be obligated to prepare any of Owner's state or federal income tax returns); (d) use all reasonable efforts at all times during the term of this Agreement to operate and maintain the Project according to the highest standards achievable consistent with the operation of comparable quality units; (e) maintain the Project as a safe and secure environment and notify Owner of any security risks or issues related to the Project that 3 become known to Manager; (f) advertise when necessary, at Owner's expense, the availability for rental of the Project units and display "for rent" or other similar signs upon the Project, it being understood that Manager may install one or more signs on or about the Project stating that same is under management of Manager and may use, in a tasteful manner, Manager's name and logo in any display advertising which may be done on behalf of the Project; and (g) sign, renew and cancel tenant leases for the Project, in compliance with standards established by Owner under the provisions of written apartment leases to bona fide individuals, for monthly rentals and otherwise on terms established by criteria approved from time to time by Owner, based upon Manager's recommendations; provided, however, that Project Employees may occupy apartment units on a month-to-month basis with or without an executed tenant lease. 2.3 Budget. (a) Manager shall submit for Owner's approval no later than one hundred twenty (120) days prior to the beginning of each successive Fiscal Year the Budget for the ensuing Fiscal Year. The Budget shall be approved or rejected by Owner thirty (30) days after receipt. If Owner fails to approve or disapprove the Budget within such period, the Budget shall be deemed to be approved. In the event Owner rejects the Budget, Owner and Manager shall jointly prepare the Budget as soon as may be reasonably possible. Until a new Budget is approved, Manager shall operate on the Budget approved for the prior Fiscal Year, with the exception of expenses for personnel, which must be increased based upon existing competitive conditions, and expenses relating to taxes, insurance and utilities. The Budget shall reflect the schedule of monthly rents proposed for the new fiscal year and shall also constitute a major control under which Manager shall operate the Project, and there shall be no substantial deviations therefrom except as permitted by Section 2.6(a). Consequently, without the prior consent of Owner, no expenses may be incurred or commitments made by Manager in connection with the maintenance and operation of the Project which exceed the total expenses allocated for the period in question in the approved Budget by more than ten percent (10%). The limitation in the preceding sentence, with respect to incurring any expense not covered by the Budget, shall not apply to expenses relating to taxes, insurance or utilities or expenditures required due to emergencies which threaten life or property or could result in civil or criminal liability for Owner and/or Manager. Manager makes no guaranty, warranty or representation whatsoever in connection with the accuracy of any Budget, and Owner agrees that they are intended as good faith estimates only. (b) In the event there shall be a substantial discrepancy between the results of operations for any month and the estimated results of operations for such month as set forth in the budget, Manager shall upon request furnish to Owner within twenty (20) days after the expiration of such month a written explanation as to why the discrepancy occurred. If substantial variations have occurred or are anticipated by Manager during the course of any Fiscal Year, Manager, upon Owner's reasonable request, shall prepare and submit to Owner a revised forecast of annual income and expenses for the remainder of the Fiscal Year based on actual year-to-date income and expenses and Manager's forecast of income and expenses for the remainder of the Fiscal Year. 4 2.4 Manager and Other Personnel. (a) Manager shall investigate, hire, train, instruct, pay, promote, discharge and supervise the work of the Project Employees and shall supervise, through the Project Employees, the hiring, promotion, discharge and work of all other operating and service employees of Manager performing services in or about the Project, all in the name of Manager. Since some of the Project Employees may need to reside at the Project and be available full time in order to perform properly the duties of his/her employment, it is further understood and agreed that the Project Employees (including his/her spouse and dependent children), in addition to their salary and fringe benefits, may receive the normal maintenance customarily provided managers, assistant managers, leasing agents, and maintenance personnel of an apartment project, including employee housing, use of all Project facilities and reimbursement for any and all expenses which such persons may reasonably incur in the performance of their duties. Any such housing allowance that is provided will be considered as a payroll cost under the Budget, and the amount of housing allowance will be credited as apartment rental income. (b) The Project Employees shall be employees of Manager. Owner shall reimburse Manager monthly, in advance, for the total aggregate compensation, including salary and fringe benefits, payable with respect to the Project Employees, any temporary employees residing at the Project and, on an agreed basis, the Project's proportionate share of such costs relating to roving maintenance, off-site operating staff and similar personnel. The term "fringe benefits" as used herein shall mean and include the employer's contribution of F.I.C.A., unemployment compensation and other employment taxes, workmen's compensation, group life and accident and health insurance premiums, performance bonuses, and disability and other similar benefits paid or payable by the employer with respect to employees in other apartment projects operated by Manager. 2.5 Contracts and Supplies. Manager shall, except as provided herein, in the name of and on behalf of Owner and at Owner's expense, and without compensation directly or indirectly to Manager, except as expressly set forth herein or agreed to by Owner or Manager, consummate arrangements with concessionaires, licensees, tenants or other intended users of the facilities of the Project, shall, except as provided herein, on Owner's behalf, enter into contracts for the furnishing to the Project of electricity, gas, water, steam, telephone, cleaning, vermin extermination, furnace and air conditioning maintenance, security protection, pest control and any other utilities, services and concessions which are provided in connection with the maintenance and operation of an apartment project in accordance with standards comparable to those prevailing in other similar apartment projects, and shall place purchaser orders for such equipment, tools, appliances, materials and supplies as are necessary to properly maintain the Project. 2.6 Alterations, Repairs and Maintenance. (a) Manager shall make or install, or cause to be made and installed, or do or cause to be done at Owner's expense and in the name of Owner, all necessary or desirable repairs, 5 interior and exterior cleaning, painting and decorating, plumbing, alterations, replacements, improvements and other normal maintenance and repair work on and to the Project as are customarily made by Manager in the operation of apartment projects; provided, however, that no unbudgeted expenditure in excess of $5,000.00 per item or a total of $20,000.00 annually may be made for such purposes without the prior approval of Owner, unless emergency repairs involving manifest danger to life or property are immediately necessary for the preservation of the safety of the Project, or to avoid criminal or civil liability or for the safety of the tenants, or are required to avoid the suspension of any necessary service to the Project, in which event such expenditures may be made by the Manager without prior approval and irrespective of the cost limitations imposed by this Section 2.6, provided that Owner is immediately thereafter given notice of such situation and all costs so incurred. (b) In accordance with the terms of the Budget or after consultation with, and written approval by, Owner (except in the case of emergency, in which case such consultation shall be by telephone), Manager shall, at Owner's expense, from time to time during the term hereof, make all required capital replacements or repairs to the Project. Subject to obtaining Owner's prior written approval in regard to sums necessary to cover costs of such capital replacements or repairs, Manager shall first use any excess funds held pursuant to Section 4.5 and then funds furnished by Owner. 2.7 Licenses and Permits. Manager shall apply for, obtain, and maintain, in the name and at the expense of Owner, all licenses and permits (including deposits and bonds) required of Owner or Manager in connection with the management and operation of the Project. Owner agrees to execute and deliver any and all applications and other documents and to otherwise cooperate to the fullest extent with Manager in applying for, obtaining and maintaining such licenses and permits. 2.8 Compliance with Laws. Manager, at Owner's expense, shall use all reasonable efforts to cause all such acts and things to be done in and about the Project as Owner and/or Manager shall deem necessary, and Owner covenants throughout the term of this Agreement at its expense to comply with all laws, regulations and requirements of any federal, state or municipal government having jurisdiction respecting the use or manner of use of the Project or the maintenance or operation thereof. 2.9 Legal Proceedings. Manager shall institute, in its own name or in the name of Owner, but in any event at the expense of Owner, any and all legal actions or proceedings which Manager deems reasonable to collect charges, rent or other income from the Project or to dispossess tenants or other persons in possession, or to cancel, terminate, or enforce any lease, license or concession agreement for the breach thereof or default thereunder by the tenant, licensee or concessionaire. 2.10 Debts of Owner. In the performance of its duties as Manager, Manager shall act solely on behalf of Owner in Manager's capacity as independent contractor. Except as provided in Section 2.1, all debts and liabilities to third persons incurred by Manager (which are 6 consistent with the terms and conditions of this Agreement), in the course of its operation and management of the Project shall be the debts and liabilities of the Owner only, and Manager shall not be liable for (and is hereby indemnified in respect of) any such debts or liabilities, except to the extent Manager has exceeded its authority hereunder. ARTICLE 3 Management Fees --------------- 3.1 Management Fee and Other Reimbursable Expenses. Owner shall pay to Manager, during the term hereof, the Fee for the month on or before the 10th day of each month. At such time as the Fee is paid, Owner shall also reimburse Manager for the expenses identified on Exhibit B actually incurred by Manager during the prior month. 3.2 Place of Payment. All sums payable by Owner to Manager hereunder shall be payable to Manager at the address set forth below Manager's signature, unless the Manager shall from time to time specify a different address in writing. ARTICLE 4 Procedure for Handling Receipts and Operating Capital ----------------------------------------------------- 4.1 Bank Deposits. All monies received by Manager for or on behalf of Owner shall be deposited by Manager with the Depository. Manager shall maintain separate accounts for such funds consistent with the system of accounting of the Project. All funds on deposit shall be and remain under the sole and exclusive control of Manager, subject to the provisions hereof. Concurrently, with its execution and delivery hereof, Owner has deposited with Manager the Working Capital Reserve. All monies of Owner held by Manager pursuant to the terms hereof shall be held by Manager in trust for the benefit of Owner to be held and disbursed as herein provided, and shall not, unless Owner otherwise has agreed or directed, be commingled with the funds of any other person, including Manager or any affiliate of Manager. However, Owner has specifically approved the use of Manager's Central Disbursement account and the movement of Owner's funds into that account when payments are made. Except as otherwise provided herein, the Manager shall be strictly liable for the proper application of all funds of Owner held by Manager in accordance with the terms of this Agreement. 4.2 Security Deposits. Subject to Owner's direction, a portion of security deposits collected in connection with the leasing of apartment units shall be delivered to Owner who shall make same available to Manager for return to tenants in accordance with their respective tenant leases to the extent Gross Receipts are insufficient to repay same. Manager shall comply with all applicable laws with respect to such security deposits. All funds held by Manager representing security deposits shall at all times be the property of Owner, subject to all applicable laws with respect thereto. 7 4.3 Disbursement of Deposits. Manager shall disburse and pay all funds on behalf of and in the name of Owner in such amounts and at such times as the same are required in connection with the ownership, maintenance and operation of the Project on account of all taxes, assessments and charges of every kind imposed by any governmental authority having jurisdiction over the Project, and all costs and expenses of maintaining, operating and supervising the operation of the Project, including, but not limited to, salaries, fringe benefits and expenses of the Project Employees, insurance premiums, legal and external accounting fees and the cost and expense of utilities, services and concessions. If Owner requests Manager to place or create any services for the Project which are not generally provided at other comparable apartment complexes managed by Manager, Owner shall reimburse Manager for any costs of Manager's staff allocable to the placement and/or creation of such services. 4.4 Working Capital. In addition to the funds derived from the operation of the Project and the Working Capital Reserve, Owner shall furnish and maintain in the operating accounts in the Depository such other funds as may be necessary to discharge financial commitments required to efficiently operate the Project, meet all payrolls and satisfy, before delinquency, all accounts payable. Manager shall have no responsibility or obligation with respect to the furnishing of such funds. 4.5 Excess Funds. Any operating funds in excess of the Working Capital Reserve shall be utilized at Owner's option, to pay debt service or shall be transferred to a bank account opened and maintained solely by Owner; provided, however, that Manager shall not be required to make any such transfer if the transfer would reduce the balance of operating funds below an amount equal to the Working Capital Reserve. Owner shall designate the bank in which the operating funds are maintained, and Manager shall have no liability for loss of operating funds due to insolvency of such institution, even though the amount of funds maintained exceeds the available federal or other deposit insurance. 4.6 Authorized Signatories. In addition to any signatory designated by Owner, any persons from time to time designated by Manager shall be authorized signatories on all bank accounts established by Manager hereunder and shall have authority to make disbursements from such accounts. Funds may be withdrawn from all bank accounts established by Manager, in accordance with this Article IV, only upon the signature of an individual who has been granted that authority by Manager or Owner. All persons who are authorized signatories or who in any way handle funds for the Project shall be bonded in the minimum amount of $500,000.00. Any expense relating to such bonds for on-site employees shall be borne by Owner and for off-site employees by Manager. ARTICLE 5 Accounting ---------- 5.1 Books and Records. On behalf of Owner, Manager shall keep, or shall supervise and direct the keeping, on an accrual basis, of a comprehensive system of office records, books 8 and accounts pertaining to the Project. Manager shall use the computer accounting program designated by Owner or otherwise approved by Owner. Such records shall be subject to examination by Owner or its authorized agents, attorneys and accountants at all reasonable hours at the office where such records are maintained. 5.2 Periodic Statements; Audits. (a) On or before ten (10) days following the end of each calendar month, Manager shall deliver or cause to be delivered to Owner (i) an unaudited income and expense statement showing the results of operation of the Project for the preceding calendar month and the Fiscal Year to-date; (ii) a comparison of actual income and expenses with the income and expenses projected in the Budget; and (iii) cash balances for reserves and operating accounts as of the last day of such month. Manager shall at its option (i) preserve all invoices for a period for four (4) years, or (ii) at the expiration of each Fiscal Year deliver all invoices to Owner. Such statements and computations shall be prepared from the books of account of the Project. (b) Within twenty (20) days after the end of such Fiscal Year, Manager will deliver or cause to be delivered to the Owner an income and expense statement as at the end of such Fiscal Year, and the results of operation of the Project during the preceding Fiscal Year. (c) In the event that Owner or Owner's Mortgagee(s) requires an audit, the Manager shall cooperate with the auditors. Owner shall pay all costs and fees of the external auditors. (d) Owner may request and Manager shall provide without further cost to Owner, when available, such monthly, quarterly and/or annual leasing and management reports that relate to the operations of the property as Manager customarily provides the owners of properties it manages. If additional reports are required, Manager shall quote Owner an additional fee for providing such additional reports and, if Owner thereafter requests such reports, Owner shall pay Manager such additional fee. 5.3 Expenses. All costs and expenses incurred in connection with the preparation of any statements, budgets, schedules, computations and other reports expressly required under this Article 5 or under any other provisions of this Agreement shall be borne by Manager. Any costs and expenses incurred in connections with the preparation of any statement or reports not expressly provided for under this Article V or any other provisions of this Agreement shall be borne by Owner. ARTICLE 6 General Covenants of Owner and Manager -------------------------------------- 6.1 Operating Expenses. Except as otherwise provided herein, Owner shall be solely liable for the costs and expenses of maintaining and operating the Project incurred by Owner or by Manager in accordance with the provisions of this Agreement, and shall pay, or Manager 9 shall pay on Owner's behalf, all such costs and expenses, including, without limitation, the salaries of all Project Employees. 6.2 Owner's Right of Inspection and Review. Owner and its accountants, attorneys and agents shall have the right to enter upon any part of the Project at all reasonable times during the term of this Agreement for any reason, including, without limitation, examining or inspecting the Project or examining or making extracts of books and records of the Project, but any inspection shall be done with as little disruption to the business of the Project as possible. Books and records of the Project shall be kept, beginning the date hereof, at the Project or at the location where any central accounting and bookkeeping services are performed by Manager, but at all times shall be the property of Owner. 6.3 Indemnity. Owner, at its sole cost and expense, shall defend, indemnify and hold harmless Manager, its partners, employees, agents, contractors and affiliates against and from any and all claims, losses, damages, liabilities and expenses, including, but not limited to, attorneys' fees, arising out of injuries or damages to persons or property, by reason of any cause whatsoever, occurring on or around the Project. If the Owner's general liability policy does not automatically include the manager as an additional insured, Owner agrees to list the Manager as an additional insured on any and all liability insurance policies maintained by Owner with insurance to that effect. The indemnity set forth herein shall not apply if the claim results from either (i) Manager's gross negligence; (ii) Manager's willful misconduct; or (iii) Manager's failure to comply with the provisions of this Agreement; provided that these exceptions shall not apply with respect to any action taken or policy implemented upon the Owner's written request after consultation with the Manager. 6.4 Covenants Concerning Payment of Operating Expenses. Except as otherwise provided herein, Owner covenants to pay all sums for operating expenses in excess of Gross Receipts required to operate the Project upon written notice and demand from Manager within ten (10) days after receipt of written notice. Owner further recognizes that the Project may be operated in conjunction with other phases and that costs may be allocated or shared between such phases on a more efficient and less expensive method of operation. In such regard, Owner consents to the allocation of costs and/or the sharing of any expenses in an effort to save costs and operate the Project in a more efficient manner. ARTICLE 7 Defaults: Termination Rights ----------------------------- 7.1 Default by Manager. Manager shall be deemed to be in default hereunder in the event Manger shall fail to keep, observe or perform any material covenant, agreement, term or provision of this Agreement to be kept, observed or performed by Manager, and such default shall (i) result from Manager's grossly negligent acts or omissions or willful misconduct; (ii) involve Manager's misappropriation or intentional misapplication of funds received or held by Manager hereunder; or (iii) continue for a period of ten (10) days after written notice thereof 10 by Owner to Manager as to any default in payment of money or thirty (30) days after notice thereof by Owner to Manager as to any non-monetary default, or, if such non-monetary default cannot be cured within thirty (30) days, then such additional period as shall be reasonable provided that Manager is capable of curing same and has continuously attempted to cure such default. 7.2 Remedies of Owner. Upon the occurrences of an event of default by Manager as specified in Section 7.1 hereof, Owner shall be entitled to terminate this Agreement and Owner shall have the right to pursue any other remedy it may have at law or in equity, it being expressly understood that following such a termination, Owner shall have no further obligation to pay any Fee due hereunder, however, notwithstanding such termination, Manager shall not be relieved of any liability arising as a result of Manager's default and the resulting termination of this Agreement. Upon such termination, Manager shall deliver to Owner such funds, books and records of Owner then in the possession or control of Manger. 7.3 Defaults by Owner. Owner shall be deemed to be in default hereunder in the event Owner shall fail to keep, observe or perform any material covenant, agreement, term or provision of this Agreement to be kept, observed or performed by Owner, and such default shall continue for a period of ten (10) days after written notice thereof by Manager to Owner as to any default in payment of money or thirty (30) days after notice thereof by Manager to Owner as to any non- monetary default, or, if such non-monetary default cannot be cured within thirty (30) days, then such additional period as shall be reasonable provided that Owner is capable of curing same and has continuously attempted to cure such default. 7.4 Remedies of Manager. Upon the occurrence of an event of default by Owner as specified in Section 7.3 hereof, Manager shall be entitled to terminate this Agreement and upon any such termination by Manager pursuant to this Section 7.4, Manager shall have the right to pursue any other remedy it may have at law or in equity, except that Owner shall continue to be obligated to pay and perform all of its obligations which have accrued as of the date of termination and provided further that Owner shall pay Manger a termination fee for the month in which this Agreement is terminated equal to the Fee paid for the last full calendar month preceding the month in which the Agreement was terminated. 7.5 Expiration of Term. Upon the expiration of the Term hereof pursuant to Section 1.10 hereof, or the earlier termination hereof pursuant to any of Sections 7.2, 7.3 and 9.10, Manager shall deliver to Owner all funds, including tenant security deposits, books and records of Owner then in the possession or control of Manager, save and except such sums as are then due and owing to Manger hereunder. Within sixty (60) days following expiration or termination, Manager shall deliver to Owner a final accounting, in writing, with respect to the operations of the Property. 11 ARTICLE 8 Insurance --------- 8.1 Owner's Insurance Coverage. Owner, at its expense, will obtain and keep in force commercially reasonable commercial general liability insurance and insurance against physical damage (e.g., fire and extended coverage endorsement, boiler, and machinery, etc.) and insurance against liability for loss, damage, or injury to property or persons which might arise out of the occupancy, management, operation or maintenance of the Property, all as set forth on Exhibit C attached hereto. Manager will be covered as an additional insured in all liability insurance maintained with respect to the Property. The Manager shall furnish whatever information is requested by Owner for the purpose of establishing the placement of insurance coverages and shall aid and cooperate in every reasonable way with respect to such insurance and any loss thereunder. Owner shall include in its hazard policy covering the Property, the personal property, fixtures, and equipment located thereon (owned by either Manager or Owner), appropriate clauses pursuant to which the insurance carriers shall waive the rights of subrogation with respect to losses payable under such policies. 8.2 Manager's Insurance Coverage. Pursuant to the provisions of Section 4.3, Manager shall provide and maintain, so long as this Agreement is in force, workmen's compensation insurance in full compliance with all applicable state and federal laws and regulations covering all employees of Manager performing work in respect of the Project operations and liability insurance complying with the terms of Exhibit D. 8.3 Subrogation and Indemnity or Deductible Provisions. (a) Any insurance which is procured and maintained which in any way is related to the Project or the authorized activities connected therewith is for the sole benefit of the party securing such insurance and others named as insureds, and Manager and Owner hereby release each other from all rights of recovery under or through subrogation or otherwise for any loss or damage insured under policies required by this Agreement, and agree that no insurer shall have a right to recover any amounts paid in respect of a claim form Owner or Manager, as the case may be, by way of subrogation to Manager's or Owner's claim, assignment or otherwise, as the case may be. Any insurance which is procured and maintained by Manager insuring the interest and property of Owner may contain indemnity or deductible provisions and the cost of such provisions shall be borne by the Owner. (b) Each of Owner and Manager hereby waives any and all claims and demands of whatsoever nature against the other for damages, loss or injury to the other's property in, upon or about the Project, except for claims and demands arising out of the gross negligence or willful misconduct of Owner, Manager, or either of their respective agents, employees, officers or contractors. 12 8.4 Environmental Indemnification. Owner agrees to indemnify, defend and hold Manager and its partners, officers, employees and agents harmless from any claims, judgments, damages (including consequential damages), penalties, fines, costs, liabilities (including sums paid in settlement of claims) or losses, direct or indirect, known or unknown, including without limit, attorney's fees, consultant fees and expert fees, which Manager may incur as a result of its being named as a "responsible party" or a "potential responsible party" under any federal, state or local law governing or regulating the environment for acts arising solely from its duties as manager under this Agreement. ARTICLE 9 Miscellaneous Provisions ------------------------ 9.1 Governing Law. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State wherein jurisdiction of the specific property is applicable. 9.2 Notices. Owner shall designate one person as Owner's representative in all dealings with Manager, who shall, until further notice, be the person whose name is indicated beneath Owner's address set forth on the signature page hereof. Any notice or communication hereunder must be in writing, and may be given by registered or certified mail, and if given by registered or certified mail, same shall be deemed to have been given and received when a registered or certified letter containing such notice, properly addressed, with postage prepaid, is deposited in the United States mail; and if given otherwise than by registered mail, it shall be deemed to have been given when delivered to and received by the party to whom it is addressed. Such notices or communications shall be given to the parties hereto at the addresses set forth opposite the names of the respective parties on the signature page hereof. Any party hereto may at any time by giving ten (10) days' written notice to the other party hereto designate any other address in substitution of the foregoing address to which such notice or communication shall be given. 9.3 Severability. If any term, covenant or condition of this Agreement or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement or such other documents, or the application of such term, covenant or condition to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term, covenant or condition of this Agreement or such other documents shall be valid and shall be enforced to the fullest extent permitted by law. 9.4 No Joint Venture or Partnership. Owner and Manager hereby agree that nothing contained herein or in any document executed in connection herewith shall be construed as making Manager and Owner joint venturers or partners. In no event shall Manager have any obligation or liability whatsoever with respect to any debts, obligations or liabilities of Owner. 13 9.5 Modification; Termination. This Agreement terminates any and all prior management agreements between Owner and Manager, relating to the Project, and any amendment, modification, termination or release hereof may be effected only by a written instrument executed by Manager and Owner. 9.6 Attorneys' Fees. Should either party employ an attorney or attorneys to enforce any of the provisions hereof or to protect its interest in any manner arising under this Agreement, or to recover damages for the breach of this Agreement, the non-prevailing party in any action (the finality of which is not legally contested) agrees to pay to the prevailing party all reasonable costs, damages and expenses, including attorneys' fees, expended or incurred in connection therewith. 9.7 Total Agreement. This Agreement (including any understanding referred to in Section 9.14 hereof) is a total and complete integration of any and all undertakings existing between Manager and Owner and supersedes any prior oral or written agreements, promises or representations between them. 9.8 Competitive Projects. Manager agrees that in its management of ventures or projects which are competitive with the Project, Manager will exercise good faith towards and deal fairly with Owner and the Project. Manager agrees to notify Owner of any competitive projects. 9.9 Successors and Assigns. Owner has entered into this Agreement with Manager based on Manager's abilities and, accordingly, Manager may not assign this Agreement without the prior written consent of Owner. Notwithstanding the foregoing limitation on assignment, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their permitted successors and assigns. 9.10 Sale of the Project. In the event the Project is sold, conveyed or transferred during the term hereof, Owner may assign this Agreement to the purchaser of the Project, subject to obtaining Manager's prior written consent, or Owner may terminate this Agreement, and Owner shall pay to Manager a termination fee equal to the Fee payable hereunder for the month prior to the month of termination. Manager, unless otherwise agreed, shall have no duties in connection with any such sale except reasonable cooperation with brokers and purchasers. 9.11 Termination. The term of this Agreement shall be for a period of one year, and shall be automatically renewed for successive periods of one year each unless either party provides thirty (30) days' notification of its intent not to renew. Subject to the provisions of the sentences next following, either party may terminate this Agreement at any time with or without cause by giving the other party at least thirty (30) days prior notice in writing. Owner recognizes that Manager will sustain significant start-up and mobilization costs, therefore, in the event that Owner terminates this Agreement without cause within one (1) year from the date hereof, Manager shall be entitled to receive a termination fee as a condition precedent to the 14 effectiveness of such termination, in an amount equal to three (3) times the management fee which accrued during the thirty (30) days immediately prior to the effective date of termination. 9.12 Prior Agreement. This Agreement supersedes and replaces that certain Management Agreement, dated September 1, 1991, originally executed by Property Trust of America (the predecessor in interest to Owner) and WilsonSchanzer, Inc. (the predecessor in interest to Manager). 9.13 Limitation of Liability. Owner is a Maryland real estate investment trust, and, in accordance with the declaration of trust of Owner, notice is hereby given that neither the trustees, officers, employees nor shareholders of Owner assume any personal liability for obligations entered into by or on behalf of Owner. ARTICLE 10 Subordination to Mortgages -------------------------- 10.1 Subordination. This Agreement and Manager's interest and rights hereunder, are and shall be subject and subordinate at all times to the lien of any first or second mortgage, whether now existing or hereafter created on or against the Project, and all amendments, restatements, renewals, modifications, consolidations, refinancings, assignments and extensions thereof ("Security Documents") without the necessity of any further instrument or act on the part of the Manager. Manager agrees, at the election of the holder of any such Security Documents (the "Secured Party"), to attorn to the Secured Party. The term "mortgage" as used herein shall be deemed to include deeds of trust, security assignments and any other encumbrances, and any reference to the "holder" of a Security Document shall be deemed to include the beneficiary under a deed of trust. Notwithstanding the foregoing, nothing herein shall obligate the Manager to continue its performance under this Agreement unless it continues to be paid in accordance with the terms of this Agreement. 10.2 Rights after Events of Default. Upon an Event of Default (as such term is defined in any Security Document), the Manager shall continue to perform its obligation under this Agreement until the earlier to occur of (a) the termination of this Agreement with respect to the Project or the termination of this Agreement in its entirety by the Secured Party, either of which may occur in the Secured Party's sole discretion, or (b) the Secured Party's (or its assignee's or nominee's) acquisition of title to the Project through the foreclosure, a deed-in-lieu thereof, or otherwise. On and after an Event of Default, there shall be no material changes in the terms and conditions of this Agreement without the prior written consent of the Secured Party having been obtained, which consent may be arbitrarily withheld. 15 IN WITNESS WHEREOF, the parties hereto have executed this Management Agreement as of the day and year first above written. OWNER: ADDRESS: SECURITY CAPITAL PACIFIC TRUST 125 Lincoln Avenue, 3rd Floor Santa Fe, NM 87501 /s/ Constance B. Moore --------------------------------- Constance B. Moore Managing Director MANAGER: ADDRESS: SCG REALTY SERVICES INCORPORATED 125 Lincoln Avenue, 3rd Floor Santa Fe, NM 87501 /s/ Patrick R. Whelan --------------------------------- Patrick R. Whelan President 16 EX-21.1 6 SUBSIDIARIES OF PTR Exhibit 21.1 - ------------ PTR has 14 consolidated wholly owned subsidiaries carrying on the same line of business as PTR operating in the United States. EX-23.1 7 CONSENT OF KPMG PEAT MARWICK LLP Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Trustees Security Capital Pacific Trust: We consent to incorporation by reference in the registration statements No. 33-86444 (Form S-3), No. 33-78402 (Form S-3), No. 33-71040 (Form S-3), No. 33-44631 (Form S-3) and No. 33-25317 (Form S-8) of Security Capital Pacific Trust of our report dated January 31, 1996, except as to note 12, which is as of February 23, 1996, relating to the balance sheets of Security Capital Pacific Trust as of December 31, 1995 and 1994, and the related statements of earnings, shareholders' equity, and cash flows and related schedule for each of the years in the three-year period ended December 31, 1995, which report appears in the December 31, 1995 annual report on Form 10-K of Security Capital Pacific Trust. KPMG PEAT MARWICK LLP Chicago, Illinois March 20, 1996 EX-27.1 8 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Form 10-K for the twelve months ended December 31, 1995 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 26,919 0 19,162 0 0 0 1,855,866 81,979 1,840,999 0 158,054 72,376 0 335,000 868,292 1,840,999 262,473 264,873 0 82,720 0 420 19,584 81,696 0 81,696 0 0 0 81,696 0.93 0.93
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