-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A9DTcpXW7w3OYIxc9RhGh0lDuv3UNUjKC8Ck15jSgAryO9xwc/IqNIADXmqE4GjI FLqnPkx09gBDOrGQKZYJLA== 0000892626-03-000309.txt : 20030812 0000892626-03-000309.hdr.sgml : 20030812 20030812154445 ACCESSION NUMBER: 0000892626-03-000309 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMLI RESIDENTIAL PROPERTIES TRUST CENTRAL INDEX KEY: 0000914724 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 363925916 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12784 FILM NUMBER: 03837576 BUSINESS ADDRESS: STREET 1: 125 S WACKER DR STREET 2: STE 3100 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3124431477 MAIL ADDRESS: STREET 1: 125 S WACKER DR STREET 2: STE 3100 CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: AMLI RESIDENTIAL PROPERTIES INC DATE OF NAME CHANGE: 19931112 10-Q 1 aml_603.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, 2003 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 ( ) Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ( X ) No ( ) The number of the Registrant's Common Shares of Beneficial Interest outstanding was 16,933,140 as of July 31, 2003. INDEX PART I FINANCIAL INFORMATION Item 1. Financial Statements Independent Accountants' Review Report . . . . . . 3 Consolidated Balance Sheets as of June 30, 2003 (Unaudited) and December 31, 2002 (Audited). . . . . . . . . . . 4 Consolidated Statements of Operations for the three and six months ended June 30, 2003 and 2002 (Unaudited) . . . . . . . 6 Consolidated Statement of Shareholders' Equity for the six months ended June 30, 2003 (Unaudited). . . . . . . . . . . . 8 Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002, (Unaudited). . . . . . . 10 Notes to Consolidated Financial Statements (Unaudited). . . . . . . . . . . . . . . . . . . 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . 35 Item 3. Quantitative and Qualitative Disclosures About Market Risk. . . . . . . . . . . . . . . . 61 Item 4. Controls and Procedures. . . . . . . . . . . . . . 61 PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . 67 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 68 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 69 CERTIFICATIONS. . . . . . . . . . . . . . . . . . . . . . . . 70 INDEPENDENT ACCOUNTANTS' REVIEW REPORT -------------------------------------- Shareholders and Board of Trustees AMLI Residential Properties Trust: We have reviewed the accompanying consolidated balance sheet of AMLI Residential Properties Trust (the "Company") as of June 30, 2003, and the related consolidated statements of operations for the three and six month periods ended June 30, 2003 and 2002, the related consolidated statement of shareholders' equity for the six month period ended June 30, 2003, and the consolidated statements of cash flows for the six month periods ended June 30, 2003 and 2002. These consolidated financial statements are the responsibility of the Company's management. We conducted our reviews 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 reviews, 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, 2002, 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 3, 2003, 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, 2002, 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 29, 2003, except for note 10, which is as of August 11, 2003 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED BALANCE SHEETS JUNE 30, 2003 AND DECEMBER 31, 2002 (Dollars in thousands, except share data) JUNE 30, DECEMBER 31, 2003 2002 (UNAUDITED) (AUDITED) ----------- ------------ ASSETS: Rental communities: Land. . . . . . . . . . . . . . . $105,098 97,700 Depreciable property. . . . . . . 677,232 631,480 -------- ---------- 782,330 729,180 Less accumulated depreciation . . (131,332) (120,268) -------- ---------- 650,998 608,912 Rental communities under development . . . . . . . . . . . -- 24,943 Land held for development or sale, net of allowance for loss of $1,221 and $1,580, respectively . 12,604 14,158 Investments in partnerships . . . . 193,244 197,517 Cash and cash equivalents . . . . . 5,357 2,422 Deferred financing costs, net . . . 4,982 3,962 Service Companies' assets . . . . . 61,978 52,774 Other assets. . . . . . . . . . . . 24,384 16,166 -------- -------- Total assets $953,547 920,854 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY: LIABILITIES: Debt. . . . . . . . . . . . . . . . $462,781 421,554 Distributions in excess of investments in and earnings from partnerships. . . . . . . . . . . 5,969 4,806 Other liabilities . . . . . . . . . 35,497 33,391 -------- -------- Total liabilities . . . . 504,247 459,751 -------- -------- AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED BALANCE SHEETS - CONTINUED JUNE 30, 2003 AND DECEMBER 31, 2002 (Dollars in thousands, except share data) JUNE 30, DECEMBER 31, 2003 2002 (UNAUDITED) (AUDITED) ----------- ------------ Commitments and contingencies (note 11) Mandatorily redeemable convertible preferred shares with an aggregate liquidation preference of $96,933 and $96,949, respectively . . . . 93,247 93,247 Minority interest . . . . . . . . . 61,579 65,728 SHAREHOLDERS' EQUITY: Series A Cumulative Convertible Preferred shares of beneficial interest, $0.01 par value, 1,500,000 authorized, 1,200,000 issued and 100,000 outstanding, (aggregate liquidation preference of $2,022 and $2,019, respectively) 1 1 Shares of beneficial interest, $0.01 par value, 145,375,000 authorized, 16,928,640 and 16,695,250 common shares issued and outstanding, respectively . . 169 167 Additional paid-in capital. . . . . 328,439 324,139 Unearned compensation . . . . . . . (924) -- Employees' and Trustees' notes. . . (5,214) (6,828) Accumulated other comprehensive loss. . . . . . . . . . . . . . . (2,514) (3,283) Dividends paid in excess of earnings. . . . . . . . . . . . . (25,483) (12,068) -------- -------- Total shareholders' equity. . . . . . . . . . 294,474 302,128 -------- -------- Total liabilities and shareholders' equity. . . $953,547 920,854 ======== ======== See accompanying notes to consolidated financial statements. AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF OPERATIONS THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) (Dollars in thousands, except share data) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- -------------------- 2003 2002 2003 2002 -------- -------- -------- -------- Rental operations: Revenue: Rental . . . . . . . . $ 25,441 25,018 50,838 49,992 Other. . . . . . . . . 2,040 1,662 3,726 3,210 -------- -------- -------- -------- 27,481 26,680 54,564 53,202 -------- -------- -------- -------- Expenses: Rental . . . . . . . . 11,974 10,913 23,295 20,998 Interest and amorti- zation of deferred costs . . . . . . . . 6,253 6,242 12,745 12,188 Depreciation . . . . . 5,546 5,110 11,064 10,150 -------- -------- -------- -------- 23,773 22,265 47,104 43,336 -------- -------- -------- -------- 3,708 4,415 7,460 9,866 Income from partnerships. 1,469 2,255 2,926 4,284 -------- -------- -------- -------- Income from rental operations. . . . . . . 5,177 6,670 10,386 14,150 -------- -------- -------- -------- Other income: Fee income. . . . . . . 512 1,260 968 1,847 Other income. . . . . . 188 83 384 447 -------- -------- -------- -------- 700 1,343 1,352 2,294 -------- -------- -------- -------- Service Companies' Operations: Revenue . . . . . . . . 14,041 -- 36,194 -- Expenses. . . . . . . . 14,290 -- 36,485 -- Interest and share of loss from the Service Companies . . . . . . -- (24) -- (254) -------- -------- -------- -------- (249) (24) (291) (254) -------- -------- -------- -------- General and administra- tive. . . . . . . . . . 1,310 1,213 3,050 2,753 -------- -------- -------- -------- AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF OPERATIONS THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002 - CONTINUED (UNAUDITED) (Dollars in thousands, except share data) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- -------------------- 2003 2002 2003 2002 -------- -------- -------- -------- Income from continuing operations before share of gains on sales of rental communities and impairment of an invest- ment in a partnership . 4,318 6,776 8,397 13,437 Share of gains on sales of partnership communities . . . . . . -- 605 -- 605 Impairment of an invest- ment in a partnership . 1,191 -- 1,191 -- -------- -------- -------- -------- Income from continuing operations before minority interest . . . 3,127 7,381 7,206 14,042 Minority interest . . . . 199 913 570 1,692 -------- -------- -------- -------- Income from continuing operations, net of minority interest . . . 2,928 6,468 6,636 12,350 Income from discontinued operations, net of minority interest . . . -- 823 -- 1,601 -------- -------- -------- -------- Net income. . . . . . . . 2,928 7,291 6,636 13,951 Net income attributable to preferred shares . . 1,980 1,946 3,961 4,028 -------- -------- -------- -------- Net income attributable to common shares. . . . $ 948 5,345 2,675 9,923 ======== ======== ======== ======== Income per common share - basic: From continuing operations. . . . . . $ 0.06 0.27 0.16 0.50 From discontinued operations. . . . . . -- 0.03 -- 0.05 -------- -------- -------- -------- Net income. . . . . . . $ 0.06 0.30 0.16 0.55 ======== ======== ======== ======== Income per common share - diluted: From continuing operations. . . . . . $ 0.06 0.26 0.16 0.49 From discontinued operations. . . . . . -- 0.03 -- 0.05 -------- -------- -------- -------- $ 0.06 0.29 0.16 0.54 ======== ======== ======== ======== Dividend declared and paid per common share . $ 0.48 0.48 0.96 0.96 ======== ======== ======== ======== See accompanying notes to consolidated financial statements. AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED) (Dollars in thousands)
SHARES OF BENEFICIAL INTEREST EMPLOYEES'ACCUMULATED DIVIDENDS ------------------------------ ADDITIONAL UNEARNED AND OTHER PAID IN PREFERRED COMMON PAID-IN COMPEN- TRUSTEES'COMPREHEN- EXCESS OF SHARES SHARES AMOUNT CAPITAL SATION NOTES SIVE LOSS EARNINGS TOTAL --------- ---------- ------ --------- -------- -------------------- ----------- ------- Balance at December 31, 2002 . 100,000 16,695,250 $ 168 324,139 -- (6,828) (3,283) (12,068) 302,128 -------- Comprehensive income: Net income. . . . . -- -- -- -- -- -- -- 6,636 6,636 Preferred share dividends paid. . -- -- -- -- -- -- -- (3,961) (3,961) Current period income on deriva- tive contracts. . -- -- -- -- -- -- 769 -- 769 ------- Comprehensive income attributable to common shares . . . -- -- -- -- -- -- -- -- 3,444 ------- Common share distributions . . . -- -- -- -- -- -- -- (16,090) (16,090) AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY - CONTINUED SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED) (Dollars in thousands) SHARES OF BENEFICIAL INTEREST EMPLOYEES'ACCUMULATED DIVIDENDS ------------------------------ ADDITIONAL UNEARNED AND OTHER PAID IN PREFERRED COMMON PAID-IN COMPEN- TRUSTEES'COMPREHEN- EXCESS OF SHARES SHARES AMOUNT CAPITAL SATION NOTES SIVE LOSS EARNINGS TOTAL --------- ---------- ------ --------- -------- -------------------- ----------- ------- Shares issued in connection with: Executive Share Purchase Plan . -- 20,466 -- 415 -- -- -- -- 415 Options exercised -- 94,300 1 1,593 -- -- -- -- 1,594 Units converted to shares . . . -- 72,810 1 1,321 -- -- -- -- 1,322 Repayments of employees' and Trustees' notes -- -- -- -- -- 1,614 -- -- 1,614 Trustees' compen- sation. . . . . -- 2,414 -- 51 -- -- -- -- 51 Senior Officer Share Acquisi- tion Plan . . . -- 43,400 -- 962 (924) -- -- -- 38 Reallocation of minority interest . -- -- -- (42) -- -- -- -- (42) -------- ---------- ---- ------- ------- ------- ------- ------- ------- Balance at June 30, 2003 . . . 100,000 16,928,640 $170 328,439 (924) (5,214) (2,514) (25,483) 294,474 ======== ========== ==== ======= ======= ======= ======= ======= ======= See accompanying notes to consolidated financial statements.
AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) (Dollars in thousands) 2003 2002 -------- -------- Cash flows from operating activities: Net income. . . . . . . . . . . . . . . . . $ 6,636 13,951 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . 13,141 11,114 Share of income from partnerships . . . . (2,690) (4,284) Cash distributions from partnerships - operating cash flow . . . . . . . . . . 8,924 7,885 Loss from the Service Companies . . . . . -- 254 Gain on sale of a land parcel . . . . . . (123) -- Share of a partnership's gains on sales of rental communities . . . . . . . . . -- (605) Impairment of an investment in a partnership . . . . . . . . . . . . . . 1,191 -- Minority interest . . . . . . . . . . . . 570 2,018 Other . . . . . . . . . . . . . . . . . . (128) (76) Changes in assets and liabilities: (Increase) decrease in deferred costs . . (16) 2 Decrease in other assets. . . . . . . . . 3,104 2,186 Decrease in accrued real estate taxes . . (2,622) (3,127) Increase in accrued interest payable. . . 189 17 Increase (decrease) in tenant security deposits and prepaid rent . . . . . . . 123 (43) Decrease in other liabilities . . . . . . (413) (72) -------- -------- Net cash provided by operating activities. . . . . . . . 27,886 29,220 -------- -------- Cash flows from investing activities: Net proceeds from sale of a land parcel . . 2,094 -- Share of a partnership's net proceeds from sales of rental communities in excess of return of capital . . . . . . . -- 161 Investments in partnerships . . . . . . . . (5,183) (51,698) Distributions from partnerships - return of capital . . . . . . . . . . . . 2,371 3,301 Distributions from partnerships - refinancing proceeds. . . . . . . . . . . -- 13,639 Loan to a partnership . . . . . . . . . . . (8,942) -- Collections from affiliates, net of advances. . . . . . . . . . . . . . . . . (868) 1,083 Decrease (increase) in earnest money deposits. . . . . . . . . . . . . . . . . 492 (45) Acquisition communities . . . . . . . . . . (6,453) (13,883) Other capital expenditures. . . . . . . . . (3,277) (2,630) Communities under development, net of co-investors' share of costs. . . . . . . (11,870) (8,663) Increase in other liabilities . . . . . . . 2,483 976 -------- -------- Net cash used in investing activities (29,153) (57,759) -------- -------- AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) (Dollars in thousands) 2003 2002 -------- -------- Cash flows from financing activities: Debt proceeds, net of financing costs . . . 273,127 183,361 Debt repayments`. . . . . . . . . . . . . . (249,146) (132,614) Proceeds from issuance of Executive Share Purchase Plan shares, options exercised and collection of Employees' and Trustees' notes . . . . . . . . . . . . 3,712 788 Issuance cost of preferred shares . . . . . -- (40) Distributions to minority interest. . . . . (3,440) (3,514) Dividends paid. . . . . . . . . . . . . . . (20,051) (21,205) -------- -------- Net cash provided by financing activities. . . . . . . . 4,202 26,776 -------- -------- Net increase (decrease) cash and cash equivalents. . . . . . . . . . 2,935 (1,763) Cash and cash equivalents at beginning of period . . . . . . . . 2,422 5,892 -------- -------- Cash and cash equivalents at end of period . . . . . . . . . . . $ 5,357 4,129 ======== ======== Supplemental disclosure of cash flow information: Cash paid for mortgage and other interest, net of amounts capitalized. . . . . . . . $ 12,020 11,867 ======== ======== Supplemental disclosure of non-cash investing and financing activities: OP units converted to common shares . . . . $ 1,322 -- Elimination of investment in a partnership upon acquisition of a co-investor's interest. . . . . . . . . . . . . . . . . 1,571 -- Acquisition of other assets and assumption of mortgage debt and other liabilities in connection with the acquisition of a partner's ownership interest in a partnership community: Real estate tax escrow. . . . . . . . . 735 -- Other assets. . . . . . . . . . . . . . 80 -- Mortgage debt, net of deferred financing 15,946 -- Accrued real estate taxes . . . . . . . 728 -- Accrued interest payable. . . . . . . . 100 -- Tenant security deposits and prepaid rents . . . . . . . . . . . . 168 -- Other liabilities . . . . . . . . . . . 119 -- ======== ======== See accompanying notes to consolidated financial statements. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2003 AND 2002 (Unaudited) (Dollars in thousands, except share data) 1. ORGANIZATION AND BASIS OF PRESENTATION ORGANIZATION AMLI Residential Properties Trust ("AMLI" or the "Company") is a self-administered and self-managed real estate investment trust ("REIT") engaged in the acquisition, development, co-investment and management of upscale, institutional quality multifamily apartment communities in eight major metropolitan markets in the Southeast, Southwest, Midwest and Mountain regions of the United States. The Company is the sole general partner and owned an approximate 86% general partnership interest in AMLI Residential Properties, L.P. (the "Operating Partnership" or "OP") at June 30, 2003. The 14% not owned by the Company is owned by the limited partners that hold Operating Partnership units ("OP Units") which are convertible into common shares of the Company on a one-for-one basis, subject to certain limitations. At June 30, 2003, the Company owned 20,953,640 OP Units (including 4,025,000 Preferred OP Units) and the limited partners owned 3,545,993 OP Units. The Company has qualified, and anticipates to qualify, as a real estate investment trust for Federal income tax purposes. At June 30, 2003, AMLI owned or had interests in eighty multifamily apartment communities comprised of 30,348 apartment homes. Seventy five of these communities totaling 28,531 apartment homes were stabilized and five communities containing 1,817 apartment homes were under development or in lease-up. In addition, the Service Companies (defined below) owned two communities containing 551 apartment homes and had interests in two other communities containing 548 apartment homes, all of which are currently being developed for sale. BASIS OF PRESENTATION The accompanying Consolidated Financial Statements are prepared using accounting principles generally accepted in the United States of America ("GAAP"), and include the accounts of the Company, the Operating Partnership, AMLI Management Company ("AMC") and AMLI Institutional Advisors, Inc. ("AIA"). Previously accounted for using the equity method of accounting, AMC and AIA have been consolidated subsidiaries since the Company acquired voting control of both entities effective December 31, 2002. AMC provides property management and leasing services, and its wholly-owned affiliates, AMLI Corporate Homes ("ACH") and AMLI Residential Construction LLC ("Amrescon"), provide corporate home rental services and construction contracting and management services, respectively. AIA provides institutional advisory services. AMC, Amrescon and AIA collectively are referred as the Service Companies. 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, 2003 and December 31, 2002 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 GAAP have been condensed or omitted. These consolidated financial AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED statements should be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2002 Annual Report and in Form 10-K filed with the Securities and Exchange Commission. The results for the three and six months ended June 30, 2003 are not necessarily indicative of expected results for the entire year. 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 revenue and expenses to prepare these financial statements in conformity with GAAP. Actual amounts realized or paid could differ from these estimates. All significant inter-entity balances and transactions have been eliminated in the consolidation. THE SERVICE COMPANIES The assets of the Service Companies consisted of the following for the periods presented: June 30, December 31, 2003 2002 -------- ------------ Receivables. . . . . . . . . . . . . $ 12,453 11,532 Land held for sale . . . . . . . . . 12,816 12,732 Rental communities under development and held for sale . . 20,434 8,864 Office building, net of accumulated depreciation . . . . . 2,352 2,486 Information technology costs, net of accumulated depreciation. . 8,287 8,329 Deferred income tax. . . . . . . . . 2,064 1,605 Other assets . . . . . . . . . . . . 3,572 7,226 -------- -------- Total assets . . . . . . . . . . . . $ 61,978 52,774 ======== ======== The Service Companies' operations are included in the Company's Consolidated Statements of Operations in 2003 and are accounted for using the equity method of accounting in 2002, as follows: Periods Ended June 30, 2002 -------------------- Three Six Months Months -------- -------- Construction contract revenue. . . . . . $ 24,604 44,726 Construction contract costs. . . . . . . (24,000) (43,489) -------- -------- Construction gross profit. . . . . . . . 604 1,237 Property management fees . . . . . . . . 2,571 5,137 Corporate homes' gross profit. . . . . . 399 745 Loss on land sales and other income. . . 393 567 -------- -------- Total income . . . . . . . . . . . . . . 3,967 7,686 Total expenses . . . . . . . . . . . . . 4,258 8,415 -------- -------- AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Periods Ended June 30, 2002 -------------------- Three Six Months Months -------- -------- Loss . . . . . . . . . . . . . . . . . . (291) (729) Intercompany interest expensed . . . . . 308 573 Intercompany eliminations. . . . . . . . (41) (98) -------- -------- Interest and share of loss from the Service Companies. . . . . . . . . . . $ (24) (254) ======== ======== 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DISCONTINUED OPERATIONS The Company reports in discontinued operations the operating results of wholly-owned communities sold or held for sale. There were no wholly-owned communities sold or held for sale during the six months ended June 30, 2003. Communities held for sale by co-investment partnerships accounted for using the equity method of accounting are not "discontinued operations" under the provisions of SFAS 144. No interest expense has been allocated to discontinued operations. Two rental communities were sold in 2002; condensed financial information of the results of operations for these communities for the periods indicated is as follows. Periods Ended June 30, 2002 -------------------- Three Six Months Months -------- -------- Rental income. . . . . . . . . . . . . . $ 1,989 3,996 Other income . . . . . . . . . . . . . . 126 242 -------- -------- Total community revenue. . . . . . . . . 2,115 4,238 Community operating expenses . . . . . . 864 1,728 -------- -------- Net operating income . . . . . . . . . . 1,251 2,510 Depreciation expense . . . . . . . . . . 261 583 -------- -------- Income from discontinued operations before minority interest . . . . . . . 990 1,927 Minority interest. . . . . . . . . . . . 167 326 -------- -------- Income from discontinued operations. . . $ 823 1,601 ======== ======== AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED GOODWILL As of June 30, 2003, $3,300 of goodwill, incurred upon completion of a 1997 acquisition, is included in the accounts of the Service Company's consolidated subsidiary. This amount had been amortized using the straight-line method over a five-year period through December 31, 2001. The remaining unamortized goodwill of $668 on the Service Company's books has been tested and no impairment existed as of June 30, 2003. In addition, as of December 31, 2002, the Company allocated $434 (of the acquisition cost of the Service Company subsidiaries' controlling interests not already owned) to the cost of property management contracts, which the Company is amortizing over a five-year period. DERIVATIVES AND HEDGING FINANCIAL INSTRUMENTS In the normal course of business, the Company uses a variety of derivative financial instruments to reduce its exposure to changes in interest rates. The Company limits these risks by following established risk management policies and procedures. The Company does not enter into derivative contracts for trading or speculative purposes. Furthermore, the Company has a policy of only entering into contracts with major financial institutions based upon their credit rating and other factors. All the Company's hedges are characterized as cash flow hedges and are thus reported at fair value in the Consolidated Balance Sheets. The Company engages a third-party consultant to determine the fair values of derivative instruments at each balance sheet date. The unrealized gains/losses in the fair value of these hedges are reported in the Consolidated Balance Sheets in Other assets or Other liabilities with a corresponding adjustment to either Accumulated other comprehensive income (loss), a component of shareholders' equity, or earnings--depending on the type of hedging relationship. Gains and losses from cash flow hedges are reported in Accumulated other comprehensive income or loss. The following table summarizes the notional amounts and approximate fair value of the Company's liability under existing interest rate swap contracts. The notional amounts at June 30, 2003 provide an indication of the extent of the Company's involvement in these instruments at that time, but do not represent exposure to credit, interest rate or market risks. Cumula- tive Approxi- Fixed Cash mate Notional Rate Term of Contract Paid, Liability Amount (1) Contract Maturity Net (2) -------- ------ -------- -------- ------ --------- $15,000 6.405% 5 years 09/20/04 $1,446 968 10,000 6.438% 5 years 10/04/04 944 669 ------- ------ ----- $25,000 $2,390 ======= ====== At June 30, 2003 1,637 At December 31, 2002 2,379 ----- Net change $(742) ===== (1) The fixed rate for the swaps includes the swap spread (the risk component added to the Treasury yield to determine a fixed rate; excludes lender's spread). AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (2) Represents the approximate amount which the Company would have paid as of June 30, 2003 and December 31, 2002, respectively, if these contracts were terminated. These amounts were recorded as liabilities in the accompanying Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002. On June 30, 2003, all of the Company's derivative instruments were reported as Other liabilities at their fair value and the offsetting adjustments were reported as losses in Accumulated other comprehensive loss as follows: At At June 30, December 31, 2003 2002 Change -------- ------------ ------ Company's derivative contracts: Interest rate swaps (1)(4) . . . . . . . .$ (1,609) (2,299) 690 Treasury lock (2). . . . 431 507 (76) (3) -------- -------- ------ (1,178) (1,792) 614 -------- -------- ------ Share of partnerships' derivative contracts: AMLI at Osprey Lake (2). . . . . . . . . . (1,177) (1,253) 76 (3) AMLI at Seven Bridges (4). . . . . . . . . . (159) (238) 79 (3) -------- -------- ------ (1,336) (1,491) 155 -------- -------- ------ Total. . . . . . . . . . .$ (2,514) (3,283) 769 ======== ======== ====== (1) Adjustments to earnings of $52 and $53 due to an ineffectiveness on the interest rate swap contracts were recorded for the six months ended June 30, 2003 and 2002, respectively. (2) The Company cash-settled the Treasury lock and the AMLI at Osprey Lake hedge prior to 2002. (3) This change is reflected in earnings for the six months ended June 30, 2003. (4) The AMLI at Seven Bridges hedge and the Company's interest rate swaps are being settled by the Company making monthly payments through December 2003 and October 2004, respectively. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED PER SHARE DATA The following table presents information necessary to calculate basic and diluted earnings per share for the periods indicated. Three Months Ended Six Months Ended June 30, June 30, -------------------------------------------- 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Income from continuing operations . . . .$ 2,928 6,468 6,636 12,350 Income from discontinued operations . . . . -- 823 -- 1,601 ---------- ---------- ---------- ---------- Net income . . . . . 2,928 7,291 6,636 13,951 Less net income attributable to preferred shares . . . . . . (1,980) (1,946) (3,961) (4,028) ---------- ---------- ---------- ---------- Net income attributable to common shares - Basic . .$ 948 5,345 2,675 9,923 ========== ========== ========== ========== Net income - Diluted (1). . . .$ 948 5,345 2,675 9,923 ========== ========== ========== ========== Weighted average common shares - Basic. . . . . .16,831,014 18,116,190 16,780,322 18,002,110 ========== ========== ========== ========== Dilutive Options and Other Plan shares . . . . . . 113,667 355,579 79,371 327,813 Convertible pre- ferred shares (1). . . . . . . . -- -- -- -- ---------- ---------- ---------- ---------- Weighted average common shares - Dilutive . . . . .16,944,681 18,471,769 16,859,693 18,329,923 ========== ========== ========== ========== Net income per share: Basic. . . . . . .$ .06 .30 .16 .55 Diluted. . . . . .$ .06 .29 .16 .54 ========== ========== ========== ========== (1) Preferred shares are non-dilutive. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED SHARE OPTIONS The Company commenced reporting the value of awarded share options as a charge against earnings for options awarded subsequent to January 1, 2002. The Company awarded a total of 380,750 options, net of cancellations, to employees since January 1, 2002 and will record the associated $293 in expense ratably over the five years ended December 31, 2007. If the Company had commenced recording option expense as of the January 1, 1996 effective date of Statement of Financial Standards No. 123, pro forma net income, including option expense, and earnings per share would have been as follows: Three Months Ended Six Months Ended June 30, June 30, -------------------------------------------- 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Net income, as reported: Net income. . . . . . .$ 2,928 7,291 6,636 13,951 Net income attributable to Preferred shares . (1,980) (1,946) (3,961) (4,028) ---------- ---------- ---------- ---------- Net income attributable to Common shares. . . . 948 5,345 2,675 9,923 Stock-based compensation expense included in reported net income, net of related tax effects . . . . . . . 14 -- 30 -- Total stock-based employee compensa- tion expense deter- mined under fair value based method for all awards, net of related tax effects . . . . . . (67) (94) (134) (188) ---------- ---------- ---------- ---------- Pro forma net income - Basic . . . . . . .$ 895 5,251 2,571 9,735 ========== ========== ========== ========== Pro forma net income - Diluted . . . . . . .$ 895 5,251 2,571 9,735 ========== ========== ========== ========== Earnings per share: Basic - as reported . .$ 0.06 0.30 0.16 0.55 Basic - pro forma . . .$ 0.05 0.29 0.15 0.54 Diluted - as reported .$ 0.06 0.29 0.16 0.54 Diluted - pro forma . .$ 0.05 0.28 0.15 0.53 AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED GUARANTEES OF INDEBTEDNESS TO OTHERS The Company is contingently liable with respect to letters of credit and guarantees issued to secure undertakings made by various unconsolidated affiliates. The Company anticipates that no such contingent liability will be realized, and that the various letters of credit and guarantees will eventually expire. The Company has computed the aggregate fair value of all such letters of credit and guarantees and estimates such fair value to be less than $200. No new or modified guarantees were entered into during the six months ended June 30, 2003, except that in connection with the formation of AMLI at Museum Gardens in June 2003 the Company became contingently liable on its $2,053 share of a letter of credit issued to secure this partnership's obligation to complete certain improvements. The Company has valued this contingent liability at $10 and has included this amount in Other assets and Other liabilities in the accompanying Consolidated Balance Sheet at June 30, 2003. The Company anticipates that this contingent liability will terminate in 2005 following completion of these certain improvements. CONSOLIDATION OF VARIABLE INTEREST ENTITIES AMLI conducts a portion of its multifamily investment activities through joint ventures. Since its Initial Offering and through June 30, 2003, AMLI has formed 54 joint ventures with sixteen investors in which AMLI's ownership has ranged from 10% to 75%. The Company has concluded that none of its interests in unconsolidated partnerships qualifies for consolidation under FASB Interpretation No. 46, "Consolidation of Variable Interest Entities," governing the accounting for interests in variable interest entities. RECLASSIFICATIONS Certain amounts in the consolidated 2002 financial statements of the Company have been reclassified to conform with the current presentation. 3. INVESTMENTS IN PARTNERSHIPS At June 30, 2003, the Operating Partnership was a general partner or a managing member in various partnerships or limited liability companies ("Partnerships"). Under the term of each Partnership, the Company is entitled to receive its proportionate share of distributions from operations, sales or refinancings. In addition, the Operating Partnership and the Service Companies receive various fees for services provided to these Partnerships including development fees, construction fees, acquisition fees, property management fees, asset management fees, financing fees, administrative fees, disposition fees and promoted interests (additional share of operating cash flows or liquidation proceeds in excess of its stated ownership percentages based, in part, on the Partnerships generating cumulative returns to its partners in excess of specified rates). The Company's investment in partnerships differ from the Company's share of partnerships' equity primarily due to capitalized interest on its investments in communities under development, purchase/sale price basis differences and the elimination of the Company's share of acquisition, financing and development fee income. Such differences are amortized using the straight-line method over 40 years. Investments in partnerships at June 30, 2003 and the Company's 2003 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 ------------------ Net Share of Share of Percentage Total Company's Company's Income Net Income Deprecia- Community Ownership Assets Total Share Investment (Loss) (Loss) (1) tion - --------- ---------- ---------- ------ --------- ---------- ------ ---------- --------- AMLI: at Willeo Creek 30% $ 13,218 4,012 1,202 1,202 174 52 62 at Barrett Lakes 35% 22,776 6,638 2,323 2,273 371 161 127 at Fox Valley 25% 21,092 20,400 5,100 5,221 588 147 72 at Fossil Creek 25% 18,280 17,744 4,436 4,381 657 164 77 at Danada Farms 10% 42,265 17,416 1,742 1,733 708 71 63 at Northwinds 35% 47,778 13,708 4,798 4,394 531 351 296 at Regents Crest 25% 29,900 14,782 3,696 3,741 303 129 114 at Oakhurst North 25% 37,454 36,347 9,087 9,008 868 217 174 at Wells Branch 25% 29,088 28,373 7,093 6,404 610 153 142 on the Parkway 25% 13,393 3,127 779 446 (69) (17) 77 at Castle Creek 40% 18,614 17,873 7,149 7,219 476 217 133 at Lake Clearwater 25% 14,821 14,235 3,559 3,549 400 100 68 Creekside 25% 14,648 14,472 3,618 3,676 322 104 65 at Deerfield 25% 15,224 2,756 686 488 (152) (38) 77 at Wynnewood Farms 25% 17,036 16,786 4,197 4,176 429 107 75 at Monterey Oaks 25% 27,282 26,680 6,670 6,602 653 163 119 at St. Charles 25% 39,584 38,734 9,683 9,666 996 249 163 at Park Bridge 25% 22,922 22,654 5,663 5,589 683 171 96 at Mill Creek 25% 24,849 6,620 1,655 1,767 268 67 99 at Lost Mountain 75% 10,757 180 133 197 (144) (106) 124 on Spring Mill (2) 26,582 25,774 -- -- 555 -- -- at Prestonwood Hills 45% 16,499 4,962 2,247 2,242 59 50 117 at Windward Park 45% 25,820 7,990 3,637 3,629 (72) (2) 178 at Summit Ridge 25% 26,723 6,757 1,689 1,289 41 10 117 at Oak Bend 40% 23,723 4,856 1,960 1,960 (58) 14 146 Midtown 45% 31,332 9,412 4,270 4,253 127 101 211 on Frankford 45% 37,078 11,176 5,069 5,053 138 117 255 at Peachtree City 20% 27,380 27,050 5,410 3,457 521 104 74 at Kedron Village 20% 18,827 18,642 3,728 3,657 484 91 68 at Scofield Ridge 45% 35,977 11,218 5,111 5,093 (124) (15) 232 at Breckinridge Point 45% 31,908 9,824 4,456 4,439 48 64 208 at Cambridge Square 30% 31,460 31,108 9,333 9,977 604 181 139 AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Equity Total Company's Company's Company's ------------------ Net Share of Share of Percentage Total Company's Company's Income Net Income Deprecia- Community Ownership Assets Total Share Investment (Loss) (Loss) (1) tion - --------- ---------- ---------- ------ --------- ---------- ------ ---------- --------- Towne Square 45% 31,651 10,051 4,558 4,506 86 78 205 at Lowry Estates 50% 49,118 15,491 7,744 7,599 (296) (102) 350 at King's Harbor 25% 18,674 18,255 4,564 4,757 198 50 86 at Milton Park 25% 33,662 31,728 7,932 8,539 331 83 104 at Osprey Lake 69% 50,799 14,801 11,376 10,018 (458) (286) 492 at Seven Bridges 20% 76,115 18,148 3,788 4,801 (1,127) (225) 100 at Barrett Walk 25% 21,446 20,450 5,112 5,214 (25) (6) 71 at Park Meadows 25% 56,688 27,362 6,855 6,766 (83) 56 190 at Bryan Place 48% 39,579 13,009 6,245 6,132 73 77 254 Downtown 30% 21,664 18,983 5,695 5,943 (9) 8 -- at Museum Gardens 25% 8,392 6,196 1,549 2,189 -- -- -- ---------- ------- -------- ------- ------- ------ ------ 1,222,078 686,780 195,597 193,245 9,685 2,910 5,820 Other -- -- -- (1) -- 112 -- ---------- ------- -------- ------- ------- ------ ------ 1,222,078 686,780 195,597 193,244 9,685 3,022 5,820 ---------- ------- -------- ------- ------- ------ ------ AMLI: at Windbrooke (3) 15% 15,351 (5,818) (955) (955) (57) (18) 35 at Chevy Chase (3) 33% 40,058 (9,164) (3,803) (3,803) (279) (112) 203 at River Park (3) 40% 12,536 (2,117) (847) (965) 88 60 73 on Timberglen (4) 40% 9,127 2,660 1,095 (246) (65) (26) 105 ---------- ------- -------- ------- ------- ------ ------ 77,072 (14,439) (4,510) (5,969) (313) (96) 416 ---------- ------- -------- ------- ------- ------ ------ Total as of June 30, 2003 $1,299,150 672,341 191,087 187,275 9,372 2,926 6,236 ========== ======= ======== ======= ======= ====== ====== Total as of June 30, 2002 $1,283,337 713,084 218,695 221,487 12,893 4,284 5,836 ========== ======= ======== ======= ======= ====== ====== (1) The Operating Partnership received cash flow and recorded operating income of $1,350 and $1,537 in excess of its ownership percentages for the six months ended June 30, 2003 and 2002, respectively. (2) The Company's investment in AMLI at Spring Mill is, unlike all of the Company's investments in partnerships, subordinated to the return of its partner's investment. Following its regular quarterly review of impairment of asset values, the Company determined that recovery of its investment was unlikely; accordingly, the Company wrote off its $1,191 investment as a non-cash charge for impairment of value and has included this charge in the accompanying Consolidated Statements of Operations for the three and six months ended June 30, 2003. (3) The partners of these partnerships have received a return of their original capital; it resulted in the negative investment balances that are included in Distributions in excess of investments in and earnings from partnerships in the accompanying Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002. (4) The purchase/sale price basis difference in this partnership resulted in a negative investment balance which is included in Other liabilities in the accompanying Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002.
AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED All but three of the Company's debt financings have been obtained at fixed rates from various financial institutions on behalf of these partnerships. All of these fixed-rate first mortgages are non-recourse debt secured by mortgage notes on the respective communities. At June 30, 2003, partnership debt was as follows: Total Outstand- Commitment ing at Company's Interest Community (1) 6/30/03 Share (2) Rate Maturity - --------- ---------- --------- --------- -------- --------- AMLI: at Willeo Creek (3)$ 8,942 8,942 2,683 L+2.50% Oct. 2003 at Regents Crest 16,500 14,663 3,666 7.50% Dec. 2003 on Timberglen 6,770 6,225 2,490 7.70% June 2004 at Seven Bridges (4) 50,000 50,000 10,000 L+1.80% Jan. 2005 Downtown 30,920 679 204 L+2.00% June 2006 at Prestonwood Hills 11,649 11,172 5,060 7.17% Aug. 2006 at Windward Park 18,183 17,452 7,911 7.27% Aug. 2006 at Oak Bend 18,834 18,202 7,281 7.81% Dec. 2006 Midtown 21,945 21,184 9,605 7.52% Dec. 2006 at Deerfield 12,600 12,166 3,041 7.56% Dec. 2006 at Danada Farms 24,500 23,379 2,338 7.33% Mar. 2007 on Frankford 25,710 25,064 11,367 8.25% June 2007 at Scofield Ridge 24,618 23,969 10,870 7.70% Aug. 2007 at Breckinridge Point22,110 21,513 9,755 7.57% Sep. 2007 Towne Square 21,450 20,912 9,482 6.70% Jan. 2008 at Lowry Estates 33,900 33,123 16,561 7.12% Jan. 2008 at Summit Ridge 20,000 19,549 4,887 7.27% Feb. 2008 at River Park 15,100 14,391 5,757 6.86%(5) June 2008 on the Parkway 10,800 9,944 2,486 6.75% Jan. 2009 at Mill Creek 18,000 17,779 4,445 6.40% May 2009 at Chevy Chase 48,000 47,524 15,683 7.11% June 2009 at Park Meadows (6) 28,500 28,500 7,125 6.25% July 2009 at Bryan Place (6) 26,200 26,200 12,576 5.81% Aug. 2009 at Barrett Lakes 16,680 15,619 5,467 8.50% Dec. 2009 at Northwinds 33,800 33,027 11,559 8.25% Oct. 2010 at Osprey Lake 35,320 34,479 23,704 7.02% Mar. 2011 at Windbrooke 20,800 20,501 3,075 6.43% Mar. 2012 at Lost Mountain 10,252 10,128 7,596 6.84% Nov. 2040 -------- -------- ------- $632,083 586,286 216,674 ======== ======== ======= (1) In general, these loans provide for monthly payments of principal and interest based on a 25 or 30 year amortization schedules and a balloon payment at maturity. Some loans provide for payments of interest only. (2) Based upon percentage ownership of debt outstanding at June 30, 2003. (3) This loan is a mortgage loan from AMLI. (4) The Company has guaranteed repayment of up to $4,000 of this construction loan and the Company's partner has guaranteed repayment of up to $16,000. The partnership has obtained a $60,000 7.25% fixed-rate mortgage loan commitment from a third-party lender and anticipates repaying its construction loan in late 2003 from a funding of this seven-year loan. (5) $9,100 at 7.75% and $6,000 at 5.50%. (6) These loans provide for payment of interest only through maturity. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 4. OTHER ASSETS Other assets reported in the accompanying Consolidated Balance Sheets are as follows. June 30, December 31, 2003 2002 --------- ------------ Short-term working capital assets: Advances to affiliates . . . . . . $ 4,655 2,381 Accounts receivable. . . . . . . . 724 794 Development fees receivable. . . . 372 649 Prepaid expenses . . . . . . . . . 1,244 1,868 -------- -------- 6,995 5,692 -------- -------- Other: Deferred development costs . . . . 3,738 4,557 Notes receivable (1) . . . . . . . 10,960 2,179 Deposits . . . . . . . . . . . . . 1,704 2,516 Restricted cash. . . . . . . . . . 475 500 Other. . . . . . . . . . . . . . . 512 722 -------- -------- 17,389 10,474 -------- -------- Total. . . . . . . . . . . . . . . . $ 24,384 16,166 ======== ======== (1) In 2003, includes a note receivable of $8,942 from AMLI at Willeo Creek, a 30% owned partnership, which the Company expects to be repaid this year. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 5. DEBT The table below presents certain information relating to the indebtedness of the Company.
Balance Balance Original at Interest Maturity at Amount 6/30/03 Rate Date 12/31/02 -------- ------- ----------- -------- -------- 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+1.26% 2/1/24 9,500 -------- ------- ------- Total Bonds 50,250 50,250 50,250 -------- ------- ------- MORTGAGE NOTES PAYABLE TO FINANCIAL INSTITUTIONS: AMLI at Verandah (2) 16,940 15,819 7.55% 4/1/04 -- AMLI at Nantucket 7,735 7,113 7.70% 6/1/04 7,186 AMLI at Bishop's Gate 15,380 13,768 7.25% (3) 8/1/05 13,925 AMLI at Regents Center 20,100 18,665 (4) 8.90% (5) 9/1/05 18,795 AMLI on the Green/AMLI of North Dallas (6) 43,234 38,320 7.79% 5/1/06 38,772 AMLI at Valley Ranch 18,800 18,800 6.68% 5/10/07 18,800 AMLI at Conner Farms 14,900 14,900 6.68% 5/10/07 14,900 AMLI at Clairmont 12,880 12,303 6.95% 1/15/08 12,396 AMLI - various (7) 140,000 136,942 6.56% 7/1/11 137,778 AMLI at Park Creek 10,322 10,101 7.88% 12/1/38 10,127 -------- ------- ------- Total Mortgage Notes Payable 300,291 286,731 272,679 -------- ------- ------- OTHER NOTES PAYABLE: Unsecured lines of credit (8) (9) 211,000 119,000 L+1.00% 5/19/06 92,000 Other (10) 6,625 6,800 L+0.675% on demand 6,625 -------- ------- ------- 217,625 125,800 98,625 -------- ------- ------- Total $568,166 462,781 421,554 ======== ======= ======= 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 homes 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 (0.85% for AMLI at Spring Creek and 0.86% for AMLI at Poplar Creek at July 24, 2003). The credit enhancement for the AMLI at Spring Creek bonds was provided by a $41,297 letter of credit from a financial institution that 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 a financial institution that expires December 18, 2004. (2) Represents debt assumed by the Company as a result of the acquisition of a 65% interest in the community that the Company did not already own. (3) 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, 2003 was $432. (4) This loan provides for partial recourse to the partners of the Operating Partnership. (5) $13,800 at 8.73% and $6,300 at 9.23%. (6) These two properties secure a loan that was sold at a discount of $673. At June 30, 2003, the unamortized discount was $191. (7) This loan is secured by seven previously unencumbered communities (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). On December 20, 2002, AMLI at Western Ridge was sold. In connection with the sale, AMLI obtained a release of the mortgage on AMLI at Western Ridge by substituting another wholly-owned community, AMLI at the Medical Center. (8) The Company has used interest rate swaps on $25,000 of the outstanding amount to fix its base interest rate (before current lender's spread) at an average of 6.42% through September 2004. (9) The Company's $200,000 unsecured line of credit has been provided by a group of seven banks. In May 2003, the Company replaced an existing line of credit, scheduled to mature in November 2003, with a new line of credit which will mature in May 2006. The Company has an option to extend the maturity by one year. The new line carries an interest rate of LIBOR plus 1.00% (.05% less than the rate on the previous line of credit) and provides for an annual facility fee of 20 basis points. The Company uses the unsecured line of credit for acquisition and development activities and working capital needs. 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. An $11,000 unsecured line of credit with one of the lenders, pursuant to which the Company may issue letters of credit and pursuant to which the Company has borrowed $1,000 at the prime rate as of June 30, 2003, is anticipated to be increased to $16,000 in August 2003, with new terms and conditions substantially the same as exists under the Company's primary $200,000 unsecured line of credit. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (10) Starting in December 2002, AMLI has initiated a short-term investment program with several of its co investment partnerships. As a result, short-term cash balances are invested by each partnership with AMLI. Each partnership withdraws funds from this investment account on an "as needed basis" to fund its disbursements, which could be daily. The investment earns interest at a rate (2.12140% average rate for the six months ended June 30, 2003) based on the formula relating to AMLI's borrowing rate.
AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED As of June 30, 2003, the scheduled maturities of the Company's debt are as follows: Fixed Rate Notes Mortgage Payable Notes Payable Unsecured to Bond to Financial Lines Joint Financings Institutions of Credit Ventures Total ---------- ------------- --------- -------- ------- 2003. . . . . $ -- 1,989 -- 6,800 8,789 2004. . . . . -- 26,404 -- -- 26,404 2005. . . . . -- 35,021 -- -- 35,021 2006. . . . . -- 38,502 119,000 -- 157,502 2007. . . . . -- 35,642 -- -- 35,642 Thereafter. . 50,250 149,173 -- -- 199,423 ------- ------- ------- ------ ------- $50,250 286,731 119,000 6,800 462,781 ======= ======= ======= ====== ======= At June 30, 2003, 14 of the Company's 32 wholly-owned stabilized communities are unencumbered. There are no fixed-rate loans on wholly-owned communities with maturity dates prior to April 2004. 6. OTHER LIABILITIES Other liabilities reported in the accompanying Consolidated Balance Sheets are as follows: June 30, December 31, 2003 2002 -------- ------------ Short-term working capital liabilities: Accrued interest payable . . . . . $ 1,859 1,670 Accrued real estate taxes payable. 9,586 12,430 Accrued general and administra- tive expenses. . . . . . . . . . 2,063 1,790 Accrued community rental expenses. 4,676 5,090 -------- -------- 18,184 20,980 -------- -------- Other: Construction costs payable . . . . 9,225 3,652 Security deposits and prepaid rents. . . . . . . . . . 3,181 3,058 Interest rate swap liability . . . 1,637 2,379 Accrued employee benefits. . . . . 2,793 2,914 Other. . . . . . . . . . . . . . . 477 408 -------- -------- 17,313 12,411 -------- -------- Total. . . . . . . . . . . . . . $ 35,497 33,391 ======== ======== AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 7. INCOME TAXES 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. The Company's current dividend payment level equals an annual rate of $1.92 per common share. The Company anticipates that all dividends paid in 2003 will be fully taxable and it will distribute at least 100% of the taxable income. The Company anticipates that some portion of total dividends paid during 2003 will be characterized as income taxable at capital gains rate for Federal income tax purposes. 8. RENTAL EXPENSES Rental expenses reported in the accompanying Consolidated Statements of Operations for the three and six months ended June 30, 2003 and 2002, respectively, are as follows. Three Months Ended Six Months Ended June 30, June 30, ------------------- -------------------- 2003 2002 2003 2002 -------- -------- -------- -------- Personnel. . . . . . $ 3,042 2,611 5,803 5,234 Advertising and promotion. . . . . 609 603 1,213 1,155 Utilities. . . . . . 809 641 1,648 1,313 Building repairs and maintenance. . 1,460 1,409 2,663 2,264 Landscaping and grounds maintenance. . . . 689 623 1,180 1,103 Real estate taxes. . 3,683 3,459 7,488 6,861 Insurance. . . . . . 525 463 1,044 929 Property management fees . . . . . . . 846 801 1,680 1,596 Other rental expenses . . . . . 311 303 576 543 -------- -------- -------- -------- Total. . . . . . . . $ 11,974 10,913 23,295 20,998 ======== ======== ======== ======== 9. SEGMENT REPORTING The Service Companies comprise a reportable segment following the Company's acquisition of their voting control as of December 31, 2002. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The revenue, net operating income ("NOI"), funds from operations ("FFO") and assets for the Company's reportable segments are summarized as follows: Three Months Ended Six Months Ended June 30, June 30, ------------------- -------------------- 2003 2002 2003 2002 -------- -------- -------- -------- Segment revenue: Multifamily rental operations: Wholly owned communities . . $ 27,481 26,680 54,564 53,202 Partnership communities at 100% . . . . 42,893 41,653 84,024 82,183 -------- -------- -------- -------- 70,374 68,333 138,588 135,385 Service Companies' Operations . . . . 23,359 27,971 50,722 51,252 -------- -------- -------- -------- Total segment revenue . . . . 93,733 96,304 189,310 186,637 Discontinued operations . . . . -- (8) -- 2,115 -------- -------- -------- -------- Total revenue . . $ 93,733 96,296 189,310 188,752 ======== ======== ======== ======== NOI: Multifamily rental operations: Wholly owned communities. . . $ 15,507 15,767 31,269 32,204 Partnership communities at 100%. . . . . 24,754 25,053 49,132 49,518 -------- -------- -------- -------- 40,261 40,820 80,401 81,722 Service Companies . 228 708 791 1,070 -------- -------- -------- -------- Total segment NOI . . . . . . 40,489 41,528 81,192 82,792 Discontinued operations. . . . -- 1,251 -- 2,510 -------- -------- -------- -------- Total NOI . . . . 40,489 42,779 81,192 85,302 AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Three Months Ended Six Months Ended June 30, June 30, ------------------- -------------------- 2003 2002 2003 2002 -------- -------- -------- -------- Reconciling items to FFO: Reduce co-invest- ment NOI to Company's share (1) . . . . . . (20,169) (19,830) (39,970) (39,398) Other income. . . 188 83 384 447 Co-investment fee income. . . . . 512 1,260 968 1,847 General and admin- istrative expenses. . . . (1,310) (1,213) (3,050) (2,753) Interest expense and loan cost amortization. . (6,253) (6,398) (12,745) (12,488) Depreciation - non-real estate - Service Companies . . . (780) (754) (1,540) (1,470) Income taxes - Service Companies . . . 303 178 458 446 -------- -------- -------- -------- Consolidated FFO before minority interest. . . . . 12,980 16,105 25,697 31,933 Reconciling items to net income: Depreciation - wholly-owned communities . . (5,546) (5,371) (11,064) (10,733) Depreciation - share of co-investment communities . . (3,116) (2,968) (6,236) (5,836) Gains on sales of rental communities . . -- 605 -- 605 Impairment of an investment in a partnership . (1,191) -- (1,191) -- -------- -------- -------- -------- Income before minority interest. 3,127 8,371 7,206 15,969 Minority interest. . 199 1,080 570 2,018 -------- -------- -------- -------- Net income . . . . . $ 2,928 7,291 6,636 13,951 ======== ======== ======== ======== AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, December 31, 2003 2002 ---------- ------------ Segment assets: Multifamily rental communities: Total wholly-owned . . . . . . . . . $ 794,934 768,281 Total partnerships . . . . . . . . . 1,410,167 1,402,502 ---------- ---------- Total multifamily. . . . . . . . . 2,205,101 2,170,783 Service Companies' assets. . . . . . . 61,978 52,774 Non-segment assets . . . . . . . . . . 34,723 22,550 ---------- ---------- Total. . . . . . . . . . . . . . . 2,301,802 2,246,107 Reconciling items to total assets: Reduce partnership communities to Company's share (1) . . . . . . . (1,216,923) (1,204,985) Accumulated depreciation - wholly-owned . . . . . . . . . . . (131,332) (120,268) ---------- ---------- Total assets . . . . . . . . . . . $ 953,547 920,854 ========== ========== (1) Represents amount required to reduce partnership communities to the Company's share from partnerships. The Company does not derive any of its consolidated revenue from foreign countries and does not have any major customers that individually account for 10% or more of the Company's consolidated revenue. 10. RELATED PARTY TRANSACTIONS AND SUBSEQUENT EVENTS During the six months ended June 30, 2003, the Company accrued or paid to partnerships $79 interest on short-term investments made by the partnerships. During the six months ended June 30, 2002, the Company accrued or paid to the Service Companies other costs and expenses as follows: Management fees (including discontinued operations) $1,723 General contractor fees. . . . . . . . . . . . . . 56 ====== During the six months ended June 30, 2003, the Company and the Service Companies earned and received from partnerships other income as follows: Development fees . . . . . . . . . . . . . . . . . $ 750 Management fees. . . . . . . . . . . . . . . . . . 3,475 Asset management fees. . . . . . . . . . . . . . . 236 General contractor fees. . . . . . . . . . . . . . 733 Promoted interest. . . . . . . . . . . . . . . . . 271 Interest on notes and advances to affiliates . . . 342 ====== AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED In addition, during the six months ended June 30, 2003, total revenue of $1,920 was generated from leases of apartment homes of partnership communities through ACH. During the six months ended June 30, 2002, the Company earned or received from partnerships and the Service Companies other income as follows: Development fees . . . . . . . . . . . . . . . . . $ 960 Acquisition, disposition and financing fees. . . . 640 Asset management fees. . . . . . . . . . . . . . . 247 Promoted interest. . . . . . . . . . . . . . . . . 276 Interest on notes and advances to affiliates . . . 573 ====== In addition, during the six months ended June 30, 2002, total revenue of $740 was generated from leases of apartment homes of wholly-owned communities through ACH. In September 2002, the Company entered into an agreement with an affiliate of one of the Company's Executive Vice Presidents to test and possibly implement a software application developed by this entity, in which the Company has no ownership interest. The Company's maximum commitment under this agreement is $300. The Company is entitled to share in any proceeds from the successful marketing and sale of this software application to third parties. On July 10, 2003, the Company was named as beneficiary to a software sales agreement, pursuant to which AMC will receive a minimum of $1,000 and a maximum of $1,500 in royalties over the five-year period ending December 31, 2007. Through June 30, 2003 no income or loss has been recognized as a result of this agreement. AMC will recognize royalty income as it is earned over the remaining 4.5-year term of the agreement. On July 28, 2003, the Compensation Committee of the Company's Board of Trustees approved the payment of compensation (1) in the amount of $90 to each of the Company's Co-Chief Executive Officers to facilitate their acquisition of the Company's interest in their split-dollar life insurance policies; and (2) in the amount of approximately $1,200 to terminate the participation of all but five senior officers in the Company's Performance Incentive Plan ("PIP"). The Company is selling its interest in the split-dollar policies to avoid any possibility that continued payments of premiums on these policies might be considered a violation of the Sarbanes-Oxley Act. These are the only split-dollar life insurance policies in which the Company has an interest. The $180 which will be paid to the two Co- Chief Executive Officers will be charged to expense in July 2003. Through June 30, 2003, the Company has continued to provide for its liability under the PIP assuming that the targeted growth will eventually be achieved over the maximum ten-year measurement periods which expire December 31, 2007 through December 31, 2011. This liability of approximately $1,400 at June 30, 2003 is anticipated to grow to approximately $1,800 by December 31, 2003. By redeeming for cash the interests of the 43 employees who are not the five most senior officers, the Company will improve the transparency of its compensation plans, will reduce the exposure to earnings and liability volatility that results from the "mark-to-market" accounting used to account for benefits payable under the PIP, and will reward key employees for their performance in a difficult operating environment. Except for a portion of the approximate $400 increase in liability described above, there is no earnings impact in 2003 from this future payment of approximately $1,200. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED On July 31, 2003, the Company hedged an additional $30,000 in floating-rate borrowings under its unsecured line of credit. The Company paid $927 to cap the 30-day LIBOR rate on $15,000 of borrowings at 4.0% for five years beginning April 1, 2004 (which will limit its maximum "all-in" cost over this period to 5.0% plus the cost of the cap). The Company also obtained a forward-starting swap beginning April 1, 2004 on another $15,000 of borrowings at 4.38%, fixing its "all-in" cost at 5.38% over this period. On August 7, 2003, the Company agreed to issue an additional 2,415,000 common shares under its existing shelf registration statement. The issuance includes a 315,000 share underwriters' over allotment. This equity issuance was offered to the public at $24.40 per share by Morgan Stanley & Co. Net proceeds totaling $58,100 based on net value per share of $24.10 less expenses of the offering are anticipated to be received on August 13, 2003. Of the total net proceeds of the offering, approximately $57,000 (including the partner's $11,000 share of the Regents Crest mortgage loan due in December 2003) will be used to acquire the equity interests of AMLI's partner in AMLI at Regents Crest, AMLI Creekside and AMLI at Castle Creek. This acquisition is anticipated to close on August 14, 2003. Remaining net proceeds of the offering will be used for future property acquisition and development, and for general corporate purposes. 11. COMMITMENTS AND CONTINGENCIES The limited partnership agreement of AMLI on Timberglen L.P. provides for the redemption (at an amount determined by formula) by the partnership of the limited partner's entire interest, in the limited partner's sole discretion, at any time after December 16, 2003 or at any time that there is a designated event of default on related indebtedness of the partnership, 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 the Company common shares of beneficial interest, or any combination thereof, in the sole discretion of the Company. The Company is of the opinion that the fair value of this property is substantially in excess of the value which would be the basis for determining the redemption price and the fair value of this purchase obligation is nominal. At June 30, 2003, the Company is contingently liable with respect to $8,282 in bank letters of credit issued to secure commitments made in the ordinary course of business by the Company and its partnerships and with respect to its guarantee of $4,000 of the construction loan for the AMLI at Seven Bridges community. Of these amounts, the Company anticipates that its contingent liabilities under all but approximately $4,000 of the bank letters of credit and under the $4,000 construction loan guarantee will expire later in 2003 as criteria are achieved and the construction loan is repaid (see note 5). 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, 2003 and December 31, 2002 and for the three and six months ended June 30, 2003 and 2002. The terms "we", "us" or "our" when used in this discussion and analysis mean AMLI Residential Properties Trust. 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, 2003, the Company owned an approximate 86% general partnership interest in AMLI Residential Properties, L.P. (the "Operating Partnership" or "OP"), which holds the operating assets of the Company. The 14% not owned by the Company is owned by the limited partners that hold Operating Partnership units ("OP Units") which are convertible into common shares of the Company on a one-for-one basis, subject to certain limitations. At June 30, 2003, the Company owned 20,953,640 OP Units (including 4,025,000 Preferred OP Units) and the limited partners owned 3,545,993 OP Units. The Company has qualified, and anticipates continuing to qualify, as a real estate investment trust ("REIT") for Federal income tax purposes. GROWTH STRATEGIES The Company primarily seeks to maximize earnings by increasing the net operating income ("NOI") from its portfolio of operating communities (internal growth) and by adding additional NOI by expanding the portfolio through its acquisition and development activities (external growth), net of dispositions. In addition, the Company employs a third external growth strategy, co-investment, whereby the Company forms partnerships with primarily institutional partners for the purpose of acquiring and developing multifamily communities. CO-INVESTMENT Because 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 partnerships with institutional investors, the following condensed combined financial information for the Company and its partnerships at June 30, 2003, 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 partnerships at 100%. Company and Consolidated Unconsolidated Unconsolidated Company Partnerships Partnerships ("GAAP") at 100% (Combined) ------------ -------------- -------------- Rental communities. . . . . $ 782,330 1,271,001 2,053,331 Accumulated depreciation. . (131,332) (138,921) (270,253) ---------- ---------- ---------- 650,998 1,132,080 1,783,078 Land and rental communities under development . . . . 12,604 139,166 151,770 Investments in partnerships 193,244 (193,244) -- Other, net. . . . . . . . . 55,235 (12,619) 42,616 ---------- ---------- ---------- 912,081 1,065,383 1,977,464 Company and Consolidated Unconsolidated Unconsolidated Company Partnerships Partnerships ("GAAP") at 100% (Combined) ------------ -------------- -------------- Debt - Company's share. . . (462,781) (211,592) (674,373) Debt - partners' share. . . -- (358,952) (358,952) ---------- ---------- ---------- Total net assets. . . . . . 449,300 494,839 944,139 Partners' share of net assets. . . . . . . . . . -- (494,839) (494,839) ---------- ---------- ---------- Company's share of net assets. . . . . . . . $ 449,300 -- 449,300 ========== ========== ========== The information presented in the following table includes AMLI's proportionate share of unconsolidated partnerships. Company and Consolidated Share of Company Share of Partnerships ("GAAP") Partnerships (Combined) ------------ ------------- ------------- Rental communities. . . . . .$ 782,330 420,140 1,202,470 Accumulated depreciation. . . (131,332) (42,736) (174,068) ---------- ---------- ---------- 650,998 377,404 1,028,402 Land and rental communities under development . . . . . 12,604 32,071 44,675 Investments in partnerships . 193,244 (193,244) -- Other, net. . . . . . . . . . 55,235 (4,639) 50,596 ---------- ---------- ---------- 912,081 211,592 1,123,673 Debt - Company's share. . . . (462,781) (211,592) (674,373) ---------- ---------- ---------- Company's share of net assets. . . . . . . . . . .$ 449,300 -- 449,300 ========== ========== ========== 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, 2003: AMLI's share of equity in partnerships . . . . . . . . . . . . $191,087 Negative investment balances presented in other liabilities . . . 5,969 Capitalized interest . . . . . . . . . 5,172 Eliminated fees. . . . . . . . . . . . (6,381) Eliminated construction profits. . . . (2,511) Other comprehensive loss . . . . . . . (1,335) Other, net . . . . . . . . . . . . . . 1,243 -------- Total investments in partnerships. . . $193,244 ======== ACQUISITIONS, DEVELOPMENT AND DISPOSITIONS ACQUISITIONS AMLI acquires interests in institutional quality multifamily communities, with a focus on newer communities, having high-quality construction, amenities, location and market position. AMLI currently operates in eight markets, but will consider expanding into additional markets depending on the market, product type, perceived risks and portfolio objectives. During 2003 and 2002, the Company has been less aggressive in acquiring interests in operating communities than it would have liked primarily due to pricing. No communities were acquired during the six months ended June 30, 2003. The table below summarizes the communities acquired during 2002:
Number Year of Com- Date Purchase Total Community Location Units pleted Acquired Price Debt Equity - --------- -------- -------- -------- -------- -------- ------ -------- WHOLLY-OWNED: AMLI: Upper West Side. Ft. Worth, TX 194 2001 5/1/02 13,600 -- 13,600 7th Street Station. . . . Ft. Worth, TX 189 2000 10/17/02 13,700 -- 13,700 ------ -------- ------ ------- Total wholly-owned 383 27,300 -- 27,300 ------ -------- ------ ------- PARTNERSHIPS: (Company ownership percentage): AMLI: at Parks Meadows (25%) . . . . . Littleton, CO 518 2001 4/24/02 56,500 28,500 28,000 at Bryan Place (48%) . . . . . Dallas, TX 420 1999 6/28/02 39,600 26,200 13,400 ------ -------- ------- ------- Total partnerships 938 96,100 54,700 41,400 ------ -------- ------- ------- Total . . . . 1,321 $123,400 54,700 68,700 ====== ======== ======= =======
COMMUNITIES UNDER DEVELOPMENT OR IN LEASE-UP AND LAND HELD FOR DEVELOPMENT OR SALE COMMUNITIES UNDER DEVELOPMENT OR IN LEASE-UP At June 30, 2003, the Company had interests in seven communities under development or in lease-up including four owned in partnerships, as follows:
TOTAL EXPENDED TOTAL NUMBER NUMBER THROUGH ESTIMATED OF OF JUNE 30, COSTS UPON COMMUNITY LOCATION ACRES UNITS 2003 COMPLETION - --------- -------- ------ ------ --------- ---------- Wholly-owned (in lease-up): AMLI at Carmel Center Carmel, IN 15 322 $ 27,271 28,400 --- ----- -------- -------- Partnerships: (Company ownership percentage): AMLI: at Milton Park (25%) Alpharetta, GA 21 461 33,754 35,000 at Seven Bridges (20%) Woodridge, IL 13 520 75,726 82,200 Downtown (30%) Austin, TX 2 220 21,320 50,920 Museum Gardens (25%) Vernon Hills, IL 17 294 8,366 60,100 --- ----- -------- -------- Total partnerships 53 1,495 139,166 228,220 --- ----- -------- -------- Service Companies (being developed for sale): Walnut Creek (100%) Austin, TX 28 460 17,518 31,370 Old Town Carmel (100%) Carmel, IN 5 91 2,916 11,400 --- ----- -------- ------- Total Service Companies 33 551 20,434(1) 42,770 --- ----- -------- ------- Total 101 2,368 $186,871 299,390(2) === ===== ======== ======= (1) Reported in Service Companies' assets in the Consolidated Balance Sheet as of June 30, 2003. (2) Of AMLI's share of completion costs (excluding Service Companies), $30,526 is anticipated to be funded from existing loan commitments and $6,471 is expected to be paid in cash during 2003 and 2004.
LAND HELD FOR DEVELOPMENT OR SALE At June 30, 2003, the Company's land held for future development or sale is as follows:
CARRYING VALUE TOTAL COSTS NET OF CAPITALIZED ALLOWANCE NUMBER POTENTIAL THROUGH FOR LOSS AT OF NUMBER OF JUNE 30, JUNE 30, COMMUNITY LOCATION ACRES UNITS 2003 2003 - --------- -------- ------ --------- ----------- ------------ Land held for development or sale (1) (2) Texas and Kansas 117 1,800 $13,825 12,604 Service Companies' land held for sale (1) (3) (4) Carmel, IN and Ft. Worth, TX 154 -- 13,513 12,816 --- ----- ------- ------ Total 271 1,800 $27,338 25,420 === ===== ======= ====== (1) The Company has expensed interest carry on these land parcels in 2003 and 2002. (2) Amounts are shown net of an allowance for loss totaling $1,221 on land parcels in Texas. (3) Amounts are shown net of an allowance for loss totaling $697 on a land parcel in Texas. (4) Reported in Service Companies' assets in the accompanying Consolidated Balance Sheet.
At June 30, 2003, the Company has substantially completed the $28,400 development of AMLI Carmel Center. The community is currently under lease- up and at June 30, 2003 it was 50% leased. At June 30, 2003, the Company has made capital contributions totaling $19,623 to co-investment partnerships currently having development of communities underway, and anticipates funding substantially all of its remaining commitment (net of its share of co-investment debt) of $5,342 during 2003 to complete the 1,495 apartment homes being developed by co- investment partnerships. The Service Companies currently have two communities under development with an estimated development cost of $42,770 which the Company is funding from its cash flow or line of credit borrowings. The Service Companies intend to sell these two communities containing a total of 551 apartment homes. In addition, the Service Companies have an investment in two partnerships which own two communities currently in lease-up and for sale. The Company's pipeline of new developments is continuing to decrease; one development commenced in June 2003 immediately after the closing of the partnership. The Company is continuing to pursue development opportunities and anticipates expanding its development activities at some future date. The Company owns land in Ft. Worth, Austin and Houston, Texas and Kansas City, Kansas, being held for the development of an additional 1,800 apartment homes, or for sale. In addition, the Service Companies own a total of 154 acres of land in Indiana and Texas that are held for sale. The Company has made earnest money deposits for land parcels anticipated to be acquired and developed 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 costs associated with carrying these land parcels for the six months ended June 30, 2003 and 2002. DISPOSITIONS The Company sells communities which no longer meet the Company's investment objectives. The proceeds from such sales are typically invested in the acquisition or development of new communities as a way to continually improve the quality of its portfolio and increase the potential for growth in NOI, reacquire its common shares, pay down debt or for other working capital purposes. During the six months ended June 30, 2003, the Company did not have any wholly-owned communities sold or held for sale. As of June 30, 2003, the Company, on behalf of the partnership, has entered into a contract for the sale of AMLI at Willeo Creek (a community in which the Company owns a 30% interest) for the price of $19,500 in cash. Closing is anticipated to occur in late August 2003. AMLI is expected to earn an approximate $325 and $372 disposition fee and promoted interest, respectively. AMLI's share of net sale proceeds is anticipated to be approximately $12,280 including repayment of its mortgage note of $8,942. The table below summarizes the rental communities sold during 2002:
Costs Year Before Number Acquired/ Date Depre- Sale Net Community Location of Units Developed Sold ciation Price Proceeds Gain (1) - --------- -------- -------- --------- -------- -------- -------- -------- -------- WHOLLY-OWNED: AMLI at: Gleneagles Dallas, TX 590 88/97 8/14/02 $27,613 35,675 34,720 14,247 Western Ridge Houston, TX 318 2000 12/20/02 20,317 24,600 23,998 4,659 ----- ------- ------- ------- ------- Total wholly-owned 908 47,930 60,275 58,718 18,906 ----- ------- ------- ------- ------- PARTNERSHIPS (Company owner- ship percentage): AMLI at: Champions Park (15%) Houston, TX 246 1994 4/18/02 13,723 13,145 12,783 1,799 Champions Centre (15%)Houston, TX 192 1994 4/18/02 10,205 10,755 10,458 2,232 Greenwood Forest (15%)Houston, TX 316 1995 8/1/2002 18,202 20,150 19,407 4,524 ----- ------- ------- ------- ------- Total partnerships 754 42,130 44,050 42,648 8,555 ----- ------- ------- ------- ------- Total 1,662 $90,060 104,325 101,366 27,461 ===== ======= ======= ======= ======= (1) Gains on sales of partnership communities are shown net of disposition fees and promoted interests paid to the Company by such partnerships.
RESULTS OF COMMUNITY OPERATIONS GENERAL At June 30, 2003, AMLI owned interest in 80 communities containing 30,348 apartment homes, of which seventy-five containing 28,531 apartment homes were stabilized and five containing 1,817 apartment homes were under development or in lease-up. Stabilized communities are communities that are fully completed and have, in the opinion of management, completed their initial lease-up. Thirty-three of the communities are wholly-owned and their operating results are reflected in the Company's Consolidated Statements of Operations under Rental Operations as well as under Income from discontinued operations. Forty-seven are owned in partnerships, and the Company's share of operating results are included in Income from partnerships. The Company distinguishes between stabilized communities (which include Same Store communities, New communities and Acquisition communities) from Development and lease-up communities and Communities sold or contributed to ventures, each of which are defined as follows: . Same Store communities - communities that have had stabilized operations and were owned by the Company as of January 1, 2002. . New communities - communities that were developed by the Company and began stabilized operations after January 1, 2002. . Acquisition communities - communities having stabilized operations that were acquired by the Company after January 1, 2002. . Development and lease-up communities - communities being developed by the Company that are not yet stabilized. . Communities sold or contributed to ventures - reflects operations through the date a community was sold or contributed to a venture. Community revenue comprises that portion of total revenue collected or due from leases of apartment homes and includes any such amounts as may be reported as discontinued operations. Community rental expenses comprise that portion of total expenses that exclude losses from sales or valuation of land, expenses of the Service Companies, general and administrative expenses, and interest, taxes, depreciation and amortization. Community rental expenses include amounts reported as personnel, advertising and promotion, utilities, building repairs and maintenance and services, landscaping and grounds maintenance, real estate taxes, property management, and other expenses, and such amounts as may be included in discontinued operations. The Company uses NOI to measure the operating results of its communities. NOI represents community revenue less community operating expenses, and excludes interest, taxes, general and administrative expenses and depreciation and amortization expenses. This performance measure is not intended as a replacement for net income determined in accordance with generally accepted accounting principles ("GAAP"). WHOLLY-OWNED COMMUNITIES For the six months ended June 30, 2003, NOI from wholly-owned communities decreased from the same period a year ago. The decrease by approximately 10% was primarily attributable to lower revenue in the Company's same store portfolio. NOI generated by acquisition and development activity was approximately equal to NOI lost from sold communities. Revenue, rental expenses and NOI from wholly-owned communities for the six months ended June 30, 2003 and 2002 are summarized as follows: Six Months Ended June 30, ---------------------- Increase 2003 2002 (Decrease) -------- ------- --------- Total Wholly-Owned Community Revenue - ------------------ Same Store communities . . . . $ 49,646 52,871 (3,225) Development and lease-up communities. . . . . . . . . 598 1 597 Acquisition communities. . . . 4,320 330 3,990 Communities sold or contri- buted to ventures. . . . . . -- 4,238 (4,238) -------- ------- ------- Total . . . . . . . . . . . $ 54,564 57,440 (2,876) ======== ======= ======= Continuing operations . . . $ 54,564 53,202 1,362 Discontinued operations . . -- 4,238 (4,238) ======== ======= ======= Total Wholly-Owned Community Rental Expenses - ------------------------- Same Store communities . . . . $ 20,908 20,791 117 Development and lease-up communities. . . . . . . . . 398 64 334 Acquisition communities. . . . 1,989 143 1,846 Communities sold or contri- buted to ventures. . . . . . -- 1,728 (1,728) -------- ------- ------- Total . . . . . . . . . . . $ 23,295 22,726 569 ======== ======= ======= Continuing operations . . . $ 23,295 20,998 2,297 Discontinued operations . . -- 1,728 (1,728) ======== ======= ======= Total Wholly-Owned Community NOI - ------------------- Same Store communities . . . . $ 28,738 32,080 (3,342) Development and lease-up communities. . . . . . . . . 200 (63) 263 Acquisition communities. . . . 2,331 187 2,144 Communities sold or contri- buted to ventures. . . . . . -- 2,510 (2,510) -------- ------- ------- Total . . . . . . . . . . . $ 31,269 34,714 (3,445) ======== ======= ======= Continuing operations . . . $ 31,269 32,204 (935) Discontinued operations . . -- 2,510 (2,510) ======== ======= ======= Six Months Ended June 30, ---------------------- 2003 2002 (Change) -------- ------- -------- Reconciliation of Income from Rental Operations - ------------------------ Community rental revenue (1) . . . . . . . . . . . . $ 54,564 57,440 (2,876) Community rental expenses (1) . . . . . . . . . . . . (23,295) (22,726) (569) -------- ------- ------- Community NOI (1) . . . . . . 31,269 34,714 (3,445) Income from partnerships. . . 2,926 4,284 (1,358) Interest expense and amortization. . . . . . . . (12,745) (12,188) (557) Depreciation. . . . . . . . . (11,064) (10,150) (914) Income from discontinued operations. . . . . . . . . -- (2,510) 2,510 -------- ------- ------- Income from rental operations (excluding discontinued operations) . . . . . . . . $ 10,386 14,150 (3,764) ======== ======= ======= (1) Including discontinued operations. PARTNERSHIP COMMUNITIES For the six months ended June 30, 2003, NOI from partnership communities was virtually unchanged from the same period in 2002. In general, the loss in revenue in the Same Store portfolio was offset by net investing activity. Rental revenue, rental expenses and NOI from partnership communities, at 100%, for the six months ended June 30, 2003 and 2002 are summarized as follows: Six Months Ended June 30, ---------------------- Increase 2003 2002 (Decrease) -------- ------- --------- Total Partnership Community Revenue - ------------------- Same Store communities . . . . $ 68,563 70,703 (2,140) New communities. . . . . . . . 4,469 3,207 1,262 Development and lease-up communities. . . . . . . . . 4,484 613 3,871 Acquisition communities. . . . 4,648 1,075 3,573 Communities sold or contri- buted to ventures. . . . . . 1,859 6,586 (4,727) -------- ------- ------- Total . . . . . . . . . . . $ 84,023 82,184 1,839 ======== ======= ======= Six Months Ended June 30, ---------------------- Increase 2003 2002 (Decrease) -------- ------- --------- Total Partnership Community Rental Expenses - --------------------------- Same Store communities . . . . $ 27,761 27,201 560 New communities. . . . . . . . 1,814 1,611 203 Development and lease-up communities. . . . . . . . . 2,476 544 1,932 Acquisition communities. . . . 1,678 296 1,382 Communities sold or contri- buted to ventures. . . . . . 856 3,035 (2,179) -------- ------- ------- Total . . . . . . . . . . . $ 34,585 32,687 1,898 ======== ======= ======= Total Partnership Community NOI - ----------------- Same Store communities . . . . $ 40,802 43,502 (2,700) New communities. . . . . . . . 2,655 1,596 1,059 Development and lease-up communities. . . . . . . . . 2,008 69 1,939 Acquisition communities. . . . 2,970 779 2,191 Communities sold or contri- buted to ventures. . . . . . 1,003 3,551 (2,548) -------- ------- ------- Total . . . . . . . . . . . $ 49,438 49,497 (59) ======== ======= ======= Company's share of partnership community NOI and cash flows in excess of ownership interest . . . . . . . . . . $ 17,012 17,127 (115) ======== ======= ======= Six Months Ended June 30, ---------------------- 2003 2002 (Change) -------- ------- -------- Reconciliation of Share of Income from Partnerships - -------------------- Community rental revenue. . . $ 84,023 82,184 1,839 Community rental expenses . . (34,585) (32,687) (1,898) -------- ------- ------- Community NOI . . . . . . . . 49,438 49,497 (59) Sale of rental communities. . -- 23,900 (23,900) Cost of rental communities sold. . . . . . . . . . . . -- (19,869) 19,869 Other income. . . . . . . . . 85 172 (87) Other expenses. . . . . . . . (798) (842) 44 Interest expense and amortization. . . . . . . . (20,059) (18,042) (2,017) Depreciation. . . . . . . . . (19,294) (17,898) (1,396) -------- ------- ------- Net income. . . . . . . . . . 9,372 16,918 (7,546) Co-investment partners' share 6,446 12,634 (6,188) -------- ------- ------- Share of income from partnerships. . . . . . . . $ 2,926 4,284 (1,358) ======== ======= ======= SAME STORE COMMUNITIES As of June 30, 2003, 24,658 apartment homes, or 86.4% of total apartment homes in the Company's stabilized communities, were categorized as Same Store communities, of which 11,399 were wholly-owned and 13,319 were owned in partnerships. The following commentary is based primarily on an analysis of the AMLI's Same Store portfolio since the operating results of stabilized communities owned over comparable periods generally provide a better perspective of market conditions affecting the Company's portfolio. For purposes of this discussion and analysis, 100% of the results of operations of the Company's partnership communities is combined with the Company's wholly-owned communities. RENTAL REVENUE For the second quarter 2003 compared to the same quarter a year ago, rental revenue for the same community portfolio declined 4.7%. The change was attributable to a 4.5% decline in collected rent per occupied unit and a modest 0.2% decline in occupancy, reflecting some stabilization. On a sequential basis, rental revenue began to trend up this quarter for the first time since third quarter 2001, increasing by 0.7%. Collected rent per occupied unit was down from last quarter by 1.4%; however, occupancy has begun to increase and was up 1.9%. OCCUPANCY The following chart shows weighted average physical occupancy, calculated on a daily basis, for all Same Store communities for each of AMLI's markets and for the AMLI portfolio in total: DAILY WEIGHTED AVERAGE OF PHYSICAL OCCUPANCY SAME STORE COMMUNITIES Quarter Ended --------------------------------------- 2003 2002 ----------------- ------------------ Jun 30 Mar 31 Dec 31 June 30 ------ ------ ------ ------- Dallas. . . . . . . . . . . 91.4% 88.3% 88.4% 91.8% Atlanta . . . . . . . . . . 90.8% 90.3% 90.5% 90.2% Austin. . . . . . . . . . . 91.4% 90.7% 92.1% 91.4% Houston . . . . . . . . . . 91.0% 89.0% 91.1% 92.2% Indianapolis. . . . . . . . 91.1% 89.4% 91.3% 91.5% Kansas City . . . . . . . . 90.7% 89.5% 91.1% 93.0% Chicago . . . . . . . . . . 92.1% 88.6% 88.4% 92.1% Denver. . . . . . . . . . . 88.5% 86.8% 89.4% 87.1% ------ ------ ------ ------ Total Portfolio (a) . . . . 91.2% 89.3% 90.0% 91.4% ====== ====== ====== ====== (a) Occupied apartments exclude community models and apartments not in service due to fire, flood or otherwise. In addition to physical occupancy as an indicator of market conditions, some in the apartment industry measure economic occupancy as well. Because the calculation of economic occupancy typically adjusts the value of vacancies and concessions (among other items) from quoted market rents, many believe that it is a better indicator of market fundamentals. Since there is no consistent industry measurement of economic occupancy and the calculation is derived from many variable data, AMLI prefers to measure total revenue earned per each occupied apartment. As the Company's policy is to reserve as a bad debt any rent or other payments due from a resident that is more than 30 days delinquent, revenue earned for purposes of this analysis is essentially equal to collected revenue per unit, another metric used by some in the apartment industry. The following chart shows weighed average total revenue per occupied apartment home for the Company's Same Store communities for each of its markets and for the portfolio in total: WEIGHTED AVERAGE TOTAL REVENUE EARNED PER OCCUPIED APARTMENT HOME SAME STORE COMMUNITIES Quarter Ended --------------------------------------- 2003 2002 ----------------- ------------------ Jun 30 Mar 31 Dec 31 June 30 ------ ------ ------ ------- Dallas. . . . . . . . . . . $ 817 831 824 849 Atlanta . . . . . . . . . . 862 862 864 898 Austin. . . . . . . . . . . 817 819 826 875 Houston . . . . . . . . . . 1,063 1,068 1,077 1,095 Indianapolis. . . . . . . . 805 811 794 798 Kansas City . . . . . . . . 844 835 835 855 Chicago . . . . . . . . . . 1,100 1,112 1,111 1,146 Denver. . . . . . . . . . . 1,021 1,035 1,024 1,075 ------ ------ ------ ------ Total Portfolio (a) . . . . $ 884 889 887 917 ====== ====== ====== ====== (a) Calculated by taking the simple average of each of the three months in the quarter. Each month's calculation is made by dividing that month's accrual basis rental and other income (total community revenue) by the weighted average number of apartments occupied during the month. MARKETS The following provides commentary about each of AMLI's markets. Statistical information relates to Same Store communities, including wholly-owned and partnership communities at 100%, for the second quarter of 2003, compared to the second quarter of 2002 and the first quarter of 2003. DALLAS rental revenue declined by 5.7% compared to the second quarter of 2002, as collected rent per occupied unit fell by 5.1%, and occupancy fell by 0.5%. On a sequential basis, compared to the first quarter, rental revenue increased by 1.1%, as a result of a 3.0% increase in occupancy, and a 2.2% decline in collected rent per occupied unit, which was the largest quarterly sequential drop the last four quarters. The Dallas/Ft. Worth market continued to experience demand pressure, with job losses totaling 28,000 for the 12-month period ending May 31, 2003. On the supply side, permit activity remains fairly strong with 11,277 new multifamily units authorized for the 12 months ended May 31, 2003, representing 2.2% of existing apartment stock. ATLANTA rental revenue declined 4.9% compared to the second quarter 2002, driven by a 5.6% decline in collected rent per occupied unit and a 0.7% increase in occupancy. On a sequential basis, rental revenue declined by 0.8% compared to the first quarter as collected rent per occupied unit continued to fall, down 1.4%. Occupancy increased 0.6% as traffic and rentals increased by 34.4% and 39.9%, respectively. The challenge in Atlanta remains absorption of new supply, with 11,505 multifamily units permitted for the 12 months ended May 31, 2003, which represents a 3.1% of the existing apartment stock. The good news in Atlanta is that annualized permits have fallen by 27.5% versus the same period a year ago, and job growth has turned positive. Atlanta generated 8,000 new jobs for the 12 months ended May 31, 2003. CHICAGO rental revenue declined 3.6% compared to the same quarter a year ago, driven entirely by a 3.6% decrease in collected rent per occupied unit, as occupancy remained unchanged at 92.1%. Sequentially, rental revenue increased by 2.6% over the first quarter after three consecutive quarterly decreases. This increase was due to a 3.5% gain in occupancy. While occupancy was increasing, collected rent per occupied unit continued to trend downward, dropping 1.3% in the second quarter compared to last quarter. In general, employment losses in Chicago, which were 28,300 for the twelve months ended May 31, 2003, continue to depress apartment demand and put downward pressure on rental rates in this market. On the supply side, the Chicago metro issued permits for 9,133 new multifamily units, representing 1.4% of existing apartment stock, for the 12 months ended May 31, 2003, a 10% decrease from the previous period. AUSTIN rental revenue declined 6.9% compared to the second quarter of 2002 due to a decrease in collected rent per occupied unit of 6.8%, as occupancy was unchanged year over year at 91.4%. On a sequential basis, compared to the first quarter, rental revenue fell by 0.4% despite an increase in occupancy of 0.7% as collected rent per occupied unit continued to fall, decreasing by 1.0%. Austin is one of the few markets reporting job gains, as approximately 4,700 jobs were added for the twelve months ended May 31, 2003. Despite the positive employment trend, roughly 7,000 multifamily units will be delivered in 2003, which will continue to challenge this market in the near future. On a positive note, permits are down significantly, decreasing by 49% on a year over year basis as of May 31, 2003. KANSAS rental revenue declined 4.5% compared to the same period of a year ago due to decreases in both collected rent per occupied unit and occupancy of 2.0% and 2.3%, respectively. Sequentially, rental revenue increased 1.2%, driven by improving occupancy that was up 1.2% compared to the first quarter, while collected rent per occupied unit remained essentially unchanged. Kansas continues to be challenged by weak demand fundamentals exhibited by declining job growth. For the 12 months ended May 31, 2003, the Kansas City metro area lost 19,800 jobs, a negative 2.1% growth rate. In addition, multifamily permits are trending up. For the 12 months ended May 31, 2003, authorized permits totaled 2,998 units, an 86.2% increase over the same period of a year ago, representing a 2.4% increase to the existing apartment stock. INDIANAPOLIS rental revenue for the second quarter 2003 declined 0.4% compared to the same quarter a year ago as a result of minor declines in both occupancy and collected rent per occupied unit of 0.4% and 0.2%, respectively. Sequentially, rental revenue grew 1.6% from the first quarter on the strength of improving occupancy, which increased 1.7%, and stability in collected rent per occupied unit, which remained relatively unchanged, down 0.2%. Demand and supply fundamentals in Indianapolis continue to be a concern as evidenced by a loss of 25,300 jobs, or a negative 2.8% growth rate for the 12 months ended May 31, 2003. In addition, 2,661 multifamily permits have been authorized over the past year, up 6.4% from the same period of a year ago, which represents a 2.2% increase to the existing apartment stock. HOUSTON rental revenue declined by 4.6% in the second quarter of 2003 compared to the second quarter 2002. Both occupancy and collected rent per occupied unit fell from the same period a year earlier, decreasing 1.1% and 3.6%, respectively. On a sequential basis, rental revenue increased by 0.4% over the first quarter, mainly due to a 2.0% increase in occupancy. The increase in occupancy, however, was offset in part by a 1.9% decrease in collected rent per occupied unit. Houston is faced with challenging supply and demand fundamentals in the near term. Permit activity has increased dramatically as 14,987 multifamily permits, 3.3% of existing stock, were issued for the 12 months ended May 31, 2003, an increase of 111% over last May. On the demand side, Houston has lost 15,500 jobs for the twelve months ended May 31, 2003. DENVER second quarter rental revenue fell 4.6% on a year over year basis due to continued weakness in the market, which pushed collected rent per occupied unit down 6.4% over the same period last year, while occupancy improved by 1.4%. On a sequential basis, rental revenue declined 0.8% from the first quarter due to further deterioration of collected rent per occupied unit, which fell 3.0%. The decline in rental revenue was limited by a 1.7% improvement in occupancy during the period. The Denver/Boulder metro area continues to display weak demand/supply fundamentals driven by negative job growth and significant new supply. For the 12 months ended May 31, 2003, the metro experienced a loss of 16,000 jobs, a negative 1.2% growth rate. On a positive note, for the 12 months ended May 31, 2003, authorized permits totaled 6,227 units a 47.6% decrease over the same period of a year ago. OTHER COMMUNITY REVENUE Includes non-rental income items such as revenue from parking garages and carports, laundry facilities, washer/dryer rentals, phone and cable, vending, application fees, late fees, termination fees, month-to-month fees, pet charges and other such items. TOTAL RENTAL COSTS PER SAME STORE APARTMENT HOME The following summarizes the combined cost of rental expenses and capital expenditures (excluding acquisition capital expenditures, as described below) per apartment home for the Company's Same Store wholly- owned and partnership communities, at 100%, for the six months ended June 30, 2003 and 2002: Six Months Ended June 30, 2003 --------------------------------------------------- Wholly-owned Partnership Per Unit Communities Communities Total (annualized) ------------ ----------- --------- ------------ Community rental expenses. . . . . . $ 20,908 27,761 48,669 3,948 Capital expenditures. 1,808 1,693 3,501 284 ======== ======== ======== ======== Number of Same Store apartment homes . . 11,339 13,319 24,658 ======== ======== ======== Number of Same Store communities . . . . 30 36 66 ======== ======== ======== Six Months Ended June 30, 2002 --------------------------------------------------- Wholly-owned Partnership Per Unit Communities Communities Total (annualized) ------------ ----------- --------- ------------ Community rental expenses. . . . . . $ 20,791 27,200 47,991 3,893 Capital expenditures. 2,017 1,381 3,398 276 ======== ======== ======== ======== Number of Same Store apartment homes . . 11,339 13,319 24,658 ======== ======== ======== Number of Same Store communities . . . . 30 36 66 ======== ======== ======== SAME STORE RENTAL EXPENSES The following shows detail of rental expenses for the Company's Same Store wholly-owned and partnership communities, at 100%, for the six months ended June 30, 2003 and 2002: Per Unit Six Months Ended (annualized) ------------------- ------------------- 2003 2002 2003 2002 -------- -------- -------- -------- RENTAL EXPENSES Personnel. . . . . . . . . . $ 11,510 11,382 934 923 Advertising and promotion. . 2,260 2,311 183 188 Utilities. . . . . . . . . . 3,288 3,141 267 255 Building repairs and maintenance and contract services. . . . . . . . . . 5,403 4,784 438 388 Landscaping and grounds maintenance . . . . . . . . 2,429 2,334 197 189 Real estate taxes. . . . . . 16,101 16,421 1,306 1,332 Insurance. . . . . . . . . . 2,075 1,970 168 160 Property management fees . . 4,308 4,365 350 354 Other rental expenses. . . . 1,295 1,283 105 104 -------- -------- ------- ------- Total . . . . . . . . . . $ 48,669 47,991 3,948 3,893 ======== ======== ======= ======= The following provides additional detail for certain of the above expenditures for the six months ended June 30, 2003 and 2002. Note that actual expenses in some categories for the full year ended December 31, 2003 and 2002 will be different than the annualized per unit amounts shown due to seasonal effects. Per Unit Six Months Ended (annualized) ------------------- ------------------- 2003 2002 2003 2002 -------- -------- -------- -------- BUILDING REPAIRS AND MAINTENANCE Painting . . . . . . . . . . $ 1,221 1,204 99 98 Carpet, vinyl, wallpaper and mini-blinds . . . . . . 877 798 71 65 Carpentry, glass and hardware. . . . . . . . . . 302 285 24 23 HVAC, plumbing and electrical. . . . . . . . . 479 431 39 35 Appliances . . . . . . . . . 144 110 12 9 Parking lots and amenity areas . . . . . . . . . . . 544 302 44 24 Other repairs and maintenance . . . . . . . . 629 507 51 41 -------- -------- -------- -------- Total. . . . . . . . . . . 4,196 3,637 340 295 -------- -------- -------- -------- CONTRACT SERVICES Property monitoring services 323 276 26 22 Rubbish collection and cleaning services . . . . . 524 553 43 45 Snow removal . . . . . . . . 198 137 16 11 Pest control and other services. . . . . . . . . . 162 181 13 15 -------- -------- -------- -------- Total. . . . . . . . . . . 1,207 1,147 98 93 -------- -------- -------- -------- Total building repairs and maintenance and services . . . . . . . . $ 5,403 4,784 438 388 ======== ======== ======== ======== Per Unit Six Months Ended (annualized) ------------------- ------------------- 2003 2002 2003 2002 -------- -------- -------- -------- LANDSCAPING AND GROUND MAINTENANCE Lawn maintenance . . . . . . $ 1,774 1,840 144 149 All other. . . . . . . . . . 655 494 53 40 -------- -------- -------- -------- Total . . . . . . . . . . $ 2,429 2,334 197 189 ======== ======== ======== ======== CAPITAL EXPENDITURES General 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. In general, the Company expenses any expenditure less than $2.5. The following summarizes capital expenditures incurred in connection with the Company's portfolio of Same Store wholly-owned and partnership communities, at 100%, for the six months ended June 30, 2003 and 2002. Six Months Ended June 30, 2003 --------------------------------------------------- Wholly-owned Partnership Per Unit Communities Communities Total (annualized) ------------------------- ---------------------- CAPITAL EXPENDITURES Carpet . . . . . . . $ 896 862 1,758 143 Land and building improvements. . . . 518 486 1,004 81 HVAC and maintenance equipment . . . . . 182 211 393 32 Major appliances and furniture, fixtures and equipment . . . . . 156 70 226 18 Other. . . . . . . . 56 64 120 10 -------- -------- -------- ------- Total . . . . . . $ 1,808 1,693 3,501 284 ======== ======== ======== ======= Six Months Ended June 30, 2002 --------------------------------------------------- Wholly-owned Partnership Per Unit Communities Communities Total (annualized) ------------------------- ---------------------- CAPITAL EXPENDITURES Carpet . . . . . . . $ 917 884 1,801 146 Land and building improvements. . . . 735 225 960 78 HVAC and maintenance equipment . . . . . 151 141 292 24 Major appliances and furniture, fixtures and equipment . . . . . 141 86 227 18 Other. . . . . . . . 73 45 118 10 -------- -------- -------- ------- Total . . . . . . $ 2,017 1,381 3,398 276 ======== ======== ======== ======= ACQUISITION COMMUNITIES In conjunction with acquisitions of communities, 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 communities acquired competitive with comparable newly constructed communities. In some cases, the Company will provide in its acquisition budgets additional funds to upgrade or otherwise improve new acquisitions. The following summarizes capital expenditures incurred in connection with upgrading or improving newly acquired wholly-owned and partnership communities, at 100%, for the six months ended June 30, 2003 and 2002: Six Months Ended June 30, 2003 ---------------------------------------- Wholly-owned Partnership Communities Communities Total ------------ ----------- ---------- Land and building improve- ments. . . . . . . . . . . . $ 202 168 370 HVAC and maintenance equipment 31 13 44 Other . . . . . . . . . . . . 38 89 127 -------- -------- -------- $ 271 270 541 ======== ======== ======== Six Months Ended June 30, 2002 ---------------------------------------- Wholly-owned Partnership Communities Communities Total ------------ ----------- --------- Land and building improve- ments. . . . . . . . . . . . $ 208 12 220 HVAC and maintenance equipment 47 1 48 Other . . . . . . . . . . . . 59 52 111 -------- -------- -------- $ 314 65 379 ======== ======== ======== COMPARISON OF THREE MONTHS ENDED JUNE 30, 2003 TO THREE MONTHS ENDED JUNE 30, 2002. Income from continuing operations before share of gains on sales of rental communities, impairment of an investment in a partnership and minority interest decreased to $4,318 for the three months ended June 30, 2003 from $6,776 for the three months ended June 30, 2002 which was primarily attributable to lower other income, higher operating expenses and depreciation, offset in part by higher rental income. The following table shows comparative condensed results of operations for the three months ended June 30, 2003 and 2002: Three Months Ended June 30, --------------------- Increase 2003 2002 (Decrease) -------- -------- --------- Community revenue . . . . . . . . $ 27,481 26,680 801 Other income. . . . . . . . . . . 1,920 3,574 (1,654) -------- -------- ------- Total revenue . . . . . . . . 29,401 30,254 (853) -------- -------- ------- Community rental expenses . . . . 11,974 10,913 1,061 Interest expense and amortiza- tion of financing costs . . . . 6,253 6,242 11 Depreciation. . . . . . . . . . . 5,546 5,110 436 General and administrative. . . . 1,310 1,213 97 -------- -------- ------- Total expenses. . . . . . . . 25,083 23,478 1,605 -------- -------- ------- Income from continuing operations before share of gains on sales of a partnership's rental communities . . . . . . . . . . 4,318 6,776 (2,458) Gains on sales of rental communities . . . . . . . . . . -- 605 (605) Impairment of an investment in a partnership . . . . . . . . . (1,191) -- (1,191) ------- -------- ------- Income from continuing operations before of minority interest . . 3,127 7,381 (4,254) Minority interest . . . . . . . . 199 913 (714) ------- -------- ------- Income from continuing operations, net of minority interest. . . . . . . . . . . . 2,928 6,468 (3,540) Income from discontinued operations, net of minority interest. . . . . . . . . . . . -- 823 (823) ------- -------- ------- Net income. . . . . . . . . . . . $ 2,928 7,291 (4,363) ======= ======== ======= The Company operates, owns and manages apartments in eight metropolitan areas. A combination of an over-supply of rental apartments in the Company's markets, coupled with a general business slow-down has contributed to overall decline in collected revenue. Total community revenue increased by $801, or 3.0%. This increase was primarily from the two communities acquired during 2002 and one community acquired by redemption of our partner's interest in 2003. On a same community basis, total community revenue decreased by $1,399, or 5.3% and NOI decreased by $1,465, or 9.4%. Other income decreased by $1,654, or 46.3%, primarily due to lower share of income from partnerships and development fees earned from partnerships. Income from partnerships decreased by $786, or 34.9%. This decrease was a result of the decline in general economic conditions. The decrease in income was offset in part by the stabilization during the second quarter of 2003 of 698 units of two communities in lease-up. On a same community basis, total community revenue decreased by $794, or 2.2%, and NOI decreased by $1,294, or 6.0%. Community rental expenses increased by $1,061, or 9.7%. This increase was principally due to increases in interior painting, personnel costs and real estate tax expense as a result of the redemption of our partner's interest in a partnership in 2003. On a same community basis, community rental expenses increased by $66, or 0.6%. Interest expense, including amortization of financing costs, net of the amounts capitalized, increased to $6,253 from $6,242, or 0.2%. The increase was primarily due to a loan assumed by AMLI upon redemption of its partner's interest in AMLI at Verandah in accordance with the partnership agreement. General and administrative expenses increased by $97, or 8.0%. The increase was due primarily to higher compensation costs and increased accounting fees. COMPARISON OF SIX MONTHS ENDED JUNE 30, 2003 TO SIX MONTHS ENDED JUNE 30, 2002. Income from continuing operations before share of gains on sales of rental communities, impairment of an investment in a partnership and minority interest decreased to $8,397 for the six months ended June 30, 2003 from $13,437 for the six months ended June 30, 2002 which was primarily attributable to lower other income, higher rental expenses, interest expense, depreciation, and general and administrative expenses, offset in part by higher community revenue. The following table shows comparative condensed results of rental operations for the six months ended June 30, 2003 and 2002: Six Months Ended June 30, --------------------- Increase 2003 2002 (Decrease) -------- -------- --------- Community revenue . . . . . . . . $ 54,564 53,202 1,362 Other income. . . . . . . . . . . 3,987 6,324 (2,337) -------- -------- ------- Total revenue . . . . . . . . 58,551 59,526 (975) -------- -------- ------- Community rental expenses . . . . 23,295 20,998 2,297 Interest expense and amortiza- tion of financing costs . . . . 12,745 12,188 557 Depreciation. . . . . . . . . . . 11,064 10,150 914 General and administrative. . . . 3,050 2,753 297 -------- -------- ------- Total expenses. . . . . . . . 50,154 46,089 4,065 -------- -------- ------- Income from continuing operations before share of gains on sales of rental communities . . . . . 8,397 13,437 (5,040) Gains on sales of a partnership's rental communities. . . . . . . -- 605 (605) Impairment of an investment in a partnership . . . . . . . . . (1,191) -- (1,191) ------- -------- ------- Income from continuing operations before minority interest. . . . 7,206 14,042 (6,836) Minority interest . . . . . . . . 570 1,692 (1,122) ------- -------- ------- Income from continuing operations, net of minority interest. . . . . . . . . . . . 6,636 12,350 (5,714) Income from discontinued operations, net of minority interest. . . . . . . . . . . . -- 1,601 (1,601) ------- -------- ------- Net income. . . . . . . . . . . . $ 6,636 13,951 (7,315) ======= ======== ======= The Company operates, owns and manages apartments in eight metropolitan areas. A combination of an over-supply of rental apartments in the Company's markets, coupled with a general business slow-down has contributed to overall decline in collected revenue. Total community revenue increased by $1,362, or 2.6%. This increase was primarily from the two communities acquired during 2002 and one community acquired by redemption of our partner's interest in 2003. In addition, leasing commenced on 322 apartment homes developed by the Company, which is substantially completed as of June 30, 2003. On a same community basis, total community revenue decreased by $3,225, or 6.1%, and NOI decreased by $3,342, or 10.4%. Other income decreased by $2,337, or 37.0%, primarily due to lower income from partnerships, lower development fees earned from partnerships and higher loss from the Service Companies. Income from partnerships decreased by $1,358, or 31.7%. This decrease was a result of the sales of three communities during 2002 and the decline in general economic conditions. The decrease in income was offset in part by the acquisition of two stabilized communities through two new co-investment partnerships and stabilization of 1,614 units in five communities under development in 2003 and 2002. On a same community basis, total community revenue decreased by $2,140, or 3.0%, and NOI decreased by $2,700, or 6.2%. Community rental expenses increased by $2,297, or 10.9%. This increase was principally due to increases in interior painting, carpet repairs, snow removal, safety services and apartment cleaning, personnel expenses, and real estate tax expense partially as a result of the acquisition of two communities in 2002 and redemption of our partner's interest in a partnership in 2003. On a same community basis, community rental expenses increased by $117, or 0.6%. Interest expense, including amortization of financing costs, net of the amounts capitalized, increased to $12,745 from $12,188, or 4.6%. The increase was primarily due to increased borrowings from the unsecured line of credit (to fund a Service Company's wholly-owned development costs) and a loan assumed by AMLI upon redemption of its partner's interest in AMLI at Verandah in accordance with the partnership agreement. General and administrative expenses increased by $297, or 10.8%. The increase was due primarily to higher compensation costs and increased accounting fees. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2003, the Company had $5,357 in cash and cash equivalents and $82,000 in availability under its $200,000 unsecured line of credit. Borrowings under the line of credit bear interest at a rate of LIBOR plus 1.00%. The Company has fixed the rate on up to $25,000 of borrowings on its line of credit at an average rate of 6.42% plus 1.00% under interest rate swap contracts expiring in September and October 2004. At June 30, 2003, fourteen of the Company's wholly-owned stabilized communities are unencumbered. There are no fixed-rate loans on wholly- owned communities with maturity dates prior to April 2004. Net cash flows provided by operating activities for the six months ended June 30, 2003 were $27,886 compared to $29,220 for the six months ended June 30, 2002. The decrease was primarily due to an increase in rental expenses, lower fee income from partnerships and lower income from partnerships. Cash flows used in investing activities for the six months ended June 30, 2003 decreased to $29,153 from $57,759 for the six months ended June 30, 2002. The decrease is primarily due to lower investments in partnerships as a result of reduced acquisition and development activities, and fewer acquisitions of wholly-owned communities. The decrease was offset by lower distributions from partnerships and higher expenditures for development costs and a loan to a partnership. Net cash flows provided by financing activities for the six months ended June 30, 2003 decreased to $4,202 from $26,776 for the six months ended June 30, 2002. This change resulted from the Company's higher repayments of borrowings in 2003 compared to 2002. DIVIDENDS AND DISTRIBUTIONS The Company expects to pay quarterly dividends primarily from cash available for distribution and other cash on hand. Until distributed, funds available for distribution are used to temporarily reduce outstanding balances on the Company's revolving lines of credit. 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 2002, the Company distributed approximately 100% of its taxable income, comprised of $1.92 per share from 2002 and $0.17 per share representing the portion of the 2003 distribution as a throwback dividend to 2002. The Company's current dividend payment level equals an annual rate of $1.92 per common share. The Company anticipates that all dividends paid in 2003 will be fully taxable, and 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. FUNDS FROM OPERATIONS Funds from operations ("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, 2003 and 2002 is summarized as follows: June 30, ------------------------ 2003 2002 ---------- ---------- Net income . . . . . . . . . . . . . . . $ 6,636 13,951 Income from discontinued operations, net of minority interest . . . . . . . -- (1,601) Minority interest. . . . . . . . . . . . 570 1,692 ---------- ---------- Income from continuing operations before minority interest . . . . . . . 7,206 14,042 Income from discontinued operations before minority interest . . . . . . . -- 1,927 Depreciation (1) . . . . . . . . . . . . 11,064 10,733 Share of partnerships' depreciation. . . 6,236 5,836 Share of gains on sales of partnership communities. . . . . . . . . . . . . . -- (605) Impairment of investment in a partnership 1,191 -- ---------- ---------- FFO. . . . . . . . . . . . . . . . . . . $ 25,697 31,933 ========== ========== Weighted average shares and units including dilutive shares. . . . . . . 24,425,721 26,042,326 ========== ========== (1) Includes discontinued operations of $583 for the six months ended June 30, 2002. The Company expects to meet certain long-term liquidity requirements such as scheduled debt maturities and 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 or through sales of assets. As of June 30, 2003, the Company has a balance of $71,533 that it may issue as common shares or preferred shares in the future under its shelf registration statement. COMPANY INDEBTEDNESS The Company's debt as of June 30, 2003 includes $286,731 which is secured by first mortgages on seventeen 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% $286,731 62.0% Tax-Exempt Tax-Exempt Rate + 1.24% 50,250 10.9% Bonds (1) Tax-Exempt Rate + 1.26% Lines of Credit (2) LIBOR + 1.00% 119,000 25.7% Other (3) 2.1% 6,800 1.4% -------- ------ Total $462,781 100.0% ======== ====== - -------------------- (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 (0.85% for AMLI at Spring Creek and for 0.86% AMLI at Poplar Creek at July 24, 2003). 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, 2004. (2) Amounts borrowed under lines of credit are due in 2006. The interest rate on $25,000 has been fixed pursuant to interest rate swap contracts. (3) Excess cash balances of the partnerships invested with AMLI at AMLI's borrowing rate under its unsecured line of credit, less 37.5 basis points to cover costs of administration. The average interest rate for the six months ended June 30, 2003 was 2.12140%. INFLATION Inflation has been low for the past several years. Virtually all apartment leases at the wholly-owned and partnership communities are for six or twelve months' duration. Absent other market influences, this enables the Company to pass along inflationary increases in its rental expenses on a timely basis. Because the Company's community rental expenses (exclusive of depreciation and amortization) are approximately 42.7% of rental and other revenue for the six months ended June 30, 2003, increased inflation typically results in comparable increases in income before interest and general and administrative expenses. However, since 2002, the increases in costs and expenses combined with decreases in income resulted in decreased income before interest and general and administrative expenses. It appears likely that this trend will continue through 2003. An increase in general price levels may be accompanied by an increase in interest rates. Most recently, although short-term rates have remained low, the ten-year Treasury rate has increased to approximately 4.4% from its recent low of 3.1% on June 13, 2003. At June 30, 2003, the Company's exposure to rising interest rates (including the Company's proportionate share of its partnerships' expense) was mitigated by the existing debt level of approximately 44.5% of the Company's total market capitalization (53.9% including the Company's share of partnerships' debt), the high percentage of intermediate-term fixed-rate debt (62.0% of total debt), and the use of interest rate swaps to effectively fix the interest rate on $15,000 of floating-rate borrowings through September 2004 and on $10,000 through October 2004 (5.4% of total debt). DISCONTINUED OPERATIONS There was no community sold or held for sale during the six months ended June 30, 2003. Two rental communities were sold in 2002 (no interest expense has been allocated to discontinued operations); condensed financial information of the results of operations for these communities for the six months ended June 30, 2002 is as follows: Total community revenue . . . . . . . . . . . . . . $ 4,238 ------- Community operating expenses. . . . . . . . . . . . 1,728 Depreciation expense. . . . . . . . . . . . . . . . 583 ------- Total expenses. . . . . . . . . . . . . . . . . . . 2,311 ------- Income from discontinued operations before minority interest . . . . . . . . . . . . . . . . 1,927 Minority interest . . . . . . . . . . . . . . . . . 326 ------- Income from discontinued operations, net of minority interest. . . . . . . . . . . . . $ 1,601 ======= OTHER MATTERS Derivative instruments reported as liabilities on the Consolidated Balance Sheets totaled $1,637 and $2,379 as of June 30, 2003 and December 31, 2002, respectively, a $742 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 $2,514 and $3,283 as of June 30, 2003 and December 31, 2002, respectively, a $769 decrease. The adjustments to the Shareholders' equity include $1,336 and $1,491 of the Company's share of Other comprehensive loss of two co-investment partnerships as of June 30, 2003 and December 31, 2002, respectively. In addition, the unamortized deferred gain of $431 and $507 from a Treasury lock contract was included in Other comprehensive income adjustments as of June 30, 2003 and December 31, 2002, respectively. As of June 30, 2003, $668 of unamortized goodwill (of $3,300 total incurred upon completion of a 1997 acquisition) is included in the accounts of the Service Company's consolidated subsidiary. The Company has tested this goodwill and no impairment existed at June 30, 2003. In addition, as of December 31, 2002, the Company allocated $434 (of the acquisition cost of the Service Company subsidiaries' controlling interests not already owned) to the cost of property management contracts, which the Company is amortizing over a five-year period. The Company commenced reporting the value of stock options as a charge against earnings for options awarded subsequent to January 1, 2002. Since then, there were 380,750 options, net of cancellations, awarded to employees, the value of which the Company will expense over five years. The Company is contingently liable with respect to letters of credit and guarantees issued to secure undertakings made by various unconsolidated affiliates. The Company anticipates that no such contingent liability will be realized, and that the various letters of credit and guarantees will eventually expire. The Company has computed the aggregate fair value of all such letters of credit and guarantees and estimates such fair value to be less than $200. In connection with the formation of AMLI at Museum Gardens in June 2003 the Company became contingently liable on its $2,053 share of a letter of credit issued to secure this partnership's obligation to complete certain improvements. The Company has valued this contingent liability at $10. The Company anticipates that this contingent liability will terminate in 2005 following completion of these certain improvements. AMLI acquires and develops multifamily communities in co-investment joint ventures with partners, primarily institutional investors such as insurance companies, endowments, foundations, and public and corporate pension funds. AMLI's ownership interests in these unconsolidated partnerships range from 10% to 75%. As of December 31, 2002, there were 46 partnerships and one was entered into by the Company during the six months ended June 30, 2003. NEW ACCOUNTING PRONOUNCEMENTS Statements of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity," requires financial instruments within its scope to be classified as a liability. Statement 150 is generally effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company has determined that none of its financial instruments fall within the scope of Statement 150. OTHER CONTINGENCIES The Company has discovered that some of its communities (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 communities could require undertaking a costly remediation program to contain or remove the mold from the affected communities. Such a remediation program could necessitate the temporary relocation of some or all of the communities' residents or the complete rehabilitation of the communities. The Company carries insurance to protect against this specific risk. Based on existing known facts, the Company is unaware of any specific circumstance which could result in the Company incurring any significant costs as a result of problems with mold. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain statements made in this report, and other written or oral statements made by or on behalf of the Company, may constitute "forward- looking statements" within the meaning of the federal securities laws. Statements regarding future events and developments and the Company's future performance, as well as management's expectations, beliefs, plans, estimates or projections relating to the future, are forward-looking statements within the meaning of these laws. Forward looking statements can be identified by the Company's use of the words "project," "believe," "expect," "anticipate," "intend," "estimate," "assume," and other similar expressions that predict or indicate future events, achievements or trends or that do not relate to historical matters. Although the Company believes expectations reflected in such forward-looking statements are based upon reasonable assumptions, the actual results may differ materially from that set forth in the forward-looking statements. 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. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise. Additional information concerning the risk or uncertainties listed above, and other factors that you may wish to consider, is contained elsewhere in the Company's filings with the Securities and Exchange Commission. The following are some of the factors that could cause the Company's actual results to differ materially from those expressed or implied by these forward-looking statements include, but are not limited to, the following: . future local and national economic conditions, including changes in job growth, interest rates, the availability of financing and other factors; . demand for apartments in the Company's markets and the effect on occupancy and rental rates; . the Company's ability to obtain financing or self-fund the development of additional apartment communities; . the uncertainties associated with the Company's current real estate development, including actual costs exceeding the Company's budgets, or development periods exceeding expectations; . conditions affecting ownership of residential real estate and general conditions of the multifamily residential real estate market; . the effects of change in accounting policies and other regulatory matters detailed in the Company's filings with the Securities and Exchange Commission and uncertainties of litigation; and . the Company's ability to continue to qualify as a real estate investment trust under the Code. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to interest rate changes primarily as a result of its line of credit used to maintain liquidity and fund capital expenditures and expansion of the Company's real estate investment portfolio and operations. The Company's interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives, the Company borrows primarily at fixed rates and may enter into derivative financial instruments such as interest rate swaps, caps and Treasury locks in order to mitigate its interest rate risk on a related financial instrument. The Company does not enter into derivative or interest rate transactions for speculative purposes. Since December 31, 2000, the Company has reduced its exposure to risks associated with interest rate changes 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 ten-year secured 6.56% fixed interest rate loan. There have been no other significant changes in the Company's exposure to market risks. ITEM 4. CONTROLS AND PROCEDURES An evaluation of the effectiveness of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14 was carried out under the supervision and with the participation of the Company's management, including the Company's Co-Chief Executive Officers and the Company's Chief Financial Officer. Based upon that evaluation, the Co- Chief Executive Officers and the Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the Company's periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the Security and Exchange Commission rules and forms. There were no significant changes made in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. OCCUPANCY The following is a listing of approximate physical occupancy levels at the end of each quarter for the Company's wholly-owned and partnership communities:
2003 2002 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 Bent Tree . . . . . . . 100% 500 94% 88% 88% 87% 93% 94% at Bishop's Gate . . . . . 100% 266 93% 88% 89% 91% 93% 95% at Chase Oaks. . . . . . . 100% 250 95% 93% 85% 88% 87% 97% at Gleneagles. . . . . . . N/A N/A N/A N/A N/A N/A 90% 92% on the Green . . . . . . . 100% 424 94% 90% 90% 95% 90% 90% at Nantucket . . . . . . . 100% 312 87% 94% 91% 85% 93% 94% of North Dallas. . . . . . 100% 1,032 94% 88% 85% 87% 91% 92% at Stonebridge Ranch . . . 100% 250 90% 88% 72% 80% 88% 90% at Shadow Ridge. . . . . . 100% 222 86% 83% 82% 93% 87% 89% at Valley Ranch. . . . . . 100% 460 94% 90% 89% 90% 84% 89% Upper West Side. . . . . . 100% 194 91% 94% 95% 96% 94% N/A 7th Street Station . . . . 100% 189 93% 87% 92% N/A N/A N/A at Verandah. . . . . . . . 100% 538 94% 92% N/A N/A N/A N/A ------ ----- ----- ----- ----- ----- ----- ----- ----- 4,637 93% 89% 87% 90% 90% 92% ------ ----- ----- ----- ----- ----- ----- ----- ----- Austin, TX AMLI: in Great Hills . . . . . . 100% 344 94% 90% 90% 92% 91% 89% at Lantana Ridge . . . . . 100% 354 92% 88% 89% 91% 93% 90% at StoneHollow . . . . . . 100% 606 94% 93% 93% 95% 94% 93% ------ ----- ----- ----- ----- ----- ----- ----- ----- 1,304 93% 91% 91% 93% 93% 91% ------ ----- ----- ----- ----- ----- ----- ----- ----- Houston, TX AMLI: at the Medical Center. . . . 100% 334 90% 86% 88% 94% 97% 94% at Western Ridge . . . . . . N/A N/A N/A N/A N/A 92% 94% 94% ------ ----- ----- ----- ----- ----- ----- ----- ----- 334 90% 86% 88% 93% 95% 94% ------ ----- ----- ----- ----- ----- ----- ----- ----- 2003 2002 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. . . . . . . . 100% 288 93% 92% 89% 92% 89% 94% at Killian Creek. . . . . . 100% 256 95% 89% 91% 92% 93% 95% at Park Creek . . . . . . . 100% 200 94% 87% 90% 91% 95% 83% at Towne Creek. . . . . . . 100% 150 95% 86% 86% 81% 90% 93% on Spring Creek . . . . . . 100% 1,180 90% 86% 90% 88% 87% 90% at Vinings. . . . . . . . . 100% 360 88% 89% 89% 91% 93% 93% at West Paces . . . . . . . 100% 337 89% 94% 94% 95% 88% 91% ------ ----- ----- ----- ----- ----- ----- ----- ----- 2,771 91% 88% 90% 90% 89% 91% ------ ----- ----- ----- ----- ----- ----- ----- ----- Kansas City, KS AMLI: at Centennial Park . . . . 100% 170 93% 91% 87% 91% 92% 89% at Lexington Farms . . . . 100% 404 92% 91% 92% 91% 93% 92% at Regents Center. . . . . 100% 424 95% 90% 91% 91% 94% 89% at Town Center . . . . . . 100% 156 91% 87% 94% 91% 92% 94% ------ ----- ----- ----- ----- ----- ----- ----- ----- 1,154 93% 90% 91% 91% 93% 91% ------ ----- ----- ----- ----- ----- ----- ----- ----- Indianapolis, IN AMLI: at Conner Farms. . . . . . 100% 300 91% 87% 87% 88% 92% 90% at Eagle Creek . . . . . . 100% 240 94% 88% 90% 96% 93% 93% at Riverbend . . . . . . . 100% 996 93% 88% 91% 93% 94% 94% ------ ----- ----- ----- ----- ----- ----- ----- ----- 1,536 93% 88% 90% 92% 93% 93% ------ ----- ----- ----- ----- ----- ----- ----- ----- Chicago, IL AMLI: at Poplar Creek. . . . . . 100% 196 92% 95% 88% 91% 95% 94% ------ ----- ----- ----- ----- ----- ----- ----- ----- Denver, CO AMLI: at Gateway Park. . . . . . 100% 328 88% 88% 92% 92% 90% 89% ------ ----- ----- ----- ----- ----- ----- ----- ----- Total wholly-owned communities . . . . . . . . 12,260 92.1% 89.1% 89.1% 90.7% 91.2% 91.8% ====== ===== ===== ===== ===== ===== ===== ===== ===== 2003 2002 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 - ------------------ ---------- ------- ----- ----- ----- ----- ----- ----------- ------ Partnership Communities: - ----------------------- Dallas, TX AMLI: at Deerfield . . . . . . . 25% 240 93% 89% 85% 91% 89% 93% at Fossil Creek. . . . . . 25% 384 88% 91% 92% 94% 92% 91% at Oak Bend. . . . . . . . 40% 426 84% 92% 88% 91% 91% 92% on the Parkway . . . . . . 25% 240 94% 92% 87% 87% 88% 92% at Prestonwood Hills . . . 45% 272 93% 92% 89% 94% 92% 93% on Timberglen. . . . . . . 40% 260 87% 96% 84% 89% 92% 94% at Verandah. . . . . . . . N/A N/A N/A N/A 90% 93% 93% 92% on Frankford . . . . . . . 45% 582 93% 94% 91% 91% 96% 94% at Breckinridge Point. . . 45% 440 92% 92% 92% 91% 94% 90% at Bryan Place . . . . . . 48% 420 91% 85% 80% 86% 90% N/A ------- ----- ----- ----- ----- ----- ----- ----- ----- 3,264 91% 91% 88% 91% 92% 92% ------- ----- ----- ----- ----- ----- ----- ----- ----- Austin, TX AMLI: at Wells Branch. . . . . . 25% 576 90% 89% 87% 91% 92% 92% at Scofield Ridge. . . . . 45% 487 89% 89% 92% 91% 89% 88% at Monterey Oaks . . . . . 25% 430 92% 90% 94% 95% 92% 92% ------- ----- ----- ----- ----- ----- ----- ----- ----- 1,493 91% 89% 91% 92% 91% 91% ------- ----- ----- ----- ----- ----- ----- ----- ----- Houston, TX AMLI: at Champions Centre. . . . N/A N/A N/A N/A N/A N/A N/A 98% at Champions Park. . . . . N/A N/A N/A N/A N/A N/A N/A 91% at Greenwood Forest. . . . N/A N/A N/A N/A N/A N/A 92% 92% Midtown. . . . . . . . . . 45% 419 96% 93% 88% 90% 93% 91% Towne Square . . . . . . . 45% 380 94% 91% 89% 89% 95% 90% lease lease lease lease at Kings Harbor. . . . . . 25% 300 91% 84% up up up up ------- ----- ----- ----- ----- ----- ----- ----- ----- 1,099 94% 90% 88% 90% 94% 92% ------- ----- ----- ----- ----- ----- ----- ----- ----- 2003 2002 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 98% 94% 94% 94% 93% 91% at Northwinds. . . . . . . 35% 800 92% 92% 90% 91% 92% 93% at River Park. . . . . . . 40% 222 94% 93% 93% 95% 90% 95% at Willeo Creek. . . . . . 30% 242 94% 95% 86% 88% 91% 88% at Windward Park . . . . . 45% 328 95% 92% 96% 93% 91% 91% at Peachtree City. . . . . 20% 312 92% 95% 90% 89% 86% 86% at Lost Mountain . . . . . 75% 164 96% 94% 87% 92% 91% 95% at Park Bridge . . . . . . 25% 352 94% 89% 89% 94% 94% 92% lease at Mill Creek. . . . . . . 25% 400 95% 94% 95% 90% 94% up lease lease lease at Kedron Village. . . . . 20% 216 91% 91% 92% up up up lease lease lease at Barrett Walk. . . . . . 25% 290 97% up up up N/A N/A ------ ----- ----- ----- ----- ----- ----- ----- ----- 3,772 94% 93% 91% 92% 92% 91% ------ ----- ----- ----- ----- ----- ----- ----- ----- Kansas City, KS AMLI: at Regents Crest . . . . . 25% 476 95% 87% 88% 92% 95% 90% Creekside. . . . . . . . . 25% 224 94% 88% 92% 90% 96% 94% at Wynnewood Farms . . . . 25% 232 91% 90% 89% 89% 91% 91% at Summit Ridge. . . . . . 25% 432 94% 86% 90% 93% 94% 90% lease lease lease lease lease at Cambridge Square. . . . 30% 408 92% up up up up up ------- ----- ----- ----- ----- ----- ----- ----- ----- 1,772 88% 89% 92% 94% 91% ------- ----- ----- ----- ----- ----- ----- ----- ----- Indianapolis, IN AMLI: on Spring Mill . . . . . . 20% residual 400 90% 91% 90% 89% 87% 84% at Lake Clearwater . . . . 25% 216 90% 91% 88% 91% 91% 92% at Castle Creek. . . . . . 40% 276 91% 84% 89% 92% 95% 89% ------- ----- ----- ----- ----- ----- ----- ----- ----- 892 90% 89% 89% 91% 90% 87% ------- ----- ----- ----- ----- ----- ----- ----- ----- 2003 2002 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 92% 90% 91% 93% 94% 93% at Danada Farms. . . . . . 10% 600 92% 90% 89% 90% 93% 93% at Fox Valley. . . . . . . 25% 272 93% 91% 83% 97% 93% 85% at Windbrooke. . . . . . . 15% 236 98% 91% 88% 90% 95% 98% at Oakhurst North. . . . . 25% 464 94% 91% 86% 89% 93% 86% at St. Charles . . . . . . 25% 400 93% 88% 87% 89% 89% 88% at Osprey Lake . . . . . . 69% 483 91% 88% 81% 86% 90% 93% ------- ----- ----- ----- ----- ----- ----- ----- ----- 3,047 93% 89% 87% 90% 92% 91% ------- ----- ----- ----- ----- ----- ----- ----- ----- Denver, CO AMLI: at Lowry Estates . . . . . 50% 414 90% 88% 86% 89% 88% 87% at Park Meadows. . . . . . 25% 518 89% 73% 76% 80% 81% N/A ------- ----- ----- ----- ----- ----- ----- ----- ----- 932 90% 79% 80% 84% 84% 87% ------- ----- ----- ----- ----- ----- ----- ----- ----- Total partnership communities . . . . . . . . 16,271 92.3% 88.4% 88.5% 90.6% 91.7% 90.9% ------- ----- ----- ----- ----- ----- ----- ----- ----- Total . . . . . . . . . . . . 28,531 92.2% 89.5% 88.7% 90.6% 91.5% 91.3% ======= ===== ===== ===== ===== ===== ===== ===== =====
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 28, 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, and to elect one successor Trustee until the first subsequent annual meeting of shareholders and until his successor is elected. 2. To approve Amendment No. 1 to the AMLI Residential Properties Senior Officer Share Acquisition Plan. 3. To ratify the appointment of KPMG LLP as the Company's independent auditors for the fiscal year ending December 31, 2003. 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 Voted Shares "For" "Withheld" ---------- ---------- Stephen G. McConahey . . . 14,093,751 363,454 Adam S. Metz . . . . . . . 14,321,395 135,810 John G. Schreiber. . . . . 14,093,751 363,454 Allan J. Sweet . . . . . . 14,325,726 131,479 The amendment to the Senior Officer Share Acquisition Plan was approved by the following vote: Shares Shares Shares Voted Voted Shares Not "For" "Against" "Withheld" Voted ---------- --------- ---------- -------- 13,396,648 959,959 100,598 175,750 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 ---------- --------- ---------- -------- 14,314,730 100,026 42,449 175,750 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The Exhibits filed as part of this report are listed below. EXHIBIT NO. DOCUMENT DESCRIPTION -------- -------------------- 15.1 Letter from Independent Auditor related to the review of the 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. (b) Reports on Form 8-K. Current Report on Form 8-K filed on April 29, 2003, to furnish the following as exhibits: 1. The Company's press release dated April 29, 2003, announcing the first quarter 2003 operating results and a dividend declaration. 2. The Company's first quarter 2003 Supplemental Operating and Financial Data. 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, 2003 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, 2003 By: /s/ ALLAN J. SWEET ----------------------------------- Allan J. Sweet President and Trustee Date: August 12, 2003 By: /s/ PHILIP N. TAGUE ----------------------------------- Philip N. Tague Executive Vice President and Trustee Date: August 12, 2003 By: /s/ ROBERT J. CHAPMAN ----------------------------------- Robert J. Chapman Principal Financial Officer Date: August 12, 2003 By: /s/ CHARLES C. KRAFT ----------------------------------- Charles C. Kraft Principal Accounting Officer CERTIFICATION I, Allan J. Sweet certify that: 1. I have reviewed this quarterly report on Form 10-Q of AMLI Residential Properties Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of trustees (or persons performing the equivalent function): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date:August 12, 2003 /s/ ALLAN J. SWEET ------------------------ Allan J. Sweet President and Trustee CERTIFICATION I, Philip N. Tague, certify that: 1. I have reviewed this quarterly report on Form 10-Q of AMLI Residential Properties Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of trustees (or persons performing the equivalent function): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date:August 12, 2003 /s/ PHILIP N. TAGUE ------------------------ Philip N. Tague Executive Vice President and Trustee CERTIFICATION I, Robert J. Chapman, certify that: 1. I have reviewed this quarterly report on Form 10-Q of AMLI Residential Properties Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of trustees (or persons performing the equivalent function): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date:August 12, 2003 /s/ ROBERT J. CHAPMAN --------------------------- Robert J. Chapman Principal Financial Officer EX-15.1 3 exh_151.txt EXHIBIT 15.1 - ------------ August 12, 2003 Shareholders and Board of Trustees AMLI Residential Properties Trust: RE: Registration Statements Nos. 333-89594, 333-89598, 333-89622, 333-74300, 333-70076, 333-83923, 333-65503, 333-57327, 333-24433, 333-08819, 333-08813, 333-08815, 33-93120, 33-89508, 33-71566 With respect to the subject registration statements, we acknowledge our awareness of the use therein of our report dated July 29, 2003, except for note 10, which is as of August 11, 2003, related to our review of interim financial information. Pursuant to Rule 436 under the Securities Act of 1933 ("the Act"), such report is not considered part of a registration prepared or certified by an accountant, or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Act. KPMG LLP Chicago, Illinois EX-99.1 4 exh_991.txt EXHIBIT 99.1 - ------------ WRITTEN CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICERS AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 The undersigned, the Co-Chief Executive Officers and the Chief Financial Officer of AMLI Residential Properties Trust ("the "Company"), each hereby certifies that, to the best of each of their knowledge: (a) the Company's Report on Form 10-Q for the quarterly period ending June 30, 2003 filed with the Securities and Exchange Commission (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (b) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 12, 2003 By: /s/ Allan J. Sweet ------------------------------ Allan J. Sweet Co-Chief Executive Officer Date: August 12, 2003 By: /s/ Philip N. Tague ------------------------------ Philip N. Tague Co-Chief Executive Officer Date: August 12, 2003 By: /s/ Robert J. Chapman ------------------------------ Robert J. Chapman Chief Financial Officer The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document. -----END PRIVACY-ENHANCED MESSAGE-----