-----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, Ka46FMcyc6SuRnw2jw5Ydj8mBl3kf0BH/OCrjGV021k4zxkSruzkk9bzBSDZkZoY TtlUdHiO9Hcq++xwQzkfvA== 0000892626-03-000398.txt : 20031113 0000892626-03-000398.hdr.sgml : 20031113 20031113145322 ACCESSION NUMBER: 0000892626-03-000398 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031113 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: 03997559 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_903.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 September 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 20,297,469 as of October 31, 2003. INDEX PART I FINANCIAL INFORMATION Item 1. Financial Statements Independent Accountants' Review Report . . . . . . 3 Consolidated Balance Sheets as of September 30, 2003 (Unaudited) and December 31, 2002 (Audited). . . . . . . . . . . 4 Consolidated Statements of Operations for the three and nine months ended September 30, 2003 and 2002 (Unaudited). . . . . 6 Consolidated Statement of Shareholders' Equity for the nine months ended September 30, 2003 (Unaudited) . . . . . . . . . 9 Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2002 (Unaudited). . . . . 11 Notes to Consolidated Financial Statements (Unaudited). . . . . . . . . . . . . . . . . . . 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . 38 Item 3. Quantitative and Qualitative Disclosures About Market Risk. . . . . . . . . . . . . . . . 66 Item 4. Controls and Procedures. . . . . . . . . . . . . . 66 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 73 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 74 CERTIFICATIONS. . . . . . . . . . . . . . . . . . . . . . . . 75 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 September 30, 2003, and the related consolidated statements of operations for the three and nine month periods ended September 30, 2003 and 2002, the related consolidated statement of shareholders' equity for the nine month period ended September 30, 2003, and the consolidated statements of cash flows for the nine month periods ended September 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 October 28, 2003, except as to note 12, which is as of November 5, 2003 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2003 AND DECEMBER 31, 2002 (Dollars in thousands, except share data) SEPTEMBER 30, DECEMBER 31, 2003 2002 (UNAUDITED) (AUDITED) ------------- ------------ ASSETS: Rental communities: Land. . . . . . . . . . . . . . . $ 125,222 97,700 Depreciable property. . . . . . . 810,666 631,480 ---------- ---------- 935,888 729,180 Less accumulated depreciation . . (138,343) (120,268) ---------- ---------- 797,545 608,912 Rental communities under development . . . . . . . . . . . -- 24,943 Land held for development or sale, net of allowance for loss of $1,221 and $1,580, respectively . 12,644 14,158 Investments in partnerships . . . . 169,363 197,517 Cash and cash equivalents . . . . . 6,090 6,038 Deferred financing costs, net . . . 5,887 3,962 Service Companies' assets . . . . . 66,930 49,158 Other assets. . . . . . . . . . . . 10,728 16,166 ---------- -------- Total assets $1,069,187 920,854 ========== ======== LIABILITIES AND SHAREHOLDERS' EQUITY: LIABILITIES: Debt. . . . . . . . . . . . . . . . $ 522,672 421,554 Distributions in excess of investments in and earnings from partnerships. . . . . . . . . . . 6,175 4,806 Other liabilities . . . . . . . . . 38,069 33,391 ---------- -------- Total liabilities . . . . 566,916 459,751 ---------- -------- AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED BALANCE SHEETS - CONTINUED SEPTEMBER 30, 2003 AND DECEMBER 31, 2002 (Dollars in thousands, except share data) SEPTEMBER 30, DECEMBER 31, 2003 2002 (UNAUDITED) (AUDITED) ------------- ------------ Commitments and contingencies (note 11) Mandatorily redeemable convertible preferred shares with an aggregate liquidation preference of $96,949. . . . . . . . . . . . 93,247 93,247 Minority interest . . . . . . . . . 61,718 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 $2,023 and $2,019, respectively) . . . . . . . . . . 1 1 Shares of beneficial interest, $0.01 par value, 145,375,000 authorized, 19,503,207 and 16,695,250 common shares issued and outstanding, respectively . . 195 167 Additional paid-in capital. . . . . 386,145 324,139 Unearned compensation . . . . . . . (976) -- Employees' and Trustees' notes. . . (4,956) (6,828) Accumulated other comprehensive loss. . . . . . . . . . . . . . . (3,469) (3,283) Dividends paid in excess of earnings. . . . . . . . . . . . . (29,634) (12,068) ---------- -------- Total shareholders' equity. . . . . . . . . . 347,306 302,128 ---------- -------- Total liabilities and shareholders' equity. . . $1,069,187 920,854 ========== ======== See accompanying notes to consolidated financial statements. AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF OPERATIONS THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (UNAUDITED) (Dollars in thousands, except share data) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ------------------ 2003 2002 2003 2002 -------- -------- -------- -------- Rental operations: Revenue: Rental . . . . . . . . . $ 27,981 24,731 78,819 74,723 Other. . . . . . . . . . 2,312 1,767 6,038 4,977 -------- -------- -------- -------- 30,293 26,498 84,857 79,700 -------- -------- -------- -------- Expenses: Rental. . . . . . . . . . 13,837 11,672 37,132 32,670 Depreciation. . . . . . . 7,012 5,167 18,076 15,317 -------- -------- -------- -------- 20,849 16,839 55,208 47,987 -------- -------- -------- -------- 9,444 9,659 29,649 31,713 Income from partnerships. . 1,309 1,569 4,235 5,853 -------- -------- -------- -------- Income from rental operations . . . . . . . . 10,753 11,228 33,884 37,566 -------- -------- -------- -------- Other income and expenses: Fee income . . . . . . . . 1,207 1,094 2,175 2,941 Other income . . . . . . . 193 242 577 689 Interest and amortiza- tion of deferred costs. . (6,537) (6,235) (19,282) (18,423) -------- -------- -------- -------- (5,137) (4,899) (16,530) (14,793) -------- -------- -------- -------- Service Companies' Operations: Revenue . . . . . . . . . 19,144 -- 55,338 -- Expenses. . . . . . . . . 18,415 -- 54,900 -- Interest and share of loss from the Service Companies. . . . -- 80 -- (174) -------- -------- -------- -------- 729 80 438 (174) -------- -------- -------- -------- General and administrative . . . . . . 1,605 1,138 4,655 3,891 -------- -------- -------- -------- AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (UNAUDITED) (Dollars in thousands, except share data) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ------------------ 2003 2002 2003 2002 -------- -------- -------- -------- Income from continuing operations before share of gains on sales of rental communities and impairment of an investment in a partnership . . . . . 4,740 5,271 13,137 18,708 Share of gains on sales of partnership communities. . . . . . . . 1,959 678 1,959 1,283 Impairment of an investment in a partnership . . . . . -- -- (1,191) -- -------- -------- -------- -------- Income from continuing operations before minority interest. . . . . 6,699 5,949 13,905 19,991 Minority interest . . . . . 764 674 1,334 2,366 -------- -------- -------- -------- Income from continuing operations, net of minority interest. . . . . 5,935 5,275 12,571 17,625 Income from discontinued operations, net of minority interest. . . . . -- 550 -- 2,151 Gains on dispositions of rental communities held for sale, net of minority interest. . . . . -- 11,827 -- 11,827 -------- -------- -------- -------- Net income. . . . . . . . . 5,935 17,652 12,571 31,603 Net income attributable to preferred shares. . . . 1,981 1,980 5,942 6,008 -------- -------- -------- -------- Net income attributable to common shares . . . . . $ 3,954 15,672 6,629 25,595 ======== ======== ======== ======== AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (UNAUDITED) (Dollars in thousands, except share data) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ------------------ 2003 2002 2003 2002 -------- -------- -------- -------- Income per common share - basic: From continuing operations . . . . . . . $ 0.22 0.19 0.38 0.65 From discontinued operations . . . . . . . -- 0.69 -- 0.77 -------- -------- -------- -------- Net income. . . . . . . . $ 0.22 0.88 0.38 1.42 ======== ======== ======== ======== Income per common share - diluted: From continuing operations . . . . . . . $ 0.21 0.18 0.38 0.64 From discontinued operations . . . . . . . -- 0.69 -- 0.76 -------- -------- -------- -------- Net income. . . . . . . . $ 0.21 0.87 0.38 1.40 ======== ======== ======== ======== Dividends declared and paid per common share . . $ 0.48 0.48 1.44 1.44 ======== ======== ======== ======== See accompanying notes to consolidated financial statements. AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY NINE MONTHS ENDED SEPTEMBER 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. . . . . -- -- -- -- -- -- -- 12,571 12,571 Preferred share dividends paid. . -- -- -- -- -- -- -- (5,942) (5,942) Current period loss on deriva- tive contracts. . -- -- -- -- -- -- (186) -- (186) ------- Comprehensive income attributable to common shares . . . -- -- -- -- -- -- -- -- 6,443 ------- Common share distributions . . . -- -- -- -- -- -- -- (24,195) (24,195) AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY - CONTINUED NINE MONTHS ENDED SEPTEMBER 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: Common shares offering, net of offering cost of $877. . . -- 2,415,000 24 58,015 -- -- -- -- 58,039 Executive Share Purchase Plan . . -- 20,466 -- 415 -- -- -- -- 415 Options exercised . -- 175,819 2 2,228 -- -- -- -- 2,230 Units converted to shares . . . . -- 145,321 1 2,580 -- -- -- -- 2,581 Repayments of employees' and Trustees' notes . -- -- -- -- -- 1,872 -- -- 1,872 Trustees' compen- sation. . . . . . -- 3,451 -- 76 -- -- -- -- 76 Senior Officer Share Acquisi- tion Plan . . . . -- 47,900 1 1,070 (976) -- -- -- 95 Reallocation of minority interest. . -- -- -- (2,378) -- -- -- -- (2,378) ------- ---------- ---- ------- ------- ------- ------- ------- ------- Balance at September 30, 2003 . . . . . . . . 100,000 19,503,207 $196 386,145 (976) (4,956) (3,469) (29,634) 347,306 ======= ========== ==== ======= ======= ======= ======= ======= ======= See accompanying notes to consolidated financial statements.
AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (UNAUDITED) (Dollars in thousands) 2003 2002 -------- -------- Cash flows from operating activities: Net income. . . . . . . . . . . . . . . . . . $ 12,571 31,603 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . 21,212 16,628 Share of income from partnerships . . . . . (4,235) (5,853) Cash distributions from partnerships - operating cash flow . . . . . . . . . . . 11,964 13,032 Loss from the Service Companies . . . . . . -- 174 Gain on disposition of a rental community held for sale . . . . . . . . . . . . . . -- (14,247) Gain on sale of a land parcel . . . . . . . (123) -- Share of a partnership's gains on sales of rental communities . . . . . . . . . . (1,959) (1,283) Loss on impairment of an investment in a partnership. . . . . . . . . . . . . 1,191 -- Minority interest, net of the effect of acquisitions in 2003. . . . . . . . . . . 1,334 5,223 Other . . . . . . . . . . . . . . . . . . . 410 (196) Changes in assets and liabilities: Increase in deferred costs. . . . . . . . . (78) (2) Decrease in other assets. . . . . . . . . . 3,880 2,037 Decrease in accrued real estate taxes . . . (189) (467) Increase in accrued interest payable. . . . 96 4 Increase in tenant security deposits and prepaid rent. . . . . . . . . . . . . 50 6 Increase (decrease) in other liabilities. . 1,131 (300) -------- -------- Net cash provided by operating activities. . . . . . . . . 47,255 46,359 -------- -------- Cash flows from investing activities: Net cash proceeds from a sale of a rental community. . . . . . . . . . . . . . -- 34,720 Net cash proceeds from a sale of land parcels . . . . . . . . . . . . . . . . . . 2,094 -- Share of a partnership's net cash proceeds, in excess of return of capital, from sales of rental communities . . . . . . . . 3,597 459 Investments in partnerships . . . . . . . . . (8,278) (57,418) Distributions from partnerships - return of capital . . . . . . . . . . . . . 5,300 15,420 Distributions from partnerships - refinancing proceeds. . . . . . . . . . . . -- 33,340 Advances to/from affiliates, net. . . . . . . 2,162 1,353 Decrease (increase) in earnest money deposits 542 (195) Acquisition communities . . . . . . . . . . . (117,466) (14,045) Other capital expenditures. . . . . . . . . . (5,026) (4,148) Communities under development, net of co-investors' share of costs. . . . . . . . (25,946) (17,028) Increase (decrease) in other liabilities. . . 370 (134) -------- -------- Net cash used in investing activities. . . . . . . . . (142,651) (7,676) -------- -------- AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (UNAUDITED) (Dollars in thousands) 2003 2002 -------- -------- Cash flows from financing activities: Debt proceeds, net of financing costs . . . . 407,393 255,481 Debt repayments . . . . . . . . . . . . . . . (339,163) (251,816) Proceeds from issuance of Option Plan and Executive Share Purchase Plan shares and collection of Employees' and trustees' notes . . . . . . . . . . . . . . 4,457 4,312 Repurchase of shares of beneficial interest - common shares. . . . . . . . . . -- (11,839) Proceeds from common shares offering, net of issuance cost. . . . . . . . . . . . 58,039 -- Issuance costs of preferred shares. . . . . . -- (40) Distributions to minority interest. . . . . . (5,141) (5,269) Dividends paid. . . . . . . . . . . . . . . . (30,137) (31,765) -------- -------- Net cash provided by (used in) financing activities. . . . . . . . . 95,448 (40,936) -------- -------- Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . 52 (2,253) Cash and cash equivalents at beginning of period . . . . . . . . . . . . 6,038 5,892 -------- -------- Cash and cash equivalents at end of period . . . . . . . . . . . . . . . $ 6,090 3,639 ======== ======== Supplemental disclosure of cash flow information: Cash paid for mortgage and other interest, net of amounts capitalized. . . . . . . . . $ 18,368 17,945 ======== ======== Supplemental disclosure of non-cash investing and financing activities: OP units converted to common shares . . . . . $ 2,581 224 Shares issued in connection with Executive Share Purchase Plan, Trustees' compensation and restrictive shares. . . . . . . . . . . . . . . . . . . 232 28 Advances to the Service Companies for land parcels sold . . . . . . . . . . . . . -- 12,675 Elimination of investments in partnerships upon acquisition of co-investors' interests . . . . . . . . . . . . . . . . . 25,129 -- Acquisition of other assets and assumption of mortgage debt and other liabilities in connection with the acquisition of partners' ownership interests in partnership communities: Real estate tax escrow. . . . . . . . . . 877 -- Other assets. . . . . . . . . . . . . . . 79 -- Mortgage debt, net of deferred financing. 30,578 -- Accrued real estate taxes . . . . . . . . 3,177 -- Accrued interest payable. . . . . . . . . 152 -- Tenant security deposits and prepaid rents . . . . . . . . . . . . . 614 -- Other liabilities . . . . . . . . . . . . 249 -- ======== ======== See accompanying notes to consolidated financial statements. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 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 87% general partnership interest in AMLI Residential Properties, L.P. (the "Operating Partnership" or "OP") at September 30, 2003. The 13% not owned by the Company is owned by 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 September 30, 2003, the Company owned 23,528,207 OP Units (including 4,025,000 Preferred OP Units) and the limited partners owned 3,473,482 OP Units. The Company has qualified and anticipates continuing to qualify as a real estate investment trust for Federal income tax purposes. At September 30, 2003, AMLI owned or had interests in seventy-nine multifamily apartment communities comprised of 30,106 apartment homes. Seventy-four of these communities totaling 28,289 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 an interest in one other community containing 248 apartment homes, all of which are 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 September 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 nine months ended September 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: September 30, December 31, 2003 2002 ------------- ------------ Receivables. . . . . . . . . . . . . $ 9,162 11,532 Land held for sale . . . . . . . . . 12,822 12,732 Rental communities under development and held for sale. . . 29,620 8,864 Office building, net of accumulated depreciation . . . . . 2,327 2,486 Information technology costs, net of accumulated depreciation. . 8,160 8,329 Deferred income tax. . . . . . . . . 1,852 1,605 Other assets . . . . . . . . . . . . 2,987 3,610 -------- -------- Total assets . . . . . . . . . . . . $ 66,930 49,158 ======== ======== The Service Companies' operations are included in the Company's Consolidated Statements of Operations in 2003 and were accounted for using the equity method of accounting in 2002, as follows: Periods Ended September 30, 2002 ---------------------- Three Nine Months Months -------- -------- Construction contract revenue. . . . . . . . . . . . . . $ 30,908 75,634 Construction contract costs. . . . . . . . . . . . . . . (30,338) (73,827) -------- -------- Construction gross profit . . . . . . . . . . . . . . 570 1,807 AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Periods Ended September 30, 2002 ---------------------- Three Nine Months Months -------- -------- Property management fees . . . . . . 2,972 8,109 Corporate homes' gross profit. . . . 522 1,267 Loss on land sales and other income . . . . . . . . . . . . . . (285) 282 -------- -------- Total income . . . . . . . . . . . . 3,779 11,465 Total expenses . . . . . . . . . . . 4,053 12,468 -------- -------- Loss . . . . . . . . . . . . . . . . (274) (1,003) Intercompany interest expensed . . . 343 916 Intercompany eliminations. . . . . . 11 (87) -------- -------- Interest and share of income (loss) from the Service Companies . . . . $ 80 (174) ======== ======== 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ACCOUNTING FOR COMMUNITY ACQUISITIONS Pursuant to SFAS 141 AMLI allocates a portion of the total acquisition cost of communities acquired to leases in existence as of the date of acquisition. This allocated cost of $4,727 is included in Depreciable property in the accompanying Consolidated Balance Sheet as of September 30, 2003 but is depreciated over the remaining terms of the leases, which is considerably less than the depreciable lives associated with all other acquisition costs. Total depreciation of $908 for this allocated cost was included in the accompanying Statements of Operations for the three and nine months ended September 30, 2003. 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 nine months ended September 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. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Periods Ended September 30, 2002 ---------------------- Three Nine Months Months -------- -------- Rental income. . . . . . . . . . . . $ 1,360 5,356 Other income . . . . . . . . . . . . 92 334 -------- -------- Total community revenue. . . . . . . 1,452 5,690 Community operating expenses . . . . 650 2,378 -------- -------- Net operating income . . . . . . . . 802 3,312 Depreciation expense . . . . . . . . 140 723 -------- -------- Income from discontinued operations before minority interest . . . . . 662 2,589 Minority interest. . . . . . . . . . 112 438 -------- -------- Income from discontinued operations, net of minority interest . . . . . 550 2,151 -------- -------- Gain on disposition of a rental community held for sale. . . . . . 14,247 14,247 Minority interest. . . . . . . . . . 2,420 2,420 -------- -------- Gain on disposition of a rental community held for sale, net of minority interest . . . . . 11,827 11,827 -------- -------- Income from discontinued operations. . . . . . . . . . . $ 12,377 13,978 ======== ======== GOODWILL AND DEFERRED ACQUISITION COSTS Unamortized goodwill of $668 on the Service Company's books has been tested and no impairment existed as of September 30, 2003. No goodwill amortization has been charged to expense subsequent to December 31, 2001. 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 entering into contracts only with major financial institutions based upon their credit rating and other factors. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 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 cap and swap contracts. The notional amounts at September 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 Type of Notional Rate Term of Contract Paid, Fair Contract Amount (1) Contract Maturity Net Value -------- -------- ------ -------- -------- ------ -------- Swap $15,000 6.405% 5 years 9/20/04 $1,653 (771) Swap 10,000 6.438% 5 years 10/4/04 1,079 (537) Swap 15,000 4.378% 5 years 4/1/09 -- (590) Swap 30,000 4.510% 5 years 4/1/09 -- (1,366) Cap 15,000 4.000% 5 years 4/1/09 927 597 ------- ------ ------ $85,000 ======= At September 30, 2003 $3,659 (2,667)(2) At December 31, 2002 ====== (2,379)(2) ------ Net change $ (288) ====== (1) The fixed rate for the swaps includes the swap spread (the risk component added to the Treasury yield to determine a fixed rate) and excludes lender's spread. (2) Represents the approximate amount which the Company would have paid or received as of September 30, 2003 and December 31, 2002, respectively, if these contracts were terminated. The net amount was recorded as liability in the accompanying Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002. On September 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: AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED At At September 30, December 31, 2003 2002 Change ------------- ------------ ------ Company's derivative contracts: Interest rate swaps (1)(4) . . . . . . . .$ (3,251) (2,299) (952) Interest rate cap. . . . 597 -- 597 Treasury lock (2). . . . 393 507 (114) (3) -------- -------- ------ (2,261) (1,792) (469) -------- -------- ------ Share of partnerships' derivative contracts: AMLI at Osprey Lake (2). . . . . . . . . . (1,137) (1,253) 116 (3) AMLI at Seven Bridges (4). . . . . . . . . . (71) (238) 167 (3) -------- -------- ------ (1,208) (1,491) 283 -------- -------- ------ Total. . . . . . . . . . .$ (3,469) (3,283) (186) ======== ======== ====== (1) Adjustments to earnings of $67 and $48 due to an ineffective- ness on the interest rate swap contracts were recorded for the nine months ended September 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 nine months ended September 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 April 2009, respectively. PER SHARE DATA The following table presents information necessary to calculate basic and diluted earnings per share for the periods indicated. Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ---------------------- 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Income from continuing operations . . $ 5,935 5,275 12,571 17,625 Income from discontinued operations . . -- 12,377 -- 13,978 ---------- ---------- ---------- ---------- Net income . . . 5,935 17,652 12,571 31,603 AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ---------------------- 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Less net income attributable to preferred shares . . . . (1,981) (1,980) (5,942) (6,008) ---------- ---------- ---------- ---------- Net income attributable to common shares - Basic $ 3,954 15,672 6,629 25,595 ========== ========== ========== ========== Net income - Diluted (1). . $ 3,954 15,672 6,629 25,595 ========== ========== ========== ========== Weighted average common shares - Basic. . . . 18,214,998 17,863,593 17,263,803 17,981,811 ========== ========== ========== ========== Dilutive Options and Other Plan shares . . . . 211,562 139,808 118,243 264,456 Convertible pre- ferred shares (1). . . . . . -- -- -- -- ---------- ---------- ---------- ---------- Weighted average common shares - Dilutive . . . 18,426,560 18,003,401 17,382,046 18,246,267 ========== ========== ========== ========== Net income per share: Basic. . . . . $ 0.22 0.88 0.38 1.42 Diluted. . . . $ 0.21 0.87 0.38 1.40 ========== ========== ========== ========== (1) Preferred shares are non-dilutive. 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 is recording the associated $293 in expense ratably over the five years ended December 31, 2007. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 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 Nine Months Ended September 30, September 30, ---------------------- ---------------------- 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Net income, as reported: Net income . . $ 5,935 17,652 12,571 31,603 Net income attri- butable to Preferred shares. . . . 1,981 1,980 5,942 6,008 ---------- ---------- ---------- ---------- Net income attributable to Common shares 3,954 15,672 6,629 25,595 Stock-based compen- sation expense included in reported net income, net of related tax effects . . . . 15 -- 44 -- Total stock-based employee compen- sation expense determined under fair value based method for all awards, net of related tax effects. . . . (89) (95) (216) (283) ---------- ---------- ---------- ---------- Pro forma net income - Basic. $ 3,880 15,577 6,457 25,312 ========== ========== ========== ========== Pro forma net income - Diluted $ 3,880 15,577 6,457 25,312 ========== ========== ========== ========== Earnings per share: Basic - as reported . $ 0.22 0.88 0.38 1.42 Basic - pro forma . . $ 0.21 0.87 0.37 1.41 Diluted - as reported . $ 0.21 0.87 0.38 1.40 Diluted - pro forma . . $ 0.21 0.87 0.37 1.39 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 nine months ended September 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 September 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 September 30, 2003, AMLI has formed 54 joint ventures with sixteen investors in which AMLI's ownership has ranged from 10% to 75%. AMLI has preliminarily concluded that, with the possible exception of its interest in AMLI on Timberglen, L.P., 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; AMLI intends to complete its analysis later in 2003 prior to the December 31, 2003 effective date of Interpretation No. 46. CONVERTIBLE PREFERRED SHARES AMLI's Series B and Series D convertible preferred shares are, under certain circumstances, subject to mandatory redemption, and are also convertible, at the option of the holder, into common shares of beneficial interest. Although SFAS No. 150 generally requires that preferred shares with a mandatory redemption feature be recorded as liabilities reported at fair value, this statement will not affect the accounting for AMLI's preferred shares because of the conversion feature. RECLASSIFICATIONS Certain amounts in the consolidated 2002 financial statements of the Company have been reclassified to conform with the current presentation. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 3. INVESTMENTS IN PARTNERSHIPS At September 30, 2003, the Operating Partnership was a general part ner or a managing member in various partnerships or limited liability companies ("Partnerships"). Under the terms of each Partnership, the Company is entitled to receive its proportionate share of distribu tions 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 investments in partnerships differ from the Company's shares 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 its acquisition, financing and development fee income. Such differences are amortized using the straight-line method over 40 years. Investments in partnerships at September 30, 2003 and the Company's 2003 share of income or loss for the nine 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 Barrett Lakes 35% $ 22,717 6,571 2,300 2,250 596 252 192 at Fox Valley 25% 20,926 20,385 5,096 5,216 903 227 108 at Fossil Creek (2) 25% 18,707 17,902 4,475 4,421 1,034 259 103 at Danada Farms (3) 10% 42,214 17,372 1,737 1,729 1,057 106 95 at Northwinds 35% 47,642 13,446 4,706 4,305 890 570 435 at Wells Branch 25% 28,866 27,878 6,970 6,286 929 232 206 on the Parkway 25% 13,320 3,043 758 428 (92) (23) 108 at Lake Clearwater 25% 14,513 14,020 3,505 3,495 629 157 102 at Deerfield 25% 15,170 2,669 664 469 (219) (55) 116 at Wynnewood Farms 25% 16,846 16,543 4,136 4,115 632 158 113 at Monterey Oaks 25% 27,037 26,345 6,586 6,519 1,079 270 179 at St. Charles 25% 39,237 38,542 9,635 9,618 1,494 373 245 at Park Bridge 25% 22,788 22,397 5,599 5,525 992 248 144 at Mill Creek 25% 24,716 6,513 1,628 1,740 430 107 148 at Lost Mountain 75% 10,671 99 74 137 (224) (166) 187 at Prestonwood Hills 45% 16,586 4,984 2,269 2,264 81 71 176 at Windward Park 45% 25,805 7,960 3,639 3,631 (102) -- 267 at Summit Ridge 25% 26,090 6,085 1,521 1,125 73 18 176 at Oak Bend 40% 23,724 4,798 1,954 1,954 (117) 7 219 Midtown 45% 31,639 9,534 4,349 4,332 249 181 317 on Frankford 45% 37,576 11,205 5,109 5,093 167 158 382 at Peachtree City 20% 27,215 26,856 5,371 3,432 797 159 111 at Kedron Village 20% 18,666 18,424 3,684 3,614 751 145 96 at Scofield Ridge 45% 35,911 11,102 5,077 5,060 (240) (48) 348 at Breckinridge Point 45% 32,239 9,820 4,475 4,458 45 82 312 at Cambridge Square 30% 31,283 30,883 9,265 9,905 1,018 305 213 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% 31,680 9,919 4,499 4,447 139 122 307 at Lowry Estates 50% 48,951 15,334 7,690 7,546 (454) (156) 525 at King's Harbor 25% 18,512 17,983 4,496 4,687 452 113 129 at Milton Park 25% 34,093 31,943 7,986 8,640 654 163 163 at Osprey Lake 69% 50,295 14,564 11,188 9,870 (752) (474) 739 at Seven Bridges 20% 78,853 22,684 4,608 5,673 (1,966) (393) 177 at Barrett Walk 25% 21,315 20,667 4,436 4,556 187 47 107 at Park Meadows 25% 56,259 26,836 6,722 6,652 (84) 114 286 at Bryan Place 48% 39,355 12,714 6,103 5,991 143 135 383 Downtown 30% 25,530 18,559 5,568 6,032 (29) (9) -- at Museum Gardens 25% 14,509 12,559 3,140 3,898 (5) (1) -- ---------- ------- -------- ------- ------- ------ ------ 1,091,456 579,138 171,018 169,113 11,137 3,454 7,914 Other (4) 1,326 889 284 250 3,377 1,063 629 ---------- ------- -------- ------- ------- ------ ------ 1,092,782 580,027 171,302 169,363 14,514 4,517 8,543 ---------- ------- -------- ------- ------- ------ ------ AMLI: at Windbrooke (5) 15% 15,372 (5,870) (972) (972) (109) (35) 53 at Chevy Chase (5) 33% 39,911 (9,350) (3,877) (3,877) (465) (186) 305 at River Park (5) 40% 12,519 (2,119) (848) (965) 85 59 109 on Timberglen (6) 40% 9,025 2,523 1,040 (361) (126) (120) 158 ---------- ------- -------- ------- ------- ------ ------ 76,827 (14,816) (4,657) (6,175) (615) (282) 625 ---------- ------- -------- ------- ------- ------ ------ Total as of September 30, 2003 $1,169,609 565,211 166,645 163,188 13,899 4,235 9,168 ========== ======= ======== ======= ======= ====== ====== Total as of September 30, 2002 $1,284,204 656,723 189,426 192,734 17,816 5,853 8,902 ========== ======= ======== ======= ======= ====== ====== (1) The Operating Partnership received cash flow and recorded operating income of $1,807 and $2,257 in excess of its ownership percentages for the nine months ended September 30, 2003 and 2002, respectively. (2) AMLI at Fossil Creek sold its real property for $27,500 in October 2003 and distributed the net proceeds from sale to its partners. (3) AMLI acquired its partner's interest in this partnership subsequent to September 30, 2003 (see note 12). (4) Includes income from partnerships terminated in August 2003 upon AMLI's acquisition of its partners' interests. (5) 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 September 30, 2003 and December 31, 2002. (6) 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 September 30, 2003 and December 31, 2002.
AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED All but two 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 September 30, 2003, partnership debt was as follows: Total Outstand- Commitment ing at Company's Interest Community (1) 9/30/03 Share (2) Rate Maturity - --------- ---------- --------- --------- -------- --------- AMLI: on Timberglen (3) $ 6,770 6,192 2,477 7.70% June 2004 at Seven Bridges (4) 50,000 50,000 10,000 L+1.80% Jan. 2005 Downtown 30,920 6,074 1,822 L+2.00% June 2006 at Prestonwood Hills 11,649 11,137 5,044 7.17% Aug. 2006 at Windward Park 18,183 17,398 7,887 7.27% Aug. 2006 at Oak Bend 18,834 18,150 7,260 7.81% Dec. 2006 Midtown 21,945 21,124 9,578 7.52% Dec. 2006 at Deerfield 12,600 12,132 3,033 7.56% Dec. 2006 at Danada Farms 24,500 23,301 2,330 7.33% Mar. 2007 on Frankford 25,710 25,005 11,340 8.25% June 2007 at Scofield Ridge 24,618 23,907 10,842 7.70% Aug. 2007 at Breckinridge Point22,110 21,456 9,729 7.57% Sep. 2007 Towne Square 21,450 20,854 9,456 6.70% Jan. 2008 at Lowry Estates 33,900 33,040 16,520 7.12% Jan. 2008 at Summit Ridge 20,000 19,497 4,874 7.27% Feb. 2008 at River Park 15,100 14,325 5,730 6.86%(5) June 2008 on the Parkway 10,800 9,889 2,472 6.75% Jan. 2009 at Mill Creek 18,000 17,728 4,432 6.40% May 2009 at Chevy Chase 48,000 47,340 15,622 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 15,551 5,443 8.50% Dec. 2009 at Northwinds 33,800 32,951 11,533 8.25% Oct. 2010 at Osprey Lake 35,320 34,377 23,635 7.02% Mar. 2011 at Windbrooke 20,800 20,446 3,067 6.43% Mar. 2012 at Lost Mountain 10,252 10,114 7,585 6.84% Nov. 2040 -------- -------- ------- $606,641 566,688 211,412 ======== ======== ======= (1) In general, these loans provide for monthly payments of principal and interest based on 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 September 30, 2003. (3) AMLI intends to prepay this loan without penalty on February 1, 2004, following acquisition of 100% ownership of this property in January 2004. (4) AMLI 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 $51,000 7.25% fixed-rate mortgage loan commitment from a third-party lender and anticipates repaying its construction loan in December 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. September 30, December 31, 2003 2002 ------------- ------------ Short-term working capital assets: Advances to affiliates . . . . . . $ 928 2,381 Accounts receivable. . . . . . . . -- 794 Development fees receivable. . . . 222 649 Prepaid expenses . . . . . . . . . 839 1,868 -------- -------- 1,989 5,692 -------- -------- Other: Deferred development costs . . . . 4,053 4,557 Notes receivable . . . . . . . . . 1,874 2,179 Deposits . . . . . . . . . . . . . 2,279 2,516 Restricted cash. . . . . . . . . . 141 500 Other. . . . . . . . . . . . . . . 392 722 -------- -------- 8,739 10,474 -------- -------- Total. . . . . . . . . . . . . . . . $ 10,728 16,166 ======== ======== 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 9/30/03 Rate Date 12/31/02 -------- ------- ----------- -------- -------- SECURED BOND FINANCINGS (1): Tax-Exempt AMLI at Spring Creek $ 40,750 40,750 Rate+1.43% 10/1/24 40,750 Tax-Exempt AMLI at Poplar Creek 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 Regents Crest (2) 16,500 14,576 7.50% 12/15/03 -- AMLI at Verandah (3) 16,940 15,739 7.55% 4/1/04 -- AMLI at Nantucket (3) 7,735 7,075 7.70% 6/1/04 7,186 AMLI at Bishop's Gate 15,380 13,689 7.25% (4) 8/1/05 13,925 AMLI at Regents Center 20,100 18,599 (5) 8.90% (6) 9/1/05 18,795 AMLI on the Green/AMLI of North Dallas (7) 43,234 38,087 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 12,255 6.95% 1/15/08 12,396 AMLI - various (8) 140,000 136,515 6.56% 7/1/11 137,778 AMLI at Park Creek 10,322 10,087 7.88% 12/1/38 10,127 -------- ------- ------- Total Mortgage Notes Payable 316,791 300,322 272,679 -------- ------- ------- OTHER NOTES PAYABLE: Unsecured line of credit (9) (10) 211,000 164,000 L+1.00% 5/19/06 92,000 Other (11) 6,625 8,100 L+0.675% on demand 6,625 -------- ------- ------- 217,625 172,100 98,625 -------- ------- ------- Total $584,666 522,672 421,554 ======== ======= ======= 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 (1.00% for AMLI at Spring Creek and 0.95% for AMLI at Poplar Creek at October 22, 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, 2004 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 AMLI as a result of the acquisition of the 75% interest in the community that the Company did not already own. (3) The Verandah debt was assumed by AMLI upon the acquisition of the 65% interest in the community that AMLI did not already own. AMLI intends to prepay the Verandah loan without penalty on December 31, 2003, and intends to prepay the Nantucket loan without penalty on February 1, 2004. (4) 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 September 30, 2003 was $388. (5) This loan provides for partial recourse to the partners of the Operating Partnership. (6) $13,800 at 8.73% and $6,300 at 9.23%. (7) These two properties secure a loan that was sold at a discount of $673. At September 30, 2003, the unamortized discount was $173. (8) 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. (9) 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. In addition, in the third quarter 2003 the Company entered into $45,000 of forward-starting swaps fixing the base interest rate at an average of 4.47%, and entered into a $15,000 forward-starting cap limiting the base rate to 4.0%, all for the five-year period beginning April 1, 2004. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (10) 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, is anticipated to be increased to $16,000 in November 2003, with new terms and conditions substantially the same as exists under the Company's primary unsecured line of credit. (11) 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 (2.03% average rate for the nine months ended September 30, 2003) based on the formula relating to AMLI's borrowing rate.
AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED As of September 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. . . . . $ -- 15,580 -- 8,100 23,680 2004. . . . . -- 26,404 -- -- 26,404 2005. . . . . -- 35,021 -- -- 35,021 2006. . . . . -- 38,502 164,000 -- 202,502 2007. . . . . -- 35,642 -- -- 35,642 Thereafter. . 50,250 149,173 -- -- 199,423 ------- ------- ------- ------ ------- $50,250 300,322 164,000 8,100 522,672 ======= ======= ======= ====== ======= At September 30, 2003, 17 of the Company's 37 wholly-owned stabilized communities are unencumbered. 6. OTHER LIABILITIES Other liabilities reported in the accompanying Consolidated Balance Sheets are as follows: September 30, December 31, 2003 2002 ------------- ------------ Short-term working capital liabilities: Accrued interest payable . . . . . $ 1,917 1,670 Accrued real estate taxes payable. 14,159 12,430 Accrued general and administra- tive expenses. . . . . . . . . . 1,704 1,790 Accrued community rental expenses. 6,184 5,090 -------- -------- 23,964 20,980 -------- -------- Other: Construction costs payable . . . . 4,021 3,652 Security deposits and prepaid rents. . . . . . . . . . 3,722 3,058 Interest rate swap liability . . . 2,667 2,379 Accrued employee benefits. . . . . 3,188 2,914 Other. . . . . . . . . . . . . . . 507 408 -------- -------- 14,105 12,411 -------- -------- Total. . . . . . . . . . . . . . $ 38,069 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 approximately 25% or more of total dividends paid during 2003 will be characterized as income taxable at capital gains rates for Federal income tax purposes. 8. RENTAL EXPENSES Rental expenses reported in the accompanying Consolidated Statements of Operations for the three and nine months ended September 30, 2003 and 2002, respectively, are as follows. Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------ 2003 2002 2003 2002 -------- -------- -------- -------- Personnel. . . . . . . . $ 3,390 2,623 9,193 7,857 Advertising and promotion. . . . . . . 804 757 2,017 1,912 Utilities. . . . . . . . 1,175 874 2,823 2,187 Building repairs and maintenance. . . . 2,295 1,825 4,958 4,089 Landscaping and grounds maintenance. . . . . . 670 598 1,850 1,701 Real estate taxes. . . . 3,733 3,431 11,221 10,292 Insurance. . . . . . . . 594 481 1,638 1,410 Property management fees . . . . . . . . . 932 796 2,612 2,392 Other rental expenses . . . . . . . 244 287 820 830 -------- -------- -------- -------- Total. . . . . . . . . . $ 13,837 11,672 37,132 32,670 ======== ======== ======== ======== 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 Nine Months Ended September 30, September 30, ------------------- ------------------ 2003 2002 2003 2002 -------- -------- -------- -------- Segment revenue: Multifamily rental operations: Wholly owned communities . . . . $ 30,293 26,498 84,857 79,700 Partnership communities at 100% . . . . . . 41,602 42,807 125,626 124,990 -------- -------- -------- -------- 71,895 69,305 210,483 204,690 Service Companies' Operations . . . . . . 24,801 34,283 75,523 85,535 -------- -------- -------- -------- Total segment revenue . . . . . . 96,696 103,588 286,006 290,225 Discontinued operations . . . . . . -- 1,452 -- 5,690 -------- -------- -------- -------- Total revenue . . . . $ 96,696 105,040 286,006 295,915 ======== ======== ======== ======== NOI: Multifamily rental operations: Wholly owned communities. . . . . $ 16,456 14,826 47,725 47,030 Partnership communities at 100%. . . . . . . 23,855 24,812 72,987 74,330 -------- -------- -------- -------- 40,311 39,638 120,712 121,360 Service Companies . . . 1,719 710 2,510 1,780 -------- -------- -------- -------- Total segment NOI . . 42,030 40,348 123,222 123,140 Discontinued operations. . . . . . -- 802 -- 3,312 -------- -------- -------- -------- Total NOI . . . . . . 42,030 41,150 123,222 126,452 AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------ 2003 2002 2003 2002 -------- -------- -------- -------- Reconciling items to FFO: Reduce co-investment NOI to Company's share (1) . . . . . (19,614) (20,177) (59,584) (59,575) Other income. . . . . 193 242 577 689 Co-investment fee income. . . . . . . 1,207 1,094 2,175 2,941 General and admin- istrative expenses. . . . . . (1,605) (1,138) (4,655) (3,891) Interest expense and loan cost amortization. . . . (6,537) (6,370) (19,282) (18,858) Depreciation - non-real estate - Service Companies . . . . . (778) (663) (2,318) (2,133) Income taxes - Service Companies . . . . . (212) 168 246 614 Impairment of an investment in a partnership . . . -- -- (1,191) -- -------- -------- -------- -------- Consolidated FFO before minority interest. . . . . . . 14,684 14,306 39,190 46,239 Reconciling items to net income: Depreciation - wholly-owned communities . . . . (7,012) (5,307) (18,076) (16,040) Depreciation - share of co-investment communities . . . . (2,932) (3,066) (9,168) (8,902) Gains on sales of rental communities . . . . 1,959 14,925 1,959 15,530 -------- -------- -------- -------- Income before minority interest. . . 6,699 20,858 13,905 36,827 Minority interest. . . . 764 3,206 1,334 5,224 -------- -------- -------- -------- Net income . . . . . . . $ 5,935 17,652 12,571 31,603 ======== ======== ======== ======== AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED September 30, December 31, 2003 2002 ------------- ------------ Segment assets: Multifamily rental communities: Total wholly-owned . . . . . . . . . $ 948,532 768,281 Total partnerships . . . . . . . . . 1,261,493 1,402,502 ---------- ---------- Total multifamily. . . . . . . . . 2,210,025 2,170,783 Service Companies' assets. . . . . . . 66,930 49,158 Non-segment assets . . . . . . . . . . 22,705 26,166 ---------- ---------- Total. . . . . . . . . . . . . . . 2,299,660 2,246,107 Reconciling items to total assets: Reduce partnership communities to Company's share (1) . . . . . . . (1,092,130) (1,204,985) Accumulated depreciation - wholly-owned . . . . . . . . . . . (138,343) (120,268) ---------- ---------- Total assets . . . . . . . . . . . $1,069,187 920,854 ========== ========== (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 During the nine months ended September 30, 2003, the Company accrued or paid to partnerships $125 interest on short-term investments made by the partnerships. During the nine months ended September 30, 2002, the Company accrued or paid to the Service Companies other costs and expenses as follows: Management fees (including discontinued operations) $2,562 General contractor fees. . . . . . . . . . . . . . 146 ====== During the nine months ended September 30, 2003, the Company and the Service Companies earned and received from partnerships other income as follows: Development fees . . . . . . . . . . . . . . . . . $1,140 Management fees. . . . . . . . . . . . . . . . . . 5,199 Disposition fees . . . . . . . . . . . . . . . . . 325 Asset management fees. . . . . . . . . . . . . . . 581 General contractor fees. . . . . . . . . . . . . . 917 Promoted interest. . . . . . . . . . . . . . . . . 773 Interest on notes and advances to affiliates . . . 157 ====== AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED In addition, during the nine months ended September 30, 2003, total revenue of $3,068 was generated from leases of apartment homes of partnership communities through ACH. During the nine months ended September 30, 2002, the Company earned or received from partnerships and the Service Companies other income as follows: Development fees . . . . . . . . . . . . . . . . . $1,539 Acquisition and disposition fees . . . . . . . . . 1,043 Asset management fees. . . . . . . . . . . . . . . 359 Promoted interest. . . . . . . . . . . . . . . . . 461 Interest on notes and advances to affiliates . . . 916 ====== In addition, during the nine months ended September 30, 2002, total revenue of $1,219 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, less its $150 share of costs. Through September 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 was paid to the two Co-Chief Executive Officers was charged to expense in the third quarter 2003. Through September 30, 2003, the Company has continued to provide for its liability under the Performance Incentive Plan ("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 $1,700 at September 30, 2003 is anticipated to grow to approximately $1,900 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. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 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 AMLI. AMLI is of the opinion that the fair value of this property exceeds the value which would be the basis for determining the redemption price and the fair value of this purchase obligation is nominal. AMLI anticipates effecting the redemption of its partner's interest for a cash payment of approximately $2,400 in January 2004. At September 30, 2003, the Company is contingently liable with respect to $8,682 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). 12. SUBSEQUENT EVENTS As of October 1, 2003 three wholly-owned rental communities containing 864 apartment homes and three co-investment rental communities containing 1,312 apartment homes are held for sale. On October 15, 2003 a co-investment partnership sold AMLI at Fossil Creek for $27,500 in cash and distributed the proceeds to its partners. On October 20, 2003 AMLI at Cambridge Square and AMLI at Barrett Walk funded a total of $32,900 in new seven-year 5.18% fixed-rate loans and distributed the proceeds to its partners. On October 31, 2003 AMLI acquired its partner's 90% equity interest in AMLI at Danada Farms for approximately $43,000 in cash and will include the accounts of this property in its consolidated financial statements following this transaction. On November 3, 2003 AMLI obtained a $40,000 increase (to $240,000) in its primary unsecured line of credit. Subsequent to September 30, 2003 an affiliate of AMLI's former original sponsor converted 1,722,086 OP units (approximately 50% of the OP units comprising the minority interest in the accompanying Consolidated Balance Sheets) to AMLI common shares and sold the shares in privately-negotiated transactions. 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 September 30, 2003 and December 31, 2002 and for the three and nine months ended September 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 September 30, 2003, the Company owned an approximate 87% general partnership interest in AMLI Residential Properties, L.P. (the "Operating Partnership" or "OP"), which holds the operating assets of the Company. The 13% 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 September 30, 2003, the Company owned 23,528,207 OP Units (including 4,025,000 Preferred OP Units) and the limited partners owned 3,473,482 OP Units. Subsequent to September 30, 2003 approximately 50% of the OP Units owned by the limited partners were converted to AMLI common shares. 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 September 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. . . . . $ 935,888 1,109,062 2,044,950 Accumulated depreciation. . (138,343) (125,429) (263,772) ---------- ---------- ---------- 797,545 983,633 1,781,178 Company and Consolidated Unconsolidated Unconsolidated Company Partnerships Partnerships ("GAAP") at 100% (Combined) ------------ -------------- -------------- Land and rental communities under development . . . . 12,644 152,431 165,075 Investments in partnerships 169,363 (169,363) -- Other, net. . . . . . . . . 45,391 (4,165) 41,226 ---------- ---------- ---------- 1,024,943 962,536 1,987,479 Debt - Company's share. . . (522,672) (208,438) (731,110) Debt - partners' share. . . -- (350,150) (350,150) ---------- ---------- ---------- Total net assets. . . . . . 502,271 403,948 906,219 Partners' share of net assets. . . . . . . . . . -- (403,948) (403,948) ---------- ---------- ---------- Company's share of net assets. . . . . . . . $ 502,271 -- 502,271 ========== ========== ========== 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. . . . . .$ 935,888 383,290 1,319,178 Accumulated depreciation. . . (138,343) (40,477) (178,820) ---------- ---------- ---------- 797,545 342,813 1,140,358 Land and rental communities under development . . . . . 12,644 35,421 48,065 Investments in partnerships . 169,363 (169,363) -- Other, net. . . . . . . . . . 45,391 (433) 44,958 ---------- ---------- ---------- 1,024,943 208,438 1,233,381 Debt - Company's share. . . . (522,672) (208,438) (731,110) ---------- ---------- ---------- Company's share of net assets. . . . . . . . . . .$ 502,271 -- 502,271 ========== ========== ========== 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 September 30, 2003: AMLI's share of equity in partnerships . . . . . . . . . . . . $166,645 Negative investment balances presented in other liabilities . . . 6,175 Capitalized interest . . . . . . . . . 4,429 Eliminated fees. . . . . . . . . . . . (5,795) Eliminated construction profits. . . . (2,156) Other comprehensive loss . . . . . . . (1,208) Other, net . . . . . . . . . . . . . . 1,273 -------- Total investments in partnerships. . . $169,363 ======== 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. The table below summarizes the communities acquired during 2003 and 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 at Verandah (a). . . . Arlington, TX 538 1986/91 1/2/03 26,023 15,972 10,051 at Castle Creek (a). . Indianapolis, IN 276 2000 8/14/03 23,850 -- 23,850 Creekside (a). . . . . Overland Park, KS 224 2000 8/14/03 18,500 -- 18,500 at Regents Crest (a) . Overland Park, KS 476 1991/95 /97 8/14/03 38,650 14,632 24,018 on Spring Mill (a) . . Carmel, IN 400 1999 8/25/03 30,000 -- 30,000 at Oakhurst North (a) . . . . . . . . . Aurora, IL 464 2000 8/25/03 50,000 -- 50,000 ------ -------- ------ ------- Total wholly-owned . . . 2,761 214,323 30,604 183,719 ------ -------- ------ ------- PARTNERSHIPS: (Company ownership percentage): AMLI: at Park 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. . . . . . . . 3,699 $310,423 85,304 225,119 ====== ======== ======= ======= (a) The Company acquired the partnership interest it did not already own in these rental communities. Purchase price is stated at 100%.
COMMUNITIES UNDER DEVELOPMENT OR IN LEASE-UP AND LAND HELD FOR DEVELOPMENT OR SALE COMMUNITIES UNDER DEVELOPMENT OR IN LEASE-UP At September 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 SEPT. 30, COSTS UPON COMMUNITY LOCATION ACRES UNITS 2003 COMPLETION - --------- -------- ------ ------ --------- ---------- Wholly-owned (in lease-up): AMLI at Carmel Center Carmel, IN 15 322 $ 27,519 28,400 --- ----- -------- -------- Partnerships: (Company ownership percentage): AMLI: at Milton Park (25%) Alpharetta, GA 21 461 34,435 35,000 at Seven Bridges (20%) Woodridge, IL 13 520 78,756 82,200 Downtown (30%) Austin, TX 2 220 25,013 50,920 Museum Gardens (25%) Vernon Hills, IL 17 294 14,227 60,100 --- ----- -------- -------- Total partnerships 53 1,495 152,431 228,220 --- ----- -------- -------- Service Companies (being developed for sale): Walnut Creek (100%) Austin, TX 28 460 25,358 31,370 Old Town Carmel (100%) Carmel, IN 5 91 4,262 11,400 --- ----- -------- ------- Total Service Companies 33 551 29,620(1) 42,770 --- ----- -------- ------- Total 101 2,368 209,570 299,390(2) === ===== ======== ======= (1) Reported in Service Companies' assets in the Consolidated Balance Sheet as of September 30, 2003. (2) Of AMLI's share of completion costs (excluding the Service Companies), $28,726 is anticipated to be funded from existing loan commitments and $5,664 is expected to be paid in cash during 2003 and 2004.
LAND HELD FOR DEVELOPMENT OR SALE At September 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 SEPT. 30, SEPT. 30, COMMUNITY LOCATION ACRES UNITS 2003 (1) 2003 (2) - --------- -------- ------ --------- ----------- ------------ Land held for development or sale Texas and Kansas 117 1,800 $13,865 12,644 Service Companies' land held for sale (3) Carmel, IN and Ft. Worth, TX 154 -- 13,519 12,822 --- ----- ------- ------ Total 271 1,800 $27,384 25,466 === ===== ======= ====== (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 $1,918 on land parcels in Texas. (3) Included in Service Companies' assets in the accompanying Consolidated Balance Sheet at September 30, 2003.
At September 30, 2003, the Company has substantially completed the $28,400 development of AMLI Carmel Center. The community is currently under lease-up and at September 30, 2003 it was 73% leased. At September 30, 2003, the Company has made capital contributions totaling $22,307 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 $4,783 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 total development cost of $42,770 which the Company is funding from its cash flow or line of credit borrowings. These properties are anticipated to be substantially completed by June 30, 2004. The Service Companies intend to sell these two communities containing a total of 551 apartment homes. In addition, the Service Companies have a 50% interest in a partnership which owns a 248-unit community currently in lease-up and held for sale. The development of this community has been financed primarily with a non-recourse first mortgage loan in the amount of $15,954. This loan bears interest at 7.1% and is payable in monthly installments through August 2043. 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 has postponed active development planning for its other land parcels until conditions in those particular submarkets are more favorable for development. The Company expensed costs associated with carrying these land parcels for the nine months ended September 30, 2003 and 2002. 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 is continuing to pursue development opportunities and anticipates expanding its development activities at some future date. 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. The table below summarizes the rental communities sold during 2003 and 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 8/1/02 18,202 20,150 19,407 4,524 Willeo Creek (30%) Roswell, GA 242 1995 8/21/03 16,174 19,500 18,965 5,950 ----- -------- ------- ------- ------- Total partnerships 996 58,304 63,550 61,613 14,505 ----- -------- ------- ------- ------- Total 1,904 $106,234 123,825 120,331 33,411 ===== ======== ======= ======= ======= (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 September 30, 2003, AMLI owned interest in 79 communities containing 30,106 apartment homes, of which seventy-four containing 28,289 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-eight 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-one 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, communities Acquired from/contributed to partnerships, New communities and Acquisition communities) from Development and lease-up communities and Communities sold, 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. . Acquired from/contributed to partnerships - reflects operations through the date a community was acquired from or contributed to a venture. . 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 - reflects operations through the date a community was sold. 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 nine months ended September 30, 2003, NOI from wholly-owned communities decreased by 5.2% from the same period a year ago, which was primarily attributable to a 5.9% increase in rental expenses. NOI generated by acquisition, including acquisition from partnerships, and development activity exceeded NOI lost from sold communities by $1,795, or 54%. However, NOI from Same Store communities decreased by $4,412, or 9.4%. Revenue, rental expenses and NOI from wholly-owned communities for the nine months ended September 30, 2003 and 2002 are summarized as follows: Nine Months Ended September 30, ---------------------- Increase 2003 2002 (Decrease) -------- ------- --------- Total Wholly-Owned Community Revenue - ------------------ Same Store communities . . . . $ 75,007 78,807 (3,800) Acquired from/contributed to partnerships . . . . . . . . 5,418 -- 5,418 Development and lease-up communities. . . . . . . . . 1,213 56 1,157 Acquisition communities. . . . 3,219 837 2,382 Communities sold . . . . . . . -- 5,690 (5,690) -------- ------- ------- Total . . . . . . . . . . . $ 84,857 85,390 (533) ======== ======= ======= Continuing operations . . . $ 84,857 79,700 5,157 Discontinued operations . . -- 5,690 (5,690) ======== ======= ======= Total Wholly-Owned Community Rental Expenses - ------------------------- Same Store communities . . . . $ 32,673 32,061 612 Acquired from/contributed to partnerships . . . . . . . . 2,281 -- 2,281 Development and lease-up communities. . . . . . . . . 657 189 468 Acquisition communities. . . . 1,521 420 1,101 Communities sold . . . . . . . -- 2,378 (2,378) -------- ------- ------- Total . . . . . . . . . . . $ 37,132 35,048 2,084 ======== ======= ======= Continuing operations . . . $ 37,132 32,670 4,462 Discontinued operations . . -- 2,378 (2,378) ======== ======= ======= Total Wholly-Owned Community NOI - ------------------- Same Store communities . . . . $ 42,334 46,746 (4,412) Acquired from/contributed to partnerships . . . . . . . . 3,137 -- 3,137 Development and lease-up communities. . . . . . . . . 556 (133) 689 Acquisition communities. . . . 1,698 417 1,281 Communities sold . . . . . . . -- 3,312 (3,312) -------- ------- ------- Total . . . . . . . . . . . $ 47,725 50,342 (2,617) ======== ======= ======= Nine Months Ended September 30, ---------------------- 2003 2002 (Change) -------- ------- -------- Continuing operations . . . $ 47,725 47,030 695 Discontinued operations . . -- 3,312 (3,312) ======== ======= ======= Reconciliation of Income from Rental Operations - ------------------------ Community rental revenue (1) . . . . . . . . . . . . $ 84,857 85,390 (533) Community rental expenses (1) . . . . . . . . . . . . (37,132) (35,048) (2,084) -------- ------- ------- Community NOI (1) . . . . . . 47,725 50,342 (2,617) Income from partnerships. . . 4,235 5,853 (1,618) Interest expense and amortization. . . . . . . . (19,282) (18,423) (859) Depreciation. . . . . . . . . (18,076) (15,317) (2,759) Income from discontinued operations. . . . . . . . . -- (3,312) 3,312 -------- ------- ------- Income from rental operations (excluding discontinued operations) . . . . . . . . $ 14,602 19,143 (4,541) ======== ======= ======= (1) Including discontinued operations. PARTNERSHIP COMMUNITIES For the nine months ended September 30, 2003, NOI from partnership communities decreased from the same period a year ago. The increase in rental expenses exceeded the net increase in total revenue. Revenue from investing activities exceeded the decrease in revenue from disposition activities and from Same Store portfolio. However, rental expenses of acquisition and development communities were higher than the revenue increase. Rental revenue, rental expenses and NOI from partnership communities, at 100%, for the nine months ended September 30, 2003 and 2002 are summarized as follows: Nine Months Ended September 30, ---------------------- Increase 2003 2002 (Decrease) -------- ------- --------- Total Partnership Community Revenue - ------------------- Same Store communities . . . . $ 90,835 93,378 (2,543) Acquired from/contributed to partnerships . . . . . . . . 11,427 16,740 (5,313) New communities. . . . . . . . 6,788 5,306 1,482 Development and lease-up communities. . . . . . . . . 7,921 1,436 6,485 Acquisition communities. . . . 7,129 3,491 3,638 Communities sold . . . . . . . 1,526 4,639 (3,113) -------- ------- ------- Total . . . . . . . . . . . $125,626 124,990 636 ======== ======= ======= Nine Months Ended September 30, ---------------------- Increase 2003 2002 (Decrease) -------- ------- --------- Total Partnership Community Rental Expenses - --------------------------- Same Store communities . . . . $ 36,999 36,543 456 Acquired from/contributed to partnerships . . . . . . . . 4,994 7,054 (2,060) New communities. . . . . . . . 2,678 2,561 117 Development and lease-up communities. . . . . . . . . 4,108 1,226 2,882 Acquisition communities. . . . 2,585 1,215 1,370 Communities sold . . . . . . . 780 2,061 (1,281) -------- ------- ------- Total . . . . . . . . . . . $ 52,144 50,660 1,484 ======== ======= ======= Total Partnership Community NOI - ----------------- Same Store communities . . . . $ 53,836 56,835 (2,999) Acquired from/contributed to partnerships . . . . . . . . 6,433 9,686 (3,253) New communities. . . . . . . . 4,110 2,745 1,365 Development and lease-up communities. . . . . . . . . 3,813 210 3,603 Acquisition communities. . . . 4,544 2,276 2,268 Communities sold . . . . . . . 746 2,578 (1,832) -------- ------- ------- Total . . . . . . . . . . . $ 73,482 74,330 (848) ======== ======= ======= Company's share of partnership community NOI and cash flows in excess of ownership interest . . . . . . . . . . $ 25,152 25,771 (619) ======== ======= ======= Reconciliation of Share of Income from Partnerships - -------------------- Community rental revenue. . . $125,626 124,990 636 Community rental expenses . . (52,144) (50,660) (1,484) -------- ------- ------- Community NOI . . . . . . . . 73,482 74,330 (848) Sale of rental communities. . 19,500 44,050 (24,550) Cost of rental communities sold. . . . . . . . . . . . (13,175) (35,495) 22,320 Other income. . . . . . . . . 143 236 (93) Other expenses. . . . . . . . (1,163) (1,265) 102 Interest expense and amortization. . . . . . . . (30,399) (28,288) (2,111) Depreciation. . . . . . . . . (28,164) (27,197) (967) -------- ------- ------- Net income. . . . . . . . . . 20,224 26,371 (6,147) Co-investment partners' share 15,989 20,518 (4,529) -------- ------- ------- Share of income from partnerships. . . . . . . . $ 4,235 5,853 (1,618) ======== ======= ======= SAME STORE COMMUNITIES As of September 30, 2003, 22,976 apartment homes, or 81.2% of total apartment homes in the Company's stabilized communities, were categorized as Same Store communities, of which 11,339 were wholly-owned and 11,637 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 third quarter 2003 compared to the same quarter a year ago, rental revenue declined 2.4%. The change was attributable to a 4.6% decline in collected rent per occupied unit, which was somewhat offset by a 2.1% increase in occupancy. Portfolio-wide rental revenue increased by 0.7% over the previous quarter, the second consecutive quarter in which this has occurred, after declining for the six previous quarters. Collected rent per occupied unit was down from last quarter by 1.5%; however, occupancy continues to increase and was up 2.2%. 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 ------------------------ --------------- Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 ------ ------ ------ ------ ------ Dallas. . . . . . . . . . 92.6% 91.5% 88.5% 88.5% 90.7% Atlanta . . . . . . . . . 94.0% 90.7% 90.3% 90.6% 89.9% Austin. . . . . . . . . . 93.4% 91.4% 90.7% 92.1% 92.9% Houston . . . . . . . . . 94.6% 91.0% 89.0% 91.1% 93.2% Indianapolis. . . . . . . 94.0% 91.2% 89.4% 91.0% 92.6% Kansas City . . . . . . . 93.3% 90.7% 89.5% 91.1% 92.2% Chicago . . . . . . . . . 94.0% 92.1% 88.6% 88.4% 92.0% Denver. . . . . . . . . . 91.9% 88.5% 86.8% 89.4% 86.8% ------ ------ ------ ------ ------ Total Portfolio (a) . . . 93.4% 91.2% 89.3% 90.0% 91.3% ====== ====== ====== ====== ====== (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 home. 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 ------------------------ --------------- Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 ------ ------ ------ ------ ------ Dallas. . . . . . . . . . $ 799 811 824 817 836 Atlanta . . . . . . . . . 848 862 860 864 886 Austin. . . . . . . . . . 792 817 819 826 857 Houston . . . . . . . . . 1,053 1,063 1,068 1,077 1,092 Indianapolis. . . . . . . 815 816 816 802 809 Kansas City . . . . . . . 838 844 835 835 845 Chicago . . . . . . . . . 1,079 1,100 1,112 1,111 1,130 Denver. . . . . . . . . . 976 1,021 1,035 1,024 1,072 ------ ------ ------ ------ ------ Total Portfolio (a) . . . $ 867 880 885 883 903 ====== ====== ====== ====== ====== (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 third quarter of 2003, compared to the third quarter of 2002 and the second quarter of 2003. DALLAS rental revenue declined by 3.1% compared to third quarter 2002, as collected rent per occupied unit fell by 5.0%. The decline in rents was slightly offset by an increase in occupancy of 1.9%. On a sequential basis, rental revenue decreased by 0.1% despite a 1.1% increase in occupancy over last quarter. Collected rents per occupied unit continued to trend downward albeit at a slower pace than the previous quarter, falling by 1.5% this quarter compared to a 2.2% sequential drop last quarter. Dallas/Fort Worth employers shed 25,000 jobs in the trailing 12 months ended August 2003, due to continued weakness in the transportation, information-telecommunication, and manufacturing industries. On the supply side, permit activity remains fairly strong with 12,353 new units authorized for the year ending August 2003. ATLANTA rental revenue declined 0.9% compared to third quarter 2002, driven by a 5.0% decline in collected rent per occupied unit and a strong 4.1% increase in occupancy. On a sequential basis, rental revenue increased by 1.8% compared to the second quarter on the strength of the occupancy gain, which was up 3.3%. The increase was limited by a decrease in collected rent per occupied unit of 1.8%. The challenge in Atlanta remains absorption of new supply, with 11,536 units permitted for the year ending August 2003, which represents a 3.2% increase to the existing apartment stock. Good news in Atlanta is that annualized permits have fallen by 20.3% versus the same period of a year ago, and job growth has turned positive. Annual job growth as of August 2003 was 42,600 compared to 21,700 lost jobs in for the same period a year ago. AUSTIN rental revenue declined 7.2% compared to the third quarter of 2002 due to a decrease in collected rent per occupied unit of 7.6%, as occupancy increased slightly year over year, by 0.5%. On a sequential basis compared to the second quarter, rental revenue fell by 1.0% despite an increase in occupancy of 2.0% as collected rent per occupied unit continued to fall, decreasing by 3.2%. Austin continues to struggle with absorption as approximately 10,000 new units have been completed in the past twelve months. Fortunately, permit activity continues to trend down as 2,291 permits were issued for the year ending August 2003, a decrease of 62% from the same period a year ago. Sustainable job growth continues in the region as 6,400 jobs were added in the previous twelve months as of August 2003. HOUSTON rental revenue declined by 2.7% in the third quarter of 2003 compared to the third quarter of 2002. Collected rent per occupied unit fell 4.1% from the same period a year earlier, which was partially offset by an increase in occupancy of 1.4%. On a sequential basis, rental revenue increased by 2.4% over the previous quarter mainly due to a 3.6% increase in occupancy. Offsetting the increase in occupancy, however, was a 1.4% decrease in collected rent per occupied unit from the second quarter of 2003. Houston continues to be faced with challenging supply and demand fundamentals in the near term. Permit activity has increased dramatically as 14,932 permits (3.3% of existing stock) were issued for the 12 months ended August 2003, an increase of 67% over last August. On the demand side, Houston has lost 8,200 jobs for the twelve months ended August 2003. INDIANAPOLIS rental revenue for the third quarter of 2003 grew by 0.6% compared to the same quarter a year ago as a result of an increase in occupancy. Occupancy increased by 1.4% to 94.0%, and collected rents per occupied unit were down slightly by 0.9%. Sequentially, rental revenue grew 2.2% from the previous period on the strength of stable rents and improving occupancy, both of which increased by 2.8% from the second quarter. Demand and supply fundamentals in Indianapolis continue to be a concern. The BLS reported a loss of 19,600 jobs, or a negative 2.2% growth rate for the twelve months ended August 2003. In addition, 2,678 multifamily permits have been authorized over the past 12 months, a 12.9% decrease from the same period a year ago, but a 2.2% increase to the existing apartment stock. KANSAS CITY rental revenue declined 0.8% compared to the same period of a year ago due to a decrease of 1.9% collected rent per occupied unit. This decrease was offset by an increase in occupancy of 1.1%. Sequentially, rental revenue increased 1.4%, driven by improving occupancy that was up 2.6% compared to the second quarter, while collected rent per occupied unit fell by 1.4%. Demand fundamentals in Kansas City continue to challenge property operations, as exhibited by job growth figures - for the year ending August 2003, the Kansas City metro area lost 4,400 jobs, a negative 0.5% rate, following a loss of 23,800 jobs for the same period a year ago. In addition, multifamily permits have trended up over the past year. For the twelve months ended August 2003 authorized permits totaled 2,453 units, a 28.9% increase over the same period a year ago, and representing a 2.0% increase to the existing apartment stock. CHICAGO rental revenue declined 2.1% compared to the same quarter a year ago, driven entirely by a 4.1% decrease in collected rent per occupied unit and an increase in occupancy of 2.0% to 94.0%. Sequentially rental revenue was down slightly, 0.1% compared to the second quarter. Occupancy again improved for the second consecutive quarter, up 1.8%. While occupancy was increasing, collected rent per occupied unit continued to trend downward, dropping 2.1% in the third quarter compared to last quarter. The continued loss of employment in this market as noted above continues to depress apartment demand and put downward pressure on rental rates. On the supply side, the Chicago metro issued permits for 9,550 new multifamily units (virtually all of which are "for sale" housing), representing 1.4% of existing apartment stock for the twelve months ended August 2003, an 8% decrease from the same period a year ago. DENVER rental revenue on a year over year basis fell 4.6% due to continued weakness in the market, which pushed collected rent per occupied unit down 8.3% over the same period last year. Occupancy, however, improved by 5.1%, which helped limit the decline in rental revenue. On a sequential basis, rental revenue declined 0.5% from the second quarter due to further deterioration of collected rents per occupied unit, which fell 4.1%. The decline in rental revenue was limited by a 3.4% improvement in occupancy during the period. The Denver/Boulder metro continues to display weak demand/supply fundamentals driven by negative job growth and delivery of significant new supply. For the 12 months ended August 2003, the metro experienced a loss of 23,600 jobs, a negative 1.8% growth rate. On a positive note, for the 12 months ended August 2003, authorized permits totaled 5,461 units, a 30.9% decrease over the same period 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% (excluding Communities acquired/contributed to partnerships), for the nine months ended September 30, 2003 and 2002: Nine Months Ended September 30, 2003 --------------------------------------------------- Wholly-owned Partnership Per Unit Communities Communities Total (annualized) ------------ ----------- --------- ------------ Community rental expenses. . . . . . $ 32,674 36,999 69,673 4,043 Capital expenditures. 2,735 2,406 5,141 298 ======== ======== ======== ======== Number of Same Store apartment homes . . 11,339 11,637 22,976 ======== ======== ======== Number of Same Store communities . . . . 29 30 59 ======== ======== ======== Nine Months Ended September 30, 2002 --------------------------------------------------- Wholly-owned Partnership Per Unit Communities Communities Total (annualized) ------------ ----------- --------- ------------ Community rental expenses. . . . . . $ 32,061 36,543 68,604 3,981 Capital expenditures. 3,006 1,870 4,876 283 ======== ======== ======== ======== Number of Same Store apartment homes . . 11,339 11,637 22,976 ======== ======== ======== Number of Same Store communities . . . . 29 30 59 ======== ======== ======== 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 nine months ended September 30, 2003 and 2002: Per Unit Nine Months Ended (annualized) ------------------- ------------------- 2003 2002 2003 2002 -------- -------- -------- -------- RENTAL EXPENSES Personnel. . . . . . . . . . $ 16,489 15,746 957 914 Advertising and promotion. . 3,406 3,488 198 202 Utilities. . . . . . . . . . 5,104 4,701 296 273 Building repairs and maintenance and contract services. . . . . . . . . . 8,545 7,674 496 445 Landscaping and grounds maintenance . . . . . . . . 3,408 3,338 198 194 Real estate taxes. . . . . . 22,100 23,070 1,282 1,339 Insurance. . . . . . . . . . 2,947 2,764 171 160 Property management fees . . 5,992 6,033 348 350 Other rental expenses. . . . 1,682 1,790 97 104 -------- -------- ------- ------- Total . . . . . . . . . . $ 69,673 68,604 4,043 3,981 ======== ======== ======= ======= The following provides additional detail for certain of the above expenditures for the nine months ended September 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 Nine Months Ended (annualized) ------------------- ------------------- 2003 2002 2003 2002 -------- -------- -------- -------- BUILDING REPAIRS AND MAINTENANCE Painting . . . . . . . . . . $ 2,301 2,133 133 124 Carpet, vinyl, wallpaper and mini-blinds . . . . . . 1,321 1,275 77 74 Carpentry, glass and hardware. . . . . . . . . . 510 417 30 24 HVAC, plumbing and electrical. . . . . . . . . 766 684 44 40 Appliances . . . . . . . . . 226 166 13 9 Parking lots and amenity areas . . . . . . . . . . . 786 570 46 33 Other repairs and maintenance . . . . . . . . 955 754 55 44 -------- -------- -------- -------- Total. . . . . . . . . . . 6,865 5,999 398 348 -------- -------- -------- -------- CONTRACT SERVICES Property monitoring services 510 458 30 26 Rubbish collection and cleaning services . . . . . 779 848 45 49 Snow removal . . . . . . . . 165 114 10 7 Pest control and other services. . . . . . . . . . 226 255 13 15 -------- -------- -------- -------- Total. . . . . . . . . . . 1,680 1,675 98 97 -------- -------- -------- -------- Total building repairs and maintenance and services . . . . . . . . $ 8,545 7,674 496 445 ======== ======== ======== ======== Per Unit Nine Months Ended (annualized) ------------------- ------------------- 2003 2002 2003 2002 -------- -------- -------- -------- LANDSCAPING AND GROUND MAINTENANCE Lawn maintenance . . . . . . $ 2,666 2,729 155 159 All other. . . . . . . . . . 742 609 43 35 -------- -------- -------- -------- Total . . . . . . . . . . $ 3,408 3,338 198 194 ======== ======== ======== ======== CAPITAL EXPENDITURES Operating Capital Expenditures Capital expenditures are those made for assets having a useful life in excess of one year and include replacements, including carpeting and appliances, and betterments, such as unit upgrades, enclosed parking facilities and similar items. 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% (excluding Communities acquired/contributed to partnerships), for the nine months ended September 30, 2003 and 2002. Nine Months Ended September 30, 2003 --------------------------------------------------- Wholly-owned Partnership Per Unit Communities Communities Total (annualized) ------------------------- ---------------------- CAPITAL EXPENDITURES Carpet . . . . . . . $ 1,525 1,246 2,771 161 Land and building improvements. . . . 581 488 1,069 62 HVAC and maintenance equipment . . . . . 304 272 576 33 Major appliances and furniture, fixtures and equipment . . . . . 232 102 334 19 Other. . . . . . . . 93 298 391 23 -------- -------- -------- ------- Total . . . . . . $ 2,735 2,406 5,141 298 ======== ======== ======== ======= Nine Months Ended September 30, 2002 --------------------------------------------------- Wholly-owned Partnership Per Unit Communities Communities Total (annualized) ------------------------- ---------------------- CAPITAL EXPENDITURES Carpet . . . . . . . $ 1,522 1,313 2,835 165 Land and building improvements. . . . 909 193 1,102 64 HVAC and maintenance equipment . . . . . 259 162 421 24 Major appliances and furniture, fixtures and equipment . . . . . 218 106 324 19 Other. . . . . . . . 98 96 194 11 -------- -------- -------- ------- Total . . . . . . $ 3,006 1,870 4,876 283 ======== ======== ======== ======= Acquisition Capital Expenditures 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 nine months ended September 30, 2003 and 2002: Nine Months Ended September 30, 2003 ---------------------------------------- Wholly-owned Partnership Communities Communities Total ------------ ----------- ---------- Land and building improve- ments. . . . . . . . . . . . $ 87 203 290 HVAC and maintenance equipment 32 15 47 Other . . . . . . . . . . . . 40 100 140 -------- -------- -------- $ 159 318 477 ======== ======== ======== Nine Months Ended September 30, 2002 ---------------------------------------- Wholly-owned Partnership Communities Communities Total ------------ ----------- --------- Land and building improvements $ 240 57 297 HVAC and maintenance equipment 48 4 52 Other . . . . . . . . . . . . 90 80 170 -------- -------- -------- $ 378 141 519 ======== ======== ======== COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2003 TO THREE MONTHS ENDED SEPTEMBER 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 $4,740 for the three months ended September 30, 2003 from $5,271 for the three months ended September 30, 2002. This decrease in income was primarily attributable to higher rental expenses and depreciation which was offset substantially by higher total revenue. The following table shows comparative condensed results of operations for the three months ended September 30, 2003 and 2002: Three Months Ended September 30, --------------------- Increase 2003 2002 (Decrease) -------- -------- --------- Community revenue . . . . . . . . $ 30,293 26,498 3,795 Other income. . . . . . . . . . . 3,438 2,985 453 -------- -------- ------- Total revenue . . . . . . . . 33,731 29,483 4,248 -------- -------- ------- Community rental expenses . . . . 13,837 11,672 2,165 Interest expense and amortiza- tion of financing costs . . . . 6,537 6,235 302 Depreciation. . . . . . . . . . . 7,012 5,167 1,845 General and administrative. . . . 1,605 1,138 467 -------- -------- ------- Total expenses. . . . . . . . 28,991 24,212 4,779 -------- -------- ------- Income from continuing operations before share of gains on sales of a partnership's rental communities . . . . . . . . . . 4,740 5,271 (531) Gains on sales of rental communities . . . . . . . . . . 1,959 678 1,281 ------- -------- ------- Income from continuing operations before of minority interest . . 6,699 5,949 750 Minority interest . . . . . . . . 764 674 90 ------- -------- ------- Income from continuing operations. . . . . . . . . . . 5,935 5,275 660 ------- -------- ------- Income from discontinued operations, net of minority interest. . . . . . . . . . . . -- 550 (550) Gain on sale of discontinued operations, net of minority interest. . . . . . . . . . . . -- 11,827 (11,827) ------- -------- ------- Income from discontinued operations, net of minority interest. . . . . . . . . . . . -- 12,377 (12,377) ------- -------- ------- Net income. . . . . . . . . . . . $ 5,935 17,652 (11,717) ======= ======== ======= Total community revenue increased by $3,795, or 14.3%. This increase was primarily from the two communities acquired during 2002 and six communities acquired by purchase of our partners' interests in 2003. On a same community basis, total community revenue decreased by $575, or 2.2% and NOI decreased by $1,071, or 7.3%. 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 same store collected revenue. Other income increased by $453, or 15.2%, primarily due to higher income from the Service Companies, offset in part by lower share of income from partnerships. Income from the Service Companies increased by $649, or 811.3%, primarily due to a $1,913 gain on sale of a rental community built for sale. The increase was offset by lower general contractor revenue. Income from partnerships decreased by $260, or 16.6%, partially as a result of the sale to AMLI of co-investment partners' equity interests in six communities. On a same community basis, total community revenue decreased by $427, or 1.4%, and NOI decreased by $412, or 2.2%. Community rental expenses increased by $2,165, or 18.5%. This increase was principally due to increases in exterior painting, personnel costs, property insurance and real estate tax expense as a result of the purchase of our partners' interests in six partnerships in 2003. On a same community basis, community rental expenses increased by $496, or 4.4%. Interest expense, including amortization of financing costs, net of the amounts capitalized, increased to $6,537 from $6,235, or 4.8%. The increase was primarily due to the loans assumed by AMLI upon purchase of our partners' interests in AMLI at Verandah and AMLI at Regents Crest. In addition, borrowings from our line of credit increased to fund our acquisition activities. General and administrative expenses increased by $467, or 41%. The increase was due primarily to higher compensation costs, increased accounting fees and public company costs. COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2003 TO NINE MONTHS ENDED SEPTEMBER 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 $13,137 for the nine months ended September 30, 2003 from $18,708 for the nine months ended September 30, 2002 which was primarily attributable to higher rental expenses and depreciation. Depreciation increased substantially as a result of an allocation of acquisition costs to existing leases which is depreciated over a shorter period of time. The increase in rental expenses was offset in part by an increase in total revenue. The following table shows comparative condensed results of rental operations for the nine months ended September 30, 2003 and 2002: Nine Months Ended September 30, --------------------- Increase 2003 2002 (Decrease) -------- -------- --------- Community revenue . . . . . . . . $ 84,857 79,700 5,157 Other income. . . . . . . . . . . 7,425 9,309 (1,884) -------- -------- ------- Total revenue . . . . . . . . 92,282 89,009 3,273 -------- -------- ------- Community rental expenses . . . . 37,132 32,670 4,462 Interest expense and amortiza- tion of financing costs . . . . 19,282 18,423 859 Depreciation. . . . . . . . . . . 18,076 15,317 2,759 General and administrative. . . . 4,655 3,891 764 -------- -------- ------- Total expenses. . . . . . . . 79,145 70,301 8,844 -------- -------- ------- Nine Months Ended September 30, --------------------- Increase 2003 2002 (Decrease) -------- -------- --------- Income from continuing operations before share of gains on sales of rental communities . . . . . 13,137 18,708 (5,571) Gains on sales of a partnership's rental communities. . . . . . . 1,959 1,283 676 Impairment of an investment in a partnership . . . . . . . . . (1,191) -- (1,191) ------- -------- ------- Income from continuing operations before minority interest. . . . . . . . . . . . 13,905 19,991 (6,086) Minority interest . . . . . . . . 1,334 2,366 (1,032) ------- -------- ------- Income from continuing operations. . . . . . . . . . . 12,571 17,625 (5,054) ------- -------- ------- Income from discontinued operations, net of minority interest. . . . . . . . . . . . -- 2,151 (2,151) Gain on sale of discontinued operations, net of minority interest. . . . . . . . . . . . -- 11,827 (11,827) ------- -------- ------- Income from discontinued operations, net of minority interest. . . . . . . . . . . . -- 13,978 (13,978) ------- -------- ------- Net income. . . . . . . . . . . . $12,571 31,603 (19,032) ======= ======== ======= Total community revenue increased by $5,157, or 6.5%. This increase was primarily from the two communities acquired during 2002 and six communities acquired by purchase of our partners' interests in 2003. In addition, leasing commenced on 322 apartment homes developed by the Company, which is substantially completed as of September 30, 2003. On a same community basis, total community revenue decreased by $3,800, or 4.8%, and NOI decreased by $4,412, or 9.4%. A combination of an over-supply of rental apartments in the Company's markets, particularly in Texas, coupled with a general business slow-down has contributed to overall decline in same store collected revenue. Other income decreased by $1,884, or 20.2%, primarily due to lower income from partnerships, lower development fees earned from partnerships offset in part by higher income from the Service Companies. Income from partnerships decreased by $1,618, or 27.6%. This decrease was a result of the sales of six communities to AMLI and another community to a third party during 2003 and three communities to third parties in 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 $2,543, or 2.7%, and NOI decreased by $2,999, or 5.3%. Community rental expenses increased by $4,462, or 13.7%. This increase was principally due to increases in painting, carpet repairs, snow removal, safety services, apartment cleaning, personnel expenses, real estate tax and property insurance expenses. These increases were a result of the acquisition of two communities in 2002 and the purchase of our partners' interests in six partnerships in 2003. On a same community basis, community rental expenses increased by $612, or 1.9%. Interest expense, including amortization of financing costs, net of the amounts capitalized, increased to $19,282 from $18,423, or 4.7%. The increase was primarily due to increased borrowings from the unsecured line of credit to fund AMLI's acquistion activies and a Service Company's wholly-owned development costs. In addition, AMLI assumed two loans upon purchase of our partners' interests in AMLI at Verandah and AMLI at Regents Crest. General and administrative expenses increased by $764, or 19.6%. The increase was due primarily to higher compensation costs and increased accounting fees. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2003, the Company had $6,090 in cash and cash equivalents and $36,000 in availability under its $200,000 unsecured line of credit. This line of credit was expanded by $40,000 to $240,000 on November 3, 2003. Borrowings under the line of credit bear interest at a rate of LIBOR plus 1.00%. The Company has fixed the base rate on up to $45,000 of borrowings on its line of credit at an average rate of 4.47% plus 1.00% under interest rate swap contracts expiring in April 2009, and has paid $927 to limit the base rate of an additional $15,000 of borrowings to 4.0%. Interest rate swaps that fixed the interest rate on an additional $25,000 at 6.42% expire in September and October 2004. At September 30, 2003, seventeen of the Company's wholly-owned stabilized communities are unencumbered. Net cash flows provided by operating activities for the nine months ended September 30, 2003 were $47,255 compared to $46,359 for the nine months ended September 30, 2002. The increase was primarily due to an increase in rental revenue offset in part by increase in rental expenses and lower income from partnerships. Cash flows used in investing activities for the nine months ended September 30, 2003 increased to $142,651 from $7,676 for the nine months ended September 30, 2002. The increase is primarily due to the acquisition of our partners' interests in six co-investment partnerships that AMLI did not already own. Net cash flows provided by financing activities for the nine months ended September 30, 2003 was $95,448 compared to $40,936 cash flows used for the nine months ended September 30, 2002. This change resulted from the Company's higher borrowings in 2003 to fund acquisitions compared to 2002. In addition, during the third quarter of 2003, the Company closed on an equity offering of 2,415,000 shares of its common stock issued to the public at $24.40 per share. Net proceeds from the offering were approximately $58,000. 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 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 nine months ended September 30, 2003 and 2002 is summarized as follows: September 30, ------------------------ 2003 2002 ---------- ---------- Net income . . . . . . . . . . . . . . . $ 12,571 31,603 Income from discontinued operations, net of minority interest . . . . . . . -- (2,151) Gain on disposition of discontinued operations, net of minority interest . -- (11,827) Minority interest. . . . . . . . . . . . 1,334 2,366 ---------- ---------- September 30, ------------------------ 2003 2002 ---------- ---------- Income from continuing operations before minority interest . . . . . . . 13,905 19,991 Income from discontinued operations before minority interest . . . . . . . -- 2,589 Depreciation (1) . . . . . . . . . . . . 18,076 16,040 Share of partnerships' depreciation. . . 9,168 8,902 Share of gains on sales of partnership communities. . . . . . . . . . . . . . (1,959) (1,283) ---------- ---------- FFO (2). . . . . . . . . . . . . . . . . $ 39,190 46,239 ========== ========== Weighted average shares and units including dilutive shares. . . . . . . 24,963,086 25,920,811 ========== ========== (1) Includes discontinued operations of $723 for the nine months ended September 30, 2002. (2) Non-cash impairment loss of $1,191 recorded as a charge against net income in the six month period ended June 30, 2003 had previously not been recorded as a charge against FFO. As a result of recent guidance from the Securities and Exchange Commission, FFO for the nine months ended September 30, 2003 has been revised to include this charge. 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. COMPANY INDEBTEDNESS The Company's debt as of September 30, 2003 includes $300,322 which is secured by first mortgages on eighteen of the wholly-owned communities and is summarized as follows: SUMMARY DEBT TABLE ------------------ Type of Weighted Average Outstanding Percent Indebtedness Interest Rate Balance of Total - ------------ ---------------- ----------- -------- Fixed-Rate Mortgages 7.1% $300,322 57.5% Tax-Exempt Tax-Exempt Rate + 1.43% 50,250 9.6% Bonds (1) Tax-Exempt Rate + 1.26% Lines of Credit (2) LIBOR + 1.00% 164,000 31.4% Other (3) 2.1% 8,100 1.5% -------- ------ Total $522,672 100.0% ======== ====== - -------------------- (1) The tax-exempt bonds bear interest at a variable tax-exempt rate that is adjusted weekly based on the re-marketing of these bonds (1.00% for AMLI at Spring Creek and for 0.95% AMLI at Poplar Creek at October 22, 2003). The AMLI at Spring Creek bonds mature on October 1, 2024 and the related credit enhancement expires on October 15, 2004. 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 $85,000 has been fixed or limited pursuant to interest rate swap and cap 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 nine months ended September 30, 2003 was 2.03%. 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 43.8% of rental and other revenue for the nine months ended September 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 September 30, 2003, the Company's exposure to rising interest rates (including the Company's proportionate share of its partnerships' interest expense) was mitigated by the existing debt level of approximately 42.5% of the Company's total market capitalization (50.9% including the Company's share of partnerships' debt), the high percentage of intermediate-term fixed-rate debt (57.5% of total debt), and the use of interest rate swaps and caps to effectively fix or limit the interest rate on $15,000 of floating-rate borrowings through September 2004, on $10,000 through October 2004 and $60,000 through April 2009 (16.9% of total debt). DISCONTINUED OPERATIONS There was no community sold or held for sale during the nine months ended September 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 nine months ended September 30, 2002 is as follows: Total community revenue . . . . . . . . . . . . . . $ 5,690 ------- Community operating expenses. . . . . . . . . . . . 2,378 Depreciation expense. . . . . . . . . . . . . . . . 723 ------- Total expenses. . . . . . . . . . . . . . . . . . . 3,101 ------- Income from discontinued operations before minority interest . . . . . . . . . . . . . . . . 2,589 Minority interest . . . . . . . . . . . . . . . . . 438 ------- Income from discontinued operations, net of minority interest. . . . . . . . . . . . . 2,151 Gain on disposition of a rental community held for sale, net of minority interest. . . . . . . . 11,827 ------- Income from discontinued operations . . . . . . . . $13,978 ======= OTHER MATTERS Derivative instruments reported as liabilities on the Consolidated Balance Sheets totaled $2,667 and $2,379 as of September 30, 2003 and December 31, 2002, respectively, a $288 increase. The derivative instruments reported on the Consolidated Balance Sheets as Accumulated other comprehensive income (loss), which are gains and losses not affecting retained earnings in the Consolidated Statement of Shareholders' Equity, totaled $3,469 and $3,283 as of September 30, 2003 and December 31, 2002, respectively, a $186 increase. The adjustments to the Shareholders' equity include $1,208 and $1,491 of the Company's share of Other comprehensive loss of two co-investment partnerships as of September 30, 2003 and December 31, 2002, respectively. In addition, the unamortized deferred gain of $393 and $507 from a Treasury lock contract was included in Other comprehensive income adjustments as of September 30, 2003 and December 31, 2002, respectively. As of September 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 September 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, 53 partnerships have been formed and one was entered into by the Company during the nine months ended September 30, 2003. Through September 30, 2003 seven partnerships have been terminated as a result of asset dispositions. 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 because of its floating-rate line of credit, which is 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 91% 94% 88% 88% 87% 93% 94% at Bishop's Gate . . . . . 100% 266 94% 93% 88% 89% 91% 93% 95% at Chase Oaks. . . . . . . 100% 250 90% 95% 93% 85% 88% 87% 97% at Gleneagles. . . . . . . N/A N/A N/A N/A N/A N/A N/A 90% 92% on the Green . . . . . . . 100% 424 93% 94% 90% 90% 95% 90% 90% at Nantucket . . . . . . . 100% 312 91% 87% 94% 91% 85% 93% 94% of North Dallas. . . . . . 100% 1,032 92% 94% 88% 85% 87% 91% 92% at Stonebridge Ranch . . . 100% 250 94% 90% 88% 72% 80% 88% 90% at Shadow Ridge. . . . . . 100% 222 95% 86% 83% 82% 93% 87% 89% at Valley Ranch. . . . . . 100% 460 93% 94% 90% 89% 90% 84% 89% Upper West Side. . . . . . 100% 194 96% 91% 94% 95% 96% 94% N/A 7th Street Station . . . . 100% 189 92% 93% 87% 92% N/A N/A N/A at Verandah. . . . . . . . 100% 538 94% 94% 92% N/A N/A N/A N/A ------ ----- ----- ----- ----- ----- ----- ----- ----- 4,637 93% 93% 89% 87% 90% 90% 92% ------ ----- ----- ----- ----- ----- ----- ----- ----- Austin, TX AMLI: in Great Hills . . . . . . 100% 344 95% 94% 90% 90% 92% 91% 89% at Lantana Ridge . . . . . 100% 354 97% 92% 88% 89% 91% 93% 90% at StoneHollow . . . . . . 100% 606 93% 94% 93% 93% 95% 94% 93% ------ ----- ----- ----- ----- ----- ----- ----- ----- 1,304 94% 93% 91% 91% 93% 93% 91% ------ ----- ----- ----- ----- ----- ----- ----- ----- Houston, TX AMLI: at the Medical Center. . . 100% 334 95% 90% 86% 88% 94% 97% 94% at Western Ridge . . . . . N/A N/A N/A N/A N/A N/A 92% 94% 94% ------ ----- ----- ----- ----- ----- ----- ----- ----- 334 95% 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 96% 93% 92% 89% 92% 89% 94% at Killian Creek . . . . . 100% 256 97% 95% 89% 91% 92% 93% 95% at Park Creek. . . . . . . 100% 200 97% 94% 87% 90% 91% 95% 83% at Towne Creek . . . . . . 100% 150 97% 95% 86% 86% 81% 90% 93% on Spring Creek. . . . . . 100% 1,180 92% 90% 86% 90% 88% 87% 90% at Vinings . . . . . . . . 100% 360 93% 88% 89% 89% 91% 93% 93% at West Paces. . . . . . . 100% 337 96% 89% 94% 94% 95% 88% 91% ------ ----- ----- ----- ----- ----- ----- ----- ----- 2,771 94% 91% 88% 90% 90% 89% 91% ------ ----- ----- ----- ----- ----- ----- ----- ----- Kansas City, KS AMLI: at Centennial Park . . . . 100% 170 92% 93% 91% 87% 91% 92% 89% at Lexington Farms . . . . 100% 404 93% 92% 91% 92% 91% 93% 92% at Regents Center. . . . . 100% 424 93% 95% 90% 91% 91% 94% 89% at Town Center . . . . . . 100% 156 93% 91% 87% 94% 91% 92% 94% at Regents Crest . . . . . 100% 476 91% N/A N/A N/A N/A N/A N/A Creekside. . . . . . . . . 100% 224 95% N/A N/A N/A N/A N/A N/A ------ ----- ----- ----- ----- ----- ----- ----- ----- 1,854 93% 93% 90% 91% 91% 93% 91% ------ ----- ----- ----- ----- ----- ----- ----- ----- Indianapolis, IN AMLI: at Conner Farms. . . . . . 100% 300 91% 91% 87% 87% 88% 92% 90% at Eagle Creek . . . . . . 100% 240 93% 94% 88% 90% 96% 93% 93% at Riverbend . . . . . . . 100% 996 96% 93% 88% 91% 93% 94% 94% on Spring Mill . . . . . . 100% 400 87% N/A N/A N/A N/A N/A N/A at Castle Creek. . . . . . 100% 276 95% N/A N/A N/A N/A N/A N/A ------ ----- ----- ----- ----- ----- ----- ----- ----- 2,212 93% 93% 88% 90% 92% 93% 93% ------ ----- ----- ----- ----- ----- ----- ----- ----- Chicago, IL AMLI: at Poplar Creek. . . . . . 100% 196 87% 92% 95% 88% 91% 95% 94% at Oakhurst North. . . . . 100% 464 97% N/A N/A N/A N/A N/A N/A ------ ----- ----- ----- ----- ----- ----- ----- ----- 660 94% 92% 95% 88% 91% 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 - ------------------ ---------- ------- ----- ----- ----- ----- ----- ----------- ------ Denver, CO AMLI: at Gateway Park. . . . . . 100% 328 94% 88% 88% 92% 92% 90% 89% ------ ----- ----- ----- ----- ----- ----- ----- ----- Total wholly-owned communities . . . . . . . . 14,100 93.3% 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 96% 93% 89% 85% 91% 89% 93% at Fossil Creek. . . . . . 25% 384 92% 88% 91% 92% 94% 92% 91% at Oak Bend. . . . . . . . 40% 426 91% 84% 92% 88% 91% 91% 92% on the Parkway . . . . . . 25% 240 89% 94% 92% 87% 87% 88% 92% at Prestonwood Hills . . . 45% 272 92% 93% 92% 89% 94% 92% 93% on Timberglen. . . . . . . 40% 260 95% 87% 96% 84% 89% 92% 94% at Verandah. . . . . . . . N/A N/A N/A N/A N/A 90% 93% 93% 92% on Frankford . . . . . . . 45% 582 92% 93% 94% 91% 91% 96% 94% at Breckinridge Point. . . 45% 440 94% 92% 92% 92% 91% 94% 90% at Bryan Place . . . . . . 48% 420 95% 91% 85% 80% 86% 90% N/A ------- ----- ----- ----- ----- ----- ----- ----- ----- 3,264 93% 91% 91% 88% 91% 92% 92% ------- ----- ----- ----- ----- ----- ----- ----- ----- Austin, TX AMLI: at Wells Branch. . . . . . 25% 576 92% 90% 89% 87% 91% 92% 92% at Scofield Ridge. . . . . 45% 487 91% 89% 89% 92% 91% 89% 88% at Monterey Oaks . . . . . 25% 430 96% 92% 90% 94% 95% 92% 92% ------- ----- ----- ----- ----- ----- ----- ----- ----- 1,493 93% 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 N/A 98% at Champions Park. . . . . N/A 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 N/A 92% 92% Midtown. . . . . . . . . . 45% 419 94% 96% 93% 88% 90% 93% 91% Towne Square . . . . . . . 45% 380 93% 94% 91% 89% 89% 95% 90% lease lease lease lease at Kings Harbor. . . . . . 25% 300 93% 91% 84% up up up up ------- ----- ----- ----- ----- ----- ----- ----- ----- 1,099 93% 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 97% 98% 94% 94% 94% 93% 91% at Northwinds. . . . . . . 35% 800 95% 92% 92% 90% 91% 92% 93% at River Park. . . . . . . 40% 222 96% 94% 93% 93% 95% 90% 95% at Willeo Creek. . . . . . N/A N/A N/A 94% 95% 86% 88% 91% 88% at Windward Park . . . . . 45% 328 96% 95% 92% 96% 93% 91% 91% at Peachtree City. . . . . 20% 312 93% 92% 95% 90% 89% 86% 86% at Lost Mountain . . . . . 75% 164 91% 96% 94% 87% 92% 91% 95% at Park Bridge . . . . . . 25% 352 96% 94% 89% 89% 94% 94% 92% lease at Mill Creek. . . . . . . 25% 400 97% 95% 94% 95% 90% 94% up lease lease lease at Kedron Village. . . . . 20% 216 92% 91% 91% 92% up up up lease lease lease at Barrett Walk. . . . . . 25% 290 99% 97% up up up N/A N/A ------ ----- ----- ----- ----- ----- ----- ----- ----- 3,530 96% 94% 93% 91% 92% 92% 91% ------ ----- ----- ----- ----- ----- ----- ----- ----- Kansas City, KS AMLI: at Regents Crest . . . . . N/A N/A N/A 95% 87% 88% 92% 95% 90% Creekside. . . . . . . . . N/A N/A N/A 94% 88% 92% 90% 96% 94% at Wynnewood Farms . . . . 25% 232 93% 91% 90% 89% 89% 91% 91% at Summit Ridge. . . . . . 25% 432 94% 94% 86% 90% 93% 94% 90% lease lease lease lease lease at Cambridge Square. . . . 30% 408 93% 92% up up up up up ------- ----- ----- ----- ----- ----- ----- ----- ----- 1,072 93% 94% 88% 89% 92% 94% 91% ------- ----- ----- ----- ----- ----- ----- ----- ----- Indianapolis, IN AMLI: on Spring Mill . . . . . . N/A N/A N/A 90% 91% 90% 89% 87% 84% at Lake Clearwater . . . . 25% 216 90% 90% 91% 88% 91% 91% 92% at Castle Creek. . . . . . N/A N/A N/A 91% 84% 89% 92% 95% 89% ------- ----- ----- ----- ----- ----- ----- ----- ----- 216 90% 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 93% 92% 90% 91% 93% 94% 93% at Danada Farms. . . . . . 10% 600 93% 92% 90% 89% 90% 93% 93% at Fox Valley. . . . . . . 25% 272 94% 93% 91% 83% 97% 93% 85% at Windbrooke. . . . . . . 15% 236 98% 98% 91% 88% 90% 95% 98% at Oakhurst North. . . . . N/A N/A N/A 94% 91% 86% 89% 93% 86% at St. Charles . . . . . . 25% 400 95% 93% 88% 87% 89% 89% 88% at Osprey Lake . . . . . . 69% 483 89% 91% 88% 81% 86% 90% 93% ------- ----- ----- ----- ----- ----- ----- ----- ----- 2,583 93% 93% 89% 87% 90% 92% 91% ------- ----- ----- ----- ----- ----- ----- ----- ----- Denver, CO AMLI: at Lowry Estates . . . . . 50% 414 91% 90% 88% 86% 89% 88% 87% at Park Meadows. . . . . . 25% 518 91% 89% 73% 76% 80% 81% N/A ------- ----- ----- ----- ----- ----- ----- ----- ----- 932 91% 90% 79% 80% 84% 84% 87% ------- ----- ----- ----- ----- ----- ----- ----- ----- Total partnership communities . . . . . . . . 14,189 93.4% 92.3% 88.4% 88.5% 90.6% 91.7% 90.9% ------- ----- ----- ----- ----- ----- ----- ----- ----- Total . . . . . . . . . . . . 28,289 93.4% 92.2% 89.5% 88.7% 90.6% 91.5% 91.3% ======= ===== ===== ===== ===== ===== ===== ===== =====
PART II. OTHER INFORMATION 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 July 29, 2003, to furnish the following as exhibits: 1. The Company's press release dated July 29, 2003, announcing the second quarter 2003 operating results and a dividend declaration. 2. The Company's second quarter 2003 Supplemental Operating and Financial Data. Current Report on Form 8-K filed on August 7, 2003, to file the following as exhibits: . Underwriting Agreement dated August 7, 2003 relating to the sale of 2,415,000 of the Company's common shares of beneficial interest . First Amendment to the Amended and Restated Bylaws of AMLI Residential Properties Trust . $200,000,000 Credit Agreement dated as of May 19, 2003 among AMLI Residential Properties, L.P., as Borrower, AMLI Residential Properties Trust as General Partner, the Lenders, Bank One, NA, as Administrative Agent, Commerzbank AG New York and Grand Cayman Branches, as Co Documentation Agent, Harris Trust and Savings Bank, as Co-Documentation Agent, PNC Bank, National Association, as Co-Documentation Agent and Banc One Capital Markets, Inc., as Lead Arranger and Sole Book Runner. . Fifth Amendment to AMLI Residential Properties Option Plan . AMLI Residential Properties Amended Senior Officer Share Acquisition Plan (Incorporated by reference to Exhibit A to the Registrants Definitive Proxy Statement concerning the Registrant's April 28, 2003 Annual Meeting of Shareholders filed on March 21, 2003) . AMLI Residential Properties Trust Executive Share Purchase Plan, as amended and restated 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: November 13, 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: November 13, 2003 By: /s/ ALLAN J. SWEET ----------------------------------- Allan J. Sweet President and Trustee Date: November 13, 2003 By: /s/ PHILIP N. TAGUE ----------------------------------- Philip N. Tague Executive Vice President and Trustee Date: November 13, 2003 By: /s/ ROBERT J. CHAPMAN ----------------------------------- Robert J. Chapman Principal Financial Officer Date: November 13, 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:November 13, 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:November 13, 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:November 13, 2003 /s/ ROBERT J. CHAPMAN --------------------------- Robert J. Chapman Principal Financial Officer EX-15.1 3 exh_151.txt EXHIBIT 15.1 - ------------ November 13, 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 October 28, 2003, except for note 12, which is as of November 5, 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 September 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: November 13, 2003 By: /s/ Allan J. Sweet ------------------------------ Allan J. Sweet Co-Chief Executive Officer Date: November 13, 2003 By: /s/ Philip N. Tague ------------------------------ Philip N. Tague Co-Chief Executive Officer Date: November 13, 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-----