-----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, Wz1Ndr1GfIovCIs6hhA0AV0u3a5FwoFf2OGr6zWEcQqDf/rwDYTpfzbvyiUHpp7x iHA/rWSDPJQhVC7fD4vvZQ== 0001047469-99-019911.txt : 19990514 0001047469-99-019911.hdr.sgml : 19990514 ACCESSION NUMBER: 0001047469-99-019911 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990513 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: SEC FILE NUMBER: 001-12252 FILM NUMBER: 99619233 BUSINESS ADDRESS: STREET 1: TWO N RIVERSIDE PLZ STREET 2: STE 400 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 MARCH 31, 1999 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 10, 1999, 119,565,664 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, 1999 DECEMBER 31, 1998 ----------------- ------------------- ASSETS Investment in real estate Land $ 1,351,360 $ 1,326,148 Depreciable property 9,647,811 9,519,579 Construction in progress 83,111 96,336 ------------- ------------- 11,082,282 10,942,063 Accumulated depreciation (814,330) (718,491) ------------- ------------- ------------- ------------- Investment in real estate, net of accumulated depreciation 10,267,952 10,223,572 Real estate held for disposition -- 29,886 Cash and cash equivalents 10,738 3,965 Investment in mortgage notes, net 86,913 88,041 Rents receivable 1,765 4,758 Deposits - restricted 48,276 69,339 Escrow deposits - mortgage 66,737 68,725 Deferred financing costs, net 26,363 27,569 Other assets 193,217 184,405 ------------- ------------- TOTAL ASSETS $ 10,701,961 $ 10,700,260 ------------- ------------- ------------- ------------- LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Mortgage notes payable $ 2,353,479 $ 2,341,011 Notes, net 2,049,183 2,049,516 Lines of credit 165,000 290,000 Accounts payable and accrued expenses 88,299 100,926 Accrued interest payable 60,685 46,176 Rents received in advance and other liabilities 64,240 54,616 Security deposits 37,013 37,439 Distributions payable 112,306 18,755 ------------- ------------- TOTAL LIABILITIES 4,930,205 4,938,439 ------------- ------------- COMMITMENTS AND CONTINGENCIES Minority Interests 434,399 431,374 ------------- ------------- Shareholders' equity: Preferred Shares of beneficial interest, $.01 par value; 100,000,000 shares authorized; 29,091,555 shares issued and outstanding as of March 31, 1999 and 29,097,951 shares issued and outstanding as of December 31, 1998 $ 1,410,414 $ 1,410,574 Common Shares of beneficial interest, $.01 par value; 350,000,000 shares authorized; 119,299,232 shares issued and outstanding as of March 31, 1999 and 118,230,009 shares issued and outstanding as of December 31, 1998 1,193 1,182 Paid in capital 4,196,538 4,169,102 Employee notes (4,826) (4,873) Distributions in excess of accumulated earnings (265,962) (245,538) ------------- ------------- Total shareholders' equity 5,337,357 5,330,447 ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,701,961 $ 10,700,260 ------------- ------------- ------------- -------------
SEE ACCOMPANYING NOTES 2 EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
QUARTER ENDED MARCH 31, ------------------------------------- 1999 1998 ------------------------------------- REVENUES Rental income $ 406,062 $ 277,226 Fee and asset management 1,234 1,360 Interest income - investment in mortgage notes 2,895 4,931 Interest and other income 6,046 2,824 --------------- ----------------- Total revenues 416,237 286,341 --------------- ----------------- EXPENSES Property and maintenance 97,047 66,713 Real estate taxes and insurance 42,048 27,443 Property management 14,201 11,579 Fee and asset management 867 1,052 Depreciation 96,901 64,390 Interest: Expense incurred 79,197 50,254 Amortization of deferred financing costs 845 624 General and administrative 5,867 4,880 --------------- ----------------- Total expenses 336,973 226,935 --------------- ----------------- Income before gain on disposition of properties, net and allocation to Minority Interests 79,264 59,406 Gain on disposition of properties, net 21,416 1,869 --------------- ----------------- Income before allocation to Minority Interests 100,680 61,275 Income allocated to Minority Interests (7,126) (3,688) --------------- ----------------- Net income 93,554 57,587 Preferred distributions (29,377) (21,692) --------------- ----------------- Net income available to Common Shares $ 64,177 $ 35,895 --------------- ----------------- --------------- ----------------- Weighted average Common Shares outstanding 118,956 93,361 --------------- ----------------- --------------- ----------------- Distributions declared per Common Share outstanding $ 0.71 $ 0.67 --------------- ----------------- --------------- ----------------- Net income per weighted average Common Share outstanding $ 0.54 $ 0.38 --------------- ----------------- --------------- ----------------- Net income per weighted average Common Share outstanding - assuming dilution $ 0.54 $ 0.38 --------------- ----------------- --------------- -----------------
SEE ACCOMPANYING NOTES 3 EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS) (UNAUDITED)
QUARTER ENDED MARCH 31, ------------------------ 1999 1998 ------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 93,554 $ 57,587 ---------- -------- ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Income allocated to Minority Interests 7,126 3,688 Depreciation 96,901 64,390 Amortization of deferred financing costs 845 624 Amortization of discounts and premiums on debt (608) (524) Amortization of treasury locks and options on debt 257 398 Interest capitalized to real estate developments (609) -- Gain on disposition of properties, net (21,416) (1,869) CHANGES IN ASSETS AND LIABILITIES: Decrease (increase) in rents receivable 2,661 (496) (Increase) decrease in deposits - restricted (3,465) 357 Decrease (increase) in other assets 4,362 (2,093) (Decrease) in accounts payable and accrued expenses (12,627) (912) Increase in accrued interest payable 14,509 7,466 (Decrease) increase in security deposits (531) 1,518 Increase in rents received in advance and other liabilities 12,687 3,600 -------- -------- Net cash provided by operating activities 193,646 133,734 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in real estate, net (107,058) (142,203) Improvements to real estate (24,922) (14,091) Additions to non-real estate property (2,450) (2,385) Proceeds from disposition of real estate, net 75,997 16,665 Purchase of management contract rights (285) (119) Decrease (increase) in mortgage deposits 1,864 (450) Decrease (increase) in deposits on real estate acquisitions, net 24,527 (3,628) Decrease in investment in mortgage notes 1,128 531 Investment in limited partnerships (15,847) (11,094) Costs related to Mergers (2,612) (987) Other investing activities (355) 20 -------- -------- Net cash (used for) investing activities (50,013) (157,741) -------- --------
SEE ACCOMPANYING NOTES 4 EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (AMOUNTS IN THOUSANDS) (UNAUDITED)
QUARTER ENDED MARCH 31, ------------------------------------ 1999 1998 ------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of Common Shares 2,197 356,829 Proceeds from exercise of options 15,374 1,568 Payment of offering costs (182) (10,013) Distributions to Common Share and Preferred Share owners (29,448) (23,235) Distributions to Minority Interests (316) (312) Principal receipts on employee notes 47 158 Principal receipts on pledged notes receivable 4,681 -- Proceeds from lines of credit 298,000 -- Repayments on lines of credit (423,000) (235,000) Principal payments on mortgage notes payable (4,161) (20,542) Loan and bond acquisition costs (52) (1,166) --------- --------- Net cash (used for) provided by financing activities (136,860) 68,287 --------- --------- Net increase in cash and cash equivalents 6,773 44,280 Cash and cash equivalents, beginning of period 3,965 33,295 --------- --------- Cash and cash equivalents, end of period $10,738 $77,575 --------- --------- --------- --------- SUPPLEMENTAL INFORMATION: Cash paid during the period for interest $65,297 $42,788 --------- --------- --------- --------- Mortgage loans assumed and/or entered into through acquisitions of real estate $16,903 $93,617 --------- --------- --------- --------- Real estate contributed in exchange for OP Units, net $8,929 $50 --------- --------- --------- ---------
SEE ACCOMPANYING NOTES 5 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) DEFINITION OF SPECIAL TERMS: Capitalized terms used but not defined in this Quarterly Report on Form 10-Q are as defined in the Company's Annual Report on Form 10-K for the year ended December 31, 1998 ("Form 10-K"). 1. BUSINESS As used herein, the term "Company" means Equity Residential Properties Trust ("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") and Merry Land & Investment Company, Inc. ("MRY") (the "MRY Merger"). The Company is engaged in the acquisition, ownership and operation of multifamily properties and is a self-administered and self-managed equity real estate investment trust ("REIT"). As of March 31, 1999, the Company controlled a portfolio of 654 multifamily properties (individually a "Property" and collectively the "Properties"). The Company's interest in six of these Properties at the time of acquisition thereof consisted 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 and an investment in six joint ventures consisting of six properties (collectively, the "Additional Properties"). 2. BASIS OF PRESENTATION The balance sheet and statements of operations and cash flows as of and for the quarter ended March 31, 1999 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, the Financing Partnerships, the LLCs and Merry Land DownREIT I LP, each such entity has been consolidated with the Company for financial reporting purposes. In regard to Management Corp., Management Corp. II, Evans Withycombe Management, Inc. and ML Services, Inc., the Company does not have legal control; however, these entities are consolidated for financial reporting purposes, the effects of which are immaterial. Certain reclassifications have been made to the prior year's financial statements in order to conform to the current year presentation. 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. 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. 6 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 3. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS During the first quarter of 1999, the Company issued 8,543 Common Shares pursuant to the Share Purchase - DRIP Plan and received net proceeds of approximately $349,986. In February 1999, the Company issued 53,488 Common Shares pursuant to the Employee Share Purchase Plan, at a price of $34.37 per share, and received net proceeds of approximately $1.8 million. The following table presents the changes in the Company's issued and outstanding Common Shares for the quarter ended March 31, 1999:
- --------------------------------------------------------------------------- ------------------ Balance at January 1, 1999 118,230,009 - --------------------------------------------------------------------------- ------------------ Common Shares issued through Share Purchase - DRIP Plan 8,543 Common Shares issued through Dividend Reinvestment - DRIP Plan 201 Common Shares issued through Employee Share Purchase Plan 53,488 Common Shares issued through conversion of Series H Preferred Shares 4,627 Conversion of OP Units into Common Shares 233,792 Common Shares issued through restricted share awards 309,091 Common Shares issued through exercise of options 429,221 Common Shares issued through 401(k) Plan 30,260 - --------------------------------------------------------------------------- ------------------ Balance at March 31, 1999 119,229,232 - --------------------------------------------------------------------------- ------------------ ------------------
Assuming conversion of all OP Units and Junior Convertible Preference Units into Common Shares, total Common Shares outstanding at March 31, 1999 would have been 132,534,211. 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 March 31, 1999, the Minority Interests held 13,234,979 OP Units, which included the OP Unit equivalent of 98,626 for the Junior Convertible Preference Units that were outstanding at March 31, 1999. As a result, the Minority Interests had a 9.99% interest in the Operating Partnership at March 31, 1999. 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. 7 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) The following table presents the Company's issued and outstanding Preferred Shares as of March 31, 1999 and December 31, 1998:
--------------------------------------------------------------------- -- -------------- -- --------------- MARCH 31, DECEMBER 31, 1999 1998 --------------------------------------------------------------------- ----------------- ----------------- Preferred Shares of beneficial interest, $.01 par value; 100,000,000 shares authorized: 9 3/8% Series A Cumulative Redeemable Preferred $ 153,000 $ 153,000 $25 per share, 6,120,000 shares issued and outstanding at March 31, 1999 and December 31, 1998 9 1/8% Series B Cumulative Redeemable Preferred 125,000 125,000 $250 per share, 500,000 shares issued and outstanding at March 31, 1999 and December 31, 1998 9 1/8% Series C Cumulative Redeemable Preferred 115,000 115,000 $250 per share, 460,000 shares issued and outstanding at March 31, 1999 and December 31, 1998 8.60% Series D Cumulative Redeemable Preferred 175,000 175,000 $250 per share, 700,000 shares issued and outstanding at March 31, 1999 and December 31, 1998 Series E Cumulative Convertible Preferred 99,925 99,925 $25 per share, 3,997,000 shares issued and outstanding at March 31, 1999 and December 31, 1998 9.65% Series F Cumulative Redeemable Preferred 57,500 57,500 $25 per share, 2,300,000 shares issued and outstanding at March 31, 1999 and December 31, 1998 7 1/4% Series G Convertible Cumulative Preferred 316,250 316,250 $250 per share, 1,265,000 shares issued and outstanding at March 31, 1999 and December 31, 1998 7.00% Series H Cumulative Convertible Preferred 3,754 3,914 $25 per share, 150,155 and 156,551 shares issued and outstanding at March 31, 1999 and December 31, 1998, respectively 8.82% Series I Cumulative Convertible Preferred 100,000 100,000 $25 per share, 4,000,000 shares issued and outstanding at March 31, 1999 and December 31, 1998 8.60% Series J Cumulative Convertible Preferred 114,985 114,985 $25 per share, 4,599,400 shares issued and outstanding at March 31, 1999 and December 31, 1998 8.29% Series K Cumulative Redeemable Preferred 50,000 50,000 $50 per share, 1,000,000 shares issued and outstanding at March 31, 1999 and December 31, 1998 7.625% Series L Cumulative Redeemable Preferred 100,000 100,000 $25 per share, 4,000,000 shares issued and outstanding at March 31, 1999 and December 31, 1998 -------------------------------------------------------------------- ----------------- -------------- $ 1,410,414 $ 1,410,574 -------------------------------------------------------------------- ----------------- -------------- ----------------- --------------
8 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) The following table summarizes the distributions paid to Preferred and Depositary Share holders and Common Share holders as of the record date of March 19, 1999 related to the quarter ended March 31, 1999:
DISTRIBUTION AMOUNT DATE PAID - ----------------------------- ------------------------ --------------- Series A Preferred $0.5859380 04/15/99 Series B Depositary $0.5703130 04/15/99 Series C Depositary $0.5703130 04/15/99 Series D Depositary $0.5375000 04/15/99 Series E Preferred $0.4375000 04/01/99 Series F Preferred $0.6031250 04/15/99 Series G Depositary $0.4531250 04/15/99 Series H Depositary $0.4375000 03/31/99 Series I Depositary $0.5512500 03/31/99 Series J Depositary $0.5375000 03/31/99 Series K Depositary $1.0362500 03/31/99 Series L Depositary $0.4765625 03/31/99 Common Shares $ 0.71 04/09/99
4. REAL ESTATE ACQUISITIONS During the quarter ended March 31, 1999, the Company acquired the seven Properties listed below, of which three were acquired from unaffiliated third parties and four were acquired from an affiliated party. In connection with certain of the acquisitions listed below, the Company assumed mortgage indebtedness of approximately $16.9 million and issued OP Units having a value of approximately $8.9 million. The cash portion of these transactions was funded primarily from proceeds received from the disposition of certain properties and working capital. 9 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
- --------------- --------------------- --------------------------- ------------- ----------------- DATE NUMBER PURCHASE PRICE ACQUIRED PROPERTY LOCATION OF UNITS (IN THOUSANDS) - --------------- --------------------- --------------------------- ------------- ----------------- 01/22/99 Fireside Park Rockville, MD 236 $14,279 01/22/99 Mill Pond Glen Burnie, MD 240 11,745 01/28/99 Aspen Crossing Wheaton, MD 192 11,386 02/24/99 Copper Canyon Highlands Ranch, CO 222 16,200 03/04/99 Siena Terrace Lake Forest, CA 356 33,000 03/23/99 Greenbriar Kirkwood, MO 218 12,033 03/24/99 Fairland Gardens Silver Spring, MD 400 25,897 - --------------- --------------------- --------------------------- ------------- ----------------- 1,864 $124,540 - --------------- --------------------- --------------------------- ------------- ----------------- ------------- -----------------
5. REAL ESTATE DISPOSITIONS During the quarter ended March 31, 1999, the Company disposed of the properties listed below. Each property was sold to an unaffiliated third party. The Company recognized a net gain for financial reporting purposes of approximately $21.4 million on the disposition of these seven properties.
--------------- ----------------------------- ----------------------- --------------- ----------------- DISPOSITION DATE NUMBER PRICE DISPOSED PROPERTY LOCATION OF UNITS (IN THOUSANDS) --------------- ----------------------------- ----------------------- --------------- ----------------- 01/06/99 Fox Run Little Rock, AR 337 $10,623 01/06/99 Greenwood Forest Little Rock, AR 239 7,533 01/06/99 Walnut Ridge Little Rock, AR 252 7,943 01/06/99 Williamsburg Little Rock, AR 211 6,651 01/27/99 The Hawthorne Phoenix, AZ 276 20,500 03/02/99 The Atrium Durham, NC 208 10,750 03/24/99 Greenbriar Kirkwood, MO 218 12,525 --------------- ----------------------------- ----------------------- --------------- ----------------- 1,741 $76,525 --------------- ----------------------------- ----------------------- --------------- ----------------- --------------- -----------------
6. COMMITMENTS TO ACQUIRE/DISPOSE OF REAL ESTATE As of March 31, 1999, in addition to the Properties that were subsequently acquired as discussed in Note 14 of the Notes to Consolidated Financial Statements, the Company entered into separate agreements to acquire five multifamily properties containing 1,254 units from affiliated and unaffiliated parties. The expected combined purchase price is approximately $75.9 million, which includes the assumption of mortgage indebtedness of approximately $19.6 million. As of March 31, 1999, in addition to the Property that was subsequently disposed of as discussed in Note 14 of the Notes to Consolidated Financial Statements, the Company entered into separate agreements to dispose of nine multifamily properties containing 2,688 units to unaffiliated third parties. The expected combined disposition price is approximately $148.3 million. 10 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 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. CALCULATION OF NET INCOME PER WEIGHTED AVERAGE COMMON SHARE The following tables set forth the computation of net income per weighted average Common Share outstanding and net income per weighted average Common Share outstanding - assuming dilution. 11 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
QUARTER ENDED MARCH 31, ----------------------------------- 1999 1998 ----------------------------------- (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) NUMERATOR: Income before gain on disposition of properties, net, allocation of income to Minority Interests and preferred distributions $ 79,264 $ 59,406 Allocation of income to Minority Interests (7,126) (3,688) Distributions to preferred shareholders (29,377) (21,692) ----------------------------------- Income before gain on disposition of properties, net 42,761 34,026 Gain on disposition of properties, net 21,416 1,869 ----------------------------------- Numerator for net income per weighted average Common Share outstanding 64,177 35,895 Effect of dilutive securities: Allocation of income to Minority Interests 7,126 3,688 ----------------------------------- Numerator for net income per weighted average Common Share outstanding - assuming dilution $ 71,303 $ 39,583 ----------------------------------- ----------------------------------- DENOMINATOR: Denominator for net income per weighted average Common Share outstanding $ 118,956 $ 93,361 Effect of dilutive securities: Contingent incremental employee share options 568 1,152 OP Units 13,209 9,587 ----------------------------------- Denominator for net income per weighted average Common Share outstanding - assuming dilution $ 132,733 $ 104,100 ----------------------------------- ----------------------------------- Net income per weighted average Common Share outstanding $ 0.54 $ 0.38 ----------------------------------- ----------------------------------- Net income per weighted average Common Share outstanding - assuming dilution $ 0.54 $ 0.38 ----------------------------------- -----------------------------------
12 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
QUARTER ENDED MARCH 31, ----------------------------------- 1999 1998 ----------------------------------- (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) NET INCOME PER WEIGHTED AVERAGE COMMON SHARE OUTSTANDING: Income before gain on disposition of properties, net, per weighted average Common Share outstanding $ 0.36 $ 0.36 Gain on disposition of properties, net 0.18 0.02 ---------- ---------- Net income per weighted average Common Share Outstanding $ 0.54 $ 0.38 ---------- ---------- ---------- ---------- NET INCOME PER WEIGHTED AVERAGE COMMON SHARE OUTSTANDING - ASSUMING DILUTION: Income before gain on disposition of properties, net, per weighted average Common Share outstanding - assuming dilution $ 0.36 $ 0.36 Gain on disposition of properties, net 0.18 0.02 ---------- ---------- Net income per weighted average Common Share outstanding - assuming dilution $ 0.54 $ 0.38 ---------- ---------- ---------- ----------
CONVERTIBLE PREFERRED SHARES THAT COULD BE CONVERTED INTO 13,123,062 AND 7,623,745 WEIGHTED COMMON SHARES WERE OUTSTANDING FOR THE QUARTER ENDED MARCH 31, 1999 AND 1998, RESPECTIVELY, BUT WERE NOT INCLUDED IN THE COMPUTATION OF DILUTED EARNINGS PER SHARE BECAUSE THE EFFECTS WOULD BE ANTI-DILUTIVE. 13 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 8. MORTGAGE NOTES PAYABLE As of March 31, 1999, the Company had outstanding mortgage indebtedness of approximately $2.4 billion encumbering 218 of the Properties. The carrying value of such Properties (net of accumulated depreciation of $286.1 million) was approximately $3.8 billion. The mortgage notes payables are generally due in monthly installments of principal and interest. In connection with the Properties acquired during the quarter ended March 31, 1999, the Company assumed the outstanding mortgage balances on two Properties in the aggregate amount of $16.9 million. As of March 31, 1999, scheduled maturities for the Company's outstanding mortgage indebtedness are at various dates through October 1, 2033. During the quarter ended March 31, 1999, the effective interest cost on all of the Company's debt was 7.09%. 9. NOTES As of March 31, 1999, the Company had outstanding unsecured notes of approximately $2.0 billion, net of a $5.0 million discount and including an $8.6 million premium. 10. LINES OF CREDIT The Company has a revolving credit facility with Morgan Guaranty Trust Company of New York ("Morgan Guaranty") and Bank of America Illinois ("Bank of America") as co-agents to provide the Operating Partnership with potential borrowings of up to $500 million. As of March 31, 1999, $125 million was outstanding under this facility, bearing interest at a weighted average rate of 5.33%. In connection with the MRY Merger, the Company assumed an additional credit facility with First Union Bank as agent with potential borrowings of up to $120 million. As of March 31, 1999, $40 million was outstanding under this facility, bearing interest at a weighted average rate of 5.42%. 11. DEPOSITS - RESTRICTED Deposits-restricted as of March 31, 1999 primarily included a deposit in the amount of $20 million held in a third party escrow account to provide collateral for third party construction financing in connection with the Joint Venture Agreement. Also, approximately $2.7 million was held in third party escrow accounts, representing proceeds received in connection with the Company's disposition of one property and earnest money deposits made for additional acquisitions. In addition, approximately $19.8 million was for tenant security, utility deposits, and other deposits for certain of the Company's Properties. 14 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 12. 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 joint venture agreement with a multifamily residential real estate developer during the quarter ended March 31, 1999, the Company funded a total of $15.9 million and during the remainder of 1999 the Company expects to fund approximately $48.2 million in connection with this agreement. In regards to certain other properties that were under development and/or expansion during the quarter ended March 31, 1999, the Company funded $5.1 million. During the remainder of 1999, the Company expects to fund $52.9 million related to the continued development and/or expansion of as many as five Properties. In regards to certain properties that are under earnout/development agreements, during the quarter ended March 31, 1999, $16.2 million was funded relating to the completion/acquisition of Copper Canyon. In addition, the Company may be required to fund an additional $1 million earnout payment to the developer of Copper Canyon if certain specified operation levels are met. During the remainder of 1999, the Company expects to fund approximately $43.7 million related to other earnout/development projects. Subsequent to March 31, 1999, the Company has funded $22.7 million relating to the completion/acquisition of Skyview, which included a $1.0 million advance of the earnout payment to the developer of Skyview. In connection with the Wellsford Merger, the Company has provided a $14.8 million credit enhancement with respect to bonds issued to finance certain public improvements at a multifamily development project. Pursuant to the terms of a Stock Purchase Agreement with Wellsford Real Properties, Inc. ("WRP Newco"), the Company has agreed to purchase up to 1,000,000 shares of WRP Newco Series A Preferred at $25.00 per share on a standby basis over a three-year period ending on May 30, 2000. As of March 31, 1999, no shares of WRP Newco Series A Preferred had been acquired by the Company. In connection with the MRY Merger, the Company extended a $25 million, one year, non-revolving Senior Debt Agreement to MRYP Spinco. At March 31, 1999, approximately $18.3 million was outstanding, bearing interest at LIBOR plus 250 basis points. The Company has a potential obligation to fund up to an additional $6.7 million under the Senior Debt Agreement. 15 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 13. 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, 1999 and 1998.
RENTAL REAL CORPORATE/ MARCH 31, 1999 (AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED - ---------------------------------------------------------------------------------------------------------------- Rental income $ 406,062 $ -- $ 406,062 Property and maintenance expense (97,047) -- (97,047) Real estate tax and insurance expense (42,048) -- (42,048) Property management expense (14,201) -- (14,201) ------------- ------------- ------------ Net operating income 252,766 -- 252,766 Fee and asset management income -- 1,234 1,234 Interest income - investment in mortgage notes -- 2,895 2,895 Interest and other income -- 6,046 6,046 Fee and asset management expense -- (867) (867) Depreciation expense on non-real estate assets -- (1,705) (1,705) Interest expense: Expense incurred -- (79,197) (79,197) Amortization of deferred financing costs -- (845) (845) General and administrative expense -- (5,867) (5,867) Preferred distributions -- (29,377) (29,377) Adjustment for depreciation expense related to equity in unconsolidated joint ventures -- 276 276 ------------- ------------- ------------ Funds from operations available to Common Shares and OP Units 252,766 (107,407) 145,359 Depreciation expense on real estate assets (95,196) -- (95,196) Gain on disposition of properties, net 21,416 -- 21,416 Income allocated to Minority Interests -- (7,126) (7,126) Adjustment for depreciation expense related to equity in unconsolidated joint ventures -- (276) (276) ------------- ------------- ------------ Net income available to Common Shares $ 178,986 $ (114,809) $ 64,177 ------------- ------------- ------------ ------------- ------------- ------------ Investment in real estate, net of accumulated depreciation $ 10,251,871 $ 16,081 $ 10,267,952 ------------- ------------- ------------ ------------- ------------- ------------ Total assets $ 10,251,871 $ 450,090 $ 10,701,961 ------------- ------------- ------------ ------------- ------------- ------------
16 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
RENTAL REAL CORPORATE/ MARCH 31, 1998 (AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED ---------------------------------------------------------------------------------------------------------------- Rental income $ 277,226 $ -- $ 277,226 Property and maintenance expense (66,713) -- (66,713) Real estate tax and insurance expense (27,443) -- (27,443) Property management expense (11,579) -- (11,579) ----------- ----------- ----------- Net operating income 171,491 -- 171,491 Fee and asset management income -- 1,360 1,360 Interest income - investment in mortgage notes -- 4,931 4,931 Interest and other income -- 2,824 2,824 Fee and asset management expense -- (1,052) (1,052) Depreciation expense on non-real estate assets -- (1,165) (1,165) Interest expense: Expense incurred -- (50,254) (50,254) Amortization of deferred financing costs -- (624) (624) General and administrative expense -- (4,880) (4,880) Preferred distributions -- (21,692) (21,692) Adjustment for amortization of deferred financing costs related to predecessor business -- 12 12 ----------- ----------- ----------- Funds from operations available to Common Shares and OP Units 171,491 (70,540) 100,951 Depreciation expense on real estate assets (63,225) -- (63,225) Gain on disposition of properties, net 1,869 -- 1,869 Income allocated to Minority Interests -- (3,688) (3,688) Adjustment for amortization of deferred financing costs related to predecessor business -- (12) (12) ----------- ----------- ----------- Net income available to Common Shares $ 110,135 $ (74,240) $ 35,895 ----------- ----------- ----------- ----------- ----------- ----------- Investment in real estate, net of accumulated depreciation $ 6,843,693 $ 10,842 $ 6,854,535 ----------- ----------- ----------- ----------- ----------- ----------- Total assets $ 6,843,693 $ 485,649 $ 7,329,342 ----------- ----------- ----------- ----------- ----------- -----------
(1) The Company has one primary reportable business segment, which consists of investment in rental real estate. 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 interest income earned on short-term investments, interest income earned on investment in mortgage notes, general and administrative expenses, and interest expense on mortgage notes payable and unsecured note issuances. In addition, the Company has a segment for third party management activity that is immaterial and does not meet the threshold requirements of a reportable segment as provided for in Statement 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. 17 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 14. SUBSEQUENT EVENTS On April 28, 1999, the Company acquired Pine Tree Club Apartments, a 150-unit multifamily property located in Wildwood, Missouri, from an unaffiliated third party for a purchase price of approximately $8.0 million, which included the assumption of approximately $5.5 million of mortgage indebtedness. On April 28, 1999, the Company acquired Westbrooke Village I & II Apartments, a 252-unit multifamily property located in Manchester, Missouri from an unaffiliated third party for a purchase price of approximately $12.6 million, which included the assumption of approximately $8.5 million of mortgage indebtedness. On April 29, 1999, the Company acquired Brookside Apartments, a 228-unit multifamily property located in Frederick, Maryland, from an affiliated party for a purchase price of approximately $10.8 million, which included the assumption of approximately $8.3 million of mortgage indebtedness. On April 30, 1999, the Company acquired Skyview Apartments, a 260-unit multifamily property located in Rancho Santa Margarita, California, from an unaffiliated third party for a purchase price of approximately $21.8 million. In addition, the Company funded a $1.0 million advance of the earnout payment to the developer of Skyview. In April 1999, the Company sold 1,936 Common Shares pursuant to the Share Purchase - DRIP Plan and raised net proceeds of $88,168. On May 6, 1999, the Company disposed of Sandstone at Bear Creek Apartments, a 40-unit multifamily property located in Euless, TX, to an unaffiliated third party for a total sales price of $2.1 million. 18 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, and Merry Land DownREIT I LP, 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, 1998. Forward-looking statements in this report are 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 higher 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 undertakes 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 acquired properties are presented in the Consolidated Financial Statements of the Company from the date of each acquisition or the closing dates of the Mergers. During the year ended 1998, the Company acquired 207 properties containing 55,143 units and four properties under development representing 1,378 units (the "1998 Acquired Properties"). In addition, during the quarter ended March 31, 1999, the Company acquired seven properties containing 1,864 units (the "1999 Acquired Properties"). The Company also disposed of twenty properties containing 4,719 units during 1998 (the "1998 Disposed Properties"); and seven properties containing 1,741 units during the quarter ended March 31, 1999 (the "1999 Disposed Properties"). 19 EQUITY RESIDENTIAL PROPERTIES TRUST PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Company's overall results of operations for the quarters ended March 31, 1999 and 1998 have been significantly impacted by the Company's acquisition and disposition activity. The significant changes in rental revenues, property and maintenance expenses, real estate taxes and insurance, depreciation expense, property management and interest expense can all primarily be attributed to the acquisition of the 1998 Acquired Properties and the 1999 Acquired Properties. The impact of the 1998 Acquired Properties and the 1999 Acquired Properties is discussed in greater detail in the following paragraphs. Properties that the Company owned for all of the quarter ended March 31, 1999 and March 31, 1998 (the "First Quarter 1999 Same Store Properties"), which represented 127,514 units, also impacted the Company's results of operations and are discussed as well in the following paragraphs. COMPARISON OF QUARTER ENDED MARCH 31, 1999 TO QUARTER ENDED MARCH 31, 1998 For the quarter ended March 31, 1999, income before gain on disposition of properties and allocation to Minority Interests increased by approximately $19.9 million when compared to the quarter ended March 31, 1998. This increase was primarily due to the acquisition of the 1998 Acquired Properties and the 1999 Acquired Properties as well as increases in rental revenues net of increases in property and maintenance expenses, real estate taxes and insurance, property management expenses, depreciation expense, interest expense and general and administrative expenses. In regard to the First Quarter 1999 Same Store Properties, rental revenues increased by approximately $10.9 million or 4.2% primarily as a result of higher rental rates charged to new tenants and tenant renewals, a 0.26% increase in average economic occupancy levels and a 0.65% increase in income from billing tenants for their share of utility costs. Overall, property operating expenses, which include property and maintenance, real estate taxes and insurance and an allocation of property management expenses, increased approximately $1.3 million or 1.3%. This increase was primarily the result of an increase in real estate taxes on certain properties, higher on-site compensation costs, leasing and advertising costs and utility charges. Property management represents expenses associated with the self-management of the Company's Properties. These expenses increased by approximately $2.6 million primarily due to the continued expansion of the Company's property management business. 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 and expenses decreased due to the Company acquiring certain of these properties that were formerly only fee-managed. Interest expense, including amortization of deferred financing costs, increased by approximately $29.2 million. This increase was primarily the result of an increase in the Company's average indebtedness outstanding which increased by $1.8 billion. However, the 20 EQUITY RESIDENTIAL PROPERTIES TRUST PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Company's effective interest costs decreased from 7.27% for the quarter ended March 31, 1998 to 7.09% for the quarter ended March 31, 1999. General and administrative expenses, which include corporate operating expenses, increased approximately $1.0 million between the periods under comparison. This increase was primarily due to the addition of corporate personnel in the Company's Human Resources, Accounting, Legal and Information Systems groups as well as higher compensation costs, shareholder reporting costs and professional fees. However, by gaining certain economies of scale with a much larger operation, these expenses as a percentage of total revenues were 1.41% for the quarter ended March 31, 1999 compared to 1.70% of total revenues for the quarter ended March 31, 1998. LIQUIDITY AND CAPITAL RESOURCES As of January 1, 1999, the Company had approximately $4 million of cash and cash equivalents and $330 million available on its line of credit, of which $12 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, 1999 was approximately $10.7 million and the amount available on the Company's line of credit was $455 million, of which $12 million was restricted. The following discussion also explains the changes in net cash provided by operating activities, net cash (used for) investing activities and net cash (used for) financing activities, all of which are presented in the Company's Statements of Cash Flows. With respect to Property acquisitions during the quarter, the Company purchased seven Properties containing 1,864 units for a total purchase price of approximately $124.5 million, including the assumption of and/or new mortgage indebtedness of approximately $16.9 million and the issuance of OP Units with a value of $8.9 million. These acquisitions were primarily funded from proceeds received from the disposition of certain properties and working capital. Subsequent to March 31, 1999 and through May 12, 1999, the Company acquired four additional properties containing 890 units for a total purchase price of approximately $53.2 million and the assumption of mortgage indebtedness of approximately $22.3 million. These acquisitions were primarily funded with proceeds from the disposition of certain properties, the lines of credit and working capital. During the quarter ended March 31, 1999, the Company disposed of seven properties that generated net proceeds of $76 million. These proceeds were or will be ultimately applied to purchase additional properties. Subsequent to March 31, 1999 and through May 12, 1999, the Company disposed of one property for a total sales price of $2.1 million. These proceeds will be utilized to purchase additional properties. The Company anticipates that it will continue to sell certain properties in 21 EQUITY RESIDENTIAL PROPERTIES TRUST PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) the portfolio. In regards to the joint venture agreement with a multifamily residential real estate developer during the quarter ended March 31, 1999, the Company funded a total of $15.9 million and during the remainder of 1999 the Company expects to fund approximately $48.2 million in connection with this agreement. In regards to certain other properties that were under development and/or expansion during the quarter ended March 31, 1999, the Company funded $5.1 million. During the remainder of 1999, the Company expects to fund $52.9 million related to the continued development and/or expansion of as many as five Properties. In regards to certain properties that are under earnout/development agreements, during the quarter ended March 31, 1999, $16.2 million was funded relating to the completion/acquisition of Copper Canyon. In addition, the Company may be required to fund an additional $1 million earnout payment to the developer of Copper Canyon if certain specified operation levels are met. During the remainder of 1999, the Company expects to fund approximately $43.7 million related to other earnout/development projects. Subsequent to March 31, 1999, the Company has funded $22.7 million relating to the completion/acquisition of Skyview, which included a $1.0 million advance of the earnout payment to the developer of Skyview. As of March 31, 1999, the Company had total indebtedness of approximately $4.6 billion, which included mortgage indebtedness of $2.4 billion (including premiums of $4.2 million), of which $930.4 million represented tax-exempt bond indebtedness, and unsecured debt of $2.0 billion, including net discounts and premiums in the amount of $3.6 million. In May 1999, the Company expects to repay its 1999 Notes that mature on May 15, 1999. The $125 million repayment will be initially funded from borrowings under the Company's lines of credit. In addition, on June 1, 1999, the Company anticipates repaying the principal balance on one of its mortgage notes in the amount of $8.0 million. This repayment will also be primarily funded from additional borrowings under the lines of credit. The Company has a policy of capitalizing expenditures made for new assets, including newly acquired properties and the costs associated with placing these assets into service. Expenditures for improvements and renovations that significantly enhance the value of existing assets or substantially extend the useful life of an asset are also capitalized. Capital spent for replacement-type items such as appliances, draperies, carpeting and floor coverings, mechanical equipment and certain furniture and fixtures is also capitalized. Expenditures for ordinary maintenance and repairs are expensed to operations as incurred. With respect to acquired properties, the Company has determined that it generally spends $1,000 per unit during its first 22 EQUITY RESIDENTIAL PROPERTIES TRUST PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) three years of ownership to fully improve and enhance these properties to meet the Company's standards. In regard to replacement-type items described above, the Company generally expects to spend $250 per unit on an annual recurring basis. During the quarter ended March 31, 1999, total capital expenditures for the Company approximated $27.4 million. Of this amount, approximately $8.8 million, or $73 per unit, related to capital improvements and major repairs for the 1997, 1998 and 1999 Acquired Properties. Capital improvements and major repairs for all of the Company's pre-EQR IPO properties and 1993, 1994, 1995 and 1996 Acquired Properties approximated $5.9 million, or $92 per unit. Capital spent for replacement-type items approximated $10.2 million, or $55 per unit. Also included in total capital expenditures was approximately $2.5 million expended for non-real estate additions such as computer software, computer equipment, and furniture and fixtures and leasehold improvements for the Company's property management offices and its corporate headquarters. 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 1999 are budgeted to be approximately $90 million. Minority Interests as of March 31, 1999 increased by $2.9 million when compared to December 31, 1998. The primary factors that impacted this account during the three month period were distributions declared to Minority Interests, which amounted to $9.3 million for the three month period, the allocation of income from operations in the amount of $7.1 million and the conversion of OP Units into Common Shares and the issuances of Common Shares and OP Units during the quarter. Total distributions paid in April 1999 amounted to approximately $115.2 million, which included distributions declared for the quarter ended March 31, 1999. In April 1999, the Company sold 1,936 Common Shares pursuant to the Share Purchase - DRIP Plan and received net proceeds of $88,168 therefrom. 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, reduction of outstanding amounts under its line of credit, 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. 23 EQUITY RESIDENTIAL PROPERTIES TRUST PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Company has a revolving credit facility with Morgan Guaranty and Bank of America as co-agents to provide the Operating Partnership, with potential borrowings of up to $500 million. This credit facility matures in November 1999 and will continue to be used to fund property acquisitions and short term liquidity requirements. As of May 11, 1999, $175 million was outstanding under this facility. In connection with the MRY Merger, the Company assumed a second revolving credit facility with First Union Bank as agent with potential borrowings of up to $120 million. This credit facility matures in September 2000 and will also be used to fund property acquisitions, costs for certain Properties under development and short term liquidity requirements. As of May 11, 1999, $27 million was outstanding under this facility. In connection with the Wellsford Merger, the Company provided a $14.8 million credit enhancement with respect to bonds issued to finance certain public improvements at a multifamily development project. Pursuant to the terms of a Stock Purchase Agreement with Wellsford Real Properties, Inc. ("WRP Newco"), the Company has agreed to purchase up to 1,000,000 shares of WRP Newco Series A Preferred at $25.00 per share on a standby basis over a three-year period ending on May 30, 2000. As of May 12, 1999, no shares of WRP Newco Series A Preferred had been acquired by the Company. In conjunction with the MRY Merger in October 1998, the Company entered into six joint venture agreements with MRYP Spinco, the entity spun-off in the MRY Merger. The Company contributed six properties with an initial value of $52.7 million in return for a 50% ownership interest in each joint venture. In return for the spin-off of certain assets and liabilities to MRYP Spinco, the Company received (from MRYP Spinco) a Subordinated Note receivable totaling $20 million, a preferred stock investment with an initial value of $5 million and a $25 million, one year, non-revolving Senior Note receivable. At March 31, 1999 approximately $18.3 million was outstanding on the Senior Note, bearing interest at LIBOR plus 250 basis points. The Company has a potential obligation to fund up to an additional $6.7 million under the Senior Note. YEAR 2000 ISSUE The year 2000 issue ("Year 2000") is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have time-sensitive hardware and software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, collect rents, or engage in similar normal business activities. The Company believes that it has identified all of its information technology ("IT") and non-IT systems to assess their Year 2000 readiness. Critical systems include, but are not limited to: accounts receivable and rent collections, accounts payable and general ledger, human 24 EQUITY RESIDENTIAL PROPERTIES TRUST PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) resources and payroll (both property and corporate levels), cash management, fixed assets, all IT hardware (such as desktop/laptop computers, data networking equipment, telephone systems, fax machines, copy machines, etc.) and software, and property environmental, health safety and security systems (such as elevators and alarm systems). The Company anticipates that previously scheduled system upgrades to many of its IT systems will remediate any existing Year 2000 problems. The Company is currently in the process of testing and implementing the majority of its Year 2000 IT and non-IT system projects with completion anticipated during the second or third quarter of 1999. The Company has estimated that the total Year 2000 project cost will approximate $1 million, of which approximately 80% has been incurred as of March 31, 1999. During the first quarter of 1999, the primary focus of the Year 2000 remediation efforts has been on implementing and testing the previously scheduled upgrades and Year 2000 compliant versions of existing IT systems as well as continuing the assessment of the Company's exposure regarding non-IT systems at property sites. Of the remaining $200,000 budgeted to complete the Company's Year 2000 remediation project, approximately $50,000 has been allocated to engage Year 2000 consultants to help the Company monitor its IT compliance progress and to complete final IT testing and implementation. The remaining $150,000 has been allocated to remediate non-IT systems at various property sites. The estimates are based on management's best estimates, which were derived utilizing numerous assumptions of future events, and there can be no guarantees that these estimates will be achieved. In some cases, various third party vendors have been queried on their Year 2000 readiness. The Company continues to query its significant suppliers and vendors to determine the extent to which the Company's interface systems are vulnerable to those third parties' failure to remediate their own Year 2000 issues. To date, the Company is not aware of any significant suppliers or vendors with a Year 2000 issue that would materially impact the Company's results of operations, liquidity, or capital resources. However, there can be no assurances that the systems of other companies, on which the Company's systems rely, will be timely converted and would not have an adverse effect on the Company's systems. Management of the Company believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. In addition, the Company is developing its contingency plans for critical operational areas that might be affected by the Year 2000 issue if compliance by the Company is delayed. Aside from catastrophic failure of utility companies, banks or governmental agencies, the Company believes that it could continue its normal business operations if compliance by the Company is delayed. The Company does not believe that the Year 2000 issue will materially impact its results of operations, liquidity or capital resources. FUNDS FROM OPERATIONS The Company generally considers Funds From Operations ("FFO") to be one measure of the performance of real estate companies including an equity REIT. The resolution adopted by 25 EQUITY RESIDENTIAL PROPERTIES TRUST PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) the Board of Governors of NAREIT defines FFO as 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 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 represents net income available to Common Shares, excluding gains on dispositions of properties, gains on early extinguishment of debt, and write-off of unamortized costs on refinanced debt, plus depreciation on real estate assets, income allocated to Minority Interests and amortization of deferred financing costs related to the Predecessor Business. The Company's calculation of FFO may differ from the methodology for calculating FFO utilized by other REIT's and, accordingly, may not be comparable to such other REIT's. For the quarter ended March 31, 1999, FFO increased by $44.4 million representing a 44% increase when compared to the quarter ended March 31, 1998. The following is a reconciliation of net income available to Common Shares to FFO available to Common Shares and OP Units for the quarters ended March 31, 1999 and 1998:
---------------------------------------------------------------------------------- Quarter Quarter Ended 3/31/99 Ended 3/31/98 ---------------------------------------------------------------------------------- Net income available to Common Shares $ 64,177 $ 35,895 Adjustments: Income allocated to Minority Interests 7,126 3,688 Depreciation on real estate assets* 95,472 63,225 Amortization of deferred financing costs related to predecessor business -- 12 Gain on disposition of properties (21,416) (1,869) ----------- ---------- FFO available to Common Shares and OP Units $ 145,359 $ 100,951 ----------- ---------- ----------------------------------------------------------------------------------
* Includes $275,603 related to the Company's share of depreciation from unconsolidated joint ventures for the quarter ended March 31, 1999. 26 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, 1998. 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 February 24, 1999, reporting the risk factors relating to the ownership of the Company's Common Shares and Preferred Shares and the Operating Partnership's OP Units. 27 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 12, 1999 By: /s/ Bruce C. Strohm ------------ ------------------------------------------ Bruce C. Strohm Executive Vice President, General Counsel and Secretary Date: May 12, 1999 By: /s/ Michael J. McHugh ------------ ------------------------------------------ Michael J. McHugh Executive Vice President, Chief Accounting Officer and Treasurer 28 EX-12 2 EXHIBIT 12 Exhibit 12 EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED HISTORICAL EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED DISTRIBUTIONS RATIO
HISTORICAL ------------------------------------------------------------------------ 3/31/99 3/31/98 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 ------------------------------------------------------------------------ (Amounts in thousands) REVENUES Rental income $ 406,062 $ 277,226 $1,293,560 $ 707,733 $454,412 $373,919 $220,727 Fee income - outside managed 1,234 1,360 5,622 5,697 6,749 7,030 4,739 Interest income - investment in mortgage notes 2,895 4,931 18,564 20,366 12,819 4,862 - Interest and other income 6,046 2,824 19,703 13,525 4,405 4,573 5,568 ----------- ---------- ---------- --------- -------- -------- -------- Total revenues 416,237 286,341 1,337,449 747,321 478,385 390,384 231,034 ----------- ---------- ---------- --------- -------- -------- -------- EXPENSES Property and maintenance 97,047 66,713 326,567 176,075 127,172 112,186 66,534 Real estate taxes and insurance 42,048 27,443 126,009 69,520 44,128 37,002 23,028 Property management 14,201 11,579 52,705 26,793 17,512 15,213 10,249 Property management - non-recurring - - - - - - 879 Fee and asset management 867 1,052 4,207 3,364 3,837 3,887 2,056 Depreciation 96,901 64,390 301,869 156,644 93,253 72,410 37,273 Interest: Expense incurred 79,197 50,254 246,585 121,324 81,351 78,375 37,044 Amortization of deferred financing costs 845 624 2,757 2,523 4,242 3,444 1,930 General and administrative 5,867 4,880 21,718 15,064 9,857 8,129 6,053 ----------- ---------- ---------- --------- -------- -------- -------- Total expenses 336,973 226,935 1,082,417 571,307 381,352 330,646 185,046 ----------- ---------- ---------- --------- -------- -------- -------- Income (loss) before extraordinary items $ 79,264 59,406 255,032 176,014 $ 97,033 $ 59,738 $ 45,988 ----------- ---------- ---------- --------- -------- -------- -------- ----------- ---------- ---------- --------- -------- -------- -------- Combined Fixed Charges and Preferred Distributions: Interest and other financing costs $ 79,197 50,254 246,585 121,324 $ 81,351 $ 78,375 $ 37,044 Amortization of deferred financing costs 845 624 2,757 2,523 4,242 3,444 1,930 Preferred distributions 29,377 21,692 92,917 59,012 29,015 10,109 - ----------- ---------- ---------- --------- -------- -------- -------- TOTAL COMBINED FIXED CHARGES AND PREFERRED DISTRIBUTIONS $ 109,419 72,570 342,259 182,859 $114,608 $ 91,928 $ 38,974 ----------- ---------- ---------- --------- -------- -------- -------- ----------- ---------- ---------- --------- -------- -------- -------- EARNINGS BEFORE COMBINED FIXED CHARGES AND PREFERRED DISTRIBUTIONS $ 159,306 110,284 504,374 299,861 $182,626 $141,557 $ 84,962 ----------- ---------- ---------- --------- -------- -------- -------- ----------- ---------- ---------- --------- -------- -------- -------- FUNDS FROM OPERATIONS BEFORE COMBINED FIXED CHARGES AND PREFERRED DISTRIBUTIONS $ 256,207 174,674 806,243 456,505 $275,879 $213,967 $123,114 ----------- ---------- ---------- --------- -------- -------- -------- ----------- ---------- ---------- --------- -------- -------- -------- RATIO OF EARNINGS BEFORE COMBINED FIXED CHARGES AND PREFERRED DISTRIBUTIONS TO COMBINED FIXED CHARGES AND PREFERRED DISTRIBUTIONS 1.46 1.52 1.47 1.64 1.59 1.54 2.18 ----------- ---------- ---------- --------- -------- -------- -------- ----------- ---------- ---------- --------- -------- -------- -------- RATIO OF FUNDS FROM OPERATIONS BEFORE COMBINED FIXED CHARGES AND PREFERRED DISTRIBUTIONS TO COMBINED FIXED CHARGES AND PREFERRED DISTRIBUTIONS 2.34 2.41 2.36 2.50 2.41 2.33 3.16 ----------- ---------- ---------- --------- -------- -------- -------- ----------- ---------- ---------- --------- -------- -------- --------
EX-27 3 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 10,738 0 1,765 0 0 298,820 11,082,282 814,330 10,701,961 362,543 4,567,662 0 1,410,414 1,193 3,925,750 10,701,961 410,191 416,237 0 154,163 5,867 0 80,042 79,264 0 79,264 21,416 0 0 71,303 .54 .54
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