10-Q 1 aml_605.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 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 25,661,523 as of July 29, 2005. INDEX PART I FINANCIAL INFORMATION Item 1. Financial Statements Report of Independent Registered Public Accounting Firm. . . . . . . . . . . . . . . . . 4 Consolidated Balance Sheets as of June 30, 2005 (Unaudited) and December 31, 2004 (Audited). . . . . . . . . . . 5 Consolidated Statements of Operations for the three and six months ended June 30, 2005 and 2004 (Unaudited) . . . . . . . 7 Consolidated Statement of Shareholders' Equity for the six months ended June 30, 2005 (Unaudited). . . . . . . . . . . . 9 Consolidated Statements of Cash Flows for the six months ended June 30, 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. . 33 Item 3. Quantitative and Qualitative Disclosures About Market Risk. . . . . . . . . . . . . . . . 72 Item 4. Controls and Procedures. . . . . . . . . . . . . . 73 PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . 80 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 81 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 82 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 June 30, 2005, the related consolidated statements of operations for the three-month and six-month periods ended June 30, 2005 and 2004, the related consolidated statement of shareholders' equity for the six-month period ended June 30, 2005, and the related consolidated statements of cash flows for the six-month periods ended June 30, 2005 and 2004. These consolidated financial statements are the responsibility of the Company's management. We conducted our review 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 review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity 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. /s/ KPMG LLP Chicago, Illinois August 4, 2005 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED BALANCE SHEETS JUNE 30, 2005 AND DECEMBER 31, 2004 (Dollars in thousands, except share data) JUNE 30, DECEMBER 31, 2005 2004 (UNAUDITED) (AUDITED) ------------- ------------ ASSETS: Rental communities: Land. . . . . . . . . . . . . . . $ 176,193 164,422 Depreciable property. . . . . . . 1,101,536 1,031,546 ---------- --------- 1,277,729 1,195,968 Less accumulated depreciation . . (154,666) (136,168) ---------- --------- 1,123,063 1,059,800 Rental communities held for sale, net of accumulated depreciation. . . . . . . . . . . 44,039 60,161 Rental communities under development 9,357 10,331 Land held for development or sale and predevelopment costs. . . . . 23,537 33,228 Investments in partnerships . . . . 115,175 124,354 Cash and cash equivalents . . . . . 4,971 5,118 Deferred financing costs, net . . . 3,134 3,385 Other assets. . . . . . . . . . . . 28,805 26,947 Other assets associated with communities held for sale . . . . 752 99 ---------- --------- Total assets $1,352,833 1,323,423 ========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY: LIABILITIES: Debt. . . . . . . . . . . . . . . . $ 682,618 653,901 Distributions in excess of investments in and earnings from partnerships. . . . . . . . . . . 6,574 6,368 Other liabilities . . . . . . . . . 34,893 40,106 Other liabilities associated with communities held for sale. . 2,557 2,652 ---------- --------- Total liabilities . . . . 726,642 703,027 ---------- --------- AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED BALANCE SHEETS - CONTINUED JUNE 30, 2005 AND DECEMBER 31, 2004 (Dollars in thousands, except share data) JUNE 30, DECEMBER 31, 2005 2004 (UNAUDITED) (AUDITED) ------------- ------------ Commitments and contingencies (note 8) Mandatorily redeemable convertible preferred shares (at liquidation preference) . . . . . . . . . . . 96,933 96,933 Minority interest . . . . . . . . . 32,156 31,939 SHAREHOLDERS' EQUITY: Shares of beneficial interest, $0.01 par value, 145,625,000 authorized, 25,661,523 and 25,525,564 common shares issued and outstanding, respectively . . 256 255 Additional paid-in capital. . . . . 526,317 522,742 Unearned compensation . . . . . . . (4,329) (2,028) Employees' and trustees' notes. . . (2,653) (3,415) Accumulated other comprehensive income (loss) . . . . . . . . . . (1,830) (2,030) Dividends paid in excess of earnings. . . . . . . . . . . . . (20,659) (24,000) ---------- --------- Total shareholders' equity. . . . . . . . . . 497,102 491,524 ---------- --------- Total liabilities and shareholders' equity. . . $1,352,833 1,323,423 ========== ========= See accompanying notes to consolidated financial statements. AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF OPERATIONS THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (UNAUDITED) (Dollars in thousands, except share data) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- -------------------- 2005 2004 2005 2004 -------- -------- -------- -------- Revenues: Rental and other income $ 38,836 29,713 74,820 56,756 Service Companies . . . 2,504 11,867 7,873 25,101 Fee income. . . . . . . 342 424 602 857 -------- -------- -------- -------- 41,682 42,004 83,295 82,714 -------- -------- -------- -------- Expenses: Community rental. . . . 17,344 13,115 32,849 24,129 Service Companies . . . 3,235 12,393 9,391 26,109 Depreciation. . . . . . 11,006 8,502 21,987 16,070 General and administrative. . . . 1,995 1,793 3,956 3,989 Provision for loss on land held for sale. . 150 -- 150 -- -------- -------- -------- -------- 33,730 35,803 68,333 70,297 -------- -------- -------- -------- Other income (expenses): Income from partner- ships . . . . . . . . 784 430 1,162 1,933 Share of gain on sale of a partnership community . . . . . . 3,091 -- 3,091 2,648 Other income. . . . . . 431 429 632 908 Interest and amortiza- tion of deferred costs . . . . . . . . (9,507) (6,976) (18,322) (13,824) Prepayment penalty and write-off of unamor- tized deferred financing costs relating to extin- guishment of debt . . -- (1,121) -- (1,121) -------- -------- -------- -------- (5,201) (7,238) (13,437) (9,456) -------- -------- -------- -------- Income (loss) from continuing operations before minority interest. . . . . . . . 2,751 (1,037) 1,525 2,961 Minority interest . . . . 49 (188) (142) (38) -------- -------- -------- -------- Income (loss) from continuing operations, net of minority interest. . . . . . . . 2,702 (849) 1,667 2,999 -------- -------- -------- -------- AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (UNAUDITED) (Dollars in thousands, except share data) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- -------------------- 2005 2004 2005 2004 -------- -------- -------- -------- Income from discontinued operations, net of minority interest . . . 316 1,248 824 4,119 Gains on sales of rental communities, net of minority interest . . . 6,192 37,482 29,130 37,482 Gain on extinguishment of debt, net of minority interest . . . -- 4,423 -- 4,423 -------- -------- -------- -------- Income from discontinued operations. . . . . . . 6,508 43,153 29,954 46,024 -------- -------- -------- -------- Net income. . . . . . . . 9,210 42,304 31,621 49,023 Net income attributable to preferred shares . . 1,933 5,744 4,971 7,676 -------- -------- -------- -------- Net income attributable to common shares. . . . $ 7,277 36,560 26,650 41,347 ======== ======== ======== ======== Income (loss) per common share - basic: From continuing operations. . . . . . $ 0.03 (0.11) (0.08) (0.04) From discontinued operations. . . . . . 0.26 1.56 1.13 1.78 -------- -------- -------- -------- $ 0.29 1.45 1.05 1.74 ======== ======== ======== ======== Income (loss) per common share - diluted: From continuing operations. . . . . . $ 0.03 (0.11) (0.08) (0.04) From discontinued operations. . . . . . 0.25 1.56 1.13 1.78 -------- -------- -------- -------- $ 0.28 1.45 1.05 1.74 ======== ======== ======== ======== Dividends declared and paid per common share . $ 0.48 0.48 0.96 0.96 ======== ======== ======== ======== See accompanying notes to consolidated financial statements. AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY SIX MONTHS ENDED JUNE 30, 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. . . . . . -- -- -- -- -- -- 31,621 31,621 Preferred share dividends paid . . . -- -- -- -- -- -- (3,865) (3,865) Current period change in fair value of deriva- tive contracts . . . -- -- -- -- -- 90 -- 90 Current period change in fair value of marketable securities . . . . . -- -- -- -- -- 110 -- 110 ------- Comprehensive income attributable to common shares . . . . -- -- -- -- -- -- -- 27,956 ------- Common share distributions . . . . -- -- -- -- -- -- (24,415) (24,415) Shares issued in connection with: Executive Share Purchase Plan. . . . 13,369 -- 395 -- -- -- -- 395 Options exercised . . 15,901 -- 205 -- -- -- -- 205 AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY - CONTINUED SIX MONTHS ENDED JUNE 30, 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. . . . . . 2,016 -- 40 -- -- -- -- 40 Trustees' compen- sation . . . . . . . 1,364 -- 59 -- -- -- -- 59 Senior Officer Share Acquisi- tion Plan. . . . . . 103,309 1 2,917 (2,918) -- -- -- -- Amortization of unearned compen- sation . . . . . . . . -- -- -- 617 -- -- -- 617 Repayments or forgiveness of employees' and trustees' notes. . . . -- -- -- -- 762 -- -- 762 Reallocation of minority interest. . . -- -- (41) -- -- -- -- (41) ---------- ---- ------- ------- ------- ------- ------- ------- Balance at June 30, 2005. . . . . 25,661,523 $256 526,317 (4,329) (2,653) (1,830) (20,659) 497,102 ========== ==== ======= ======= ======= ======= ======= ======= See accompanying notes to consolidated financial statements.
AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (UNAUDITED) (Dollars in thousands) 2005 2004 -------- -------- Cash flows from operating activities: Net income. . . . . . . . . . . . . . . . . . $ 31,621 49,023 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . 24,958 20,975 Share of income from partnerships . . . . . (1,162) (1,933) Cash distributions from partnerships - operating cash flow . . . . . . . . . . . 5,743 7,524 Gains on sales of rental communities. . . . (31,007) (40,025) Gain on extinguishment of debt for a community sold. . . . . . . . . . . . . . -- (4,723) Share of partnership's gain on sale of a rental community . . . . . . . . . . (3,091) (2,648) Gain on sale of a land parcel . . . . . . . (108) (318) Amortization of unearned compensation . . . 617 486 Minority interest . . . . . . . . . . . . . 1,788 3,117 Other . . . . . . . . . . . . . . . . . . . 253 589 Changes in assets and liabilities: Deferred costs. . . . . . . . . . . . . . . (138) (54) Service Companies' deferred tax benefit . . (1,335) (1,011) Other assets. . . . . . . . . . . . . . . . (208) 378 Accrued real estate taxes . . . . . . . . . (4,163) (3,224) Accrued interest payable. . . . . . . . . . 311 231 Tenant security deposits and prepaid rent. . . . . . . . . . . . . . . (213) (31) Other liabilities . . . . . . . . . . . . . 20 564 -------- -------- Net cash provided by operating activities. . . . . . . . . 23,886 28,920 -------- -------- Cash flows from (for) investing activities: Investments in partnerships . . . . . . . . . (289) (2,582) Distributions from partnerships - return of capital . . . . . . . . . . . . . 6,168 14,057 Net proceeds from sales of rental communities . . . . . . . . . . . . . . . . 109,827 61,910 Share of a partnership's net cash proceeds, in excess of return of capital, from sale of a rental community. . . . . . . . . 2,032 635 Net proceeds from sale of a land parcel . . . 2,107 559 Proceeds from collection of a purchase money note. . . . . . . . . . . . . . . . . -- 28,530 Loan to a partnership . . . . . . . . . . . . -- (1,200) Advances to/from affiliates, net. . . . . . . (342) 714 Earnest money deposits. . . . . . . . . . . . (3,439) 608 Acquisition of communities. . . . . . . . . . (69,234) (98,593) Acquisition capital expenditures. . . . . . . (3,620) (1,071) Rehab capital expenditures. . . . . . . . . . (1,448) (601) Operating capital expenditures. . . . . . . . (3,342) (2,834) Communities under development, net of co-investors' share of costs. . . . . . . . (17,161) (6,849) Other assets. . . . . . . . . . . . . . . . . (1,131) -- Other liabilities . . . . . . . . . . . . . . 7 (1,621) -------- -------- Net cash provided by (used in) investing activities. . . . . . . . . 20,135 (8,338) -------- -------- AMLI RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (UNAUDITED) (Dollars in thousands) 2005 2004 -------- -------- Cash flows for financing activities: Debt proceeds, net of financing costs . . . . 286,641 312,149 Debt repayments . . . . . . . . . . . . . . . (302,629) (412,014) Prepayment penalty relating to refinancing of a wholly-owned community loan. . . . . . -- (502) Proceeds from sale of a community attributable to extinguishment of debt. . . -- 5,400 Proceeds from collection of a note receivable 1,050 -- Proceeds from issuance of Option Plan and Executive Share Purchase Plan shares and collection of employees' and trustees' notes and other . . . . . . . . . 622 5,622 Proceeds from common shares offering, net of issuance costs . . . . . . . . . . . -- 94,500 Distributions to minority interests . . . . . (1,572) (1,658) Dividends paid. . . . . . . . . . . . . . . . (28,280) (26,299) -------- -------- Net cash used in financing activities . (44,168) (22,802) -------- -------- Net decrease in cash and cash equivalents . . . (147) (2,220) Cash and cash equivalents at beginning of period. . . . . . . . . . . . 5,118 5,937 -------- -------- Cash and cash equivalents at end of period. . . . . . . . . . . . . . . $ 4,971 3,717 ======== ======== Supplemental disclosure of cash flow information: Cash paid for mortgage and other interest, net of amounts capitalized. . . . . . . . . $ 17,630 13,537 ======== ======== Supplemental disclosure of non-cash investing and financing activities: OP units converted to common shares . . . . . $ 40 657 Shares issued in connection with Executive Share Purchase Plan and trustees' compensation. . . . . . . . . . . . . . . . 114 103 Forgiveness of employees' notes . . . . . . . 685 688 Bond financing assumed by a purchaser of a community. . . . . . . . . . . . . . . -- 40,750 Assumption of mortgage debt in connection with acquisition of two communities . . . . 41,803 -- Assumption of mortgage debt and other liabilities in connection with the acquisition of a partner's ownership interest in a partnership community: Mortgage debt . . . . . . . . . . . . . . -- 6,147 Other liabilities . . . . . . . . . . . . -- 4 ======== ======== See accompanying notes to consolidated financial statements. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 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. 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 June 30, 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 June 30, 2005, AMLI owned 29,586,523 OP Units (including 3,925,000 Preferred OP Units) and the limited partners owned 1,637,465 OP Units. AMLI believes it has qualified and anticipates continuing to qualify as a real estate investment trust for Federal income tax purposes. At June 30, 2005, AMLI owned or had interests in 78 multifamily apartment communities (46 wholly-owned and 32 co-investments) comprised of 28,999 apartment homes, of which 16,633 apartment homes were wholly-owned. Seventy-four of these communities totaling 27,952 apartment homes were stabilized and four communities containing 1,047 apartment homes were under development or in lease-up. In addition, the Service Companies (defined below) have developed one community for sale and have another community under development to be sold upon completion. These two communities contain 451 apartment homes. The Service Companies also own a limited partnership interest in another community containing 248 apartment homes developed for sale, which the Service Companies have 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 June 30, 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 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 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 and six months ended June 30, 2005 are not necessarily indicative of expected results for the entire year. GOODWILL AND OTHER INTANGIBLE ASSET 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 June 30, 2005. No goodwill amortization relating to this construction business has been charged to expense subsequent to December 31, 2001. At June 30, 2005, the unamortized balance allocated to the cost of property management contracts in connection with the acquisition of the controlling interest in the Service Companies was $217. DERIVATIVES AND HEDGING FINANCIAL INSTRUMENTS 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 June 30, 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. Cumulative Approximate Notional Cash Fair Amount Paid, Net Value (1) -------- ---------- --------- Derivative asset. . . . . $ 15,000 927 224 Derivative liability. . . 145,000 1,333 (854) -------- ------ ------- $160,000 $2,260 ======== ====== Net derivative liability at June 30, 2005. . . . $ (630) ======= At December 31, 2004: Derivative asset. . . . $ 548 Derivative liability. . (1,232) ------- Net derivative liability at December 31, 2004. . $ (684) ======= AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (1) Represents the approximate amount which AMLI would have paid or received as of June 30, 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 June 30, 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 income (loss) in shareholders' equity as follows: At At June 30, December 31, 2005 2004 Change --------- ------------ ------ Company's derivative contracts . . . . . . . . . . $ (1,074) (1,087) 13 Share of partnerships' derivative contract: AMLI at Osprey Lake (1) . . . (866) (943) 77 -------- -------- ------ Other comprehensive income (loss) attributable to derivative contracts. . . . . (1,940) (2,030) 90 Other (2) . . . . . . . . . . . 110 -- 110 -------- -------- ------ Total . . . . . . . . . . . . . $ (1,830) (2,030) 200 ======== ======== ====== (1) AMLI cash-settled the AMLI at Osprey Lake hedge prior to 2002. The amortization of the balance of this derivative contract is reflected in earnings for the three and six months ended June 30, 2005 and 2004. (2) Represents an increase in fair value of investments in equity securities. AMLI's interest rate swaps are being cash-settled monthly through 2009. Adjustments to earnings due to an ineffectiveness (or effectiveness) on the interest rate swap contracts recorded for the three and six months ended June 30, 2005 and 2004 were $16 and $25, and $(21) and $(2), respectively. In addition, amortization of the interest rate cap, which began in the third quarter of 2004, increased interest expense by $16 and $28 for the three and six months ended June 30, 2005, respectively. Amortization of the previously settled Treasury locks reduced interest expense by $46 and $92, and $6 and $6 in the three and six months ended June 30, 2005 and 2004, respectively. INVESTMENTS IN EQUITY SECURITIES At June 30, 2005 the cost of AMLI's investments in marketable equity securities held available for sale is $1,241. These securities were included in other assets in the accompanying consolidated balance sheet as of June 30, 2005. Accumulated unrealized holding gains of $110 were included in accumulated other comprehensive income (loss) in the accompanying consolidated balance sheet as of June 30, 2005. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED PER SHARE DATA The following table presents information necessary to calculate basic and diluted earnings per share for the periods indicated. Three Months Ended Six Months Ended June 30, June 30, -------------------------------------------- 2005 2004 2005 2004 ---------- ---------- ---------- ---------- Income (loss) from continuing operations .$ 2,702 (849) 1,667 2,999 Income from discon- tinued operations . . . 6,508 43,153 29,954 46,024 ---------- ---------- ---------- ---------- Net income. . . . . . . . 9,210 42,304 31,621 49,023 Less net income attribu- table to preferred shares. . . . . . . . . (1,933) (5,744) (4,971) (7,676) ---------- ---------- ---------- ---------- Net income attributable to common shares. . . .$ 7,277 36,560 26,650 41,347 ========== ========== ========== ========== Weighted average common shares - basic. . . . .25,440,759 25,196,417 25,433,118 23,721,661 Dilutive Options and other plan shares (1) . 275,621 -- -- -- Convertible preferred shares (2). . . . . . . -- -- -- -- ---------- ---------- ---------- ---------- Weighted average common shares - dilutive. . . . . . . .25,716,380 25,196,417 25,433,118 23,721,661 ========== ========== ========== ========== Net income per share: Basic . . . . . . . . .$ 0.29 1.45 1.05 1.74 Diluted . . . . . . . .$ 0.28 1.45 1.05 1.74 ========== ========== ========== ========== (1) Income from continuing operations after adjusting for the preferred share allocation results in a loss from continuing operations allocable to common shares for the three months ended June 30, 2004, six months ended June 30, 2005 and 2004; therefore, 274,727, 281,232 and 272,365, respectively, are excluded from the denominator in calculating diluted earnings per share for income from continuing and discontinued operations pursuant to Financial Accounting Standards Board ("FASB") Statement No. 128, "Earnings Per Share." (2) Preferred shares are anti-dilutive. 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 and $3,812 was allocated to the convertible preferred shares during the three-month period ended March 31, 2005 and June 30, 2004, respectively. SHARE-BASED EMPLOYEE COMPENSATION AMLI commenced reporting the value of awarded share options as a charge against earnings for options awarded subsequent to January 1, 2002. AMLI awarded a total of 332,250 options, net of cancellations and exercises, to employees in December 2002 and 433,640 options in January 2005, and is recording the associated expense ratably over the five years ending December 31, 2007 and January 31, 2010, respectively. If AMLI had commenced recording option expense as of the January 1, 1996 the effective date of Statement of Financial Accounting Standards ("SFAS") No. 123, pro forma net income, including option expense, and earnings per share would have been as follows: Three Months Ended Six Months Ended June 30, June 30, -------------------------------------------- 2005 2004 2005 2004 ---------- ---------- ---------- ---------- Net income, as reported: Net income. . . . . . .$ 9,210 42,304 31,621 49,023 Net income attributable to preferred shares . (1,933) (5,744) (4,971) (7,676) ---------- ---------- ---------- ---------- Net income attributable to common shares. . . . 7,277 36,560 26,650 41,347 Share-based compensation expense included in reported net income, net of related tax effects . . . . . . . . 24 18 94 32 Total share-based employee compensation expense determined under fair- value based method for all awards, net of related tax effects . . (77) (82) (155) (144) ---------- ---------- ---------- ---------- Pro forma net income - basic and diluted . .$ 7,224 36,496 26,589 41,235 ========== ========== ========== ========== AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Three Months Ended Six Months Ended June 30, June 30, -------------------------------------------- 2005 2004 2005 2004 ---------- ---------- ---------- ---------- Earnings per share: Basic - as reported . .$ 0.29 1.45 1.05 1.74 Basic - pro forma . . .$ 0.28 1.45 1.05 1.74 Diluted - as reported .$ 0.28 1.45 1.05 1.74 Diluted - pro forma . .$ 0.28 1.45 1.05 1.74 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 share-based compensation costs for all employee stock compensation awards granted, modified or settled since January 1, 2002 and have been expensing the related costs of these options since. We will not have significant unvested awards outstanding at January 1, 2006 from options awarded 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. AMLI does not expect the adoption of SFAS 153 to have a material impact on its financial statements. In March 2005, the FASB issued an interpretation of SFAS No. 143, FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations," ("FIN 47"). FIN 47 requires an entity to recognize a liability for a legal obligation to perform an asset retirement activity in which the timing and/or method of the settlement are conditional on a future event. The liability must be recognized if the fair value of the liability can be reasonably estimated. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. AMLI is evaluating FIN 47 for any impact to the financial statements. In June 2005, the Emerging Issues Task Force of FASB agreed on a framework for evaluating whether a general partner controls a limited partnership and should therefore consolidate it (issue "EITF 04-05"). EITF 04-05 applies not only to limited partnerships but also to other forms of ownership, such as limited liability companies. There is a presumption that consolidation by a general partner will be required unless the limited partners have either substantive "Kick-out" or "Participating" rights. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED We account for our investments in 32 partnerships and limited liability companies (referred to as partnerships) using the equity method of accounting (i.e., we do not consolidate these partnerships because, among other things and based on existing accounting literature, we do not control these partnerships (see note 4)). We are required to account for these co-investment partnerships in accordance with EITF 04-05 as of January 1, 2006 and are in the process of reviewing the terms of our various partnership agreements to determine whether any change in the accounting for our investments in these partnerships will be required. Starting in 2006, consolidation of some or all of the partnerships currently accounted for using the equity method of accounting, if required, could have a material impact on our future financial position and results of operations. 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. INVESTMENT IN RENTAL COMMUNITIES RENTAL COMMUNITY ACQUISITIONS AMLI acquires interests in institutional quality multifamily communities, with a focus on newer communities, having high-quality construction, attractive amenities, location and market position. During 2005 and 2004 AMLI acquired three and seven wholly-owned rental communities consisting of 1,204 and 2,420 apartment homes for a $113,886 and $265,530 purchase price, respectively. In addition, AMLI acquired its partners' entire interests in three communities in 2004, one of which was sold later in the year. Acquisition cost for the interests AMLI did not already own in these communities totaled $37,662. The communities acquired are located in AMLI's existing markets. AMLI assumed a total of $41,803 and $6,147 of mortgage loans in connection with the acquisition of two and one communities acquired during the six months ended June 30, 2005 and 2004, respectively. During the six months ended June 30, 2005 and the year ended December 31, 2004 AMLI allocated $3,119 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 June 30, 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 $2,526 and $2,286, and $5,280 and $4,159 for these allocated costs was included in the accompanying statements of operations for the three and six months ended June 30, 2005 and 2004, respectively. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED REHAB 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 $3,256 has been incurred and capitalized through June 30, 2005. Depreciation of these costs commence as the rehab of individual apartment units is completed based on the respective useful life of the assets. Cost incurred through June 30, 2005 includes $134 (total budget of $245) of interior painting cost that would have been expensed if the community were not being rehabbed. The total budget also includes $50 in pavement repairs and striping that would have been expensed if these costs were not to be incurred in connection with the rehab of this community. RENTAL COMMUNITIES HELD FOR SALE AND DISCONTINUED OPERATIONS At June 30, 2005, AMLI had the following rental communities held for sale; revenues, expenses and NOI are included in discontinued operations. Actual/ Number Anticipated of Carrying Disposition Property Units Cost Date -------- ------ -------- ------------ AMLI: at Poplar Creek. . . . . . 196 $ 11,032 7/1/05 Old Town Carmel (1). . . . 91 10,676 4th Qtr 2005 at La Villita (2). . . . . 360 22,331 2006 ----- -------- 647 $ 44,039 ===== ======== (1) Developed for sale by the Service Companies. (2) The Service Companies' community under development, which will be sold upon completion. AMLI sold four communities (AMLI at Walnut Creek, AMLI in Great Hills, AMLI at Chase Oaks and AMLI at Bent Tree) in the first half of 2005 and five communities (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 Park and AMLI at Town Center is included in discontinued operations in 2004. AMLI Old Town Carmel (also held for sale at December 31, 2004), AMLI at Poplar Creek and AMLI at La Villita are held for sale at June 30, 2005. Condensed financial information of the results of operations for these communities for the periods indicated is as follows. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2005 2004 2005 2004 -------- -------- -------- -------- Total community revenues. . . . . . . . . . . . . . . . . . . $ 1,574 5,454 3,759 12,957 Community rental expenses . . . . . . . . . . . . . . . . . . (975) (3,046) (2,360) (6,281) -------- -------- -------- -------- Net operating income. . . . . . . . . . . . . . . . . . . . . 599 2,408 1,399 6,676 Other income (expenses) . . . . . . . . . . . . . . . . . . . 176 (7) 334 304 Depreciation expense. . . . . . . . . . . . . . . . . . . . . (324) (966) (647) (2,039) Interest and amortization of deferred costs . . . . . . . . . (114) (101) (209) (510) -------- -------- -------- -------- Income from discontinued operations before minority interest . . . . . . . . . . . . . . . . . . . . . 337 1,334 877 4,431 Minority interest . . . . . . . . . . . . . . . . . . . . . . 21 86 53 312 -------- -------- -------- -------- Income from discontinued operations, net of minority interest . . . . . . . . . . . . . . . . . . . . . 316 1,248 824 4,119 -------- -------- -------- -------- Gains on sales of rental communities. . . . . . . . . . . . . 6,590 40,025 31,007 40,025 Minority interest . . . . . . . . . . . . . . . . . . . . . . (398) (2,543) (1,877) (2,543) -------- -------- -------- -------- Gains on sales of rental communities, net of minority interest . . . . . . . . . . . . . . . . . . . . . 6,192 37,482 29,130 37,482 -------- -------- -------- -------- Gain on extinguishment of debt for a community sold . . . . . -- 5,400 -- 5,400 Write-off of unamortized deferred financing cost relating to extinguishment of debt. . . . . . . . . . . . . -- (677) -- (677) Minority interest . . . . . . . . . . . . . . . . . . . . . . -- (300) -- (300) -------- -------- -------- -------- Gain on extinguishment of debt for a community sold, net of minority interest. . . . . . . . . . . . . . . . . . -- 4,423 -- 4,423 -------- -------- -------- -------- Income from discontinued operations . . . . . . . . . . . . . $ 6,508 43,153 29,954 46,024 ======== ======== ======== ========
AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 4. INVESTMENTS IN PARTNERSHIPS 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 June 30, 2005, AMLI has co-invested with seventeen investors in 54 co- investments in which AMLI's ownership has ranged from 10% to 75%. Through June 30, 2005, AMLI has completed 22 co-investment programs. At June 30, 2005 and December 31, 2004, AMLI had investments in 32 and 33 partnerships, respectively, with AMLI's ownership percentages ranging from 15% to 75%. Ownership interests as presented are economic interests. Based on existing GAAP accounting literature, AMLI has concluded that its remaining co-investments are not variable interest entities or that the variable interest held is not significant. 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. At June 30, 2005 and December 31, 2004, 27 of the partnerships' communities were encumbered. All but one of the partnerships' debt financings that were obtained from various financial institutions were at fixed rates ranging from 5.10% to 8.50% and all these first mortgage notes (including one floating rate note) are non-recourse notes secured by the respective communities. In addition to the mortgage loans, AMLI has provided an unsecured $1,200 6.00% fixed-rate loan to a partnership. 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. On May 25, 2005, AMLI sold AMLI at Fox Valley, a 272-unit co- investment community for a $33,938 sale price. Net proceeds were distributed to the partners. Total gain on sale was $13,624, of which AMLI's share was $3,406. Summary financial information relating to investments in partnerships is as follows: As of As of June 30, December 31, 2005 2004 ---------- ------------ Total assets . . . . . . . . . . . . . $ 987,815 1,021,610 AMLI's share of total assets . . . . . 341,669 352,288 ========== ========== Total debt . . . . . . . . . . . . . . $ 622,909 616,522 AMLI's share of total debt . . . . . . 225,969 224,735 ========== ========== Total equity . . . . . . . . . . . . . $ 340,394 373,028 AMLI's share of equity . . . . . . . . 107,139 116,559 ========== ========== AMLI's net investment in partnerships. $ 108,601 117,986 Distributions in excess of investments in and earnings from partnerships. . . . . . . . . . 6,574 6,368 ---------- ---------- Investments in partnerships. . . . . . $ 115,175 124,354 ========== ========== AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED In general, AMLI's share is computed based on its percentage of ownership in each partnership. AMLI's investments in partnerships differ from AMLI's share 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, construction and development fee income. Such differences are amortized using the straight-line method over 40 years. Details of the differences between AMLI's aggregate investment in partnerships, net of accumulated amortization, and its aggregate share of equity as recorded on the books of these partnerships as of June 30, 2005 and December 31, 2004 are as follows: June 30, December 31, 2005 2004 ---------- ------------ AMLI's share of equity in partnerships . . . . . . . . . . . . $ 107,139 116,559 Capitalized interest . . . . . . . . . 4,266 4,565 Deferred fee income. . . . . . . . . . (5,126) (5,311) Deferred construction profits. . . . . (1,345) (1,434) Other comprehensive loss . . . . . . . (866) (943) Other, net . . . . . . . . . . . . . . 4,533 4,550 ---------- ---------- 108,601 117,986 Distributions in excess of investments in and earnings from partnerships. . 6,574 6,368 ---------- ---------- Investments in partnerships. . . . . . $ 115,175 124,354 ========== ========== AMLI's share of income from partnerships is summarized as follows: Three Months Ended Six Months Ended June 30, June 30, ------------------- -------------------- 2005 2004 2005 2004 -------- -------- -------- -------- Total revenues. . . . . $ 33,646 32,937 66,260 65,762 ======== ======== ======== ======== Net income excluding gain on sale. . . . . $ 1,144 1,042 1,542 3,073 Gain on sale of a rental community. . . 13,624 -- 13,624 9,438 -------- -------- -------- -------- Total net income. . . . $ 14,768 1,042 15,166 12,511 ======== ======== ======== ======== AMLI's share of net income excluding gain on sale (1). . . $ 784 430 1,162 1,933 AMLI's share of gain on sale of a rental community . . . . . . 3,406(2) -- 3,406(2) 2,360(3) -------- -------- -------- -------- Total AMLI's share of net income . . . . $ 4,190 430 4,568 4,293 ======== ======== ======== ======== AMLI's share of interest expense, net of capitalized amounts (4) . . . . . $ 3,920 3,750 7,794 7,478 ======== ======== ======== ======== AMLI's share of depreciation. . . . . $ 2,607 2,609 5,267 5,199 ======== ======== ======== ======== AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (1) During the three and six months ended June 30, 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 of $554 and $461, respectively, and $1,229 and $1,527, respectively, in excess of its ownership percentages. (2) AMLI's share of gain on sale reported in the consolidated statements of operations for the three and six months ended June 30, 2005 was reduced by $315 of costs previously deferred on AMLI's books. (3) AMLI's share of gain on sale reported in the consolidated statement of operations for the six months ended June 30, 2004 includes $288 of income previously deferred on AMLI's books and recognized in income upon sale of the community. (4) Excludes amortization of deferred financing costs. 5. THE SERVICE COMPANIES At June 30, 2005 and December 31, 2004 total assets of the Service Companies were $68,574 and $42,763, respectively. Total assets included net deferred tax assets of $3,977 and $3,999, respectively. In assessing the realizability of these net deferred tax assets, management considers whether it is more likely than not that some portion or all of the net deferred tax assets will not be realized. The ultimate realization of these net 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 assets as of June 30, 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 net deferred tax asset is deductible. As of May 1, 2005, AMLI sold AMLI at La Villita, a 360-apartment home community under development, to the Service Companies. The Service Companies are developing AMLI at La Villita to be sold upon completion. AMLI's deferred gain from the sale of approximately $532 has been eliminated in consolidation. 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 6. DEBT At June 30, 2005, 25 of AMLI's 44 wholly-owned stabilized communities are unencumbered. The table below presents certain information relating to AMLI's indebtedness at June 30, 2005 and December 31, 2004.
Balance Balance Original at Interest Maturity at Amount 6/30/05 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 (2) 15,380 -- 7.25% 8/1/05 13,192 AMLI at Regents Center (2) 20,100 -- 8.90% 9/1/05 18,241 AMLI on the Green/AMLI of North Dallas 43,234 36,312 7.79% 5/1/06 36,846 AMLI at Oak Bend (3) 19,878 18,267 5.62% 12/1/06 18,564 AMLI at Danada Farms (3) 46,234 43,583 4.51% 3/1/07 44,018 AMLI at Valley Ranch 18,800 18,784 6.68% 5/10/07 18,800 AMLI at Conner Farms 14,900 14,887 6.68% 5/10/07 14,900 AMLI at Clairmont 12,880 11,896 6.95% 1/15/08 12,003 AMLI at McGinnis Ferry (3) 25,404 24,160 5.04% 7/1/10 -- AMLI - various 140,000 133,317 6.56% 7/1/11 134,268 AMLI at Cityplace (4) 20,800 20,242 4.88% 8/1/13 -- AMLI on Eldridge Parkway 32,709 32,281 5.36% 6/1/14 32,500 AMLI at Riverbend 45,000 44,459 4.85% 8/1/14 44,788 AMLI at Park Creek 10,322 10,230 5.65% 12/1/38 10,281 -------- ------- ------- Total mortgage notes payable 465,641 408,418 398,401 -------- ------- ------- UNSECURED OTHER NOTES PAYABLE: Primary line of credit (5) 240,000 149,000 L+1.35% 5/19/06 126,000 Secondary line of credit (5) 16,000 -- L+1.20% 5/19/06 -- Term loan (5) 110,000 110,000 L+1.35% 12/19/08 110,000 Other 9,200 5,700 L+0.675% on demand 10,000 -------- ------- ------- Total other notes payable 375,200 264,700 246,000 -------- ------- ------- Total $850,341 682,618 653,901 ======== ======= ======= AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (1) AMLI at Poplar Creek was sold on July 1, 2005 and this liability was repaid at closing (see note 9). (2) These loans were prepaid without penalty in June 2005. (3) For financial reporting purposes these three loans were revalued upon acquisition of the communities securing these loans. At June 30, 2005 the aggregate carrying value of these three loans is a total of $4,086 greater than the actual amount due. The stated fixed rates on these three loans range from 7.33% to 8.20%; the rates shown in the table are the rates used to initially value these loans for financial reporting purposes. (4) AMLI at Cityplace was acquired on May 10, 2005 subject to this existing indebtedness. (5) These unsecured lines of credit require that AMLI meet various covenants typical of such arrangements, including minimum net worth, minimum debt service coverage and maximum debt to equity percentage, and at June 30, 2005 AMLI is in compliance with these covenants. On July 26, 2005 the interest rates and other terms, covenants and overall pricing structure were adjusted through modifications to these credit facilities (see note 9).
AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED As of June 30, 2005, the scheduled contractual maturities of AMLI's debt are as follows: Fixed Rate Unsecured Notes Mortgage Line Payable Notes Payable of Credit to Bond to Financial and Joint Financings Institutions Term Loan Ventures Total ---------- ------------- --------- -------- ------- 2005. . . . . $ -- 3,739 -- 5,700 9,439 2006. . . . . -- 59,724 149,000 -- 208,724 2007. . . . . -- 80,344 -- -- 80,344 2008. . . . . -- 16,293 110,000 -- 126,293 2009. . . . . -- 5,284 -- -- 5,284 Thereafter. . 9,500 243,034 -- -- 252,534 ------- ------- ------- ------ ------- $ 9,500 408,418 259,000 5,700 682,618 ======= ======= ======= ====== ======= 7. 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 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 net operating income ("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. AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The revenues, NOI, FFO and assets for AMLI's reportable segments are summarized as follows:
Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2005 2004 2005 2004 -------- -------- -------- -------- Segment revenues: Multifamily rental operations: Wholly-owned communities . . . . . . . . . . . . . . . . . . $ 38,836 29,713 74,820 56,756 Co-investment communities at 100%. . . . . . . . . . . . . . 33,435 32,905 65,927 65,671 -------- -------- -------- -------- 72,271 62,618 140,747 122,427 Service Companies' operations. . . . . . . . . . . . . . . . . 8,461 14,570 22,771 31,650 -------- -------- -------- -------- Total segment revenues . . . . . . . . . . . . . . . . . . . . 80,732 77,188 163,518 154,077 Discontinued operations. . . . . . . . . . . . . . . . . . . . 1,574 5,454 3,759 12,957 -------- -------- -------- -------- Total segment revenues including discontinued operations . . . 82,306 82,642 167,277 167,034 Reconciling items to consolidated revenues: Fee income . . . . . . . . . . . . . . . . . . . . . . . . . 342 424 602 857 Unconsolidated co-investment partnerships. . . . . . . . . . (33,435) (32,905) (65,927) (65,671) Service Companies' eliminations for related party. . . . . . (5,957) (2,703) (14,898) (6,549) Discontinued operations. . . . . . . . . . . . . . . . . . . (1,574) (5,454) (3,759) (12,957) -------- -------- -------- -------- Total consolidated revenues - continuing operations. . . . . . $ 41,682 42,004 83,295 82,714 ======== ======== ======== ======== NOI: Multifamily rental operations: Wholly-owned communities . . . . . . . . . . . . . . . . . . $ 21,492 16,598 41,971 32,627 Co-investment communities at 100%. . . . . . . . . . . . . . 19,539 18,858 38,395 38,396 -------- -------- -------- -------- 41,031 35,456 80,366 71,023 Service Companies' operations. . . . . . . . . . . . . . . . . (731) (526) (1,518) (1,008) -------- -------- -------- -------- 40,300 34,930 78,848 70,015 Discontinued operations. . . . . . . . . . . . . . . . . . . . 599 2,408 1,399 6,676 -------- -------- -------- -------- Total segment NOI including discontinued operations. . . . . . 40,899 37,338 80,247 76,691 -------- -------- -------- -------- AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2005 2004 2005 2004 -------- -------- -------- -------- Reconciling items to consolidated net income from continuing operations: Unconsolidated co-investment partnerships: Unconsolidated co-investment NOI at 100%. . . . . . . . . . 19,539 18,858 38,395 38,396 Co-investment partners' share of NOI. . . . . . . . . . . . (12,753) (12,429) (25,034) (24,864) -------- -------- -------- -------- AMLI's share of NOI . . . . . . . . . . . . . . . . . . . . 6,786 6,429 13,361 13,532 AMLI's share of depreciation. . . . . . . . . . . . . . . . (2,607) (2,609) (5,267) (5,199) AMLI's share of interest and amortization of deferred costs (3,935) (3,787) (7,841) (7,550) AMLI's share of other income. . . . . . . . . . . . . . . . 603 462 1,029 1,257 AMLI's share of other expenses. . . . . . . . . . . . . . . (63) (65) (120) (107) -------- -------- -------- -------- AMLI's share of income from partnerships. . . . . . . . . . 784 430 1,162 1,933 -------- -------- -------- -------- Unconsolidated co-investment gain on sale of a community. . 13,624 -- 13,624 9,438 Co-investment partners' share of gain of a partnership's community . . . . . . . . . . . . . . . . . . . . . . . . (10,218) -- (10,218) (7,078) -------- -------- -------- -------- AMLI's share of gain on sale of a partnership's community on partnership's books. . . . . . . . . . . . . . . . . . 3,406 -- 3,406 2,360 Income (costs) previously deferred on AMLI's books. . . . . (315) -- (315) 288 -------- -------- -------- -------- AMLI's share of gain on sale of a partnership's community . 3,091 -- 3,091 2,648 -------- -------- -------- -------- Unconsolidated co-investment NOI at 100%. . . . . . . . . . (19,539) (18,858) (38,395) (38,396) -------- -------- -------- -------- AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2005 2004 2005 2004 -------- -------- -------- -------- Other income (expenses): Fee income . . . . . . . . . . . . . . . . . . . . . . . . . . 342 424 602 1,142 Other income . . . . . . . . . . . . . . . . . . . . . . . . . 607 422 966 927 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . (11,330) (9,468) (22,634) (18,109) Interest and amortization of deferred costs. . . . . . . . . . (9,621) (7,077) (18,531) (14,334) General and administrative . . . . . . . . . . . . . . . . . . (1,995) (1,793) (3,956) (3,989) Prepayment penalty and write-off of unamortized deferred financing costs relating to extinguishment of debt . . . . . -- (1,121) -- (1,121) Provision for loss on land held for sale . . . . . . . . . . . (150) -- (150) -- -------- -------- -------- -------- (22,147) (18,613) (43,703) (35,484) -------- -------- -------- -------- Income from operations. . . . . . . . . . . . . . . . . . . . . 3,088 297 2,402 7,392 Discontinued operations . . . . . . . . . . . . . . . . . . . . (337) (1,334) (877) (4,431) -------- -------- -------- -------- Income (loss) from continuing operations. . . . . . . . . . . . 2,751 (1,037) 1,525 2,961 Reconciliation to FFO: Income from discontinued operations before minority interest. . 337 1,334 877 4,431 Depreciation (1). . . . . . . . . . . . . . . . . . . . . . . . 11,330 9,468 22,634 18,109 Share of partnerships' depreciation . . . . . . . . . . . . . . 2,607 2,609 5,267 5,199 Share of the Service Companies' depreciation. . . . . . . . . . 37 -- 37 -- Share of gain on sale of a co-investment community. . . . . . . (3,091) -- (3,091) (2,648) Share of gain on sale of a community built for sale by the Service Companies. . . . . . . . . . . . . . . . . . . 2,215 -- 2,215 -- Gain on extinguishment of debt. . . . . . . . . . . . . . . . . -- 4,723 -- 4,723 -------- -------- -------- -------- FFO . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,186 17,097 29,464 32,775 ======== ======== ======== ========
AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, December 31, 2005 2004 ---------- ------------ Segment assets: Multifamily rental communities: Wholly-owned communities. . . . . . . . . . . . . . . . . . . . . . . . . . . $1,287,086 1,206,299 Co-investment communities at 100% . . . . . . . . . . . . . . . . . . . . . . 1,104,878 1,124,390 ---------- ---------- 2,391,964 2,330,689 Service Companies' assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 35,200 32,403 ---------- ---------- 2,427,164 2,363,092 Rental communities held for sale, net of accumulated depreciation: Wholly-owned communities (2) . . . . . . . . . . . . . . . . . . . . . . . . 11,032 49,607 Service Companies' communities (3) . . . . . . . . . . . . . . . . . . . . . 33,374 10,360 Elimination of deferred gain on a community sold to the Service Companies. . (532) -- Costs capitalized on the OP's books relating to the Service Companies' communities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 194 ---------- ---------- 2,471,203 2,423,253 Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . (154,666) (136,168) ---------- ---------- Total segment assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,316,537 2,287,085 Non-segment assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,999 36,374 Investments in partnerships. . . . . . . . . . . . . . . . . . . . . . . . . . 115,175 124,354 Unconsolidated co-investment partnerships. . . . . . . . . . . . . . . . . . . (1,104,878) (1,124,390) ---------- ---------- Total consolidated assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,352,833 1,323,423 ========== ========== (1) Includes discontinued operations. (2) Net of accumulated depreciation of $2,820 and $14,360 for the period ended June 30, 2005 and December 31, 2004, respectively. (3) These communities were built or under development for sale and are not being depreciated.
AMLI RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 8. COMMITMENTS AND CONTINGENCIES LETTERS OF CREDIT AND GUARANTEES At June 30, 2005, AMLI was contingently liable with respect to $15,041 bank letters of credit issued to secure commitments made in the ordinary course of business by AMLI and its co-investment partnerships. At June 30, 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. On July 26, 2005, AMLI's guarantee for AMLI Downtown was reduced to the new commitment amount of $7,000 (approximately $4,050 outstanding at June 30, 2005) (see note 9). 9. SUBSEQUENT EVENTS On July 1, 2005, AMLI sold AMLI at Poplar Creek, a 196-apartment home wholly-owned community located in Schaumburg, Illinois, for $24,950. AMLI will recognize a gain for financial reporting purposes of approximately $12,650 in connection with the sale and approximately $900 of gain and FFO resulting from the extinguishment of debt. On July 6, 2005, AMLI acquired AMLI Memorial Heights, a 380-apartment home community located in Houston, Texas, for $52,000. AMLI acquired this community subject to $35,350 in existing 4.9% fixed-rate mortgage debt. On July 26, 2005, the terms of our unsecured credit facilities were modified and we incurred various fees which total approximately $1,110 in connection with the modification of these credit facilities. The total commitment for our primary unsecured line of credit from our bank group was increased from $240,000 to $250,000; the final maturity of advances made pursuant to this line of credit was extended from May 19, 2006 to July 26, 2008; the interest rate on the line of credit will vary from 0.70% to 1.15% in excess of LIBOR (excluding annual 0.20% facility fee) and will be adjusted each quarter based on an actual financial ratio (measuring overall debt as a percentage of debt outstanding) as of the end of each quarter; and there have been modifications to various covenants, all customary for this type of facility. Based on the actual financial ratio as of June 30, 2005, the interest rate on this line of credit will be 0.95% (excludes facility fee) in excess of LIBOR from the closing of this modification to September 30, 2005. The covenants in our $110,000 unsecured term loan have been adjusted to conform to the covenants contained in the modified $250,000 primary line of credit agreement. Our secondary unsecured line of credit has been increased from $16,000 to $20,000 and the term and covenants have been adjusted to conform to the terms of the modified primary line of credit agreement. The interest rate has been changed to LIBOR plus 1.15%. AMLI Downtown, L.P., a 30%-owned partnership, received the proceeds of a new $25,000 fixed-rate mortgage loan secured by the residential portion of this partnership's community, AMLI Downtown. The proceeds were used to substantially repay a construction loan which was used to finance the development. The construction loan has been modified to provide for an amended commitment of $7,000 to finance the retail and garage components of this mixed-use development. 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 June 30, 2005 and December 31, 2004 and for the three and six months ended June 30, 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 AMLI is one of the largest owners and operators of multifamily apartment communities in the United States. AMLI develops, owns and manages upscale multifamily apartment communities in nine major markets in the Southwest, Southeast, Midwest and Mountain regions of the United States. AMLI also acquires and develops multifamily communities in co- investment partnerships with primarily institutional investors, such as insurance companies, endowments, foundations, and public and corporate pension funds. As of June 30, 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. AMLI believes it has qualified, and anticipates continuing to qualify, as a real estate investment trust ("REIT") for Federal income tax purposes. At June 30, 2005, AMLI owned wholly 44 stabilized multifamily apartment communities consisting of 16,100 apartment homes and had interests in 30 co-investment stabilized communities comprised of 11,852 apartment homes. Four communities containing 1,047 apartment homes are under development or in lease-up. The Service Companies have developed a 91-apartment home community currently held for sale and has under development a 360-apartment home community to be sold. At June 30, 2005, AMLI had three apartment communities held for sale, containing 647 apartment homes. One community was sold on July 1, 2005, one other community is expected to be sold later this year; and the third community containing 360 apartment homes is anticipated to be substantially completed by December 31, 2005 and sold thereafter. AMLI expects to selectively increase the number of markets in which it operates and to maximize operating earnings from its portfolio of operating communities through its acquisition and development activities and by co-investing with institutional partners. AMLI also seeks to improve operating results of its rental communities as its AMLI brand name becomes widely recognized as a mark of high-quality apartment homes and exceptional custom service. Through AMLI's acquisition activities during the six months ended June 30, 2005 and year ended December 31, 2004, its wholly-owned portfolio of communities increased by thirteen communities containing 4,332 apartment homes. Three of these acquisitions represent purchase of interests we did not already own in communities previously owned in co-investment partnerships. During the same periods, AMLI sold nine communities containing 3,994 apartment homes. During the second quarter of 2005, AMLI commenced the development of two communities, one is a 245-unit development located in Dunwoody, Georgia and another is a 288-unit development in Overland Park, Kansas. We anticipate additional developments to commence in AMLI's Atlanta, Austin and Ft. Worth markets in the foreseeable future. There were no new co-investment partnerships formed during the first six months of 2005; however, we continue to pursue joint venture acquisition and development opportunities with our existing venture partners and others. Net income for the quarter and six months ended June 30, 2005 was $9,210 and $31,621, respectively, as compared to $42,304 and $49,023, respectively, in the year earlier periods. Diluted earnings per share ("EPS") for the quarter ended June 30, 2005 was $0.28 compared to $1.45 for the same period a year earlier, a decrease of 80.7%. For the six months ended June 30, 2005, EPS was $1.05 compared to $1.74 for the comparable period of 2004. The difference in net income between periods is primarily attributable to the aggregate gains recognized from sales of rental communities, net of minority interests, and AMLI's share of gains on sales of partnership communities. Such amounts were $9,097 and $32,035 for the three and six months ended June 30, 2005, respectively, and $41,905 and $44,360 for the three and six months ended June 30, 2004, respectively. AMLI had a solid quarter reflecting the improving market conditions in AMLI's nine markets as well as AMLI's increasing transactional activity. Wholly-owned same community occupancies were up in seven of AMLI's eight markets during the second quarter of 2005 compared to the same period in 2004. Same community average occupancy for all markets increased to 93.7% for the quarter ended June 30, 2005 from 92.4% for the same quarter a year ago. Collected revenues increased slightly for same community portfolio to an average of $839 per occupied unit during the second quarter of 2005 from $835 during the same period in 2004. For the second quarter of 2005, same community revenues were up 1.9%, while operating expenses grew 2.2% resulting in a 1.8% increase in net operating income ("NOI") compared to the second quarter of a year ago. Comparative revenues, operating expenses and NOI are described in further detail in the Results of Community Operations section below. CO-INVESTMENT At June 30, 2005, the Operating Partnership was a general partner or a managing member in various partnerships or limited liability companies (referred to as "partnerships"). Through June 30, 2005, 54 partnerships have been formed. AMLI's ownership interest in these unconsolidated partnerships has ranged from 10% to 75%. Through June 30, 2005, 22 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 (see note 4 to the consolidated financial statements). 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. There have been no substantive changes to AMLI's critical accounting policies since December 31, 2004. RESULTS OF COMMUNITY OPERATIONS GENERAL At June 30, 2005 and 2004, AMLI wholly owned 44 and 41 stabilized communities, respectively, containing 16,100 and 15,068 apartment homes, respectively. 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. Two wholly-owned communities containing 533 apartment units are under development and have not generated any income as no apartment units were ready for occupancy as of June 2005. Thirty-two communities, of which 30 are stabilized and two 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 include same store communities; communities acquired from or contributed to partnerships; communities that were developed by AMLI and were stabilized during the periods presented; and communities acquired by AMLI during the periods presented. 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. 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. Community rental expenses include such amounts as may be reported as discontinued operations. The following table presents additional information on community rental expenses reported in the consolidated statements of operations (excludes rental expenses for communities reported in discontinued operations): Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2005 2004 2005 2004 -------- -------- -------- -------- Personnel . . . . . . . . $ 4,273 3,226 8,170 6,042 Advertising and promotion 926 641 1,673 1,122 Utilities . . . . . . . . 1,004 861 2,035 1,698 Building repairs and maintenance . . . . . . 1,978 1,976 3,879 3,133 Landscaping and grounds maintenance . . 1,043 778 1,504 1,112 Real estate taxes . . . . 5,669 3,784 10,885 7,536 Insurance . . . . . . . . 742 627 1,389 1,204 Property management fees. 1,196 911 2,304 1,744 Other rental expenses . . 513 311 1,010 538 -------- -------- -------- -------- Total . . . . . . . . . . $ 17,344 13,115 32,849 24,129 ======== ======== ======== ======== 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. Rental expenses of communities sold or held for sale are included in discontinued operations. NOI represents community revenues less community operating expenses. AMLI uses NOI to measure the operating results of its communities. 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 are summarized as follows: Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2005 2004 2005 2004 -------- -------- -------- -------- TOTAL WHOLLY-OWNED COMMUNITY RENTAL REVENUES ------------------------- Stabilized communities. . $ 38,739 29,532 74,604 56,340 Communities under rehab . 693 788 1,407 1,620 Communities sold. . . . . 978 4,847 2,568 11,753 -------- -------- -------- -------- Total . . . . . . . . . 40,410 35,167 78,579 69,713 Discontinued operations 1,574 5,454 3,759 12,957 -------- -------- -------- -------- Continuing operations . $ 38,836 29,713 74,820 56,756 ======== ======== ======== ======== TOTAL WHOLLY-OWNED COMMUNITY RENTAL EXPENSES ------------------------- Stabilized communities. . $ 17,260 13,098 32,684 24,045 Communities under rehab . 404 382 781 747 Communities sold. . . . . 655 2,681 1,744 5,618 -------- -------- -------- -------- Total . . . . . . . . . 18,319 16,161 35,209 30,410 Discontinued operations 975 3,046 2,360 6,281 -------- -------- -------- -------- Continuing operations . $ 17,344 13,115 32,849 24,129 ======== ======== ======== ======== Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2005 2004 2005 2004 -------- -------- -------- -------- TOTAL WHOLLY-OWNED COMMUNITY NOI ------------------ Stabilized communities. . $ 21,479 16,434 41,920 32,295 Communities under rehab . 289 406 626 873 Communities sold. . . . . 323 2,166 824 6,135 -------- -------- -------- -------- Total . . . . . . . . . 22,091 19,006 43,370 39,303 Discontinued operations 599 2,408 1,399 6,676 -------- -------- -------- -------- Continuing operations . $ 21,492 16,598 41,971 32,627 ======== ======== ======== ======== RECONCILIATION OF NOI TO NET INCOME ----------------- Community revenues (1). . $ 40,410 35,167 78,579 69,713 Community rental expenses (1). . . . . . (18,319) (16,161) (35,209) (30,410) -------- -------- -------- -------- Community NOI (1) . . . . 22,091 19,006 43,370 39,303 Income from partnerships. 784 430 1,162 1,933 Share of gain on sale of a partnership community . . . . . . . 3,091 -- 3,091 2,648 Fee income. . . . . . . . 342 424 602 857 Other income (1). . . . . 607 422 966 1,212 Service Companies' revenues. . . . . . . . 2,504 11,867 7,873 25,101 Service Companies' expenses. . . . . . . . (3,235) (12,393) (9,391) (26,109) Depreciation (1). . . . . (11,330) (9,468) (22,634) (18,109) Interest and amortiza- tion of deferred costs (1) . . . . . . . (9,621) (7,077) (18,531) (14,334) General and administra- tive expenses . . . . . (1,995) (1,793) (3,956) (3,989) Provision for loss on land held for sale. . . (150) -- (150) -- Prepayment penalty and write-off of unamor- tized deferred financing costs relating to extinguish- ment of debt. . . . . . -- (1,121) -- (1,121) -------- -------- -------- -------- Income before sales of rental communities and minority interest . . . 3,088 297 2,402 7,392 Gains on sales of rental communities. . . 6,590 40,025 31,007 40,025 Gain on extinguishment of debt . . . . . . . . -- 4,723 -- 4,723 -------- -------- -------- -------- Income before minority interest. . . . . . . . 9,678 45,045 33,409 52,140 Minority interest . . . . (468) (2,741) (1,788) (3,117) -------- -------- -------- -------- Net income. . . . . . . . $ 9,210 42,304 31,621 49,023 ======== ======== ======== ======== (1) Including discontinued operations. RESULTS OF COMMUNITY OPERATIONS Total community rental revenues from stabilized communities increased by $9,207, or 31.2%, for the three months ended June 30, 2005 compared to the same period a year ago. This increase was a result of three communities acquired in 2005, which contributed $2,931 of revenues; four communities acquired during the second half of 2004, which contributed revenues of $3,943; interest in two communities that AMLI acquired from its partners at the end of 2004 generated $1,156 of revenues; and the balance of the increase was from the three communities acquired during the second quarter of 2004, which contributed a full quarter of revenues in 2005, and from same community revenue increase. The community under rehab had a $95, or 12.1%, decrease in revenues in the second quarter of 2005 compared to the same period in 2004 due to units not available for occupancy while being rehabbed. The rehab is substantially complete as of June 30, 2005, and we anticipate an increase in occupancy and rental rates at this community in the near future. The significant decrease in revenues from sold communities of $3,869 was from five communities containing 2,440 apartments that were sold in 2004, which generated $2,077 of total revenues in 2004, and from three communities that were sold early in the first quarter of 2005 resulting in a decrease in revenues of $2,244. The decrease was offset in part by an increase in revenues from a community acquired from the Service Companies in April 2004, which was sold at the end of June 2005. Community NOI for the three months ended June 30, 2005 was $3,085, or 16.2%, higher than the same period a year ago. Stabilized communities generated a $5,045 increase, which was offset in part by a decrease from communities under rehab and communities sold in 2004 and 2005. The increase in total community revenues from stabilized communities had a corresponding increase in rental expenses of $4,162, or 45.2% of total revenue increase. For the six months ended June 30, 2005, total community revenues, rental expenses and NOI from stabilized communities increased by $18,264 (32.4%), $8,639 (35.9%) and $9,625 ($29.8%), respectively, compared to the same period in the previous year. The net increase in total revenues of $8,866, rental expenses of $4,799 and NOI of $4,067 were reduced by decreases from communities sold. These increases were a direct result of acquisitions less dispositions which resulted in a net increase in our portfolio of apartment homes, which are newer and better quality, and we anticipate these communities will further contribute to our NOI growth. Refer to the discussion on AMLI's markets and the impact of changes in occupancy, average collected rent per occupied unit and other community revenues in SAME STORE COMMUNITIES discussion and analysis. CO-INVESTMENT COMMUNITIES Revenues, rental expenses and NOI from co-investment communities at 100% are summarized as follows: Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------- 2005 2004 2005 2004 -------- -------- -------- -------- TOTAL CO-INVESTMENT COMMUNITY REVENUES ------------------- Stabilized communities. . $ 31,618 32,053 62,411 63,671 Development and lease-up communities . . . . . . 1,294 75 2,221 75 Communities sold. . . . . 523 777 1,295 1,925 -------- -------- -------- -------- Total . . . . . . . . $ 33,435 32,905 65,927 65,671 ======== ======== ======== ======== TOTAL CO-INVESTMENT COMMUNITY RENTAL EXPENSES ------------------------- Stabilized communities. . $ 12,880 13,443 25,419 26,046 Development and lease-up communities . . . . . . 810 210 1,569 270 Communities sold. . . . . 206 394 544 959 --------- -------- -------- -------- Total . . . . . . . . $ 13,896 14,047 27,532 27,275 ======== ======== ======== ======== TOTAL CO-INVESTMENT COMMUNITY NOI ------------------- Stabilized communities. . $ 18,738 18,610 36,992 37,625 Development and lease-up communities . . . . . . 484 (135) 652 (195) Communities sold. . . . . 317 383 751 966 -------- -------- -------- -------- Total . . . . . . . . $ 19,539 18,858 38,395 38,396 ======== ======== ======== ======== RECONCILIATION OF NOI TO INCOME FROM PARTNERSHIPS ------------------------ Community revenues. . . . $ 33,435 32,905 65,927 65,671 Community rental expenses. . . . . . . . (13,896) (14,047) (27,532) (27,275) -------- -------- -------- -------- Community NOI . . . . . . 19,539 18,858 38,395 38,396 Other income. . . . . . . 210 52 333 235 Other expenses. . . . . . (344) (325) (706) (671) Interest expense and amortization of deferred costs. . . . . (10,742) (10,025) (21,279) (19,899) Depreciation. . . . . . . (7,519) (7,518) (15,201) (14,988) -------- -------- -------- -------- Three Months Ended Six Months Ended June 30, June 30, --------------------------------------- 2005 2004 2005 2004 -------- -------- -------- -------- Income before sale of a rental community. . . . 1,144 1,042 1,542 3,073 Gain on sale of a rental community. . . . 13,624 -- 13,624 9,438 -------- -------- -------- -------- Net income. . . . . . . . 14,768 1,042 15,166 12,511 Co-investment partners share of net income and gain on sale of a rental community. . . 10,578 612 10,598 8,218 -------- -------- -------- -------- AMLI's share of net income from partner- ships including share of gain on sale of a rental community. . . . $ 4,190 430 4,568 4,293 ======== ======== ======== ======== Co-investment partners' share of net income before gain on sale of a rental community. . . $ 360 612 380 1,140 Co-investment partners' share of gain on sale of a rental community . 10,218 -- 10,218 7,078 -------- -------- -------- -------- Co-investment partners' share of net income . . 10,578 612 10,598 8,218 -------- -------- -------- -------- AMLI's share of net income from partnerships. . . . . . 784 430 1,162 1,933 AMLI's share of gain on sale of a rental community . . . . . . . 3,406 -- 3,406 (1) 2,360 (2) -------- -------- -------- -------- AMLI's share of net income. . . . . . . . . 4,190 430 4,568 4,293 -------- -------- -------- -------- Partnerships' net income. $ 14,768 1,042 15,166 12,511 ======== ======== ======== ======== (1) AMLI's share of gain on sale reported in the consolidated statements of operations for the three and six months ended June 30, 2005 was reduced by $315 of costs previously deferred on AMLI's books. (2)AMLI's share of gain on sale reported in the consolidated statement of operations for the six months ended June 30, 2004 includes $288 of income previously deferred on AMLI's books. Total community rental revenues from development and lease-up communities increased significantly by $1,219 from $75 as one community, which commenced rental operations in the second quarter of 2004, achieved a 81.9% average occupancy for the second quarter of 2005. In addition, another development community commenced rental operations in the first quarter of 2005. Newly stabilized communities also contributed to the increase in total revenues, as one community which was in lease-up in 2004 reached stabilization in 2005. Revenues from stabilized communities decreased by $435 in the second quarter of 2005 compared to 2004. AMLI's acquisition of its partners' interests in two co-investment communities resulted in a revenue decrease. An additional revenue decrease of $254 was attributable to the communities sold. These changes resulted in a net increase of $530, or 1.6%, in total revenues for the second quarter of 2005 compared to the second quarter of 2004. Total community NOI for the three months ended June 30, 2005 was $681, or 3.6%, higher than the same period a year ago. Stabilized and development and in lease-up communities generated a $747 increase, which was offset in part by a decrease from communities sold in 2004 and 2005. The increase in total community revenues from development and in lease-up communities had a corresponding increase in rental expenses of $600, or 49.2% of total revenue increase from these communities. For the six months ended June 30, 2005, total community revenues, rental expenses and NOI from development and in lease-up communities increased by $2,146, $1,299 and $847, respectively, compared to the same period in the previous year. The net increase in total revenues of $256 was offset by an increase in rental expenses of $257 resulting in NOI being flat for the year-over-year comparison. This is primarily due to a decrease in revenues, expenses and NOI from two communities which AMLI acquired interest it did not already own from two partners. In addition, one community that was sold in January 2004 and another in May of 2005 contributed to the overall decrease in revenues, expenses and NOI. Refer to the discussion on AMLI's markets and the impact of changes in occupancy, average collected rent per occupied unit and other community revenues in SAME STORE COMMUNITIES discussion and analysis. ACQUISITIONS During 2005 and 2004 AMLI acquired a total of ten communities from third parties and in 2004 AMLI acquired interests it did not already own in three rental communities from two partners as follows.
PERCEN- PERCEN- TAGE NUMBER DEBT TAGE INTEREST OF DATE PURCHASE ASSUMED/ TOTAL COMMUNITY LOCATION ACQUIRED UNITS ACQUIRED PRICE OBTAINED EQUITY --------- -------- --------- -------- -------- -------- -------- ------ 2005 Acquisitions: WHOLLY-OWNED: AMLI: at Lantana Hills . . . Austin, TX 100% 264 1/21/05 $ 24,150 -- 24,150 at McGinnis Ferry (1) . . . . . . . . Gwinnett County, GA 100% 696 2/24/05 64,736 21,536 43,200 at Cityplace . . . . . Dallas, TX 100% 244 5/10/05 25,000 20,267 4,733 ----- -------- ------- ------- 1,204 113,886 41,803 72,083 ----- -------- ------- ------- 2004 Acquisitions: AMLI: on Timberglen (2). . . Dallas, TX 60% 260 1/5/04 10,439 6,147 4,292 at Ibis. . . . . . . . West Palm Beach, FL 100% 234 4/15/04 24,675 -- 24,675 on Eldridge Parkway. . Houston, TX 100% 668 4/15/04 48,000 32,709 (3) 15,291 on the Fairways. . . . Coppell, TX 100% 322 4/30/04 23,405 -- 23,405 at Westcliff . . . . . Westminster, CO 100% 372 8/18/04 43,500 -- 43,500 at Canterfield . . . . West Dundee, IL 100% 352 9/14/04 55,350 -- 55,350 at River Run . . . . . Naperville, IL 100% 206 9/14/04 31,500 -- 31,500 at Kirkland Crossing . Aurora, IL 100% 266 10/20/04 39,100 -- 39,100 at Wynnewood Farms (2) Overland Park, KS 75% 232 11/15/04 22,265 -- 22,265 at Lake Clearwater (2) Indianapolis, IN 75% 216 11/15/04 19,600 -- 19,600 ------ -------- ------- ------- 3,128 317,834 38,856 278,978 ------ -------- ------- ------- Total . . . . . . . 4,332 $431,720 80,659 351,061 ====== ======== ======= ======= (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 interests 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 and this community was sold in August 2004. (3) 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 June 30, 2005, AMLI had interests in four communities under development or in lease-up including two owned in partnerships and the Service Companies had one community being developed for sale, as follows:
TOTAL AMLI'S CAPITALIZED TOTAL AMLI'S REMAINING COMMUNITY NUMBER THROUGH ESTIMATED DEBT SHARE OF EQUITY (AMLI's ownership OF JUNE 30, COSTS UPON COMMIT- REQUIRED COMMIT- percentage) LOCATION UNITS 2005 COMPLETION MENT EQUITY MENT ----------------- -------- ------ ------------ ---------- ------- ------------------ Communities substantially completed and in lease-up: AMLI: Downtown (30%) (1) Austin, TX 220 $ 45,338 52,000 30,920(2) 6,000 -- ----- -------- -------- ------- ------- ------- Communities under development: AMLI: at Museum Gardens (25%) Vernon Hills, IL 294 59,216 61,700 37,000 6,360 460 at Perimeter Gardens (100%) Dunwoody, GA 245 5,598 26,500 -- 26,500 20,902 Clear Creek I (100%) Overland Park, KS 288 3,759 24,700 -- 24,700 20,941 ----- -------- -------- ------- ------- ------- 827 68,573 112,900 37,000 57,560 42,303 ----- -------- -------- ------- ------- ------- Service Companies' communities under development for sale: AMLI: at La Villita (100%) Los Colinas, TX 360 22,876 24,800 -- 24,800 1,924 ----- -------- -------- ------- ------- ------- Total 1,407 $136,787 189,700 67,920 88,360 44,227 ===== ======== ======= ======= ======= ======= (1) The apartment homes and garage components were substantially complete. Tenant finish for the remaining retail space will be completed as space is leased. (2) The debt amount was increased to a total of $32,000 on July 26, 2005 (see note 9 to the consolidated financial statements).
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 June 30, 2005, AMLI's land parcels held for future development or sale were as follows:
TOTAL COSTS CAPITALIZED CARRYING NUMBER THROUGH VALUE OF JUNE 30, JUNE 30, LOCATION ACRES 2005 2005 -------- ------ ----------- ------------ Land held for development: AMLI: at Anderson Mill (1) Austin, TX 34 $ 5,187 4,816 at Barrett Lakes III Atlanta, GA 12 1,320 1,320 Clear Creek II (1) Overland Park, KS 7 935 935 --- -------- ------ 53 7,442 7,071 --- -------- ------ Land held for sale: AMLI at Champions II Houston, TX 14 1,639 848 --- -------- ------ Other development costs: Austin Block 22 Austin, TX -- 3,325 3,325 --- -------- ------ Subtotal 67 12,406 11,244 --- -------- ------ Service Companies: Land held for development: AMLI at Fossil Creek I Ft. Worth, TX 18 3,493 3,035 --- -------- ------ Land held for sale: AMLI at: Fossil Creek II Ft. Worth, TX 16 2,551 2,212 Prairie Lakes Noblesville, IN 120 7,846 7,046 --- -------- ------ Subtotal 136 10,397 9,258 --- -------- ------ Land held for development or sale 154 13,890 12,293 --- -------- ------ Total 221 $ 26,296 23,537 === ======== ====== (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 at Walnut Creek Austin, TX 460 2005 6/28/05 29,742 36,600 36,064 7,697 7,697(1) ----- -------- ------- ------- ------- ------ 1,554 93,728 111,615 109,827 31,835 31,835 ----- -------- ------- ------- ------- ------ 2004 Dispositions: AMLI: at Spring Creek Atlanta, GA 1,180 1985/86 87/89 4/14/04 61,850 80,820 39,522(2) 40,276(3)40,276 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 (4) 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 ----- -------- ------- ------- ------- ------ 2,440 111,749 142,670 100,297 57,411 57,411 ----- -------- ------- ------- ------- ------ Total wholly-owned 3,994 205,477 254,285 210,124 89,246 89,246 ----- -------- ------- ------- ------- ------ 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): 2005 Dispositions: AMLI: at Fox Valley (25%) Aurora, IL 272 1998 5/25/05 24,950 33,938 33,313 13,624 3,406 2004 Dispositions: AMLI: at Wells Branch (25%) Austin, TX 576 1999 1/21/04 34,343 38,400 37,964 9,438 2,360 ----- -------- ------- ------- ------- ------ Total co-invest- ments 848 59,293 72,338 71,277 23,062 5,766 ----- -------- ------- ------- ------- ------ Total 4,842 $264,770 326,623 281,401 112,308 95,012 ===== ======== ======= ======= ======= ====== (1) Includes $3,572 pre-tax gain recognized by the Service Company subsidiary which had previously been deferred in consolidation. (2) Net of $40,750 of debt that was assumed by a purchaser of AMLI at Spring Creek. (3) Includes a $4,723 gain attributable to extinguishment of debt (net of $677 unamortized deferred financing costs written off). Includes gain of $582 recognized after June 30, 2004 through June 30, 2005, which was reduced by additional costs for lost rents of $21. (4) This was a co-investment community which became a wholly-owned community in January 2004.
Reconciliation of AMLI's gains on sales of wholly-owned communities to amounts reported in the consolidated statements of operations for the six months ended June 30, 2005 and 2004 is as follows: 2005 2004 -------- -------- Total gains per dispositions table . . . $ 31,835 45,310 Gain attributable to extinguishment of debt. . . . . . . . . . . . . . . . -- (4,723) Deferred tax on gain recognized by the Service Companies. . . . . . . . . . . (1,357) -- Deferred gain on a community sold. . . . -- (562) Deferred gain recognized . . . . . . . . 529 -- Minority interest. . . . . . . . . . . . (1,877) (2,543) -------- -------- Gains on sales of rental communities, net of minority interest . . . . . . . $ 29,130 37,482 ======== ======== 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 six months ended June 30, 2005 and 2004 is as follows: 2005 2004 -------- -------- Total AMLI's share of gain on sale of a co-investment community per dispositions table . . . . . . . . . . $ 3,406 2,360 Income (costs) previously deferred on AMLI's books . . . . . . . . . . . . . (315) 288 -------- -------- Share of gain on sale of a co-investment community . . . . . . $ 3,091 2,648 ======== ======== SAME STORE COMMUNITIES The following tables are based on AMLI's same store portfolio. Same store is defined as communities owned and having stabilized occupancy as of January 1, 2004. As of June 30, 2005 there were 11,369 wholly-owned apartment homes and 10,871 co-investment apartment homes classified as same store. Comparison of occupancy, average collected revenues per occupied unit, total revenues, total expenses and NOI for same store portfolio over comparable periods generally provides a better perspective of market conditions affecting AMLI's communities. TOTAL REVENUES OCCUPANCY The following charts show weighted average physical occupancy calculated based on the average of each day's physical occupancy during the quarter 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 2005 2004 ment -------- -------- -------- Homes Jun 30 Mar 31 Jun 30 ------ -------- -------- -------- Dallas. . . . . . . . . . 3,643 93.2% 92.4% 90.6% Atlanta . . . . . . . . . 1,104 95.0% 95.7% 94.5% Austin. . . . . . . . . . 960 95.1% 93.7% 92.6% Houston . . . . . . . . . 334 91.3% 91.3% 90.4% Indianapolis. . . . . . . 2,212 93.3% 92.8% 92.8% Kansas City . . . . . . . 1,528 93.9% 90.3% 93.3% Chicago . . . . . . . . . 1,260 94.3% 93.3% 94.1% Denver. . . . . . . . . . 328 92.8% 90.0% 93.8% ------ -------- -------- -------- Total portfolio (1). . . . . . 11,369 93.7% 92.6% 92.4% ====== ======== ======== ======== DAILY WEIGHTED AVERAGE PHYSICAL OCCUPANCY SAME STORE CO-INVESTMENT COMMUNITIES Quarter Ended ------------------------------ Apart- 2005 2005 2004 ment -------- -------- -------- Homes Jun 30 Mar 31 Jun 30 ------ -------- -------- -------- Dallas. . . . . . . . . . 2,194 93.3% 92.5% 92.1% Atlanta . . . . . . . . . 3,178 94.1% 94.8% 94.0% Austin. . . . . . . . . . 917 92.2% 92.4% 91.1% Houston . . . . . . . . . 1,099 93.8% 93.9% 93.0% Kansas City . . . . . . . 840 93.3% 90.4% 93.1% Chicago . . . . . . . . . 1,711 94.8% 93.7% 95.1% Denver. . . . . . . . . . 932 91.5% 90.2% 92.2% ------ -------- -------- -------- Total portfolio (1). . . . . . 10,871 93.6% 93.2% 93.2% ====== ======== ======== ======== (1) Occupied apartments exclude community models and apartments not in service due to fire, flood or otherwise. The average occupancy for the quarter 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 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 2005 2004 ment -------- -------- -------- Homes Jun 30 Mar 31 Jun 30 ------ -------- -------- -------- Dallas. . . . . . . . . . 3,643 $ 816 809 822 Atlanta . . . . . . . . . 1,104 830 812 813 Austin. . . . . . . . . . 960 796 774 778 Houston . . . . . . . . . 334 989 950 999 Indianapolis. . . . . . . 2,212 797 775 779 Kansas City . . . . . . . 1,528 783 780 781 Chicago . . . . . . . . . 1,260 1,047 1,032 1,047 Denver. . . . . . . . . . 328 837 843 847 ------ -------- -------- -------- Total portfolio (1). . . . . . 11,369 $ 839 826 835 ====== ======== ======== ======== WEIGHTED AVERAGE TOTAL REVENUES EARNED PER OCCUPIED APARTMENT HOME SAME STORE CO-INVESTMENT COMMUNITIES Quarter Ended ------------------------------ Apart- 2005 2005 2004 ment -------- -------- -------- Homes Jun 30 Mar 31 Jun 30 ------ -------- -------- -------- Dallas. . . . . . . . . . 2,194 $ 902 889 895 Atlanta . . . . . . . . . 3,178 915 900 904 Austin. . . . . . . . . . 917 833 803 819 Houston . . . . . . . . . 1,099 1,007 984 994 Kansas City . . . . . . . 840 878 869 862 Chicago . . . . . . . . . 1,711 1,090 1,068 1,078 Denver. . . . . . . . . . 932 958 968 970 ------ -------- -------- -------- Total portfolio (1). . . . . . 10,871 $ 943 928 934 ====== ======== ======== ======== (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 2005 2004 ment -------- -------- -------- Homes Jun 30 Mar 31 Jun 30 ------ -------- -------- -------- Dallas. . . . . . . . . . 3,643 $ 8,325 8,187 8,152 Atlanta . . . . . . . . . 1,104 2,611 2,575 2,546 Austin. . . . . . . . . . 960 2,179 2,087 2,075 Houston . . . . . . . . . 334 904 869 905 Indianapolis. . . . . . . 2,212 4,937 4,768 4,787 Kansas City . . . . . . . 1,528 3,372 3,230 3,342 Chicago . . . . . . . . . 1,260 3,732 3,638 3,724 Denver. . . . . . . . . . 328 765 747 782 ------ -------- -------- -------- Total portfolio . . . . . 11,369 $ 26,825 26,101 26,313 ====== ======== ======== ======== TOTAL EXPENSES Quarter Ended ------------------------------ Apart- 2005 2005 2004 ment -------- -------- -------- Homes Jun 30 Mar 31 Jun 30 ------ -------- -------- -------- Dallas. . . . . . . . . . 3,643 $ 4,016 3,925 4,024 Atlanta . . . . . . . . . 1,104 1,115 1,055 1,269 Austin. . . . . . . . . . 960 1,005 1,021 1,067 Houston . . . . . . . . . 334 398 370 413 Indianapolis. . . . . . . 2,212 2,306 1,968 1,580 Kansas City . . . . . . . 1,528 1,269 1,131 1,325 Chicago . . . . . . . . . 1,260 1,493 1,528 1,649 Denver. . . . . . . . . . 328 329 275 349 ------ -------- -------- -------- Total portfolio . . . . . 11,369 $ 11,931 11,273 11,676 ====== ======== ======== ======== TOTAL NOI Quarter Ended ------------------------------ Apart- 2005 2005 2004 ment -------- -------- -------- Homes Jun 30 Mar 31 Jun 30 ------ -------- -------- -------- Dallas. . . . . . . . . . 3,643 $ 4,309 4,262 4,128 Atlanta . . . . . . . . . 1,104 1,496 1,520 1,277 Austin. . . . . . . . . . 960 1,174 1,066 1,008 Houston . . . . . . . . . 334 506 499 492 Indianapolis. . . . . . . 2,212 2,631 2,800 3,207 Kansas City . . . . . . . 1,528 2,103 2,099 2,017 Chicago . . . . . . . . . 1,260 2,239 2,110 2,075 Denver. . . . . . . . . . 328 436 472 433 ------ -------- -------- -------- Total portfolio . . . . . 11,369 $ 14,894 14,828 14,637 ====== ======== ======== ======== The following charts show total revenues, total expenses and total NOI for same store co-investment communities for each of AMLI's markets: TOTAL REVENUES Quarter Ended ------------------------------ Apart- 2005 2005 2004 ment -------- -------- -------- Homes Jun 30 Mar 31 Jun 30 ------ -------- -------- -------- Dallas. . . . . . . . . . 2,194 $ 5,536 5,415 5,427 Atlanta . . . . . . . . . 3,178 8,201 8,140 8,092 Austin. . . . . . . . . . 917 2,112 2,040 2,052 Houston . . . . . . . . . 1,099 3,114 3,051 3,047 Kansas City . . . . . . . 840 2,063 1,956 2,021 Chicago . . . . . . . . . 1,711 5,307 5,138 5,262 Denver. . . . . . . . . . 932 2,449 2,443 2,500 ------ -------- -------- -------- Total portfolio . . . . . 10,871 $ 28,782 28,183 28,401 ====== ======== ======== ======== TOTAL EXPENSES Quarter Ended ------------------------------ Apart- 2005 2005 2004 ment -------- -------- -------- Homes Jun 30 Mar 31 Jun 30 ------ -------- -------- -------- Dallas. . . . . . . . . . 2,194 $ 2,444 2,305 2,437 Atlanta . . . . . . . . . 3,178 3,214 3,031 3,221 Austin. . . . . . . . . . 917 1,001 1,147 1,050 Houston . . . . . . . . . 1,099 1,286 1,356 1,388 Kansas City . . . . . . . 840 743 684 722 Chicago . . . . . . . . . 1,711 2,109 1,995 2,092 Denver. . . . . . . . . . 932 888 752 904 ------ -------- -------- -------- Total portfolio . . . . . 10,871 $ 11,685 11,270 11,814 ====== ======== ======== ======== TOTAL NOI Quarter Ended ------------------------------ Apart- 2005 2005 2004 ment -------- -------- -------- Homes Jun 30 Mar 31 Jun 30 ------ -------- -------- -------- Dallas. . . . . . . . . . 2,194 $ 3,092 3,110 2,990 Atlanta . . . . . . . . . 3,178 4,987 5,109 4,871 Austin. . . . . . . . . . 917 1,111 893 1,002 Houston . . . . . . . . . 1,099 1,828 1,695 1,659 Kansas City . . . . . . . 840 1,320 1,272 1,299 Chicago . . . . . . . . . 1,711 3,198 3,143 3,170 Denver. . . . . . . . . . 932 1,561 1,691 1,596 ------ -------- -------- -------- Total portfolio . . . . . 10,871 $ 17,097 16,913 16,587 ====== ======== ======== ======== AMLI'S MARKETS The following commentary and financial data about each of AMLI's markets are based on 100% of AMLI's same store community operations regardless of ownership interest in each community. 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. Occupancy changes are disclosed in absolute terms and economic data are as of May 2005. The discussion covers the second quarter ended June 30, 2005 compared to the same period in 2004 and the first quarter ended March 31, 2005. In addition, the six months ended June 30, 2005 is compared to the six months ended June 30, 2004. COMBINED SAME STORE COMMUNITIES Second quarter same community total revenues was up 1.6%, with expenses growing 0.9%, producing a NOI increase of 2.2% compared to the second quarter 2004. The increase in total revenues resulted from a 1.2% increase in rental income, driven by a 0.3% increase in in-place rental rates (as measured by collected rent per occupied unit) and a 0.8% increase in physical occupancy to 93.6%, as well as a 6.7% increase in other community income. Collected rent per occupied unit was up in six of AMLI's eight same store markets, virtually unchanged in one market, and down in one market. Occupancies were also up in six of eight markets. The 0.9% increase in operating expenses is primarily due to a change in real estate taxes. Without the tax increase, operating expenses would have actually decreased by over 2.0%. Sequentially, total revenues was up 2.4% and expenses increased 5.2%, resulting in an NOI increase of 0.5% from the first quarter. The increase in operating expenses largely reflected seasonal differences, which are not representative of a full year's operations. The increase in sequential total revenues resulted from a 1.1% increase in rental income and a 20.1% increase in other income. Rental income increased as a result of an increase in occupancy in six of eight markets and collected rent per occupied unit in seven of eight markets. The increase in other income was due primarily to an increase in fee income as a result of more leasing activity. Overall employment in all of AMLI's markets increased during the twelve months ended May 2005. Year to date ended June 30, 2005, compared to the same period of 2004, total revenues increased 0.8%, operating expenses increased by 2.4%, resulting in a 0.3% decrease in NOI. The growth in total revenues was due to an increase of 0.8% and 1.1% in rental income and other income, respectively. DALLAS/FT. WORTH same community total revenues, operating expenses and NOI for the second quarter increased 2.1%, were flat, and increased 4.0%, respectively, compared to the same period in 2004. The increase in total revenues was primarily due to an increase in rental income driven by a 2.1% increase in occupancy over a year ago. On a sequential basis compared to the prior quarter, total revenues increased 1.9%. The increase in revenues was primarily due to increases in occupancy and rental rates of 0.8% and 0.4%, respectively. The increase in revenues less the increase in operating expenses of 3.7% resulted in an increase in NOI of 0.4% compared to last quarter. Job growth has improved significantly over the past year in the region as the DF/W metroplex added 37,500 jobs in the trailing 12 months ended May 2005. On the other hand, permit activity has also increased over the past year as 9,250 permits, up from 8,558 from the previous period, have been issued (1.7% of existing stock) for the year ended May 2005. Year to date ended June 30, 2005, compared to the same period of 2004, total revenues increased 1.0%, operating expenses increased by 4.9%, resulting in a 2.2% decrease in NOI. The growth in total revenues was due to an increase of 1.3% in rental income, as other income decreased 2.9%. ATLANTA same community total revenues and NOI increased 1.6% and 5.5%, respectively, compared to the same quarter a year ago. Operating expenses decreased by 3.6% over the same periods. The positive performance in total revenues was the result of a 1.0% increase in rental income, driven by increases in collected rent per occupied unit and occupancy of 0.7% and 0.2%, respectively, and an 8.8% increase in other income. Sequentially, total revenues and expenses increased 0.9% and 6.0% (primarily due to timing of major repairs and maintenance projects) from the first quarter, respectively, leading to an NOI decrease of 2.2% compared to the first quarter. The increase in total revenues was the result of a 21.3% increase in other income, as rental income fell by 0.7%. The decrease in rental income was the result of flat collected rent per occupied unit, and a 0.7% decrease in occupancy. The increase in other income resulted from an increase in fee income due to higher turnover and increased leasing activity. The challenge in Atlanta remains absorption of new supply, with 15,654 units permitted for the year ended May 2005, a 22% increase from the same period of a year ago, and a 4.1% increase to the existing apartment stock. A slowly improving employment outlook provides optimism that demand will be able to keep up with the new supply. For the year ended May 2005, employment posted a gain of 12,500 jobs, or a modest 0.6% growth rate, compared to net job loss over the past three years. Year to date ended June 30, 2005, compared to the same period of 2004, total revenues increased 1.9%, operating expenses decreased by 1.0%, resulting in a 3.8% increase in NOI. The growth in total revenues was due to a 1.7% and 3.9% increase in rental income and other income, respectively. AUSTIN same community total revenues, operating expenses and NOI increased 3.9%, decreased 5.2%, and increased 13.5%, respectively, compared to the same period in 2004. The increase in total revenues was the result of a 1.8% and 1.3% increase in occupancy and collected rent per occupied unit, respectively. The decrease in operating expenses is primarily due to timing variances in repairs and maintenance and landscaping. On a sequential basis, total revenues increased by 3.9%. This was due to a 1.7% increase in rental income, as well as a 34.6% increase in other income. The increase in rental income was due to a 1.1% increase in collected rent per occupied unit and a 0.6% increase in occupancy. Operating expenses decreased by 7.4%, primarily due to timing of major repairs and maintenance, resulting in an increase in NOI of 16.5% from last quarter. Supply and demand fundamentals continue to improve in the region as job growth continues to gain momentum. Approximately 17,400 jobs were added in the previous 12 months ended May 2005, up from a 12,300 job gain during the same period a year ago. Permit activity remains relatively stable, although an increase in permitting activity has been seen recently, as 3,706 permits (2.4% of existing stock) were issued for the same period. Year to date ended June 30, 2005, compared to the same period of 2004, total revenues increased 2.3%, operating expenses increased by 4.5%, resulting in a 0.3% increase in NOI. The growth in total revenues was due to a 2.3% and 2.9% increase in rental income and other income, respectively. HOUSTON same community total revenues, operating expenses and NOI increased 1.7%, decreased 6.5%, and increased 8.5%, respectively, compared to the same period in 2004. Rental income for the second quarter increased 0.9% due to an increase in occupancy and collected rent per occupied unit of 0.8% and 0.1%, respectively. Other income increased by 11.5% over the same period last year. On a sequential basis, total revenues increased 2.5% from the previous quarter, due primarily to an increase in other income of 37.1%, which was the result of an increase in fee income related to a 62% increase in net rentals. Operating expenses decreased 2.5%, due primarily to lower than expected real estate taxes. Houston continues to face challenging supply fundamentals as permit activity remains high with 10,086 permits (2.2% of existing stock) issued for the year ended May 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 31,500 jobs for the twelve months ended May 2005. Year to date ended June 30, 2005, compared to the same period of 2004, total revenues decreased 0.2%, operating expenses decreased by 3.4%, resulting in a 2.3% increase in NOI. The decrease in total revenues was due to an 0.3% decrease in rental income, as other income increased 0.8%. INDIANAPOLIS same community total revenues increased 3.0% and expenses increased 45.8% (primarily due to favorable adjustments to and refunds of real estate taxes received in 2004) causing NOI to decrease 18.1% compared to the same period of a year ago. Rental income was up 1.7%, as both occupancy and collected rent per occupied unit gained 0.7% over the same period in 2004. Other income experienced an increase of 19.5% due primarily to higher leasing fees. Sequentially, total revenues increased 3.2%, expenses increased 18.9%, and NOI decreased 7.5% from the first quarter. The revenue increase was due to a 1.1% increase in rental income, as a result of a 0.3% increase in occupancy and a 0.6% increase in collected rent per occupied unit, and an increase in other income of 33.4%. The increase in expenses is due to the increase in real estate taxes, as noted above. Demand fundamentals in Indianapolis, after showing strength at the beginning of the year, appear to have slowed, but positive job growth has returned to the metro. The BLS reported job growth of 5,800 for the year ended May 2005, a 0.7% growth rate. On the supply side 1,571 multifamily permits have been authorized over the past year, which is a 36% increase from the same period of a year ago, and represents a 1.3% increase to the existing apartment stock. Year to date ended June 30, 2005, compared to the same period of 2004, total revenues increased 2.0%, operating expenses increased by 19.3%, resulting in a 8.3% decrease in NOI. The growth in total revenues was due to a 1.7% and 6.1% increase in rental income and other income, respectively. KANSAS CITY same community total revenues and NOI increased 1.3% and 3.0%, respectively, compared to the second quarter 2004. Operating expenses in the current quarter compared to last year decreased 1.3%. Rental income for the quarter increased 1.1% versus the same period of a year ago due to an increase in occupancy of 0.7% to 93.6%. Collected rent per occupied unit grew by 0.3%. Other income increased by 4.4% for the same period of a year ago. On a sequential basis compared to the first quarter, total revenues increased 4.6%, but operating expenses also increased by 11.9%, leading to a NOI increase of 0.8%. Rental income increased 3.9%, resulting from a 3.2% occupancy gain during the quarter, while collected rent per occupied unit increased by 0.4%. Other income increased 12.7% from last quarter. Supply/demand fundamentals in Kansas are continuing to strengthen, as there have been favorable trends in both job growth and multifamily permits. For the year ended May 2005 the Kansas City metro area gained 11,800 jobs, a positive 1.2% growth rate. In addition, multifamily permits have trended down over the past year. For the year ended May 2005 authorized permits totaled 1,657 units, a 19% decrease over the same period of a year ago, and represents a 1.3% increase to the existing apartment stock. Year to date ended June 30, 2005, compared to the same period of 2004, total revenues decreased 0.3%, operating expenses decreased by 1.2%, resulting in a 0.2% increase in NOI. The decline in total revenues was due to a 0.5% decrease in rental income, as other income increased 1.8%. CHICAGO same community quarterly NOI compared to a year ago increased 3.7% on an increase in total revenues of 0.6% and a 3.7% decrease in operating expenses. The revenue increase was the result of a 0.6% increase in rental income and a 0.3% increase in other income. The increase in rental income was driven by a 0.7% increase in collected rent per occupied unit, while occupancy was essentially flat, decreasing 0.1% to 94.6%. Sequentially, total revenues were up 3.0% compared to the first quarter. Rental income was up 1.6%, while other income was up 24.1% due to an increase in various fee income accounts and cable revenue. The change in rental income reflected a 1.1% increase in occupancy and a 0.4% increase in collected rent per occupied unit. Operating expenses increased 2.2%, resulting in an increase in sequential NOI of 3.5%. The employment picture continues to improve in Chicago as the metro added 23,600 jobs for the year ended May 2005, which represents a 0.6% growth rate. On the supply side, the Chicago metro issued permits for 10,320 new multifamily units, representing 1.6% of existing apartment stock, for the year ended May 2005, a 13% decrease from the same period of a year ago. A significant portion of permits issued each quarter in Chicago 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 are currently under construction in the metropolitan area, a very small number of new units for a market the size of Chicago. Year to date ended June 30, 2005, compared to the same period of 2004, total revenues increased 0.2%, operating expenses decreased by 2.1% resulting in a 1.8% increase in NOI. The growth in total revenues was due to a 0.6% increase in rental income, as other income decreased 4.5%. DENVER same community total revenues, expenses, and NOI decreased by 2.1%, 2.9%, and 1.6%, respectively, for the quarter compared to second quarter 2004. Rental income on a year-over-year basis fell 3.6%. Collected rent per occupied unit was down 2.8%, and occupancy fell to 91.8%, down 0.8% on a year-over-year basis. Other income grew 14.0% for the quarter on higher fee income. On a sequential basis, total revenues and expenses increased, and NOI decreased 0.7%, 18.5%, and 7.7%, respectively, from the first quarter. The expense increase versus the prior quarter was primarily due to seasonal landscaping increases. Rental income increased 0.4% from the first quarter, as collected rent per occupied unit was down 1.3% in order to increase occupancy by 1.6%. Other income increased by 3.7% 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 May 2005, the metro area experienced a gain of 22,500 jobs, a positive 1.9% growth rate, which is in sharp contrast to the net losses over the past three years. Additional positive news in Denver has been the decline in multifamily permitting over the past thirty-six months. For the year ended May 2005, authorized permits totaled 3,359 units (representing a 1.4% increase to the existing apartment stock); a 42% and 69% decrease over the same period of two and three years ago, respectively. Year to date ended June 30, 2005, compared to the same period of 2004, total revenues decreased 2.0%, operating expenses decreased by 0.8%, resulting in a 2.6% decrease in NOI. The decrease in total revenues was due to a decrease of 3.1% in rental income, as other income increased 9.5%. TOTAL RENTAL COSTS PER SAME STORE APARTMENT HOME The following tables show detail of rental expenses and total capital expenditures (excluding acquisition capital expenditures) for AMLI's same store wholly-owned communities and co-investment communities at 100%. 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 ------------------------------------------ Six Months Ended June 30, ------------------------------------------ 2005 2004 -------------------- ------------------- Per Unit Per Unit Total (annualized) Total (annualized) ------------------ ------------------ SAME STORE COMMUNITY RENTAL EXPENSES Personnel. . . . . . . . . $ 5,835 1,026 5,552 977 Advertising and promotion. 1,091 192 1,016 179 Utilities. . . . . . . . . 1,454 256 1,523 268 Building repairs and maintenance . . . . . . . 2,482 437 2,524 444 Contract services. . . . . 390 69 460 81 Landscaping and grounds maintenance . . . . . . . 1,103 194 1,052 185 Real estate taxes. . . . . 7,581 1,333 7,005 1,232 Insurance. . . . . . . . . 920 162 1,094 192 Property management fees . 1,632 287 1,611 283 Other rental expenses. . . 716 126 481 85 ------- -------- ------- ------- Total . . . . . . . . . $23,204 4,082 22,318 3,926 ======= ======== ======= ======= Operating capital expenditures. . . . . . . $ 1,984 349 1,621 285 ======= ======== ======== ======== Number of same store apartment homes . . . . . 11,369 ======= Number of same store communities . . . . . . . 30 ======= Co-investment Communities ------------------------------------------ Six Months Ended June 30, ------------------------------------------ 2005 2004 -------------------- ------------------- Per Unit Per Unit Total (annualized) Total (annualized) ------------------ ------------------ SAME STORE COMMUNITY RENTAL EXPENSES Personnel. . . . . . . . . $ 5,557 1,022 5,421 997 Advertising and promotion. 1,037 191 1,008 185 Utilities. . . . . . . . . 1,502 276 1,458 268 Building repairs and maintenance . . . . . . . 2,440 449 2,091 385 Contract services. . . . . 530 97 549 101 Landscaping and grounds maintenance . . . . . . . 1,093 201 1,031 190 Real estate taxes. . . . . 6,939 1,277 7,341 1,351 Insurance. . . . . . . . . 827 152 1,029 189 Property management fees . 2,259 416 2,259 416 Other rental expenses. . . 771 142 595 109 ------- -------- ------- ------- Total . . . . . . . . . $22,955 4,223 22,782 4,191 ======= ======== ======= ======= Operating capital expenditures. . . . . . . $ 1,410 259 1,125 207 ======= ======== ======== ======== Number of same store apartment homes . . . . . 10,871 ======= Number of same store communities . . . . . . . 28 ======= 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). 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 ------------------------------------------ Six Months Ended June 30, ------------------------------------------ 2005 2004 -------------------- ------------------- Per Unit Per Unit Total (annualized) Total (annualized) ------------------ ------------------ SAME STORE CAPITAL EXPENDITURES Carpet . . . . . . . . . . $ 957 168 884 155 Land and building improvements. . . . . . . 560 99 391 69 Other. . . . . . . . . . . 467 82 346 61 ------- -------- -------- ------- Total . . . . . . . . . $ 1,984 349 1,621 285 ======= ======== ======== ======= Co-investment Communities at 100% ------------------------------------------ Six Months Ended June 30, ------------------------------------------ 2005 2004 -------------------- ------------------- Per Unit Per Unit Total (annualized) Total (annualized) ------------------ ------------------ SAME STORE CAPITAL EXPENDITURES Carpet . . . . . . . . . . $ 826 152 761 140 Land and building improvements. . . . . . . 321 59 186 34 Other. . . . . . . . . . . 263 48 178 33 ------- -------- -------- ------- Total . . . . . . . . . $ 1,410 259 1,125 207 ======= ======== ======== ======= COMPARATIVE CONDENSED RESULTS OF OPERATIONS The following table shows comparative condensed results of operations for the periods presented. Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2005 2004 2005 2004 -------- -------- -------- -------- Rental and other income . $ 38,836 29,713 74,820 56,756 Service Companies . . . . 2,504 11,867 7,873 25,101 Fee income. . . . . . . . 342 424 602 857 -------- -------- -------- -------- 41,682 42,004 83,295 82,714 -------- -------- -------- -------- Expenses: Community rental. . . . 17,344 13,115 32,849 24,129 Service Companies . . . 3,235 12,393 9,391 26,109 Depreciation. . . . . . 11,006 8,502 21,987 16,070 General and administrative. . . . 1,995 1,793 3,956 3,989 Provision for loss on land held for sale. . 150 -- 150 -- -------- -------- -------- -------- 33,730 35,803 68,333 70,297 -------- -------- -------- -------- Other income (expenses): Income from partner- ships . . . . . . . . 784 430 1,162 1,933 Share of gain on sale of a partnership community . . . . . . 3,091 -- 3,091 2,648 Other income. . . . . . 431 429 632 908 Interest expense and amortization of deferred costs. . . . (9,507) (6,976) (18,322) (13,824) Prepayment penalty and write-off of unamor- tized deferred financing costs . . . -- (1,121) -- (1,121) -------- -------- -------- -------- (5,201) (7,238) (13,437) (9,456) -------- -------- -------- -------- Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2005 2004 2005 2004 -------- -------- -------- -------- Income (loss) from continuing operations before minority interest. . . . . . . . 2,751 (1,037) 1,525 2,961 Minority interest . . . . 49 (188) (142) (38) -------- -------- -------- -------- Income (loss) from continuing operations . 2,702 (849) 1,667 2,999 -------- -------- -------- -------- Income from discontinued operations, net of minority interest . . . 316 1,248 824 4,119 Gains on sales of rental communities, net of minority interest . . . 6,192 37,482 29,130 37,482 Gain on extinguishment of debt for a community sold, net of minority interest. . . . . . . . -- 4,423 -- 4,423 -------- -------- -------- -------- Income from discontinued operations, net of minority interest . . . 6,508 43,153 29,954 46,024 -------- -------- -------- -------- Net income. . . . . . . . $ 9,210 42,304 31,621 49,023 ======== ======== ======== ======== COMPARISON OF THREE MONTHS ENDED JUNE 30, 2005 TO THREE MONTHS ENDED JUNE 30, 2004. Income from continuing operations before minority interest increased to an income of $2,751 for the three months ended June 30, 2005 from a loss of $1,037 for the three months ended June 30, 2004. This increase is primarily due to an increase in rental income from rental community operations reduced by increases in interest expense and depreciation. A $3,091 share of gain on sale of a partnership community also contributed to the $3,788 increase in income from continuing operations before minority interests. Community rental revenues including rental-related other income increased by $9,123, or 30.7%, and community rental expenses increased by $4,229, or 32.2%, during the second quarter of 2005 compared to 2004. These increases resulted in a $4,894, or 29.5%, increase in net operating income primarily from six communities acquired after the second quarter of 2004 and three communities acquired in 2005. Depreciation expense increased by $2,504, or 29.5%, due to 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. Interest expense including amortization of deferred costs increased by $2,531, or 36.3%, due to additional borrowings to fund acquisition and development activities. Revenues of the Service Companies, consisting primarily of construction revenues, property management fees and ancillary services income, were $9,363, or 78.9%, lower in the second 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. One development community is substantially complete and another is near completion. No new co-investment development was commenced during the six months ended June 30, 2005. Fee income was $82, or 19.3%, lower in the second quarter of 2005 compared to 2004. Development fee income decreased due to reduced co- investment development activities. The decrease was offset by a $136 disposition fee that AMLI received in connection with the sale of a co- investment community; asset management fees were flat and there was no co- investment acquisition activity in either year. AMLI's share of income from partnerships increased by $354, or 82.3%, primarily due to a higher share of community operating income. Revenues increased as a result of increased collected revenues per occupied unit and a modest increase in occupancy. This increased share also resulted in higher cash distributions in excess of AMLI's ownership interest in partnerships during the second quarter of 2005. One development community that was in lease-up in 2004 reached stabilized occupancy in the second quarter of 2005. Another development community, which commenced rental operations in the second quarter of 2004, has achieved 89% occupancy as of June 30, 2005. AMLI's share of gain on sale of a partnership community was from the sale of one co-investment community in May 2005; there was no community sold during the second quarter of 2004. Interest expense including amortization of financing costs, net of amounts capitalized for communities under development, increased to $9,507 from $6,976. The increase was primarily due to increased borrowings under our unsecured lines of credit; two mortgage loans assumed upon acquisition of AMLI at Cityplace and AMLI at McGinnis Ferry in May and February 2005, respectively; and a new mortgage loan on AMLI at Riverbend that closed in July 2004. This increased borrowings were used for AMLI's acquisition and development activities that were not funded from proceeds of sales of communities. General and administrative expenses increased by $202, or 11.3%, primarily as a result of increased compensation expense for additional personnel and recruitment expense, increased share-based compensation, offset in part by lower dead deal costs written off. COMPARISON OF SIX MONTHS ENDED JUNE 30, 2005 TO SIX MONTHS ENDED JUNE 30, 2004. Income from continuing operations before minority interest decreased by $1,436 for the six months ended June 30, 2005 compared to the six months ended June 30, 2004. This decrease is primarily due to a $5,917 increase in depreciation and a $4,498 increase in interest and amortization expenses which were higher than the increase in rental revenues less the increase in rental expenses. Community rental revenues including rental-related other income increased by $18,064, or 31.8%, and community rental expenses increased by $8,720, or 36.1%, during the six months of 2005 compared to 2004. These increases resulted in a $9,344, or 28.6%, increase in net operating income primarily from nine and three communities acquired during 2004 and 2005, respectively. Depreciation expense increased by 36.8% due to the allocation of a portion of the acquisition costs to existing leases for the communities acquired which is depreciated over a relatively short period of time. Interest expense increased by 32.5% as a result of additional borrowings from the primary line of credit and additional mortgage loans assumed upon acquisition of two communities during 2005 and a mortgage loan that closed during the third quarter of 2004. Borrowings increased because of higher acquisition costs than proceeds of sales of communities as there were more communities acquired than sold during 2005. Revenues of the Service Companies were $17,228, or 68.6%, lower during 2005 compared to 2004. The decrease was due to a significant reduction in construction activity for co-investment partnerships. Fee income was $255, or 29.8%, lower in 2005 compared to 2004 due to reduction of co-investment development activities, offset in part by a $136 disposition fee that AMLI received in 2005 in connection with the sale of a co-investment community. AMLI's share of income from partnerships decreased by $771, or 39.9%, primarily from revenue reduction as a result of one community sold in May 2005 and another in January 2004, and AMLI's acquisition of its co- investment partners' interest in two communities during the fourth quarter of 2004. AMLI's share of income resulting from cash distributions in excess of AMLI's ownership interests was lower in 2005 due to lower earnings of partnership communities from which AMLI has cash flow distribution preferences. Interest expense including amortization of financing costs, net of amounts capitalized for communities under development, increased to $18,322 from $13,824. The increase was primarily due to increased borrowings under our unsecured lines of credit to fund acquisitions which were not funded from sales proceeds and proceeds of a new mortgage loan and mortgage loans assumed for communities acquired. General and administrative expenses decreased slightly by $33. For the six months ended June 30, 2005, professional fees, public company costs and various other administrative expenses were higher than in the same period in 2004. For the six months ended June 30, 2004, compensation expenses, share-based compensation and dead deals written-off were higher than in the same period in 2005 because in the first quarter of 2004 we incurred additional compensation expenses and share-based compensation expenses in connection with the closing of the Indianapolis office. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2005, AMLI had $4,971 in cash and cash equivalents and $91,000 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 $15,041 outstanding at June 30, 2005. On July 26, 2005, AMLI's primary line of credit was increased to $250,000 and the maturity was extended to July 2008, and the secondary line of credit was increased to $20,000 (see note 9 to the consolidated financial statements). 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 June 30, 2005, 25 of AMLI's 44 wholly-owned stabilized communities are unencumbered. Summary information on AMLI's cash flows is as follows: Six Months Ended June 30, -------------------- 2005 2004 -------- -------- Net cash provided by operating activities . . $ 23,886 28,920 Net cash provided by (used in) investing activities. . . . . . . . . . . . . . . . . 20,135 (8,338) Net cash used in financing activities . . . . (44,168) (22,802) Net cash provided by operating activities decreased by $5,034 primarily due to lower cash distributions received from partnerships. Two co-investment communities were sold and two other co-investment communities became wholly-owned, as AMLI acquired interests it did not already own in these communities, which resulted in lower cash flow from partnerships. Operating cash flows also decreased as a result of higher real estate taxes paid in the first six months of 2005 due to an increase in the number of wholly-owned communities and higher assessments. In addition, lower cash flow from the Service Companies further reduced cash flow from operations. The increase in cash flow from acquisitions of approximately $4,800 was substantially offset by the reduction resulting from communities sold or held for sale, which were reported in discontinued operations, during the same period. Interest expense also increased as borrowings increased to fund these acquisitions. Cash provided by investing activities was $20,135 in 2005 compared to cash used in investing activities of $8,338 in 2004. The increase of $28,473 was primarily attributable to higher net proceeds from sales of communities of $47,917 in 2005 than 2004 and lower acquisitions of $29,359 in 2005 than in 2004. The sale of a larger land parcel in 2005 resulted in higher net proceeds than in 2004. Development costs increased by $10,312 as development on one wholly-owned community progressed, two developments commenced in the second quarter and a land parcel for development was acquired during the six months ended June 30, 2005. Capital expenditures for improvements for newly acquired communities, rehab costs and capital expenditures for normal operating activities also increased, primarily because of improvements for the communities acquired in the second half of 2004. Net cash proceeds from sales of rental communities which were not used to fund acquisition and development activities were used to repay line of credit borrowings. The collection of a $28,530 purchase money note in 2004 was used to fund substantially all of the acquisition costs for the six months ended June 30, 2004. In 2004, cash distributions as return of capital from partnerships were $7,889 higher than in 2005 because of new debt on co-investment communities previously not encumbered. Cash received from partnerships in excess of return of AMLI's capital from a community sold was higher in 2005 than 2004 because of lower cap rate on the 2005 disposition. Net cash used in financing activities was $21,366 higher in 2005 than in 2004. The net proceeds of common shares offering of $94,500, proceeds of $5,400 received for an extinguishment of debt and proceeds from the issuance of common shares for employee share-based compensation of $5,622 in 2004 provided funds to repay debt, net of borrowings, which was $83,877 higher than in 2005. Since the timing of community acquisitions lagged behind the equity raise (communities were acquired in the third quarter of 2004) the proceeds of the offering were used to repay debt in the second quarter. 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. 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 six months ended June 30, 2005 and 2004 is summarized as follows: June 30, ------------------------ 2005 2004 ---------- ---------- Net income . . . . . . . . . . . . . . . $ 31,621 49,023 Income from discontinued operations, net of minority interest . . . . . . . (824) (4,119) Gains on sales of rental communities sold, net of minority interest . . . . (29,130) (37,482) Gain on extinguishment of debt for a community sold, net of minority interest . . . . . . . . . . . . . . . -- (4,423) Minority interest. . . . . . . . . . . . (142) (38) ---------- ---------- Income from continuing operations before minority interest . . . . . . . 1,525 2,961 Income from discontinued operations before minority interest . . . . . . . 877 4,431 Gain on extinguishment of debt for a community sold . . . . . . . . . . . . -- 5,400 Gain on sale of a community built for sale by the Service Companies, net of tax . . . . . . . . . . . . . . 2,215 -- Write-off of unamortized deferred financing cost . . . . . . . . . . . . -- (677) Depreciation (1) . . . . . . . . . . . . 22,634 18,109 Share of partnerships' depreciation. . . 5,267 5,199 Depreciation - Service Companies (2) . . 37 -- Share of gain on sale of a partnership community. . . . . . . . . . . . . . . (3,091) (2,648) ---------- ---------- FFO. . . . . . . . . . . . . . . . . . . $ 29,464 32,775 ========== ========== Weighted average shares and units including dilutive shares. . . . . . . 31,198,222 29,616,179 ========== ========== (1) Includes discontinued operations of $647 and $2,039 for the six months ended June 30, 2005 and 2004, respectively. (2) Rental operations of the Service Companies' retail rental property commenced in the second quarter of 2005. 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: June 30, ------------------------- 2005 2004 ----------- ---------- Weighted average common shares for EPS calculation: Weighted average common shares - basic. . . . . . . . . . . . . . . . 25,433,118 23,721,661 Dilutive options and other plan shares (1) . . . . . . . . . . . . . 281,232 272,365 ----------- ---------- Weighted average common shares - dilutive . . . . . . . . . . . . . . 25,714,350 23,994,026 Weighted average preferred shares. . . . 3,845,721 3,890,725 Weighted average OP units. . . . . . . . 1,638,151 1,731,428 ----------- ---------- Weighted average shares and OP units used in FFO calculations . . . . . . . 31,198,222 29,616,179 =========== ========== (1) For the six months ended June 30, 2005 and 2004 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 June 30, 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 June 30, 2005, AMLI had $682,618 of debt outstanding. Debt to total market capitalization was 41.2%. 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 June 30, 2005 the debt of AMLI and co-investment partnerships at 100% is as follows:
AMLI: ---- Weighted Percent Average of Interest Years to Type of Indebtedness Balance Total Rate (1) Maturity Secured Unsecured Fixed Variable -------------------- -------- -------- -------- -------- -------- --------- -------- -------- Conventional mortgages . . . . . $408,418 59.8% 6.0% 4.9 408,418 -- 408,418 -- Credit facilities . . 259,000 37.9% 4.3% 2.0 -- 259,000 160,000 99,000 Tax-exempt debt (2) . 9,500 1.4% 3.8% 0.5 -- 9,500 -- 9,500 Other . . . . . . . . 5,700 0.9% 3.1% -- -- 5,700 -- 5,700 -------- -------- -------- -------- -------- -------- -------- -------- Total . . . . . . $682,618 100.0% 5.3% 3.7 408,418 274,200 568,418 114,200 ======== ======== ======== ======== ======== ======== ======== ======== Percent of total. . . 59.8% 40.2% 83.3% 16.7% ======== ======== ======== ======== CO-INVESTMENT PARTNERSHIPS AT 100%: ---------------------------------- Weighted Percent Average of Interest Years to Type of Indebtedness Balance Total Rate (1) Maturity Secured Unsecured Fixed Variable -------------------- -------- -------- -------- -------- -------- --------- -------- -------- Conventional mortgages . . . . . $559,156 89.8% 7.0% 4.9 559,156 -- 559,156 -- Construction financing 63,753 10.2% 6.3% 4.5 63,753 -- 34,705 29,048 -------- -------- -------- -------- -------- -------- -------- -------- Total . . . . . . $622,909 100.0% 7.0% 4.9 622,909 -- 593,861 29,048 ======== ======== ======== ======== ======== ======== ======== ======== Percent of total. . . 100.0% 0.0% 95.3% 4.7% ======== ======== ======== ======== (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. The bonds were repaid upon the community's sale on July 1, 2005.
Variable-rate debt includes AMLI's unsecured lines of credit, one term loan and one unsecured tax-exempt bond issue. See the section on "Derivatives and Hedging Financial Instruments" 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). On July 26, 2005, the terms of the unsecured credit facilities were modified (see note 9 to the consolidated financial statements). DEVELOPMENT ACTIVITIES At June 30, 2005, AMLI has made capital contributions totaling $11,900 to the co-investment partnerships that have 514 units under development or in lease-up. Two wholly-owned development communities began construction activities in the second quarter of 2005. Including land cost and based on total anticipated development costs, these developments were 21% and 15% complete at June 30, 2005. Including two wholly-owned developments by the OP, AMLI's unfunded capital contributions to complete the 1,047 apartment homes is estimated at $42,303. In addition, the Service Companies have a 360-unit development for sale that will require an additional $1,924 to complete its construction. 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 begun on the 245 and 288 apartment home developments in Dunwoody, Georgia and Overland Park, Kansas, respectively. 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. 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: Six Months Ended June 30, ---------------------- 2005 2004 -------- ------- Operating capital expenditures. . . . . . . $ 2,466 2,071 Information technology costs. . . . . . . . 816 705 -------- -------- $ 3,282 2,776 ======== ======== 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 prior to 2004 other market influences have not permitted AMLI to increase rents proportionate 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 increased slightly in most of AMLI's markets, as job growth continues to improve. An increase in general price levels may be accompanied by an increase in interest rates. At June 30, 2005, AMLI's exposure to rising interest rates was mitigated by the existing debt level of approximately 41.2% of AMLI's total market capitalization; the high percentage of intermediate- term fixed-rate debt (59.8% 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 (8.8% of total debt) and December 2009 (14.6% of total debt). DISCONTINUED OPERATIONS Four wholly-owned rental communities were sold during the six months ended June 30, 2005, and one wholly-owned community and two communities built for sale by the Service Companies were held for sale as of June 30, 2005. Five wholly-owned rental communities were sold in 2004. AMLI received $109,827 and $67,310 (including $5,400 of proceeds attributable to extinguishment of debt) net cash proceeds from rental communities sold during the six months ended June 30, 2005 and 2004, respectively. Substantially all of these sale proceeds were used to fund AMLI's acquisition and development activities during these periods. Condensed financial information of the results of operations for these wholly-owned communities is as follows: Six Months Ended June 30, -------------------- 2005 2004 -------- -------- Total revenues. . . . . . . . . . . . . . . . $ 4,093 13,261 -------- -------- Community rental expenses . . . . . . . . . . 2,360 6,281 Depreciation expense. . . . . . . . . . . . . 647 2,039 Interest and amortization of deferred costs . 209 510 -------- -------- Total expenses. . . . . . . . . . . . . . . . 3,216 8,830 -------- -------- Income from discontinued operations before minority interest . . . . . . . . . . . . . $ 877 4,431 ======== ======== DERIVATIVES AND HEDGING FINANCIAL INSTRUMENTS 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 June 30, 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) -------- -------- ------ -------- -------- ------- --------- Cap $ 15,000 4.000% 5 years 4/1/09 $ 927 224 -------- ------ ------- Derivative assets 15,000 927 224 -------- ------ ------- Swap 30,000 4.510% 5 years 4/1/09 904 (600) Swap 15,000 4.378% 5 years 4/1/09 429 (230) Swap 40,000 3.984% 5 years 12/20/09 -- (6) Swap 40,000 3.984% 5 years 12/20/09 -- (6) Swap 20,000 3.994% 5 years 12/20/09 -- (12) -------- ------ ------- Derivative liability 145,000 1,333 (854) -------- ------ ------- $160,000 $2,260 ======== ====== Net derivative liability at June 30, 2005 $ (630) ======= At December 31, 2004: Derivative asset $ 548 Derivative liability (1,232) ------- Net derivative 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. (2) Represents the approximate amount which AMLI would have paid or received as of June 30, 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 June 30, 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 income (loss) in shareholders' equity as follows: At At June 30, December 31, 2005 2004 Change --------- ------------ ------ Company's derivative contracts: Interest rate swaps . . . . . $ (854) (992) 138 Interest rate cap . . . . . . (641) (614) (27) Treasury locks. . . . . . . . 421 519 (98) -------- -------- ------ (1,074) (1,087) 13 -------- -------- ------ Share of partnerships' derivative contracts: AMLI at Osprey Lake . . . . . (866) (943) 77 -------- -------- ------ Other comprehensive income (loss) attributable to derivative contracts . . . . . (1,940) (2,030) 90 Other . . . . . . . . . . . . . 110 -- 110 -------- -------- ------ Total . . . . . . . . . . . . . $ (1,830) (2,030) 200 ======== ======== ====== INVESTMENTS IN EQUITY SECURITIES At June 30, 2005, the cost of investments in marketable equity securities is $1,241. These securities are reflected at current value in other assets in the accompanying consolidated balance sheet as of June 30, 2005. Accumulated unrealized holding gains of $110 are included in accumulated other comprehensive income (loss) in the accompanying consolidated balance sheet as of June 30, 2005. OTHER MATTERS AMLI is contingently liable with respect to letters of credit and guarantees issued to secure undertakings made by various unconsolidated affiliates (see note 8 to the consolidated financial statements). 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 and have been expensing the related costs of these options since. 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. AMLI does not expect the adoption of SFAS 153 to have a material impact on its financial statements. In March 2005, the FASB issued an interpretation of SFAS No. 143, FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations," ("FIN 47"). FIN 47 requires an entity to recognize a liability for a legal obligation to perform an asset retirement activity in which the timing and/or method of the settlement are conditional on a future event. The liability must be recognized if the fair value of the liability can be reasonably estimated. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. AMLI is evaluating FIN 47 for any impact to the financial statements. In June 2005, the Emerging Issues Task Force of the Financial Accounting Standards Board agreed on a framework for evaluating whether a general partner controls a limited partnership and should therefore consolidate it (issue "EITF 04-05"). EITF 04-05 applies not only to limited partnerships but also to other forms of ownership, such as limited liability companies. There is a presumption that consolidation by a general partner will be required unless the limited partners have either substantive "Kick-out" or "Participating" rights. We account for our investments in 32 partnerships and limited liability companies ("partnerships") using the equity method of accounting (i.e., we do not consolidate these partnerships because, among other things, and based on existing accounting literature, we do not control these partnerships). We are required to account for these co-investment partnerships in accordance with EITF 04-05 as of January 1, 2006 and are in the process of reviewing the terms of our various partnership agreements to determine whether any change in the accounting for our investments in these partnerships will be required. Starting in 2006, consolidation of some or all of the partnerships currently accounted for using the equity method of accounting, if required, could have a material impact on our future financial position and results of operations. 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: Original Effective Principal 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: AMLI at Danada Farms (2) . . . . 20,947 4.77% 10/31/03 3/1/07 AMLI at Oak Bend (2) . . . . . . . 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 AMLI at Cityplace (4) . . . . . . . 20,267 4.88% 7/23/03 8/1/13 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 -------- $311,306 ======== On July 26, 2005 we modified the terms of our existing unsecured credit facilities (see note 9 to the consolidated financial statements). (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 has since been repaid. (3) Loan was assumed on February 24, 2005 upon acquisition of this community. (4) Loan assumed on May 10, 2005 upon acquisition of this community. At June 30, 2005, 83.3% 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 June 30, 2005, variable-rate debt (net of $160,000 swapped and capped to fixed rates) totaled $114,200, so that each 1% increase in short- term interest rates will increase AMLI's annual interest cost by $1,142. 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 June 30, 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 second quarter ended June 30, 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.
2nd Qtr. 2005 Average Monthly Collected Physical Average Revenues Occupancy Number of Apartment Per at Wholly-Owned Year Apartment Size Occupied June 30, Communities Location Completed Homes (Square Feet) Apartment 2005 ------------ -------- --------- --------- ------------- --------- ---------- Dallas/Ft. Worth, TX AMLI: at Bishop's Gate Plano 1997 266 1,098 $ 1,045 95.5% on the Fairways Coppell 2002 322 900 884 95.0% on the Green Ft. Worth 1990/93 424 846 736 94.1% Knox-Henderson Dallas 1994 180 875 1,073 95.6% of North Dallas Dallas 1985/86 1,032 879 679 91.9% at Oak Bend Dallas 1997 426 898 777 90.4% 7th Street Station Ft. Worth 2000 189 1,060 1,038 96.3% at Shadow Ridge Flower Mound 2000 222 983 982 94.6% at Stonebridge Ranch McKinney 2001 250 857 771 94.8% Upper West Side Ft. Worth 2001 194 907 1,000 91.8% at Valley Ranch Irving 1985 460 848 773 93.7% at Cityplace Dallas 2000 244 1,017 1,154 89.3% ------ ------ ------ ----- 4,209 911 840 93.1% ------ ------ ------ ----- Atlanta, GA AMLI: at Clairmont Atlanta 1988 288 796 824 93.1% at Killian Creek Snellville 1999 256 1,027 853 91.4% at Park Creek Gainesville 1998 200 976 811 95.5% at Vinings Smyrna 1985 360 1,040 828 96.1% at West Paces Atlanta 1992 337 1,050 937 78.6% at McGinnis Ferry Gwinnett County 1999/02 696 1,205 931 90.7% ------ ------ ------ ----- 2,137 1,055 879 90.6% ------ ------ ------ ----- 2nd Qtr. 2005 Average Monthly Collected Physical Average Revenues Occupancy Number of Apartment Per at Wholly-Owned Year Apartment Size Occupied June 30, Communities Location Completed Homes (Square Feet) Apartment 2005 ------------ -------- --------- --------- ------------- --------- ---------- Chicago, IL AMLI: at Canterfield West Dundee 2001 352 1,224 1,353 91.2% at Danada Farms Wheaton 1989/91 600 869 1,041 96.0% at Kirkland Crossing Aurora 2004 266 1,143 1,195 92.5% at Oakhurst North Aurora 2000 464 1,013 1,050 92.9% at Poplar Creek (1) Schaumburg 1985 196 906 1,059 93.9% at River Run Naperville 2003 206 1,316 1,388 92.7% ----- ------ ------ ------ 2,084 1,044 1,151 93.5% ----- ------ ------ ------ Austin, TX AMLI: at Lantana Ridge Austin 1997 354 881 863 93.5% at StoneHollow Austin 1997 606 866 757 95.2% at Lantana Hills Austin 2000 264 972 998 96.6% ------ ------ ------ ----- 1,224 893 840 95.0% ------ ------ ------ ----- Kansas City, KS AMLI: Creekside Overland Park 2000 224 813 783 92.0% at Lexington Farms Overland Park 1998 404 972 793 93.6% at Regents Center Overland Park 1991/95/97 424 940 772 95.3% at Regents Crest Overland Park 1997/00 476 948 784 94.5% at Wynnewood Farms Overland Park 2000 232 1,017 906 94.4% ------ ------ ------ ----- 1,760 944 799 94.2% ------ ------ ------ ----- 2nd Qtr. 2005 Average Monthly Collected Physical Average Revenues Occupancy Number of Apartment Per at Wholly-Owned Year Apartment Size Occupied June 30, Communities Location Completed Homes (Square Feet) Apartment 2005 ------------ -------- --------- --------- ------------- --------- ---------- Indianapolis, IN AMLI: Carmel Center Carmel 2004 322 1,074 926 96.0% at Castle Creek Indianapolis 2000 276 978 915 88.8% at Conner Farms Fishers 1993 300 1,091 909 92.7% at Eagle Creek Indianapolis 1998 240 973 848 96.3% at Lake Clear- water Indianapolis 1999 216 1,009 946 94.4% at Riverbend Indianapolis 1983/85 996 824 691 92.8% on Spring Mill Carmel 1999 400 1,017 867 93.0% ------ ------ ------ ----- 2,750 953 824 93.2% ------ ------ ------ ----- Houston, TX AMLI: on Eldridge Parkway Houston 1998/99 668 884 791 91.5% at the Medical Center Houston 2000 334 962 989 95.2% ------ ------ ------ ----- 1,002 910 857 92.7% ------ ------ ------ ----- Denver, CO AMLI: at Gateway Park Denver 2000 328 899 837 92.4% at Westcliff Westminster 2003 372 1,001 921 91.7% ------ ------ ------ ----- 700 953 882 92.0% ------ ------ ------ ----- Southeast Florida, FL AMLI: at Ibis West Palm Beach 2001 234 1,201 1,121 92.3% ------ ------ ------ ----- Total 16,100 963 $ 885 93.0% ====== ====== ====== ===== (1) Sold on July 1, 2005. STABILIZED CO-INVESTMENT COMMUNITIES The table below summarizes certain information related to the stabilized co-investment communities. 2nd Qtr. 2005 Average Monthly Collected Physical Average Revenues Occupancy AMLI's Number of Apartment Per at Co-investment Ownership Year Apartment Size Occupied June 30, Communities Percentage Location Completed Homes (Square Feet)Apartment 2005 ------------- ---------- -------- --------- --------- ---------------------- ---------- Dallas/Ft. Worth, TX AMLI: at Breckinridge Point 45% Richardson 1999 440 1,063 $ 920 92.3% at Bryan Place 48% Dallas 1999 420 890 943 93.1% at Deerfield 25% Plano 2000 240 996 914 92.5% on Frankford 45% Dallas 1998 582 889 890 97.1% on the Parkway 25% Dallas 1999 240 939 847 95.0% at Prestonwood Hills 45% Dallas 1997 272 903 873 95.6% ------ ------ ------ ----- 2,194 943 902 94.5% ------ ------ ------ ----- Atlanta, GA AMLI: at Barrett Lakes 35% Kennesaw 1997 446 1,037 906 95.1% at Barrett Walk 25% Kennesaw 2002 290 938 870 96.9% at Kedron Village 20% Fayette County 2002 216 1,177 1,070 95.8% at Lost Mountain 75% Paulding County 2000 164 958 791 94.5% at Mill Creek 25% Gwinnett County 2001 400 1,015 851 93.0% at Milton Park 25% Alpharetta 2003 461 966 977 96.5% at Northwinds 35% Alpharetta 1999 800 1,023 937 94.1% at Peachtree City 20% Fayette County 1998 312 980 912 91.3% at River Park 40% Norcross 1997 222 1,021 933 93.7% at Windward Park 45% Alpharetta 1999 328 1,082 932 96.0% ------ ------ ------ ----- 3,639 1,017 922 94.7% ------ ------ ------ ----- 2nd Qtr. 2005 Average Monthly Collected Physical Average Revenues Occupancy AMLI's Number of Apartment Per at Co-investment Ownership Year Apartment Size Occupied June 30, Communities Percentage Location Completed Homes (Square Feet)Apartment 2005 ------------- ---------- -------- --------- --------- ---------------------- ---------- Chicago, IL AMLI: at Chevy Chase 33% Buffalo Grove 1988 592 812 1,076 95.1% at Osprey Lake 69% Gurnee 1997/99 483 938 1,052 94.8% at St. Charles 25% St. Charles 2000 400 990 1,141 94.3% at Windbrooke 15% Buffalo Grove 1987 236 903 1,116 92.8% at Seven Bridges 20% Woodridge 2005 520 933 1,128 91.2% ------ ------ ------ ----- 2,231 909 1,099 93.7% ------ ------ ------ ----- Austin, TX AMLI: at Monterey Oaks 25% Austin 2000 430 960 881 97.4% at Scofield Ridge 45% Austin 2000 487 889 791 93.2% ------ ------ ------ ----- 917 922 833 95.2% ------ ------ ------ ----- Kansas City, KS AMLI: at Cambridge Square 30% Overland Park 2002 408 941 899 93.9% at Summit Ridge 25% Lee's Summit 2001 432 952 857 95.6% ------ ------ ------ ----- 840 947 878 94.8% ------ ------ ------ ----- Houston, TX AMLI: at King's Harbor 25% Houston 2001 300 953 863 92.3% Midtown 45% Houston 1998 419 880 1,079 94.7% Towne Square 45% Houston 1999 380 827 1,040 95.8% ------ ------ ------ ----- 1,099 882 1,007 94.4% ------ ------ ------ ----- Denver, CO AMLI: at Lowry Estates 50% Denver 2000 414 947 940 91.3% at Park Meadows 25% Littleton 2001 518 1,029 972 95.0% ------ ------ ------ ----- 932 993 958 93.4% ------ ------ ------ ----- Total 11,852 956 $ 952 94.4% ====== ====== ====== ===== Summarized information for combined wholly-owned and co-investment communities is as follows: 2nd Qtr. 2005 Average Monthly Collected Physical Revenues Occupancy Number of Per at Apartment Percent of Occupied June 30, Homes Portfolio (1)Apartment 2005 --------- ---------------------- ---------- Combined Wholly-owned and Co-investment Communities --------------------- Dallas/Ft. Worth, TX 6,403 22.9% $ 861 93.6% Atlanta, GA 5,776 20.7% 906 93.1% Chicago, IL 4,315 15.5% 1,124 93.6% Austin, TX 2,141 7.7% 837 95.1% Kansas City, KS 2,600 9.3% 824 94.4% Indianapolis, IN 2,750 9.8% 824 93.2% Houston, TX 2,101 7.5% 935 93.6% Denver, CO 1,632 5.8% 925 92.8% Southeast Florida, FL 234 0.8% 1,121 92.3% ------ ------ ------ ------ Total 27,952 100.0% $ 914 93.6% ====== ====== ====== ====== (1) Based on the number of apartment homes.
PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders of AMLI Residential Properties Trust was held on April 25, 2005 for the following purposes: 1. To elect one trustee to serve for a remaining two-year term and three trustees to serve for a three-year term and until their successors are elected and qualify; 2. To amend the Declaration of Trust to eliminate the classification of the Board of Trustees; and 3. To ratify the appointment of KPMG LLP as AMLI's Independent Registered Public Accounting Firm for the fiscal year ending December 31, 2005. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934 and there was no solicitation in opposition to management's solicitations. All of the management's nominees for trustees as listed in the proxy statement were elected with the following vote: Shares Voted Shares "For" "Withheld" ---------- ---------- Bruce P. Bickner . . . . . . . 23,761,770 66,423 Laura D. Gates . . . . . . . . 23,762,675 65,518 Marc S. Heilweil . . . . . . . 23,732,535 95,658 Gregory T. Mutz. . . . . . . . 23,727,609 100,584 The amendment of the Declaration of Trust to eliminate the classification of the Board of Trustees was approved by the following vote: Shares Shares Shares Voted Voted Shares Not "For" "Against" "Abstain" Voted ---------- --------- --------- ------- 23,608,861 161,380 57,952 -- The ratification of the appointment of KPMG LLP as Independent Registered Public Accounting Firm was approved by the following vote: Shares Shares Shares Voted Voted Shares Not "For" "Against" "Abstain" Voted ---------- --------- --------- ------- 12,621,767 180,030 26,396 -- 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 April 5, 2005 relating to AMLI's acquisition of assets and the historical statements of revenue in excess of certain expenses of AMLI at Ibis acquired from Altman Development Corporation in 2004 for the period from January 1, 2004 through April 15, 2004 and for the year ended December 31, 2003, and the historical statements of revenue in excess of certain expenses of The Lodge on the Parkway acquired from Eldridge Lodge L.P. in 2004 for the period from January 1, 2004 through March 31, 2004 and for the year ended December 31, 2003. Current Report on Form 8-K filed on April 27, 2005 furnishing the following as exhibits: 1. AMLI's press release dated April 26, 2005, announcing the first quarter 2005 operating results and a dividend declaration. 2. AMLI's first quarter 2005 Supplemental Operating and Financial Data. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMLI RESIDENTIAL PROPERTIES TRUST Date: August 4, 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: August 4, 2005 By: /s/ GREGORY T. MUTZ ----------------------------------- Gregory T. Mutz Chairman of the Board of Trustees Date: August 4, 2005 By: /s/ ROBERT J. CHAPMAN ----------------------------------- Robert J. Chapman Chief Financial Officer Date: August 4, 2005 By: /s/ CHARLES C. KRAFT ----------------------------------- Charles C. Kraft Principal Accounting Officer