-----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, OeZ+c9qTWWUMLZw4ppKxW/ngdF5MrlT7+IjYx7Nrn3KwMXiUfcBGF3pmmUqrfRUi A/capD/hotVcAjGSszAtsA== 0000950131-96-003874.txt : 19960814 0000950131-96-003874.hdr.sgml : 19960814 ACCESSION NUMBER: 0000950131-96-003874 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EQUITY RESIDENTIAL PROPERTIES TRUST CENTRAL INDEX KEY: 0000906107 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 363877868 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12252 FILM NUMBER: 96610834 BUSINESS ADDRESS: STREET 1: TWO N RIVERSIDE PLZ STREET 2: STE 450 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3124741300 MAIL ADDRESS: STREET 1: TWO N RIVERSIDE PLAZA STREET 2: SUITE 450 CITY: CHICAGO STATE: IL ZIP: 60606 10-Q 1 FORM 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 JUNE 30, 1996 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 36-3877868 (State or Other Jurisdiction of (I.R.S. Employer Incorporation Or Organization) Identification No.) 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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO CORPORATE USERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: AT AUGUST 13, 1996, 43,382,139 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) June 30, December 31, 1996 1995 ---------- ----------- ASSETS Investment in rental property Land $ 237,482 $ 210,369 Depreciable property 2,242,492 1,976,267 ---------- ---------- 2,479,974 2,186,636 Accumulated depreciation (252,872) (217,183) ---------- ---------- Investment in rental property, net of accumulated depreciation 2,227,102 1,969,453 Real estate held for disposition 4,165 - Cash and cash equivalents 11,906 13,428 Investment in mortgage notes, net 86,768 87,154 Rents receivable 1,734 1,073 Deposits - restricted 11,300 18,272 Escrow deposits - mortgage 17,456 16,745 Deferred financing costs, net 11,094 12,653 Other assets 22,610 22,482 ---------- ---------- Total assets $2,394,135 $2,141,260 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Mortgage notes payable $ 667,803 $ 561,695 Notes, net 348,681 348,524 Line of credit 20,000 92,000 Accounts payable and accrued expenses 29,478 23,544 Accrued interest payable 8,047 8,354 Due to affiliates 1,639 1,568 Rents received in advance and other liabilities 12,817 11,138 Security deposits 11,447 10,131 Distributions payable 37,210 30,826 ---------- ---------- Total liabilities 1,137,122 1,087,780 ---------- ---------- Commitments and contingencies Minority Interests 155,031 168,963 ---------- ---------- Shareholders' equity: Preferred Shares of beneficial interest, $.01 par value; 10,000,000 shares authorized: 9 3/8% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, liquidation preference $25 per share, 6,120,000 shares issued and outstanding 153,000 153,000 9 1/8% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, liquidation preference $250 per share, 500,000 shares issued and outstanding 125,000 125,000 Common Shares of beneficial interest, $.01 par value, 100,000,000 shares authorized, 43,349,349 shares issued and outstanding as of June 30, 1996 and 35,011,715 shares issued and outstanding as of December 31, 1995 433 350 Paid in capital 893,262 652,829 Employee notes (5,294) (5,331) Distributions in excess of accumulated earnings (64,419) (41,331) ---------- ---------- Total shareholders' equity 1,101,982 884,517 ---------- ---------- Total liabilities and shareholders' equity $2,394,135 $2,141,260 ========== ==========
The accompanying notes are an integral part of the financial statements. 2 EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands except for per share data) (Unaudited)
Six Months Ended June 30, Quarters Ended June 30, -------------------------- ------------------------ 1996 1995 1996 1995 --------- ------------ ---------- --------- REVENUES Rental income $ 209,239 $ 179,700 $ 107,796 $ 90,274 Fee and asset management 3,303 3,761 1,758 1,899 Interest income - investment in mortgage notes 5,866 - 3,156 - Interest and other income 1,180 1,715 557 1,121 --------- --------- --------- --------- Total revenues 219,588 185,176 113,267 93,294 --------- --------- --------- --------- EXPENSES Property and maintenance 59,217 51,594 30,551 26,346 Real estate taxes and insurance 21,229 18,383 10,950 9,093 Property management 8,800 7,688 4,365 3,668 Fee and asset management 2,126 1,940 1,020 954 Depreciation 42,933 33,920 22,317 17,311 Interest: Expense incurred 37,024 39,091 18,783 19,526 Amortization of deferred financing costs 1,895 1,702 951 916 General and administrative 4,105 4,094 2,026 1,936 --------- --------- --------- --------- Total expenses 177,329 158,412 90,963 79,750 --------- --------- --------- --------- Income before gain on disposition of properties, extraordinary item and allocation to Minority Interests 42,259 26,764 22,304 13,544 Gain on disposition of properties 2,346 - 1,006 - --------- --------- --------- --------- Income before extraordinary item and allocation to Minority Interests 44,605 26,764 23,310 13,544 Gain on early extinguishment of debt - 2,000 - 2,000 --------- --------- --------- --------- Income before allocation to Minority Interests 44,605 28,764 23,310 15,544 Income allocated to Minority Interests (5,923) (5,938) (3,022) (3,062) --------- --------- --------- --------- Net income 38,682 22,826 20,288 12,482 Preferred distributions 12,874 1,195 6,437 1,195 --------- --------- --------- --------- Net income available to Common Shares $ 25,808 $ 21,631 $ 13,851 $ 11,287 ========= ========= ========= ========= Net income per weighted average Common Share outstanding $ 0.65 $ 0.63 $ 0.34 $ 0.33 ========= ========= ========= ========= Weighted average Common Shares outstanding 39,496 34,213 41,114 34,328 ========= ========= ========= ========= Distributions declared per Common Share outstanding $ 1.18 $ 1.06 $ 0.59 $ 0.53 ========= ========= ========= =========
The accompanying notes are an integral part of the financial statements. 3 EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) (Unaudited)
Six Months Ended June 30, ------------------------------------- 1996 1995 ------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 38,682 $ 22,826 Adjustments to reconcile net income to net cash provided by operating activities: Income allocated to Minority Interests 5,923 5,938 Depreciation 42,933 33,920 Amortization of deferred financing costs (including discount on 1999 and 2002 Notes) 2,052 1,817 Gain on disposition of properties (2,346) - Gain on early extinguishment of debt - (2,000) Changes in assets and liabilities: (Increase) in rents receivable (661) (294) Decrease (increase) in deposits - restricted 10,872 (1,101) Decrease in other assets 757 2,311 (Decrease) in due to affiliates (200) (1,172) Increase in accounts payable and accrued expenses 6,262 3,994 (Decrease) increase in accrued interest payable (307) 1,741 Increase in rents received in advance and other liabilities 1,679 1,149 --------- --------- Net cash provided by operating activities 105,646 69,129 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in rental properties, net (262,921) (45,574) Improvements to rental property (13,749) (13,506) Additions to non-rental property (725) (2,026) Proceeds from disposition of rental property 10,183 - (Increase) in mortgage deposits (711) (2,926) Deposits (made) on rental property acquisitions (4,000) (500) Deposits applied on rental property acquisitions 100 2,058 Decrease in investment in mortgage notes, net 386 - Other investing activities (96) 4,301 --------- --------- Net cash (used for) investing activities (271,533) (58,173) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of Common Shares 229,787 - Proceeds from sale of Preferred Shares - 153,000 Proceeds from exercise of options 2,551 303 Proceeds from sale of Fixed Rate Notes, net of discount - 124,011 Redemption of Preference Units (1,083) (401) Payment of offering costs (334) (5,302) Distributions to Common Share and Preferred Share owners (55,736) (35,837) Distributions to Minority Interests (10,100) (9,160) Principal receipts on employee notes 37 124 Proceeds from restructuring of tax-exempt bond investments 77,095 - Loan to title holding entities (4,900) - Proceeds from line of credit 157,000 60,000 Repayments on line of credit (229,000) (222,000) Principal payments on mortgage notes payable (1,864) (34,562) Loan and bond acquisition costs (404) (2,325) Increase in security deposits 1,316 241 --------- --------- Net cash provided by financing activities 164,365 28,092 --------- --------- Net (decrease) increase in cash and cash equivalents (1,522) 39,048 Cash and cash equivalents, beginning of period 13,428 20,038 --------- --------- Cash and cash equivalents, end of period $ 11,906 $ 59,086 ========= =========
The accompanying notes are an integral part of the financial statements. 4 EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Amounts in thousands) (Unaudited)
SIX MONTHS ENDED JUNE 30, ------------------------- 1996 1995 ------------------------- Supplemental information: Cash paid during the period for interest $37,331 $37,350 ======= ======= Mortgage loans assumed through acquisitions of rental properties $30,878 $ - ======= ======= Rental property assumed through foreclosure $10,854 $ - ======= =======
The accompanying notes are an integral part of the financial statements. 5 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) DEFINITION OF SPECIAL TERMS: Capitalized terms used herein and not defined are as defined in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. 1. BUSINESS Equity Residential Properties Trust, formed in March 1993, and its subsidiaries (collectively, the "Company"), is a self-administered and self- managed equity real estate investment trust ("REIT"). As of June 30, 1996, the Company controlled a portfolio of 191 multifamily residential properties (individually a "Property" and collectively the "Properties"). The Company's interest in six of these Properties consists solely of ownership of debt collateralized by such Properties. The Company also has an investment in partnership interests and subordinated mortgages collateralized by 21 properties (the "Additional Properties"). 2. BASIS OF PRESENTATION The balance sheet and statements of operations and cash flows as of and for the quarter and six months ended June 30, 1996 represent the consolidated financial information of the Company and its subsidiaries. Due to the Company's ability as general partner to control either through ownership or by contract the Operating Partnership, the Management Partnerships and the Financing Partnerships, each such entity has been consolidated with the Company for financial reporting purposes. In regard to Management Corp. and Management Corp. II, the Company does not have legal control; however, these entities are consolidated for financial reporting purposes, the effects of which are immaterial. These unaudited Consolidated Financial Statements of the Company have been prepared pursuant to the Securities and Exchange Commission ("SEC") rules and regulations and should be read in conjunction with the Financial Statements and Notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995 ("Form 10-K"). The following Notes to Consolidated Financial Statements highlight significant changes to the notes included in the Form 10-K and present interim disclosures as required by the SEC. The accompanying Consolidated Financial Statements reflect, in the opinion of management, all adjustments necessary for a fair presentation of the interim financial statements. All such adjustments are of a normal and recurring nature. Certain reclassifications have been made to the prior period's financial statements in order to conform with the current period presentation. 6 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 3. INVESTMENT IN RENTAL PROPERTY During the six months ended June 30, 1996, the Company acquired the 18 Properties listed below. Each Property was purchased from an unaffiliated third party. The cash portion of these transactions was primarily funded from the Company's line of credit.
Total Date Number Acquisition Cost Acquired Property Location of Units (in thousands) - -------- -------- -------- -------- -------------- 02/07/96 7979 Westheimer Houston, TX 459 $ 14,410 02/27/96 Sabal Pointe (formerly Vinings at Coral Springs) Coral Springs, FL 275 19,452 03/01/96 The Plantations Cary, NC 344 19,879 03/05/96 Heron Landing (formerly Oxford & Sussex) Sunrise, FL 144 7,112 03/12/96 Pines of Cloverlane Ann Arbor, MI 592 19,285 03/14/96 Regency Palms Huntington Beach, CA 310 18,629 03/21/96 Port Royale II Ft. Lauderdale, FL 161 10,196 04/16/96 Twenty-nine Hundred on First Seattle, WA 135 11,782 05/22/96 Woodland Hills Decatur, GA 228 12,254 05/31/96 Ivy Place (formerly Post Place) Atlanta, GA 122 7,933 06/03/96 Ridgetree Dallas, TX 798 20,949 06/05/96 Country Ridge Farmington Hills, MI 252 16,058 06/07/96 Rosehill Pointe Lenexa, KS 498 20,734 06/07/96 Forest Ridge Arlington, TX 660 23,393 06/12/96 Canyon Sands Phoenix, AZ 412 14,761 06/12/96 Desert Sands Phoenix, AZ 412 14,644 06/25/96 Chandler Court Chandler, AZ 311 13,531 06/28/96 Lands End Pacifica, CA 260 18,253 ----- -------- 6,373 $283,255 ===== ========
In addition to the Properties mentioned above, on February 1, 1996, Management Corp. II transferred to the Company its interest in Desert Park, a 368-unit Property located in Las Vegas, Nevada, subject to $8.1 million of indebtedness, in exchange for the forgiveness of a $2.7 million note payable to the Company. 7 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 4. DISPOSITION OF RENTAL PROPERTIES On January 31, 1996, the Company sold Sanddollar Apartments located in Tulsa, Oklahoma for a sales price of $6.2 million. The gain for financial reporting purposes was approximately $1.3 million. On June 25, 1996, the Company sold Deer Run Apartments located in Charleston, South Carolina for a sales price of $3.95 million. The gain for financial reporting purposes was approximately $1 million. 5. COMMITMENTS TO ACQUIRE AND DISPOSE RENTAL PROPERTIES As of June 30, 1996, the Company had entered into separate agreements to acquire five multifamily residential properties containing 1,729 units and a vacant land parcel from unaffiliated third parties. The expected combined purchase price is approximately $86.1 million, which includes the assumption of mortgage indebtedness of approximately $57.65 million. Also as of June 30, 1996, the Company had entered into an agreement to dispose of one Property containing 200 units to an unaffiliated third party. The expected sales price is $5.15 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 two preceding paragraphs. 6. INVESTMENT IN MORTGAGE NOTES Investment in mortgage notes, net represents the Company's investment in subordinated mortgages collateralized by the Additional Properties. 7. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS On May 21, 1996, the Company completed an offering of 2,300,000 publicly registered Common Shares, which were sold at a net price of $30.50 per share. On May 28, 1996, the Company completed the sale of 73,287 publicly registered Common Shares to employees of the Company and to employees of EGI and certain of their respective affiliates and consultants at a price equal to $30.50 per share. On May 30, 1996, the Company completed an offering of 1,264,400 publicly registered Common Shares, which were sold at a net price of $30.75 per share. The Company received net proceeds of approximately $111.3 million in connection with the sale of the 3,637,687 Common Shares mentioned above (collectively, the "May 1996 Common Share Offerings"). The following table presents the changes in the Company's issued and outstanding Common Shares for the six months ended June 30, 1996: 8 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
Balance at January 1, 1996 35,011,715 Common Shares issued through January 1996 Common Share Offering 1,725,000 Common Shares issued through February 1996 Common Share Offering 2,300,000 Common Shares issued through May 1996 Common Share Offerings 3,637,687 Conversion of OP Units into Common Shares 540,961 Common Shares issued through restricted share awards 21,879 Common Shares issued through exercise of options 102,106 Common Shares issued for profit-sharing contribution 10,001 ---------- Balance at June 30, 1996 43,349,349 ==========
Assuming conversion of all OP Units into Common Shares, total Common Shares outstanding at June 30, 1996 would have been 52,200,105. On March 1, 1996, the Operating Partnership exercised its option to convert all of the remaining Preference Units into OP Units. This conversion resulted in 1,182,835 OP Units being issued. On June 26, 1996, the Company filed with the SEC a Form S-3 Registration Statement to register 608,665 Common Shares which may be issued by the Company to holders of 608,665 OP Units. The SEC has not yet declared the Registration Statement effective. The equity positions of various individuals and entities that contributed their properties to the Operating Partnership in exchange for a partnership interest are collectively referred to as the "Minority Interests". As of June 30, 1996, the Minority Interests held 8,850,756 OP Units which represented a 16.96% interest in the Operating Partnership. Net proceeds from the Company's Common Share offerings are contributed by the Company to the Operating Partnership in return for an increased ownership percentage and are treated as capital transactions in the Company's Consolidated Financial Statements. As a result, the net offering proceeds are allocated between shareholders' equity and Minority Interests to account for the change in their respective percentage ownership of the underlying equity of the Operating Partnership. The Company paid a $0.59 per Common Share distribution on July 12, 1996 for the quarter ended June 30, 1996, to Common Share holders of record on June 28, 1996. The Company also paid a $0.5859 per share distribution on July 15, 1996 for the quarter ended June 30, 1996 to Series A Preferred Share holders of record on June 28, 1996. In addition, the Company paid a $5.703 distribution per $250 Preferred Share (or a $0.5703 distribution per $25 Depositary Share) for the quarter ended June 30, 1996 to holders of record on June 28, 1996. 9 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 8. MORTGAGE NOTES PAYABLE As of June 30, 1996, the Company had outstanding mortgage indebtedness of approximately $667.8 million encumbering 82 of the Properties. The carrying value of such Properties (net of accumulated depreciation of $137.9 million) was $893.3 million. In connection with the Properties acquired during the six months ended June 30, 1996, the Company assumed the outstanding mortgage balances on four Properties in the aggregate amount of $30.9 million. In addition, the Company restructured a portion of its tax-exempt bond investments resulting in an increase in mortgage indebtedness of approximately $77.1 million. Scheduled maturities for the Company's outstanding mortgage indebtedness are at various dates through April 1, 2027. As of June 30, 1996, fixed interest rates on certain of these mortgage notes ranged from 4% to 10.27% and variable interest rates on certain of the mortgage notes ranged from 3.15% to 7.51%. Subsequent to June 30, 1996, the Company repaid the outstanding mortgage balance on two Properties in the amount of approximately $19 million. 9. LINE OF CREDIT The Company, through the Operating Partnership, has a $250 million unsecured line of credit with Wells Fargo Realty Advisors Funding, Incorporated, as agent. This line of credit matures in November 1996 unless extended by the parties. Borrowings under this line of credit currently bear interest at a rate equal to the one month LIBOR, plus 1.375%. As of June 30, 1996, $20 million was outstanding under this facility and was bearing interest at an interest rate of 6.875%. 10. NOTES Included in this balance are the 1999 Notes, the Floating Rate Notes and the 2002 Notes. The 1999 Notes were issued at a discount, which is being amortized over the life of the 1999 Notes on a straight-line basis. As of June 30, 1996 the unamortized discount balance was approximately $0.5 million. The 1999 Notes are due May 15, 1999 and bear interest at a rate of 8.5%, which is payable semiannually in arrears on May 15 and November 15. The Floating Rate Notes are due on December 22, 1997 and bear interest at three month LIBOR plus 0.75%, which is payable quarterly in arrears on the third Wednesday of each February, May, August and November of each year. The 2002 Notes were issued at a discount, which is being amortized over the life of the 2002 Notes on a straight-line basis. As of June 30, 1996 the unamortized discount balance was approximately $0.8 million. The 2002 Notes are due on April 15, 2002 and bear interest at 7.95%, which is payable semi-annually on each April 15 and October 15. 10 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 11. DEPOSITS - RESTRICTED Deposits - restricted shown on the Company's Consolidated Balance Sheet as of June 30, 1996 included a deposit held in a third party escrow account which deposit was made in connection with one of the Company's dispositions. Approximately $3.9 million were held in this account and were utilized for one property the Company purchased subsequent to June 30, 1996. Also included in the deposits - restricted amount were approximately $4 million of earnest money deposits made for property acquisitions. Also included in the deposits - restricted amount were tenant security and utility deposits made for certain of the Company's Properties. 12. COMMITMENTS AND CONTINGENCIES There have been no new or significant developments related to the commitments and contingencies that were discussed in Note 16 to the Company's Form 10-K for the year ended December 31, 1995. 13. SUBSEQUENT EVENTS On July 2, 1996, the Company acquired Sunny Oak Village Apartments, a 548- unit multifamily residential property located in Overland Park, Kansas from an unaffiliated third party. The purchase price was approximately $22.2 million. On July 2, 1996, the Company acquired Mallard Cove Apartments, a 211-unit multifamily residential property located in Greenville, South Carolina from an unaffiliated third party. The purchase price was $7.85 million. On July 16, 1996, the Company acquired Pine Meadow Apartments, a 204-unit multifamily residential property located in Greensboro, North Carolina from an unaffiliated third party. The purchase price was $7.19 million, which included the assumption of mortgage indebtedness of approximately $4.9 million. On July 19, 1996, the Company acquired Summer Ridge Apartments (136 units) located in Riverside, California; Promenade Terrace Apartments (330 units) located in Corona Hills, California; and South Creek Apartments (528 units) located in Mesa, Arizona, all multifamily residential properties from an unaffiliated third party. The combined purchase price was $55.53 million, which included the assumption of mortgage indebtedness of approximately $33.2 million. On August 1, 1996, the Company acquired Pueblo Villas Apartments, a 232- unit multifamily residential property located in Albuquerque, New Mexico from an unaffiliated third party. The purchase price was $8.5 million. Subsequent to June 30, 1996 and through August 13, 1996, the Company entered into separate agreements to acquire 11 multifamily residential properties consisting of 2,777 units from 11 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) unaffiliated third parties. The expected combined purchase price is approximately $137.75 million, which includes the assumption of mortgage indebtedness of $12.6 million. The closings of these pending transactions are subject to certain contingencies and conditions; therefore, there can be no assurance that these transactions will be consummated or that the final terms thereof will not differ in material respects from those summarized in the preceding paragraph. In August 1996, the Operating Partnership issued $150 million of unsecured fixed rate notes (the "2026 Notes") in connection with the Debt Shelf Registration in a public debt offering. The 2026 Notes are due on August 15, 2026 and bear interest at 7.57%, which is payable semi-annually in arrears on February 15 and August 15, commencing February 15, 1997. The Operating Partnership received net proceeds of approximately $148.7 million in connection with this offering and subsequently repaid amounts outstanding on the line of credit. 12 EQUITY RESIDENTIAL PROPERTIES TRUST PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW The following discussion and analysis of the results of operations and financial condition of the Company should be read in connection with the Consolidated Financial Statements and Notes thereto. Due to the Company's ability to control the Operating Partnership, the Management Partnerships, the Financing Partnerships and the LLCs, each entity has been consolidated with the Company for financial reporting purposes. Capitalized terms used herein and not defined, are as defined in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. RESULTS OF OPERATIONS Since the Company's IPO, the Company has acquired direct or indirect interests in 130 properties (the "Acquired Properties"), containing 40,755 units in the aggregate for a total purchase price of approximately $1.9 billion, including the assumption of approximately $442.8 million of mortgage indebtedness. The Company's interest in six of the Acquired Properties consists solely of ownership of the debt collateralized by such Acquired Properties. The Company purchased ten of such Acquired Properties consisting of 2,694 units between the IPO and December 31, 1993 (the "1993 Acquired Properties"); 84 of such Acquired Properties consisting of 26,285 units in 1994 (the "1994 Acquired Properties"); 17 of such Acquired Properties consisting of 5,035 units in 1995 (the "1995 Acquired Properties"); and 19 of such Acquired Properties consisting of 6,741 units between January 1, 1996 and June 30, 1996 (the "1996 Acquired Properties"). In addition, in August 1995, the Company made an investment in partnership interests and subordinated mortgages collateralized by the 21 Additional Properties. The Acquired Properties were presented in the Consolidated Financial Statements of the Company from the date of each acquisition. During 1995, the Company also disposed of six properties containing 2,445 units (the "1995 Disposed Properties") for a total sales price of approximately $52 million and the release of mortgage indebtedness of $20.5 million. During the six months ended June 30, 1996, the Company disposed of two properties (the "1996 Disposed Properties") for a total sales price of $10.15 million. The Company's overall results of operations for the quarter and six months ended June 30, 1996 have been impacted by the Company's acquisition and disposition activity. The significant increases in rental revenues, property and maintenance expenses, real estate taxes and insurance, depreciation expense and property management can all primarily be attributed to the acquisition of the 1995 Acquired Properties and 1996 Acquired Properties. The impact of the 1995 Acquired Properties is discussed in greater detail in the following paragraphs. The Company's disposition activity partially offset the increases to these same accounts. Properties that the Company owned for all of both the six months ended June 30, 1996 and June 30, 1995 (the "Six-Month 1996 Same Store Properties") and Properties that the Company owned for all of both the quarters ended June 30, 1996 and June 30, 1995 (the "Second-Quarter 1996 Same Store Properties") also impacted the Company's results of operations and are discussed as well in the 13 EQUITY RESIDENTIAL PROPERTIES TRUST PART I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.(Continued) following paragraphs. COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 TO SIX MONTHS ENDED JUNE 30, 1995 For the six months ended June 30, 1996, income before gain on disposition of properties, extraordinary item and allocation to Minority Interests increased by $15.5 million when compared to the six months ended June 30, 1995. This increase was primarily due to increases in rental revenues net of increases in property and maintenance expenses, real estate taxes and insurance, property management expenses, fee and asset management and depreciation expense. All of the increases in the various line item accounts mentioned above can be primarily attributed to the 1996 Acquired Properties and 1995 Acquired Properties. These increases were partially offset by the 1995 Disposed Properties and the 1996 Disposed Properties. Interest income of $5.9 million earned on the Company's mortgage note investment was an additional factor that impacted the six month to six month changes. In regard to the Six-Month 1996 Same Store Properties, rental revenues increased by approximately $9.9 million or 5.8% primarily as a result of higher rental rates charged to new tenants and tenant renewals. Overall property operating expenses which include property and maintenance, real estate taxes and insurance and an allocation of property management expenses increased approximately $2.9 million or 4%. This increase was primarily the result of higher payroll expenses, leasing and advertising costs and utilities costs. For 1996 the Company also increased its per unit charge for property level insurance which increased insurance expense by approximately $0.6 million. Property management represents expenses associated with the management of the Company's Properties. These expenses increased by approximately $1.1 million primarily as a result of the expansion of the Company's property management with the addition of a regional operations center in Seattle, Washington. Fee and asset management revenues and fee and asset management expenses are associated with the management of properties not owned by the Company that are managed for affiliates. These revenues decreased by $0.5 million due to the disposition of certain of these properties. Interest expense, including amortization of deferred financing costs, decreased by approximately $1.9 million. Of this decrease, $3.9 million was due to having a lower average balance outstanding on the Company's line of credit and $2.6 million was due to the repayment of mortgage indebtedness on certain of the 1994 Acquired Properties and Zell Properties. This decrease was offset by an increase of approximately $1.5 million due to the interest associated with the debt assumed on the 1995 Acquired Properties and 1996 Acquired Properties, $0.1 million was due to interest related to the 1999 Notes and the Floating Rate Notes and $3 million was due to interest related to the 2002 Notes. General and administrative expenses, which include corporate operating expenses, increased slightly between the periods under comparison. General and administrative expenses as a percentage 14 EQUITY RESIDENTIAL PROPERTIES TRUST PART I Itme 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) of total revenues decreased from 2.2% for the six months ended June 30, 1995 to 1.9% for the six months ended June 30, 1996. COMPARISON OF QUARTER ENDED JUNE 30, 1996 TO QUARTER ENDED JUNE 30, 1995 For the quarter ended June 30, 1996, income before gain on disposition of property, extraordinary item and allocation to Minority Interests increased by $8.8 million when compared to the quarter ended June 30, 1995. This increase was primarily due to increases in rental revenues net of increases in property and maintenance expenses, real estate taxes and insurance, property management expenses, fee and asset management and depreciation expense. All of the increases in the various line item accounts mentioned above can be primarily attributed to the 1996 Acquired Properties and 1995 Acquired Properties. These increases were partially offset by the 1995 Disposed Properties and the 1996 Disposed Properties. Interest income of $3.2 million earned on the Company's mortgage note investment was an additional factor that impacted the quarter to quarter changes. In regard to the Second Quarter 1996 Same Store Properties, rental revenues increased by approximately $5.3 million or 6.1% as a result of higher rental rates charged to new tenants and tenant renewals. Overall property operating expenses which include property and maintenance, real estate taxes and insurance and an allocation of property management expenses increased approximately $1.2 million or 3.2%. This increase was primarily the result of higher payroll expenses, leasing and advertising costs and utilities costs. For 1996 the Company also increased its per unit charge for property level insurance which increased insurance expense by $0.3 million. Property management represents expenses associated with the management of the Company's Properties. These expenses increased by approximately $0.7 million primarily as a result of the expansion of the Company's property management with the addition of a regional operations center in Seattle, Washington. Fee and asset management revenues and fee and asset management expenses are associated with the management of properties not owned by the Company that are managed for affiliates. These revenues decreased by $0.1 million due to the disposition of certain of these properties. Interest expense, including amortization of deferred financing costs, decreased by approximately $0.8 million. Of this decrease, $1 million was due to having a lower average balance outstanding on the Company's line of credit and $1 million was due to the repayment of mortgage indebtedness on certain of the 1994 Acquired Properties and Zell Properties. This decrease was offset by an increase of approximately $0.8 million due to the interest associated with the debt assumed on the 1995 Acquired Properties and 1996 Acquired Properties and $0.4 million was due to interest related to the 2002 Notes. General and administrative expenses, which include corporate operating expenses, increased slightly between the quarters under comparison. General and administrative expenses as a percentage 15 EQUITY RESIDENTIAL PROPERTIES TRUST PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (CONTINUED) of total revenues decreased from 2.1% for the quarter ended June 30, 1995 to 1.8% for the quarter ended June 30, 1996. LIQUIDITY AND CAPITAL RESOURCES As of January 1, 1996, the Company had approximately $13.4 million of cash and cash equivalents and $158 million available on its line of credit. After taking into effect the various transactions discussed in the following paragraphs, the Company's cash and cash equivalents balance at June 30, 1996 was approximately $11.9 million and the amount available on the Company's line of credit was $230 million. The following discussion also explains the changes in net cash provided by operating activities, net cash (used for) investing activities and net cash provided by financing activities, which amounts for each period under comparison are presented in the Company's Statements of Cash Flows. Part of the Company's strategy in funding the purchase of multifamily residential properties is to utilize its line of credit and to subsequently repay the line of credit with proceeds from the issuance of additional equity or debt securities. Continuing to employ this strategy, the Company completed the January 1996 Common Share Offering and received net proceeds of approximately $50.7 million, substantially all of which were applied to repay a portion of the outstanding balance on the Company's line of credit. In addition, the Company completed the February 1996 Common Share Offering and received net proceeds of approximately $67.8 million. Of these proceeds, $60 million were applied to repay the remaining outstanding balance on the Company's line of credit. The remaining proceeds were subsequently used to purchase additional properties. In connection with the May 1996 Common Share Offerings, the Company received net proceeds of approximately $111.3 million. Of these proceeds, $57 million were applied to repay the remaining outstanding balance on the Company's line of credit and the remaining proceeds were subsequently used to purchase additional Properties. In June 1996, the Company restructured certain of its tax-exempt bond investments and received approximately $77.1 million of proceeds in connection therewith. Of these proceeds $70 million were used to repay the remaining outstanding balance on the Company's line of credit. Also in connection with this transaction, the Company made a loan in the amount of $4.9 million to the entities that hold title to the Properties that collateralize the tax-exempt bond indebtedness. The proceeds of this loan were used to pay the costs related to this transaction. In August 1996, the Operating Partnership issued $150 million of unsecured fixed rate notes in connection with the Debt Shelf Registration in a public debt offering. The Operating Partnership received net proceeds of approximately $148.7 million in connection with this offering and subsequently repaid amounts outstanding on the line of credit. With respect to Property acquisitions during the six month period, the Company purchased 19 Properties containing 6,741 units for a total of approximately $291 million, which included the 16 EQUITY RESIDENTIAL PROPERTIES TRUST PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (CONTINUED) assumption of $45.3 million of mortgage indebtedness. These acquisitions were primarily funded from amounts drawn on the Company's line of credit, proceeds funded from third party escrow accounts related to the tax-deferred exchange of certain properties and a portion of the proceeds received in connection with the Common Share offerings as mentioned in the previous paragraph. Subsequent to June 30, 1996, the Company acquired seven additional properties for a purchase price of $101 million. These acquisitions were primarily funded from the Company's line of credit. The Company is actively seeking to acquire additional multifamily residential properties with physical and market characteristics similar to the Properties and is currently under contract with various sellers to purchase up to 4,506 units. The combined purchase price of these probable acquisitions is approximately $224 million. The closings of these 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 will not differ in material respects. During the six months ended June 30, 1996, the Company disposed of two properties which generated net proceeds of $10 million. These proceeds were ultimately applied to purchase additional properties. As of June 30, 1996, the Company had total indebtedness of approximately $1 billion, which included conventional mortgages of $428.8 million, unsecured debt of $350 million (net of a $1.3 million discount), tax exempt bond indebtedness of $239 million and $20 million outstanding on the Company's line of credit. During the six months ended June 30, 1996, total capital expenditures for the Company approximated $20 million. Of this amount, $5.6 million related to capital improvements and major repairs for the Acquired Properties. Such capital expenditures were primarily funded from working capital reserves and from net cash provided by operating activities. Total capital expenditures for the remaining portion of 1996 including amounts for the 1996 Acquired Properties are budgeted to be approximately $25 million. Minority Interests as of June 30, 1996 decreased by $13.9 million when compared to December 31, 1995. The primary factors that impacted this account during the six month period were distributions declared to Minority Interests, which amounted to $10.5 million for the six month period, the allocation of income from operations in the amount of $5.9 million and the conversion of OP Units into Common Shares. Total distributions paid during the six months ended June 30, 1996 amounted to $65.8 million. On May 29, 1996, the Company declared a $0.59 distribution per Common Share, $0.5859 distribution per Series A Preferred Share and $5.703 distribution per $250 Preferred Share (or a $0.5703 distribution per $25 Depositary Share) payable to shareholders of record on June 28, 1996. Total distributions paid in July 1996 for the quarter ended June 30, 1996 amounted to approximately $37 million. 17 EQUITY RESIDENTIAL PROPERTIES TRUST PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (CONTINUED) The Company expects to meet its short-term liquidity requirements generally through its working capital and net cash provided by operating activities. 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 mortgage debt maturities, reduction of outstanding amounts under its line of credit, property acquisitions and significant capital improvements by long-term collateralized and un-collateralized borrowings and the issuance of equity securities including additional OP Units as well as from 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 capital to the Company in such markets is too high. The Company currently has a $250 million line of credit which will continue to be used for property acquisitions and for any working capital needs. As of August 13, 1996, no amounts were outstanding under this facility. This facility is scheduled to mature in November 1996; however, it is the Company's current intent to renegotiate the extension of this facility or replace it with a similar facility. 18 EQUITY RESIDENTIAL PROPERTIES TRUST PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (CONTINUED) FUNDS FROM OPERATIONS The Company generally considers FFO to be one measure of the performance of real estate companies including an equity REIT. In accordance with the new definition of FFO adopted by the Board of Governors of NAREIT, FFO represents net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation on real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. The Company believes that FFO is helpful to investors as a measure of the performance of an equity REIT 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 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. For the six months ended June 30, 1996, FFO, based on the new definition (except for the effect of amortization of deferred financing costs related to Predecessor Business of approximately $316,000), increased by $12.2 million when compared to the six months ended June 30, 1995 to approximately $71.6 million. For the quarter ended June 30, 1996, FFO, based on the new definition (except for the effect of amortization of deferred financing costs related to Predecessor Business of approximately $157,000), increased by $8.2 million when compared to the quarter ended June 30, 1995 to approximately $37.8 million. 19 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The discussion in Note 12 of "Notes to Consolidated Financial Statements" is incorporated herein by reference. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibits: None (B) Reports on Form 8-K: A report on Form 8-K, dated May 15, 1996, was filed on May 21, 1996. A report on Form 8-K, dated May 23, 1996, was filed on May 30, 1996. A report on Form 8-K, dated May 24, 1996, was filed on May 30, 1996. 20 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EQUITY RESIDENTIAL PROPERTIES TRUST Date: August 13, 1996 By: /s/ Bruce C. Strohm --------------- --------------------------------------- Bruce C. Strohm Executive Vice President, General Counsel and Secretary Date: August 13, 1996 By: /s/ Michael J. McHugh --------------- --------------------------------------- Michael J. McHugh Senior Vice President, Chief Accounting Officer and Treasurer EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 11,906 0 1,734 0 0 69,171 2,479,974 (252,872) 2,394,135 100,638 1,036,484 433 0 278,000 823,549 2,394,135 218,408 219,588 0 91,372 4,105 0 38,919 42,259 0 42,259 2,346 0 0 25,808 .65 .65
-----END PRIVACY-ENHANCED MESSAGE-----