10-Q 1 aml_10q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 2002 Commission File Number 1-12784 AMLI RESIDENTIAL PROPERTIES TRUST (Exact name of registrant as specified in its charter) Maryland 36-3925916 (State of Organization) (I.R.S. Employer Identification No.) 125 South Wacker Drive, Suite 3100, Chicago, Illinois 60606 (Address of principal executive office) (Zip code) Registrant's telephone number, including area code: (312) 443-1477 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 and (2) has been subject to such filing requirements for the past 90 days. Yes ( X ) No ( ) The number of the Registrant's Common Shares of Beneficial Interest outstanding was 17,945,719 as of July 31, 2002. INDEX PART I FINANCIAL INFORMATION Item 1. Financial Statements Independent Accountants' Review Report . . . . . . 3 Consolidated Balance Sheets as of June 30, 2002 (Unaudited) and December 31, 2001 (Audited). . . . . . . . . . . 4 Consolidated Statements of Operations for the three and six months ended June 30, 2002 and 2001 (Unaudited) . . . . . . . 6 Consolidated Statements of Shareholders' Equity for the six months ended June 30, 2002 (Unaudited). . . . . . . . . . . . 9 Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001 (Unaudited) . . . . . . . 11 Notes to Consolidated Financial Statements (Unaudited). . . . . . . . . . . . . . . . . . . 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . 42 Item 3. Quantitative and Qualitative Disclosures About Market Risk. . . . . . . . . . . . . . . . 59 PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . 65 Item 5. Exhibits and Reports on Form 8-K . . . . . . . . . 66 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 67 Independent Accountants' Review Report Shareholders and Board of Trustee AMLI Residential Properties Trust: We have reviewed the accompanying consolidated balance sheet of AMLI Residential Properties Trust (the "Company") as of June 30, 2002, the related consolidated statements of operations for the three and six months ended June 30, 2002 and 2001, the related consolidated statement of shareholders' equity for the six month period ended June 30, 2002, and the consolidated statement of cash flows for the six-month periods ended June 30, 2002 and 2001. These consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of AMLI Residential Properties Trust as of December 31, 2001, and the related consolidated statements of operations, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 4, 2002, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2001, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. KPMG LLP Chicago, Illinois July 31, 2002 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED BALANCE SHEETS JUNE 30, 2002 AND DECEMBER 31, 2001 (Dollars in thousands, except share data) JUNE 30, DECEMBER 31, 2002 2001 (UNAUDITED) (AUDITED) ----------- ------------ ASSETS: Rental apartments: Land. . . . . . . . . . . . . . . $ 99,013 99,784 Depreciable property. . . . . . . 636,686 644,627 -------- ---------- 735,699 744,411 Less accumulated depreciation . . (110,733) (107,139) -------- ---------- 624,966 637,272 Rental property held for sale, net of accumulated depreciation . 20,401 -- Land held for development or sale, net of provision for loss of $1,389 and $2,086, respectively . 24,372 47,611 Rental communities under development . . . . . . . . . . . 25,477 10,392 Investments in partnerships . . . . 221,487 184,270 Cash and cash equivalents . . . . . 4,129 5,892 Deferred expenses, net. . . . . . . 3,724 3,836 Notes and advances to the Service Companies . . . . . . . . 26,379 15,161 Other assets. . . . . . . . . . . . 13,865 14,568 -------- -------- Total assets $964,800 919,002 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY: LIABILITIES: Debt (note 5) . . . . . . . . . . . $450,268 399,309 Distributions in excess of investments in and earnings from partnerships. . . . . . . . . . . 4,514 -- Accrued interest payable. . . . . . 1,855 1,838 Accrued real estate taxes payable . 9,066 12,270 Construction costs payable. . . . . 4,092 4,079 Security deposits and prepaid rents 2,615 2,656 Other liabilities . . . . . . . . . 8,203 7,100 -------- -------- Total liabilities . . . . 480,613 427,252 -------- -------- AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED BALANCE SHEETS - CONTINUED JUNE 30, 2002 AND DECEMBER 31, 2001 (Dollars in thousands, except share data) JUNE 30, DECEMBER 31, 2002 2001 (UNAUDITED) (AUDITED) ----------- ------------ Commitments and contingencies (note 7) Mandatorily redeemable convertible preferred shares (aggregate liquidation preference of $96,933 and $96,793, respectively. . . . . . . . . . . 93,247 93,287 Minority interest . . . . . . . . . 66,433 68,186 SHAREHOLDERS' EQUITY (note 2): Series A Cumulative Convertible Preferred shares of beneficial interest, $0.01 par value, 1,500,000 authorized, 1,200,000 issued and 100,000 and 350,000 outstanding, respectively (aggregate liquidation preference of $2,022 and $7,075, respectively) . . . . 1 4 Shares of beneficial interest, $0.01 par value, 145,375,000 authorized, 18,120,296 and 17,840,368 common shares issued and outstanding, respectively . . 181 178 Additional paid-in capital. . . . . 356,450 355,728 Employees' and Trustees' notes. . . (10,537) (10,857) Accumulated other comprehensive loss. . . . . . . . . . . . . . . (3,854) (4,294) Dividends paid in excess of earnings. . . . . . . . . . . . . (17,734) (10,482) -------- -------- Total shareholders' equity. . . . . . . . . . 324,507 330,277 -------- -------- Total liabilities and shareholders' equity. . . $964,800 919,002 ======== ======== See accompanying notes to consolidated financial statements. AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF OPERATIONS THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (UNAUDITED) (Dollars in thousands, except share data)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ---------------------- ---------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Revenues: Property: Rental. . . . . . . . . . . . . . . . . . . . $ 25,825 25,838 51,612 51,379 Other . . . . . . . . . . . . . . . . . . . . 1,713 1,685 3,300 3,192 Interest and share of loss from the Service Companies. . . . . . . . . . (24) 291 (254) (112) Other interest. . . . . . . . . . . . . . . . . 83 326 316 803 Income from partnerships. . . . . . . . . . . . 2,255 2,439 4,284 4,734 Other . . . . . . . . . . . . . . . . . . . . . 1,260 569 1,978 1,193 -------- -------- -------- -------- Total revenues. . . . . . . . . . . . . . 31,112 31,148 61,236 61,189 -------- -------- -------- -------- Expenses: Personnel . . . . . . . . . . . . . . . . . . . 2,690 2,737 5,394 5,447 Advertising and promotion . . . . . . . . . . . 616 778 1,183 1,291 Utilities . . . . . . . . . . . . . . . . . . . 668 725 1,361 1,580 Building repairs and maintenance and services. . . . . . . . . . . . . . . . . 1,428 1,691 2,299 2,813 Landscaping and grounds maintenance . . . . . . 636 636 1,127 1,127 Real estate taxes . . . . . . . . . . . . . . . 3,616 3,239 7,176 6,604 Insurance . . . . . . . . . . . . . . . . . . . 477 276 957 571 Property management fees. . . . . . . . . . . . 826 688 1,647 1,364 Other operating expenses. . . . . . . . . . . . 310 264 554 579 Interest. . . . . . . . . . . . . . . . . . . . 6,084 6,352 11,884 12,779 Amortization of deferred costs. . . . . . . . . 158 309 304 445 Depreciation . . . . . . . . . . . . . . . . . 5,248 5,328 10,426 10,221 General and administrative. . . . . . . . . . . 1,213 1,151 2,753 2,669 -------- -------- -------- -------- Total expenses. . . . . . . . . . . . . . 23,970 24,174 47,065 47,490 -------- -------- -------- -------- AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (UNAUDITED) (Dollars in thousands, except share data) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ---------------------- ---------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Income from continuing operations before share of gains on sales of properties . . . . . 7,142 6,974 14,171 13,699 Gains on sales of residential properties including $605 share of gain on sale of a partnership's properties in 2002. . . . . . . . 605 9,249 605 9,249 -------- -------- -------- -------- Income from continuing operations before minority interest . . . . . . . . . . . . . . . 7,747 16,223 14,776 22,948 Minority interest . . . . . . . . . . . . . . . . 975 2,486 1,816 3,324 -------- -------- -------- -------- Income from continuing operations . . . . . . . . 6,772 13,737 12,960 19,624 Income from discontinued operations, net of minority interest . . . . . . . . . . . . . . . 519 488 991 1,006 -------- -------- -------- -------- Net income. . . . . . . . . . . . . . . . 7,291 14,225 13,951 20,630 Net income attributable to preferred shares. . . . . . . . . . . . 1,946 1,633 4,028 3,266 -------- -------- -------- -------- Net income attributable to common shares . . . . . . . . . . . . . $ 5,345 12,592 9,923 17,364 ======== ======== ======== ======== AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (UNAUDITED) (Dollars in thousands, except share data) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ---------------------- ---------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Income per common share - basic: From continuing operations. . . . . . . . . . . $ 0.27 0.68 0.50 0.92 ======== ======== ======== ======== From discontinued operations. . . . . . . . . . $ 0.03 0.03 0.05 0.06 ======== ======== ======== ======== Net income. . . . . . . . . . . . . . . . . . . $ 0.30 0.71 0.55 0.98 ======== ======== ======== ======== Income per common share - diluted: From continuing operations. . . . . . . . . . . $ 0.26 0.64 0.49 0.91 ======== ======== ======== ======== From discontinued operations. . . . . . . . . . $ 0.03 0.03 0.05 0.05 ======== ======== ======== ======== Net income. . . . . . . . . . . . . . . . . . . $ 0.29 0.67 0.54 0.96 ======== ======== ======== ======== Dividends declared and paid per common share. . . $ 0.48 0.47 0.96 0.94 ======== ======== ======== ======== See accompanying notes to consolidated financial statements.
AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY SIX MONTHS ENDED JUNE 30, 2002 (UNAUDITED) (Dollars in thousands)
SHARES OF BENEFICIAL INTEREST EMPLOYEES' ACCUMULATED ------------------------------ ADDITIONAL AND OTHER DIVIDENDS PREFERRED COMMON PAID-IN TRUSTEES' COMPREHEN- IN EXCESS SHARES SHARES AMOUNT CAPITAL NOTES SIVE LOSS OF EARNINGS TOTAL --------- ---------- ------ --------- ---------- ---------- ----------- ------- Balance at December 31, 2001 . . 350,000 17,840,368 $182 355,728 (10,857) (4,294) (10,482) 330,277 Comprehensive income: Net income. . . . . . -- -- -- -- -- -- 13,951 13,951 Preferred share dividends paid. . . -- -- -- -- -- -- (3,941) (3,941) Net change related to derivative contracts . . . . . -- -- -- -- -- 440 -- 440 ------- Comprehensive income attributable to common shares . . . . -- -- -- -- -- -- -- 10,450 ------- Common share distributions . . . . -- -- -- -- -- -- (17,262) (17,262) AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - CONTINUED SIX MONTHS ENDED JUNE 30, 2002 (UNAUDITED) (Dollars in thousands) SHARES OF BENEFICIAL INTEREST EMPLOYEES' ACCUMULATED ------------------------------ ADDITIONAL AND OTHER DIVIDENDS PREFERRED COMMON PAID-IN TRUSTEES' COMPREHEN- IN EXCESS SHARES SHARES AMOUNT CAPITAL NOTES SIVE LOSS OF EARNINGS TOTAL --------- ---------- ------ --------- ---------- ---------- ----------- ------- Shares issued in connection with: Executive Share Purchase Plan . . -- 10,291 -- 248 -- -- -- 248 Units converted to shares . . . . -- 9,032 -- 166 -- -- -- 166 Options exercised . -- 10,000 -- 204 -- -- -- 204 Employees' and Trustees' notes, net of repayments -- -- -- -- 320 -- -- 320 Trustees' compen- sation. . . . . . -- 605 -- 15 -- -- -- 15 Preferred shares converted to common shares . . . . (250,000) 250,000 -- -- -- -- -- -- Reallocation of minority interest . . -- -- -- 89 -- -- -- 89 -------- ---------- ---- ------- ------- ------- ------- ------- Balance at June 30, 2002 . . . . 100,000 18,120,296 $182 356,450 (10,537) (3,854) (17,734) 324,507 ======== ========== ==== ======= ======= ======= ======= ======= See accompanying notes to consolidated financial statements.
AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (UNAUDITED) (Dollars in thousands) 2002 2001 -------- -------- Cash flows from operating activities: Net income. . . . . . . . . . . . . . . . $ 13,951 20,630 Adjustments to reconcile net income to net cash provided by operating activities of continuing operations: Income from discontinued operations . . (1,193) (1,207) Depreciation and amortization . . . . . 10,730 10,666 Cash distributions from partnerships in excess of share of income. . . . . 3,601 4,105 Loss from the Service Companies . . . . 826 590 Gain on sale of a residential property. -- (9,249) Share of a partnership's gains on sales of residential properties . . . (605) -- Minority interest . . . . . . . . . . . 1,816 3,324 Changes in assets and liabilities: Decrease (increase) in deferred costs . 2 (264) Decrease in other assets. . . . . . . . 2,933 3,371 Decrease in accrued real estate taxes . (2,754) (2,628) Increase (decrease) in accrued interest payable. . . . . . . . . . . 17 (551) (Decrease) increase in tenant security deposits and prepaid rents. . . . . . (36) 371 (Decrease) increase in other liabilities . . . . . . . . . . . . . (66) 2 -------- ------- Net cash provided by operating activities of continuing operations . . . . . . 29,222 29,160 Net cash provided by operating activities of discontinued operations . . . . . 1,355 1,422 -------- ------- Net cash provided by operating activities. . . . . . . 30,577 30,582 -------- ------- Cash flows from investing activities: Net cash proceeds from a sale of a residential property. . . . . . . . . . -- 39,144 Share of a partnership's net cash proceeds, in excess of return of capital, from sales of residential properties. . . . . . . . . . . . . . . 161 -- Investments in partnerships, net of $14,096 return of capital and $2,846 distribution in excess of return of capital from refinancing of partner- ships' debt in 2002 and Operating Partnership units issued in 2001. . . . (35,207) (12,600) Repayments from (advances to) affiliates, net . . . . . . . . . . . . . . . . . . 174 (7,024) (Increase) decrease in earnest money deposits. . . . . . . . . . . . . . . . (45) 470 Acquisition properties, net of Operating Partnership units issued and net of $14,444 cash in deferred exchange escrow in 2001. . . . . . . . . . . . . (13,883) (56,399) AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED SIX MONTHS ENDED JUNE 30, 2002 (UNAUDITED) (Dollars in thousands) 2002 2001 -------- -------- Capital expenditures - rehab properties and other additions . . . . . . . . . . (466) (808) Capital expenditures - other properties . (2,164) (3,369) Properties under development, net of co-investors' share of costs. . . . . . (8,664) (5,817) Increase in other liabilities . . . . . . 976 301 -------- ------- Net cash used in investing activities. . . . . . . (59,118) (46,102) -------- ------- Cash flows from financing activities: Debt proceeds, net of financing costs . . 183,361 209,893 Debt repayments . . . . . . . . . . . . . (132,614) (167,392) Proceeds from issuance of Executive Share Purchase Plan shares and Option Plan shares, net of Employees' and Trustees' notes . . . . . . . . . . . . 788 904 Repurchase of shares of beneficial interest - common shares. . . . . . . . -- (3,736) Issuance cost of preferred shares . . . . (40) -- Distributions to partners . . . . . . . . (3,514) (3,415) Dividends paid. . . . . . . . . . . . . . (21,203) (20,010) -------- ------- Net cash provided by financing activities. . . . . . . 26,778 16,244 -------- ------- Net change in cash and cash equivalents . . (1,763) 724 Cash and cash equivalents at beginning of period. . . . . . . . . . 5,892 5,106 -------- ------- Cash and cash equivalents at end of period. . . . . . . . . . . . . $ 4,129 5,830 ======== ======= Supplemental disclosure of cash flow information: Cash paid for mortgage and other interest, net of amounts capitalized. . $ 11,867 13,330 ======== ======== Supplemental disclosure of non-cash investing and financing activities: OP units issued for the acquisition of properties. . . . . . . . . . . . . . . $ -- 2,764 OP units issued for the acquisition of a property in a co-investment partnership . . . . . . . . . . . . . . -- 7,576 ======== ======== See accompanying notes to consolidated financial statements. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2002 AND 2001 (Unaudited) (Dollars in thousands, except share data) 1. ORGANIZATION AND BASIS OF PRESENTATION Organization AMLI Residential Properties Trust (the "Company" or "AMLI") commenced operations upon the completion of its initial public offering on February 15, 1994. In the opinion of management, all adjustments, which include only normal recurring adjustments necessary to present fairly the Company's financial position at June 30, 2002 and December 31, 2001 and the results of its operations and cash flows for the periods presented, have been made. Certain information and note disclosures normally included in the Company's annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2001 Annual Report and in Form 10-K filed with the Securities and Exchange Commission. The results for the six months ended June 30, 2002 are not necessarily indicative of expected results for the entire year. The consolidated financial statements include the accounts of the Company and AMLI Residential Properties, L. P. (the "Operating Partnership" which holds the operating assets of the Company). The Company is the sole general partner and owned an 86% majority interest in the Operating Partnership at June 30, 2002. The limited partners hold Operating Partnership units ("OP Units") which are convertible into shares of the Company on a one-for-one basis, subject to certain limitations. At June 30, 2002, there are 3,655,364 OP Units held by the limited partners. The Company owns 5% of the voting control and 95% of economic benefit of unconsolidated subsidiaries which provide property management, construction, and institutional advisory services for the Company and its co-investment partnerships. These Service Company subsidiaries elected taxable REIT subsidiary status for IRS reporting purposes as of January 1, 2001. This election has not affected the ownership structure of the Service Company subsidiaries and, accordingly, the Company's use of the equity method to account for these subsidiaries continues to be applied consistently with prior years. At June 30, 2002, AMLI owned or had interests in eighty-one multi- family apartment communities comprised of 31,109 apartment homes. Seventy-three of these communities totaling 28,352 apartment homes were stabilized as of June 30, 2002 and eight communities containing 2,757 apartment homes were under development or in lease-up at that date. The Company's management has made a number of estimates and assumptions relating to the reporting of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America. Actual amounts realized or paid could differ from these estimates. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Real Estate Assets At June 30, 2002, the Company was continuing the rehab of the second phase of AMLI at Valley Ranch. Starting in 1999 and through June 30, 2002, the Company has spent $2,761 on the rehab of this property and expects to spend an additional $400 in 2002 to complete the rehab. The following table summarizes capital expenditures incurred in connection with the rehab of phase II of AMLI at Valley Ranch. Six Months Ended June 30, ---------------------- 2002 2001 -------- -------- Buildings - interior . . . . . . . . $ 322 164 Amenities. . . . . . . . . . . . . . -- 37 General contractor's fee . . . . . . 8 7 Overhead and general conditions. . . 69 64 Other. . . . . . . . . . . . . . . . 67 27 -------- -------- $ 466 299 ======== ======== Rental Properties Held For Sale At June 30, 2002, AMLI at Gleneagles, a 590-unit community located in Dallas, Texas, was being held for sale. During the six months ended June 30, 2002 and 2001, this community generated total revenues of $2,527 and $2,588, respectively, and operating income of $1,500 and $1,626, respectively. The Company expects to complete this sale in the third quarter of 2002. Rental Communities Under Development At June 30, 2002, the Company has eight communities under development including six in joint ventures with co-investment partners, as follows: AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
TOTAL NUMBER NUMBER TOTAL ESTIMATED OF OF EXPENDED COSTS UPON COMMUNITY LOCATION ACRES UNITS THRU 6/30/02 COMPLETION --------- -------- ------ ------ ------------ ---------- Wholly-Owned: Development Communities: AMLI: Carmel Center Carmel, IN 15 322 $ 15,020 28,400 Downtown Austin Austin, TX 2 220 10,457 50,900 --- ----- -------- -------- Total wholly-owned development communities 17 542 25,477 79,300 --- ----- -------- -------- Co-Investments (Company Ownership Percentage): Development Communities: AMLI: at Milton Park (25%) Alpharetta, GA 21 461 23,480 35,000 at Kedron Village (20%) Peachtree City, GA 21 216 19,252 20,200 at Barrett Walk (25%) Cobb County, GA 26 310 8,679 22,500 at King's Harbor (25%) Houston, TX 15 300 19,576 19,800 at Cambridge Square (30%) Overland Park, KS 21 408 31,814 32,200 at Seven Bridges (20%) Woodridge, IL 13 520 36,687 82,200 --- ----- -------- -------- Total co-investment development communities 117 2,215 139,488 211,900 --- ----- -------- -------- Total wholly-owned and co-investments 134 2,757 $164,965 291,200 === ===== ======== ========
AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Land Held for Development or Sale At June 30, 2002, the Company owned several parcels of land, which are currently being planned for development, being held for future development or being considered for sale.
NET NUMBER NUMBER CAPITALIZED OF OF COSTS COMMUNITY LOCATION ACRES UNITS THRU 6/30/02 --------- -------- ------ ------ ------------ Wholly-Owned: Land Held for Development or Sale: AMLI: at Champions II (1)(2) Houston, TX 14 288 $ 2,659 at Mesa Ridge (1)(2) Ft. Worth, TX 27 460 4,172 at Anderson Mill (1)(2) Austin, TX 39 520 4,234 at Parmer Park Austin, TX 28 480 5,542 at Vista Ridge (1)(2) City of Lewisville, TX 15 340 3,199 at Westwood Ridge Overland Park, KS 30 428 3,655 at Lexington Farms II Overland Park, KS 7 104 911 --- ----- ------- Total land held for development 160 2,620 $24,372 === ===== ======= (1) The Company has expensed interest carry of $554 on these land parcels for the six months ended June 30, 2002. (2) Amounts are shown net of an allowance for loss totaling $1,389 on these land parcels in Texas. An additional provision of $697 had been made in December 2001 to state the value of two parcels of land in Dallas, Texas at the lower costs or market, and as of January 2002 these parcels were transferred to Amrescon, an unconsolidated subsidiary of AMLI, for $5,076 their estimated market value and carrying value. In the second quarter of 2002, the Company transferred additional land parcels located in Noblesville, Indiana for their $7,599 estimated market value and carrying value. These transfers increased advances to the Service Companies by $12,675. Amrescon intends to sell this land over the next 2-3 years and use the proceeds from sale to repay the financing provided by the Company.
AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Acquisition The table below summarizes the properties acquired by the Company during 2001 and 2002:
Number Year of Com- Date Purchase Total Community Location Units pleted Acquired Price Debt Equity --------- -------- -------- -------- -------- -------- ------ -------- WHOLLY-OWNED: AMLI: at Gateway Park (1) . . . . . . Denver, CO 328 2000 1/29/01 33,050 -- 33,050 at Stonebridge Ranch (1) . . . McKinney, TX 250 2001 6/11/01 17,110 -- 17,110 at the Medical Center (1). . . Houston, TX 334 2000 8/7/01 27,150 -- 27,150 at Shadow Ridge (1) . . . . . . Flower Mound, TX 222 2000 8/31/01 18,000 -- 18,000 Upper West Side . . . . . Ft. Worth, TX 194 2001 5/1/02 13,600 -- 13,600 ------ -------- ------ ------- Total wholly-owned 1,328 108,910 -- 108,910 ------ -------- ------ ------- CO-INVESTMENTS (Company ownership percentage): AMLI: at Osprey Lake (69%) (2) . . . Gurnee, IL 483 1997/99 2/1/01 52,000 35,320 16,680 at Parks Meadows (25%) . . . . . Littleton, CO 518 2001 4/24/02 56,500 --(3) 56,500 at Bryan Place (48%) . . . . . Dallas, TX 420 1999 6/28/02 39,600 --(4) 39,600 ------ -------- ------- ------- Total co-investments 1,421 148,100 35,320 112,780 ------ -------- ------- ------- Total wholly-owned and co-investments 2,749 $257,010 35,320 221,690 ====== ======== ======= ======= AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (1) These acquisitions completed deferred third-party exchanges for Federal income tax purposes. The Company issued 86,494 and 109,748 OP Units as part of the total payment for the acquisition of AMLI at Gateway Park and AMLI at the Medical Center, respectively. (2) The Company issued 333,610 OP Units for a 43% interest in this property which was contributed to a joint venture with a private real estate investment trust in which AMLI owned a 44% interest. (3) On July 1, 2002, the partnership closed on a 6.25%, $28,500 first mortgage permanent loan through GMAC. This interest only loan will mature in seven years, with the balloon payment due at maturity. The loan proceeds were distributed to the partners in accordance with their ownership percentages. AMLI received a partnership distribution of $7,125 from the proceeds of this loan on July 1, 2002 (see note 8). (4) On August 1, 2002, the partnership closed on a 5.81%, $26,200 first mortgage permanent loan through GMAC. This interest only loan will mature in seven years, with the balloon payment due at maturity. The loan proceeds were distributed to the partners in accordance with their ownership percentages. AMLI received a partnership distribution of $12,576 from the proceeds of this loan on August 1, 2002 (see note 8).
AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Disposition The Company selectively sells properties and reinvests the proceeds in new communities to continually improve the quality of its portfolio and increase the potential for growth in net operating income or uses the proceeds to fund rehabs, reacquire its shares or fund development of new properties. Through December 31, 2001, the gains on sales of residential communities including share of gains on sales of partnerships' properties are reported separately in the Consolidated Statements of Operations and neither the properties' selling prices nor related gains are included in revenues in the Consolidated Statements of Operations. Effective January 1, 2002, gains on sales of wholly-owned residential communities will be reported in discontinued operations. Incentive compensation received from co-investment partnerships in the form of a promoted interest that is paid to the Company from sales proceeds is included in other revenues in the Consolidated Statements of Operations. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The table below summarizes the properties sold by the Company during 2001 and 2002:
Net Operating Income in Twelve Months Costs Immediately Year Before Prior to Number Acquired/ Date Depre- Sale Net Date of Community Location of Units Developed Sold ciation Price Proceeds Gain (3) Sale --------- -------- -------- --------- -------- -------- -------- -------- -------- ----------- WHOLLY-OWNED: AMLI at: AutumnChase (1) Carrollton, TX 690 87/96/99 6/5/01 29,850 40,550 39,144 9,249 3,608 Alvamar Lawrence, KS 152 1994 7/27/01 8,263 8,900 8,794 2,036 740 Rosemeade (2) Dallas, TX 236 1990 8/24/01 11,653 12,430 11,861 2,408 1,045 ----- ------- ------- ------- ------- ------- Total wholly-owned 1,078 49,766 61,880 59,799 13,693 5,393 ----- ------- ------- ------- ------- ------- CO-INVESTMENTS (Company owner- ship percentage): AMLI at: Willowbrook (40%) Willowbrook, IL 488 1996 7/31/01 39,402 58,500 57,611 22,245 4,209 Champions Park (15%) Houston, TX 246 1994 4/18/02 13,723 13,145 12,783 1,799 1,055 Champions Centre (15%)Houston, TX 192 1994 4/18/02 10,205 10,755 10,458 2,232 777 ----- -------- ------- ------- ------- ------- Total co-investments 926 63,330 82,400 80,852 26,276 6,041 ----- -------- ------- ------- ------- ------- Total wholly-owned and co-investments 2,004 $113,096 144,280 140,651 39,969 11,434 ===== ======== ======= ======= ======= ======= AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (1) The net proceeds from the sale of Phase I of this community were used to acquire AMLI at Stonebridge Ranch in a deferred third-party exchange for Federal income tax purposes. The remaining proceeds were used for the acquisition of AMLI at the Medical Center to complete the deferred third-party exchange for Federal income tax purposes. (2) The net proceeds from this sale were used to fund the acquisition of AMLI at Shadow Ridge in completion of a deferred third-party exchange for Federal income tax purposes. (3) Gains on sales of co-investment properties are shown net of disposition fees and promoted interests paid to the Company by co-investment partnerships.
AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED STANDARDS IMPLEMENTED AND TRANSITION ADJUSTMENT On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). Adoption of SFAS 144 is required for fiscal years beginning after December 15, 2001, and interim periods within those years. SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed of," ("SFAS 121") and related literature and establishes a single accounting model, based on the framework established in SFAS 121, for long-lived assets to be disposed of by sale. The Company has restated its Consolidated Statements of Operations for the three and six months ended June 30, 2001 and Consolidated Statement of Cash Flows for the six months ended June 30, 2001 as a result of implementing SFAS 144 to reflect discontinued operations of the property held for sale as of June 30, 2002. This restatement has no impact on the Company's net income or net income per common share. Properties held for sale by co-investment partnerships accounted for using the equity method of accounting are not "discontinued operations" under the provision of SFAS 144. As of June 30, 2002, the Company had one rental property held for sale included in discontinued operations. No interest expense has been allocated to discontinued operations. Condensed financial information of the results of operations for the property held for sale is as follows: Three Months Six Months Ended Ended June 30, June 30, ----------------- ----------------- 2002 2001 2002 2001 ------- ------- ------- ------- Rental income. . . . . . $ 1,182 1,226 2,375 2,450 Other income . . . . . . 75 75 152 138 ------- ------- ------- ------- Total property revenues. . . . . . 1,257 1,301 2,527 2,588 Property operating expenses . . . . . . . 509 487 1,027 962 ------- ------- ------- ------- Net operating income. . . . . . . 748 814 1,500 1,626 Depreciation expense . . 124 227 307 419 ------- ------- ------- ------- Income from discontinued operations before minority interest . 624 587 1,193 1,207 Minority interest . . 105 99 202 201 ------- ------- ------- ------- Income from discontinued operations. . . . . $ 519 488 991 1,006 ======= ======= ======= ======= AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142 "Accounting for Goodwill and Other Intangible Assets" ("SFAS 142"), which requires, among other things, that effective January 1, 2002 goodwill resulting from a business combination accounted for as a purchase no longer be amortized, but be subjected to ongoing impairment review. The only goodwill included in the accounts of the Company and its unconsolidated subsidiaries is $3,300 recorded on the books of an unconsolidated subsidiary. This amount was being amortized using the straight-line method over the five year period, and at December 31, 2001, the remaining unamortized goodwill was $668. As a result of implementing SFAS 142, whereby no amortization will be recorded in 2002, the Company's share of income, net of tax effect, from the unconsolidated subsidiary is increased by approximately $207 for the six months ended June 30, 2002. The Company has tested the unamortized goodwill remaining on the Service Company's books and no impairment existed as of June 30, 2002. Pro-forma share of income, net of tax, from this unconsolidated subsidiary will be increased by approximately $400 for the year ended December 31, 2002. DERIVATIVES AND HEDGING FINANCIAL INSTRUMENTS In the normal course of business, the Company uses a variety of derivative financial instruments to manage or hedge interest rate risks. The Company requires that hedging derivative instruments are effective in reducing the interest rate risk exposure that they are designated to hedge. This effectiveness is essential for qualifying for hedge accounting. Some derivative instruments are associated with the hedge of an anticipated transaction. In those cases, hedge effectiveness criteria also require that it be probable that the underlying transaction occurs. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract. When the terms of an underlying transaction are modified, or when the underlying hedged item ceases to exist, all changes in the fair value of the instrument are marked-to-market with changes in value included in net income each period until the instrument matures. Any derivative instrument used for risk management that does not meet the hedging criteria is marked-to- market each period. The Company is exposed to the effect of interest rate changes. The Company limits these risks by following established risk management policies and procedures including the use of derivatives. For interest rate exposures, derivatives are used primarily to align rate movements between interest rates associated with the Company's rental income and other financial assets with interest rates on related debt, and manage the cost of borrowing obligations. The Company does not enter into derivative contracts for trading or speculative purposes. Further, the Company has a policy of only entering into contracts with major financial institutions based upon their credit rating and other factors. When viewed in conjunction with the underlying and offsetting exposure that the derivatives are designed to hedge, the Company has not sustained a material loss from those instruments nor does it anticipate any material adverse effect on its net income or financial position in the future from the use of derivatives. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED To manage interest rate risk, the Company may employ options, forwards, interest rate swaps, caps and floors or a combination thereof depending on the underlying exposure. The Company undertakes a variety of borrowings: from lines of credit, to medium- and long term financings. To control overall interest expense volatility and cost, the Company may employ interest rate instruments, typically interest rate swaps, to convert a portion of its variable rate debt to fixed rate debt, or even a portion of its fixed-rate debt to variable rate. Interest rate differentials that arise under these swap contracts are recognized in interest expense over the life of the contracts. The resulting cost of funds is usually comparable to which would have been available if debt with matching characteristics was issued directly. The Company also employs forwards or purchase options to hedge qualifying anticipated transactions. Gains and losses are deferred and recognized in net income in the same period that the underlying transaction occurs, expires or is otherwise terminated. To determine the fair values of derivative instruments, the Company employs an independent accountant and uses a variety of methods and assumptions that are based on market conditions and risks existing at each balance sheet date. For the majority of financial instruments including most derivatives, long-term investments and long-term debt, standard market conventions and techniques such as discounted cash flow analysis, option pricing models, replacement cost, and termination costs are used to determine fair value. All methods of assessing fair value result in a general approximation of value, and such value may or may not actually be realized. The following table summarizes the notional amounts and approximate fair value of the Company's interest rate swap contracts. The notional amounts at June 30, 2002 provide an indication of the extent of the Company's involvement in these instruments at that time, but does not represent exposure to credit, interest rate or market risks. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Approximate Cumulative Liability at Notional Fixed Term of Contract Cash June 30, Amount Rate(1) Contract Maturity Paid, Net 2002 (2) -------- ------- -------- --------- ---------- ------------- $10,000(3) 6.216% 5 years 11/01/02 $ 552 180 10,000(3) 6.029% 5 years 11/01/02 468 172 20,000 6.145% 5 years 02/15/03 1,045 566 10,000 6.070% 5 years 02/18/03 492 292 15,000 6.405% 5 years 09/20/04 707 1,047 10,000 6.438% 5 years 10/04/04 416 731 ------- ------ ----- $75,000 $3,680 2,988 ======= ====== ===== (1) The fixed rate for the swaps includes the swap spread (the risk component added to the Treasury yield to determine a fixed rate) and excludes lender's spread. (2) Represents the approximate amount which the Company would have paid as of June 30, 2002 if these contracts were terminated. This amount was recorded as a liability in the accompanying Consolidated Balance Sheet as of June 30, 2002. (3) These contracts were marked-to-market in 2002 and 2001.
AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED As a result of a reduced level of borrowings under the Company's unsecured line of credit following a $140,000 fixed rate financing and a sale of a co-investment property, $20,000 of the total $75,000 in interest rate swap contracts held by the Company is no longer associated with any floating rate debt. On June 30, 2002, the derivative instruments were reported as Other Liabilities at their fair value of $2,988 which decreased by $736 from $3,724 as of December 31, 2001. The offsetting adjustments were reported as losses in Accumulated Other Comprehensive Loss of $3,854, which decreased by $440 from $4,294 as of December 31, 2001. The adjustments to the shareholders' equity include $1,331 and $1,413 of the Company's share of Other Comprehensive Loss of a co-investment partnership as of June 30, 2002 and December 31, 2001, respectively. In addition, adjustments to earnings of $53 and $29 due to an ineffectiveness on the swaps have been recorded as of June 30, 2002 and 2001, respectively. All the Company's hedges that are reported at fair value and are included in the Consolidated Balance Sheets are characterized as cash flow hedges. These transactions hedge the future cash flows of debt transactions. Interest rate swaps that convert variable payments to fixed payments, interest rate caps, floors, collars, and forwards are cash flow hedges. The unrealized gains/losses in the fair value of these hedges are reported on the Consolidated Balance Sheets with a corresponding adjustment to either Accumulated Other Comprehensive Income or in earnings--depending on the type of hedging relationship. If the hedging transaction is a cash flow hedge, then the offsetting gains and losses are reported in Accumulated Other Comprehensive Income. If the hedging transaction is characterized as a fair value hedge, then the changes in fair value of the hedge and the hedged item are reflected in earnings. If the fair value hedging relationship is fully effective, there is no net effect reflected in income or funds from operations ("FFO"). Over time, the unrealized gains and losses held in Accumulated Other Comprehensive Income will be reclassified to earnings. This reclassification is consistent with when the hedged items are also recognized in earnings. The Company hedges its exposure to the variability in future cash flows for forecasted transactions over a maximum period of 12 months. During the forecasted period, unrealized gains and losses in the hedging instrument will be reported in Accumulated Other Comprehensive Income. Once the hedged transaction takes place, the hedge gains and losses will be reported in earnings during the same period in which the hedged item is recognized in earnings. TRANSACTIONS WITH CO-INVESTMENT PARTNERSHIPS The Company's co-investment partnerships are generally formed by the Company contributing its interest in property and receiving credit or reimbursement based on its cost, in which case no gain or loss is recognized upon partnership formation. Many of the Company's acquisitions are made on behalf of co-investments concurrent with the initial formation of the co-investment partnership, in which case the partners each make their initial cash contributions concurrent with the closing of the acquisition. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED OTHER ASSETS Other assets reported in the accompanying Consolidated Balance Sheets are as follows. June 30, December 31, 2002 2001 --------- ------------ Deferred development costs . . . . . $ 4,203 1,967 Notes receivable . . . . . . . . . . 2,086 2,925 Advances to affiliates . . . . . . . 2,105 2,413 Deposits . . . . . . . . . . . . . . 1,532 1,923 Prepaid expenses . . . . . . . . . . 802 1,497 Development fees receivable. . . . . 683 1,267 Restricted cash. . . . . . . . . . . 680 1,193 Accounts receivable. . . . . . . . . 906 705 Other. . . . . . . . . . . . . . . . 868 678 -------- -------- $ 13,865 14,568 ======== ======== PER SHARE DATA The following table presents information necessary to calculate basic and diluted earnings per share for the periods indicated (in thousands, except per share amounts). Three Months Ended Six Months Ended June 30, June 30, -------------------------------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Income from continuing operations . . . .$ 6,772 13,737 12,960 19,624 Income from discontinued operations . . . . 519 488 991 1,006 ---------- ---------- ---------- ---------- Net income . . . . . 7,291 14,225 13,951 20,630 Less net income attributable to preferred shares . . . . . . (1,946) (1,633) (4,028) (3,266) ---------- ---------- ---------- ---------- Net income attributable to common shares - Basic . .$ 5,345 12,592 9,923 17,364 ========== ========== ========== ========== Net income - Diluted (1). . . .$ 5,345 14,225 9,923 20,630 ========== ========== ========== ========== Weighted average common shares - Basic. . . . . .18,116,190 17,756,075 18,002,110 17,790,838 ========== ========== ========== ========== AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Three Months Ended Six Months Ended June 30, June 30, -------------------------------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Dilutive Options and Other Plan shares . . . . . . 355,579 159,981 327,813 136,011 Convertible pre- ferred shares (1). . . . . . . . -- 3,475,000 -- 3,475,000 ---------- ---------- ---------- ---------- Weighted average common shares - Dilutive . . . . .18,471,769 21,391,056 18,329,923 21,401,849 ========== ========== ========== ========== Net income per share: Basic. . . . . . .$ .30 .71 .55 .98 Diluted. . . . . .$ .29 .67 .54 .96 ========== ========== ========== ========== (1) In 2002, preferred shares are non-dilutive. RECLASSIFICATIONS Certain amounts in the consolidated 2001 financial statements of the Company have been reclassified to conform with the current presentation. 3. INVESTMENTS IN PARTNERSHIPS AND SERVICE COMPANIES INVESTMENTS IN PARTNERSHIPS At June 30, 2002, the Operating Partnership was a general partner in various co-investment partnerships. The Operating Partnership and the Service Companies receive various fees for services provided to these co-investment partnerships, including development fees, construction fees, acquisition fees, property management fees, asset management fees, financing fees, administrative fees and disposition fees. The Operating Partnership is entitled to shares of cash flow or liquidation proceeds in excess of its stated ownership percentages based, in part, on cumulative returns to its partners in excess of specified rates. The Operating Partnership received cash flow and recorded operating income in excess of its ownership percentages of $1,537 for the six months ended June 30, 2002. Investments in partnerships at June 30, 2002 and the Company's 2002 share of income or loss for the six months then ended from each are summarized as follows: AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Equity Total Company's Company's Company's ------------------ Company's Net Share of Share of Percentage Total Company's Investment Income Net Income Deprecia- Community Ownership Assets Total Share (1) (1) (Loss) (Loss) tion --------- ---------- ---------- ------ --------- ---------- ------ ---------- --------- AMLI: at Greenwood Forest (2) 15% $ 15,335 14,996 11,732 11,716 312 195 33 at Windbrooke (3) 15% 15,902 (5,465) (868) -- 121 61 34 at Willeo Creek 30% 13,225 3,927 1,176 1,176 101 35 61 at Barrett Lakes 35% 23,301 6,933 2,427 2,527 362 187 147 at Chevy Chase (4) 33% 41,148 (8,593) (3,574) -- 641 205 199 at River Park 40% 12,900 4,074 1,620 1,578 266 126 77 at Fox Valley 25% 22,081 21,395 5,349 5,524 570 142 89 at Fossil Creek 25% 19,130 18,622 4,656 4,741 663 166 94 at Danada Farms 10% 43,319 18,200 1,820 1,811 927 93 65 at Verandah 35% 20,822 4,042 1,515 1,570 48 50 175 at Northwinds 35% 49,411 14,946 5,231 5,080 717 492 310 at Regents Crest 25% 30,702 15,265 3,816 3,893 309 133 123 at Oakhurst North 25% 39,678 38,529 9,632 9,632 808 202 155 at Wells Branch 25% 30,729 30,004 7,501 6,975 830 207 144 on the Parkway 25% 14,082 3,618 902 618 18 5 74 on Timberglen (1) 40% 9,692 3,083 1,264 -- 7 36 101 at Castle Creek 40% 19,185 18,733 7,493 7,646 578 262 132 at Lake Clearwater 25% 15,414 15,041 3,760 3,811 319 80 68 Creekside 25% 15,188 14,993 3,751 3,871 422 133 64 at Deerfield 25% 16,148 3,557 886 739 (92) (23) 76 at Wynnewood Farms 25% 17,672 17,448 4,362 4,401 519 130 74 at Monterey Oaks 25% 28,505 27,980 6,995 7,078 891 223 118 at St. Charles 25% 41,058 40,300 10,075 10,117 923 231 164 at Park Bridge 25% 23,895 23,540 5,885 5,939 673 168 113 at Mill Creek 25% 25,440 7,007 1,752 2,010 576 144 96 at Lost Mountain 75% 11,089 476 357 468 (167) (64) 154 on Spring Mill 20% (Residual) 27,871 27,109 -- 1,221 538 -- -- at Prestonwood Hills 45% 17,166 5,490 2,487 2,481 51 46 115 at Windward Park 45% 26,518 8,459 3,834 3,826 (155) (42) 174 AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Equity Total Company's Company's Company's ------------------ Company's Net Share of Share of Percentage Total Company's Investment Income Net Income Deprecia- Community Ownership Assets Total Share (1) (1) (Loss) (Loss) tion --------- ---------- ---------- ------ --------- ---------- ------ ---------- --------- at Summit Ridge 25% 27,837 7,674 1,920 1,654 166 40 116 at Oak Bend 40% 24,361 5,271 2,109 2,109 4 46 143 Midtown 45% 32,662 10,439 4,733 4,716 258 165 207 on Frankford 45% 38,535 12,466 5,653 5,637 244 169 251 at Peachtree City I 20% 28,150 27,857 5,571 3,597 586 117 74 at Kedron Village 20% 19,202 600 120 100 (311) (62) 35 at Scofield Ridge 45% 36,916 12,006 5,445 5,427 (58) 17 230 at Breckinridge Point 45% 33,134 10,772 4,884 4,867 25 53 205 at Cambridge Square 30% 31,919 29,271 8,781 9,428 (29) (19) 67 Towne Square 45% 32,484 10,637 4,823 4,769 46 59 201 at Lowry Estates 50% 50,442 16,541 8,269 8,121 (120) (9) 343 at King's Harbor 25% 19,540 18,954 4,739 5,021 (54) (14) 86 at Milton Park 25% 23,437 21,390 5,347 5,802 (156) (39) 11 at Osprey Lake 69% 51,960 15,703 12,123 10,606 (262) (148) 488 at Seven Bridges 20% 37,773 15,702 3,242 4,148 110 22 -- at Barrett Walk 25% 8,734 7,065 1,766 1,844 -- -- -- at Park Meadows 25% 58,040 57,365 14,341 14,315 428 172 85 at Bryan Place 48% 41,146 39,527 18,973 18,857 (74) (36) 40 ---------- ------- ------- ------- ------- ------ ------ 1,282,878 712,949 218,675 221,467 12,579 4,156 5,811 Other 459 135 20 20 314(5) 128(5) 25 ---------- ------- ------- ------- ------- ------ ------ Total $1,283,337 713,084 218,695 221,487 12,893 4,284 5,836 ========== ======= ======= ======= ======= ====== ====== (1) The Company's investments in partnerships differ from the Company's share of co-investment partnerships' equity primarily due to (a) classification of the Company's deficit equity positions in the AMLI at Windbrooke and AMLI at Chevy Chase partnerships as liabilities on the Consolidated Balance Sheet as of June 30, 2002 (see (3) and (4) below); (b) capitalized interest on its investments in properties under development; (c) purchase price basis differences; and (d) eliminations of the Company's cumulative share of acquisition, financing and development fee income. These latter items are amortized over forty years using the straight-line method. The purchase price basis difference of AMLI on Timberglen resulted in a negative investment balance which is included in other liabilities in the accompanying Consolidated Balance Sheet as of June 30, 2002. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (2) In April 2002, the Company made a preferred $11,200 capital contribution to AMLI at Greenwood Forest Limited Partnership to enable it to repay the existing 8.95% first mortgage loan. The Company will receive a 6.75% preferential allocation of cash flow on its preferred capital until this partnership's property is sold or refinanced. On August 1, 2002, the property was sold and the partnership distributed $19,200 of the net proceeds to the partners, of which approximately $12,147 was the Company's share. With this distribution, the Company has received a return of the preferred $11,200 capital contribution and its original capital of $962. In addition, the Company received a $403 disposition fee from the partnership (see note 8). (3) On February 4, 2002, the balance of the AMLI at Windbrooke loan was refinanced with a new loan from GMAC Commercial Mortgage Corporation. The net proceeds were distributed to the partners, including $1,545 to the Company. With this distribution, the partners have received a return of all their original capital plus a targeted yield, which resulted in a negative investment balance that is included in other liabilities in the accompanying Consolidated Balance Sheet as of June 30, 2002. (4) In May 2002, the loan agreement of AMLI at Chevy Chase was amended. The principal amount was increased to $48,000, the interest rate changed from 6.67% to 7.11% and maturity date was extended to June 2009. According to the new terms, the loan is structured to fund in two parts. The first part, in the amount of $21,300, was funded at the time of closing, and will co-exist with the original CIGNA loan dated March 27, 1996 (with an initial balance of $29,767). The second part of the loan, in the amount of $26,700, will fund in October 2002, the proceeds of which will be used to retire the original CIGNA loan. The $20,823 net proceeds from the first funding were distributed to the partners, including $7,594 to the Company. With this distribution, the partners have received a return of all their original capital plus a targeted yield, which resulted in a negative investment balance that is included in other liabilities in the accompanying Consolidated Balance Sheet as of June 30, 2002. (5) Excludes gains on sales of AMLI at Champions Park and AMLI at Champions Centre of $1,799 and $2,322, respectively, and the Company's share of such gains of $270 and $335, respectively, which is reported as share of gains on sales of residential properties.
AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED All but two debt financings have been obtained at fixed rates from various financial institutions on behalf of these co-investment partnerships. All of these fixed-rate first mortgages are non recourse debt and secured by mortgages on the respective communities. Repayment of the two floating-rate construction loans has been guaranteed by AMLI. The following summarizes co-investment debt at June 30, 2002: Total Outstand- Commitment ing at Company's Interest Community (1) 6/30/02 Share Rate Maturity --------- ---------- --------- --------- -------- --------- AMLI: at Kedron Village (2) $ 19,170 17,716 3,543 L+1.875% Dec. 2002 at Willeo Creek 10,000 9,071 2,721 6.77% May 2003 at Regents Crest 16,500 15,002 3,751 7.50% Dec. 2003 at Verandah 16,940 16,121 5,642 7.55% Apr. 2004 on Timberglen 6,770 6,352 2,541 7.70% June 2004 at Seven Bridges (3) 50,000 14,834 2,967 L+1.80% Jan. 2005 at Prestonwood Hills 11,649 11,311 5,123 7.17% Aug. 2006 at Windward Park 18,183 17,666 8,008 7.27% Aug. 2006 at Oak Bend 18,834 18,401 7,360 7.81% Dec. 2006 Midtown 21,945 21,426 9,715 7.52% Dec. 2006 at Deerfield 12,600 12,304 3,076 7.56% Dec. 2006 at Danada Farms 24,500 23,674 2,367 7.33% Mar. 2007 on Frankford 25,710 25,303 11,475 8.25% June 2007 at Breckinridge Point22,110 21,743 9,859 7.57% July 2007 at Scofield Ridge 24,618 24,219 10,983 7.70% Aug. 2007 Towne Square 21,450 21,118 9,576 6.70% Jan. 2008 at Lowry Estates 33,900 33,458 16,729 7.12% Jan. 2008 at Summit Ridge 20,000 19,760 4,940 7.27% Feb. 2008 at River Park 9,100 8,564 3,426 7.75% June 2008 on the Parkway 10,800 10,160 2,540 6.75% Jan. 2009 at Mill Creek 18,000 17,985 4,496 6.40% May 2009 at Chevy Chase 48,000 48,220 15,913 7.11% June 2009 at Barrett Lakes 16,680 15,891 5,562 8.50% Dec. 2009 at Northwinds 33,800 33,335 11,667 8.25% Oct. 2010 at Osprey Lake 35,320 34,869 23,973 7.02% Mar. 2011 at Windbrooke 20,800 20,715 3,107 6.43% Mar. 2012 at Lost Mountain 10,252 10,183 7,637 6.84% Nov. 2040 -------- -------- ------- $577,631 529,401 198,697 ======== ======== ======= (1) In general, these loans provide for monthly payments of principal and interest based on a 25 or 27 year amortization schedule and a balloon payment at maturity. Some loans provide for payments of interest only for an initial period, with principal amortization commencing generally within two years. (2) The Company anticipates that the partners in this 20%-owned partnership will contribute capital to permit the partnership to repay its indebtedness in full at its maturity. (3) The Company on behalf of the partnership has obtained a 7.25% fixed rate mortgage loan commitment from an institutional lender and anticipates repaying its construction loan in late 2003 from a minimum $54,000 funding of this seven-year loan. INVESTMENTS IN SERVICE COMPANIES Combined financial information of the various Service Companies at and for the six months ended June 30, 2002 and 2001 is summarized as follows: AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, December 31, 2002 2001 --------- ------------ Receivables from affiliates. . . . . . $ 9,327 9,136 Land held for sale . . . . . . . . . . 15,653 4,951 Building and equipment, net of accumulated depreciation . . . . . . 2,289 2,463 Information technology costs, net of accumulated depreciation. . . 8,969 8,384 Investments and other assets . . . . . 9,090 9,911 -------- -------- Total assets . . . . . . . . . . . . . $ 45,328 34,845 ======== ======== Due to the Company . . . . . . . . . . $ 29,287 17,311 Bank debt. . . . . . . . . . . . . . . 14,000 14,000 Other. . . . . . . . . . . . . . . . . 4,412 5,733 -------- -------- Total liabilities. . . . . . . . . . . $ 47,699 37,044 ======== ======== Total deficit. . . . . . . . . . . . . $ (2,371) (2,199) ======== ======== Six Months Ended June 30, ---------------------- 2002 2001 -------- -------- Construction contract revenue. . . . . $ 44,726 25,954 Construction contract costs. . . . . . (43,489) (24,737) -------- -------- Construction gross profit. . . . . . . 1,237 1,217 Property management fees . . . . . . . 5,393 5,031 Corporate homes' gross profit. . . . . 745 733 Gain (loss) on land sales. . . . . . . (77) 194 Other income . . . . . . . . . . . . . 388 142 -------- -------- Total income . . . . . . . . . . . . . 7,686 7,317 -------- -------- General and administrative: Construction . . . . . . . . . . . . 1,068 1,017 Property management. . . . . . . . . 4,955 4,656 Corporate homes. . . . . . . . . . . 495 476 -------- -------- Total general and administrative . . . 6,518 6,149 -------- -------- EBITDA . . . . . . . . . . . . . . . . 1,168 1,168 Interest . . . . . . . . . . . . . . . (873) (984) Depreciation (1) . . . . . . . . . . . (1,470) (1,213) Income taxes . . . . . . . . . . . . . 446 397 -------- -------- Loss . . . . . . . . . . . . . . . . . $ (729) (632) ======== ======== (1) Includes $207 in amortization of goodwill in 2001. No amortization of goodwill was recorded in 2002 in accordance with SFAS 142. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED For 2001, substantially all interest expense of the Service Companies resulted from direct borrowings from banks under the Company's line of credit, with interest at LIBOR + 1.05%. Amounts borrowed from the banks by the Service Companies are guaranteed by the Company for which it received a guaranty fee from the Service Companies totaling $35 and $133 for the six months ended June 30, 2002 and 2001, respectively. In 2002, the Company transferred six land parcels to a Service Company for $12,675, which increased advances to the Service Companies that bear interest at a rate of prime plus 1%. Interest and share of income (loss) from the Service Companies as included in the accompanying Consolidated Statements of Operations are reconciled below: Six Months Ended June 30, ----------------- 2002 2001 ------ ------ Intercompany interest expensed . . . . . $ 573 443 Intercompany interest capitalized. . . . -- 35 Loss . . . . . . . . . . . . . . . . . . (729) (632) Intercompany eliminations and other owners' share. . . . . . . . . . (98) 42 ------ ------ Interest and share of loss from the Service Companies. . . . . . . . . . . $ (254) (112) ====== ====== The Service Companies recorded after-tax charges against earnings of $141 and $61 for the six months ended June 30, 2002 and 2001, respectively, pursuant to FIN 44 "Accounting for Certain Transactions Involving Stock Compensation." 4. RELATED PARTY TRANSACTIONS During the six months ended June 30, 2002 and 2001, the Company accrued or paid to its affiliates fees and other costs and expenses as follows: Six Months Ended June 30, ----------------- 2002 2001 ------ ------ Management fees (1). . . . . . . . . . . $1,723 1,429 General contractor fees. . . . . . . . . 56 54 Interest expense . . . . . . . . . . . . -- 44 Landscaping and grounds maintenance (1). . . . . . . . . . . . -- 439 ====== ====== (1) Includes discontinued operations. In addition, at June 30, 2002 and December 31, 2001, the Company owed Amli Residential Construction, L.L.C. $4,092 and $4,079, respective- ly, for construction costs of communities under development or rehab. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED During the six months ended June 30, 2002 and 2001, the Company earned or received from its affiliates fees and other income as follows: Six Months Ended June 30, ----------------- 2002 2001 ------ ------ Development fees . . . . . . . . . . . . $ 960 539 Acquisition, disposition and financing fees . . . . . . . . . . . . 640 230 Asset management fees. . . . . . . . . . 247 284 Interest on notes and advances to Service Companies . . . . . . . . . 573 477 Interest on advances to other affiliates . . . . . . . . . . . . . . -- 179 ====== ===== In addition, during the six months ended June 30, 2002 and 2001, total revenues of $1,890 and $1,627 respectively, were generated from leases to AMLI Corporate Homes ("ACH"), a division of AMLI Management Company ("AMC"), one of the Service Companies. An affiliate of an AMLI Trustee is the mortgage lender to AMLI at Oak Bend, AMLI Towne Square and AMLI at Lowry Estates. These partnerships paid the affiliate loan fees totaling $276 in 2000 and $94 in 1999 relating to the origination of these loans. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 5. DEBT The table below summarizes certain information relating to the indebtedness of the Company.
Balance Balance Original at Interest Maturity at Encumbered Communities Amount 6/30/02 Rate Date 12/31/01 ---------------------- -------- ------- ----------- -------- -------- BOND FINANCING: Tax-Exempt Unsecured (1) $ 40,750 40,750 Rate+1.24% 10/1/24 40,750 Tax-Exempt AMLI at Poplar Creek (1) 9,500 9,500 Rate+1.25% 2/1/24 9,500 -------- ------- ------- Total Bonds 50,250 50,250 50,250 -------- ------- ------- MORTGAGE NOTES PAYABLE TO FINANCIAL INSTITUTIONS: AMLI at Riverbend 31,000 27,772 7.30% 7/1/03 28,102 AMLI in Great Hills 11,000 9,860 7.34% 7/1/03 9,977 AMLI at Nantucket 7,735 7,257 7.70% 6/1/04 7,325 AMLI at Bishop's Gate 15,380 14,079 7.25% (2) 8/1/05 14,230 AMLI at Regents Center 20,100 18,919(9) 8.90% (3) 9/1/05 19,037 AMLI on the Green/AMLI of North Dallas (4) 43,234 39,206 7.79% 5/1/06 39,621 AMLI at Valley Ranch 18,800 18,800 6.68% 5/10/07 9,688(5) AMLI at Conner Farms 14,900 14,900 6.68% 5/10/07 11,960(5) AMLI at Clairmont 12,880 12,486 6.95% 1/15/08 12,573 AMLI - various (6) (7) 140,000 138,586 6.56% 7/1/11 139,369 AMLI at Park Creek 10,322 10,153 7.88% 12/1/38 10,177 -------- ------- ------- Total Mortgage Notes Payable 325,351 312,018 302,059 -------- ------- ------- OTHER NOTES PAYABLE: Unsecured line of credit (7)(8) 200,000 88,000 L+1.05% 11/15/03 47,000 -------- ------- --------- -------- ------- Total (9) $575,601 450,268 399,309 ======== ======= ======= AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (1) The terms of these tax-exempt bonds require that a portion of the apartment units be leased to individuals who qualify based on income levels specified by the U.S. Government. The bonds bear interest at a variable rate that is adjusted weekly based upon the remarketing rate for these bonds (1.45% for AMLI at Spring Creek and for AMLI at Poplar Creek at July 25, 2002). The credit enhancement for the AMLI at Spring Creek bonds was provided by a $41,297 letter of credit from Wachovia Bank which expires on October 15, 2003 and the credit enhancement for the AMLI at Poplar Creek bonds was provided by a $9,617 letter of credit from LaSalle National Bank that expires December 18, 2003. (2) This original $14,000 mortgage note bears interest at 9.1%. For financial reporting purposes, this mortgage note was valued at $15,380 to reflect a 7.25% market rate of interest when assumed in connection with the acquisition of AMLI at Bishop's Gate on October 17, 1997. The unamortized premium at June 30, 2002 was $600. (3) $13,800 at 8.73% and $6,300 at 9.23%. (4) These two properties secure the FNMA loan that was sold at a discount of $673. At June 30, 2002, the unamortized discount was $258. (5) These loans were refinanced with the same lender on May 7, 2002. (6) This loan is secured by seven previously unencumbered properties (AMLI at Bent Tree, AMLI at Lantana Ridge, AMLI at StoneHollow, AMLI at Western Ridge, AMLI at Killian Creek, AMLI at Eagle Creek and AMLI at Gateway Park). (7) The Company has used interest rate swaps on $55,000 of the outstanding amount to fix its base interest rate (before current lender's spread) at an average of 6.22%. The Company paid the outstanding balance down in June 2001 by $140,000 from the proceeds of a ten-year mortgage loan secured by seven of its wholly-owned properties. Additionally, AMLI concurrently reduced the commitment amount under its current line of credit by $50,000 to $200,000. (8) The Company's unsecured line of credit has been provided by a group of eight banks led by Wachovia Bank, N.A. and Bank One, N.A. In November 2000, the maturity date was extended to November 2003 with a one-year renewal option. In addition, AMC and Amrescon were added as borrowers under this line of credit, and such borrowings by the Service Companies ($14,000 at June 30, 2002) are guaranteed by the Company and count against the Company's total availability under this line of credit. This unsecured line of credit requires that the Company meet various covenants typical of such an arrangement, including minimum net worth, minimum debt service coverage and maximum debt to equity percentage. The unsecured line of credit is used for acquisition and development activities and working capital needs. (9) This is the only loan which has recourse to the partners of the Operating Partnership.
AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED As of June 30, 2002, the scheduled maturities of the Company's debt are as follows: Fixed Rate Mortgage Notes Payable Unsecured Bond to Financial Lines Financings Institutions of Credit Total ---------- ------------- --------- ------- 2002. . . . . . $ -- 2,169 -- 2,169 2003. . . . . . -- 40,766 88,000 128,766 2004. . . . . . -- 10,745 -- 10,745 2005. . . . . . -- 35,021 -- 35,021 2006. . . . . . -- 38,502 -- 38,502 Thereafter. . . 50,250 184,815 -- 235,065 ------- ------- ------- ------- $50,250 312,018 88,000 450,268 ======= ======= ======= ======= 6. INCOME TAXES The Company qualifies as a REIT under Section 856 through 860 of the Internal Revenue Code of 1986, as amended. A REIT will generally not be subject to Federal income taxation on that portion of its income that qualifies as REIT taxable income to the extent that it distributes at least 90% of its taxable income to its shareholders and complies with certain other requirements. In 2000, the Company distributed approximately 90% of its taxable income and designated a portion of its dividends paid during 2001 as a throw back dividend to 2000. The Company's current dividend payment level equals an annual rate of $1.92 per common share, increased on October 29, 2001 from an annual rate of $1.88 per common share. The Company anticipates that all dividends paid in 2002 will be fully taxable (primarily as ordinary income), and absent property sales, it will distribute at least 100% of the taxable income. 7. COMMITMENTS AND CONTINGENCIES The limited partnership agreements of AMLI at Verandah L.P. and AMLI on Timberglen provide for the redemption (at an amount determined by formula) by the partnerships of each limited partner's entire interest, in its sole discretion, at any time after March 25, 2002 and December 16, 2003, or at any time that there is a designated event of default on related indebtedness of the partnerships, which event of default remains uncured and unwaived to the time of notice of redemption election. The redemption amount may be paid in cash or Company shares of beneficial interest, or any combination thereof, in the sole discretion of the Company. At June 30, 2002, the Company is contingently liable on the $9,678 in bank letters of credit issued to secure commitments made in the ordinary course of business by the Company and its co-investment partnerships (see note 5). 8. SUBSEQUENT EVENTS On July 1, 2002, a partnership in which AMLI owns a 25% ownership interest closed on a 6.25%, $28,500 first mortgage permanent loan through GMAC Commercial Mortgage Corporation. This interest only loan is secured by AMLI at Park Meadows and will mature in seven years, with the balloon payment due at maturity. The loan proceeds were distributed to the partners in accordance with their ownership percentages. AMLI received a partnership distribution of $7,125 from the proceeds of this loan on July 1, 2002. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED On August 1, 2002, the Company completed the sale of AMLI at Greenwood Forest, a 316-unit co-investment community located in Houston, Texas, in which AMLI had a 15% ownership interest. The community was built in 1995 and acquired by AMLI the same year for $17,685. The partnership's gain on sale was approximately $4,500, of which the Company's share was approximately $680. The $19,200 net proceeds were distributed to the partners, of which approximately $12,147 was the Company's share. With this distribution, the Company has received a return of the preferred $11,200 capital contribution and its original capital of $962. In addition, AMLI received a disposition fee from the partnership of $403. On July 29, 2002, the Company's Board of Trustees approved management's decision to change AMLI's policy for accounting for share options. In accordance with recently revised rules governing the accounting for such a change, AMLI has elected the option of reporting the value of share options awarded subsequent to January 1, 2002 as a charge against earnings and FFO. The accounting for options issued prior to 2002 is unaffected by this change, and AMLI anticipates that there will be no material effect on its 2002 results of operations as a result of making this change to what the accounting industry and the investment banking community consider a preferable method of accounting. During the period from July 25, 2002 through July 29, 2002, AMLI repurchased on the open market 130,500 of its common shares at an average price of $21.62 per share pursuant to its previously announced 500,000 Common Share Repurchase Program, so that shares repurchased under this authorization now total 350,900. On July 29, 2002, the Company's Board of Trustees replaced the remaining 149,100 share authorization with a new 1,500,000 share authorization. Through July 31, 2002, AMLI has acquired 46,200 common shares at an average price of $22.78 per share under this authorization. AMLI anticipates acquiring shares under this new authorization from time to time, as market conditions warrant. On August 1, 2002, a partnership in which AMLI owns a 48% ownership interest closed on a 5.81%, $26,200 first mortgage permanent loan with GMAC Commercial Mortgage Corporation. This interest only loan is secured by AMLI at Bryan Place and will mature in seven years, with the balloon payment due at maturity. The loan proceeds were distributed to the partners in accordance with their ownership interests. AMLI received a partnership distribution of $12,576 from the proceeds of this loan on August 1, 2002. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 9. SEGMENT REPORTING The revenues, net operating income, FFO and assets for the Company's reportable segment are summarized as follows: Six Months Ended June 30, ------------------------ 2002 2001 ---------- ---------- Multifamily segment revenues (excluding discontinued operations). . . . . . . . . . . . . . $ 137,095 137,195 ========== ========== Multifamily segment net operating income (excluding discontinued operations). . . . . . . . . . . . . . $ 82,732 84,088 Reconciling items to FFO: Reduce co-investment net operating income to Company's share (1). . . . (39,398) (40,519) Interest income and share of income (loss) from Service Companies. . . . . . . . . . . . . . (254) 95 Other interest income. . . . . . . . . 316 803 Other revenues . . . . . . . . . . . . 1,978 1,193 Discontinued operations - net operating income . . . . . . . . . . 1,500 1,626 General and administrative expenses. . (2,753) (2,669) Interest expense and loan cost amortization . . . . . . . . . . . . (12,188) (13,224) ---------- ---------- Consolidated FFO before minority interest . . . . . . . . . . . . . . . 31,933 31,393 ---------- ---------- Reconciling items to net income: Depreciation - wholly owned properties (including discontinued operations) . . . . . . (10,733) (10,640) Depreciation - share of co-investment properties . . . . . . (5,836) (5,640) Share of Service Company's goodwill amortization. . . . . . . . -- (207) Gain on sale of residential property . 605 9,249 ---------- ---------- Income before minority interest and extraordinary items. . . . . . . . 15,969 24,155 Minority interest (including discontinued operations) . . . . . . . 2,018 3,525 ---------- ---------- Net income . . . . . . . . . . . . . . . $ 13,951 20,630 ========== ========== AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, December 31, 2002 2001 ---------- ------------ Segment assets (2) . . . . . . . . . . . $2,055,484 1,935,423 ========== ========== (1) Represents amount required to reduce co-investment properties' net operating income to the Company's share of net operating income from partnerships. (2) Represents original acquisition costs of wholly owned and co investment properties. The Company derives no consolidated revenues from foreign countries nor has any major customers that individually account for 10% or more of the Company's consolidated revenues. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The following discussion is based primarily on the consolidated financial statements of Amli Residential Properties Trust (the "Company" or "AMLI") as of June 30, 2002 and December 31, 2001 and for the three and six months ended June 30, 2002 and 2001. This information should be read in conjunction with the accompanying unaudited consolidated financial statements and notes thereto. These financial statements include all adjustments which are, in the opinion of management, necessary to reflect a fair statement of the results for the interim periods presented, and all such adjustments are of a normal recurring nature. As of June 30, 2002, the Company owned an 86% general partnership interest in AMLI Residential Properties, L.P. (the "Operating Partnership"), which holds the operating assets of the Company. The limited partners hold Operating Partnership units ("OP Units") that are convertible into common shares of the Company on a one-for-one basis, subject to certain limitations. At June 30, 2002, the Company owned 22,145,296 OP Units including 4,025,000 Preferred OP Units and the limited partners owned 3,665,364 OP Units. The Company has qualified, and anticipates continuing to qualify, as a real estate investment trust ("REIT") for Federal income tax purposes. At June 30, 2002, AMLI owned or had interest in eighty-one multi- family apartment communities comprised of 31,109 apartment homes. Seventy- three of these communities totaling 28,352 apartment homes were stabilized as of June 30, 2002 and eight communities containing 2,757 apartment homes were under development or in lease-up at that date. ACCOUNTING FOR INVESTMENTS IN AND TRANSACTIONS WITH UNCONSOLIDATED PARTNERSHIPS The Company has differentiated itself from other publicly-owned multifamily residential REIT's in the manner and to the extent it conducts its business through co-investment with institutional investors. The condensed combined financial information for the Company and its co- investment partnerships at June 30, 2002, as shown below, is presented as supplementary information intended to provide a better understanding of the Company's financial position. The information presented in the following table includes the unconsolidated co-investment partnerships at 100%. Effect of Company and Consolidated Combining Co-Investment Company Co-Investment Partnerships ("GAAP") Partnerships (Combined) ------------ ------------- ------------- Rental apartments . . . . . .$ 735,699 1,218,953 1,954,652 Accumulated depreciation. . . (110,733) (110,409) (221,142) ---------- ---------- ---------- 624,966 1,108,544 1,733,510 Rental apartments held for sale, net . . . . . . . . . 20,401 -- 20,401 Land and rental communities under development . . . . . 49,849 141,108 190,957 Investments in co-invest- ment partnerships . . . . . 221,487 (221,487) -- Other, net. . . . . . . . . . 17,752 (4,387) 13,365 ---------- ---------- ---------- 934,455 1,023,778 1,958,233 Effect of Company and Consolidated Combining Co-Investment Company Co-Investment Partnerships ("GAAP") Partnerships (Combined) ------------ ------------- ------------- Debt - Company's share. . . . (450,268) (198,697) (648,965) Debt - partners' share. . . . -- (330,703) (330,703) ---------- ---------- ---------- Total net assets. . . . . . . 484,187 494,378 978,565 Partners' share of net assets. . . . . . . . . . . -- (494,378) (494,378) ---------- ---------- ---------- Company's share of net assets. . . . . . . . .$ 484,187 -- 484,187 ========== ========== ========== Debt to total capitaliza- tion - undepreciated book value. . . . . . . . . 40.2% ========== The information presented in the following table includes AMLI's proportionate share of unconsolidated co-investment partnerships. Company and Share of Consolidated Share of Co-Investment Company Co-Investment Partnerships ("GAAP") Partnerships (Combined) ------------ ------------- ------------- Rental apartments . . . . . .$ 735,699 406,948 1,142,647 Accumulated depreciation. . . (110,733) (33,030) (143,763) ---------- ---------- ---------- 624,966 373,918 998,884 Rental apartments held for sale, net . . . . . . . . . 20,401 -- 20,401 Land and rental communities under development . . . . . 49,849 34,151 84,000 Investments in co-investment partnerships. . . . . . . . 221,487 (221,487) -- Other, net. . . . . . . . . . 17,752 12,115 29,867 ---------- ---------- ---------- 934,455 198,697 1,133,152 Debt - Company's share. . . . (450,268) (198,697) (648,965) ---------- ---------- ---------- Company's share of net assets. . . . . . . . . . .$ 484,187 -- 484,187 ========== ========== ========== Debt to total capitaliza- tion - undepreciated book value. . . . . . . . . 40.2% 49.2% ========== ========== Details of the differences between the Company's aggregate investment in partnerships and its aggregate share of equity as recorded on the books of these partnerships, net of accumulated amortization, are as follows at June 30, 2002: AMLI's share of equity per partnerships . . . . . . . . . . . . $220,039 Negative investment balances presented in other liabilities . . . 4,514 Capitalized interest . . . . . . . . . 4,566 Eliminated fees. . . . . . . . . . . . (5,890) Other. . . . . . . . . . . . . . . . . (1,742) -------- Total investments in partnerships. . . $221,487 ======== RESULTS OF OPERATIONS For the six months ended June 30, 2002, property revenues and property operating expenses moderately increased from the same period a year ago. The increases from acquisitions of new communities were offset by sales of older communities during 2001. Since January 1, 2001, the Company has sold three stabilized communities containing a total of 1,078 apartment homes. During the same period, the Company has acquired a total of 1,328 apartment homes in five stabilized communities. Four of these acquisitions completed deferred third-party exchanges for Federal income tax purposes. Property operations from wholly-owned assets for the six months ended June 30, 2002 and 2001 are summarized as follows: Six Months Ended June 30, -------------------- Increase 2002 2001 (Decrease) ------- ------- --------- Total Wholly-Owned Property Revenues ------------------ Same communities . . . . . . . $51,049 51,474 (425) Acquisition communities. . . . 6,391 1,587 4,804 Communities contributed to ventures/sold . . . . . . -- 4,098 (4,098) ------- ------- ------- Total . . . . . . . . . . . $57,440 57,159 281 ======= ======= ======= Continuing operations . . . $54,913 54,571 342 Discontinued operations . . 2,527 2,588 (61) ======= ======= ======= Total Wholly-Owned Property Operating Expenses --------------------------- Same communities . . . . . . . $20,018 20,132 (114) Acquisition communities. . . . 2,707 463 2,244 Communities contributed to ventures/sold . . . . . . -- 1,743 (1,743) ------- ------- ------- Total . . . . . . . . . . . $22,725 22,338 387 ======= ======= ======= Continuing operations . . . $21,698 21,376 322 Discontinued operations . . 1,027 962 65 ======= ======= ======= Total Wholly-Owned Property Net Operating Income ----------------------------- Same communities . . . . . . . $31,031 31,342 (311) Acquisition communities. . . . 3,684 1,124 2,560 Communities contributed to ventures/sold . . . . . . -- 2,355 (2,355) ------- ------- ------- Total . . . . . . . . . . . $34,715 34,821 (106) ======= ======= ======= Continuing operations . . . $33,215 33,195 20 Discontinued operations . . 1,500 1,626 (126) ======= ======= ======= Property Net Operating Income is computed before interest, taxes, depreciation and amortization. This performance measure is not intended as a replacement for net income determined in accordance with generally accepted accounting principles ("GAAP"). The Company, through joint ventures with institutional investors, has completed or has under development and begun rental operations of eight communities. Since January 1, 2001, four communities with a total of 1,460 apartment homes were stabilized and four communities, containing a total of 1,385 apartment homes, were in lease-up as of June 30, 2002 and are anticipated to reach stabilization in 2002 and 2003. In addition, in 2001 the Company invested in three co-investment partnerships which acquired three stabilized communities containing a total of 1,421 apartment homes and sold one 488-unit community. This sale and weak market conditions have contributed to a decrease in share of income from partnerships. Six Months Ended June 30, -------------------- Increase 2002 2001 (Decrease) ------- ------- --------- Total Co-investment Property Revenues ------------------- Same communities . . . . . . . $66,166 68,629 (2,463) New communities. . . . . . . . 5,270 4,596 674 Development and/or lease-up communities . . . . 3,820 538 3,282 Acquisition communities. . . . 4,020 2,394 1,626 Communities contributed to ventures/sold . . . . . . 2,908 6,467 (3,559) ------- ------- ------- Total . . . . . . . . . . . $82,184 82,624 (440) ======= ======= ======= Company's share of co-investment total revenues . . . . . . . $25,808 26,300 (492) ======= ======= ======= Total Co-investment Property Operating Expenses --------------------------- Same communities . . . . . . . $25,848 25,631 217 New communities. . . . . . . . 1,833 1,683 150 Development and/or lease-up communities . . . . 2,144 618 1,526 Acquisition communities. . . . 1,424 841 583 Communities contributed to ventures/sold . . . . . . 1,423 2,691 (1,268) ------- ------- ------- Total . . . . . . . . . . . $32,672 31,464 1,208 ======= ======= ======= Company's share of co-invest- ment property operating expenses . . . . . . . . . . $10,220 9,909 311 ======= ======= ======= Six Months Ended June 30, -------------------- Increase 2002 2001 (Decrease) ------- ------- --------- Total Co-investment Property Net Operating Income ---------------------------- Same communities . . . . . . . $40,318 42,998 (2,680) New communities. . . . . . . . 3,437 2,913 524 Development and/or lease-up communities . . . . 1,676 (80) 1,756 Acquisition communities. . . . 2,596 1,553 1,043 Communities contributed to ventures/sold . . . . . . 1,485 3,776 (2,291) ------- ------- ------- Total . . . . . . . . . . . $49,512 51,160 (1,648) ======= ======= ======= Company's share of co-invest- ment property NOI. . . . . . $15,588 16,391 (803) ======= ======= ======= The term "New Communities" refers to completed properties that were stabilized after the beginning of the earliest period for which comparative financial information is presented. For the six months ended June 30, 2002, total revenues, net of discontinued operations, were $61,236 and net income was $13,951 including $605 share of gains on sales of a partnership's properties. Total revenues, net of discontinued operations, for the year earlier period were $61,189 and net income was $20,630 which includes a gain of $9,249 from the sale of a wholly-owned residential property. For the six months ended June 30, 2002, basic earnings per common share were $0.55 (including $0.05 from discontinued operations) compared to $0.98 per share (including $0.06 from discontinued operations) for the comparable period of 2001. For the six months ended June 30, 2002, diluted earnings per common share were $0.54 (including $0.05 from discontinued operations) compared to $0.96 per share (including $0.05 from discontinued operations) for the comparable period of 2001. 2001 basic and diluted earnings per share include $0.43 and $0.42 per share from the sale of a residential property, respectively. On a "same community" basis (including discontinued operations), weighted average occupancy of the apartment homes owned wholly by the Company increased to 92.0% for the six months ended June 30, 2002 from 89.9% in the prior year. Weighted average collected rental rates increased by 1.0% to $785 from $778 per unit per month for the six months ended June 30, 2002 and 2001, respectively. Including co-investment communities, weighted average occupancy of the Company's apartment homes decreased to 91.3% for the six months ended June 30, 2002 from 91.9% in the prior year, and weighted average collected rental rates decreased by 1.8% to $850 from $865 per unit per month for the six months ended June 30, 2002 and 2001, respectively. OPERATING EARNINGS Operating earnings is a supplemental earnings measurement which is an alternative to funds from operations ("FFO"). It resembles GAAP net income, although it excludes gains or losses on sales of investment properties. The following shows the relationship among FFO, operating earnings and net income. As of June 30, ---------------------- 2002 2001 -------- -------- FFO (1). . . . . . . . . . . . . . . $ 31,933 31,393 Depreciation expense (1)(2). . . . . 16,569 16,487 -------- -------- Operating earnings . . . . . . . . . 15,364 14,906 Income from discontinued operations . . . . . . . . . . . . (1,193) (1,207) Gains on sales (2) . . . . . . . . . 605 9,249 -------- -------- Income from continuing operations (3) . . . . . . . . . . $ 14,776 22,948 ======== ======== (1) Including discontinued operations. (2) Including share from co-investments. (3) Before allocation to minority interest. COMPARISON OF THREE MONTHS ENDED JUNE 30, 2002 TO THREE MONTHS ENDED JUNE 30, 2001. Income from continuing operations before minority interest decreased to $7,747 for the three months ended June 30, 2002 from $16,223 for the three months ended June 30, 2001 which was primarily attributable to a large gain from the sale of a community in 2001 offset in part by a decrease in interest expense. The following table shows comparative condensed results of operations for the three months ended June 30, 2002 and 2001: Three Months Ended June 30, -------------------- Increase 2002 2001 (Decrease) ------- ------- --------- Property revenues . . . . . . . $27,538 27,523 15 Other income. . . . . . . . . . 3,574 3,625 (51) ------- ------- ------- Total revenues. . . . . . . 31,112 31,148 (36) ------- ------- ------- Property operating expenses . . 11,267 11,034 233 Interest expense and amortiza- tion of financing costs . . . 6,242 6,661 (419) Depreciation. . . . . . . . . . 5,248 5,328 (80) General and administrative. . . 1,213 1,151 62 ------- ------- ------- Total expenses. . . . . . . 23,970 24,174 (204) ------- ------- ------- Income from continuing opera- tions before share of gains on sales of properties. . . . 7,142 6,974 168 Gains on sales of properties. . 605 9,249 (8,644) ------- ------- ------- Income from continuing operations before minority interest. . . . . . . . . . . 7,747 16,223 (8,476) Minority interest . . . . . . . 975 2,486 (1,511) ------- ------- ------- Three Months Ended June 30, -------------------- Increase 2002 2001 (Decrease) ------- ------- --------- Income from continuing operations. . . . . . . . . . 6,772 13,737 (6,965) Income from discontinued operations, net of minority interest. . . . . . . . . . . 519 488 31 ------- ------- ------- Net income. . . . . . . . . . . $ 7,291 14,225 (6,934) ======= ======= ======= Total property revenues for the three months ended June 30, 2002 were $27,538 comparing to $27,523 for the three months ended June 30, 2001. A $15, or 0.1%, increase was primarily from the acquisition of a 194- apartment homes community in May of 2002. On a same community basis total property revenues decreased by $543, or 2.1%, and net operating income decreased by $484, or 2.1%. Interest and share of income (loss) from Service Companies decreased by $315, or 108.2%, due to higher depreciation expense relating to the information technology system, which was partially offset by no amortization of goodwill recorded in 2002 in accordance with Statement of Financial Accounting Standards No. 142 "Accounting for Goodwill and Other Intangible Assets" ("SFAS 142"). Income from partnerships decreased to $2,255 from $2,439, or 7.5%. This decrease in income was a result of sales of two communities in April of 2002 and general economic conditions. The decline in income was offset in part by the acquisition of two stabilized communities through two new co-investment partnerships and stabilization of one 400-unit community during the second quarter of 2002. On a same community basis, total property revenues decreased by $1,444, or 4.2%, and net operating income decreased by $1,516, or 7.0%. Property operating expenses increased by $233, or 2.1%, mainly due to increases in insurance and real estate tax expense. In addition, management fees increased as a result of higher fees charged by AMC for managing the Company's wholly-owned properties. On a same community basis, property operating expenses decreased by $60, or 0.6%. Interest expense, net of the amounts capitalized, decreased to $6,084 from $6,352, or 4.2%, primarily due to lower interest rates on the floating-rate bonds. General and administrative expenses increased slightly to $1,213 for the three months ended June 30, 2002 from $1,151 for the three months ended June 30, 2001. The increase is primarily due to higher personnel costs as a result of increased number of employees. COMPARISON OF SIX MONTHS ENDED JUNE 30, 2002 TO SIX MONTHS ENDED JUNE 30, 2001. Income from continuing operations before minority interest decreased to $14,776 for the six months ended June 30, 2002 from $22,948 for the six months ended June 30, 2001 which was primarily attributable to a large gain from the sale of a community in 2001 offset in part by a decrease in interest expense. The following table shows comparative condensed results of operations for the six months ended June 30, 2002 and 2001: Six Months Ended June 30, -------------------- Increase 2002 2001 (Decrease) ------- ------- --------- Property revenues . . . . . . . $54,912 54,571 341 Other income. . . . . . . . . . 6,324 6,618 (294) ------- ------- ------- Total revenues. . . . . . . 61,236 61,189 47 ------- ------- ------- Property operating expenses . . 21,698 21,376 322 Interest expense and amortiza- tion of financing costs . . . 12,188 13,224 (1,036) Depreciation. . . . . . . . . . 10,426 10,221 205 General and administrative. . . 2,753 2,669 84 ------- ------- ------- Total expenses. . . . . . . 47,065 47,490 (425) ------- ------- ------- Income from continuing opera- tions before share of gains on sales of properties. . . . 14,171 13,699 472 Gains on sales of properties. . 605 9,249 (8,644) ------- ------- ------- Income from continuing operations before minority interest. . . . . . . . . . . 14,776 22,948 (8,172) Minority interest . . . . . . . 1,816 3,324 1,508 ------- ------- ------- Income from continuing operations. . . . . . . . . . 12,960 19,624 (6,664) Income from discontinued operations, net of minority interest. . . . . . . . . . . 991 1,006 (15) ------- ------- ------- Net income. . . . . . . . . . . $13,951 20,630 (6,679) ======= ======= ======= Total property revenues increased by $341, or 0.6%, which was primarily from the acquisition of 1,328 apartment homes during 2001 and 2002. The increase was offset by the loss of revenue from 1,078 apartment homes sold during the period from June to August of 2001. Other property revenues include increases in various fees charged to residents. On a same community basis total property revenues decreased by $425, or 0.8%, and net operating income decreased by $106, or 0.3%. The Company operates, owns and manages apartments in eight metropolitan areas. A combination of a moderate over-supply of rental apartments in the Company's markets coupled with a general business slow- down has contributed to overall growth in collected rents at less than the rate of inflation. Interest and share of income (loss) from the Service Companies decreased by $142, or 126.8%, due to higher depreciation expense relating to the information technology system and lower general contractor's fee income. The decrease was partially offset by higher interest income as a result of additional advances to the Service Companies to fund the 2002 acquisition cost of six land parcels and not recording amortization of goodwill in accordance with SFAS 142. During 2001 the Service Companies commenced or continued a variety of information technology system initiatives, most notably the implementation of an Enterprise Resource Planning ("ERP") system using the Oracle database. Information technology expenditures incurred and capitalized are being depreciated over five years. Primarily because of increased expenditures by AMLI Management Company ("AMC") for information technology such as the ERP and other systems applications, AMC increased the management fee it charges the Company for managing its wholly-owned properties to 3% from 2.5% effective July 1, 2001. Income from partnerships decreased to $4,284 from $4,734 or 9.5%. This decrease was a result of sales of three communities during 2002 and 2001 and general economic conditions. The decline in income was offset in part by the acquisition of three stabilized communities through three new co-investment partnerships and stabilization of 1,460 units of four communities under development in 2002 and 2001. On a same community basis, total property revenues decreased by $2,463, or 3.6%, and net operating income decreased by $2,680, or 6.2%. Property operating expenses increased by $322, or 1.5%. This increase is principally due to increases in insurance and real estate tax expense. In addition, management fees increased as a result of higher fees charged by AMC for managing the Company's wholly-owned properties. On a same community basis, property operating expenses decreased by $114, or 0.6%. Interest expense, net of the amounts capitalized, decreased to $11,884 from $12,779, or 7.0%, primarily due to a partial repayment of the Company's short-term borrowings and lower interest rates on the floating- rate bonds. General and administrative expenses increased moderately to $2,753 for the six months ended June 30, 2002 from $2,669 for the six months ended June 30, 2001. The increase is primarily due to higher personnel costs as a result of increased number of employees. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2002, the Company had $4,129 in cash and cash equivalents and $98,000 in availability under its $200,000 unsecured line of credit. The availability under the line of credit is based on total borrowings of $102,000, including $14,000 borrowed directly by an unconsolidated Service Company affiliate. The borrowings of the Service Company affiliate are guaranteed by the Company. Borrowings under the line of credit bear interest at a rate of LIBOR plus 1.05%. At June 30, 2002, twelve of the Company's wholly-owned stabilized communities were unencumbered. There are no fixed rate loans on wholly- owned communities with maturity dates prior to July 2003. Net cash flows provided by operating activities for the six months ended June 30, 2002 was $30,577 compared to $30,582 for the six months ended June 30, 2001. In 2002, there were no significant changes in cash flows from operating activities comparing to 2001. Cash flows used in investing activities for the six months ended June 30, 2002 increased to $59,118 from $46,102 for the six months ended June 30, 2001. The increase is primarily due to higher expenditures for development costs and higher investments in partnerships, net of $14,096 return of capital and $2,846 net distribution from refinancing of partnerships' debt as a result of loan refinancings and sales of residential properties. The increase was offset in part by lower expenditures for acquisition of new communities in 2002 and 2001 higher sale proceeds. Net cash flows used in financing activities for the six months ended June 30, 2002 were $26,778 which reflect higher borrowings on the Company's line of credit and proceeds from refinancing of two mortgages. FFO is defined as net income (computed in accordance with GAAP), excluding extraordinary gains (losses) from debt restructuring and gains (losses) from sales of depreciable operating properties, plus depreciation and amortization, and after adjustments for unconsolidated partnerships, joint ventures and other affiliates. Adjustments for unconsolidated partnerships, joint ventures and other affiliates are calculated to reflect FFO on the same basis. FFO does not represent cash flows from operations, as defined by GAAP; is not indicative that cash flows are adequate to fund all cash needs; and is not to be considered an alternative to net income or any other GAAP measure as a measurement of the results of the Company's operations or the Company's cash flows or liquidity as defined by GAAP. FFO is widely accepted in measuring the performance of equity REITs. An understanding of the Company's FFO will enhance the reader's comprehension of the Company's results of operations and cash flows as presented in the financial statements and data included elsewhere herein. FFO for the six months ended June 30, 2002 and 2001 is summarized as follows: June 30, ------------------------ 2002 2001 ---------- ---------- Income from continuing operations before minority interest . . . . . . . $ 14,776 22,948 Income from discontinued operations before minority interest . . . . . . . 1,193 1,207 Depreciation (1) . . . . . . . . . . . . 10,733 10,640 Share of co-investment partnerships' depreciation . . . . . . . . . . . . . 5,836 5,640 Share of Service Company's goodwill amortization . . . . . . . . . . . . . -- 207 Gain on sale of residential property . . (605) (9,249) ---------- ---------- FFO. . . . . . . . . . . . . . . . . . . $ 31,933 31,393 ========== ========== Weighted average shares and units including dilutive shares. . . . . . . 26,042,326 24,980,967 ========== ========== (1) Includes discontinued operations of $307 and $419 for the six months ended June 30, 2002 and 2001, respectively. The Company expects to pay quarterly dividends from cash available for distribution. Until distributed, funds available for distribution are used to temporarily reduce outstanding balances on the Company's revolving lines of credit. The Company intends to finance the majority of its future acquisition and development activities by co-investing these acquisitions and developments with institutional partners. In addition, the Company is selectively selling older communities and using proceeds of such sales to buy newly-constructed properties. The Company expects to meet its short- term liquidity requirements by using its working capital and any portion of net cash flow from operations not distributed currently. The Company believes that its future net cash flows will be adequate to meet operating requirements in both the short and the long term and provide for payment of dividends by the Company in accordance with REIT requirements. The Company qualifies as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. A REIT will generally not be subject to Federal income taxation on that portion of its income that qualifies as REIT taxable income to the extent that it distributes at least 90% of its taxable income to its shareholders and complies with certain other requirements. In 2000, the Company distributed approximately 90% of its taxable income and designated a portion of its dividends paid during 2001 as a throw back dividend to 2000. The Company's current dividend payment level equals an annual rate of $1.92 per common share, increased on October 29, 2001 from an annual rate of $1.88 per common share. The Company anticipates that all dividends paid in 2002 will be fully taxable (primarily as ordinary income), and absent property sales, it will distribute at least 100% of the taxable income. The Company has recorded no deferred taxes on gains for financial reporting purposes that have been deferred for income tax reporting purposes because the Company intends to distribute to its shareholders any deferred tax gain upon ultimate realization for income tax reporting purposes. The Company expects to meet certain long-term liquidity requirements such as scheduled debt maturities, repayment of loans for construction, development, and acquisition activities through the issuance of long-term secured and unsecured debt and additional equity securities of the Company or OP Units. Through June 30, 2002, the Company has issued preferred and common shares for an aggregate issuance price of $128,467 leaving a balance of $71,533 in shares that the Company may issue in the future under its shelf registration statement. COMPANY INDEBTEDNESS The Company's debt as of June 30, 2002 includes $312,018 which is secured by first mortgages on eighteen of the wholly-owned communities and is summarized as follows: SUMMARY DEBT TABLE ------------------ Type of Weighted Average Outstanding Percent Indebtedness Interest Rate Balance of Total ------------ ---------------- ----------- -------- Fixed Rate Mortgages 7.1% $312,018 69.3% Tax-Exempt Tax-Exempt Rate + 1.24% 50,250 11.2% Bonds (1) Tax-Exempt Rate + 1.25% Lines of Credit (2) LIBOR + 1.05% 88,000 19.5% -------- ------ Total $450,268 100.0% ======== ====== -------------------- (1) The tax-exempt bonds bear interest at a variable tax-exempt rate that is adjusted weekly based on the re-marketing of these bonds (1.45% for AMLI at Spring Creek and for AMLI at Poplar Creek at July 25, 2002). The AMLI at Spring Creek bonds mature on October 1, 2024 and the related credit enhancement expires on October 15, 2003. The AMLI at Poplar Creek bonds mature on February 1, 2024 and the related credit enhancement expires on December 18, 2003. (2) Amounts borrowed under lines of credit are due in 2003. The interest rate on $55,000 has been fixed pursuant to interest rate swap contracts. Additional interest rate swap contracts on $20,000 have been marked to the value of the related liability in 2001 for payment which will extend through November 2002. DEVELOPMENT ACTIVITIES The Company anticipates completing the $28,400 AMLI Carmel Center within the next twelve months. AMLI has begun the development of AMLI Downtown Austin with an estimated $50,900 total costs and may obtain a partner for this development later in 2002 (note 2 to Financial Statements). At June 30, 2002, the Company has made capital contributions totaling $258,392 to its existing co-investment partnerships and anticipates funding substantially all of its remaining commitment (net of its share of co- investment debt) of $11,267 during 2002 and 2003 to complete the 2,215 apartment homes being developed by co-investment partnerships. The Company owns land in Ft. Worth, Austin and Houston, Texas; and Kansas City, Kansas, being held for the development of an additional 2,620 apartment homes, or for sale. The Company has made earnest money deposits of $500 for four land parcels for development anticipated to be acquired in future years. The Company has postponed active development planning for some of its land parcels in Houston and Forth Worth, Texas, until conditions in those particular submarkets are more favorable for development. The Company expensed $554 and $531 of costs associated with carrying these land parcels for the six months ended June 30, 2002 and 2001, respectively. CAPITAL EXPENDITURES Capital expenditures are those made for assets having a useful life in excess of one year and include replacements (including carpeting and appliances) and betterments, such as unit upgrades, enclosed parking facilities and similar items. The following summarizes capital expenditures (including discontinued operations), which are primarily non-revenue enhancing expenditures, incurred in connection with existing stabilized communities for the six months ended June 30, 2002 and 2001: Six Months Ended June 30, -------------------- 2002 2001 -------- -------- Carpet . . . . . . . . . . . . . . . . . . $ 994 1,051 Roof replacements and improvements . . . . 482 570 HVAC and maintenance equipment . . . . . . 157 272 Land improvements, landscaping and irrigation . . . . . . . . . . . . . . . 139 570 Furniture, fixtures and equipment. . . . . 40 201 Major appliances . . . . . . . . . . . . . 106 152 Building improvements. . . . . . . . . . . 79 41 Clubhouse, pool and other amenities. . . . 96 362 Other. . . . . . . . . . . . . . . . . . . 71 150 -------- -------- $ 2,164 3,369 ======== ======== In conjunction with acquisitions of existing properties, it is the Company's policy to provide in its acquisition budgets adequate funds to complete any deferred maintenance items and to otherwise make the properties acquired competitive with comparable newly-constructed properties. In some cases, the Company will provide in its acquisition budget additional funds to upgrade or otherwise improve new acquisitions. The following summarizes capital expenditures incurred in connection with upgrading or improving newly-acquired communities for the six months ended June 30, 2002 and 2001: Six Months Ended June 30, -------------------- 2002 2001 -------- -------- Land improvements, landscaping and irrigation . . . . . . . . . . . . . . . $ 91 35 Clubhouse, pool and other amenities. . . . 100 37 HVAC and maintenance equipment . . . . . . 47 17 Other. . . . . . . . . . . . . . . . . . . 77 120 -------- -------- $ 315 209 ======== ======== The following, which excludes discontinued operations, is a summary of expenditures which have been expensed, incurred in connection with building repairs and maintenance (including contract services), and landscaping and ground maintenance for the six months ended June 30, 2002 and 2001: Six Months Ended June 30, -------------------- 2002 2001 -------- -------- BUILDING REPAIRS AND MAINTENANCE Painting (exterior and interior) . . . . $ 585 867 Carpet and vinyl . . . . . . . . . . . . 280 382 Wallpaper and mini-blinds. . . . . . . . 69 68 Carpentry, glass and hardware. . . . . . 164 180 Heating and air conditioning . . . . . . 57 73 Plumbing . . . . . . . . . . . . . . . . 122 150 Appliances . . . . . . . . . . . . . . . 58 71 Electrical . . . . . . . . . . . . . . . 67 76 Parking lots / resurfacing . . . . . . . 29 40 Swimming pools and amenity areas . . . . 176 130 Other repairs and maintenance. . . . . . 225 161 Six Months Ended June 30, -------------------- 2002 2001 -------- -------- CONTRACT SERVICES Property monitoring services . . . . . . 120 124 Rubbish collection services. . . . . . . 71 160 Cleaning services. . . . . . . . . . . . 156 193 Pest control services. . . . . . . . . . 79 87 Other services . . . . . . . . . . . . . 41 51 -------- -------- $ 2,299 2,813 ======== ======== LANDSCAPING AND GROUNDS MAINTENANCE Lawn maintenance . . . . . . . . . . . . $ 897 1,023 All other. . . . . . . . . . . . . . . . 230 104 -------- -------- $ 1,127 1,127 ======== ======== REHAB EXPENDITURES In September 1998, AMLI initiated its first community rehab since its initial public offering. Rehab is a capital improvement program involving significant repairs, replacements and improvements at an aggregate cost of at least the greater of $3 per apartment home or 5% of the value of the entire apartment community. All costs (except costs to routinely paint the interiors of units at turnover) associated with a rehab will be capitalized and depreciated over their policy lives. At June 30, 2002, the Company was continuing the rehab of the second phase of AMLI at Valley Ranch. Starting in 1999 and through June 30, 2002, the Company has spent $2,761 on the rehab of this property and expects to spend an additional $400 to complete the rehab. The following table summarizes capital expenditures incurred in connection with the rehab of phase II of AMLI at Valley Ranch. Six Months Ended June 30, -------------------- 2002 2001 -------- -------- Buildings - interior . . . . . . . . . . . $ 322 164 Amenities. . . . . . . . . . . . . . . . . -- 37 General contractor's fee . . . . . . . . . 8 7 Overhead and general conditions. . . . . . 69 64 Other. . . . . . . . . . . . . . . . . . . 67 27 -------- -------- $ 466 299 ======== ======== INFLATION Inflation has been low. Virtually all apartment leases at the wholly-owned communities and co-investment communities are for six or twelve months' duration. This enables the Company to pass along inflationary increases in its operating expenses on a timely basis. Because the Company's property operating expenses (exclusive of depreciation and amortization) are approximately 40.9% of rental and other revenues, increased inflation typically results in comparable increases in income before interest and general and administrative expenses, so long as rental market conditions allow increases in rental rates while maintaining stable occupancy. An increase in general price levels may immediately precede, or accompany, an increase in interest rates. At June 30, 2002, the Company's exposure (including the Company's proportionate share of its co-investment partnerships' expense) to rising interest rates is mitigated by the existing debt level of approximately 40.2% of the Company's total market capitalization (49.2% including the Company's share of co-investment partnerships' debt), the high percentage of intermediate-term fixed-rate debt (69.3% of total debt), and the use of interest rate swaps to effectively fix the interest rate on $30,000 of floating-rate debt through February 2003, $15,000 through September 2004 and $10,000 through October 2004 (12.2% of total debt). As a result, for the foreseeable future, increases in interest expense resulting from increasing inflation are anticipated to be less than future increases in income before interest and general and administrative expenses. DISCONTINUED OPERATIONS On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). Adoption of SFAS 144 is required for fiscal years beginning after December 15, 2001, and interim periods within those years. SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed of," ("SFAS 121") and related literature and establishes a single accounting model, based on the framework established in SFAS 121, for long-lived assets to be disposed of by sale. The Company has restated its Consolidated Statements of Operations for the three and six months ended June 30, 2001 and Consolidated Statement of Cash Flows for the six months ended June 30, 2001 as a result of implementing SFAS 144 to reflect discontinued operations of the property held for sale as of June 30, 2002. This restatement has no impact on the Company's net income or net income per common share. Properties held for sale by co-investment partnerships accounted for using the equity method of accounting are not "discontinued operations" under the provision of SFAS 144. As of June 30, 2002, the Company had one rental property held for sale included in discontinued operations. No interest expense has been allocated to discontinued operations. Condensed financial information of the results of operations for the rental property held for sale is as follows: Three Months Six Months Ended Ended June 30, June 30, ------------------ ------------------ 2002 2001 2002 2001 ------- ------- ------- ------- Rental income . . . . . . . . $ 1,182 1,226 2,375 2,450 Other income. . . . . . . . . 75 75 152 138 ------- ------- ------- ------- Total property revenues . 1,257 1,301 2,527 2,588 Three Months Six Months Ended Ended June 30, June 30, ------------------ ------------------ 2002 2001 2002 2001 ------- ------- ------- ------- Property operating expenses . 509 487 1,027 962 ------- ------- ------- ------- Net operating income. . . 748 814 1,500 1,626 Depreciation expense. . . . . 124 227 307 419 ------- ------- ------- ------- Income from discontinued operations before minority interest . . . 624 587 1,193 1,207 Minority interest . . . . . . 105 99 202 201 ------- ------- ------- ------- Income from discontinued operations. . . . . . . $ 519 488 991 1,006 ======= ======= ======= ======= OTHER MATTERS Derivative instruments reported on the Consolidated Balance Sheets as liabilities totaled $2,988 and $3,724 as of June 30, 2002 and December 31, 2001, respectively, a $736 decrease. The derivative instruments reported on the Consolidated Balance Sheets as "Accumulated Other Comprehensive Income (Loss)", which are gains and losses not affecting retained earnings in the Consolidated Statement of Shareholders' Equity totaled $3,854 and $4,294 as of June 30, 2002 and December 31, 2001, respectively, a $440 decrease. The adjustments to the shareholders' equity include $1,331 and $1,413 of the Company's share of Other Comprehensive Loss of a co- investment partnership as of June 30, 2002 and December 31, 2001, respectively. The Service Companies recorded an after-tax charge against earnings of $141 and $61 for the six months ended June 30, 2002 and 2001, respectively, pursuant to FIN 44 "Accounting for Certain Transactions Involving Stock Compensation." On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142 "Accounting for Goodwill and Other Intangible Assets" ("SFAS 142"), which requires, among other things, that effective January 1, 2002 goodwill resulting from a business combination accounted for as a purchase no longer be amortized, but be subjected to ongoing impairment review. The only goodwill included in the accounts of the Company and its unconsolidated subsidiaries is $3,300 recorded on the books of an unconsolidated subsidiary. This amount was being amortized using the straight-line method over the five year period, and at December 31, 2001, the remaining unamortized goodwill was $668. As a result of implementing SFAS 142, whereby no amortization will be recorded in 2002, the Company's share of income, net of tax effect, from the unconsolidated subsidiary is increased by approximately $207 for the six months ended June 30, 2002. The Company has tested the unamortized goodwill remaining on the Service Company's books and no impairment existed as of June 30, 2002. Pro-forma share of income, net of tax, from this unconsolidated subsidiary will be increased by approximately $400 for the year ended December 31, 2002. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain statements set forth herein or incorporated by reference herein from the Company's filings under the Securities Exchange Act of 1934, as amended, contain forward-looking statements, including, without limitation, statements relating to the timing and anticipated capital expenditures of the Company's development programs. Although the Company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, the actual results may differ materially from that set forth in the forward-looking statements. Certain factors that might cause such differences include general economic conditions, local real estate conditions, construction delays due to the unavailability of construction materials, weather conditions or other delays beyond the control of the Company. Consequently, such forward- looking statements should be regarded solely as reflections of the Company's current operating and development plans and estimates. These plans and estimates are subject to revision from time to time as additional information becomes available, and actual results may differ from those indicated in the referenced statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK During the first half of 2002 the Company was limited in its ability to raise rents and increase occupancies at many of its wholly-owned properties because of relative weak demand in most of its markets. The Company continues to be exposed to decreasing levels of rental income as a result of decreased occupancy rates and increased levels of rent concessions, particularly in its Atlanta, Austin and Denver markets. Factors contributing to these decreases include slow to negative new job creation, the overall condition of local economies, pockets of overbuilding and loss of residents to homes made more affordable by the current low interest rate environment. Since December 31, 2000, the Company has reduced its exposure to risks associated with interest rate charges and has significantly extended the average maturities of its fixed rate debt portfolio by refinancing $140,000 in borrowings under its floating rate line of credit with a new ten year secured 6.56% fixed interest rate refinancing. In response to a nationwide economic slowdown, the Company has slowed or curtailed its development of new apartment properties, and has acquired fewer additional properties than in prior years in anticipation of better acquisition pricing. The September 11, 2001 attack on the World Trade Center has had, among other things, the effect of increasing the cost of insurance. The Company preliminarily anticipates that its insurance costs for 2002 will increase by at least 50% even with increased deductibles. The Company has discovered that some of its properties (primarily some of those located in Texas) have problems with mold caused by excessive moisture which accumulates in buildings or on building materials. Some molds are known to produce potent toxins or irritants. Concern about indoor exposure to mold has been increasing as exposure to mold can cause a variety of health effects and symptoms in certain individuals, including severe allergic or other reactions. As a result, the presence of mold at the Company's properties could require undertaking a costly remediation program to contain or remove the mold from the affected properties. Such a remediation program could necessitate the temporary relocation of some or all of the properties' tenants or the complete rehabilitation of the properties. The Company carries insurance to protect against this specific risk. There have been no other significant changes in the Company's exposure to market risks. OCCUPANCY The following is a listing of approximate physical occupancy levels by quarter for the Company's Wholly- Owned Communities and Co-Investment Communities:
2002 2001 Location/Community Company's Number ---------------------------------------------------- ------------------ Percentage of at at at at at at at at Wholly-owned Communities Ownership Units 12/31 9/30 6/30 3/31 12/31 9/30 6/30 3/31 ------------------------ ---------- ------- ----- ----- ----- ----- ----- ----------- ------ Dallas/Ft. Worth, TX AMLI: at AutumnChase . . . . . . N/A N/A N/A N/A N/A N/A 92% at Bent Tree . . . . . . . 500 93% 94% 89% 93% 92% 92% at Bishop's Gate . . . . . 266 93% 95% 92% 90% 93% 90% at Chase Oaks. . . . . . . 250 87% 97% 90% 95% 93% 96% at Gleneagles. . . . . . . 590 90% 92% 91% 92% 94% 95% on the Green . . . . . . . 424 90% 90% 91% 93% 94% 91% at Nantucket . . . . . . . 312 93% 94% 96% 94% 94% 92% of North Dallas. . . . . . 1,032 91% 92% 94% 92% 93% 95% on Rosemeade . . . . . . . N/A N/A N/A N/A N/A 93% 94% at Stonebridge Ranch . . . 250 88% 90% 90% 90% 82% N/A at Shadow Ridge. . . . . . 222 87% 89% 78% 85% N/A N/A at Valley Ranch. . . . . . 460 84% 89% 89% 90% 93% 95% Upper West Side. . . . . . 194 94% N/A N/A N/A N/A N/A ------ ----- ----- ----- ----- ----- ----- ----- ----- 4,500 90% 92% 91% 92% 93% 94% ------ ----- ----- ----- ----- ----- ----- ----- ----- Austin, TX AMLI: in Great Hills . . . . . . 344 91% 89% 94% 92% 90% 91% at Lantana Ridge . . . . . 354 93% 90% 88% 94% 89% 90% at StoneHollow . . . . . . 606 94% 93% 94% 94% 94% 89% ------ ----- ----- ----- ----- ----- ----- ----- ----- 1,304 93% 91% 92% 93% 92% 90% ------ ----- ----- ----- ----- ----- ----- ----- ----- Houston, TX AMLI: at the Medical Center. . . . 334 97% 94% 93% 94% N/A N/A at Western Ridge . . . . . . 318 94% 94% 95% 98% 95% 91% ------ ----- ----- ----- ----- ----- ----- ----- ----- 652 95% 94% 94% 96% 95% 91% ------ ----- ----- ----- ----- ----- ----- ----- ----- 2002 2001 Company's Number ---------------------------------------------------- Percentage of at at at at at at at at Location/Community Ownership Units 12/31 9/30 6/30 3/31 12/31 9/30 6/30 3/31 ------------------ ---------- ------- ----- ----- ----- ----- ----- ----------- ------ Atlanta, GA AMLI: at Clairmont. . . . . . . . 288 89% 94% 94% 92% 95% 97% at Killian Creek. . . . . . 256 93% 95% 87% 92% 93% 97% at Park Creek . . . . . . . 200 95% 83% 85% 83% 91% 93% at Towne Creek. . . . . . . 150 90% 93% 89% 93% 90% 89% on Spring Creek . . . . . . 1,180 87% 90% 90% 90% 94% 92% at Vinings. . . . . . . . . 360 93% 93% 91% 90% 93% 95% at West Paces . . . . . . . 337 88% 91% 94% 94% 93% 93% ------ ----- ----- ----- ----- ----- ----- ----- ----- 2,771 89% 91% 90% 91% 93% 93% ------ ----- ----- ----- ----- ----- ----- ----- ----- Kansas City, KS AMLI: at Alvamar . . . . . . . . N/A N/A N/A N/A N/A 93% 86% at Centennial Park . . . . 170 92% 89% 92% 96% 88% 86% at Lexington Farms . . . . 404 93% 92% 92% 92% 93% 91% at Regents Center. . . . . 424 94% 89% 88% 94% 93% 89% at Town Center . . . . . . 156 92% 94% 90% 96% 90% 87% ------ ----- ----- ----- ----- ----- ----- ----- ----- 1,154 93% 91% 90% 94% 92% 89% ------ ----- ----- ----- ----- ----- ----- ----- ----- Indianapolis, IN AMLI: at Conner Farms. . . . . . 300 92% 90% 89% 92% 93% 89% at Eagle Creek . . . . . . 240 93% 93% 88% 90% 93% 93% at Riverbend . . . . . . . 996 94% 94% 90% 94% 90% 83% ------ ----- ----- ----- ----- ----- ----- ----- ----- 1,536 93% 93% 90% 92% 91% 86% ------ ----- ----- ----- ----- ----- ----- ----- ----- Chicago, IL AMLI: at Poplar Creek. . . . . . 196 95% 94% 94% 95% 94% 96% ------ ----- ----- ----- ----- ----- ----- ----- ----- DENVER, CO AMLI: at Gateway Park. . . . . . 328 90% 89% 85% 91% 93% 85% ------ ----- ----- ----- ----- ----- ----- ----- ----- Total wholly-owned communities . . . . . . . . 12,441 91.2% 91.8% 90.7% 92.1% 92.4% 91.3% ====== ===== ===== ===== ===== ===== ===== ===== ===== 2002 2001 Company's Number ---------------------------------------------------- Percentage of at at at at at at at at Location/Community Ownership Units 12/31 9/30 6/30 3/31 12/31 9/30 6/30 3/31 ------------------ ---------- ------- ----- ----- ----- ----- ----- ----------- ------ Co-investment Communities: -------------------------- Dallas, TX AMLI: at Deerfield . . . . . . . 25% 240 89% 93% 93% 92% 95% 86% at Fossil Creek. . . . . . 25% 384 92% 91% 87% 95% 95% 94% at Oak Bend. . . . . . . . 40% 426 91% 92% 91% 96% 94% 93% on the Parkway . . . . . . 25% 240 88% 92% 91% 94% 92% 91% at Prestonwood Hills . . . 45% 272 92% 93% 89% 95% 97% 96% on Timberglen. . . . . . . 40% 260 92% 94% 95% 94% 94% 94% at Verandah. . . . . . . . 35% 538 93% 92% 93% 96% 94% 90% on Frankford . . . . . . . 45% 582 96% 94% 92% 93% 93% 94% at Breckinridge Point. . . 45% 440 94% 90% 87% 89% 93% 93% at Bryan Place . . . . . . 48% 420 90% N/A N/A N/A N/A N/A ------- ----- ----- ----- ----- ----- ----- ----- ----- 3,802 92% 92% 91% 94% 94% 93% ------- ----- ----- ----- ----- ----- ----- ----- ----- Austin, TX AMLI: at Wells Branch. . . . . . 25% 576 92% 92% 88% 93% 87% 81% at Scofield Ridge. . . . . 45% 487 89% 88% 86% 90% 87% 80% at Monterey Oaks . . . . . 25% 430 92% 92% 92% 94% 88% 94% ------- ----- ----- ----- ----- ----- ----- ----- ----- 1,493 91% 91% 88% 92% 87% 88% ------- ----- ----- ----- ----- ----- ----- ----- ----- Houston, TX AMLI: at Champions Centre. . . . N/A N/A N/A 98% 94% 93% 89% 95% at Champions Park. . . . . N/A N/A N/A 91% 94% 92% 94% 90% at Greenwood Forest. . . . 15% 316 92% 92% 91% 93% 93% 87% Midtown. . . . . . . . . . 45% 419 93% 91% 90% 97% 96% 96% Towne Square . . . . . . . 45% 380 95% 90% 91% 96% 90% 95% ------- ----- ----- ----- ----- ----- ----- ----- ----- 1,115 94% 92% 92% 94% 93% 93% ------- ----- ----- ----- ----- ----- ----- ----- ----- 2002 2001 Company's Number ---------------------------------------------------- Percentage of at at at at at at at at Location/Community Ownership Units 12/31 9/30 6/30 3/31 12/31 9/30 6/30 3/31 ------------------ ---------- ------- ----- ----- ----- ----- ----- ----------- ------ Atlanta, GA AMLI: at Barrett Lakes . . . . . 35% 446 93% 91% 85% 94% 92% 94% at Northwinds. . . . . . . 35% 800 92% 93% 93% 92% 95% 93% at River Park. . . . . . . 40% 222 90% 95% 94% 89% 91% 96% at Willeo Creek. . . . . . 30% 242 91% 88% 91% 84% 91% 98% at Windward Park . . . . . 45% 328 91% 91% 87% 90% 91% 88% at Peachtree City. . . . . 20% 312 86% 86% 92% 92% 94% 89% at Lost Mountain . . . . . 75% 164 91% 95% 83% 93% 95% 95% at Park Bridge . . . . . . 25% 352 94% 92% 92% 93% 96% 95% lease lease lease lease lease at Mill Creek. . . . . . . 25% 400 94% up up up up up ------ ----- ----- ----- ----- ----- ----- ----- ----- 3,266 92% 91% 90% 91% 94% 93% ------ ----- ----- ----- ----- ----- ----- ----- ----- Kansas City, KS AMLI: at Regents Crest . . . . . 25% 476 95% 90% 86% 89% 92% 90% Creekside. . . . . . . . . 25% 224 96% 94% 91% 93% 88% 91% at Wynnewood Farms . . . . 25% 232 91% 91% 88% 93% 92% 91% lease lease lease at Summit Ridge. . . . . . 25% 432 94% 90% 91% up up up ------- ----- ----- ----- ----- ----- ----- ----- ----- 1,364 94% 91% 89% 91% 91% 91% ------- ----- ----- ----- ----- ----- ----- ----- ----- Indianapolis, IN AMLI: on Spring Mill . . . . . . 20% residual 400 87% 84% 80% 81% 78% 80% at Lake Clearwater . . . . 25% 216 91% 92% 84% 93% 94% 94% at Castle Creek. . . . . . 40% 276 95% 89% 91% 88% 91% 95% ------- ----- ----- ----- ----- ----- ----- ----- ----- 892 90% 87% 84% 86% 86% 88% ------- ----- ----- ----- ----- ----- ----- ----- ----- 2002 2001 Company's Number ---------------------------------------------------- Percentage of at at at at at at at at Location/Community Ownership Units 12/31 9/30 6/30 3/31 12/31 9/30 6/30 3/31 ------------------ ---------- ------- ----- ----- ----- ----- ----- ----------- ------ Chicago, IL AMLI: at Chevy Chase . . . . . . 33% 592 94% 93% 85% 91% 95% 95% at Danada Farms. . . . . . 10% 600 93% 93% 86% 87% 94% 96% at Fox Valley. . . . . . . 25% 272 93% 85% 83% 92% 93% 94% at Willowbrook . . . . . . N/A N/A N/A N/A N/A N/A 93% 93% at Windbrooke. . . . . . . 15% 236 95% 98% 86% 95% 97% 96% at Oakhurst North. . . . . 25% 464 93% 86% 80% 86% 90% 93% at St. Charles . . . . . . 25% 400 89% 88% 87% 84% 91% 89% at Osprey Lake . . . . . . 69% 483 90% 93% 96% 93% 92% 87% ------- ----- ----- ----- ----- ----- ----- ----- ----- 3,047 92% 91% 86% 89% 93% 93% ------- ----- ----- ----- ----- ----- ----- ----- ----- Denver, CO AMLI: at Lowry Estates . . . . . 50% 414 88% 87% 91% 91% 88% 87% at Park Meadows. . . . . . 25% 518 81% N/A N/A N/A N/A N/A ------- ----- ----- ----- ----- ----- ----- ----- ----- 932 84% 87% 91% 91% 88% 87% ------- ----- ----- ----- ----- ----- ----- ----- ----- Total co-investment communities . . . . . . . . 15,911 91.7% 90.9% 89.0% 91.5% 92.0% 91.7% ------- ----- ----- ----- ----- ----- ----- ----- ----- Total . . . . . . . . . . . . 28,352 91.5% 91.3% 89.8% 91.8% 92.2% 91.5% ======= ===== ===== ===== ===== ===== ===== ===== =====
PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders of AMLI Residential Properties Trust was held on April 29, 2002 for the following purposes: 1. To elect three Trustees to serve until the third subsequent annual meeting of shareholders and until their successors are elected and qualify; 2. To approve an amendment to the AMLI Residential Properties Option Plan to increase the maximum number of securities that may be subject to options under this plan from 2,850,000 to 3,450,000, and to eliminate the plan provision permitting re- pricing of options. 3. To approve the AMLI Residential Properties Senior Officer Share Acquisition Plan and the 260,000 maximum number of shares which may be issued under this plan. 4. To approve the AMLI Residential Properties Trustee Share Compensation Plan and the 30,000 maximum number of shares which may be issued under this plan. 5. To ratify the appointment of KPMG LLP as the Company's independent auditors for the fiscal year ending December 31, 2002. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934 and there was no solicitation in opposition to management's solicitations. All of the management's nominees for trustees as listed in the proxy statement were elected with the following vote: Shares Shares Shares Voted Voted Not "For" "Against" Voted ---------- ---------- ---------- Gregory T. Mutz 10,890,303 2,729,624 -- Laura D. Gates 13,519,867 100,060 -- Marc S. Heilweil 13,523,108 96,819 -- The amendment to the Option Plan was approved by the following vote: Shares Shares Shares Voted Voted Shares Not "For" "Against" "Withheld" Voted ---------- --------- ---------- ---------- 12,402,798 1,105,331 111,798 -- The Senior Officer Share Acquisition Plan was approved by the following vote: Shares Shares Shares Voted Voted Shares Not "For" "Against" "Withheld" Voted ---------- --------- ---------- ---------- 12,574,685 930,781 114,461 -- The Trustee Share Compensation Plan was approved by the following vote: Shares Shares Shares Voted Voted Shares Not "For" "Against" "Withheld" Voted ---------- --------- ---------- ---------- 12,892,084 610,717 117,127 -- The ratification of the appointment of KPMG LLP as independent auditor was approved by the following vote: Shares Shares Shares Voted Voted Shares Not "For" "Against" "Withheld" Voted ---------- --------- ---------- ---------- 13,356,558 203,991 59,378 -- ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K No reports on Form 8-K have been filed during the quarter ended June 30, 2002. The Exhibits filed as part of this report are listed below. EXHIBIT NO. DOCUMENT DESCRIPTION ----------- -------------------- 10.11 Fourth Amendment to AMLI Residential Properties Option Plan. 10.12 AMLI Residential Properties 2002 Senior Officer Share Acquisition Plan. 10.12(a) AMLI Residential Properties 2002 Trustee Share Compensation Plan. 15.1 Letter from Independent Auditor related to the review of interim financial information. 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Financial and Operating Data furnished to Shareholders and Analysts. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMLI RESIDENTIAL PROPERTIES TRUST Date: August 12, 2002 By: /s/ CHARLES C. KRAFT ----------------------------------- Charles C. Kraft Principal Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: August 12, 2002 By: /s/ ALLAN J. SWEET ----------------------------------- Allan J. Sweet President and Trustee Date: August 12, 2002 By: /s/ PHILIP N. TAGUE ----------------------------------- Philip N. Tague Executive Vice President and Trustee Date: August 12, 2002 By: /s/ ROBERT J. CHAPMAN ----------------------------------- Robert J. Chapman Principal Financial Officer Date: August 12, 2002 By: /s/ CHARLES C. KRAFT ----------------------------------- Charles C. Kraft Principal Accounting Officer