-----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, EmgxCSjiyZRdVrns07KHQJxQaW45AtES28aGcPf6935qxb7n+Smc+9Y8YAnn2U6k abmawivIFu/pF4wFu+0ODQ== 0000892626-05-000103.txt : 20050506 0000892626-05-000103.hdr.sgml : 20050506 20050506152054 ACCESSION NUMBER: 0000892626-05-000103 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050506 DATE AS OF CHANGE: 20050506 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: 05807675 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_305.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 March 31, 2005 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 25,647,286 as of April 29, 2005. INDEX PART I FINANCIAL INFORMATION Item 1. Financial Statements Report of Independent Registered Public Accounting Firm. . . . . . . . . . . . . . . . . . 4 Consolidated Balance Sheets as of March 31, 2005 (Unaudited) and December 31, 2004 (Audited). . . . . . . . . . . . 5 Consolidated Statements of Operations for the three months ended March 31, 2005 and 2004 (Unaudited). . . . . . . . 7 Consolidated Statement of Shareholders' Equity for the three months ended March 31, 2005 (Unaudited) . . . . . . . . . . . . 9 Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004 (Unaudited). . . . . . . . 11 Notes to Consolidated Financial Statements (Unaudited). . . . . . . . . . . . . . . . . . . . 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . 47 Item 3. Quantitative and Qualitative Disclosures About Market Risk. . . . . . . . . . . . . . . . . 82 Item 4. Controls and Procedures. . . . . . . . . . . . . . . 83 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 90 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 91 FORWARD-LOOKING STATEMENTS Certain statements made in this report, and other written or oral statements made by or on behalf of AMLI, may constitute "forward-looking statements" within the meaning of the Federal securities laws. Statements regarding future events and developments and AMLI'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 AMLI'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 AMLI 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 AMLI'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. AMLI 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 AMLI's filings with the Securities and Exchange Commission. The following are some of the factors that could cause AMLI'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 AMLI's markets and the effect on occupancy and rental rates; . AMLI's ability to obtain financing or self-fund the development of additional apartment communities; . the uncertainties associated with AMLI's current real estate development, including actual costs exceeding AMLI'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 changes in accounting policies and other regulatory matters detailed in AMLI's filings with the Securities and Exchange Commission and uncertainties of litigation; and . AMLI's ability to continue to qualify as a real estate investment trust under the Internal Revenue Code. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------------------------------------- The Board of Trustees and Shareholders AMLI Residential Properties Trust: We have reviewed the accompanying consolidated balance sheet of AMLI Residential Properties Trust (the Company) as of March 31, 2005, and the related consolidated statements of operations and cash flows for the three- month periods ended March 31, 2005 and 2004 and the related consolidated statement of shareholders' equity for the three-month period ended March 31, 2005. These consolidated financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), 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 U.S. generally accepted accounting principles. We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of AMLI Residential Properties Trust as of December 31, 2004, 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 March 9, 2005, 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, 2004, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. KPMG LLP Chicago, Illinois May 4, 2005 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED BALANCE SHEETS MARCH 31, 2005 AND DECEMBER 31, 2004 (Dollars in thousands, except share data) MARCH 31, DECEMBER 31, 2005 2004 (UNAUDITED) (AUDITED) ------------- ------------ ASSETS: Rental communities: Land . . . . . . . . . . . . . . . . $ 177,871 164,422 Depreciable property . . . . . . . . 1,111,791 1,031,546 ---------- --------- 1,289,662 1,195,968 Less accumulated depreciation. . . . (147,471) (136,168) ---------- --------- 1,142,191 1,059,800 Rental communities held for sale, net of accumulated depreciation at December 31, 2004. . 10,551 60,161 Rental community under development. . . . . . . . . . . . . 17,699 10,331 Land and predevelopment costs. . . . . 35,382 33,228 Investments in partnerships. . . . . . 121,927 124,354 Cash and cash equivalents. . . . . . . 4,124 5,118 Deferred financing costs, net. . . . . 3,223 3,385 Other assets . . . . . . . . . . . . . 28,574 26,947 Other assets associated with communities held for sale. . . . . . 95 99 ---------- --------- Total assets $1,363,766 1,323,423 ========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY: LIABILITIES: Debt . . . . . . . . . . . . . . . . . $ 688,235 653,901 Distributions in excess of investments in and earnings from partnerships . . . . . . . . . . . . 6,482 6,368 Other liabilities. . . . . . . . . . . 34,939 40,106 Other liabilities associated with communities held for sale . . . 419 2,652 ---------- --------- Total liabilities. . . . . . 730,075 703,027 ---------- --------- AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED BALANCE SHEETS - CONTINUED MARCH 31, 2005 AND DECEMBER 31, 2004 (Dollars in thousands, except share data) MARCH 31, DECEMBER 31, 2005 2004 (UNAUDITED) (AUDITED) ------------- ------------ Commitments and contingencies (note 12) Mandatorily redeemable convertible preferred shares (at liquidation preference). . . . . . . . . . . . . 96,933 96,933 Minority interest. . . . . . . . . . . 32,667 31,939 SHAREHOLDERS' EQUITY: Shares of beneficial interest, $0.01 par value, 145,375,000 authorized, 25,615,956 and 25,525,564 common shares issued and outstanding, respectively. . . . 256 255 Additional paid-in capital . . . . . . 524,947 522,742 Unearned compensation. . . . . . . . . (3,850) (2,028) Employees' and trustees' notes . . . . (2,692) (3,415) Accumulated other comprehensive income (loss). . . . . . . . . . . . 1,158 (2,030) Dividends paid in excess of earnings . . . . . . . . . . . . . . (15,728) (24,000) ---------- --------- Total shareholders' equity . . . . . . . . . . . 504,091 491,524 ---------- --------- Total liabilities and shareholders' equity . . . . $1,363,766 1,323,423 ========== ========= See accompanying notes to consolidated financial statements. AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2005 AND 2004 (UNAUDITED) (Dollars in thousands, except share data) 2005 2004 -------- -------- Revenues: Rental and other income. . . . . . . . . . $ 37,467 27,640 Service Companies. . . . . . . . . . . . . 5,369 13,580 Fee income . . . . . . . . . . . . . . . . 260 433 -------- -------- 43,096 41,653 -------- -------- Expenses: Community rental . . . . . . . . . . . . . 16,366 11,312 Service Companies. . . . . . . . . . . . . 6,156 14,024 Depreciation . . . . . . . . . . . . . . . 11,304 7,928 General and administrative . . . . . . . . 1,961 2,196 -------- -------- 35,787 35,460 -------- -------- Other income (expenses): Income from partnerships . . . . . . . . . 378 1,503 Share of gain on sale of a partnership community. . . . . . . . . . -- 2,648 Other income . . . . . . . . . . . . . . . 201 479 Interest and amortization of deferred costs . . . . . . . . . . . . . (8,910) (6,904) -------- -------- (8,331) (2,274) -------- -------- Income (loss) from continuing operations before minority interest. . . . (1,022) 3,919 Minority interest. . . . . . . . . . . . . . (179) 144 -------- -------- Income (loss) from continuing opera- tions, net of minority interest. . . . . . (843) 3,775 -------- -------- Income from discontinued operations, net of minority interest . . . . . . . . . 316 2,944 Gains on sales of rental communities, net of minority interest . . . . . . . . . 22,938 -- -------- -------- Income from discontinued operations. . . . . 23,254 2,944 -------- -------- Net income . . . . . . . . . . . . . . . . . 22,411 6,719 Net income attributable to preferred shares . . . . . . . . . . . . . 3,038 1,932 -------- -------- Net income attributable to common shares . . $ 19,373 4,787 ======== ======== AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED THREE MONTHS ENDED MARCH 31, 2005 AND 2004 (UNAUDITED) (Dollars in thousands, except share data) 2005 2004 -------- -------- Income (loss) per common share - basic: From continuing operations . . . . . . . . $ (0.11) 0.08 From discontinued operations . . . . . . . 0.87 0.14 -------- -------- Net income . . . . . . . . . . . . . . . . $ 0.76 0.22 ======== ======== Income (loss) per common share - diluted: From continuing operations . . . . . . . . $ (0.11) 0.08 From discontinued operations . . . . . . . 0.87 0.13 -------- -------- Net income . . . . . . . . . . . . . . . . $ 0.76 0.21 ======== ======== Dividends declared and paid per common share . . . . . . . . . . . . . $ 0.48 0.48 ======== ======== See accompanying notes to consolidated financial statements. AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) (Dollars in thousands)
SHARES OF ACCUMULATED BENEFICIAL INTEREST EMPLOYEES' OTHER DIVIDENDS --------------------- ADDITIONAL UNEARNED AND COMPREHEN- PAID IN COMMON PAID-IN COMPEN- TRUSTEES' SIVE INCOME EXCESS OF SHARES AMOUNT CAPITAL SATION NOTES (LOSS) EARNINGS TOTAL ---------------------------------- -------- ---------- ----------- ----------- ------- Balance at December 31, 2004 . . . . 25,525,564 $ 255 522,742 (2,028) (3,415) (2,030) (24,000) 491,524 . . . . . . . . . . . . . ------- Comprehensive income: Net income . . . . . . . -- -- -- -- -- -- 22,411 22,411 Preferred share dividends paid. . . . . -- -- -- -- -- -- (1,932) (1,932) Current period change in fair value of deriva- tive contracts. . . . . -- -- -- -- -- 3,188 -- 3,188 ------- Comprehensive income attributable to common shares. . . . . . -- -- -- -- -- -- -- 23,667 ------- Common share distributions. . . . . . -- -- -- -- -- -- (12,207) (12,207) Shares issued in connection with: Executive Share Purchase Plan . . . . . 9,348 -- 280 -- -- -- -- 280 Options exercised. . . . 6,380 -- -- -- -- -- -- -- AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY - CONTINUED THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) (Dollars in thousands) SHARES OF ACCUMULATED BENEFICIAL INTEREST EMPLOYEES' OTHER DIVIDENDS --------------------- ADDITIONAL UNEARNED AND COMPREHEN- PAID IN COMMON PAID-IN COMPEN- TRUSTEES' SIVE INCOME EXCESS OF SHARES AMOUNT CAPITAL SATION NOTES (LOSS) EARNINGS TOTAL ---------------------------------- -------- ---------- ----------- ----------- ------- OP Units converted to shares . . . . . . . 1,186 -- 23 -- -- -- -- 23 Trustees' compen- sation. . . . . . . . . 669 -- 40 -- -- -- -- 40 Senior Officer Share Acquisi- tion Plan, net of cancellations. . . . 72,809 1 2,079 (2,080) -- -- -- -- Amortization of unearned compen- sation. . . . . . . . . . -- -- -- 258 -- -- -- 258 Repayments or forgiveness of employees' and trustees' notes . . . . . -- -- -- -- 723 -- -- 723 Reallocation of minority interest . . . . -- -- (217) -- -- -- -- (217) ---------- ---- ------- ------- ------- ------- ------- ------- Balance at March 31, 2005. . . . . . 25,615,956 $256 524,947 (3,850) (2,692) 1,158 (15,728) 504,091 ========== ==== ======= ======= ======= ======= ======= ======= See accompanying notes to consolidated financial statements.
AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2005 AND 2004 (UNAUDITED) (Dollars in thousands) 2005 2004 -------- -------- Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . $ 22,411 6,719 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization. . . . . . . . . 12,432 9,770 Share of income from partnerships. . . . . . . (378) (1,503) Cash distributions from partnerships - operating cash flow. . . . . . . . . . . . . 3,126 4,382 Gains on sales of rental communities . . . . . (24,417) -- Share of partnership's gain on sale of a rental community. . . . . . . . . . . . -- (2,648) Gain on sale of a land parcel. . . . . . . . . (108) -- Amortization of unearned compensation. . . . . 258 350 Minority interest. . . . . . . . . . . . . . . 1,320 376 Other. . . . . . . . . . . . . . . . . . . . . 80 61 Changes in assets and liabilities: Deferred costs . . . . . . . . . . . . . . . . (17) (82) Deferred tax assets. . . . . . . . . . . . . . (656) (492) Other assets . . . . . . . . . . . . . . . . . 1,473 (393) Accrued real estate taxes. . . . . . . . . . . (6,187) (5,253) Accrued interest payable . . . . . . . . . . . 144 339 Tenant security deposits and prepaid rent . . . . . . . . . . . . . . . . 86 110 Other liabilities. . . . . . . . . . . . . . . (929) (2,625) -------- -------- Net cash provided by operating activities . . . . . . . . . . 8,638 9,111 -------- -------- Cash flows from (for) investing activities: Investments in partnerships. . . . . . . . . . . (185) (1,999) Distributions from partnerships - return of capital. . . . . . . . . . . . . . . -- 8,557 Net proceeds from sales of rental communities. . . . . . . . . . . . . . . . . . 73,763 -- Share of a partnership's net cash proceeds, in excess of return of capital, from sale of a rental community . . . . . . . . . . -- 635 Net proceeds from sale of a land parcel. . . . . 2,107 -- Proceeds from collection of a purchase money note . . . . . . . . . . . . . . . . . . -- 28,530 Loan to a partnership. . . . . . . . . . . . . . -- (1,200) Advances to/from affiliates, net . . . . . . . . (394) 637 Earnest money deposits . . . . . . . . . . . . . (1,067) (400) Acquisition of communities . . . . . . . . . . . (67,151) (2,576) Acquisition capital expenditures . . . . . . . . (336) (85) Rehab capital expenditures . . . . . . . . . . . (689) (180) Operating capital expenditures . . . . . . . . . (1,287) (1,230) Communities under development, net of co-investors' share of costs . . . . . . . . . (10,937) (4,830) Other liabilities. . . . . . . . . . . . . . . . 1,234 (613) -------- -------- Net cash (used in) provided by investing activities . . . . . . . . . . (4,942) 25,246 -------- -------- AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED THREE MONTHS ENDED MARCH 31, 2005 AND 2004 (UNAUDITED) (Dollars in thousands) 2005 2004 -------- -------- Cash flows for financing activities: Debt proceeds, net of financing costs. . . . . . 188,600 170,000 Debt repayments. . . . . . . . . . . . . . . . . (178,645) (290,098) Proceeds from issuance of Option Plan and Executive Share Purchase Plan shares and collection of employees' and trustees' notes and other. . . . . . . . . . . 280 5,292 Proceeds from common shares offering, net of issuance costs. . . . . . . . . . . . . -- 94,585 Distributions to minority interests. . . . . . . (786) (837) Dividends paid . . . . . . . . . . . . . . . . . (14,139) (12,275) -------- -------- Net cash used in financing activities. . . (4,690) (33,333) -------- -------- Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . . (994) 1,024 Cash and cash equivalents at beginning of period . . . . . . . . . . . . . 5,118 5,937 -------- -------- Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . $ 4,124 6,961 ======== ======== Supplemental disclosure of cash flow information: Cash paid for mortgage and other interest, net of amounts capitalized . . . . . . . . . . $ 8,476 6,626 ======== ======== Supplemental disclosure of non-cash investing and financing activities: OP units converted to common shares. . . . . . . $ 23 501 Shares issued in connection with Executive Share Purchase Plan and trustees' compensation . . . . . . . . . . . . . . . . . 78 47 Amortization of unearned compensation. . . . . . 258 350 Forgiveness of employees's notes . . . . . . . . 685 639 Assumption of mortgage debt in connection with acquisition of a community, including premium. . . . . . . . . . . . . . . . . . . . 24,379 -- Assumption of mortgage debt and other liabilities in connection with the acquisition of a partner's ownership interest in a partnership community: Mortgage debt, net of deferred financing . . -- 6,163 Other liabilities. . . . . . . . . . . . . . -- 4 ======== ======== See accompanying notes to consolidated financial statements. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2005 AND 2004 (Unaudited) (Dollars in thousands, except share data) 1. ORGANIZATION AND BASIS OF PRESENTATION ORGANIZATION AMLI Residential Properties Trust ("AMLI" or the "Company"), a self- administered and self-managed real estate investment trust ("REIT") was formed on February 15, 1994 to continue and expand the multifamily property businesses previously conducted by Amli Realty Co. ("ARC") and its affiliates. AMLI is engaged in the acquisition, development, co-investment and management of upscale, institutional quality multifamily apartment communities, all of which have the AMLI name, in nine major metropolitan markets in the Southeast, Southwest, Midwest and Mountain regions of the United States. AMLI is the sole general partner and owned an approximate 95% general partnership interest in AMLI Residential Properties, L.P. (the "Operating Partnership" or "OP") at March 31, 2005. The approximate 5% not owned by AMLI was owned by limited partners that hold Operating Partnership units ("OP Units") which are convertible into common shares of AMLI on a one-for- one basis, subject to certain limitations. At March 31, 2005, AMLI owned 29,540,956 OP Units (including 3,925,000 Preferred OP Units) and the limited partners owned 1,638,295 OP Units. AMLI has qualified and anticipates continuing to qualify as a real estate investment trust for Federal income tax purposes. At March 31, 2005, AMLI owned or had interests in 78 multifamily apartment communities (45 wholly-owned and 33 co-investments) comprised of 29,314 apartment homes, of which 16,676 apartment homes were wholly-owned. Seventy-four of these communities totaling 27,920 apartment homes were stabilized and four communities containing 1,394 apartment homes were under development or in lease-up. In addition, the Service Companies (defined below) owned a community containing 91 apartment homes developed for sale. The Service Companies also had an interest in another community containing 248 apartment homes developed for sale, which the Service Companies have recently agreed to sell to their partner. 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 AMLI, the Operating Partnership, AMLI Management Company ("AMC") and AMLI Institutional Advisors, Inc. ("AIA"). 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 to as the Service Companies. In the opinion of management, all adjustments, which include only normal recurring adjustments necessary to present fairly AMLI's financial position at March 31, 2005 and December 31, 2004 and the results of its operations and cash flows for the periods presented, have been made. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Certain information and note disclosures normally included in AMLI's annual financial statements prepared in accordance with GAAP have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in AMLI's December 31, 2004 Annual Report and in Form 10-K filed with the Securities and Exchange Commission. The results for the three months ended March 31, 2005 are not necessarily indicative of expected results for the entire year. AMLI's management has made a number of estimates and assumptions relating to the reporting of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses to prepare these financial statements in conformity with GAAP. Actual amounts realized or paid could differ from these estimates. All significant inter-entity balances and transactions have been eliminated in consolidation. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ACCOUNTING FOR COMMUNITY ACQUISITIONS In conjunction with acquisitions of stabilized communities, it is AMLI's policy to provide in its acquisition budgets adequate funds to upgrade or to otherwise make the communities acquired competitive with comparable newly-constructed communities. Such expenditures may include parking lot resurfacing, roof replacements or repairs, exterior painting, new or replacement landscaping and leasing office/clubhouse remodeling, among other things. Some of these expenditures could be considered "deferred maintenance items" that the seller had not rectified prior to AMLI's acquisition of the community. All such costs are capitalized as acquisition capital expenditures when subsequently incurred. Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets," ("SFAS 144"), addresses the financial accounting and reporting for the impairment or disposal of long-lived assets. Long-lived assets, such as land, buildings and improvements and personal property, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. Recoverability of a long-lived asset to be held and used is measured by comparing the carrying amount of an asset to its estimated undiscounted future cash flows over its estimated remaining holding period. If an investment is determined to be impaired, AMLI recognizes an impairment charge in the amount of the excess of its carrying amount over its fair value. Assets to be disposed of are reported at the lower of carrying amount or fair value less costs of disposition, and such assets are no longer depreciated. With respect to its land parcels held for future development or sale, AMLI takes into account comparable sales and, if applicable, current sale negotiations in updating each quarter its estimates of the current net selling price of its land parcels. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED RENTAL COMMUNITY ACQUISITIONS AMLI acquires interests in institutional quality multifamily communities, with a focus on newer communities, having high-quality construction, amenities, location and market position. The table below summarizes the communities acquired during 2005 and 2004:
NUMBER YEAR DEBT OF COM- DATE PURCHASE ASSUMED/ TOTAL COMMUNITY LOCATION UNITS PLETED ACQUIRED PRICE OBTAINED EQUITY - --------- -------- -------- -------- -------- -------- -------- -------- 2005 acquisitions: WHOLLY-OWNED: AMLI: at Lantana Hills. . . . Austin, TX 264 2002 1/21/05 $ 24,150 -- 24,150 at McGinnis Ferry (1). . . . . . . . . Gwinnett County, GA 696 1999/02 2/24/05 64,736 21,536 43,200 ----- -------- ------- ------- 960 88,886 21,536 67,350 ----- -------- ------- ------- 2004 acquisitions: AMLI: on Timberglen (2) . . . Dallas, TX 260 1985 1/5/04 10,439 6,147 4,292 at Ibis . . . . . . . . West Palm Beach, FL 234 2001 4/15/04 24,675 -- 24,675 on Eldridge Parkway . . Houston, TX 668 1998/99 4/15/04 48,000 32,709 15,291 on the Fairways . . . . Coppell, TX 322 2002 4/30/04 23,405 -- 23,405 at Westcliff. . . . . . Westminster, CO 372 2003 8/18/04 43,500 -- 43,500 at Canterfield. . . . . West Dundee, IL 352 2001 9/14/04 55,350 -- 55,350 at River Run. . . . . . Naperville, IL 206 2003 9/14/04 31,500 -- 31,500 at Kirkland Crossing. . Aurora, IL 266 2004 10/20/04 39,100 -- 39,100 at Wynnewood Farms (2). Overland Park, KS 232 2000 11/15/04 22,265 -- 22,265 at Lake Clearwater (2). Indianapolis, IN 216 1999 11/15/04 19,600 -- 19,600 ------ -------- ------- ------- 3,128 317,834 38,856 278,978 ------ -------- ------- ------- Total . . . . . . . . 4,088 $406,720 60,392 346,328 ====== ======== ======= ======= (1) Debt assumed is reported above at face amount but has been recorded at fair value for financial reporting purposes based on management's estimate of current interest rates for comparable debt. (2) The purchase price and the amount of debt assumed are stated at 100%. AMLI acquired the interest it did not already own in these communities from its co-investment partners. Debt assumed upon acquisition of AMLI on Timberglen was repaid in January 2004.
AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Pursuant to Statement of Financial Accounting Standards No. 141 "Accounting for Business Combinations," ("SFAS 141"), AMLI allocates acquisition costs of communities acquired among various classes of tangible and intangible assets based on AMLI's best estimates of the fair values of these asset classes, including allocating a portion of the purchase price to the estimated in-place lease intangible based upon an estimate of its value, taking into account lost rental payments during the assumed lease-up period for the community. Rental rates of all acquired leases approximate current market rent. AMLI determines whether any financing assumed is above or below market based upon comparison to similar financing terms for similar communities. The cost of the asset acquired may be adjusted based on indebtedness assumed from the seller that is determined to be above or below market rates. AMLI values land as improved, based on its knowledge of comparable land parcels; buildings as if vacant, using valuation techniques similar to those used by independent appraisers; and to personal property, based on knowledge of the personal property being acquired and its estimated replacement cost. During the three months ended March 31, 2005 and the year ended December 31, 2004 AMLI allocated $2,299 and $9,516, respectively, of the total acquisition cost to existing leases; these amounts were included in depreciable property in the accompanying consolidated balance sheets as of March 31, 2005 and December 31, 2004, and are being amortized over the average remaining terms of the leases (approximately twelve months and considerably less than the depreciable lives associated with all other acquisition costs). Amortization of $2,754 and $1,873 for this allocated cost was included in the accompanying statements of operations for the three months ended March 31, 2005 and 2004, respectively. REHAB A rehab is a capital improvement program involving significant repairs, replacements or improvements having an aggregate cost of at least the greater of $3.0 per apartment home or 5% of the value of the entire apartment community. Typically, individual apartment units are taken out of service as they are rehabbed. Rehab expenditures may include replacement of carpet and vinyl, refinishing or replacement of bathroom and kitchen cabinets, replacement of major appliances, improvement/upgrades of common areas including clubhouse and pool, pavement resurfacing and complete exterior painting. Certain of these costs, such as pavement resurfacing, exterior painting and vinyl replacement would have been expensed (pursuant to AMLI's accounting policy) had the rehab not taken place. All costs (other than routine painting of apartment interiors upon turnover), are capitalized as part of the rehab since the community or portions thereof have been taken out of service and are under construction and the expenditures are being incurred to ready the community for its intended use. These costs are part of an overall plan to upgrade the community, clearly associated with the redevelopment, and necessary to complete the rehab. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED In 2004, AMLI commenced the rehab of AMLI at West Paces in Atlanta. The costs of the rehab, which are being incurred over the two-year period ending December 31, 2005, are anticipated to total approximately $4,000, of which $2,590 has been incurred and capitalized through March 31, 2005. Depreciation of these costs commenced as the rehab of individual apartment units is completed based on the respective useful life of the assets. Cost incurred through March 31, 2005 includes $134 of interior painting cost that would have been expensed if the community was not being rehabbed. The total budget also includes $50 in pavement repairs and striping and $245 in painting that would have been expensed had these costs not been incurred in connection with the rehab of this community. GOODWILL Unamortized Service Company goodwill of $668 has been tested for impairment by valuing the future construction business anticipated to be undertaken in regions serviced by the construction operations to which the unamortized goodwill relates, and no impairment existed as of March 31, 2005. No goodwill amortization relating to this construction business has been charged to expense subsequent to December 31, 2001. At December 31, 2002, AMLI allocated $434 (of the acquisition cost of the Service Company subsidiaries' controlling interests not already owned) to the cost of property management contracts, which AMLI is amortizing over a five-year period. At March 31, 2005, the unamortized balance of the cost of these property management contracts is $239. RENTAL COMMUNITIES HELD FOR SALE At March 31, 2005, AMLI Old Town Carmel, a 91-unit community located in Carmel, Indiana (developed for sale by the Service Companies) was being held for sale. During the three months ended March 31, 2005 and 2004, this community generated total revenues of $273 and $11, respectively, and operating income (loss) of $158 and $(35), respectively. AMLI expects to sell this community in the next twelve months. DISCONTINUED OPERATIONS AMLI reports consolidated communities as held for sale at such time as a total of six criteria specified by SFAS 144, are met (including identifying and marketing the community for sale and determining that a sale is probable within a twelve-month period). In general, AMLI determines that a sale within a twelve-month period is probable at such time as a prospective buyer has made a firm commitment to acquire the community. AMLI reports in discontinued operations the operating results of wholly-owned communities sold or held for sale. Such results are shown net of interest on debt to the extent this debt is secured by mortgages on such wholly-owned communities. No other interest expense is allocated to discontinued operations. Communities sold or 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. AMLI sold AMLI in Great Hills, AMLI at Chase Oaks and AMLI at Bent Tree in the first quarter of 2005 and AMLI at Spring Creek, AMLI at Verandah, AMLI at Nantucket, AMLI on Timberglen and AMLI at Towne Creek in the second and third quarters of 2004. Interest income on the purchase money note provided to the purchaser of AMLI at Centennial Park and AMLI at Town Center (sold in 2003), which was collected in February 2004, was included in discontinued operations in 2004. In addition, the asset management fee received by AMLI in 2004 in connection with the sale of AMLI at Centennial AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Park and AMLI at Town Center is included in discontinued operations in 2004. AMLI Old Town Carmel is held for sale at March 31, 2005 and December 31, 2004. Condensed financial information of the results of operations for these communities for the periods indicated is as follows. Three Months Ended March 31, -------------------- 2005 2004 -------- -------- Rental revenues. . . . . . . . . . . . . . . . . $ 590 6,452 Other income . . . . . . . . . . . . . . . . . . 112 454 -------- -------- Total community revenues . . . . . . . . . . . . 702 6,906 Community rental expenses. . . . . . . . . . . . (524) (2,937) -------- -------- Net operating income . . . . . . . . . . . . . . 178 3,969 Other income . . . . . . . . . . . . . . . . . . 158 273 Depreciation expense . . . . . . . . . . . . . . -- (713) Interest and amortization of deferred costs . . . . . . . . . . . . . . . . -- (353) -------- -------- Income from discontinued operations before minority interest . . . . . . . . . . . 336 3,176 Minority interest. . . . . . . . . . . . . . . . 20 232 -------- -------- Income from discontinued operations, net of minority interest . . . . . . . . . . . 316 2,944 -------- -------- Gains on sales of rental communities . . . . . . 24,417 -- Minority interest. . . . . . . . . . . . . . . . 1,479 -- -------- -------- Gains on sales of rental communities, net of minority interest. . . . . . . . . . . . 22,938 -- -------- -------- Income from discontinued operations. . . . . . . $ 23,254 2,944 ======== ======== TRANSACTIONS WITH CO-INVESTMENT PARTNERSHIPS Certain of AMLI's co-investment partnerships are formed by AMLI contributing its interest in land or a rental community and receiving credit or reimbursement based on its cost, in which case no gain or loss is recognized upon partnership formation. Some of AMLI's acquisitions are made concurrent with the initial formation of a co-investment partnership, in which case the partners typically make their initial cash contributions concurrent with the closing of the acquisition. AMLI has not formed a partnership in which it received less credit upon formation than would be indicated by the cash contributed by its partner. If such a situation arose AMLI would have to consider whether to record a loss on the formation of the partnership. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED COMMUNITIES BUILT BY THE SERVICE COMPANIES FOR SALE In addition to constructing communities for AMLI and its co- investment partnerships, the Service Companies from time to time construct communities for sale to third parties. In such instances the Service Companies generally intend to sell the communities so constructed within one year following completion of construction and leasing of the new community. These new communities which are held for sale are not depreciated and are included in rental communities held for sale in the accompanying consolidated balance sheets. EARLY EXTINGUISHMENT OF DEBT Gains or losses realized upon extinguishment of debt prior to scheduled maturity include prepayment penalties, gains or losses associated with above or below-market debt, and write-offs of unamortized deferred financing costs. Gains and losses resulting from refinancings are included in continuing operations and gains and losses resulting from community dispositions are included in discontinued operations. DEFERRED EXPENSES Deferred expenses consist primarily of financing costs, which are amortized using the straight-line method over the terms of the related debt. AMLI's use of the straight-line method approximates the same amortization that would result from the use of the effective interest method. During the construction period, amortization of deferred costs relating to communities under development is capitalized and depreciated over the lives of the constructed assets. INTEREST AND REAL ESTATE TAX CAPITALIZATION Interest and real estate taxes incurred during the construction period are capitalized and depreciated over the lives of the constructed assets. Unamortized deferred expenses as of the date of an early extinguishment of debt are charged to expense at that time. INSURANCE All of AMLI's wholly-owned and most of its co-investment communities participate in a self-insured program whereby risks (up to the amount of the per occurrence deductible, generally $150, on AMLI's conventional property and casualty insurance policies) are pooled. Estimated self- insured expenses and liabilities are initially recorded based on insurance premium savings associated with the $150 deductible. As expenses are paid they are charged against the liabilities recorded, which are then evaluated each quarter for appropriateness, taking into account known claims in process and AMLI's estimates of payments to be made pursuant to claims incurred but not reported ("IBNR"). DERIVATIVES AND HEDGING FINANCIAL INSTRUMENTS In the normal course of business, AMLI uses a variety of derivative financial instruments to reduce its exposure to changes in interest rates. AMLI limits these risks by following established risk management policies and procedures. AMLI does not enter into derivative contracts for trading or speculative purposes. Furthermore, AMLI 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 AMLI's hedges are characterized as cash flow hedges and are thus reported at fair value in the consolidated balance sheets. AMLI engages a third-party consultant to determine the fair values of derivative instruments at each balance sheet date. The unrealized gains or 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 or 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. AMLI identifies the debt it is hedging at the time it enters into each derivative contract and records interest expense as payments are made pursuant to interest rate swaps or by amortizing the cost of interest rate caps and Treasury locks over the hedged period, as long as periodic computations confirm the effectiveness of the hedge. If the hedge becomes ineffective, the fair value of the interest rate swap or the unamortized cost of the interest rate cap or Treasury lock that is determined to be ineffective is charged to expense at that time. The following table summarizes the notional amounts and approximate fair value of AMLI's derivative asset and liability under existing interest rate cap and swap contracts. The notional amounts at March 31, 2005 provide an indication of the extent of AMLI'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 (2) - -------- -------- ------ -------- -------- ------- --------- Swap $ 30,000 4.510% 5 years 4/1/09 $ 779 (148) ------- Derivative liability (148) ------- Cap 15,000 4.000% 5 years 4/1/09 927 403 Swap 15,000 4.378% 5 years 4/1/09 371 -- Swap 40,000 3.984% 5 years 12/20/09 -- 897 Swap 40,000 3.984% 5 years 12/20/09 -- 898 Swap 20,000 3.994% 5 years 12/20/09 -- 441 ------- Derivative asset 2,639 -------- ------ ------- $160,000 $2,077 ======== ====== Net asset at March 31, 2005 $ 2,491 ======= At December 31, 2004: Derivative asset $ 548 Derivative liability (1,232) ------- Net liability at December 31, 2004 $ (684) ======= (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. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (2) Represents the approximate amount which AMLI would have paid or received as of March 31, 2005 and December 31, 2004, respectively, if these contracts were terminated. All of AMLI's derivative instruments were reported as other assets or other liabilities at their fair value in the accompanying consolidated balance sheets as of March 31, 2005 and December 31, 2004 and the offsetting adjustments were reported as gains or losses in the consolidated statements of operations or in accumulated other comprehensive loss in shareholders' equity as follows: At At March 31, December 31, 2005 2004 Change --------- ------------ ------ Company's derivative contracts: Interest rate swaps (1)(2) . . $ 2,102 (992) 3,094 Interest rate cap (3). . . . . (524) (614) 90 Treasury locks (4) . . . . . . 484 519 (35) -------- -------- ------ 2,062 (1,087) 3,149 -------- -------- ------ Share of partnerships' derivative contracts: AMLI at Osprey Lake (5). . . . (904) (943) 39 -------- -------- ------ Total . . . . . . . . . . . $ 1,158 (2,030) 3,188 ======== ======== ====== (1) Adjustments to earnings of $9 and $19 due to an ineffectiveness on the interest rate swap contracts were recorded for the three months ended March 31, 2005 and 2004, respectively. (2) AMLI's interest rate swaps are being cash-settled monthly through 2009. (3) Amortization of this interest rate cap, which began in the third quarter of 2004, increased interest expense by $12 for the three months ended March 31, 2005. (4) Amortization of the Treasury locks reduced interest expense by $46 and $26 in the three months ended March 31, 2005 and 2004, respectively. (5) AMLI cash-settled the AMLI at Osprey Lake hedge prior to 2002. The change in the balance of this derivative contract is reflected in earnings for the three months ended March 31, 2005 and 2004. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED REVENUE RECOGNITION Rental revenue -- AMLI leases its residential communities pursuant to operating leases with terms generally of six or twelve months. Rental income is recognized when earned; this method approximates recognition using the straight-line method over the related lease term. Income from partnerships -- the Operating Partnership is entitled to its share of cash flows or liquidation proceeds in excess of its stated ownership percentages based on returns to its partners in excess of specified rates. In such instances, AMLI receives a share of income equal to its share of cash flow in excess of its ownership interest. This income is included in income from partnerships in the consolidated statements of operations. AMLI conducts business through its co-investment partnerships primarily to increase AMLI's return on invested capital as a result of fees and other compensation it earns and to expand AMLI's access to equity capital; otherwise, AMLI conducts business through its co-investment partnerships in the same way it conducts the business of its wholly-owned communities. AMLI is compensated in a variety of ways for the services it provides to these co-investment partnerships or AMLI's partners. Compensation earned by the OP generally includes acquisition fees, disposition fees, development fees, asset management fees, cash flow preferences, financing fees and promoted interests. Compensation earned by the Service Companies includes construction and property management fees. In general, fees are recognized upon completion of the earnings process, regardless of the timing of the receipt of cash. Acquisition and disposition fees are recognized only upon completion of an acquisition or disposition of a community on behalf of a co-investment partnership, and asset management and property management fees are recognized as they are earned as services are provided. AMLI receives development and construction fees from co-investment partnerships during the development period. Development and construction fees are recognized using the percentage of completion (cost-to-cost) method (e.g., 40% of total development and construction fees are recognized when 40% of total costs are incurred) for all development costs. Payment of a portion of development and construction fees earned may, in some instances, be deferred until completion of development and lease-up. Absent indications of inability to complete development or lease-up, this payment deferral does not necessitate deferral of development and construction fees income as recognized on the percentage of completion method. Development and construction fees are presented net of intercompany eliminations to the extent of AMLI's interest in each co- investment partnership. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED PER SHARE DATA The following table presents information necessary to calculate basic and diluted earnings per share for the periods indicated. Three Months Ended March 31, --------------------- 2005 2004 ---------- ---------- Income (loss) from continuing operations . . . $ (843) 3,775 Income from discontinued operations. . . . . . 23,254 2,944 ---------- ---------- Net income . . . . . . . . . . . . . . . . . . 22,411 6,719 Less net income attributable to preferred shares . . . . . . . . . . . . . . (3,038) (1,932) ---------- ---------- Net income attributable to common shares - basic and diluted. . . . . . . . . . . . . $ 19,373 4,787 ========== ========== Weighted average common shares - basic . . . . 25,425,391 21,986,227 Dilutive Options and Other Plan shares (1) . . -- 305,470 Convertible preferred shares (2) . . . . . . . -- -- ---------- ---------- Weighted average common shares - dilutive . . . . . . . . . . . . . . . . . . 25,425,391 22,291,697 ========== ========== Net income per share: Basic. . . . . . . . . . . . . . . . . . . . $ 0.76 0.22 Diluted. . . . . . . . . . . . . . . . . . . $ 0.76 0.21 ========== ========== (1) Income from continuing operations after adjusting for the preferred share allocation results in a loss from continuing operations allocable to common shares; therefore, 291,144 of otherwise dilutive shares are excluded from the denominator in calculating diluted earnings per share for income from continuing and discontinued operations pursuant to Financial Accounting Standards Board Statement No. 128 "Earnings Per Share." (2) Preferred shares are anti-dilutive. During the second quarter of 2004, AMLI adopted the consensus reached in EITF 03-06, (which was effective for fiscal periods beginning after March 31, 2004) "Participating Securities and Two-Class Method under FASB 128" which provides further guidance on the definition of participating securities and requires the use of the two-class method in calculating earnings per share for enterprises with participating securities under SFAS Statement 128, "Earnings per Share." AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Pursuant to EITF 03-06, AMLI's Series B and D convertible preferred shares and (prior to their conversion to common shares) the Series A are considered participating securities. EITF 03-06 requires that each period's income be allocated to participating securities notwithstanding the existence of accumulated deficiency (net income less than dividends) from prior periods. Accordingly, for the reporting periods in which AMLI's net income is in excess of common and preferred dividends, such income is allocated to the common and preferred shares in proportion to their respective interests. During reporting periods in which net income is less than the common and preferred dividends, such deficiency is allocated entirely to the common shares. Income in excess of preferred dividends of $1,106 was allocated to the convertible preferred shares during the three- month period ended March 31, 2005. SHARE-BASED EMPLOYEE COMPENSATION AMLI commenced reporting the value of awarded share options as a charge against earnings for options awarded subsequent to January 1, 2002. AMLI awarded a total of 332,250 options, net of cancellations and exercises, to employees in December 2002 and 433,640 options in January 2005, and is recording the associated expense ratably over the five years ending December 31, 2007 and January 31, 2010, respectively. If AMLI had commenced recording option expense as of the January 1, 1996 the 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 March 31, ------------------------ 2005 2004 ---------- ---------- Net income, as reported: Net income . . . . . . . . . . . . . . . . . $ 22,411 6,719 Net income attributable to preferred shares . . . . . . . . . . . . . (3,038) (1,932) ---------- ---------- Net income attributable to common shares. . . . . . . . . . . . . . . . 19,373 4,787 Share-based compensation expense included in reported net income, net of related tax effects . . . . . . . . . 69 15 Total share-based employee compensation expense determined under fair value based method for all awards, net of related tax effects . . . . . . . . . (66) (61) ---------- ---------- Pro forma net income - basic and diluted . . . $ 19,376 4,741 ========== ========== Earnings per share: Basic - as reported. . . . . . . . . . . . . $ 0.76 0.22 Basic - pro forma. . . . . . . . . . . . . . $ 0.76 0.22 Diluted - as reported. . . . . . . . . . . . $ 0.76 0.21 Diluted - pro forma. . . . . . . . . . . . . $ 0.76 0.21 Starting in 2002, AMLI has awarded restricted shares to employees pursuant to its Restricted Share Plan. AMLI uses the fair-value method to account for the compensation expense associated with these awards, using straight-line amortization over the vesting period. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED CONSOLIDATION OF VARIABLE INTEREST ENTITIES FASB Interpretation No. 46 "Consolidation of Variable Interest Entities," ("FIN 46") addresses consolidation by business enterprises of variable interest entities ("VIEs"). FIN 46 was revised ("FIN 46R") and is applicable for interim periods that end after March 15, 2004. FIN 46R clarifies the application of Accounting Research Bulletin No. 51 "Consolidated Financial Statements," and requires that VIEs in which a business enterprise has a majority variable interest be presented on a consolidated basis in its financial statements. AMLI's adoption of FIN 46R has had no impact on its consolidated financial statements. AMLI conducts a portion of its multifamily investment activities through joint ventures, limited partnerships, limited liability companies and private real estate investment trusts ("partnerships"). Through March 31, 2005, AMLI has co-invested with seventeen investors in 54 co- investments in which AMLI's ownership has ranged from 10% to 75%. Through March 31, 2005, AMLI has completed 21 co-investment programs. AMLI has concluded that its remaining co-investments are not variable interest entities or that the variable interest held is not significant. The co-investment agreements provide for the ability of the partners, members, or investors to make decisions about each entity's activities through voting rights (i.e. 50/50 voting rights for Major Decisions for partnerships), each party has the obligation to absorb expected losses of the co-investment entities and each party has the right to receive the expected residual returns of the entity without limitation. As a result, the co-investment entities' investors do not lack any of the characteristics of a controlling financial interest identified in FIN 46R. AMLI's co-investments provide for disproportionate voting rights (50/50) relative to economic interests resulting principally because of the experience and expertise of AMLI in developing and managing apartment properties. Furthermore, in many of our co-investment arrangements, AMLI is entitled to the investment upside in the form of promoted interests. As a result, AMLI's economic interest in the co-investments can be higher than its stated ownership interest. The institutional investors' economic interest in the co-investments is typically greater than their voting interest. However, substantially all of the activities neither involve nor are they conducted on behalf of the institutional investors. Both AMLI and the institutional investors have substantive voting rights and both are entitled to substantive economic benefit or detriment from their investments. In each of the private real estate investment trusts, the voting rights are proportional to each shareholder's obligation to absorb the expected losses of the entity, to receive the expected residual returns of the entity, or both. Thus the private REITs do not qualify as variable interest entities under FIN 46R. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED RECENTLY ISSUED ACCOUNTING STANDARDS In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Compensation." It replaces SFAS No. 123, "Accounting for Stock Issued to Employees." SFAS No. 123(R) requires that the compensation cost relating to share-based payment transactions be recognized and reported in financial statements. It is required to be applied by us beginning January 1, 2006. We intend to adopt SFAS No. 123(R) using the modified prospective application method which requires, among other things, that we recognize compensation expense for all options awarded prior to January 1, 2002 and outstanding at January 1, 2006 for which the requisite service has not yet been rendered. AMLI's adoption of SFAS No. 123(R) is not expected to have a material effect on our financial statements because we have used a fair value based method of accounting for stock-based compensation costs for all employee stock compensation awards granted, modified or settled since January 1, 2002. In addition, we do not expect to have significant unvested awards outstanding at January 1, 2006 from awards granted for periods prior to January 1, 2002. In December 2004, the FASB issued SFAS No. 153, "Exchange of Nonmonetary Assets, an amendment of APB Opinion No. 29," ("SFAS 153"). The amendments made by SFAS 153 are based on the principle that exchanges of nonmonetary assets should be measured on the fair value of assets exchanged. It eliminates the exception for nonmonetary exchanges of similar productive assets and replaces it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. The statement is effective for nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005. 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. SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," ("SFAS 150") establishes standards for how the issuer of financial instruments classifies and measures instruments that contain characteristics of both liabilities and equity. SFAS 150 requires certain freestanding financial instruments that embody obligations to be classified as liabilities. Further, certain mandatory redeemable financial instruments are required to be measured at their fair value with subsequent changes in fair value recognized in earnings. Redemption value will be computed as the aggregate liquidation preference (original fair value plus any unpaid dividend preference). Both the Series B and D Convertible Preferred Shares are subject to mandatory redemption by the holder in the event of a change in control. EITF D-98, "Classification and Measurement of Redeemable Securities" indicates that if redeemable preferred stock is redeemable currently (for example, at the option of the holder), the security should be adjusted to its redemption amount at each balance sheet date. If the security is not redeemable currently (for example, because a contingency has not been met), and it is not probable that the security will become redeemable, subsequent adjustment is not necessary until it is probable that the security will become redeemable. Since a change in control had not occurred nor was it deemed probable at the balance sheet date, adjustment to the redemption amounts was not deemed appropriate. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Although SFAS 150 generally requires that preferred shares with a mandatory redemption feature be recorded as liabilities reported at fair value, this statement has not affected the accounting for AMLI's preferred shares because of the conversion feature of AMLI's preferred shares. RECLASSIFICATIONS Certain amounts in the consolidated 2004 financial statements of AMLI have been reclassified to conform with the current presentation. These reclassifications have no effect on net income or shareholders' equity as previously presented. 3. INVESTMENTS IN PARTNERSHIPS At March 31, 2005 and December 31, 2004, AMLI had investments in 33 partnerships, with AMLI's ownership percentages ranging from 15% to 75%. Ownership interests as presented are economic interests. AMLI accounts for its investments in unconsolidated partnerships using the equity method of accounting, which is its capital contribution, at cost, less subsequent distributions, and adjusted monthly for its share of the partnership's income or loss. For co-investments, AMLI applies the guidance set forth in paragraph 9 of SOP 78-9 to determine whether it has control over the co-investment and should consolidate. Each co-investment agreement grants AMLI's partner "important rights" such as the right to approve the acquisition, sale or refinancing of real estate as well as approval rights related to annual budgets. These rights indicate that AMLI does not have a controlling interest in the ventures, and accordingly, AMLI's interest is accounted for using the equity method. AMLI's total ownership interest in its co-investment communities exceeds 50% in two instances. Its 75% interest in one community is a limited partnership interest, and its partner is the sole general partner. The other community is owned in a tiered investment structure, and AMLI's partners share voting control in that instance as well. AMLI's investments in partnerships differ from AMLI's shares of partnerships' equity primarily due to capitalized interest on its investments in communities developed, purchase/sale price basis differences and the elimination of AMLI'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 are summarized as follows: AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED As of As of March 31, December 31, 2005 2004 ---------- ------------ Total assets . . . . . . . . . . . . . . $1,013,061 1,021,610 ========== ========== Total debt . . . . . . . . . . . . . . . $ 620,002 616,522 ========== ========== Total equity . . . . . . . . . . . . . . $ 365,777 373,028 AMLI's share of equity . . . . . . . . . 113,972 116,559 ========== ========== AMLI's investment in partnerships. . . . $ 115,445 117,986 Distributions in excess of investments in and earnings from partnerships. . . . . . . . . . . 6,482 6,368 ---------- ---------- Total. . . . . . . . . . . . . . . . . . $ 121,927 124,354 ========== ========== Details of the differences between AMLI's aggregate investment in partnerships and its aggregate share of equity as recorded on the books of these partnerships, net of accumulated amortization as of March 31, 2005 and December 31, 2004 are as follows: March 31, December 31, 2005 2004 ---------- ------------ AMLI's share of equity in partnerships . . . . . . . . . . . . . $ 113,972 116,559 Capitalized interest . . . . . . . . . . 4,535 4,565 Deferred fee income. . . . . . . . . . . (5,304) (5,311) Deferred construction profits. . . . . . (1,409) (1,434) Other comprehensive loss . . . . . . . . (904) (943) Other, net . . . . . . . . . . . . . . . 4,555 4,550 ---------- ---------- AMLI's investment in partnerships. . . . $ 115,445 117,986 ========== ========== AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Investments in partnerships at March 31, 2005 and AMLI's share of 2005 income or loss from each are detailed below:
AMLI's AMLI's Owner- Equity Total Share AMLI's ship ----------------- AMLI's Net of Net Share of Percen- Total AMLI's Invest- Income Income Deprecia- Total Community tage Assets Total Share ment (Loss) (Loss) tion Revenues - --------- ------- ---------- ------- -------- --------- ------- --------- --------- -------- AMLI: at Barrett Lakes 35% $ 21,542 6,064 2,122 2,075 194 111 66 1,124 at Fox Valley 25% 20,286 19,336 4,834 4,949 288 72 36 774 at Northwinds 35% 45,465 11,974 4,191 3,875 409 237 120 2,176 on the Parkway 25% 12,645 2,867 714 407 5 1 27 559 at Deerfield 25% 14,356 2,187 544 399 (19) (5) 28 610 at Monterey Oaks 25% 25,790 25,313 6,328 6,311 291 73 59 1,024 at St. Charles 25% 37,582 36,448 9,112 9,141 551 138 73 1,281 at Mill Creek 25% 23,394 5,688 1,422 1,566 110 27 51 939 at Prestonwood Hills 45% 15,780 4,540 2,057 2,052 17 28 52 641 at Windward Park 45% 24,578 7,178 3,254 3,247 27 28 80 851 at Summit Ridge 25% 24,689 5,193 1,298 981 12 3 61 998 Midtown 45% 29,930 8,645 3,921 3,905 92 64 103 1,254 on Frankford 45% 35,363 10,061 4,564 4,549 (35) 43 135 1,425 at Peachtree City 20% 26,235 25,904 5,181 3,321 299 60 38 806 at Kedron Village 20% 17,896 17,675 3,535 3,505 263 53 28 639 at Scofield Ridge 45% 33,942 9,757 4,426 4,461 (359) (151) 119 1,025 at Breckinridge Point 45% 30,419 8,907 4,039 4,023 (23) 9 109 1,101 at Cambridge Square 30% 29,841 8,401 2,520 3,257 117 35 75 960 Towne Square 45% 30,020 9,016 4,087 4,037 42 38 105 1,090 at Lowry Estates 50% 46,863 13,809 6,905 6,845 (239) (120) 180 1,066 at King's Harbor 25% 17,592 17,304 4,326 4,498 177 44 44 717 at Milton Park 25% 33,558 11,026 2,756 3,455 180 119 67 1,221 at Osprey Lake 69% 49,057 13,431 10,136 9,183 (248) (170) 253 1,400 at Seven Bridges 20% 77,724 24,757 4,951 6,218 (875) (175) 101 1,389 AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED AMLI's AMLI's Owner- Equity Total Share AMLI's ship ----------------- AMLI's Net of Net Share of Percen- Total AMLI's Invest- Income Income Deprecia- Total Community tage Assets Total Share ment (Loss) (Loss) tion Revenues - --------- ------- ---------- ------- -------- --------- ------- --------- --------- -------- AMLI: at Barrett Walk 25% 17,540 5,173 1,314 1,435 129 72 39 731 at Park Meadows 25% 53,941 24,611 6,148 6,068 134 65 98 1,379 at Bryan Place 48% 37,998 11,422 5,483 5,375 90 84 135 1,097 Downtown 30% 45,838 15,585 4,675 5,717 (418) (125) 86 671 at Museum Gardens 25% 58,046 22,236 5,559 7,081 (617) (154) 69 257 ---------- ------- -------- -------- ------- ------- -------- -------- 937,910 384,508 120,402 121,936 594 504 2,437 29,205 Other -- -- -- (9) 28 (12) -- -- ---------- ------- -------- -------- ------- ------- -------- -------- 937,910 384,508 120,402 121,927 622 492 2,437 29,205 ---------- ------- -------- -------- ------- ------- -------- -------- AMLI: at Windbrooke (1) 15% 14,882 (6,069) (1,036) (1,036) (28) (9) 18 736 at Chevy Chase (1) 33% 38,326 (9,978) (4,128) (4,128) (130) (44) 102 1,742 at River Park (1) 40% 12,054 (2,117) (847) (960) 36 15 37 581 at Lost Mountain (1) 75% 9,889 (567) (419) (358) (102) (76) 66 350 ---------- ------- -------- -------- ------- ------- -------- -------- 75,151 (18,731) (6,430) (6,482) (224) (114) 223 3,409 ---------- ------- -------- -------- ------- ------- -------- -------- Total as of March 31, 2005 $1,013,061 365,777 113,972 115,445 398 378 2,660 32,614 ========== ======= ======== ======== ======= ======= ======== ======== Total as of December 31, 2004 $1,021,610 373,028 116,559 117,986(2) ========== ======= ======== ======== Total as of March 31, 2004 $11,469(3) 1,503(4) 2,590 32,825 ======= ======= ======== ======== AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (1) The partners in these partnerships have received a return of their original capital, resulting in the negative investment balances that are included in distributions in excess of investments in and earnings from partnerships in the accompanying consolidated balance sheet as of December 31, 2005. (2) Net of $6,368 negative investment balances that were included in distributions in excess of investments in and earnings from partnerships as of December 31, 2004. (3) Includes $9,438 of gain on sale of a community sold during the first quarter of 2004. (4) Excludes $2,360 share of gain on sale of a community sold during the first quarter of 2004 reported as share of gain on sale of a partnership community in the accompanying consolidated statement of operations as of March 31, 2004.
AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED AMLI's share of income from partnerships for the three months ended March 31, 2005 and 2004 is summarized as follows: Three Months Ended March 31, ----------------------- 2005 2004 ---------- ---------- Total revenues . . . . . . . . . . . . . . . . . $ 32,614 32,825 ========== ========== Net income excluding gain on sale. . . . . . . . $ 398 2,031 Gain on sale of a rental community . . . . . . . -- 9,438 ---------- ---------- Total net income . . . . . . . . . . . . . . . . $ 398 11,469 ========== ========== AMLI's share of net income excluding gain on sale (1) . . . . . . . . . . . . . . . $ 378 1,503 AMLI's share of gain on sale of a rental community (2) . . . . . . . . . . . . . -- 2,360 ---------- ---------- Total AMLI's share of net income . . . . . . . . $ 378 3,863 ========== ========== AMLI's share of depreciation . . . . . . . . . . $ 2,660 2,590 ========== ========== (1) During the three months ended March 31, 2005 and 2004 the Operating Partnership received cash flow or accrued its cash flow preference anticipated to be received in future periods and recorded operating income in excess of its ownership percentages of $675 and $1,066, respectively. (2) AMLI's share of gain on sale reported in the consolidated statement of operations for the three months ended March 31, 2004 includes $288 of income previously deferred on AMLI's books and recognized in income upon sale of the community. All but one of the partnerships' debt financings obtained from various financial institutions are at fixed rates. All of the fixed-rate first mortgage loans are non-recourse mortgage notes secured by mortgages on the respective communities. One unsecured loan was obtained from AMLI at a fixed rate. At March 31, 2005, the partnerships' debt was as follows: AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED AMLI's Ownership Total Outstand- Percen- Commitment ing at Interest Community tage (1) 3/31/05 Rate Maturity - --------- --------- ---------- --------- -------- --------- AMLI: at Osprey Lake (2) 69% $ 1,200 1,200 6.00% on demand Downtown 30% 30,920 28,621 L+2.00% June 2006 at Prestonwood Hills 45% 11,649 10,901 7.17% Aug. 2006 at Windward Park 45% 18,183 17,035 7.27% Aug. 2006 Midtown 45% 21,945 20,711 7.52% Dec. 2006 at Deerfield 25% 12,600 11,897 7.56% Dec. 2006 on Frankford 45% 25,710 24,591 8.25% June 2007 at Scofield Ridge 45% 24,618 23,479 7.70% Aug. 2007 at Breckinridge Point 45% 22,110 21,064 7.57% Sep. 2007 Towne Square 45% 21,450 20,468 6.70% Jan. 2008 at Lowry Estates 50% 33,900 32,478 7.12% Jan. 2008 at Summit Ridge 25% 20,000 19,139 7.27% Feb. 2008 at River Park 40% 15,100 13,901 6.86%(3) June 2008 on the Parkway 25% 10,800 9,527 6.75% Jan. 2009 at Mill Creek 25% 18,000 17,384 6.40% May 2009 at Chevy Chase 33% 48,000 46,164 7.11% June 2009 at Park Meadows (4) 25% 28,500 28,500 6.25% July 2009 at Bryan Place (4) 48% 26,200 26,200 5.81% Aug. 2009 at Barrett Lakes 35% 16,680 15,083 8.50% Dec. 2009 at Northwinds 35% 33,800 32,417 8.25% Oct. 2010 at Seven Bridges 20% 51,000 51,000 7.25% Jan. 2011 at Osprey Lake 69% 35,320 32,440 7.02% Mar. 2011 at Windbrooke 15% 20,800 20,078 6.43% Mar. 2012 at Museum Gardens (5) 25% 37,000 30,803 7.25% July 2013 at Barrett Walk 25% 12,000 12,000 5.19% Nov. 2013 at Cambridge Square 30% 20,900 20,900 5.19% Nov. 2013 at Milton Park 25% 22,000 22,000 5.10% May 2014 at Lost Mountain 75% 10,252 10,021 6.84% Nov. 2040 -------- -------- $650,637 620,002 ======== ======== (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) This is a second mortgage loan provided by AMLI to pay down this community's first mortgage debt, as required by the loan agreement. (3) Consists of $9,100 at 7.75% and $6,000 at 5.50%. (4) These loans provide for payment of interest only through maturity. (5) This is a combination construction/permanent loan which is being funded to the total commitment as development is completed. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 4. THE SERVICE COMPANIES Detail of the assets of the Service Companies, which are included in various accounts in the accompanying consolidated balance sheets at March 31, 2005 and December 31, 2004, is provided for additional information as follows: March 31, December 31, 2005 2004 -------- ------------ Rental communities under development and held for sale (1). . $ 10,376 10,360 Land held for sale, net of allowance for loss of $1,597 . . . . 15,779 13,697 Office building, net of accumulated depreciation . . . . . . 2,038 2,080 Information technology costs, net of accumulated depreciation. . . 6,788 7,294 Net deferred tax asset . . . . . . . . 4,654 3,999 Receivables. . . . . . . . . . . . . . 1,940 2,058 Cash . . . . . . . . . . . . . . . . . 2,183 1,447 Other (2). . . . . . . . . . . . . . . 1,861 1,828 -------- -------- Total. . . . . . . . . . . . . . . . . $ 45,619 42,763 ======== ======== (1) Total costs reported in the consolidated balance sheets at March 31, 2005 and December 31, 2004 include $175 and $194, respectively, of costs capitalized and recorded on the OP's books. (2) Includes $29 and $46 as of March 31, 2005 and December 31, 2004, respectively, representing the Service Companies' 50% limited partnership interest in AMLI at Newnan Lakes, a 248- unit apartment community near Atlanta, Georgia, which was built for sale. This investment is accounted for using the equity method of accounting. The Service Companies' 50% share of this partnership's non-recourse first mortgage loan, which carries an interest rate of 7.1%, and matures in 2043, is $7,924 and $7,933 at March 31, 2005 and December 31, 2004, respectively. On March 1, 2005, the Service Companies agreed to sell their limited partnership interest in Park Creek-Newnan, L.P. to the general partner for cash. On March 2, 2005, the general partner paid a $35 non-refundable earnest money deposit, which will be applied to the purchase price. Closing is anticipated to occur later in 2005. AMLI anticipates no material gain or loss from this sale. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Detail of the Service Companies' deferred tax asset and deferred tax liability is as follows: March 31, December 31, 2005 2004 -------- ------------ Deferred tax asset: Net operating loss carryforwards . . $ 3,508 3,018 Goodwill . . . . . . . . . . . . . . 303 321 Deferred compensation. . . . . . . . 380 450 Other. . . . . . . . . . . . . . . . 2,237 2,005 -------- -------- Total gross deferred tax asset . 6,428 5,794 Less valuation allowance . . . . . . -- -- -------- -------- Net deferred tax asset . . . . . 6,428 5,794 -------- -------- Deferred tax liability: Property and equipment, principally due to differences in depreciation. . . . . . . . . . (1,272) (1,344) Compensation for employee stock options. . . . . . . . . . . (281) (266) Other. . . . . . . . . . . . . . . . (221) (185) -------- -------- Total gross deferred tax liability. . . . . . . . . (1,774) (1,795) -------- -------- Net deferred tax asset . . . . . $ 4,654 3,999 ======== ======== In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Management is of the opinion that it is more likely than not that substantially all of the net deferred tax asset as of March 31, 2005 will be recovered from future profitable operations of the Service Companies based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax asset is deductible. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 5. OTHER ASSETS Other assets reported in the accompanying consolidated balance sheets are as follows. March 31, December 31, 2005 2004 ---------- ------------ Short-term working capital assets: Accounts receivable . . . . . . . . . $ 2,625 2,673 Development fees receivable . . . . . 128 106 Prepaid expenses. . . . . . . . . . . 1,008 1,060 Advances to affiliates. . . . . . . . 31 186 -------- -------- 3,792 4,025 -------- -------- Other: Notes receivable. . . . . . . . . . . 3,238 3,238 Deposits. . . . . . . . . . . . . . . 1,654 2,031 Restricted cash . . . . . . . . . . . 530 514 Deferred development costs. . . . . . 1,139 750 Office building and leasehold improvements, net of accumulated depreciation. . . . . . . . . . . . 2,038 2,080 Information technology costs, net of accumulated depreciation . . 6,788 7,294 Net deferred tax asset. . . . . . . . 4,654 3,999 Derivative asset. . . . . . . . . . . 2,639 548 Other . . . . . . . . . . . . . . . . 2,197 2,567 -------- -------- 24,877 23,021 -------- -------- Total (1) . . . . . . . . . . . . . . . $ 28,669 27,046 ======== ======== (1) Includes $95 and $99 associated with the communities held for sale at March 31, 2005 and December 31, 2004, respectively. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 6. DEBT The table below presents certain information relating to AMLI's indebtedness at March 31, 2005 and December 31, 2004.
Balance Balance Original at Interest Maturity at Amount 3/31/05 Rate Date 12/31/04 -------- ------- ----------- -------- -------- UNSECURED BOND FINANCINGS: Tax-Exempt AMLI at Poplar Creek (1) $ 9,500 9,500 Rate+1.46% 2/1/24 9,500 -------- ------- ------- MORTGAGE NOTES PAYABLE TO FINANCIAL INSTITUTIONS: AMLI at Bishop's Gate 15,380 13,106 7.25% (2) 8/1/05 13,192 AMLI at Regents Center 20,100 18,164 (3) 8.90% (4) 9/1/05 18,241 AMLI on the Green/AMLI of North Dallas (5) 43,234 36,581 7.79% 5/1/06 36,846 AMLI at Oak Bend (6) 19,878 18,416 5.62% 12/1/06 18,564 AMLI at Danada Farms (7) 46,234 43,801 4.51% 3/1/07 44,018 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 11,950 6.95% 1/15/08 12,003 AMLI at McGinnis Ferry (8) 25,404 24,358 5.04% 7/1/10 -- AMLI - various (9) 140,000 133,797 6.56% 7/1/11 134,268 AMLI on Eldridge Parkway 32,709 32,387 5.36% 6/1/14 32,500 AMLI at Riverbend 45,000 44,619 4.85% 8/1/14 44,788 AMLI at Park Creek (10) 10,322 10,256 5.65% 12/1/38 10,281 -------- ------- ------- Total mortgage notes payable 444,841 421,135 398,401 -------- ------- ------- UNSECURED OTHER NOTES PAYABLE: Primary line of credit (11) (12) 240,000 142,000 L+1.00% 5/19/06 126,000 Secondary line of credit (12) 16,000 -- L+1.20% 5/19/06 -- Term loan (13) 110,000 110,000 L+1.00% 12/19/08 110,000 Other (14) 9,200 5,600 L+0.675% on demand 10,000 -------- ------- ------- Total other notes payable 375,200 257,600 246,000 -------- ------- ------- Total $829,541 688,235 653,901 ======== ======= ======= 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. The credit enhancement for the AMLI at Poplar Creek bonds consists of a $9,628 letter of credit from a financial institution that expires on November 15, 2005. (2) This original $14,000 mortgage note bears interest at 9.1%. For financial reporting purposes, this mortgage note was valued at $15,380 to reflect a 7.25% market rate of interest when assumed in connection with the acquisition of AMLI at Bishop's Gate on October 17, 1997. The unamortized premium at March 31, 2005 and December 31, 2004 was $57 and $95, respectively. AMLI intends to prepay this loan without penalty on June 2, 2005. (3) This loan provides for partial recourse to the partners of the Operating Partnership. (4) Consists of $13,800 at 8.73% and $6,300 at 9.23%. AMLI intends to prepay this loan without penalty as of June 1, 2005. (5) These two communities secure a loan that was sold at a discount of $673. At March 31, 2005 and December 31, 2004, the unamortized discount was $73 and $90, respectively. This loan is prepayable without penalty in November 2005. (6) Represents debt assumed by AMLI as a result of acquisition of 60% interest in the community that AMLI did not already own. The original mortgage balance of $18,079 bears 7.81% interest, which, at the time of the acquisition, was valued at $19,123 for financial reporting purposes to reflect a 4.16% market-rate interest on 60% of the balance assumed and 7.81% interest rate on the remaining 40%. The unamortized premium at March 31, 2005 and December 31, 2004 was $600 and $690, respectively. (7) Represents $23,249 original mortgage balance assumed upon acquisition of 90% interest in the community that AMLI did not already own and $20,000 additional mortgage financing from the same lender following the acquisition. The original mortgage note bears interest at 7.33% and was valued at $24,982 for financial reporting purposes to reflect a 4.48% market-rate interest on 90% of the balance assumed and 7.33% interest rate on the remaining 10%. The unamortized premium at March 31, 2005 and December 31, 2004 was $996 and $1,126, respectively. The additional $20,000 bears interest at 4.48%. (8) Represents debt assumed by AMLI upon acquisition of AMLI at McGinnis Ferry on February 25, 2005. The original mortgage note bears interest at 8.20%, which was valued at $24,440 to reflect a 5.04% market-rate interest on the balance assumed. The unamortized premium at March 31, 2005 is $2,842. (9) This loan is secured by seven communities (AMLI at Westcliff, AMLI at Lantana Ridge, AMLI at StoneHollow, AMLI at Medical Center, AMLI at Killian Creek, AMLI at Eagle Creek and AMLI at Gateway Park). In connection with the sale of AMLI at Western Ridge in December 2002, AMLI obtained a release of its mortgage by substituting another wholly-owned community, AMLI at the Medical Center. In connection with the sale of AMLI at Bent Tree in February 2005, AMLI obtained a release of its mortgage by substituting a wholly-owned community, AMLI at Westcliff. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (10) This loan was refinanced on June 21, 2004. The refinancing lowered the interest rate on this loan from 7.88% to 5.65% without accelerating its maturity date. AMLI paid a $502 prepayment penalty upon closing of this refinancing, which amount, together with $619 in unamortized deferred cost associated with placing the original loan, was charged to expense at that time as the refinancing was considered an extinguishment of debt pursuant to EITF 96-19, "Debtor's Accounting for a Substantive Modification and exchange of Debt Instruments." (11) In the third quarter 2003 AMLI 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. (12) AMLI's $240,000 unsecured line of credit is provided by a group of eight banks and will mature in May 2006. AMLI has an option to extend the maturity by one year. This line of credit carries an interest rate of LIBOR plus 1.00% (approximately 3.8% at March 31, 2005 including an annual facility fee of 20 basis points). AMLI uses the unsecured line of credit for acquisition and development activities and working capital needs. This unsecured line of credit requires that AMLI meet various covenants typical of such an arrangement, including minimum net worth, minimum debt service coverage and maximum debt to equity percentage. Certain of these covenants were modified effective with the December 29, 2004 second amendment of the line of credit and at March 31, 2005 AMLI is in compliance with these covenants. A separate $16,000 unsecured line of credit obtained from one of the lenders, pursuant to which AMLI may issue letters of credit, contains terms and conditions substantially the same as exist under AMLI's primary unsecured line of credit. (13) In December 2004, AMLI closed on a $110,000 unsecured floating-rate four-year term loan with a bank group that includes Wells Fargo Bank, N.A., as Administrative Agent, PNC Bank National Association, Commerzbank AG, and Comerica Bank. This term loan carries an interest rate of LIBOR plus one (approximate effective interest rate is 3.6% at March 31, 2005). AMLI also entered into interest rate swap agreements for the period July 1, 2005 through December 20, 2009 effectively fixing the interest rate on $100,000 of the variable-rate term loan at a rate of 3.99% plus the loan spread, or 4.99%. (14) Several of AMLI's co-investment partnerships participate in a short-term investment program where short-term cash balances are invested by each partnership in unsecured demand notes payable by AMLI. Each partnership withdraws funds from this investment account on an "as needed basis" to fund its disbursements, which could be daily. At March 31, 2005 and December 31, 2004, the effective interest rate paid by AMLI on these demand notes was 2.93% and 2.30%, respectively.
AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED As of March 31, 2005, the scheduled contractual maturities of AMLI'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 ---------- ------------- --------- -------- ------- 2005 . . . . $ -- 36,536 -- 5,600 42,136 2006 . . . . -- 59,386 142,000 -- 201,386 2007 . . . . -- 79,995 -- -- 79,995 2008 . . . . -- 15,925 110,000 -- 125,925 2009 . . . . -- 4,896 -- -- 4,896 Thereafter . 9,500 224,397 -- -- 233,897 ------- ------- ------- ------ ------- $ 9,500 421,135 252,000 5,600 688,235 ======= ======= ======= ====== ======= At March 31, 2005, 24 of AMLI's 44 wholly-owned stabilized communities are unencumbered. 7. OTHER LIABILITIES Other liabilities reported in the accompanying consolidated balance sheets as of the dates presented are as follows: March 31, December 31, 2005 2004 ---------- ------------ Short-term working capital liabilities: Accrued interest payable . . . . . . . $ 2,750 2,431 Estimated accrued real estate taxes payable. . . . . . . . . . . . 14,267 19,843 Accrued general and administra- tive expenses. . . . . . . . . . . . 1,232 1,542 Accrued community rental expenses. . . 6,758 7,129 -------- -------- 25,007 30,945 -------- -------- Other: Construction costs payable . . . . . . 2,963 1,729 Security deposits and prepaid rents. . . . . . . . . . . . 4,777 4,690 Interest rate swap liability . . . . . 148 1,232 Accrued employee benefits. . . . . . . 719 1,266 Other (1) (2). . . . . . . . . . . . . 1,744 2,896 -------- -------- 10,351 11,813 -------- -------- Total (3). . . . . . . . . . . . . . $ 35,358 42,758 ======== ======== (1) Includes $264 and $556 of deferred gain at March 31, 2005 and December 31, 2004, respectively, resulting from a sale of a community in 2004, which is net of $279 and $53 recognized to income during the three months ended March 31, 2005 and December 31, 2004, respectively. The remainder is anticipated to be recognized in the second quarter of 2005 following completion of improvements to the community sold. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (2) Includes $953 and $1,050 at March 31, 2005 and December 31, 2004, respectively, in deferred income from "door fees" received pursuant to cable television contracts, which amount is being amortized to earnings over the lives of the respective cable contracts (generally 7-12 years). (3) Includes $419 and $2,652 of other liabilities associated with the communities held for sale at March 31, 2005 and December 31, 2004, respectively. 8. COMMUNITY RENTAL EXPENSES Details of rental expenses reported in the accompanying consolidated statements of operations for the periods presented are as follows. Three Months Ended March 31, -------------------- 2005 2004 -------- -------- Personnel. . . . . . . . . . . . . . . . . . . . . $ 4,099 2,871 Advertising and promotion. . . . . . . . . . . . . 817 490 Utilities. . . . . . . . . . . . . . . . . . . . . 1,106 850 Building repairs and maintenance . . . . . . . . . 1,959 1,185 Landscaping and grounds maintenance. . . . . . . . 473 336 Real estate taxes. . . . . . . . . . . . . . . . . 5,562 3,909 Insurance. . . . . . . . . . . . . . . . . . . . . 678 588 Property management fees . . . . . . . . . . . . . 1,153 851 Other rental expenses. . . . . . . . . . . . . . . 519 232 -------- -------- Total. . . . . . . . . . . . . . . . . . . . . . . $ 16,366 11,312 ======== ======== 9. INCOME TAXES AMLI believes it 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. AMLI's current dividend payment level equals an annual rate of $1.92 per common share and AMLI anticipates that all dividends paid in 2005 will be fully taxable. AMLI expects that it will distribute at least 100% of its taxable income. AMLI anticipates that at least 50% of total dividends paid during 2005 will be characterized as income taxable at capital gains rates for Federal income tax purposes. 10. SEGMENT REPORTING In accordance with SFAS No. 131, "Disclosure About the Segment of an Enterprise and Related Information," AMLI presents segment information based on the way that management organizes the segments within the enterprise for making operating decisions and assessing performance. The segment information is prepared on substantially the same basis as the internally reported information used by AMLI's chief operating decision makers to manage the business. AMLI's two reportable segments are its multifamily rental operations and the Service Companies' operations. With the exception of non-material amounts relating to non-segment assets, all other profits or losses relate to AMLI's multifamily rental operations. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED AMLI does not derive any of its consolidated revenues from foreign countries and does not have any major customers that individually account for 10% or more of AMLI's consolidated revenues. Information presented for AMLI's co-investment communities is the sum of the revenues, sum of the NOI, and sum of the assets of all the co- investment communities. The method used to determine segment information relating to the co-investment communities is not in accordance with GAAP. AMLI accounts for its investments in unconsolidated co-investment partnerships using the equity method of accounting in accordance with GAAP. The revenues, NOI, FFO and assets for AMLI's reportable segments are summarized as follows: Three Months Ended March 31, ------------------------ 2005 2004 ---------- ---------- Segment revenues: Multifamily rental operations: Wholly-owned communities . . . . . . . . . . $ 37,467 27,640 Co-investment communities at 100%. . . . . . 32,492 32,766 ---------- ---------- 69,959 60,406 Service Companies' operations . . . . . . . . 14,310 17,712 ---------- ---------- Total segment revenues. . . . . . . . . . . . 84,269 78,118 Discontinued operations . . . . . . . . . . . 702 6,906 ---------- ---------- Total segment revenues including discontinued operations . . . . . . . . . . 84,971 85,024 Reconciling items to consolidated revenues: Fee income. . . . . . . . . . . . . . . . . 260 433 Unconsolidated co-investment partnerships . (32,492) (32,766) Service Companies' eliminations for related party . . . . . . . . . . . . . . (8,941) (4,132) Discontinued operations . . . . . . . . . . (702) (6,906) ---------- ---------- Total consolidated revenues - continuing operations . . . . . . . . . . . $ 43,096 41,653 ========== ========== NOI: Multifamily rental operations: Wholly-owned communities . . . . . . . . . . $ 21,101 16,328 Co-investment communities at 100%. . . . . . 18,857 19,538 ---------- ---------- 39,958 35,866 Service Companies' operations . . . . . . . . (787) (444) ---------- ---------- 39,171 35,422 Discontinued operations . . . . . . . . . . . 178 3,969 ---------- ---------- Total segment NOI including discontinued operations . . . . . . . . . . . . . . . . . 39,349 39,391 ---------- ---------- AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Three Months Ended March 31, ------------------------ 2005 2004 ---------- ---------- Reconciling items to consolidated net income from continuing operations: Unconsolidated co-investment partnerships: Unconsolidated co-investment NOI at 100% . 18,857 19,538 Co-investment partners' share of NOI . . . (12,230) (12,435) ---------- ---------- AMLI's share of NOI. . . . . . . . . . . . 6,627 7,103 AMLI's share of depreciation . . . . . . . (2,660) (2,590) AMLI's share of interest and amortization of deferred costs. . . . . . . . . . . . (3,905) (3,763) AMLI's share of other income . . . . . . . 373 795 AMLI's share of other expenses . . . . . . (57) (42) ---------- ---------- AMLI's share of income from partnerships . 378 1,503 ---------- ---------- Unconsolidated co-investment gain on sale of a community . . . . . . . . . -- 9,438 Co-investment partners' share of gain of a partnership's community . . . . . . -- (7,078) ---------- ---------- AMLI's share of gain on sale of a partnership's community on partnership's books. . . . . . . . . . . -- 2,360 Income previously deferred on AMLI's books . . . . . . . . . . . . . . -- 288 ---------- ---------- AMLI's share of gain on sale of a partnership's community on AMLI's books . . . . . . . . . . . . . . -- 2,648 ---------- ---------- Unconsolidated co-investment NOI at 100%. . . . . . . . . . . . . . . (18,857) (19,538) ---------- ---------- Other income (expenses): Fee income. . . . . . . . . . . . . . . . . . 260 433 Other income. . . . . . . . . . . . . . . . . 359 752 Depreciation. . . . . . . . . . . . . . . . . (11,304) (8,641) Interest and amortization of deferred costs. . . . . . . . . . . . . . . . . . . . (8,910) (7,257) General and administrative. . . . . . . . . . (1,961) (2,196) ---------- ---------- (21,556) (16,909) ---------- ---------- Income (loss) from operations. . . . . . . . . (686) 7,095 Discontinued operations. . . . . . . . . . . . (336) (3,176) ---------- ---------- AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Three Months Ended March 31, ------------------------ 2005 2004 ---------- ---------- Income (loss) from continuing operations . . . (1,022) 3,919 Reconciliation to FFO: Income from discontinued operations before minority interest. . . . . . . . . . . . . . 336 3,176 Depreciation (1) . . . . . . . . . . . . . . . 11,304 8,641 Share of partnerships' depreciation. . . . . . 2,660 2,590 Share of gain on sale of a co-investment community. . . . . . . . . . . . . . . . . . -- (2,648) ---------- ---------- FFO. . . . . . . . . . . . . . . . . . . . $ 13,278 15,678 ========== ========== March 31, December 31, 2005 2004 ---------- ------------ Segment assets: Multifamily rental communities: Wholly-owned communities . . . . . . . . . . $1,307,361 1,206,299 Co-investment communities at 100%. . . . . . 1,128,410 1,124,390 ---------- ---------- 2,435,771 2,330,689 Service Companies' assets . . . . . . . . . . 35,243 32,403 ---------- ---------- 2,471,014 2,363,092 Rental communities held for sale, net of accumulated depreciation: Wholly-owned communities (2). . . . . . . . -- 49,607 Service Companies' community (3). . . . . . 10,376 10,360 Costs capitalized on the OP's books relating to a Service Companies' community . . . . . . . . . . . . . . . . 175 194 ---------- ---------- 2,481,565 2,423,253 Accumulated depreciation. . . . . . . . . . . (147,471) (136,168) ---------- ---------- Total segment assets. . . . . . . . . . . . . 2,334,094 2,287,085 Non-segment assets. . . . . . . . . . . . . . 36,155 36,374 Investment in partnerships. . . . . . . . . . 121,927 124,354 Unconsolidated co-investment partnerships . . . . . . . . . . . . . . . . (1,128,410) (1,124,390) ---------- ---------- Total consolidated assets. . . . . . . . . . . $1,363,766 1,323,423 ========== ========== (1) Includes discontinued operations. (2) Net of accumulated depreciation of $14,360 for the period ended December 31, 2004. (3) This community was built for sale and is not being depreciated. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 11. RELATED PARTY TRANSACTIONS During the three months ended March 31, 2005 and 2004, AMLI accrued or paid to partnerships $60 and $34, respectively, of interest on short- term investments made by the partnerships. AMLI and the Service Companies earned and received from partnerships fees and other income as follows: Three Months Ended March 31, ---------------- 2005 2004 ------ ------ Property management fees . . . . . . . . . . . . . . $1,476 1,275 Asset management fees. . . . . . . . . . . . . . . . 164 166 Development fees . . . . . . . . . . . . . . . . . . 96 267 General contractor fees. . . . . . . . . . . . . . . 20 106 Computer rental and utility billing fees . . . . . . 68 48 Promoted interest. . . . . . . . . . . . . . . . . . 252 254 Interest on notes and advances to affiliates . . . . 18 294 ====== ====== In addition, during the three months ended March 31, 2005 and 2004, total revenues of $642 and $771, respectively, were generated from leases of apartment homes of co-investment communities through ACH. In September 2002, AMLI entered into an agreement with an affiliate of one of AMLI's Executive Vice Presidents to test and possibly implement a software application developed by this entity, in which AMLI has no ownership interest. AMLI's maximum commitment under this agreement is $300. AMLI is entitled to share in any proceeds from the successful marketing and sale of this software application to third parties. On July 10, 2003, AMLI was named as beneficiary to a software sale agreement, pursuant to which AMC will receive a minimum of $863 and a maximum of $1,350 in royalties over the five-year period ending December 31, 2007. Through March 31, 2005 no income or loss has been recognized as a result of this agreement. 12. COMMITMENTS AND CONTINGENCIES LETTERS OF CREDIT AND GUARANTEES At March 31, 2005, AMLI was contingently liable with respect to $15,684 bank letters of credit issued to secure commitments made in the ordinary course of business by AMLI and its co-investment partnerships. At March 31, 2005, AMLI was contingently liable with respect to guarantees issued to secure undertakings made by various unconsolidated affiliates, including the guaranty of $12,368 of the construction financing for AMLI's 30% owned AMLI Downtown community. AMLI could be required to perform under this guarantee if the construction loan guaranteed were not repaid or extended prior to its maturity in June 2006. AMLI anticipates that no such contingent liability will be realized, and that the various letters of credit and guarantees will eventually expire. AMLI estimates that the aggregate fair value of all such letters of credit and guarantees is less than $200. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 13. SUBSEQUENT EVENTS On April 8, 2005 AMLI filed a new shelf registration pursuant to which AMLI may from time to time sell up to $300,000 of AMLI common and preferred shares and warrants to purchase AMLI common and preferred shares in any combination. The registration became effective April 29, 2005. AMLI intends to enter into sales agreements with brokerage firms in May 2005 for the purpose of selling up to 1,000,000 AMLI common shares in at- the-market offerings from time to time. On April 25, 2005, the shareholders of AMLI Residential Properties Trust, a Maryland real estate investment trust (the "Trust"), approved Articles of Amendment (the "Amendment") to the Trust's Amended and Restated Declaration of Trust providing for the declassification of the board of trustees of the Trust. The Amendment was filed with the State Department of Assessments and Taxation of Maryland on April 26, 2005. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the consolidated financial statements of Amli Residential Properties Trust ("AMLI" or the "Company") as of March 31, 2005 and December 31, 2004 and for the three months ended March 31, 2005 and 2004, and related notes. 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. The discussion should also be read in conjunction with the financial statements and notes thereto and the critical accounting policies and estimates included in AMLI's December 31, 2004 Annual Report on Form 10-K filed with the Securities and Exchange Commission. The terms "we", "us" or "our" when used in this discussion and analysis mean AMLI or the Company. Dollars are in thousands, except share data, rental rates and expenditures per unit. OVERVIEW As of March 31, 2005, AMLI owned an approximate 95% general partnership interest in AMLI Residential Properties, L.P. (the "Operating Partnership"), which holds the operating assets of the Company. The approximate 5% not owned by AMLI was owned by the limited partners that hold Operating Partnership units ("OP Units") which are convertible into common shares of AMLI on a one-for-one basis, subject to certain limitations. At March 31, 2005, AMLI owned 29,540,956 OP Units (including 3,925,000 Preferred OP Units) and the limited partners owned 1,638,295 OP Units. AMLI has qualified, and anticipates continuing to qualify, as a real estate investment trust ("REIT") for Federal income tax purposes. AMLI is one of the largest owners and operators of multifamily apartment communities in the United States having a focus on the upscale segment of the market with investments and operations in nine major markets in four regions in the United States. Over time, AMLI expects to selectively increase the number of markets in which it operates, thereby continuing its long-term plan of diversification. Through investment in, and operation of, income-producing apartment communities, AMLI primarily seeks to maximize operating earnings by increasing the net operating income ("NOI") from its portfolio of operating communities as we execute our strategy of improving the quality of our portfolio from Class B to Class A communities (internal growth), and by adding additional NOI by expanding the portfolio through its acquisition and development activities (external growth). In addition, AMLI employs a third external growth strategy, co- investment, whereby AMLI earns fee income and other compensation from forming partnerships with primarily institutional partners for the purpose of acquiring and developing multifamily communities. To support its growth strategies, AMLI has the internal expertise to develop and construct new communities, acquire existing assets from third parties, manage its assets and source debt and equity capital. AMLI's primary sources of revenues, which generate cash, include: 1. Rental and other income earned from the leasing of its apartment homes, which are, in general, reflected directly in AMLI's consolidated statements of operations if the investment is a wholly-owned community or in income from partnerships if AMLI's investment is in a co-investment community. 2. Property management fees earned by AMC. 3. Construction fees earned by Amrescon. 4. Fees and other compensation from its co-investment business. 5. Gains from sales of AMLI's interests in the communities. CRITICAL ACCOUNTING POLICIES AMLI outlined its critical accounting policies in its Annual Report on Form 10-K for the year ended December 31, 2004, filed with the Securities and Exchange Commission on March 11, 2005. CO-INVESTMENT AMLI acquires and develops multifamily communities in co-investment partnerships with primarily institutional partners, such as insurance companies, endowments, foundations, and public and corporate pension funds. AMLI believes that co-investment creates an opportunity to leverage AMLI's acquisition, development and management expertise and generate higher returns on its invested equity capital. FASB Interpretation No. 46 "Consolidation of Variable Interest Entities," ("FIN 46") addresses consolidation by business enterprises of variable interest entities ("VIEs"). FIN 46 was revised ("FIN 46R") and is applicable for interim periods that end after March 15, 2004. FIN 46R clarifies the application of Accounting Research Bulletin No. 51 "Consolidated Financial Statements," and requires that VIEs in which a business enterprise has a majority variable interest be presented on a consolidated basis in its financial statements. AMLI's adoption of FIN 46R has had no impact on its consolidated financial statements. At March 31, 2005, the Operating Partnership was a general partner or a managing member in various partnerships or limited liability companies (referred to as "partnerships"). Through March 31, 2005, 54 partnerships have been formed and none was entered into by AMLI during the three months ended March 31, 2005. AMLI's ownership interest in these unconsolidated partnerships has ranged from 10% to 75%. AMLI does not control any of its partnerships as AMLI shares decision making authority over all major decisions with each representative co-investment partner; therefore, AMLI's investments in these partnerships are appropriately accounted for using the equity method of accounting. Through March 31, 2005, 21 partnerships have been terminated as a result of asset dispositions and AMLI's acquisition in 2003 and 2004 of its partners' interests in eleven co-investment partnerships. AMLI has concluded that none of its remaining interests in 33 unconsolidated partnerships qualifies for consolidation under FIN 46R. Because AMLI 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 AMLI and its partnerships at March 31, 2005 and December 31, 2004, as shown below, is presented as supplementary information intended to provide a better understanding of AMLI's financial position. March 31, December 31, 2005 2004 ---------- ------------ Total assets. . . . . . . . . . . . . . $1,013,061 1,021,610 ========== ========== Total debt. . . . . . . . . . . . . . . $ 620,002 616,522 ========== ========== Total equity. . . . . . . . . . . . . . $ 365,777 373,028 AMLI's share of equity. . . . . . . . . 113,972 116,559 ========== ========== AMLI's investment in partnerships . . . $ 115,445 117,986 Distributions in excess of investments in and earnings from partnerships . . . . . . . . . . 6,482 6,368 ---------- ---------- Total. . . . . . . . . . . . . . . $ 121,927 124,354 ========== ========== At March 31, 2005 and December 31, 2004, details of the differences between AMLI's aggregate share of equity and its aggregate investment in partnerships as recorded on the books of these partnerships, net of accumulated amortization, are as follows: March 31, December 31, 2005 2004 ---------- ------------ AMLI's share of equity in partnerships. . . . . . . . . . . . . $ 113,972 116,559 Distributions in excess of invest- ments in and earnings from partnerships. . . . . . . . . . . . . 6,482 6,368 Capitalized interest. . . . . . . . . . 4,535 4,565 Deferred fee income . . . . . . . . . . (5,304) (5,311) Deferred construction profits . . . . . (1,409) (1,434) Other comprehensive loss. . . . . . . . (904) (943) Other, net. . . . . . . . . . . . . . . 4,555 4,550 ---------- ---------- Total investments in partnerships . . . $ 121,927 124,354 ========== ========== RESULTS OF COMMUNITY OPERATIONS GENERAL At March 31, 2005, AMLI wholly owned 44 stabilized communities containing 16,316 apartment homes. Stabilized communities are communities that are fully completed and have, in the opinion of management, completed their initial lease-up. Operating results of wholly-owned stabilized communities are reflected in AMLI's consolidated statements of operations under rental operations as well as under income from discontinued operations. One wholly-owned community containing 360 apartment units is under development and has only commenced initial rental operations during March 2005. Thirty-three communities, of which 30 are stabilized and three are under development or in lease-up, are owned in partnerships, and AMLI's share of operating results is included in income from partnerships. AMLI distinguishes between Stabilized communities from Development and lease-up communities, Communities under rehab and Communities sold. Stabilized communities: . Same store communities, which are communities that have had stabilized operations as of January 1, 2004. . Communities acquired from/contributed to partnerships - reflects operations of communities acquired from or contributed to partnerships during the periods presented. . New communities - communities that were developed by AMLI and began stabilized operations after January 1, 2004. . Acquisition communities - communities having stabilized operations that were acquired by AMLI after January 1, 2004. Development and lease-up communities - communities being developed by AMLI that commenced rental operations which are not yet stabilized. Communities under rehab - communities undergoing significant improvements. Communities sold - reflects operations through the date the communities were sold. Community revenues comprise that portion of total revenues collected or due from leases of apartment homes and include any such amounts as may be reported as discontinued operations. Community rental expenses comprise that portion of total expenses that includes amounts reported as personnel, advertising and promotion, utilities, building repairs and maintenance, contract services, landscaping and grounds maintenance, real estate taxes, insurance, property management fees, and other expenses, and such amounts as may be included in discontinued operations. Community rental expenses exclude losses from sales or valuation of land, expenses of the Service Companies, general and administrative expenses including real estate taxes on land parcels, interest expense, income taxes, depreciation and amortization. AMLI uses NOI to measure the operating results of its communities. NOI represents community revenues less community operating expenses. NOI is commonly used in the industry in the valuation of income producing real estate, and as a supplementary performance measure. This performance measure is not intended as a replacement for net income determined in accordance with generally accepted accounting principles ("GAAP"). WHOLLY-OWNED COMMUNITIES Revenues, rental expenses and NOI from wholly-owned communities for the three months ended March 31, 2005 and 2004 are summarized as follows: Three Months Ended March 31, ----------------------- 2005 2004 ---------- ---------- TOTAL WHOLLY-OWNED COMMUNITY RENTAL REVENUES - ------------------------- Stabilized communities . . . . . . . . . . . . . $ 36,753 26,808 Development and lease-up communities. . . . . . . . . . . . . . . . . . -- -- Communities under rehab. . . . . . . . . . . . . 714 832 Communities sold . . . . . . . . . . . . . . . . 702 6,906 ---------- ---------- Total. . . . . . . . . . . . . . . . . . . . . 38,169 34,546 Discontinued operations. . . . . . . . . . . . 702 6,906 ---------- ---------- Continuing operations. . . . . . . . . . . . . $ 37,467 27,640 ========== ========== Three Months Ended March 31, ----------------------- 2005 2004 ---------- ---------- TOTAL WHOLLY-OWNED COMMUNITY RENTAL EXPENSES - ------------------------- Stabilized communities . . . . . . . . . . . . . $ 15,962 10,947 Development and lease-up communities . . . . . . 26 -- Communities under rehab. . . . . . . . . . . . . 378 365 Communities sold . . . . . . . . . . . . . . . . 524 2,937 ---------- ---------- Total. . . . . . . . . . . . . . . . . . . . . 16,890 14,249 Discontinued operations. . . . . . . . . . . . 524 2,937 ---------- ---------- Continuing operations. . . . . . . . . . . . . $ 16,366 11,312 ========== ========== TOTAL WHOLLY-OWNED COMMUNITY NOI - ------------------ Stabilized communities . . . . . . . . . . . . . $ 20,791 15,861 Development and lease-up communities . . . . . . (26) -- Communities under rehab. . . . . . . . . . . . . 336 467 Communities sold . . . . . . . . . . . . . . . . 178 3,969 ---------- ---------- Total. . . . . . . . . . . . . . . . . . . . 21,279 20,297 Discontinued operations. . . . . . . . . . . 178 3,969 ---------- ---------- Continuing operations. . . . . . . . . . . . $ 21,101 16,328 ========== ========== RECONCILIATION OF NOI TO NET INCOME - ----------------- Community revenues (1) . . . . . . . . . . . . . $ 38,169 34,546 Community operating expenses (1) . . . . . . . . (16,890) (14,249) ---------- ---------- Community NOI (1). . . . . . . . . . . . . . . . 21,279 20,297 ---------- ---------- Income from partnerships . . . . . . . . . . . . 378 1,503 Share of gain on sale of a partnership community. . . . . . . . . . . . . . . . . . . -- 2,648 Fee income . . . . . . . . . . . . . . . . . . . 260 433 Other income (1) . . . . . . . . . . . . . . . . 359 752 Service Companies revenues . . . . . . . . . . . 5,369 13,580 Service Companies expenses . . . . . . . . . . . (6,156) (14,024) Depreciation (1) . . . . . . . . . . . . . . . . (11,304) (8,641) Interest and amortization of deferred costs (1). . . . . . . . . . . . . . . . . . . (8,910) (7,257) General and administrative expenses. . . . . . . (1,961) (2,196) ---------- ---------- Three Months Ended March 31, ----------------------- 2005 2004 ---------- ---------- Income (loss) before sales of rental communities and minority interest. . . . . . . (686) 7,095 Gains on sales of rental communities . . . . . . 24,417 -- ---------- ---------- Income before minority interest. . . . . . . . . 23,731 7,095 Minority interest. . . . . . . . . . . . . . . . (1,320) (376) ---------- ---------- Net income . . . . . . . . . . . . . . . . . . . $ 22,411 6,719 ========== ========== (1) Including discontinued operations. For the three months ended March 31, 2005, total community revenues from stabilized communities increased by $9,945, or 37.1%, compared to the same period a year ago. This increase in revenues was generated primarily from two communities containing 900 apartment homes acquired from third parties in 2005 and from seven communities acquired after the first quarter of 2004, which contributed a full quarter of revenues in 2005. In addition, AMLI acquired interests it did not already own in two communities, which also contributed to the revenue increase. A community under development did not generate revenues as no apartment units were occupied in March 2005. The community under rehab had a 14.2% decrease in 2005 compared to 2004 due to units that were temporarily out of service during the rehab period and because the rehab started in the second quarter of 2004. The significant decrease in revenues from sold communities resulted from three communities that were sold in early 2005 plus five communities that were sold after the first quarter of 2004, and therefore such communities reported a full quarter of revenues in the first quarter of 2004. Total revenues from continuing operations increased by $9,827, or 35.6%, for the three months ended March 31, 2005 over the same period a year ago. Refer to the discussion on AMLI's markets and the impact of changes in occupancy, average collected rent per occupied unit and other income in SAME STORE COMMUNITIES discussion and analysis. For the three months ended March 31, 2005, total community NOI from stabilized communities increased by $4,930, or 31.1%, compared to the same period a year ago. This was a result of increased revenues from the communities acquired during 2005 and 2004, reduced by a corresponding increase in operating expenses. NOI from the community under rehab decreased 28.1% as a result of revenue lost from vacant units under rehab less operating expense reduction. NOI from sold communities was lower by $3,791 than the prior year due to a higher number of communities and apartment units sold after the first quarter of 2004, which resulted in NOI decrease in 2005, plus reduction in NOI which resulted from communities sold in the first quarter of 2005. Total NOI from continuing operations increased by $4,773, or 29.2%, for three months ended March 31, 2005 over the same period a year ago, which was primarily generated from stabilized communities. CO-INVESTMENT COMMUNITIES Revenues, operating expenses and NOI from co-investment communities at 100% for the three months ended March 31, 2005 and 2004 are summarized as follows: Three Months Ended March 31, ----------------------- 2005 2004 ---------- ---------- TOTAL CO-INVESTMENT COMMUNITY REVENUES - ------------------- Stabilized communities . . . . . . . . . . . $ 30,177 31,254 Development and lease-up communities . . . . 2,315 1,141 Communities sold . . . . . . . . . . . . . . -- 371 ---------- ---------- Total. . . . . . . . . . . . . . . . . . $ 32,492 32,766 ========== ========== TOTAL CO-INVESTMENT COMMUNITY RENTAL EXPENSES - ----------------------------- Stabilized communities . . . . . . . . . . . $ 12,070 12,167 Development and lease-up communities . . . . 1,565 843 Communities sold . . . . . . . . . . . . . . -- 218 ---------- ---------- Total. . . . . . . . . . . . . . . . . . $ 13,635 13,228 ========== ========== TOTAL CO-INVESTMENT COMMUNITY NOI - ------------------- Stabilized communities . . . . . . . . . . . $ 18,107 19,087 Development and lease-up communities . . . . 750 298 Communities sold . . . . . . . . . . . . . . -- 153 ---------- ---------- Total. . . . . . . . . . . . . . . . . . $ 18,857 19,538 ========== ========== RECONCILIATION OF NOI TO INCOME FROM PARTNERSHIPS - ------------------------ Community revenues . . . . . . . . . . . . . $ 32,492 32,766 Community operating expenses . . . . . . . . (13,635) (13,228) ---------- ---------- Community NOI. . . . . . . . . . . . . . . . 18,857 19,538 Other income . . . . . . . . . . . . . . . . 122 183 Other expenses . . . . . . . . . . . . . . . (362) (346) Interest expense and amortization of deferred costs . . . . . . . . . . . . . . (10,537) (9,874) Depreciation . . . . . . . . . . . . . . . . (7,682) (7,470) ---------- ---------- Income before sale of a rental community. . . . . . . . . . . . . . . . . 398 2,031 Gain on sale of a rental community . . . . . -- 9,438 ---------- ---------- Net income . . . . . . . . . . . . . . . . . 398 11,469 Co-investment partners share of net income and gain on sale of a rental community. . . 20 7,606 ---------- ---------- AMLI's share of net income from partnerships including share of gain on sale of a rental community. . . . . . . $ 378 3,863 ========== ========== Three Months Ended March 31, ----------------------- 2005 2004 ---------- ---------- Co-investment partners' share of net income before gain on sale of a rental community . . . . . . . . . . . . $ 20 528 Co-investment partners' share of gain on sale of a rental community . . . . -- 7,078 ---------- ---------- Co-investment partners' share of net income . . . . . . . . . . . . . . . . 20 7,606 ---------- ---------- AMLI's share of net income from partnerships . . . . . . . . . . . . . . . 378 1,503 AMLI's share of gain on sale of a rental community . . . . . . . . . . . . -- 2,360 (1) ---------- ---------- AMLI's share of net income . . . . . . . . . 378 3,863 ---------- ---------- Partnerships' net income . . . . . . . . . . $ 398 11,469 ========== ========== (1) AMLI's share of gain on sale reported in the consolidated statement of operations for the three months ended March 31, 2004 includes $288 of income previously deferred on AMLI's books and recognized in income upon sale of the community. For the three months ended March 31, 2005, total revenues from stabilized communities decreased by $1,077, or 3.4%, compared to the same period a year ago primarily due to two communities (448 apartment units) that became wholly-owned in the fourth quarter of 2004 upon AMLI's acquisition of its co-investment partners' interests. Communities under development or in lease-up in 2005 contributed $1,174 revenue increase over 2004. Revenues from communities under development or in lease-up resulted from increased leases and occupancy from two communities already in lease- up in the first quarter of 2004 and one community which commenced rental operations in the third quarter of 2004. Revenues from communities sold to third parties were generated from one community sold in January 2004 and none was sold in 2005. Refer to the discussion on AMLI's markets and the impact of changes in occupancy, average collected rent per occupied unit and other income in the SAME STORE COMMUNITIES discussion and analysis. For the three months ended March 31, 2005, NOI from stabilized communities decreased by $980, or 5.1%, over the prior year resulting from the decrease in revenues and a corresponding decrease in operating expenses as a result of the sale to AMLI of our co-investor partners' entire interests in two communities in the fourth quarter of 2004. The communities under development or in lease-up contributed a $452 increase in NOI. ACQUISITIONS During 2005 and 2004 AMLI acquired nine communities from third parties and in 2004 AMLI acquired interests it did not already own in three rental communities from two partners as follows.
Purchase Price Including Percentage Debt Debt Date Interest Assumed Assumed/ Partnership Interest Community Acquired Acquired (1) Obtained Acquired From - --------- -------- ---------- --------- --------- -------------------- 2005 Acquisitions: AMLI: at Lantana Hills 1/21/05 100% $ 24,150 -- at McGinnis Ferry 2/24/05 100% 64,736 21,536 -------- ------- 88,886 21,536 -------- ------- 2004 Acquisitions: AMLI: on Timberglen 1/5/04 60% 6,263 3,688 Private investor at Ibis 4/15/04 100% 24,675 -- on Eldridge Parkway 4/15/04 100% 48,000 32,709 (2) on the Fairways 4/30/04 100% 23,405 -- at Westcliff 8/18/04 100% 43,500 -- at Canterfield 9/14/04 100% 55,350 -- at River Run 9/14/04 100% 31,500 -- at Kirkland Crossing 10/20/04 100% 39,100 -- at Wynnewood Farms 11/15/04 75% 16,699 -- The New York Common Retirement Fund at Lake Clearwater 11/15/04 75% 14,700 -- The New York Common Retirement Fund -------- ------- 303,192 36,397 -------- ------- Total $392,078 57,933 ======== ======= (1) Represents the price paid for the acquisitions of our partners' interests. (2) The first mortgage loan closed on May 26, 2004 subsequent to the date of acquisition.
COMMUNITIES UNDER DEVELOPMENT OR IN LEASE-UP AND LAND HELD FOR DEVELOPMENT OR SALE COMMUNITIES UNDER DEVELOPMENT OR IN LEASE-UP During the construction period, interest and real estate taxes incurred, amortization of deferred costs and other costs relating to communities under development are capitalized. Total estimated completion costs include costs of initial lease-up and certain other costs some of which are expensed for financial reporting purposes. At March 31, 2005, AMLI had interests in four communities under development or in lease-up including three owned in partnerships, as follows:
TOTAL AMLI'S CAPITALIZED TOTAL AMLI'S REMAINING COMMUNITY NUMBER THROUGH ESTIMATED SHARE OF EQUITY (AMLI's ownership OF MARCH 31, COSTS UPON REQUIRED COMMIT- percentage) LOCATION UNITS 2005 COMPLETION DEBT EQUITY MENT - ----------------- -------- ------ ------------ ---------- ------- --------- --------- Communities Substantially Completed and in Lease-Up: AMLI: at Seven Bridges (20%) Woodridge, IL 520 $ 79,923 83,000 51,000 6,440 -- ----- -------- -------- ------- ------- ------- Communities under Development: AMLI: at La Villita (100%) Las Colinas, TX 360 17,699 25,575 -- 25,575 8,038 Downtown (30%) Austin, TX 220 45,499 50,920 30,920 6,000 -- at Museum Gardens (25%) (1) Vernon Hills, IL 294 58,398 61,571 37,000 5,819 -- ----- -------- -------- ------- ------- ------- 874 121,596 138,066 67,920 37,394 8,038 ----- -------- -------- ------- ------- ------- Total 1,394 $201,519 221,066 118,920 43,834 8,038 ===== ======== ======= ======= ======= ======= (1) Of this total development costs, approximately $1,300 is anticipated to be funded from net operating income from the community during the lease-up period.
LAND HELD FOR DEVELOPMENT OR SALE AMLI expenses interest carry on land parcels not currently under development. AMLI evaluates the value of land parcels held for development or sale and recognizes an impairment charge in the amount of the excess of its carrying amount over its fair value if it has determined that the fair value is less than the carrying amount. At March 31, 2005, AMLI's land parcels held for future development or sale were as follows:
TOTAL COSTS CAPITALIZED CARRYING NUMBER THROUGH VALUE OF MARCH 31, MARCH 31, LOCATION ACRES 2005 2005 -------- ------ ----------- ------------ Land held for development: AMLI at: Anderson Mill Phase I (1) Austin, TX 20 $ 2,980 2,980 Barrett Lakes III Atlanta, GA 12 1,286 1,286 Clear Creek I (1) Kansas City, KS 20 3,322 3,322 Perimeter Gardens Atlanta, GA 5 5,300 5,300 --- ------- ------ 57 12,888 12,888 --- ------- ------ Land held for development or sale: AMLI at: Anderson Mill Phase II (1) Austin, TX 14 2,042 1,671 Champions II Houston, TX 14 1,635 994 Clear Creek II (1) Kansas City, KS 7 935 935 --- ------- ------ 35 4,612 3,600 --- ------- ------ Other development costs: AMLI at: Austin Block 22 Austin, TX -- 3,115 3,115 --- ------- ------ Subtotal 92 20,615 19,603 --- ------- ------ Service Companies' land held for development or sale Indiana and Texas 161 17,376 15,779 --- ------- ------ Total 253 $37,991 35,382 === ======= ====== (1) Number of acres is net of unusable acres.
DISPOSITIONS AMLI sells communities which no longer meet AMLI'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 AMLI's portfolio and increase the potential for growth in NOI. Pursuant to SFAS 144, operating results of wholly-owned communities sold as well as related other income are reported as discontinued operations. Gains on sales of wholly-owned communities are also reported as discontinued operations. Dispositions of co-investment communities are not discontinued operations. Gains on sales of co-investment communities are shown net of disposition fees and promoted interests paid to AMLI by such co-investment partnerships. The table below summarizes the rental communities sold during 2005 and 2004:
COSTS AMLI'S NUMBER YEAR BEFORE SHARE OF ACQUIRED/ DATE DEPRE- SALE NET OF COMMUNITY LOCATION UNITS DEVELOPED SOLD CIATION PRICE PROCEEDS GAIN GAIN - --------- -------- ------ --------- -------- -------- ------- -------- -------- ------ WHOLLY-OWNED: 2005 Dispositions: AMLI: at Chase Oaks Dallas, TX 250 1994 1/12/05 $ 11,443 15,300 15,024 6,988 6,988 at Bent Tree Dallas, TX 500 1997/00 2/3/05 33,276 39,215 38,562 11,286 11,286 at Great Hills Austin, TX 344 1991 2/3/05 19,267 20,500 20,177 5,864 5,864 ----- -------- ------- ------- ------- ------ 1,094 63,986 75,015 73,763 24,138 24,138 ----- -------- ------- ------- ------- ------ 2004 Dispositions: AMLI: at Spring Creek Atlanta, GA 1,180 1985/86 87/89 4/14/04 61,850 80,820 80,272 40,020(1) 40,020 at Verandah Arlington, TX 538 2003 5/17/04 23,943 28,300 27,788 5,034 5,034 at Nantucket Dallas, TX 312 1988 8/17/04 9,684 13,365 13,152 7,265 7,265 on Timberglen (2) Dallas, TX 260 1990 8/17/04 8,518 12,285 12,092 3,818 3,818 at Towne Creek Gainsville, GA 150 1989 9/13/04 7,754 7,900 7,743 1,018 1,018 ----- -------- ------- ------- ------- ------ 2,440 111,749 142,670 141,047 57,155 57,155 ----- -------- ------- ------- ------- ------ Total wholly-owned 3,534 175,735 217,685 214,810 81,293 81,293 ----- -------- ------- ------- ------- ------ COSTS AMLI'S NUMBER YEAR BEFORE SHARE OF ACQUIRED/ DATE DEPRE- SALE NET OF COMMUNITY LOCATION UNITS DEVELOPED SOLD CIATION PRICE PROCEEDS GAIN GAIN - --------- -------- ------ --------- -------- -------- ------- -------- -------- ------ CO-INVESTMENTS (AMLI's ownership percentage): 2004 Dispositions: AMLI: at Wells Branch (25%) Austin, TX 576 1999 1/21/04 34,343 38,400 37,964 9,438 2,360(3) ----- -------- ------- ------- ------- ------ Total 4,110 $210,078 256,085 252,774 90,731 83,653 ===== ======== ======= ======= ======= ====== (1) Includes a $4,723 gain attributable to extinguishment of debt (net of $677 unamortized deferred financing costs written off) and excludes $264 of deferred gain, net of $279 and $53 which have been recognized during the three months ended March 31, 2005 and December 31, 2004, respectively. The remainder is anticipated to be recognized in the second quarter of 2005 following completion of AMLI's construction obligation with this community. (2) This was a co-investment community which became a wholly-owned community in January 2004. (3) Share of gain from the sale of this community reported in the consolidated statement of operations for the three months ended March 31, 2004 was increased by $288 of income previously deferred on AMLI's books and recognized in income upon sale of the community.
Reconciliation of AMLI's gains on sales of wholly-owned communities to amounts reported in the consolidated statements of operations for the three months ended March 31, 2005 is as follows: Total gains per Dispositions table. . . . . $ 24,138 Deferred gain recognized during the three months ended March 31, 2005 . . . . 279 Minority interest . . . . . . . . . . . . . (1,479) ---------- Gains on sales of rental communities, net of minority interest. . . . . . . . . $ 22,938 ========== Reconciliation of AMLI's share of gain on sale of a co-investment community to amounts reported in the consolidated statements of operations for the three months ended March 31, 2004 is as follows: Total AMLI's share of gain on sale of a co-investment community per Dispositions table. . . . . . . . . . . . $ 2,360 Income previously deferred on AMLI's books. . . . . . . . . . . . . . . 288 ---------- Share of gain on sale of a co-investment community. . . . . . . . $ 2,648 ========== SAME STORE COMMUNITIES The following commentary is based primarily on an analysis of AMLI's same store portfolio since operating results of stabilized communities owned over comparable periods generally provide a better perspective of market conditions affecting AMLI's communities. As of March 31, 2005, there were 11,369 wholly-owned apartment homes categorized as same store and 11,143 co-investment apartment homes classified as same store. Same store is defined as communities owned and having stabilized occupancy as of January 1, 2004. The discussion of same store community results includes an analysis of the effects of occupancy and collected rent per occupied unit to rental income, other income, total revenues, operating expenses and NOI. Other income includes ancillary services revenues and rental-related fees. In addition, a brief commentary relating to supply of new apartment homes and employment data is provided. Economic data are as of February 2005. The discussion covers the first quarter ended March 31, 2005 compared to the first quarter ended March 31, 2004. TOTAL REVENUES OCCUPANCY The following charts show weighted average physical occupancy calculated based on the average of each day's physical occupancy during the month for all wholly-owned and co-investment same store communities for each of AMLI's markets. DAILY WEIGHTED AVERAGE PHYSICAL OCCUPANCY SAME STORE WHOLLY-OWNED COMMUNITIES Quarter Ended -------------------------------- Apart- 2005 2004 2004 ment -------- -------- -------- Homes Mar 31 Dec 31 Mar 31 ------ -------- -------- -------- Dallas . . . . . . . . . 3,643 92.4% 93.0% 91.8% Atlanta. . . . . . . . . 1,104 95.7% 96.1% 94.0% Austin . . . . . . . . . 960 93.7% 94.2% 91.1% Houston. . . . . . . . . 334 91.3% 93.7% 94.5% Indianapolis . . . . . . 2,212 92.8% 92.7% 92.1% Kansas City. . . . . . . 1,528 90.3% 91.7% 92.5% Chicago. . . . . . . . . 1,260 93.3% 93.2% 92.4% Denver . . . . . . . . . 328 90.0% 91.4% 90.8% ------ ------ ------ ------ Total portfolio (1). . . 11,369 92.6% 93.2% 92.2% ====== ====== ====== ====== DAILY WEIGHTED AVERAGE PHYSICAL OCCUPANCY SAME STORE CO-INVESTMENT COMMUNITIES Quarter Ended -------------------------------- Apart- 2005 2004 2004 ment -------- -------- -------- Homes Mar 31 Dec 31 Mar 31 ------ -------- -------- -------- Dallas . . . . . . . . . 2,194 92.5% 92.9% 93.1% Atlanta. . . . . . . . . 3,178 94.8% 94.8% 93.7% Austin . . . . . . . . . 917 92.4% 94.1% 91.3% Houston. . . . . . . . . 1,099 93.9% 95.3% 94.0% Kansas City. . . . . . . 840 90.4% 92.0% 92.0% Chicago. . . . . . . . . 1,983 93.9% 94.3% 93.4% Denver . . . . . . . . . 932 90.2% 93.3% 90.4% ------ ------ ------ ------ Total portfolio (1). . . 11,143 93.2% 94.0% 93.0% ====== ====== ====== ====== (1) Occupied apartments exclude community models and apartments not in service due to fire, flood or otherwise. The average occupancy for the quarter and year is based on simple average of the monthly occupancy. 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 revenues earned per each occupied apartment home. As AMLI'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, revenues earned for purposes of this analysis is essentially equal to collected revenues per apartment home, another metric used by some in the apartment industry. TOTAL REVENUES PER OCCUPIED UNIT The following charts show weighted average total monthly revenues per occupied apartment home for same store communities for each of AMLI's markets: WEIGHTED AVERAGE TOTAL REVENUES EARNED PER OCCUPIED APARTMENT HOME SAME STORE WHOLLY-OWNED COMMUNITIES Quarter Ended -------------------------------- Apart- 2005 2004 2004 ment -------- -------- -------- Homes Mar 31 Dec 31 Mar 31 ------ -------- -------- -------- Dallas . . . . . . . . . 3,643 $ 809 809 810 Atlanta. . . . . . . . . 1,104 812 804 807 Austin . . . . . . . . . 960 774 778 782 Houston. . . . . . . . . 334 950 957 995 Indianapolis . . . . . . 2,212 775 780 778 Kansas City. . . . . . . 1,528 780 780 778 Chicago. . . . . . . . . 1,260 1,032 1,032 1,040 Denver . . . . . . . . . 328 843 848 861 ------ ------ ------ ------ Total portfolio (1). . . 11,369 $ 826 826 829 ====== ====== ====== ====== WEIGHTED AVERAGE TOTAL REVENUES EARNED PER OCCUPIED APARTMENT HOME SAME STORE CO-INVESTMENT COMMUNITIES Quarter Ended -------------------------------- Apart- 2005 2004 2004 ment -------- -------- -------- Homes Mar 31 Dec 31 Mar 31 ------ -------- -------- -------- Dallas . . . . . . . . . 2,194 $ 889 892 895 Atlanta. . . . . . . . . 3,178 900 902 893 Austin . . . . . . . . . 917 803 805 815 Houston. . . . . . . . . 1,099 984 995 987 Kansas City. . . . . . . 840 858 861 859 Chicago. . . . . . . . . 1,983 1,058 1,064 1,069 Denver . . . . . . . . . 932 968 967 982 ------ ------ ------ ------ Total portfolio (1). . . 11,143 $ 929 932 933 ====== ====== ====== ====== (1) Calculated by taking the simple average of the monthly average total revenues per occupied unit. Each month's calculation is made by dividing that month's accrual basis rental and other income (total community revenues) by the weighted average number of apartment homes occupied during the month. REVENUES, EXPENSES AND NOI The following charts show total revenues, total expenses and total NOI for same store wholly-owned communities for each of AMLI's markets: TOTAL REVENUES Quarter Ended -------------------------------- Apart- 2005 2004 2004 ment -------- -------- -------- Homes Mar 31 Dec 31 Mar 31 ------ -------- -------- -------- Dallas . . . . . . . . . 3,643 $ 8,187 8,232 8,132 Atlanta. . . . . . . . . 1,104 2,575 2,559 2,511 Austin . . . . . . . . . 960 2,087 2,111 2,051 Houston. . . . . . . . . 334 869 899 942 Indianapolis . . . . . . 2,212 4,768 4,799 4,734 Kansas City. . . . . . . 1,528 3,230 3,276 3,300 Chicago. . . . . . . . . 1,260 3,638 3,635 3,634 Denver . . . . . . . . . 328 747 762 769 ------ ------- ------ ------ Total portfolio. . . . . 11,369 $26,101 26,273 26,073 ====== ======= ====== ====== TOTAL EXPENSES Quarter Ended -------------------------------- Apart- 2005 2004 2004 ment -------- -------- -------- Homes Mar 31 Dec 31 Mar 31 ------ -------- -------- -------- Dallas . . . . . . . . . 3,643 $ 3,925 3,919 3,481 Atlanta. . . . . . . . . 1,104 1,055 1,052 931 Austin . . . . . . . . . 960 1,021 956 932 Houston. . . . . . . . . 334 370 379 411 Indianapolis . . . . . . 2,212 1,968 1,793 1,958 Kansas City. . . . . . . 1,528 1,131 1,265 1,159 Chicago. . . . . . . . . 1,260 1,528 1,523 1,542 Denver . . . . . . . . . 328 275 315 228 ------ ------- ------ ------ Total portfolio. . . . . 11,369 $11,273 11,202 10,642 ====== ======= ====== ====== TOTAL NOI Quarter Ended -------------------------------- Apart- 2005 2004 2004 ment -------- -------- -------- Homes Mar 31 Dec 31 Mar 31 ------ -------- -------- -------- Dallas . . . . . . . . . 3,643 $ 4,262 4,313 4,651 Atlanta. . . . . . . . . 1,104 1,520 1,507 1,580 Austin . . . . . . . . . 960 1,066 1,155 1,119 Houston. . . . . . . . . 334 499 520 531 Indianapolis . . . . . . 2,212 2,800 3,006 2,776 Kansas City. . . . . . . 1,528 2,099 2,011 2,141 Chicago. . . . . . . . . 1,260 2,110 2,112 2,092 Denver . . . . . . . . . 328 472 447 541 ------ ------- ------ ------ Total portfolio. . . . . 11,369 $14,828 15,071 15,431 ====== ======= ====== ====== The following charts show total revenues, total expenses and total NOI for same store co-investment communities for each of AMLI's markets: Quarter Ended -------------------------------- Apart- 2005 2004 2004 ment -------- -------- -------- Homes Mar 31 Dec 31 Mar 31 ------ -------- -------- -------- Dallas . . . . . . . . . 2,194 $ 5,415 5,455 5,485 Atlanta. . . . . . . . . 3,178 8,140 8,146 7,984 Austin . . . . . . . . . 917 2,040 2,085 2,047 Houston. . . . . . . . . 1,099 3,051 3,132 3,063 Kansas City. . . . . . . 840 1,956 1,995 1,990 Chicago. . . . . . . . . 1,983 5,910 5,970 5,937 Denver . . . . . . . . . 932 2,443 2,522 2,483 ------ ------- ------ ------ Total portfolio. . . . . 11,143 $28,955 29,305 28,989 ====== ======= ====== ====== TOTAL EXPENSES Quarter Ended -------------------------------- Apart- 2005 2004 2004 ment -------- -------- -------- Homes Mar 31 Dec 31 Mar 31 ------ -------- -------- -------- Dallas . . . . . . . . . 2,194 $ 2,305 2,327 2,186 Atlanta. . . . . . . . . 3,178 3,031 2,964 3,077 Austin . . . . . . . . . 917 1,147 911 947 Houston. . . . . . . . . 1,099 1,356 1,268 1,318 Kansas City. . . . . . . 840 684 739 665 Chicago. . . . . . . . . 1,983 2,332 2,274 2,339 Denver . . . . . . . . . 932 752 825 782 ------ ------- ------ ------ Total portfolio. . . . . 11,143 $11,607 11,308 11,314 ====== ======= ====== ====== TOTAL NOI Quarter Ended -------------------------------- Apart- 2005 2004 2004 ment -------- -------- -------- Homes Mar 31 Dec 31 Mar 31 ------ -------- -------- -------- Dallas . . . . . . . . . 2,194 $ 3,110 3,128 3,299 Atlanta. . . . . . . . . 3,178 5,109 5,182 4,907 Austin . . . . . . . . . 917 893 1,174 1,100 Houston. . . . . . . . . 1,099 1,695 1,864 1,745 Kansas City. . . . . . . 840 1,272 1,256 1,325 Chicago. . . . . . . . . 1,983 3,578 3,696 3,598 Denver . . . . . . . . . 932 1,691 1,697 1,701 ------ ------- ------ ------ Total portfolio. . . . . 11,143 $17,348 17,997 17,675 ====== ======= ====== ====== AMLI'S MARKETS The following provides commentary about each of AMLI's markets. Information related to same store communities, including wholly-owned and co-investment communities at 100%, for the first quarter of 2005 is compared to the same period in 2004 (year-over-year) and the fourth quarter of 2004 (sequential). Note that occupancy changes are disclosed in absolute terms. ALL COMMUNITIES - for the first quarter of 2005 compared to the first quarter of 2004, same community total revenue was flat, while expenses grew 4.0%, producing a NOI decrease of 2.6%. The flat total revenues resulted from a 0.4% increase in rental income and a 5.4% decrease in other income. The increase in rental income was due to a 0.3% increase in occupancy to 92.9% as collected rents were unchanged. Overall, collected rent per occupied unit was down in three of AMLI's eight markets, whereas occupancies were up in five of eight markets. The decrease in other income was primarily attributable to decreases in cable and telephone revenues and leasing-related fees. Much of the increase in operating expenses reflects the fact that expense in last year's first quarter was less than normal, due to timing of some major repairs and maintenance projects. Sequentially, comparing the current quarter to the fourth quarter of 2004, total revenue was down 0.9%, and expenses increased 1.4%, resulting in NOI decrease of 2.5%. The change in total revenues was caused by a 0.6% decrease in rental income and a 4.9% decrease in other income, reflecting a typical seasonal occurrence. Overall employment in all of AMLI's markets increased during the twelve months ended February, 2005. DALLAS/FT. WORTH same community total revenues, operating expenses and NOI for the first quarter decreased 0.1%, increased 10.5%, and decreased 7.6%, respectively, compared to the same period in 2004. The decrease in total revenues was due to other income decreasing by 6.5% on a year-over-year basis due to lower telephone revenues, and lower collections in several fee categories. The increase in operating expenses is attributable to the timing of repairs and maintenance noted above. On a sequential basis compared to the prior quarter, total revenues decreased 0.6% due to decreases in occupancy and other income of 0.5% and 2.9%, respectively. However, operating expenses decreased 0.2% resulting in a sequential decrease in NOI of 0.9%. Job growth has improved significantly in the region as the D/FW metroplex added 50,000 jobs in the trailing 12 months ended February 2005. On the other hand, permit activity has increased over the past year as 9,734 permits were issued, representing 1.8% of existing stock, up from 7,925 from the previous period for the year ended February 2005. ATLANTA same community total revenues and NOI increased 2.1% and 2.2%, respectively, compared to the same quarter a year ago. Expenses increased by 1.9% for the same period. The positive performance in total revenues was the result of a 2.4% increase in rental income, and a 1.5% decrease in other income. The rise in rental income is the result of increases in collected rent per occupied unit and occupancy of 1.0% and 1.3%, respectively. Sequentially, comparing the current quarter to the fourth quarter of 2004, total revenues and expenses increased 0.1% and 1.7%, respectively, leading to a decrease in NOI of 0.9%. The increase in total revenues was the result of growth in rental income of 0.3%, offset in part by a 2.5% decrease in other income. The increase in rental income was due to a 0.3% increase in collected rent per occupied unit while occupancy was unchanged at 95.1%. The challenge in Atlanta remains absorption of new supply, with 15,956 units permitted for the year ended February 2005, which represents a 37% increase from the same period of a year ago, and a 4.1% increase to the existing apartment stock. An improving employment outlook provides optimism that demand will be able to keep up with the new supply. For the year ended February 2005 employment posted a gain of 21,400 jobs, or a modest 1.0% growth rate, compared to net job loss over the past three years. AUSTIN same community total revenues, operating expenses and NOI for the first quarter of 2005 increased 0.7%, increased 15.4%, and decreased 11.7%, respectively, compared to the same period in 2004. The increase in total revenues was the result of a 1.8% increase in occupancy. Collected rents per occupied unit decreased by 0.7% over the same period last year. The increase in operating expenses is primarily due to timing variances in repairs and maintenance in 2004. On a sequential basis, comparing the current quarter to the fourth quarter of 2004, total revenues decreased by 1.6% due to decreases in rental income, other income, and occupancy of 1.4%, 4.8%, and 1.1%, respectively. Operating expenses increased by 16.1%, again primarily due to the timing of repairs and maintenance projects, resulting in a decrease in NOI of 15.8% from last quarter. Supply and demand fundamentals continue to improve in the region as job growth continues to gain momentum. Approximately 18,700 jobs were added in the previous 12 months ended February 2005, up from a 6,800 job gain during the same period a year ago. Permit activity remains relatively stable as 2,462 permits (1.6% of existing stock) were issued for the same period. HOUSTON same community total revenues, operating expenses and NOI decreased 2.1%, 0.2%, and 3.6%, respectively, compared to the same period in 2004. Rental income for the first quarter of 2005 decreased 1.5% due to a decrease in occupancy and collected rent per occupied unit of 0.8% and 0.6%, respectively. On a sequential basis, total revenues decreased 2.7% from the current quarter compared to the previous quarter, due primarily to decreases in occupancy and other income of 1.6% and 13.3%, respectively. Operating expenses increased 4.8% primarily due to an increase of real estate taxes over last quarter. Houston continues to be faced with challenging supply fundamentals as permit activity remains high with 11,355 permits (2.4% of existing stock) issued for the year ended February 2005. On the demand side, Houston is beginning to show signs of a solid rebound as the economy improves. The market registered an increase of approximately 22,400 jobs for the twelve months ended February 2005. INDIANAPOLIS same community total revenues increased 1.1%, expenses decreased 1.8%, and NOI increased 3.1% for the first quarter 2005 versus the same period of a year ago. Rental income on a year-over-year basis was up 1.7%, as occupancy and collected rent per occupied unit gained 1.1% and 0.1%, respectively, compared to the same period in 2004. Other income experienced a decrease of 7.6% due to lower cable revenues. During the first quarter, traffic and rental activity decreased 8.0% and 23.2%, respectively, versus the same period of last year. Sequentially, total revenues decreased 0.5%, expenses increased 8.1%, and NOI decreased 5.7% from the fourth quarter 2004. The revenue decline was due to a decrease in other income of 8.9% partially offset by a 0.1% increase in rental income and 0.1% increase in both occupancy and collected rent per occupied unit. Demand fundamentals in Indianapolis appear to be gaining strength as strong job growth has returned to the metro. The BLS reported job gains of 24,400 for the year ended February 2005, a 2.9% growth rate. On the supply side 2,437 multifamily permits have been authorized over the past year, which is an 18% increase from the same period of a year ago, and represents a 2.0% increase to the existing apartment stock. KANSAS CITY same community total revenues and NOI decreased 1.9% and 2.4%, respectively, for the first quarter of 2005 compared to the first quarter of 2004. Expenses in the current quarter compared to last year decreased 1.0%. Rental income for the first quarter decreased 2.0% versus the same period of a year ago due to a decline in occupancy of 2.0% to 90.4%. Collected rent per occupied unit grew slightly by 0.1%. Other income decreased by 0.9% for the period. On a sequential basis, comparing the current quarter to the last quarter of 2004, total revenues decreased 1.5%, but operating expenses also decreased by 10.3%, leading to a NOI increase of 3.9%. Rental income decreased 1.8%, resulting from a 1.5% drop in occupancy during the quarter, while collected rent per occupied unit decreased by 0.2%. Other income increased by 2.4% from last quarter. Supply/demand fundamentals in Kansas are continuing to strengthen, as there have been positive trends in both job growth and multifamily permits. For the year ended February 2005 the Kansas City metro area gained 20,000 jobs, a positive 2.1% growth rate, and a marked improvement on the 3,200 jobs lost for the same period of a year ago. In addition, multifamily permits have trended down over the past year. For the year ended February 2005 authorized permits totaled 1,175 units, a 29% decrease over the same period of a year ago, and represents a 0.9% increase to the existing apartment stock. CHICAGO same community quarterly NOI for the first quarter of 2005 compared to a year ago was flat on a decrease in total revenues of 0.2% and a 0.5% decrease in operating expenses. The revenue decrease was the result of a 12.1% decrease in other income, primarily due to lower cable revenues net of a 0.7% increase in rental income. The increase in rental income was driven by a 0.7% increase in occupancy to 93.7%, while collected rent per occupied unit remained unchanged. Sequentially, comparing the current quarter to the last quarter of 2004, total revenues were down 0.6%, operating expenses increased 1.7% and NOI decreased 2.1%. Rental income was up 0.3%, while other income was down 12.3%. The change in rental income was due to a 0.2% decrease in occupancy and a 0.5% increase in collected rent per occupied unit. The employment picture continues to improve in Chicago as the metro added 24,600 jobs for the year ended February 2005, which represents a 0.7% growth rate. On the supply side, the Chicago metro issued permits for 9,131 new multifamily units, representing 1.4% of existing apartment stock, for the year ended February 2005, a 16% decrease from the same period of a year ago. It should again be noted that in Chicago a significant portion of permits issued are for 'for-sale' housing and will not directly compete with 'for-rent' product. Our market research shows approximately 1,700 institutional grade apartment units currently under construction in the Chicago metropolitan area, a very small number of new units for a market the size of Chicago. DENVER same community total revenues decreased by 1.9%, expenses increased by 1.7%, and NOI fell by 3.6% for the current quarter, compared to first quarter 2004. Rental income on a year-over-year basis fell 2.6%. Collected rent per occupied unit was down 2.3%, and occupancy fell to 90.2%, down 0.4% on a year-over-year basis. Other income limited the decline in total revenues by growing 5.2% for the quarter on higher fee collection. On a sequential basis, total revenues and expenses decreased, and NOI increased 2.9%, 9.9%, and 0.8%, respectively, from the fourth quarter 2004. The expense decrease versus the prior quarter was primarily due to lower real estate tax expense. Rental income decreased 3.2% from the fourth quarter, as collected rent per occupied unit and occupancy fell by 0.4% and 2.6%, respectively. Other income increased by 0.2% over last quarter. The Denver metro is beginning to see strengthening supply/demand fundamentals as job growth has turned positive and the authorization of multifamily permits has slowed dramatically. For the year ended February 2005, the metro area experienced a gain of 29,700 jobs, a positive 2.6% growth rate, which is in sharp contrast to the 10,000 jobs lost during the same period of one year ago. Additional positive news in Denver has been the decline in multifamily permitting over the past thirty-six months. OTHER COMMUNITY REVENUES Other community revenues include non-rental income items such as revenues from parking garages and carports, laundry facilities, washer/dryer rentals, phone and cable fees, 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 shows detail of rental expenses and total capital expenditures (excluding acquisition capital expenditures) for AMLI's same store wholly-owned communities for the three months ended March 31, 2005 and 2004. Due to seasonal effects actual expenses for the full year ended December 31, 2005 and 2004 may be different than the annualized per unit amounts shown below. Wholly-owned Communities ----------------------------------------- 2005 2004 ------------------- ------------------- Per Unit Per Unit Total (annualized) Total (annualized) ------- ----------- ------- ----------- SAME STORE COMMUNITY RENTAL EXPENSES Personnel . . . . . . . . . . $ 2,844 1,001 2,675 941 Advertising and promotion . . 514 181 460 162 Utilities . . . . . . . . . . 755 266 792 279 Building repairs and maintenance. . . . . . . . . 1,112 391 801 282 Contract services . . . . . . 333 117 304 107 Landscaping and grounds maintenance. . . . . . . . . 353 124 324 114 Real estate taxes . . . . . . 3,766 1,325 3,713 1,306 Insurance . . . . . . . . . . 439 154 550 193 Property management fees. . . 804 283 803 283 Other rental expenses . . . . 353 124 220 77 ------- -------- ------- ------- Total. . . . . . . . . . . $11,273 3,966 10,642 3,744 ======= ======== ======= ======= Operating capital expenditures . . . . . . . . $ 798 281 686 241 ======= ======== ======== ======== Number of same store apartment homes. . . . . . . 11,369 ======= Number of same store communities. . . . . . . . . 30 ======= The following provides additional detail for certain of the above expenditures for the three months ended March 31, 2005 and 2004. Wholly-owned Communities ----------------------------------------- 2005 2004 ------------------- ------------------- Per Unit Per Unit Total (annualized) Total (annualized) ------- ----------- ------- ----------- SAME STORE BUILDING REPAIRS AND MAINTENANCE Painting. . . . . . . . . . . $ 319 112 230 81 Carpet, vinyl, wallpaper and mini-blinds . . . . . . 173 61 165 58 Carpentry, glass and hardware. . . . . . . . . . 80 28 69 24 HVAC, plumbing and electrical. . . . . . . . . 120 42 128 45 Parking lots and amenity areas . . . . . . . . . . . 196 69 38 14 Other repairs and maintenance . . . . . . . . 224 79 171 60 ------- -------- -------- -------- Total . . . . . . . . . . . $ 1,112 391 801 282 ======= ======== ======== ======== The following shows detail of rental expenses and total capital expenditures (excluding acquisition capital expenditures) for AMLI's same store co-investment communities, at 100%, for the three months ended March 31, 2005 and 2004. Due to seasonal effects actual expenses for the full year ended December 31, 2005 and 2004 may be different than the annualized per unit amounts shown below. Co-investment Communities ----------------------------------------- 2005 2004 ------------------- ------------------- Per Unit Per Unit Total (annualized) Total (annualized) ------- ----------- ------- ----------- SAME STORE COMMUNITY RENTAL EXPENSES Personnel . . . . . . . . . . $ 2,794 1,003 2,749 987 Advertising and promotion . . 484 174 480 172 Utilities . . . . . . . . . . 752 270 711 255 Building repairs and maintenance. . . . . . . . . 1,081 388 701 251 Contract services . . . . . . 431 155 372 133 Landscaping and grounds maintenance. . . . . . . . . 467 168 450 162 Real estate taxes . . . . . . 3,635 1,305 3,853 1,383 Insurance . . . . . . . . . . 415 149 529 190 Property management fees. . . 1,171 420 1,188 427 Other rental expenses . . . . 377 135 281 101 ------- -------- ------- ------- Total. . . . . . . . . . . $11,607 4,167 11,314 4,061 ======= ======== ======= ======= Operating capital expenditures . . . . . . . . $ 703 252 470 169 ======= ======== ======== ======== Number of same store apartment homes. . . . . . . 11,143 ======= Number of same store communities. . . . . . . . . 29 ======= The following provides additional detail for certain of the above expenditures for the three months ended March 31, 2005 and 2004. Co-investment Communities ----------------------------------------- 2005 2004 ------------------- ------------------- Per Unit Per Unit Total (annualized) Total (annualized) ------- ----------- ------- ----------- SAME STORE BUILDING REPAIRS AND MAINTENANCE Painting. . . . . . . . . . . $ 452 162 238 85 Carpet, vinyl, wallpaper and mini-blinds . . . . . . 162 58 138 50 Carpentry, glass and hardware. . . . . . . . . . 65 24 36 13 HVAC, plumbing and electrical. . . . . . . . . 99 36 72 26 Parking lots and amenity areas . . . . . . . . . . . 101 36 49 17 Other repairs and maintenance . . . . . . . . 202 72 168 60 ------- -------- -------- -------- Total . . . . . . . . . . . $ 1,081 388 701 251 ======= ======== ======== ======== SAME STORE OPERATING CAPITAL EXPENDITURES In general, AMLI expenses any expenditure less than $2.5. The following summarizes capital expenditures incurred in connection with AMLI's portfolio of same store communities (excluding communities acquired/contributed to partnerships), for the three months ended March 31, 2005 and 2004. Due to seasonal effects actual capital expenditures for the full year ended December 31, 2005 and 2004 may be different than the annualized per unit amounts shown below. Wholly-Owned Communities ----------------------------------------- 2005 2004 ------------------- ------------------- Per Unit Per Unit Total (annualized) Total (annualized) ------- ----------- ------- ----------- SAME STORE CAPITAL EXPENDITURES Carpet. . . . . . . . . . . . $ 404 142 380 134 Land and building improvements . . . . . . . . 161 57 132 46 Other . . . . . . . . . . . . 233 82 174 61 ------- -------- -------- ------- Total. . . . . . . . . . . $ 798 281 686 241 ======= ======== ======== ======= Co-investment Communities at 100% ----------------------------------------- 2005 2004 ------------------- ------------------- Per Unit Per Unit Total (annualized) Total (annualized) ------- ----------- ------- ----------- SAME STORE CAPITAL EXPENDITURES Carpet. . . . . . . . . . . . $ 367 132 332 119 Land and building improvements . . . . . . . . 151 54 67 24 Other . . . . . . . . . . . . 185 66 71 26 ------- -------- -------- ------- Total. . . . . . . . . . . $ 703 252 470 169 ======= ======== ======== ======= OTHER CAPITAL EXPENDITURES In addition to costs incurred to develop or acquire communities, AMLI has made capital expenditures for all wholly-owned communities (including non-same store communities) and information technology as follows: Three Months Ended March 31, -------------------- 2005 2004 -------- -------- Operating capital expenditures . . . . . . . $ 971 904 Information technology costs . . . . . . . . 273 305 -------- -------- $ 1,244 1,209 ======== ======== COMPARATIVE CONDENSED RESULTS OF OPERATIONS The following table shows comparative condensed results of operations for the three months ended March 31, 2005 and 2004. 2005 2004 -------- ------- Rental and other income. . . . . . . . . . . . $ 37,467 27,640 Service Companies. . . . . . . . . . . . . . . 5,369 13,580 Fee income . . . . . . . . . . . . . . . . . . 260 433 -------- -------- 43,096 41,653 -------- -------- Expenses: Community rental . . . . . . . . . . . . . . 16,366 11,312 Service Companies. . . . . . . . . . . . . . 6,156 14,024 Depreciation . . . . . . . . . . . . . . . . 11,304 7,928 General and administrative . . . . . . . . . 1,961 2,196 -------- -------- 35,787 35,460 -------- -------- Other income (expenses): Income from partnerships . . . . . . . . . . 378 1,503 Share of gain on sale of a partnership community. . . . . . . . . . . -- 2,648 Other income . . . . . . . . . . . . . . . . 201 479 Interest expense and amortization of deferred costs. . . . . . . . . . . . . (8,910) (6,904) -------- -------- (8,331) (2,274) -------- -------- Income (loss) from continuing operations before minority interest . . . . . . . . . . (1,022) 3,919 Minority interest. . . . . . . . . . . . . . . (179) 144 -------- ------- Income (loss) from continuing operations . . . (843) 3,775 -------- ------- Income from discontinued operations, net of minority interest . . . . . . . . . . 316 2,944 Gains on sales of rental communities, net of minority interest . . . . . . . . . . 22,938 -- -------- ------- Income from discontinued operations, net of minority interest . . . . . . . . . . 23,254 2,944 -------- ------- Net income . . . . . . . . . . . . . . . . . . $ 22,411 6,719 ======== ======= COMPARISON OF THREE MONTHS ENDED MARCH 31, 2005 TO THREE MONTHS ENDED MARCH 31, 2004. Income from continuing operations before minority interest decreased to a loss of $1,022 for the three months ended March 31, 2005 from an income of $3,919 for the three months ended March 31, 2004. This decrease is primarily due to a $3,376 increase in depreciation and a $2,006 increase in interest and amortization expense. Community rental revenues including rental-related other income increased by $9,827, or 35.6%, and community rental expenses increased by $5,054, or 44.7%, during the first quarter of 2005 compared to 2004. These increases resulted in $4,773, or 29.2%, increase in income primarily from operations of seven communities acquired after the first quarter of 2004 (and therefore generated one full quarter of operating income in 2005) and two communities acquired during the first quarter of 2005. In addition, AMLI's acquisition of the 75% interest it did not already own in two communities contributed to the increase in operating income. These acquisitions and the allocation of a portion of the acquisition costs to the existing leases for the communities acquired, which is depreciated over a relatively short period of time, resulted in higher depreciation. Interest expense increased as a result of additional borrowings from the primary line of credit and an additional mortgage loan assumed upon acquisition of a community during the first quarter of 2005 and two mortgage loans that closed during the second and third quarters of 2004. Revenues of the Service Companies, which consist primarily of construction revenues, property management fees and ancillary services income, were $8,211, or 60.5%, lower in the first quarter of 2005 compared to the same period in 2004. The decrease was due to a significant reduction in construction activity for the co-investment partnerships. Fee income was $173, or 40.0%, lower in the first quarter of 2005 compared to last year due to reduced co-investment development activities. Asset management fees were flat. AMLI's share of income from partnerships decreased by $1,125, or 74.9%, primarily from approximately $455 of start-up losses due to slower leasing of three development communities that were in lease-up, two of which commenced rental operations in late 2004. In addition, AMLI's share of income resulting from cash distributions in excess of its ownership interests were $390 lower than in 2004. Furthermore, AMLI's acquisition of its co-investment partners' interests in communities during the fourth quarter of 2004 resulted in lower income from partnerships. AMLI's share of gain on sale of a partnership community was from the sale of one co- investment community in January 2004, and there was no community sold during the first quarter of 2005. Interest expense including amortization of financing costs, net of amounts capitalized for communities under development, increased to $8,910 from $6,904, or 29.1%. The increase was primarily due to increased borrowings at higher floating rates to fund acquisition and development activities, as LIBOR has risen, and a mortgage loan assumed upon acquisition of AMLI at McGinnis Ferry in February 2005 and two new mortgage loans secured by two communities that closed in May and July 2004. General and administrative expenses decreased by $235, or 10.7%, primarily as a result of 2004 compensation paid to employees who left AMLI in 2004, which expense did not recur in 2005. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2005, AMLI had $4,124 in cash and cash equivalents, $98,000 in availability under its $240,000 primary unsecured line of credit. The unsecured secondary line of credit of $16,000 is used primarily for stand-by letters of credit that have $15,684 outstanding at March 31, 2005. Borrowings under the primary and secondary lines of credit bear interest at a rate of LIBOR plus 1.00% and LIBOR plus 1.20%, respectively. AMLI has fixed the base rate on up to $45,000 of borrowings on its primary line of credit at an average rate of 4.47% 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%, all of which commenced in April 2004. Additionally, AMLI has fixed the base rate on $100,000 of borrowings on its $110,000 four-year term loan at an average rate of 4.99% under interest rate swap contracts that will commence in July 2005. At March 31, 2005, 24 of AMLI's 44 wholly-owned stabilized communities are unencumbered. Summary information on AMLI's cash flows is as follows: Three Months Ended March 31, -------------------- 2005 2004 -------- -------- Net cash provided by operating activities. . . . $ 8,638 9,111 Net cash (used in) provided by investing activities . . . . . . . . . . . . . (4,942) 25,246 Net cash used in financing activities. . . . . . (4,690) (33,333) Net cash provided by operating activities (including operating cash flows from communities sold) decreased slightly in 2005 compared to 2004. The communities acquired after the first quarter of 2004 and in the first quarter of 2005 increased operating cash flows, which was largely reduced by lower cash flows from communities sold during the same period. Interest expense increased due to a loan assumed by AMLI in connection with the acquisition of a rental community in February 2005 and new loans closed in 2004. Lower cash distributions received from partnerships as a result of lower cash flows from co-investment communities' operations due to fewer communities and lower cash flows from the Service Companies further reduced cash flows from operations. The change to net cash used by investing activities in 2005 from net cash provided by investing activities in 2004 was primarily due to the acquisition of two rental communities from third parties and higher expenditures for development and capital expenditures for property improvements. These uses of funds were partially offset by cash proceeds from sales of three rental communities and a land parcel, and lower investments in partnerships. In 2004, collection of a note receivable in connection with the sale of two wholly-owned communities plus cash distributions from proceeds of the sale of a partnership community were used to pay down AMLI's primary line of credit. Net cash used in financing activities was lower in 2005 compared to 2004. The change resulted from AMLI's lower repayments of the unsecured primary line of credit offset by higher dividends paid during the first quarter of 2005. In February 2005 the loan assumed by AMLI in connection with the acquisition of a rental community provided funds to repay a portion of the line of credit. DIVIDENDS AND DISTRIBUTIONS AMLI has paid regular cash dividends since its formation in 1994 and expects to pay quarterly dividends primarily from cash available for distribution. Until distributed, funds available for distribution are used to temporarily reduce outstanding balances on AMLI's revolving lines of credit. AMLI expects to meet its short-term liquidity requirements by using its working capital and any portion of net cash flows from operations not distributed currently. AMLI believes that its future net cash flows will be adequate to meet operating requirements and to provide for payment of dividends by AMLI in accordance with REIT requirements. AMLI believes it 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 2004, AMLI distributed more than 100% of its taxable income. AMLI's current dividend payment level equals an annual rate of $1.92 per common share. AMLI anticipates that all dividends paid in 2005 will be fully taxable, and it will distribute at least 100% of the taxable income. AMLI has recorded no deferred taxes on gains for financial reporting purposes that have been deferred for income tax reporting purposes because AMLI 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 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 AMLI's operations or AMLI's cash flows or liquidity as defined by GAAP. FFO is widely accepted in measuring the performance of equity REITs. An understanding of AMLI's FFO will enhance the reader's comprehension of AMLI's results of operations and cash flows as presented in the financial statements and data included elsewhere herein. Management believes that the non-GAAP financial measure FFO provides useful information to investors because it measures performance without regard to gains on sale and certain non-cash charges, principally depreciation. Gains from sales of investment communities, in particular, can occur to varying degrees in a given year or for a particular real estate investment trust. Such gains may result from assets held for a long period or from a relatively shorter period. Accordingly, AMLI believes it is informative to use FFO (which is both widely-accepted in the REIT investment community and computed in accordance with the methodology set forth in the April 1, 2002 White Paper published by the National Association of Real Estate Investment Trusts), in order to permit meaningful comparisons of AMLI's results from one accounting period to the next, and of AMLI's results compared to others in its industry. Management uses FFO per share information to measure its performance, changes in its performance, and its performance compared to its competitors. AMLI believes FFO per share provides useful performance information to investors which may be compared to that reported by its competitors. AMLI's management uses this measure to benchmark its overall results by comparing its performance to that of its peers, and to supplement its communication of operating performance to the investment community, whose financial analysts also use FFO as a measure of performance. FFO for the three months ended March 31, 2005 and 2004 is summarized as follows: March 31, ------------------------ 2005 2004 ---------- ---------- Net income . . . . . . . . . . . . . . . . $ 22,411 6,719 Income from discontinued operations, net of minority interest . . . . . . . . (316) (2,944) Gains on sales of rental communities sold, net of minority interest . . . . . (22,938) -- Minority interest. . . . . . . . . . . . . (179) 144 ---------- ---------- Income (loss) from continuing operations before minority interest . . . . . . . . (1,022) 3,919 Income from discontinued operations before minority interest . . . . . . . . 336 3,176 Depreciation (1) . . . . . . . . . . . . . 11,304 8,641 Share of partnerships' depreciation. . . . 2,660 2,590 Share of gain on sale of a partnership community. . . . . . . . . . . . . . . . -- (2,648) ---------- ---------- FFO. . . . . . . . . . . . . . . . . . . . $ 13,278 15,678 ========== ========== Weighted average shares and units including dilutive shares . . . . . . . . 31,201,655 27,918,813 ========== ========== (1) Includes discontinued operations of $0 and $713 for the three months ended March 31, 2005 and 2004, respectively. Reconciliation of the weighted average number of shares used in the computation of diluted EPS with the weighted average number of shares and OP units used in the computation of FFO per share is as follows: March 31, ------------------------- 2005 2004 ---------- ---------- Weighted average common shares for EPS calculation: Weighted average common shares - basic. . . . . . . . . . . . . . . . 25,425,391 21,986,227 Dilutive options and other plan shares . . . . . . . . . . . . . . . 291,144(1) 305,470 ---------- ---------- Weighted average common shares - dilutive . . . . . . . . . . . . . . 25,716,535 22,291,697 Weighted average preferred shares. . . . 3,845,721 3,892,974 Weighted average OP units. . . . . . . . 1,639,399 1,734,142 ---------- ---------- Weighted average shares and OP units used in FFO calculaitons . . . . . . . 31,201,655 27,918,813 ========== ========== (1) For the three months ended March 31, 2005 diluted shares were excluded from the denominator in calculating diluted earnings per share for income from continuing and discontinued operations in accordance with Financial Accounting Standards Board Statement No. 128, "Earnings Per Share." AMLI 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 AMLI or OP Units or through sales of assets. As of March 31, 2005, AMLI had $204,090 that it may issue as common shares or preferred shares in the future under its shelf registration statement filed late in 2003. AMLI INDEBTEDNESS AMLI seeks to maintain a relatively modest amount of leverage and measures its leverage and coverage ratios for the Company. At March 31, 2005, AMLI had $688,235 of debt outstanding. Debt to total market capitalization was 44.6%. OFF BALANCE SHEET ARRANGEMENTS A co-investment community may be owned free of debt or subject to indebtedness, depending upon the capital structure mutually agreed to by AMLI and its partner. Other than short-term construction financing loans from AMLI, all partnerships' debt will generally be non-recourse, long- term, fixed-rate mortgage loans. At March 31, 2005 the debt of AMLI and co-investment partnerships at 100% is as follows:
AMLI: - ---- Weighted Percent Average Years to of Interest Maturity Type of Indebtedness Balance Total Rate (1) (2) Secured Unsecured Fixed Variable - -------------------- -------- -------- -------- -------- -------- --------- -------- -------- Conventional mortgages. . . . . . . $421,135 61.2% 6.2% 4.6 421,135 -- 421,135 -- Credit facilities. . . . 252,000 36.6% 4.1% 2.3 -- 252,000 160,000 92,000 Tax-exempt debt. . . . . 9,500 1.4% 3.4% 0.7 -- 9,500 -- 9,500 Other. . . . . . . . . . 5,600 0.8% 2.9% -- -- 5,600 -- 5,600 -------- -------- -------- -------- -------- -------- -------- -------- Total. . . . . . . . $688,235 100.0% 5.3% 3.6 421,135 267,100 581,135 107,100 ======== ======== ======== ======== ======== ======== ======== ======== Percent of total . . . . 61.2% 38.8% 84.4% 15.6% ======== ======== ======== ======== CO-INVESTMENT PARTNERSHIPS AT 100%: - ---------------------------------- Weighted Percent Average Years to of Interest Maturity Type of Indebtedness Balance Total Rate (1) (2) Secured Unsecured Fixed Variable - -------------------- -------- -------- -------- -------- -------- --------- -------- -------- Conventional mortgages. . . . . . . $560,578 90.4% 7.0% 5.2 560,578 -- 560,578 -- Construction financing . 59,424 9.6% 5.8% 4.5 59,424 -- 30,803 28,621 -------- -------- -------- -------- -------- -------- -------- -------- Total. . . . . . . . $620,002 100.0% 7.0% 5.1 620,002 -- 591,381 28,621 ======== ======== ======== ======== ======== ======== ======== ======== Percent of total . . . . 100.0% 0.0% 95.4% 4.6% ======== ======== ======== ======== (1) The weighted average interest rate for variable rate debt reflects (i) the variable rate in effect on the last day of the period, (ii) the effective fixed interest rates on swaps, and (iii) each financing's respective lender credit spread. (2) Years to maturity reflects the expiration date of the credit enhancements supporting tax-exempt debt, not the actual maturity date of the bonds, which is in 2024.
Variable-rate debt includes AMLI's unsecured lines of credit and one unsecured tax-exempt bond issue. See the section on "Derivatives" for a discussion of the hedges associated with our primary line of credit and our term loan. AMLI's lines of credit and term loan covenants include leverage, coverage and other covenants typically found in line of credit and loan agreements provided by commercial banks to publicly-traded apartment REITs. AMLI monitors its compliance of the covenants and does not believe that it will breach any of them in the ordinary course of business. A breach of a material financial covenant would normally result in the inability of AMLI to continue to have funds available under the line, until the default was remedied or the condition waived by the lender(s). DEVELOPMENT ACTIVITIES At March 31, 2005, AMLI has made capital contributions totaling $18,259 to the co-investment partnerships that have 1,034 units under development or in lease-up. Including one wholly-owned development by the OP, AMLI's unfunded capital contributions to complete the 1,394 apartment homes is estimated at $8,038. AMLI (including the Service Companies) owns land in Ft. Worth, Austin and Houston, Texas; Atlanta, Georgia; Kansas City, Kansas and near Indianapolis, Indiana, which is being held for the development of apartment homes, or for sale. In addition, AMLI has made earnest money deposits for land parcels located in Kansas City, Kansas and Decatur, Georgia. AMLI has started active development planning for its land parcels in Atlanta, Kansas City and Austin. Construction has progressed on a 360 apartment home development in Las Colinas, Texas and is approximately 69% complete at March 31, 2005. AMLI believes that it is now a favorable time to start development activities in these submarkets. AMLI has expensed costs associated with carrying land parcels, which are held for future development or sale, in the years 2002 through 2005. INFLATION Inflation has been low for the past several years. AMLI's apartment leases at its communities are typically for six or twelve months' duration. Absent other market influences, this enables AMLI to reset rental rates relatively often, thereby passing along inflationary increases in its rental expenses on a timely basis. However, in the last three years other market influences have not permitted AMLI to increase rents commensurate with increases in operating expenses, with a resultant decrease in community NOI and earnings during that period. Since 2004 occupancies at AMLI's communities have generally increased while rental rates have stabilized in some markets, as most of AMLI's markets have shown job growth. An increase in general price levels may be accompanied by an increase in interest rates. At March 31, 2005, AMLI's exposure to rising interest rates was mitigated by the existing debt level of approximately 44.6% of AMLI's total market capitalization; the high percentage of intermediate- term fixed-rate debt (61.2% of total debt) and the use of interest rate swaps and caps to effectively fix or limit the interest rate on floating- rate borrowings through April 2009 (8.7% of total debt) and December 2009 (14.5% of total debt). DISCONTINUED OPERATIONS Three wholly-owned rental communities were sold during the three months ended March 31, 2005 and a community built for sale by the Service Companies was held for sale as of March 31, 2005. Five wholly-owned rental communities were sold in 2004. Communities held for sale by partnerships accounted for using the equity method of accounting are not discontinued operations under the provisions of SFAS 144. Condensed financial information of the results of operations for these wholly-owned communities is as follows: Three Months Ended March 31, -------------------- 2005 2004 -------- -------- Total revenues (1) . . . . . . . . . . . . . . . $ 860 7,179 -------- -------- Community rental expenses. . . . . . . . . . . . 524 2,937 Depreciation expense . . . . . . . . . . . . . . -- 713 Interest and amortization of deferred costs. . . -- 353 -------- -------- Total expenses . . . . . . . . . . . . . . . . . 524 4,003 -------- -------- Income from discontinued operations before minority interest. . . . . . . . . . . . . . . 336 3,176 Minority interest. . . . . . . . . . . . . . . . 20 232 -------- -------- Income from discontinued operations, net of minority interest. . . . . . . . . . . . . . . 316 2,944 Gains on sales of rental communities, net of minority interest . . . . . . . . . . . 22,938 -- -------- -------- Income from discontinued operations, net of minority interest. . . . . . . . . . . . . . . $ 23,254 2,944 ======== ======== (1) Includes asset management fee and interest income (on purchase money note) received by AMLI in 2004 in connection with the sale of AMLI at Centennial Park and AMLI at Town Center in 2003. OTHER MATTERS Derivative instruments reported in the consolidated balance sheets as of March 31, 2005 and December 31, 2004, consist of derivative assets of $2,639 and $548 and derivative liabilities of $148 and $1,232, respectively. The derivative instruments reported in the consolidated balance sheets as accumulated other comprehensive income or (loss), which are income or (losses) not affecting retained earnings in the consolidated statement of shareholders' equity, totaled $1,158 and ($2,030) as of March 31, 2005 and December 31, 2004, respectively. The accumulated other comprehensive income (loss) include $904 and $943 of AMLI's share of other comprehensive loss from a co-investment partnership as of March 31, 2005 and December 31, 2004, respectively. In addition, the unamortized deferred gain of $484 and $519 from Treasury Lock contracts were included in other comprehensive income adjustments as of March 31, 2005 and December 31, 2004, respectively. As of March 31, 2005, $668 of unamortized goodwill (of $3,300 total incurred upon completion of a 1997 acquisition) is included in the accounts of the consolidated Service Companies. In addition, as of December 31, 2003, AMLI allocated $434 (of the acquisition cost of the Service Company subsidiaries' controlling interests not already owned) to the cost of property management contracts, which AMLI is amortizing over a five-year period. AMLI is contingently liable with respect to letters of credit and guarantees issued to secure undertakings made by various unconsolidated affiliates. AMLI anticipates that no such contingent liability will be realized, and that the various letters of credit and guarantees will eventually expire. AMLI estimates the aggregate fair value of all such letters of credit and guarantees to be less than $200. AMLI commenced reporting the value of stock options as a charge against earnings for options awarded subsequent to January 1, 2002. In December 2002, there were 332,250 options, net of cancellations and exercises, awarded to employees, the value of which is being expensed over five years from the award dates. In January 2005, 433,640 options were awarded to employees and the value of these options is being expensed over the five-year period through January 2010. In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Compensation." It replaces SFAS No. 123, "Accounting for Stock Issued to Employees." SFAS No. 123(R) requires that the compensation cost relating to share-based payment transactions be recognized and reported in financial statements. It is required to be applied by us beginning January 1, 2006. We intend to adopt SFAS No. 123(R) using the modified prospective application method which requires, among other things, that we recognize compensation expense for all awards outstanding at January 1, 2006 for which the requisite service has not yet been rendered. AMLI's adoption of SFAS No. 123(R) is not expected to have a material effect on our financial statements because we have used a fair value based method of accounting for share-based compensation costs for all employee stock compensation awards granted, modified or settled since January 1, 2002. In addition, we do not expect to have significant unvested awards outstanding at January 1, 2006 from awards granted for periods prior to January 1, 2002 outstanding at January 1, 2006. In December 2004, the FASB issued SFAS No. 153, "Exchange of Nonmonetary Assets, an amendment of APB Opinion No. 29," ("SFAS 153"). The amendments made by SFAS 153 are based on the principle that exchanges of nonmonetary assets should be measured on the fair value of assets exchanged. It eliminates the exception for nonmonetary exchanges of similar productive assets and replaces it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. The statement is effective for nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005. OTHER CONTINGENCIES During 2004, AMLI substantially completed spending approximately $375 to correct a problem resulting from mold growing in mechanical closets at one property. These costs have been capitalized in accordance with EITF 90-8, "Capitalization of Cost to Treat Environmental Contamination." 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 AMLI'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. AMLI carries insurance to mitigate the potential financial impact of certain of these risks. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK MARKET RISK AMLI is exposed to interest rate changes primarily as a result of its lines of credit used to maintain liquidity and fund capital expenditures and expansion of AMLI's real estate investment portfolio and operations. AMLI'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, AMLI 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 related financial instruments. AMLI does not enter into derivative or interest rate transactions for speculative purposes. AMLI 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 the following financing activities: Effective Fixed Loan Maturity Amount Rate (1) Date Date -------- --------- -------- -------- Refinancing of floating-rate debt. . $140,000 6.56% 6/6/01 7/1/11 Mortgage loans assumed on communities acquired (2): AMLI at Danada Farms 20,947 4.77% 10/31/03 3/1/07 AMLI at Oak Bend . . 10,847 5.62% 12/31/03 12/1/06 AMLI at McGinnis Ferry (3). . . . . 21,536 5.04% 8/1/00 7/1/10 Additional mortgage loan on AMLI at Danada Farms. . . . . 20,000 4.48% 12/19/03 3/1/07 First mortgage loan on AMLI on Eldridge Parkway. . . . . . . 32,709 5.36% 5/26/04 6/1/14 First mortgage loan on AMLI at Riverbend. 45,000 4.85% 7/19/04 8/1/14 -------- $291,039 ======== (1) Fixed rates for financial reporting purposes. (2) AMLI assumed a total of $56,838 of the existing fixed-rate mortgages on five communities acquired from our co-investment partners, of which $25,044 relating to three communities have since been repaid. (3) Loan was assumed on February 24, 2005 upon acquisition of this community. At March 31, 2005, 84.4% of AMLI's debt is at fixed rates, which includes $145,000 of variable-rate debt that has been swapped to fixed rates and $15,000 capped at a fixed rate. On October 29, 2004, AMLI closed on a 90-day $40,000 unsecured variable-rate bank loan. The loan was repaid from proceeds of a $110,000 unsecured variable-rate four-year term loan obtained from a group of four banks, which closed on December 20, 2004. In addition, AMLI entered into interest rate swap agreements for the period July 1, 2005 through December 20, 2009 effectively fixing the interest rate on $100,000 of the variable-rate term loan at a rate of 3.99% plus the loan spread, or 4.99%. At March 31, 2005, variable-rate debt (net of $160,000 swapped and capped to fixed rates) totaled $107,100, so that each 1% increase in short- term interest rates will increase AMLI's annual interest cost by $1,071. There have been no other significant changes in AMLI's exposure to market risks. ITEM 4. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES AMLI has established disclosure controls and procedures to ensure that material information relating to AMLI, including its consolidated subsidiaries, is made known to the officers who certify AMLI's financial reports, members of senior management and the board of trustees. As of the end of the period covered by this report, AMLI conducted an evaluation of the effectiveness of its disclosure controls and procedures. Based on management's evaluation as of March 31, 2005, AMLI's Chief Executive Officer and its Chief Financial Officer have concluded that AMLI's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by AMLI in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There were no changes in AMLI's internal control over financial reporting during the first quarter ended March 31, 2005 that have materially affected, or are reasonably likely to materially affect, AMLI's internal control over financial reporting. STABILIZED WHOLLY-OWNED COMMUNITIES The table below summarizes certain information related to the stabilized wholly-owned communities.
1st Qtr. 2005 Average Monthly Collected Physical Average Revenues Occupancy Number of Apartment Per at Wholly-Owned Year Apartment Size Occupied March 31, Communities Location Completed Homes (Square Feet) Apartment 2005 - ------------ -------- --------- --------- ------------- --------- ---------- Dallas/Ft. Worth, TX AMLI: at Bishop's Gate Plano 1997 266 1,098 $1,032 93.6% on the Fairways Coppell 2002 322 900 879 94.1% on the Green Ft. Worth 1990/93 424 846 725 89.9% Knox-Henderson Dallas 1994 180 875 1,061 96.1% of North Dallas Dallas 1985/86 1,032 879 679 91.3% at Oak Bend Dallas 1997 426 898 769 95.8% 7th Street Station Ft. Worth 2000 189 1,060 1,025 91.5% at Shadow Ridge Flower Mound 2000 222 983 980 93.2% at Stonebridge Ranch McKinney 2001 250 857 759 93.2% Upper West Side Ft. Worth 2001 194 907 969 94.3% at Valley Ranch Irving 1985 460 848 773 95.0% ------ ------ ------ ----- 3,965 905 814 93.0% ------ ------ ------ ----- Atlanta, GA AMLI: at Clairmont Atlanta 1988 288 796 812 95.8% at Killian Creek Snellville 1999 256 1,027 836 94.5% at Park Creek Gainesville 1998 200 976 785 94.0% at Vinings Smyrna 1985 360 1,040 810 94.7% at West Paces Atlanta 1992 337 1,050 911 73.0% at McGinnis Ferry Gwinnett County 1999/02 696 1,205 870 91.1% ------ ------ ------ ----- 2,137 1,055 847 90.2% ------ ------ ------ ----- 1st Qtr. 2005 Average Monthly Collected Physical Average Revenues Occupancy Number of Apartment Per at Wholly-Owned Year Apartment Size Occupied March 31, Communities Location Completed Homes (Square Feet) Apartment 2005 - ------------ -------- --------- --------- ------------- --------- ---------- Chicago, IL AMLI: at Canterfield West Dundee 2001 352 1,224 1,311 89.8% at Danada Farms Wheaton 1989/91 600 869 1,027 93.3% at Kirkland Crossing Aurora 2004 266 1,143 1,163 88.7% at Oakhurst North Aurora 2000 464 1,013 1,029 95.5% at Poplar Creek Schaumburg 1985 196 906 1,051 96.9% at River Run Naperville 2003 206 1,316 1,373 86.9% ----- ------ ------ ------ 2,084 1,044 1,129 92.3% ----- ------ ------ ------ Austin, TX AMLI: at Lantana Ridge Austin 1997 354 881 833 92.1% at StoneHollow Austin 1997 606 866 740 97.5% at Lantana Hills Austin 2000 264 972 751 89.0% at Walnut Creek Austin 2004 460 998 832 82.0% ------ ------ ------ ----- 1,684 922 786 90.8% ------ ------ ------ ----- Kansas City, KS AMLI: Creekside Overland Park 2000 224 813 785 92.9% at Lexington Farms Overland Park 1998 404 972 787 92.1% at Regents Center Overland Park 1991/95/97 424 940 775 92.5% at Regents Crest Overland Park 1997/00 476 948 778 91.6% at Wynnewood Farms Overland Park 2000 232 1,017 894 90.1% ------ ------ ------ ----- 1,760 944 795 91.9% ------ ------ ------ ----- 1st Qtr. 2005 Average Monthly Collected Physical Average Revenues Occupancy Number of Apartment Per at Wholly-Owned Year Apartment Size Occupied March 31, Communities Location Completed Homes (Square Feet) Apartment 2005 - ------------ -------- --------- --------- ------------- --------- ---------- Indianapolis, IN AMLI: Carmel Center Carmel 2004 322 1,074 918 95.3% at Castle Creek Indianapolis 2000 276 978 898 92.8% at Conner Farms Fishers 1993 300 1,091 863 91.3% at Eagle Creek Indianapolis 1998 240 973 835 92.1% at Lake Clear- water Indianapolis 1999 216 1,009 928 93.5% at Riverbend Indianapolis 1983/85 996 824 676 92.7% on Spring Mill Carmel 1999 400 1,017 836 92.5% ------ ------ ------ ----- 2,750 953 804 92.8% ------ ------ ------ ----- Houston, TX AMLI: on Eldridge Parkway Houston 1998/99 668 884 779 93.1% at the Medical Center Houston 2000 334 962 950 89.5% ------ ------ ------ ----- 1,002 910 836 91.9% ------ ------ ------ ----- Denver, CO AMLI: at Gateway Park Denver 2000 328 899 843 89.9% at Westcliff Westminster 2003 372 1,001 905 88.4% ------ ------ ------ ----- 700 953 876 89.1% ------ ------ ------ ----- Southeast Florida, FL AMLI: at Ibis West Palm Beach 2001 234 1,201 1,091 95.7% ------ ------ ------ ----- Total 16,316 963 $ 860 92.0% ====== ====== ====== ===== STABILIZED CO-INVESTMENT COMMUNITIES The table below summarizes certain information related to the stabilized co-investment communities. 1st Qtr. 2005 Average Monthly Collected Physical Average Revenues Occupancy AMLI's Number of Apartment Per at Co-investment Ownership Year Apartment Size Occupied March 31, Communities Percentage Location Completed Homes (Square Feet) Apartment 2005 - ------------- ---------- -------- --------- --------- ------------- --------- ---------- Dallas/Ft. Worth, TX AMLI: at Breckinridge Point 45% Richardson 1999 440 1,063 $ 901 91.4% at Bryan Place 48% Dallas 1999 420 890 920 94.0% at Deerfield 25% Plano 2000 240 996 902 89.6% on Frankford 45% Dallas 1998 582 889 883 92.3% on the Parkway 25% Dallas 1999 240 939 840 90.4% at Prestonwood Hills 45% Dallas 1997 272 903 865 89.7% ------ ------ ------ ----- 2,194 943 889 91.6% ------ ------ ------ ----- Atlanta, GA AMLI: at Barrett Lakes 35% Kennesaw 1997 446 1,037 880 95.1% at Barrett Walk 25% Kennesaw 2002 290 938 867 97.2% at Kedron Village 20% Fayette County 2002 216 1,177 1,049 95.8% at Lost Mountain 75% Paulding County 2000 164 958 779 89.0% at Mill Creek 25% Gwinnett County 2001 400 1,015 838 91.5% at Milton Park 25% Alpharetta 2003 461 966 946 92.8% at Northwinds 35% Alpharetta 1999 800 1,023 927 94.8% at Peachtree City 20% Fayette County 1998 312 980 906 95.8% at River Park 40% Norcross 1997 222 1,021 917 91.0% at Windward Park 45% Alpharetta 1999 328 1,082 913 93.3% ------ ------ ------ ----- 3,639 1,017 906 93.9% ------ ------ ------ ----- 1st Qtr. 2005 Average Monthly Collected Physical Average Revenues Occupancy AMLI's Number of Apartment Per at Co-investment Ownership Year Apartment Size Occupied March 31, Communities Percentage Location Completed Homes (Square Feet) Apartment 2005 - ------------- ---------- -------- --------- --------- ------------- --------- ---------- Chicago, IL AMLI: at Chevy Chase 33% Buffalo Grove 1988 592 812 1,045 93.8% at Fox Valley 25% Aurora 1998 272 990 995 94.9% at Osprey Lake 69% Gurnee 1997/99 483 938 1,038 91.7% at St. Charles 25% St. Charles 2000 400 990 1,126 95.5% at Windbrooke 15% Buffalo Grove 1987 236 903 1,086 95.3% ------ ------ ------ ----- 1,983 914 1,058 94.0% ------ ------ ------ ----- Austin, TX AMLI: at Monterey Oaks 25% Austin 2000 430 960 858 90.9% at Scofield Ridge 45% Austin 2000 487 889 754 90.1% ------ ------ ------ ----- 917 922 803 90.5% ------ ------ ------ ----- Kansas City, KS AMLI: at Cambridge Square 30% Overland Park 2002 408 941 873 89.2% at Summit Ridge 25% Lee's Summit 2001 432 952 844 95.4% ------ ------ ------ ----- 840 947 858 92.4% ------ ------ ------ ----- Houston, TX AMLI: at King's Harbor 25% Houston 2001 300 953 862 92.0% Midtown 45% Houston 1998 419 880 1,040 93.8% Towne Square 45% Houston 1999 380 827 1,019 92.4% ------ ------ ------ ----- 1,099 882 984 92.8% ------ ------ ------ ----- Denver, CO AMLI: at Lowry Estates 50% Denver 2000 414 947 960 89.1% at Park Meadows 25% Littleton 2001 518 1,029 975 88.0% ------ ------ ------ ----- 932 993 968 88.5% ------ ------ ------ ----- Total 11,604 958 $ 929 92.6% ====== ====== ====== ===== Summarized information for combined wholly-owned and co-investment communities is as follows: 1st Qtr. 2005 Average Monthly Collected Physical Revenues Occupancy Number of Per at Apartment Percent of Occupied March 31, Homes Portfolio (1) Apartment 2005 --------- ------------- --------- ---------- Combined Wholly-owned and Co-investment Communities - --------------------- Dallas/Ft. Worth, TX 6,159 22.1% $ 841 92.5% Atlanta, GA 5,776 20.7% 884 92.5% Chicago, IL 4,067 14.6% 1,094 93.1% Austin, TX 2,601 9.3% 792 90.7% Kansas City, KS 2,600 9.3% 816 92.1% Indianapolis, IN 2,750 9.9% 804 92.8% Houston, TX 2,101 7.5% 913 92.4% Denver, CO 1,632 5.8% 929 88.8% Southeast Florida, FL 234 0.8% 1,091 95.7% ------ ------ ------ ------ Total 27,920 100.0% $ 889 92.2% ====== ====== ====== ====== (1) Based on the number of apartment homes.
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. 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32. Certification of Chief Executive Officer and Chief Financial Officer 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 February 2, 2005 furnishing the following as exhibits: 1. AMLI's press release dated February 1, 2005, announcing the fourth quarter 2004 operating results and a dividend declaration. 2. AMLI's fourth quarter 2004 Supplemental Operating and Financial Data. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMLI RESIDENTIAL PROPERTIES TRUST Date: May 6, 2005 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: May 6, 2005 By: /s/ GREGORY T. MUTZ ----------------------------------- Gregory T. Mutz Chairman of the Board of Trustees Date: May 6, 2005 By: /s/ ROBERT J. CHAPMAN ----------------------------------- Robert J. Chapman Chief Financial Officer Date: May 6, 2005 By: /s/ CHARLES C. KRAFT ----------------------------------- Charles C. Kraft Principal Accounting Officer EX-15.1 2 exh_151.txt EXHIBIT 15.1 - ------------ Board of Trustees AMLI Residential Properties Trust: RE: Registration Statements Nos. 333-123966, 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 May 4, 2005 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 statement prepared or certified by an independent registered public accounting firm, or a report prepared or certified by an independent registered public accounting firm within the meaning of Sections 7 and 11 of the Act. KPMG LLP Chicago, Illinois May 4, 2005 EX-31.1 3 exh_311.txt EXHIBIT 31.1 - ------------ CERTIFICATIONS I, Gregory T. Mutz, 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 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 officer 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) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and 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. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. 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 d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most fiscal quarter (the registrant's fourth fiscal quarter in case of an annual report) 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 officer 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 controls 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: May 6, 2005 /s/ GREGORY T. MUTZ ------------------------ Gregory T. Mutz Chief Executive Officer EX-31.2 4 exh_312.txt EXHIBIT 31.2 - ------------ CERTIFICATIONS 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 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 officer 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) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and 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. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. 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 d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most fiscal quarter (the registrant's fourth fiscal quarter in case of an annual report) 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 officer 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 controls 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: May 6, 2005 /s/ ROBERT J. CHAPMAN --------------------------- Robert J. Chapman Chief Financial Officer EX-32 5 exh_32.txt EXHIBIT 32 - ---------- CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned Chief Executive Officer and Chief Financial Officer of AMLI Residential Properties Trust ("AMLI"), each hereby certifies pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that, to the best of each of their knowledge: (a) AMLI's Quarterly Report on Form 10-Q for the period ended March 31, 2005 filed with the Securities and Exchange Commission fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (b) that information contained in AMLI's Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of AMLI. Date: May 6, 2005 By: /s/ Gregory T. Mutz ------------------------------ Gregory T. Mutz Chief Executive Officer Date: May 6, 2005 By: /s/ Robert J. Chapman ------------------------------ Robert J. Chapman Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----