10-Q 1 a2048981z10-q.txt 10-Q FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 1-12252 EQUITY RESIDENTIAL PROPERTIES TRUST (Exact Name of Registrant as Specified in Its Charter) MARYLAND 13-3675988 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) TWO NORTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606 (Address of Principal Executive Offices) (Zip Code) (312) 474-1300 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- -------- APPLICABLE ONLY TO CORPORATE USERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: At May 1, 2001, 133,593,603 of the Registrant's Common Shares of Beneficial Interest were outstanding. EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS EXCEPT FOR SHARE AMOUNTS) (UNAUDITED)
March 31, December 31, 2001 2000 ------------------ -------------------- ASSETS Investment in real estate Land $ 1,769,111 $ 1,770,019 Depreciable property 10,748,240 10,782,311 Construction in progress 43,108 39,130 ------------------ -------------------- 12,560,459 12,591,460 Accumulated depreciation (1,433,394) (1,352,236) ------------------ -------------------- Investment in real estate, net of accumulated depreciation 11,127,065 11,239,224 Real estate held for disposition 21,886 51,637 Cash and cash equivalents 104,831 23,772 Investment in mortgage notes, net 74,347 77,184 Investments in unconsolidated entities 333,170 316,540 Rents receivable 1,980 1,801 Deposits - restricted 254,802 231,639 Escrow deposits - mortgage 69,073 70,470 Deferred financing costs, net 30,456 29,706 Rental furniture, net 61,380 60,183 Property and equipment, net 7,676 7,620 Goodwill, net 70,357 67,589 Other assets 88,472 86,601 ------------------ -------------------- Total assets $ 12,245,495 $ 12,263,966 ================== ==================== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Mortgage notes payable $ 3,097,033 $ 3,230,611 Notes, net 2,418,911 2,120,079 Lines of credit - 355,462 Accounts payable and accrued expenses 98,665 107,818 Accrued interest payable 71,629 51,877 Rents received in advance and other liabilities 108,319 100,819 Security deposits 46,595 46,272 Distributions payable 140,210 18,863 ------------------ -------------------- Total liabilities 5,981,362 6,031,801 ------------------ -------------------- COMMITMENTS AND CONTINGENCIES Minority Interests: Operating Partnership 634,411 609,734 Partially Owned Properties 2,881 2,884 ------------------ -------------------- Total Minority Interests 637,292 612,618 ------------------ -------------------- Shareholders' equity: Preferred Shares of beneficial interest, $.01 par value; 100,000,000 shares authorized; 19,945,566 shares issued and outstanding as of March 31, 2001 and 20,003,166 shares issued and outstanding as of December 31, 2000 1,181,697 1,183,136 Common Shares of beneficial interest, $.01 par value; 350,000,000 shares authorized; 133,528,115 shares issued and outstanding as of March 31, 2001 and 132,616,375 shares issued and outstanding as of December 31, 2000 1,335 1,326 Paid in capital 4,767,480 4,739,782 Employee notes (4,275) (4,346) Distributions in excess of accumulated earnings (302,363) (300,351) Accumulated other comprehensive income (17,033) - ------------------ -------------------- Total shareholders' equity 5,626,841 5,619,547 ------------------ -------------------- Total liabilities and shareholders' equity $ 12,245,495 $ 12,263,966 ================== ====================
SEE ACCOMPANYING NOTES 2 EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
QUARTER ENDED MARCH 31, -------------------------------------- 2001 2000 ---------------- ------------------ REVENUES Rental income $ 514,137 $ 473,547 Fee and asset management 1,972 1,400 Interest income - investment in mortgage notes 2,744 2,762 Interest and other income 6,502 3,478 Furniture income 12,546 - ---------------- ------------------ Total revenues 537,901 481,187 ---------------- ------------------ EXPENSES Property and maintenance 141,864 113,868 Real estate taxes and insurance 48,021 48,334 Property management 18,687 18,914 Fee and asset management 1,875 1,066 Depreciation 112,805 111,886 Interest: Expense incurred 95,276 95,111 Amortization of deferred financing costs 1,397 1,341 General and administrative 6,754 6,698 Furniture expenses 9,724 - Amortization of goodwill 933 - ---------------- ------------------ Total expenses 437,336 397,218 ---------------- ------------------ Income before allocation to Minority Interests, income from investments in unconsolidated entities, net gain on sales of real estate, extraordinary items and cumulative effect of change in accounting principle 100,565 83,969 Allocation to Minority Interests: Operating Partnership (9,796) (7,096) Partially Owned Properties (105) 45 Income from investments in unconsolidated entities 3,797 4,223 Net gain on sales of real estate 41,778 19,998 ---------------- ------------------ Income before extraordinary items and cumulative effect of change in accounting principle 136,239 101,139 Extraordinary items 311 - Cumulative effect of change in accounting principle (1,270) - ---------------- ------------------ Net income 135,280 101,139 Preferred distributions (28,526) (28,388) ---------------- ------------------ Net income available to Common Shares $ 106,754 $ 72,751 ================ ================== Net income per share - basic $ 0.81 $ 0.57 ================ ================== Net income per share - diluted $ 0.80 $ 0.57 ================ ================== Weighted average Common Shares outstanding - basic 132,599 127,798 ================ ================== Weighted average Common Shares outstanding - diluted 148,592 140,686 ================ ================== Distributions declared per Common Share outstanding $ 0.815 $ 0.76 ================ ==================
SEE ACCOMPANYING NOTES 3 EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS) (UNAUDITED)
QUARTER ENDED MARCH 31, ---------------------------------- 2001 2000 --------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 135,280 $ 101,139 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: ALLOCATION TO MINORITY INTERESTS: Operating Partnership 9,796 7,096 Partially Owned Properties 105 (45) Cumulative effect of change in accounting principle 1,270 - Depreciation 115,029 111,886 Amortization of deferred financing costs 1,397 1,341 Amortization of discount on investment in mortgage notes (161) - Amortization of goodwill 933 - Amortization of discounts and premiums on debt (590) (576) Amortization of deferred settlements on interest rate protection agreements 101 201 Income from investments in unconsolidated entities (3,797) (4,223) Net gain on sales of real estate (41,778) (19,998) Extraordinary items (311) - Unrealized gain on interest rate protection agreements (71) - Book value of furniture sales and rental buy outs 2,851 - Compensation paid with Company Common Shares 2,867 1,422 CHANGES IN ASSETS AND LIABILITIES: (Increase) decrease in rents receivable (188) 723 Decrease (increase) in deposits - restricted 5,343 (2,802) Additions to rental furniture (6,272) - (Increase) in other assets (1,872) (2,025) (Decrease) increase in accounts payable and accrued expenses (9,153) 1,944 Increase in accrued interest payable 19,752 16,683 Increase (decrease) in rents received in advance and other liabilities 219 (2,652) Increase in security deposits 343 80 --------------- ----------------- Net cash provided by operating activities 231,093 210,194 --------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in real estate, net (157,157) (18,307) Improvements to real estate (28,166) (27,193) Additions to non-real estate property (1,830) (1,038) Interest capitalized for real estate under construction (667) (236) Proceeds from disposition of real estate, net 280,448 92,241 Investment in property and equipment (673) - Principal receipts on investment in mortgage notes 2,998 1,687 Investments in unconsolidated entities, net (16,613) (47,315) Distributions from unconsolidated entities, net 8,364 4,801 Proceeds from disposition of unconsolidated entities, net - 4,400 (Increase) in deposits on real estate acquisitions, net (28,506) (51,948) Decrease in mortgage deposits 870 4,596 Purchase of management contract rights - (779) Business combinations, net of cash acquired (5,538) (3,472) Other investing activities, net (48) (772) --------------- ----------------- Net cash provided by (used for) investing activities 53,482 (43,335) --------------- -----------------
SEE ACCOMPANYING NOTES 4 EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (AMOUNTS IN THOUSANDS) (UNAUDITED)
QUARTER ENDED MARCH 31, --------------------------------- 2001 2000 --------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Loan and bond acquisition costs $ (3,390) $ (574) MORTGAGE NOTES PAYABLE: Proceeds, net 29,052 147,683 Lump sum payoffs (176,746) (12,801) Scheduled principal repayments (8,451) (7,509) NOTES, NET: Proceeds, net 299,316 - Scheduled principal repayments (119) - LINES OF CREDIT: Proceeds 176,686 48,000 Repayments (532,148) (348,000) (Payments) proceeds from settlement of interest rate protection agreements (7,360) 7,055 Proceeds from sale of Common Shares 3,266 2,900 Proceeds from sale of Preferred Shares/Units, net 34,125 64,350 Proceeds from exercise of options 8,210 4,000 Payment of offering costs (63) (32) DISTRIBUTIONS: Common Shares (416) (257) Preferred Shares/Units (25,432) (28,197) Minority Interests - Operating Partnership (9) (143) Minority Interests - Partially Owned Properties (108) - Principal receipts on employee notes, net 71 59 --------------- ---------------- Net cash (used for) financing activities (203,516) (123,466) --------------- ---------------- Net increase in cash and cash equivalents 81,059 43,393 Cash and cash equivalents, beginning of period 23,772 29,117 --------------- ---------------- Cash and cash equivalents, end of period $ 104,831 $ 72,510 SUPPLEMENTAL INFORMATION: =============== ================ Cash paid during the period for interest $ 76,777 $ 78,961 =============== ================ Mortgage loans assumed and/or entered into through acquisitions of real estate $ 45,918 $ - =============== ================ Net real estate contributed in exchange for OP Units or Preference Units $ - $ 636 =============== ================ Mortgage loans assumed by purchaser in real estate dispositions $ (22,815) $ - =============== ================ Transfers to real estate held for disposition $ 21,886 $ 29,183 =============== ================ Mortgage loans recorded as a result of consolidation of previously Unconsolidated Properties $ - $ 65,095 =============== ================ Net liabilities recorded as a result of consolidation of previously Unconsolidated Properties $ - $ 792 =============== ================
5 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BUSINESS Equity Residential Properties Trust, formed in March 1993 ("EQR"), is a self-administered and self-managed equity real estate investment trust ("REIT"). As used herein, the term "Company" means EQR, and its subsidiaries, as the survivor of the mergers between EQR and each of Wellsford Residential Property Trust ("Wellsford") (the "Wellsford Merger"), Evans Withycombe Residential, Inc. ("EWR") (the "EWR Merger"), Merry Land & Investment Company, Inc. ("MRY") (the "MRY Merger") and Lexford Residential Trust ("LFT") ("the LFT Merger") (collectively, the "Mergers"). The Company also includes Globe Business Resources, Inc. ("Globe"), Temporary Quarters, Inc. ("TQ") and Grove Property Trust ("Grove"). The Company has elected to be taxed as a REIT under Section 856(c) of the Internal Revenue Code 1986, as amended (the "Code"). The Company is engaged in the acquisition, disposition, ownership, management and operation of multifamily properties. As of March 31, 2001, the Company owned or had interests in a portfolio of 1,096 multifamily properties containing 227,153 apartment units (individually a "Property" and collectively the "Properties") consisting of the following:
Number of Number Properties of Units ----------- -------- Wholly Owned Properties 979 204,048 Partially Owned Properties 15 3,067 Unconsolidated Properties 102 20,038 ----------- -------- Total Properties 1,096 227,153 ============ =========
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and certain reclassifications considered necessary for a fair presentation have been included. Certain reclassifications have been made to the prior periods financial statements in order to conform to the current year presentation. Operating results for the three months ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information including capitalized terms, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2000. 6 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In the normal course of business, the Company is exposed to the effect of interest rate changes. The Company limits these risks by following established risk management policies and procedures including the use of derivatives. The Company has a policy of only entering into contracts with major financial institutions based upon their credit ratings and other factors. When viewed in conjunction with the underlying and offsetting exposure that the derivatives are designed to hedge, the Company has not sustained a material loss from those instruments nor does it anticipate any material adverse effect on its net income or financial position in the future from the use of derivatives. On January 1, 2001, the Company adopted SFAS No. 133/138, which requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. Additionally, the fair value adjustments will affect either shareholders' equity or net income depending on whether the derivative instruments qualify as a hedge for accounting purposes and, if so, the nature of the hedging activity. When the terms of an underlying transaction are modified, or when the underlying transaction is terminated or completed, all changes in the fair value of the instrument are marked-to-market with changes in value included in net income each period until the instrument matures. Any derivative instrument used for risk management that does not meet the hedging criteria is marked-to-market each period. As of January 1, 2001, the adoption of the new standard resulted in derivative instruments reported on the balance sheet as liabilities of approximately $6.6 million; an adjustment of approximately $5.3 million to "Accumulated Other Comprehensive Income", which are gains and losses not affecting retained earnings in the Consolidated Statement of Shareholders' Equity; and a charge of approximately $1.3 million as a cumulative effect of change in accounting principle in the Consolidated Statement of Operations. The Company employs derivative financial instruments to hedge qualifying anticipated transactions. Gains and losses are deferred and recognized in net income in the same period that the underlying transaction occurs, expires or is otherwise terminated. As of March 31, 2001, there were approximately $17.0 million in deferred losses, net, included in accumulated other comprehensive income. As of March 31, 2001, the Company has entered into swaps, which have been designated as cash flow hedges with an aggregate notional amount of $626.4 million at interest rates ranging from 3.65125% to 6.15% maturing at various dates ranging from 2003 to 2007 with a net liability fair value of $16.5 million; and swaps which have been designated as fair value hedges with an aggregate notional amount of $176.4 million at interest rates ranging from 4.458% to 4.830% maturing at various dates ranging from 2003 to 2004 with a net asset fair value of $5.6 million. On March 31, 2001, the net derivative instruments were reported at their fair value as other liabilities of approximately $10.9 million. Within the next twelve months the Company expects to recognize an estimated $4.0 million of accumulated other comprehensive income as additional interest expense. 7 3. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS The following table presents the changes in the Company's issued and outstanding Common Shares for the quarter ended March 31, 2001:
2001 ----------- Common Shares outstanding at January 1, 132,616,375 COMMON SHARES ISSUED: Conversion of Series E Preferred Shares 31,532 Conversion of Series H Preferred Shares 650 Employee Share Purchase Plan 71,142 Dividend Reinvestment - DRIP Plan 76 Share Purchase - DRIP Plan 3,183 Exercise of options 189,502 Restricted share grants, net 339,053 Conversion of OP Units 276,602 ----------- Common Shares outstanding at March 31, 133,528,115 -----------
The equity positions of various individuals and entities that contributed their properties to the Operating Partnership in exchange for a partnership interest are collectively referred to as the "Minority Interests -Operating Partnership". As of March 31, 2001, the Minority Interests - Operating Partnership held 12,186,865 OP Units. As a result, the Minority Interests -Operating Partnership had an 8.36% interest in the Operating Partnership at March 31, 2001. Assuming conversion of all OP Units into Common Shares, total Common Shares outstanding at March 31, 2001 would have been 145,714,980. Net proceeds from the Company's Common Share and Preferred Share offerings are contributed by the Company to the Operating Partnership in return for an increased ownership percentage and are treated as capital transactions in the Company's Consolidated Financial Statements. As a result, the net offering proceeds from Common Shares are allocated between shareholders' equity and Minority Interests - Operating Partnership to account for the change in their respective percentage ownership of the underlying equity of the Operating Partnership. During the quarter ended March 31, 2001, the Company, through a subsidiary of the Operating Partnership, issued preference units with an equity value of $35 million, receiving net proceeds of $34.1 million: - 510,000 7.875% Series G Cumulative Redeemable Preference Units (known as "Preference Interests") with an equity value of $25.5 million. The liquidation value of these units is $50 per unit. The 510,000 units are exchangeable into 510,000 shares of 7.875% Series M-4 Cumulative Redeemable Preferred Shares of Beneficial Interest of the Company. Dividends for the Series G Preference Interests or the Series M-4 Preferred Shares are payable quarterly at the rate of $3.9375 per unit/share per year. - 190,000 7.625% Series H Cumulative Convertible Redeemable Preference Units with an equity value of $9.5 million. The liquidation value of these units is $50 per unit. The 190,000 units are exchangeable into 190,000 shares of 7.625% Series M-5 Convertible Cumulative Redeemable Preferred Shares of Beneficial Interest of the Company or 143,526 Common Shares beginning March 2011. Dividends for the Series H Preference Interests or the Series M-5 Preferred Shares are payable quarterly at the rate of $3.8125 per unit/share per year. 8 The value of the Preference Interests are included in Minority Interests - Operating Partnership in the Consolidated Balance Sheets and the distributions incurred are included in preferred distributions in the Consolidated Statements of Operations. The Series M-4 Preferred Shares are not convertible into EQR Common Shares. The Series H Preference Interests and the Series M-5 Preferred Shares are convertible into EQR Common Shares at a conversion price ratio of 0.7554 common shares (equal to a conversion price of $66.19 per share) beginning in March 2011. The following table presents the Company's issued and outstanding Preferred Shares as of March 31, 2001 and December 31, 2000:
AMOUNTS ARE IN THOUSANDS ------------------------------- ANNUAL DIVIDEND RATE PER MARCH DECEMBER SHARE (1) 31, 2001 31, 2000 --------- ------------- ---------------- Preferred Shares of beneficial interest, $.01 par value; 100,000,000 shares authorized: 9 3/8% Series A Cumulative Redeemable Preferred; liquidation $2.34375 $ 153,000 $ 153,000 value $25 per share; 6,120,000 shares issued and outstanding at March 31, 2001 and December 31, 2000 9 1/8% Series B Cumulative Redeemable Preferred; liquidation $22.81252 125,000 125,000 value $250 per share; 500,000 shares issued and outstanding at March 31, 2001 and December 31, 2000 9 1/8% Series C Cumulative Redeemable Preferred; liquidation $22.81252 115,000 115,000 value $250 per share; 460,000 shares issued and outstanding at March 31, 2001 and December 31, 2000 8.60% Series D Cumulative Redeemable Preferred; liquidation $21.50000 175,000 175,000 value $250 per share; 700,000 shares issued and outstanding at March 31, 2001 and December 31, 2000 Series E Cumulative Convertible Preferred; liquidation value $1.75000 88,573 89,990 $25 per share; 3,542,915 and 3,599,615 shares issued and outstanding at March 31, 2001 and December 31, 2000, respectively 9.65% Series F Cumulative Redeemable Preferred; liquidation $2.41250 57,500 57,500 value $25 per share; 2,300,000 shares issued and outstanding at March 31, 2001 and December 31, 2000 7 1/4% Series G Convertible Cumulative Preferred; liquidation $18.12500 316,175 316,175 value $250 per share; 1,264,700 shares issued and outstanding at March 31, 2001 and December 31, 2000 7.00% Series H Cumulative Convertible Preferred; liquidation $1.75000 1,449 1,471 value $25 per share; 57,951 and 58,851 shares issued and outstanding at March 31, 2001 and December 31, 2000, respectively 8.29% Series K Cumulative Redeemable Preferred; liquidation $4.14500 50,000 50,000 value $50 per share; 1,000,000 shares issued and outstanding at March 31, 2001 and December 31, 2000 7.625% Series L Cumulative Redeemable Preferred; liquidation $1.90625 100,000 100,000 value $25 per share; 4,000,000 shares issued and outstanding at March 31, 2001 and December 31, 2000 --------- ------------- ---------------- $ 1,181,697 $ 1,183,136 ------------- ----------------
9 (1) Dividends on all series of Preferred Shares are payable quarterly at various pay dates. Dividend rates listed for Series B, C, D and G are Preferred Share rates and the equivalent Depositary Share annual dividend rates are $2.281252, $2.281252, $2.15 and $1.8125, respectively. 4. Real Estate Acquisitions During the quarter ended March 31, 2001, the Company acquired the seven properties listed below from unaffiliated parties for a total purchase price of $189.1 million.
ACQUISITION DATE NUMBER PRICE ACQUIRED PROPERTY LOCATION OF UNITS (IN THOUSANDS) -------- ------------------------------ ---------------- -------- -------------- 01/04/01 Suerte San Diego, CA 272 $ 37,500 02/08/01 Westside Villas VI Los Angeles, CA 18 4,550 02/15/01 Riverview Norwalk, CT 92 9,600 03/15/01 Grand Reserve at Eagle Valley Woodbury, MN 394 54,250 03/22/01 Legends at Preston Morrisville, NC 382 30,200 03/30/01 Mission Hills Oceanside, CA 282 26,750 03/30/01 River Oaks Oceanside, CA 280 26,250 -------- -------------- 1,720 $ 189,100 -------- --------------
5. Real Estate Dispositions During the quarter ended March 31, 2001, the Company disposed of the fifteen properties listed below to unaffiliated parties. Including the joint venture and land sale discussed below, the Company recognized a net gain of approximately $41.8 million on these sales.
DISPOSITION DATE NUMBER PRICE DISPOSED PROPERTY LOCATION OF UNITS (IN THOUSANDS) -------- ------------------------ ------------------- -------- -------------- 01/17/01 Meadowood II Indianapolis, IN 74 $ 1,300 01/31/01 Concorde Bridge Overland Park, KS 248 15,600 02/01/01 Springs of Country Woods Salt Lake City, UT 590 31,000 02/22/01 Riverview Estates Napoleon, OH 90 1,750 02/26/01 Chelsea Court Sandusky, OH 62 1,600 02/27/01 Concord Square Lawrenceburg, IN 48 1,200 02/28/01 Canyon Creek Tucson, AZ 242 9,220 03/06/01 Gentian Oaks Columbus, GA 62 1,620 03/06/01 Holly Park Columbus, GA 66 1,730 03/06/01 Stratford Lane I Columbus, GA 67 1,750 03/07/01 Estate on Quarry Lake Austin, TX 302 25,232 03/08/01 Meadowood Crawfordsville, IN 64 1,300 03/14/01 Mill Run Statesboro, GA 88 2,350 03/15/01 Laurel Court Fremont, OH 69 1,450 03/15/01 Regency Woods West Des Moines, IA 200 9,350 -------- -------------- 2,272 $106,452 -------- --------------
10 On February 23, 2001, the Company entered into a joint venture with an unaffiliated joint venture partner ("JVP"). At closing, the Company sold and/or contributed eleven wholly owned properties containing 3,011 units valued at $202.5 million to the joint venture encumbered with $20.2 million in mortgage loans obtained on February 16, 2001. An additional $123.6 million of mortgage loans was obtained by the joint venture. The JVP contributed cash in an amount equal to 75% of the equity in the joint venture, which was then distributed to the Company. The Company retained a 25% interest in the joint venture along with the right to manage the properties. In accordance with the respective joint venture organization documents, the Company and the JVP both shall have the right, but not the obligation, to infuse additional cash into the joint venture. There are no other agreements that require the Company or the JVP to infuse cash into each joint venture. In addition, the Company and the JVP have not guaranteed the mortgage indebtedness of the joint venture. As a result, the Company recognized 75% of the gain on the sales and/or contributions of property to the joint venture, which totaled approximately $36.5 million. The Company has classified its initial $3.4 million 25% interest in the joint venture (at carryover basis) as investments in unconsolidated entities and accounted for it under the equity method of accounting. In addition, during the three months ended March 31, 2001, the Company sold a vacant parcel of land in Richmond, VA for $11.2 million. 6. Commitments to Acquire/Dispose of Real Estate As of March 31, 2001, the Company entered into a separate agreement to acquire one multifamily property containing 125 units from an unaffiliated party. The Company expects a purchase price of approximately $13.5 million. As of March 31, 2001, in addition to the Properties that were subsequently disposed of as discussed in Note 15 of the Notes to Consolidated Financial Statements, the Company entered into separate agreements to dispose of seventeen multifamily properties containing 3,161 units to unaffiliated parties. The Company expects a combined disposition price of approximately $137.2 million. The closings of these pending transactions are subject to certain contingencies and conditions; therefore, there can be no assurance that these transactions will be consummated or that the final terms thereof will not differ in material respects from those summarized in the preceding paragraphs. 7. INVESTMENTS IN UNCONSOLIDATED ENTITIES The Company has entered into two separate joint venture agreements with third party development companies whereby the Company contributes 25% to 30% of the development cost to the joint venture in return for preferential returns of 9.0% per annum. The basis of the Company's equity investments in these two joint ventures was $252.4 million and $235.9 million as of March 31, 2001 and December 31, 2000, respectively. The Company also has various other investments in unconsolidated entities with ownership interests ranging from 1.5% to 50.0%. The basis of these equity investments was $80.8 million and $80.6 million as of March 31, 2001 and December 31, 2000, respectively. These investments are accounted for under the equity method of accounting. 8. DEPOSITS - RESTRICTED Deposits-restricted as of March 31, 2001 primarily included the following: 11 - deposits in the amount of $39.5 million held in third party escrow accounts to provide collateral for third party construction financing in connection with two separate joint venture agreements; - approximately $180.2 million in 1031 exchange proceeds; and - approximately $35.1 million for tenant security, utility, and other deposits. 9. MORTGAGE NOTES PAYABLE As of March 31, 2001, the Company had outstanding mortgage indebtedness of approximately $3.1 billion. During the quarter ended March 31, 2001 the Company: - repaid $176.7 million of mortgages due at or prior to maturity and/or at the disposition date of the respective Property; - assumed $45.9 million of mortgage debt on four properties in connection with their acquisitions; - disposed of $22.8 million of mortgage debt assumed by the purchaser in connection with the disposition of certain properties; - obtained $20.2 million of new mortgage debt on previously unencumbered properties; and - received $8.8 million in construction loan draw proceeds on two properties. As of March 31, 2001, scheduled maturities for the Company's outstanding mortgage indebtedness are at various dates through October 1, 2033. The interest rate range on the Company's mortgage debt was 2.65% to 12.465% at March 31, 2001. During the quarter ended March 31, 2001, the weighted average interest rate on the Company's mortgage debt was 6.62%. 10. NOTES As of March 31, 2001, the Company had outstanding unsecured notes of approximately $2.4 billion. During the quarter ended March 31, 2001, the Company issued $300.0 million of ten-year 6.95% fixed-rate public unsecured notes and received net proceeds of $297.4 million. As of March 31, 2001, scheduled maturities for the Company's outstanding notes are at various dates through 2029. The interest rate range on the Company's notes was 4.75% to 9.375 % at March 31, 2001. During the quarter ended March 31, 2001, the weighted average interest rate on the Company's notes was 7.04%. 11. LINES OF CREDIT The Company has a revolving credit facility to provide the Operating Partnership with potential borrowings of up to $700.0 million. As of March 31, 2001 no amounts were outstanding under this facility and $54.9 million was restricted on the line of credit. In connection with the Globe acquisition, the Company assumed a revolving credit facility with potential borrowings of up to $55.0 million. As of March 31, 2001, no amounts were outstanding under this facility. During the quarter ended March 31, 2001, the weighted average interest rate on the Company's lines of credit was 6.65%. 12 12. CALCULATION OF NET INCOME PER WEIGHTED AVERAGE COMMON SHARE The following tables set forth the computation of net income per share - basic and net income per share - diluted.
QUARTER ENDED MARCH 31, --------------------------------- 2001 2000 ---------------- ------------- (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) NUMERATOR: Income before allocation to Minority Interests, income from investments in unconsolidated entities, net gain on sales of real estate, extraordinary items, cumulative effect of change in accounting principle and preferred distributions $ 100,565 $ 83,969 Allocation to Minority Interests: Operating Partnership (9,796) (7,096) Partially Owned Properties (105) 45 Income from investments in unconsolidated entities 3,797 4,223 Preferred distributions (28,526) (28,388) ---------------- ------------ Income before net gain on sales of real estate, extraordinary items and cumulative effect of change in accounting 65,935 52,753 principle Net gain on sales of real estate 41,778 19,998 Extraordinary items 311 - Cumulative effect of change in accounting principle (1,270) - ---------------- ------------ Numerator for net income per share - basic 106,754 72,751 Effect of dilutive securities: Allocation to Minority Interests - Operating Partnership 9,796 7,096 Distributions on convertible preferred shares/units 1,692 - ---------------- ------------ Numerator for net income per share - diluted $ 118,242 $ 79,847 ================ ============= DENOMINATOR: Denominator for net income per share - basic 132,599 127,798 Effect of dilutive securities: Stock options/restricted shares 1,577 422 OP Units 12,231 12,466 Convertible preferred shares/units 2,185 - ---------------- ------------ Denominator for net income per share - diluted 148,592 140,686 ================ ============= Net income per share - basic $ 0.81 $ 0.57 ================ ============= Net income per share - diluted $ 0.80 $ 0.57 ================ =============
13
QUARTER ENDED MARCH 31, -------------------------------- 2001 2000 --------------- --------------- (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) NET INCOME PER SHARE - BASIC: Income before net gain on sales of real estate, extraordinary items and cumulative effect of change in accounting principle per share - basic $ 0.53 $ 0.43 Net gain on sales of real estate 0.29 0.14 Extraordinary items - - Cumulative effect of change in accounting principle (0.01) - --------------- --------------- Net income per share - basic $ 0.81 $ 0.57 =============== =============== NET INCOME PER SHARE - DILUTED: Income before net gain on sales of real estate, extraordinary items and cumulative effect of change in accounting principle per share - diluted $ 0.52 $ 0.43 Net gain on sales of real estate 0.29 0.14 Extraordinary items - - Cumulative effect of change in accounting principle (0.01) - --------------- --------------- Net income per share - diluted $ 0.80 $ 0.57 =============== ===============
CONVERTIBLE PREFERRED SHARES/UNITS THAT COULD BE CONVERTED INTO 5,415,852 AND 10,643,083 WEIGHTED AVERAGE COMMON SHARES FOR THE QUARTERS ENDED MARCH 31, 2001 AND 2000, RESPECTIVELY, WERE OUTSTANDING BUT WERE NOT INCLUDED IN THE COMPUTATION OF DILUTED EARNINGS PER SHARE BECAUSE THE EFFECTS WOULD BE ANTI-DILUTIVE. 13. COMMITMENTS AND CONTINGENCIES The Company, as an owner of real estate, is subject to various environmental laws of Federal and local governments. Compliance by the Company with existing laws has not had a material adverse effect on the Company's financial condition and results of operations. However, the Company cannot predict the impact of new or changed laws or regulations on its current Properties or on properties that it may acquire in the future. The Company does not believe there is any litigation threatened against the Company other than routine litigation arising out of the ordinary course of business, some of which is expected to be covered by liability insurance, none of which is expected to have a material adverse effect on the consolidated financial statements of the Company. In regards to the funding of Properties in the development and/or earnout stage and the joint venture agreements with two multifamily residential real estate developers, the Company funded a total of $26.4 million during the quarter ended March 31, 2001. During the remainder of 2001, the Company expects to fund approximately $70.2 million in connection with these Properties. In connection with one joint venture agreement, the Company has an obligation to fund up to an additional $17.5 million to guarantee third party construction financing. As of March 31, 2001, the Company has 19 projects under development with estimated completion dates ranging from June 30, 2001 through March 31, 2003. At any time following the completion of construction of any development property, the Company's joint venture partners have the right to cause the Company to acquire their respective interests in the completed projects at a mutually agreeable price. If the Company and the joint venture partner are unable to agree on a price, appraisals will be obtained by both parties. If the appraised values vary by more than 10%, both the Company and the joint venture partner will agree on a third appraiser to determine which original appraisal is closest to its determination of value. 14 In connection with the Wellsford Merger, the Company provided a credit enhancement with respect to certain tax-exempt bonds issued to finance certain public improvements at a multifamily development project. As of March 31, 2001, this enhancement was still in effect at a commitment amount of $12.7 million. 14. REPORTABLE SEGMENTS The following tables set forth the reconciliation of net income and total assets for the Company's reportable segments for the quarters ended March 31, 2001 and 2000.
RENTAL REAL CORPORATE/ MARCH 31, 2001 (AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED -------------------------------------------------------- ------------- ---------- -------------- Rental income $ 514,137 $ - $ 514,137 Fee and asset management income - 1,972 1,972 Furniture income - 12,546 12,546 Property and maintenance expense (141,864) - (141,864) Real estate tax and insurance expense (48,021) - (48,021) Property management expense (18,687) - (18,687) Fee and asset management expense - (1,875) (1,875) Furniture expenses - (9,724) (9,724) ------------- ---------- -------------- Net operating income 305,565 2,919 308,484 Interest income - investment in mortgage notes - 2,744 2,744 Interest and other income - 6,502 6,502 Depreciation expense on non-real estate assets - (2,259) (2,259) Interest expense: Expense incurred - (95,276) (95,276) Amortization of deferred financing costs - (1,397) (1,397) General and administrative expense - (6,754) (6,754) Allocation to Minority Interests - Partially Owned Properties - (105) (105) Income from investments in unconsolidated entities - 3,797 3,797 Preferred distributions - (28,526) (28,526) Adjustment for loss on investment in technology segment - 3,003 3,003 Adjustment for depreciation expense related to Unconsolidated and Partially Owned Properties - 1,995 1,995 ------------- ---------- -------------- Funds from operations available to Common Shares and OP Units 305,565 (113,357) 192,208 Depreciation/amortization (110,546) (933) (111,479) Net gain on sales of real estate 41,778 - 41,778 Extraordinary items - 311 311 Cumulative effect of change in accounting principle - (1,270) (1,270) Allocation to Minority Interests - Operating Partnership - (9,796) (9,796) Adjustment for loss on investment in technology segment - (3,003) (3,003) Adjustment for depreciation expense related to Unconsolidated and Partially - (1,995) (1,995) Owned Properties ------------- ---------- -------------- Net income available to Common Shares $ 236,797 $(130,043) $ 106,754 ============= ========== ============== Investment in real estate, net of accumulated depreciation $ 11,110,846 $ 16,219 $ 11,127,065 ============= ========== ============== Total assets $ 11,132,732 $1,112,763 $ 12,245,495 ============= ========== ==============
15
RENTAL REAL CORPORATE/ MARCH 31, 2000 (AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED ------------------------------------------------------ ------------ ----------- ------------- Rental income $ 473,547 $ - $ 473,547 Fee and asset management income - 1,400 1,400 Property and maintenance expense (113,868) - (113,868) Real estate tax and insurance expense (48,334) - (48,334) Property management expense (18,914) - (18,914) Fee and asset management expense - (1,066) (1,066) ------------ ----------- ------------- Net operating income 292,431 334 292,765 Interest income - investment in mortgage notes - 2,762 2,762 Interest and other income - 3,478 3,478 Depreciation expense on non-real estate assets - (1,567) (1,567) Interest expense: Expense incurred - (95,111) (95,111) Amortization of deferred financing costs - (1,341) (1,341) General and administrative expense - (6,698) (6,698) Allocation to Minority Interests - Partially Owned Properties - 45 45 Income from investments in unconsolidated entities - 4,223 4,223 Preferred distributions - (28,388) (28,388) Adjustment for depreciation expense related to Unconsolidated and Partially Owned Properties - (238) (238) ------------ ----------- ------------- Funds from operations available to Common Shares and OP Units 292,431 (122,501) 169,930 Depreciation expense on real estate assets (110,319) - (110,319) Net gain on sales of real estate 19,998 - 19,998 Allocation to Minority Interests - Operating Partnership - (7,096) (7,096) Adjustment for depreciation expense related to Unconsolidated and Partially Owned Properties 238 238 ------------ ----------- ------------- Net income available to Common Shares $ 202,110 $(129,359) $ 72,751 ============ =========== =============
(1) The Company's primary business is owning, managing, and operating multifamily residential properties which includes the generation of rental and other related income through the leasing of apartment units to tenants. (2) The Company has a segment for corporate level activity including such items as fee and asset management activity, furniture rental/sales activity, interest income earned on short-term investments and investment in mortgage notes, investment in technology entities, income earned from investments in unconsolidated entities, general and administrative expenses, and interest expense on mortgage notes payable, unsecured note issuances and lines of credit. The Company's fee and asset management activity and furniture rental/sales activities are immaterial and do not meet the threshold requirements of a reportable segment as provided for in SFAS No. 131. Interest expense on debt is not allocated to individual Properties, even if the Properties secure such debt. Further, income allocated to Minority Interests is not allocated to the Properties. 16 15. SUBSEQUENT EVENTS Subsequent to March 31, 2001, the Company has: - disposed of four Properties consisting of 658 units for approximately $24.7 million; - paid off $6.7 million of mortgage debt at or prior to maturity and/or at disposition of one property; - funded $5.9 million related to the development, earnout and joint venture agreements; and - disposed of $0.9 million of mortgage debt assumed by the purchaser in connection with the disposition of one property. 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW For further information including capitalized terms, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2000. Forward-looking statements in this report are intended to be made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words "believes", "expects" and "anticipates" and other similar expressions which are predictions of or indicate future events and trends and which do not relate solely to historical matters identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results, performance, or achievements of the Company to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause such differences include, but are not limited to, the following: - alternative sources of capital to the Company are more expensive than anticipated; - occupancy levels and market rents may be adversely affected by local economic and market conditions, which are beyond the Company's control; and - additional factors as discussed in Part I of the Annual Report on Form 10-K. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company assumes no obligation to publicly release any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. RESULTS OF OPERATIONS The following table summarizes the number of Properties and related units for the periods presented:
PORTFOLIO SUMMARY --------------------------------------------------------------------------------- QUARTER ENDED MARCH 31, --------------------------------------------------------------------------------- 2001 2000 ---- ---- PROPERTIES UNITS PROPERTIES UNITS ------------ --------- ------------ --------- Beginning of period 1,104 227,704 1,062 225,708 Acquisitions 7 1,721 1 178 Dispositions (15) (2,272) (11) (2,162) ------------ --------- ------------ --------- End of period 1,096 227,153 1,052 223,724 ------------ --------- ------------ ---------
In addition, the Company sold and/or contributed eleven wholly owned Properties containing 3,011 units to a joint venture entity during the quarter ended March 31, 2001. The Company retained a 25% interest along with the rights to manage the joint venture Properties. 18 The Company's overall results of operations for the quarters ended March 31, 2001 and 2000 have been significantly impacted by the Company's acquisition and disposition activity. The significant changes in revenues and expenses can primarily be attributed to the acquisition of Globe, the 2001 and the 2000 Acquired Properties, partially offset by the disposition of the 2001 and the 2000 Disposed Properties. This impact is discussed in greater detail in the following paragraphs. Properties that the Company owned for all of the quarter ended March 31, 2001 and March 31, 2000 (the "First Quarter 2001 Same Store Properties"), which represented 188,220 units, also impacted the Company's results of operations and are discussed as well in the following paragraphs. COMPARISON OF QUARTER ENDED MARCH 31, 2001 TO QUARTER ENDED MARCH 31, 2000 For the quarter ended March 31, 2001, income before allocation to Minority Interests, income from investments in unconsolidated entities, net gain on sales of real estate, extraordinary items and cumulative effect of change in accounting principle increased by approximately $16.6 million when compared to the quarter ended March 31, 2000. Rental income from the First Quarter 2001 Same Store Properties increased by approximately $22.8 million to $439.9 million or 5.46% primarily as a result of higher rental rates charged to new tenants and tenant renewals and an increase in income from billing tenants for their share of utility costs as well as other ancillary services provided to tenants. For the remainder of 2001, the Company expects to achieve rental income increases of 4.5% to 5.0% from Same Store Properties. These estimated increases are subject to certain risks and uncertainties including, but not limited to, maintaining an overall average occupancy rate of 95%. Property operating expenses from the First Quarter 2001 Same Store Properties, which include property and maintenance, real estate taxes and insurance and an allocation of property management expenses, increased approximately $8.9 million or 5.97%. The increase in "same store" expenses is primarily attributable to a $3.6 million, or 14.8% increase in utilities and a $2.1 million, or 5.7% increase in payroll. For the remainder of 2001, the Company expects to maintain expense growth at no more than 4.25% to 4.75%. Rental income from non-First Quarter 2001 Same Store Properties increased by approximately $17.8 million primarily as a result of revenue from the Globe corporate housing business and the acquisition of Properties during the periods presented. The Company expects similar trends in the future subject to certain risks and uncertainties including that any new acquisitions perform at the Company's pro forma expectations. Interest and other income increased by approximately $3.0 million, primarily as a result of disposition proceeds earning interest in various tax deferred 1031 exchange accounts. These proceeds are invested in money market investments until the Company purchases additional multi-family properties. Property management represents expenses associated with the self-management of the Company's Properties. These expenses decreased by approximately $0.2 million. The Company continues to acquire properties in major metropolitan areas and dispose of assets in smaller multi-family rental markets where the Company does not have a significant management presence. As a result, the Company is able to achieve economies of scale by not increasing off-site management expenses as it acquires additional properties. Fee and asset management revenues and fee and asset management expenses increased as a result of the Company continuing to manage Properties that were sold and/or contributed to various joint venture entities. As of March 31, 2001, the Company currently manages 20,300 units for third parties and the joint venture entities. 19 Furniture income and furniture expenses are associated with the operation of the furniture rental business assumed in connection with the Globe acquisition, which occurred in July 2000. Furniture expenses include a depreciation charge on furniture held in inventory. Interest expense, including amortization of deferred financing costs, increased approximately $0.2 million. The effective interest cost on all of the Company's indebtedness for the quarter ending March 31, 2001 was 7.07% as compared to 7.17% for the quarter ended March 31, 2000. For the remainder of 2001, the Company expects interest rates to decrease slightly due to lower variable rates. In connection with the refinancing of $280 million of indebtedness, the Company expects to incur interest costs approximating 7.5% per annum. General and administrative expenses, which include corporate operating expenses, increased approximately $0.1 million between the periods under comparison. However, by gaining certain economies of scale with a much larger operation, these expenses as a percentage of total revenues were 1.26% for the quarter ended March 31, 2001 compared to 1.39% of total revenues for the quarter ended March 31, 2000. Net gain on sales of real estate increased approximately $21.8 million between the periods under comparison. This increase is primarily the result of additional Properties sold during the quarter ended March 31, 2001, which included fifteen wholly owned Properties; eleven joint venture Properties (75% gain recognition) and one land sale as compared to eleven wholly owned Properties sold in the quarter ended March 31, 2000. LIQUIDITY AND CAPITAL RESOURCES As of January 1, 2001, the Company had approximately $23.8 million of cash and cash equivalents and the amounts available on the Company's lines of credit was $400 million, of which $53.5 million was restricted. After taking into effect the various transactions discussed in the following paragraphs, the Company's cash and cash equivalents balance at March 31, 2001 was approximately $104.8 million and the amounts available on the Company's lines of credit was $755 million, of which $54.9 million was restricted. Part of the Company's strategy in funding the purchase of multifamily properties, funding its Properties in the development and/or earnout stage and the funding of the Company's investment in two joint ventures with multifamily real estate developers is to utilize its lines of credit and to subsequently repay the lines of credit from the disposition of Properties or the issuance of additional equity or debt securities. Utilizing this strategy during the first three months of 2001, the Company: - disposed of fifteen properties and a vacant parcel of land and received net proceeds of $115.4 million; - issued $300 million of unsecured debt receiving net proceeds of $297.4 million; - sold and/or contributed eleven properties to a joint venture and received net proceeds of $190.0 million; - issued $35 million of two new series of Preference Interests and received net proceeds of $34.1 million. All of these proceeds were utilized to either: - repay the lines of credit; - repay mortgage indebtedness on selected Properties; - invest in unconsolidated entities; - purchase additional properties. 20 During the quarter ended March 31, 2001, the Company: - repaid approximately $176.7 million of mortgage indebtedness; - invested $1 million in a corporate entity; - loaned $2.6 million to an unconsolidated entity; - funded $26.4 million related to the development, earnout and joint venture agreements. The Company's total debt summary, as of March 31, 2001, included:
DEBT SUMMARY AS OF 3/31/01 -------------------------------------------------------------------------------- WEIGHTED $ MILLIONS AVERAGE RATE ------------- ------------ Secured $ 3,097 6.72% Unsecured $ 2,419 7.04% ------------- ------------ Total $ 5,516 6.86% Fixed Rate $ 5,048 7.06% Floating Rate $ 468 4.72% ------------- ------------ Total $ 5,516 6.86% ABOVE TOTALS INCLUDE: Total Tax Exempt $ 959 4.80% Unsecured Revolving Credit Facility $ - N/A
Subsequent to March 31, 2001 and through May 1, 2001, the Company: - disposed of four Properties consisting of 658 units for approximately $24.7 million; - repaid $6.7 million of mortgage debt at or prior to maturity and/or disposition of a Property; - funded $5.9 million related to the development, earnout, and joint venture agreements; - disposed of $0.9 million of mortgage debt assumed by the purchaser in connection with the disposition of one property. During the remainder of 2001, the Company expects to fund approximately $70.2 million related to the development, earnout and joint venture agreements. In connection with one joint venture agreement, the Company has an obligation to fund up to an additional $17.5 million to guarantee third party construction financing. As of March 31, 2001, the Company has 19 projects under development with estimated completion dates ranging from June 30, 2001 through March 31, 2003. At any time following the completion of construction of any development property, the Company's joint venture partners have the right to cause the Company to acquire their respective interests in the completed projects at a mutually agreeable price. If the Company and the joint venture partner are unable to agree on a price, appraisals will be obtained by both parties. If the appraised values vary by more than 10%, both the Company and the joint venture partner will agree on a third appraiser to determine which original appraisal is closest to its determination of value. During the quarter ended March 31, 2001, the Company's total improvements to real estate approximated $28.2 million. Of this amount, approximately $4.5 million, or $89 per unit, related to capital improvements and major repairs for the 1999, 2000 and 2001 Acquired Properties. Capital improvements and major repairs for all of the Company's pre-1999 Acquired Properties approximated $9.9 million or $64 per unit. Capital spent for replacement-type items approximated $11.4 million, or $56 per unit. In addition, approximately $1.7 million was spent on seven specific assets related to major 21 renovations and repositioning of these assets. Also included in total improvements to real estate was approximately $0.7 million on commercial/other assets and Partially Owned Properties. Such improvements to real estate were primarily funded from net cash provided by operating activities. Total improvements to real estate budgeted for the remainder of 2001 are estimated to be approximately $110.0 million. Also included in total capital expenditures for the Company was approximately $1.8 million for non-real estate additions such as computer software, computer equipment, and furniture and fixtures and leasehold improvements to the Company's property management offices and its corporate offices. Such additions to non-real estate property were primarily funded from net cash provided by operating activities. Total additions to non-real estate property budgeted for the remainder of 2001 are estimated to be approximately $4.2 million. The Company, through its Globe subsidiary, has a policy of capitalizing expenditures made for rental furniture and property and equipment. Globe purchases furniture to replace furniture that has been sold and to maintain adequate levels of rental furniture to meet existing and new customer needs. Expenditures for property and equipment that significantly enhance the value of existing assets or substantially extend the useful life of an asset are also capitalized. Expenditures for ordinary maintenance and repairs related to property and equipment are expensed as incurred. For the quarter ended March 31, 2001, total additions to rental furniture approximated $6.3 million and property and equipment approximated $0.7 million. Total additions to rental furniture and property and equipment budgeted for the remainder of 2001 are estimated to be approximately $18.0 million. Minority Interests as of March 31, 2001 increased by $24.7 million when compared to December 31, 2000. The primary factors that impacted this account during the quarter were: - distributions declared to Minority Interests, which amounted to $9.9 million for the quarter (excluding preference unit/interest distributions); - the allocation of income from operations in the amount of $9.8 million; - the allocation of Minority Interests from Partially Owned Properties in the amount of $0.1 million; - the conversion of OP Units into Common Shares; and - the issuance of Common Shares, OP Units and Preference Interests during the quarter ended March 31, 2001. Total distributions paid in April 2001 amounted to approximately $143.3 million, which included distributions declared for the quarter ended March 31, 2001. The Company expects to meet its short-term liquidity requirements, including capital expenditures related to maintaining its existing Properties and certain scheduled unsecured note and mortgage note repayments, generally through its working capital, net cash provided by operating activities and borrowings under its lines of credit. The Company considers its cash provided by operating activities to be adequate to meet operating requirements and payments of distributions. The Company also expects to meet its long-term liquidity requirements, such as scheduled unsecured note and mortgage debt maturities, property acquisitions, financing of construction and development activities and capital improvements through the issuance of unsecured notes and equity securities including additional OP Units as well as from undistributed FFO and proceeds received from the disposition of certain Properties. In addition, the Company has certain uncollateralized Properties available for additional mortgage borrowings in the event that the public capital markets are unavailable to the Company or the cost of alternative sources of capital to the Company is too high. The Company has a revolving credit facility with Bank of America Securities LLC and Chase Securities Inc. acting as joint lead arrangers to provide the Operating Partnership with potential borrowings of up to $700 million. As of May 1, 2001, no amounts were outstanding under this facility. 22 In connection with the Globe Acquisition, the Company assumed a revolving credit facility with Fifth Third Bank with potential borrowings of up to $55.0 million. As of May 1, 2001, no amounts were outstanding under this facility. In connection with the Wellsford Merger, the Company provided a credit enhancement with respect to certain tax-exempt bonds issued to finance certain public improvements at a multifamily development project. As of May 1, 2001, this enhancement was still in effect at a commitment amount of $12.7 million. FUNDS FROM OPERATIONS Funds from Operations ("FFO") represents net income (loss) (computed in accordance with accounting principles generally accepted in the United States ("GAAP")), excluding gains or losses from sales of property and investments in technology segments, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect funds from operations on the same basis. The Company believes that FFO is helpful to investors as a supplemental measure of the operating performance of a real estate company because, along with cash flows from operating activities, financing activities and investing activities, it provides investors an understanding of the ability of the Company to incur and service debt and to make capital expenditures. FFO in and of itself does not represent cash generated from operating activities in accordance with GAAP and therefore should not be considered an alternative to net income as an indication of the Company's performance or to net cash flows from operating activities as determined by GAAP as a measure of liquidity and is not necessarily indicative of cash available to fund cash needs. The Company's calculation of FFO may differ from the methodology for calculating FFO utilized by other real estate companies and may differ as a result of differences between the Company's and other real estate company's accounting policies for replacement type items and, accordingly, may not be comparable to such other real estate companies. For the quarter ended March 31, 2001, FFO available to Common Shares and OP Units-basic increased by $22.3 million, or 13.1% when compared to the quarter ended March 31, 2000. 23 The following is a reconciliation of net income to FFO available to Common Shares and OP Units for the quarters ended March 31, 2001 and 2000 (amounts in thousands except per share and OP Unit amounts):
QUARTER ENDED MARCH 31, --------------------------------- 2001 2000 --------------- ---------------- STATEMENTS OF FUNDS FROM OPERATIONS Net income $ 135,280 $ 101,139 Adjustments: Depreciation/amortization 113,474 110,081 Allocation to Minority Interests - Operating Partnership 9,796 7,096 Net gain on sales of real estate (41,778) (19,998) Extraordinary items (311) - Cumulative effect of change in accounting principle* 1,270 - Loss on investment in technology segment** 3,003 - --------------- ---------------- FFO 220,734 198,318 Preferred distributions (28,526) (28,388) --------------- ---------------- FFO available to Common Shares and OP Units - basic $ 192,208 $ 169,930 --------------- ---------------- FFO available to Common Shares and OP Units - diluted $ 199,653 $ 180,012 =============== ================ Weighted average Common Shares and OP Units outstanding - basic 144,829 140,264 --------------- ---------------- Weighted average Common Shares and OP Units outstanding - diluted 154,008 151,329 --------------- ----------------
* Represents the effect related to the Company's adoption of SFAS No. 133/138 on January 1, 2001. ** Represents the Company's portion of losses related to its investments in four technology companies. 24 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There have been no new or significant developments related to the legal proceedings that were discussed in Part I, Item III of the Company's Form 10-K for the year ended December 31, 2000. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibits: 12 Computation of Ratio of Earnings to Fixed Charges (B) Reports on Form 8-K: A Report on Form 8-K dated March 2, 2001, regarding additional information on the prospectus supplement for the Company's $300 million unsecured note offering. 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EQUITY RESIDENTIAL PROPERTIES TRUST Date: May 11, 2001 By: /s/ Bruce C. Strohm ------------ -------------------------------------------- Bruce C. Strohm Executive Vice President, General Counsel and Secretary Date: May 11, 2001 By: /s/ Michael J. McHugh ------------ -------------------------------------------- Michael J. McHugh Executive Vice President, Chief Accounting Officer and Treasurer 26