<PAGE>
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________.
Commission File Number 1-12269
HOMESTEAD VILLAGE INCORPORATED
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction
of incorporation or organization)
74-2770966
(I.R.S. employer
identification no.)
2100 RiverEdge Parkway
9th Floor
Atlanta, GA 30328
(Address of principal executive offices and zip code)
(770) 303-2200
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing for the past 90 days.
Yes X No
---- ----
The number of shares outstanding of the Registrant's common stock as of
November 10, 1997 was: 27,804,456
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. Condensed Financial Information
Item 1. Financial Statements
Condensed Balance Sheets -- September 30, 1997 (unaudited) and
December 31, 1996......................................................... 3
Condensed Statements of Operations -- Three and Nine-Month Periods
Ended September 30, 1997 and 1996 (unaudited)............................. 4
Condensed Statements of Cash Flows -- Nine-Month Periods Ended
September 30, 1997 and 1996 (unaudited)................................... 5
Notes to Condensed Financial Statements (unaudited)....................... 6
Independent Accountants' Review Report.................................... 12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................... 13
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K.......................................... 17
</TABLE>
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
CONDENSED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
ASSETS (Unaudited)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,053 $ 7,415
Accounts receivable, net of allowance of $24 in 1997 and $37 in 1996 2,619 809
Other current assets 959 736
-------- --------
Total current assets 8,631 8,960
Property and equipment 546,630 263,325
Less accumulated depreciation 14,117 7,717
-------- --------
Net investment in property and equipment 532,513 255,608
-------- --------
Deposits and pursuit costs, including $4,338 of funds with title companies for property
acquisitions in 1997 and $3,025 in 1996 9,218 5,536
Deferred loan costs, net of accumulated amortization of $1,596 in 1997 and $141 in 1996 39,498 29,075
Trademark and intangibles, net of accumulated amortization of $1,244 in 1997 and $184 in 1996 35,234 21,807
Other assets 5,230 3,639
-------- --------
Total assets $630,324 $324,625
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Line of credit $ 27,408 $ --
Development costs payable 31,619 11,328
Accounts payable 619 412
Due to affiliate 201 216
Accrued interest payable to affiliates 6,909 853
Accrued real estate taxes 2,909 2,066
Other accrued expenses 8,809 2,781
-------- --------
Total current liabilities 78,474 17,656
Convertible mortgage notes payable to affiliates, net 259,981 101,309
Deferred income taxes -- 1,657
-------- --------
Total liabilities 338,455 120,622
Commitments and contingencies
Shareholders' equity:
Common stock, $.01 par value, 250,000,000 shares authorized, 25,360,013 issued and
outstanding in 1997 and 19,689,130 shares issued and outstanding in 1996 254 197
Additional paid-in capital and contributed capital 291,762 224,352
Retained earnings 12,810 7,327
Less shares in escrow (11,990) (26,477)
Less deferred compensation (967) (1,396)
-------- --------
Total shareholders' equity 291,869 204,003
-------- --------
Total liabilities and shareholders' equity $630,324 $324,625
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
3
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
Three-Month Period Ended Nine-Month Period Ended
September 30, September 30,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Room revenue........................................................ $ 15,922 $ 8,810 $ 40,421 $ 23,943
Other revenue....................................................... 285 144 829 354
----------- ----------- ----------- -----------
Total revenues................................................ 16,207 8,954 41,250 24,297
----------- ----------- ----------- -----------
Operating expenses:
Property operating expenses......................................... 6,991 4,321 17,369 12,109
Corporate operating expenses........................................ 3,840 572 10,988 1,471
Depreciation and amortization....................................... 3,640 1,102 7,831 2,943
----------- ----------- ----------- -----------
Total operating expenses...................................... 14,471 5,995 36,188 16,523
----------- ----------- ----------- -----------
Operating income......................................................... 1,736 2,959 5,062 7,774
----------- ----------- ----------- -----------
Interest income.......................................................... 129 30 421 30
Interest expense, net of capitalized interest............................ -- (1,730) -- (4,070)
----------- ----------- ----------- -----------
Earnings before income taxes............................................. 1,865 1,259 5,483 3,734
Provision for income taxes............................................... -- -- -- --
----------- ----------- ----------- -----------
Net income............................................................... $ 1,865 $ 1,259 $ 5,483 $ 3,734
=========== =========== =========== ===========
Earnings per share (Note 5):
Weighted average shares and common equivalent shares outstanding.... 26,448,005 24,984,527
=========== ===========
Primary earnings per common and common equivalent share............. $ 0 .07 $ 0.22
=========== ===========
Fully diluted weighted average shares outstanding................... 46,217,583 40,498,034
=========== ===========
Fully diluted earnings per share.................................... $ 0 .04 $ 0.14
=========== ===========
Pro forma earnings per share (Note 5):
Weighted average shares and common equivalent shares outstanding.... 10,679,907 10,679,907
=========== ===========
Pro forma earnings per common and common equivalent share........... $ 0.12 $ 0.35
=========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
4
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine-Month Period Ended
September 30,
--------------------------
1997 1996
--------- ----------
<S> <C> <C>
Operating activities:
Net income $ 5,483 $ 3,734
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization...................................................... 7,831 2,943
Deferred compensation.............................................................. 351 --
Amortization of prepaid rent....................................................... 225 --
Change in assets and liabilities:
Increase in accounts receivable.................................................... (1,809) (393)
Decrease (increase) in other current assets........................................ (448) 195
Increase in accounts payable....................................................... 207 110
Increase in accrued real estate taxes.............................................. 843 975
Increase in other accrued expenses................................................. 6,042 2,287
Increase (decrease) in due to affiliate............................................ (15) 515
--------- --------
Net cash provided by operating activities........................................ 18,710 10,366
--------- --------
Investing activities:
Investment in properties, excluding development costs payable...................... (255,081) (55,232)
Increase in deposits and pursuit costs............................................. (3,682) (2,872)
Increase in other assets........................................................... (3,619) (759)
--------- --------
Net cash used in investing activities............................................ (262,382) (58,863)
--------- --------
Financing activities:
Exercise of warrants for common stock.............................................. 56,827 --
Proceeds from intercompany debt.................................................... -- 51,886
Proceeds from the sale of common stock............................................. -- 1
Proceeds from convertible mortgage notes........................................... 158,250 --
Proceeds from line of credit....................................................... 27,408 --
Deferred loan costs for line of credit............................................. (1,049) --
Repurchase of stock................................................................ (126) --
--------- --------
Net cash provided by financing activities........................................ 241,310 51,887
--------- --------
Net increase (decrease) in cash and cash equivalents................................... (2,362) 3,390
Cash and cash equivalents, beginning of period......................................... 7,415 1,896
--------- --------
Cash and cash equivalents, end of period............................................... $ 5,053 $ 5,286
========= ========
Noncash investing and financing transactions:
Conversion of intercompany debt to equity.......................................... $ -- $ 1,235
========= ========
Conversion of intercompany debt to convertible mortgage notes payable.............. $ -- $ 77,289
========= ========
Deferred loan costs resulting from issuance of convertible mortgage debt........... $ 10,830 $ --
========= ========
Decrease in deferred tax asset and deferred tax liability.......................... $ (1,657) $ --
========= ========
Increase in trademark and intangibles arising from release of shares in escrow..... $ 14,488 $ --
========= ========
Increase in property and equipment from capitalization of deferred loan costs
amortization..................................................................... $ 1,877 $ --
========= ========
Increase in property and equipment, and development cost payable................... $ 20,291 $ 1,287
========= ========
Increase in property and equipment, and accrued interest payable to affiliates..... $ 6,055 $ 28
========= ========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
5
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
Note 1--General
The financial statements of Homestead Village Incorporated
("Homestead"), as of and for the periods ended September 30, 1997, are unaudited
and certain information and footnote disclosures normally included in financial
statements have been omitted. While management of Homestead believes that the
disclosures presented are adequate, these interim financial statements should be
read in conjunction with the financial statements and notes included in
Homestead's 1996 Annual Report on Form 10-K.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of Homestead's financial
statements for the interim periods presented. Certain reclassifications have
been made in the 1996 financial statements to conform to the 1997 presentation.
The results of operations for the three- and nine-month periods ended September
30, 1997 and 1996 are not necessarily indicative of the results to be expected
for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Note 2--Organization
Homestead was formed on January 26, 1996 to develop, own, and manage
extended-stay lodging facilities under the Homestead Village(R) trademark.
Homestead's extended-stay lodging rooms are designed to appeal to guests such as
business travelers, professionals and others on a weekly basis, with most guests
staying multiple weeks.
On October 17, 1996 Homestead acquired, through a series of merger
transactions, extended-stay lodging assets operating or to be operated under the
Homestead Village trademark (the "Merger Transaction"). The net assets related
to the Homestead Village properties were acquired through the merger of various
wholly-owned subsidiaries of Security Capital Group Incorporated ("Security
Capital"), Security Capital Pacific Trust ("PTR") and Security Capital
Atlantic Incorporated ("ATLANTIC"), all affiliates of Homestead, in exchange
for common stock of Homestead.
Homestead acquired the net assets of PTR's Homestead Village Group
subsidiaries (the "PTR Subsidiaries") consisting of 54 properties (or the
rights to acquire such properties) by issuance of common stock. The merger of
the PTR Subsidiaries was accounted for as a combination of entities under common
control in a manner similar to a "pooling of interests." Accordingly, the
historical results of operations for the PTR Subsidiaries were combined with
Homestead for all of 1996. Homestead's activities from its formation in January
1996 through September 30, 1996 were not significant, thus financial results for
the nine months ended September 30, 1996 consist predominantly of that of the
PTR Subsidiaries.
The acquisition of the ATLANTIC subsidiaries, consisting of 26
properties (or the rights to acquire such properties), was accounted for as a
purchase and, accordingly, the results of the ATLANTIC subsidiaries have been
included in Homestead's results only for periods subsequent to October 17, 1996.
6
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
The acquisition of the Security Capital subsidiaries was accounted for
as a purchase and, accordingly, the results of the Security Capital subsidiaries
have been included in Homestead's results only for periods subsequent to October
17, 1996. Security Capital provided the trademark, and development and property
management expertise as well as operating systems necessary to develop, own and
operate the properties.
On November 12, 1996, PTR and ATLANTIC distributed to their
shareholders the shares of Homestead common stock received by them in the Merger
Transaction. Security Capital received 3,442,737 shares from PTR and 2,388,876
shares from ATLANTIC. Based on shares received in the Merger Transaction
(including shares held in escrow), shares received in the distributions by PTR
and ATLANTIC, and shares obtained by exercise of Homestead warrants (see Note
5), Security Capital owned 68.0% of Homestead's outstanding common stock at
September 30, 1997.
Note 3--Property and Equipment
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------- ------------
(Unaudited)
<S> <C> <C>
Operating properties:
Land............................... $ 45,838 $ 22,999
Buildings and improvements......... 187,944 92,964
Furniture, fixtures and equipment.. 31,360 19,376
-------- --------
265,142 135,339
Properties under construction.......... 214,714 108,692
Properties in planning and owned....... 57,276 12,256
Land held for future development....... 1,452 1,448
Land held for sale..................... 8,046 5,590
-------- --------
Total.......................... $546,630 $263,325
======== ========
</TABLE>
Note 4--Debt
Convertible Mortgage Notes Payable
In connection with the Merger Transaction, Homestead obtained funding
commitment agreements from PTR and ATLANTIC which provide for aggregate fundings
of $198.8 million and $111.1 million, respectively. Under these agreements,
Homestead may call for funding from PTR and ATLANTIC for the development of the
projects acquired from PTR and ATLANTIC in the Merger Transaction. Assuming full
funding of the commitments, PTR and ATLANTIC will receive convertible mortgage
notes in stated principal amounts of $221.3 million and $98.0 million,
respectively. The discount, in the case of the notes payable to PTR, and the
premium, in the case of the notes payable to ATLANTIC, are amortized as an
increase and a reduction, respectively, to interest expense over the term of the
notes using the effective
7
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
interest method. The notes are collateralized by the Homestead properties
acquired in the mergers ($275.6 million of properties at historical cost
mortgaged to PTR and $145.5 million of properties at historical cost mortgaged
to ATLANTIC at September 30, 1997), accrue interest at 9.0% on the principal
amount, and require interest only payments every six months on May 28 and
November 28. The notes are due October 31, 2006, and are callable on or after
May 28, 2001.
The mortgage notes are convertible, at the option of PTR and ATLANTIC,
into shares of Homestead common stock at a conversion price equal to one share
of common stock for every $11.50 of principal amount outstanding. The fair value
of the convertible mortgage notes (assuming conversion), based upon the $17.75
closing price of Homestead's common stock on the American Stock Exchange at
September 30, 1997, was $411.2 million.
The value of the conversion feature, representing the difference
between the conversion price per share and the value per share of Homestead
stock established in the Merger Transaction, is recorded as a deferred financing
cost as the notes are funded. The deferred amounts are amortized as an increase
to interest expense over the term of the notes using the effective interest
method.
Homestead issued warrants to PTR and ATLANTIC in exchange for entering
into the funding commitment agreements. The costs associated with the issuance
of the warrants have been recorded as deferred financing costs and are amortized
to interest expense over the term of the notes using the effective interest
method. The effective interest rates on the PTR and ATLANTIC convertible
mortgage notes payable after giving effect to the related discount and premium,
conversion feature, and warrants is estimated to be 13.56% and 9.05%,
respectively. Amortization of deferred financing costs and discount and premium
included in interest expense for the nine months ended September 30, 1997 was
approximately $1,546,000. At September 30, 1997 Homestead owed convertible
mortgage notes to PTR of $180,820,000 (funded amount of $162,438,000; carrying
amount of $163,230,000 net of unamortized discount) and owed convertible
mortgage notes to ATLANTIC of $85,573,000 (funded amount of $97,000,000;
carrying amount of $96,751,000 net of unamortized premium).
Intercompany Debt
Prior to the Merger Transaction closing date, it was assumed that the
PTR Subsidiaries borrowed on an intercompany basis from PTR to fund the
acquisition and development of the Homestead Village properties. Acquisition and
development costs were assumed to have been financed through borrowing from PTR
up through the completion date of each respective property. Upon completion of a
property, 30% of the intercompany debt associated with the property was assumed
to have been converted to contributed capital. This assumption was made to
reflect the ultimate leverage ratio (70% convertible mortgage debt and 30%
common equity) expected to exist within Homestead after the funding commitment
is fulfilled. Intercompany borrowings were assumed to bear interest at the
weighted average rate of PTR's line of credit (7.0%) for the period from January
1, 1996 through September 30, 1996.
Line of Credit
On May 6, 1997 Homestead entered into a secured revolving line of
credit facility with Commerzbank AG, as agent and lender ("CAG"), which provided
for borrowings of up to $50 million, subject to collateral requirements, with
borrowings bearing interest at the Eurodollar rate plus 2.5% per annum, and an
unfunded commitment fee of 0.325%. On August 25, 1997 Homestead amended the line
of credit agreement to provide for borrowings of up to $100 million, subject to
collateral requirements, and to lower the interest rate to the Eurodollar rate
plus 1.9% per annum. Additionally, the unfunded commitment fee was amended to
0.25% if the average unfunded balance is greater than $50 million or 0.325% if
the average unfunded balance is $50 million or less.
8
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
The line of credit matures May 1998 and may be extended with the
approval of CAG. At September 30, 1997 borrowings under the line totaled
$27,408,000 at a weighted average stated interest rate of 7.56%. The line
requires maintenance of certain financial covenants, specifically, aggregate
indebtedness of no more than 65% of gross asset value, as defined, or
indebtedness secured by a lien of no more than 60% of gross asset value, as
defined. Homestead must also maintain a minimum debt service coverage ratio of
earnings before interest, income taxes, depreciation, amortization and gains or
losses on sales of assets to debt service, as defined, of no less than 1.3 to 1
and not allow stockholders equity to be less than $204 million. The covenants
also restrict payment of dividends without lender approval. Homestead was in
compliance with all such covenants as of September 30, 1997.
Interest
Homestead incurred total interest cost of $14,373,000 and $6,105,000
for the nine months ended September 30, 1997 and 1996, respectively, all of
which was capitalized in 1997 and $2,035,000 was capitalized in 1996. Interest
paid in cash in the nine months ended September 30, 1997 and 1996 was $6,359,200
and $1,874,000, respectively.
Note 5--Shareholders' Equity
Warrants
Homestead issued a total of 10,000,000 warrants on the merger date
which entitled the holders to buy one share of Homestead common stock at the
exercise price of $10 per share. Warrants were issued to PTR and ATLANTIC in
exchange for entering into the funding commitment agreements (see Note 4) and
Security Capital received Homestead warrants in exchange for providing financing
to Homestead during the time between the execution of the merger agreement and
the closing date and for the use of office facilities for one year. The warrants
expired October 29, 1997.
After the initial issuance of warrants to PTR, ATLANTIC and Security
Capital, both PTR and ATLANTIC distributed the warrants to their shareholders
which resulted in Security Capital holding a total of 4,730,022 warrants after
the distribution. Homestead had the right (under an investor agreement entered
into with Security Capital at the merger closing) to request Security Capital to
exercise its warrants in minimum increments of $5,000,000. Through September 30,
1997 Security Capital exercised 7,363,302 warrants with total proceeds to
Homestead of $73,633,000. Third party holders of warrants had exercised 73,656
warrants resulting in proceeds of $736,560 through September 30, 1997. Upon
expiration of the warrants on October 29, 1997 Security Capital had exercised a
total of $81,216,000 and third parties had exercised a total of $17,598,000.
Per Share Data
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, Homestead will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options and warrants will be excluded. The impact is
expected to result in no change in primary earnings per share for the three
months ended September 30, 1997 and to result in an increase of $.01 in pro
forma earnings per share for the three months ended September 30, 1996. On a
year-to-date basis the impact is expected to result in an increase in primary
earnings per share of $.02 for the nine months ended September 30, 1997 and an
increase of $.04 in pro forma earnings per share for the nine months ended
September 30, 1996. The impact of Statement 128 on the calculation of fully
diluted earnings per share is not expected to be material.
9
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
Historical earnings per share data is not presented for the nine-month
period ended September 30, 1996. The outstanding shares and equity interests of
the merged entities differed substantially from the shares, warrants and
convertible mortgages outstanding after the mergers. Therefore, management does
not believe historical earnings per share data is meaningful. Pro forma
earnings per share for the three and nine-month periods ended September 30, 1996
has been calculated by dividing net income by pro forma weighted average shares
outstanding assuming shares and warrants issued to PTR in the merger had been
outstanding since the beginning of the period. Warrants are considered common
stock equivalents and are included in pro forma weighted average shares on the
treasury stock method.
Common Stock
On October 14, 1997 Homestead filed a shelf registration statement
with the Securities and Exchange Commission, which has not yet been declared
effective, for up to $300 million of shares of common stock. Once effective,
the common stock issuable under the registration statement may be offered from
time to time, in amounts, at prices and on terms to be set forth at the time of
the offerings.
Note 6 --Income Taxes
Deferred tax assets related primarily to: (1) the difference in the
carrying amount of deferred financing costs recognized at formation and in
connection with subsequent funding of convertible mortgage notes payable for
financial reporting purposes and the amount recognized for tax purposes; (2) the
difference in the carrying amount of depreciable assets for tax purposes and
financial reporting purposes; and (3) tax net operating loss carry forward.
Based on a private letter ruling, Homestead determined that, for income tax
reporting purposes, the basis of the properties acquired from PTR in the October
1996 merger are to be recorded at fair market value at date of transfer. This
results in a tax basis for these properties which is approximately $55.8 million
in excess of the basis for financial reporting purposes, which has been recorded
as a fully reserved deferred tax asset of approximately $19 million in the
accompanying financial statements.
At September 30, 1997, Homestead had, for federal income tax purposes,
a net operating loss carryforward of approximately $1.1 million (net of
approximately $1.8 million utilized during the period ended September 30, 1997).
The net operating loss carryforward will expire in the year 2011.
Prior to the Merger Transaction on October 17, 1996, the PTR
Subsidiaries were qualified subsidiaries of PTR, a real estate investment trust
and, accordingly, were not subject to income tax. Additionally, prior to the
Merger Transaction, Homestead was a wholly-owned subsidiary of Security Capital.
For income tax reporting purposes, the net income or loss of the PTR
Subsidiaries and Homestead for the period January 1, 1996 through October 17,
1996 were included in a consolidated tax return for PTR and Security Capital,
respectively.
Note 7 --Related Party Transactions
REIT and Property Management Agreements
Prior to the Merger Transaction, the PTR Subsidiaries' activities were
managed through a contract with Security Capital Pacific Incorporated (the "PTR
REIT Manager") and the PTR Subsidiaries operated the Homestead Village
properties through a contract with SCG Realty Services Incorporated (the "PTR
Property Manager"). Both the PTR REIT Manager and the PTR Property Manager
were subsidiaries of Security Capital.
10
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
The PTR REIT Manager provided both strategic and day-to-day management
services to the PTR Subsidiaries including research, asset management, capital
market services and legal and accounting services. In exchange, the REIT
management contract required the PTR Subsidiaries to pay a stipulated REIT
management fee of 16% of its defined cash flow. Such fees included in corporate
operating expenses totaled $1,289,000 for the nine months ended September 30,
1996. Additionally, the PTR Subsidiaries reimbursed the PTR REIT Manager for
travel and out-of-pocket costs incurred. Homestead no longer pays a management
fee to an external manager, but instead directly incurs the cost of corporate
employees.
The PTR Property Manager provided services to the PTR Subsidiaries which
were necessary for the operation of its Homestead Village extended-stay lodging
business. The property management agreement provided for fees of between 5% and
7% of gross revenues. Such property management fees included in property
operating expenses amounted to $1,630,000 for the nine months ended September
30, 1996. Homestead no longer pays a property management fee but instead
directly incurs the cost of property level employees.
Administrative Services Agreement
At the consummation of the Merger Transaction, Homestead and Security
Capital entered into an administrative services agreement (the "Administrative
Services Agreement"), pursuant to which Security Capital provides Homestead with
administrative services with respect to certain aspects of Homestead's business.
These services include, but are not limited to, insurance administration,
accounts payable, internal audit, cash management, payroll and benefits
administration, management information systems, tax and legal administration,
research, shareholder communications and investor relations. The fees payable to
Security Capital are based on identifiable costs incurred by Security Capital on
behalf of Homestead plus 20% to cover overhead. Any arrangements under the
Administrative Services Agreement for the provision of services are required to
be commercially reasonable and on terms not less favorable than those which
could be obtained from unaffiliated third parties. The total fee for the nine
months ended September 30, 1997 was $1,620,000. The Administrative Services
Agreement is for an initial term expiring on December 31, 1997 and will
automatically be renewed for one-year terms, subject to approval by a majority
of the independent members of the Homestead Board.
Note 8--Commitments and Contingencies
Unfunded Development Commitments
At September 30, 1997, Homestead had approximately $199 million of unfunded
commitments for developments under construction.
Finder's Agreement
In conjunction with the Merger Transaction, PTR assigned its rights and
obligations pursuant to a series of agreements with an unaffiliated person
("Finder") who developed the Homestead Village concept, and has performed
certain services. The agreements which expire February 5, 2043, provide for the
payment of fees to Finder as follows: (i) $535,000 annually with respect to the
four properties for which Finder assisted in the location, development and
initial operations; (ii) an annual amount of $7,500 per property (subject to
certain conditions as defined in the agreements) for assistance in site location
with respect to the first 35 properties constructed (other than the four
properties referred to in (i) above); (iii) 20% of the net proceeds as defined
per the agreements, upon the sale of the four properties noted in (i) above to
an unaffiliated third party; and (iv) 10% of the net proceeds as defined per the
agreement, upon the sale of the additional 35 properties to an unaffiliated
third party. No such sales have occurred to date. Effective December 1994, the
agreement to assist in the site location of any additional properties beyond the
39 properties was terminated. Fee expense under this agreement for the nine-
month periods ended September 30, 1997 and 1996 was $545,200 and $485,000,
respectively, which is included in property operating expenses in the
accompanying statements of operations.
11
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors and Shareholders
Homestead Village Incorporated
We have reviewed the accompanying condensed balance sheet of Homestead
Village Incorporated as of September 30, 1997, the related condensed statements
of operations for the three and nine-month periods ended September 30, 1997, and
the condensed statement of cash flows for the nine-month period ended September
30, 1997. These financial statements are the responsibility of the Company's
management. We did not make a similar review of the condensed statements of
operations for the three and nine-month periods ended September 30, 1996 and the
condensed statement of cash flows for the nine-month period ended September 30,
1996.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year, with the objective of expressing 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 accompanying condensed financial statements at
September 30, 1997, and for the three and nine-month periods then ended for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the balance sheet of Homestead Village Incorporated as of
December 31, 1996 and the related statements of earnings, shareholders' equity,
and cash flows for the year then ended (not presented herein) and in our report
dated February 24, 1997, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the accompanying
condensed balance sheet as of December 31, 1996, is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived.
Ernst & Young LLP
Dallas, Texas
October 29, 1997
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with Homestead's
financial statements and the notes thereto in Item 1 of this report.
The statements contained in this discussion and elsewhere in this report
that are not historical facts are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
are based on current expectations, estimates and projections about the industry
and markets in which Homestead operates, and management's beliefs and
assumptions. Words such as "expects", "anticipates", "intends", "plans",
"believes", "seeks", "estimates", variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions which are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is expressed or forecasted
in such forward-looking statements. Among the important factors that could cause
Homestead's actual results to differ materially from those expressed in the
forward-looking statements are (i) changes in general economic conditions in its
target markets that could adversely affect demand for Homestead's properties and
(ii) changes in financial markets and interest rates that could adversely affect
Homestead's cost of capital and its ability to meet its financing needs and
obligations.
Overview
Homestead's operating results are substantially influenced by (i) the
demand for and supply of extended-stay lodging in Homestead's markets and
submarkets, (ii) occupancy and average weekly rate, (iii) the effectiveness of
property level operations and (iv) the pace and cost at which Homestead can
develop additional extended-stay lodging properties. Capital and credit market
conditions which affect Homestead's cost of capital may influence future
operating results.
Homestead's overall results of operations and financial position are
significantly influenced by its development activity. As of September 30, 1997,
Homestead has developed, owns and operates 50 Homestead Village properties
representing in the aggregate 6,844 rooms in 18 cities and had 50 Homestead
Village properties under construction totaling 6,665 rooms within 11 of these
cities as well as 15 additional cities. In addition, Homestead owns 18 sites and
controls through contracts 33 development sites for which it plans to initiate
construction within the next 12 months, for a total of 151 properties in 38
cities. Units operating, under construction or in pre-development planning
aggregate 20,286 rooms.
Homestead's reported results in the accompanying financial statements are
also affected by certain matters of financial presentation for the mergers
through which Homestead acquired its extended stay lodging business (the
"Mergers"). The Merger with the subsidiaries of PTR was accounted for as a
combination of entities under common control in a manner similar to a pooling of
interests, thus the historical financial results of the PTR Subsidiaries are
presented for all periods prior to October 17, 1996 and, as Homestead's
activities through September 30, 1996 were not significant, the accompanying
financial statements consist predominantly of the activities of the PTR
Subsidiaries for the nine months ended September 30, 1996. The Merger of the
subsidiaries of ATLANTIC was accounted for as a purchase, thus the development
activities of the subsidiaries of ATLANTIC are not reflected in the accompanying
financial statements until after the Merger closing date. The Merger of the
subsidiaries of Security Capital was also accounted for as a purchase, thus the
direct costs of personnel for property management and corporate management are
reflected in financial results only after the Merger closing date.
Results of Operations
Interim Period Comparison
Net earnings increased $1.8 million (46.8%) for the nine months ended
September 30, 1997 as compared to the same period in 1996. The increase is
attributable to an increase of net property operating income of $11.7 million,
including $0.2 million of gain on the sale of excess land in 1997, and a
decrease in interest expense of $4.1 million, offset by an increase in corporate
operating expense of $9.5 million and an increase in depreciation and
amortization of $4.9 million.
13
<PAGE>
Homestead's development program was the primary reason for the increase of
$11.7 million of net property operating income with 21 more properties operating
at September 30, 1997 than at September 30, 1996. The decrease in interest
expense is attributable to the development program as all interest costs
incurred in the nine months ended September 30, 1997 were capitalized. The
increase in depreciation was also due to the additions to the property
portfolio. The amortization increase was due to amortization of the Homestead
Village trademark and intangibles acquired in the Mergers.
The increase of $9.5 million in corporate operating expense, arising from
the post merger change in corporate structure to an internally managed, stand
alone public company as compared to these expenses being absorbed by the REIT
Manager, partially offset the above earnings increases.
Property Operations
The following table sets forth certain information for Homestead's total
operating properties for the periods indicated (performance of the one operating
property acquired from ATLANTIC has been included from its opening date of July
1, 1996 versus its acquisition date of October 17, 1996; inclusion of its
results in the table for such period has an insignificant effect on the
performance data presented):
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
-------------- -------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Occupancy..................................... 77.2% 80.1% 76.6% 78.6%
Average Weekly Rate(1)........................ $ 252 $ 221 $ 253 $ 224
Weekly RevPAR(2).............................. $ 195 $ 177 $ 194 $ 176
Number of Operating Properties at Period End.. 50 29 50 29
Property Operating Income Margin.............. 57.7% 50.3% 56.9% 52.0%
</TABLE>
- ---------------------
(1) Average weekly rate is determined by dividing room revenue by the number of
guest room days occupied for the period and multiplying by seven.
(2) Weekly revenue per available room ("RevPAR") is determined by dividing room
revenue by the number of guest room days available for the period and
multiplying by seven.
Homestead's 21 property openings from the end of the third quarter of 1996
through the end of the third quarter of 1997 were the primary reason for the
reported room revenue increase of $16.7 million (68.8%) for the nine months
ended September 30, 1997 as compared to the same period in 1996. The increase in
room revenue was also due in part to an increase in the average weekly rate of
$31.81 (14.4%) in the nine months ended September 30, 1997 compared to 1996
which was partially offset by lower occupancy in 1997 versus 1996.
Total property operating expenses increased from $12.1 million to $17.4
million over the same period, an increase of $5.3 million for the nine months
ended September 30, 1997. The increase is due primarily to an increase in the
number of operating properties as noted above. The RevPAR increase was the
primary reason for the improved property operating income margin of 57.7% in
1997.
Homestead Properties Fully Operating Throughout Both Periods
Homestead had 20 properties, representing 2,755 rooms, that were fully
operational throughout the nine months ended September 30, 1997 and 1996. RevPAR
for the nine months ended September 30, 1997 increased to $190.79 from $180.46
for the same period in 1996. The RevPAR increase was due to an increase in
average weekly rates for such properties during the nine months ended September
30, 1997 and 1996 to $240.37 from $218.97, respectively, an increase of 9.8%.
Partially offsetting the increase in average weekly rates was a decline in
average occupancy for such properties during the nine months ended September 30,
1997 and 1996 to 79.4% from 82.4%, respectively. The 1997 decline in occupancy
is not projected to continue on a longer term basis and is the direct result of
implementing strategic pricing in certain markets, and for third quarter 1997,
occupancy for such properties averaged 83.0% versus second quarter 1997 average
occupancy of 80.9%. The
14
<PAGE>
RevPAR increase described above improved the property operating income margin
for comparable properties to 54.4% for the nine months ended September 30, 1997
compared to 48.6% for the same period in 1996.
Corporate Operating Expenses
Corporate operating expenses increased $9.5 million for the nine months
ended September 30, 1997 as compared to the same period in 1996. This comparison
is affected by the fact that 1997 corporate expenses reflect a post merger
operating basis while 1996 operations consist only of the corporate costs and
REIT management fee allocations from PTR to the PTR Subsidiaries. The increase
is also attributable to the change in corporate structure from external
management to internal management and additional corporate costs associated with
the continued growth of the company. This change in structure involves costs
associated with operating as a public company, recruiting, relocation, and
personnel expenses and other costs to create a corporate infrastructure, offset
in part by capitalizing costs related to information technology, and the
acquisition, development or improvement of real estate.
Depreciation and Amortization
Depreciation and amortization increased $4.9 million (166.1%) for the nine
months ended September 30, 1997 as compared to the same period in 1996.
Depreciation of the cost of properties and improvements is calculated using the
straight-line method over the estimated useful lives of the assets. Depreciation
expense increased approximately $3.8 million (130.1%) for the nine months ended
September 30, 1997 as compared to the same period in 1996. The increase is due
to new properties open for the nine months ended September 30, 1997 as compared
to the same period in 1996. Homestead also recorded $1,060,000 in amortization
expense for the nine months ended September 30, 1997 as a result of the
amortization of the Homestead Village trademark and other intangibles acquired
in the Mergers.
Interest Income
Interest income of $421,000 for the nine months ended September 30, 1997
was a result of interest earned from investment of excess cash on hand.
Interest Cost
Total interest cost incurred of $14.4 million (interest before
consideration of interest costs capitalized for the period) increased by $8.3
million (135.4%) for the nine months ended September 30, 1997 as compared to the
same period in 1996. The increase is due to the increase in investments in
operating and under construction properties and the corresponding increase in
convertible mortgage notes payable and line of credit borrowings. Total interest
cost incurred was offset by an increase in capitalized interest of $12.4 million
in the nine-month period ended September 30, 1997 over the same period in 1996.
This increase in capitalized interest is the result of Homestead's increased
development activity.
Environmental Matters
Homestead is not aware of any environmental condition on its properties
that could, nor does it expect any environmental condition on its properties to,
have a material adverse effect upon its business, results of operations or
financial position.
Liquidity and Capital Resources
As of September 30, 1997 Homestead had 50 properties in construction and 18
additional sites had been acquired for development ("in planning and owned").
Homestead also had 33 sites under contractual control ("in planning and under
contractual control") with acquisition and construction start expected to occur
within twelve months. Homestead intends to pursue additional sites for
acquisition and development with an expectation of 40 to 50 construction starts
annually through the year 2000.
15
<PAGE>
Unfunded development commitments for properties under construction as of
September 30, 1997 approximates $199 million. Expected future investment to
develop the properties in planning and owned as of September 30, 1997 is
approximately $136 million. The estimated total investment to acquire and
develop the properties in planning under contractual control approximates $315
million.
To fund its development program Homestead had available as of September 30,
1997 approximately $50.5 million under the funding commitment agreements from
PTR and ATLANTIC, approximately $25.6 from the possible exercise of warrants (of
which $24.4 million was exercised by the October 29, 1997 expiration date of the
warrants), cash from the line of credit described below, and cash from
operations in excess of operating needs.
On May 6, 1997 Homestead entered into a secured revolving line of credit
facility with Commerzbank AG, as agent and lender ("CAG"), which
provided for borrowings of up to $50 million, subject to collateral
requirements, with borrowings bearing interest at the Eurodollar rate plus 2.5%
per annum, and an unfunded commitment fee of 0.325%. On August 25, 1997
Homestead amended the line of credit agreement to provide for borrowings of up
to $100 million, subject to collateral requirements, and to lower the interest
rate to the Euro-dollar rate plus 1.9% per annum. Additionally, the unfunded
commitment fee was amended to 0.25% if the average unfunded balance is greater
than $50 million or 0.325% if the average unfunded balance is $50 million or
less. The line of credit matures May 1998 and may be extended with the approval
of CAG. At September 30, 1997 borrowings under the line totaled $27.4 million at
a weighted average stated interest rate of 7.56%. The line requires maintenance
of certain financial covenants, specifically, aggregate indebtedness of no more
than 65% of gross asset value, as defined, or indebtedness secured by a lien of
no more than 60% of gross asset value, as defined. Homestead must also maintain
a minimum debt service coverage ratio of earnings before interest, income taxes,
depreciation, amortization, and gains or losses on sales of assets to debt
service, as defined, of no less than 1.3 to 1 and not allow stockholders equity
to be less than $204 million. The covenants also restrict payment of dividends
without lender approval. Homestead was in compliance with all such covenants as
of September 30, 1997.
On October 14, 1997 Homestead filed a shelf registration statement with the
Securities and Exchange Commission, which has not yet been declared effective,
for up to $300 million of shares of common stock. Once effective, the common
stock issuable under the registration statement may be offered from time to
time, in amounts, at prices and on terms to be set forth at the time of the
offerings.
Capital resources in addition to those described above will be needed to
fund Homestead's planned developments. Homestead may seek additional credit
facility capacity and may issue long-term debt or additional equity securities.
There can be no assurance that Homestead will be able to obtain such funding as
and when required or on acceptable terms.
The Board of Directors has established a policy of retaining earnings to
finance Homestead's growth and for general corporate purposes and, therefore,
does not anticipate paying a cash dividend in the foreseeable future.
Operating Activities
Net cash flow provided by operating activities increased by $8.3 million
(81%) for the nine months ended September 30, 1997 as compared to the same
period in 1996. The increase is due primarily to Homestead's increased property
portfolio as described under "-Results of Operations" as well as improvements in
property operations.
Investing and Financing Activities
During the nine months ended September 30, 1997, Homestead invested $255.1
million in Homestead properties. The amounts invested in the nine months ended
September 30, 1997 were financed primarily from the proceeds of convertible
mortgage loans from PTR and ATLANTIC and additionally by proceeds from exercise
of Homestead warrants and borrowings on the line of credit. The amounts invested
in the nine months ended September 30, 1996 were financed primarily by
intercompany borrowings by the PTR Subsidiaries from PTR.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 First Amendment to Credit Agreement and other Loan Documents among
Homestead Village Incorporated, the Lenders Named therein, and
Commerzbank AG, New York Branch, as Agent for the Lenders dated as
of August 25, 1997
15 Letter regarding unaudited interim financial information
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during this period.
17
<PAGE>
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.
Homestead Village Incorporated
(s) Robert C. Aldworth
-----------------------------------------
Robert C. Aldworth, Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
(s) Robert E. Clark
-----------------------------------------
Robert E. Clark, Vice President,
Treasurer and Controller
(Principal Accounting Officer)
Date: November 10, 1997
<PAGE>
EXHIBIT 10.1
FIRST AMENDMENT
TO
CREDIT AGREEMENT
AND
OTHER LOAN DOCUMENTS
among
HOMESTEAD VILLAGE INCORPORATED,
THE LENDERS NAMED HEREIN,
and
COMMERZBANK AG,
New York Branch, as Agent for the Lenders
Dated as of August 25, 1997
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT AND OTHER LOAN DOCUMENTS
------------------------------------------------------------
FIRST AMENDMENT TO CREDIT AGREEMENT AND OTHER LOAN DOCUMENTS (this
"Amendment"), dated as of August 25, 1997, among HOMESTEAD VILLAGE INCORPORATED,
a Maryland corporation (the "Borrower"), COMMERZBANK AG, LOS ANGELES BRANCH, and
the other lenders listed on Exhibit A attached to the Agreement (as hereinafter
defined), as amended from time to time (each a "Lender" and collectively, the
"Lenders") and COMMERZBANK AG, NEW YORK BRANCH, as agent for the Lenders (the
"Agent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Lender has made certain loans to the Borrower pursuant to
a Credit Agreement dated as of May 6, 1997, among the Borrower, as borrower, and
the Lender, as lender and the Agent (the "Agreement"); all capitalized terms
used herein and not defined herein shall have the meanings ascribed respectively
thereto in the Agreement; and
WHEREAS, Pursuant to Borrower's request, Lender has agreed to modify
the Agreement and the other Loan Documents, as more particularly hereinafter
provided.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Agreement and the other Loan
Documents are hereby modified as follows:
1. Amendment to Credit Agreement. The Agreement is hereby amended as
follows:
(a) The term "Commitment" as defined in Section 2.1(b) of the
Agreement shall mean $100,000,000;
(b) The term "Applicable Margin" shall mean one hundred ninety (190)
basis points;
(c) The first sentence of Section 2.10 of the Agreement is hereby
deleted in its entirety and replaced with the following:
<PAGE>
"Section 2.10 Fees. The Borrower shall pay to the Agent for the
account of the Lenders a commitment fee (the "Commitment Fee")
equal to (a) if the Average Undrawn Balance of the Commitment is
less than or equal to 50% of the Commitment, 0.325% per annum of
such Average Undrawn Balance and (b) if the Average Undrawn
Balance of the Commitment is greater than 50% of the Commitment,
0.25% per annum of such Average Undrawn Balance."
(d) Section 3.2(g)(i)(3) of the Agreement is hereby deleted in it
entirety and replaced with the following:
"(3) a notice of title continuation or an endorsement to each
title policy referred to in Section 3.3(a)(iii) dated no more
than seven (7) days prior to the date of any such Advance,
indicating that since the date of the last preceding Advance
there has been no change in the state of title not theretofore
approved by Agent, which endorsement shall have the effect of
redating the title policy to a date no more than seven (7) days
prior to the date of any such Advance, and increasing the
coverage thereof by the amount of the Advance then being made,
together with Borrower's certificate dated on the date of any
such Advance to the effect that there has been no change in the
state of title since the date of such title continuation or
endorsement or title policy, as the case may be, and the date of
such Advance; or in the case of a New Mortgaged Property, a title
policy as referred to in Section 3.3(a)(iii) dated no more than
seven (7) days prior to the date of any such Advance, and"
(e) Exhibit B attached to the Agreement is deleted in its entirety and
replaced with Exhibit A attached hereto.
(f) Exhibit K attached to the Agreement is deleted in its entirety and
replaced with Exhibit B attached hereto.
2. Amendment to All Loan Documents. Simultaneously herewith the
Borrower has executed and delivered to Agent an Amended and Restated Promissory
Note which effectuates certain of the amendments contained herein. All
references in the Loan Documents to the "Promissory Note" shall be deemed to
refer to the Amended and Restated Promissory Note. All references in the Loan
Documents to the "Credit Agreement" shall be deemed to refer to the Agreement as
modified pursuant to the terms hereof. All references in any one of the Loan
Documents to any of the other Loan Documents shall be deemed to refer to such
other Loan Documents as modified pursuant to the terms hereof. In the event of
any inconsistency or conflict between the terms and provisions of any of the
Loan Documents and the terms and provisions of this Amendment, the terms and
provisions of this Amendment shall control and be binding, it being the
agreement and intent of the Borrower, Lenders and Agent that the terms and
provisions contained or referred to in the Loan Documents shall hereby be and be
deemed to be amended and modified to the extent, but only to the extent,
necessary to give effect to the terms and provisions of this Amendment.
3. Borrower's Representations. Borrower hereby certifies that the
following statements are true on the date hereof:
-2-
<PAGE>
(a) No Default or Event of Default has occurred and is continuing;
(b) Other than the representation in the second sentence of Section
4.5(a) of the Credit Agreement, all representations and warranties
contained in the Agreement, before and after giving effect to this
Amendment are true and correct in all material respects with the same
effect as though such representations and warranties are being made as of
the date hereof and the Borrower, before and after giving effect to this
Amendment is in compliance in all material respects with all covenants and
agreements contained in the Agreement and the other Loan Documents;
(c) There has been no Material Adverse Change;
(d) All statements and certifications contained in the most recent
certificate delivered to Agent pursuant to Section 5.2(e) of the Agreement,
before and after giving effect to this Amendment are true and correct in
all material respects with the same effect as though such statements and
certifications are being made as of the date hereof;
(e) Except as expressly modified hereby, the Agreement and other Loan
Documents remain unmodified and in full force and effect and are hereby
ratified and confirmed in all respects;
(f) The Borrower has no offsets, counterclaims or defenses to the
enforcement of, or otherwise with respect to, the Agreement and/or other
Loan Documents as hereby modified; and
(g) This Amendment is hereby incorporated into and made a part of the
Loan Documents.
4. Execution in Counterparts. This Amendment may be executed in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute one
and the same instrument.
5. Governing Law. This Amendment shall be governed by and construed
in accordance with the internal laws of the State of New York.
6. Headings. Section headings in this Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
[Signatures are on the Following Page]
-3-
<PAGE>
[Amendment to Credit Agreement]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers and officer of the General Partner, as
the case may be, hereunto duly authorized as of the date first above written.
HOMESTEAD VILLAGE INCORPORATED
By:/s/ David C. Dressler, Jr.
--------------------------
Name:
Title:
COMMERZBANK AG, New York Branch, as
Agent
By:/s/ Henry Blagden
-----------------
Name: Henry Blagden
Title: Assistant Treasurer
By:/s/ Christine H.Finkel
----------------------
Name: Christine H.Finkel
Title: Assistant Vice President
COMMERZBANK AG, Los Angeles Branch,
as a lender
By:/s/ Christian Jagenberg
-----------------------
Name: Christian Jagenberg
Title: SVP & Manager
By:/s/ Steven F. Larsen
--------------------
Name: Steven F. Larsen
Title: Vice President
-4-
<PAGE>
EXHIBIT A
---------
FORM OF NOTICE OF BORROWING
---------------------------
[Borrower's Letterhead]
[Date]
Commerzbank AG, New York Branch
Real Estate Finance
2 World Financial Center
New York, New York 10281-1050
Attention: Real Estate Finance
Gentlemen:
The undersigned, Homestead Village Incorporated, refers to the Credit
Agreement, dated as of ______, 1997 (as amended from time to time, the "Credit
Agreement", the terms defined therein being used herein as therein defined),
among us, as borrower, Commerzbank AG, New York Branch, as agent, and the
institution(s) identified on Exhibit A of such Credit Agreement, as lender(s),
and hereby gives you notice, irrevocably, pursuant to Section 2.3 of the Credit
Agreement, that the undersigned hereby requests an Advance under the Credit
Agreement, and in that connection sets forth below the information relating to
such Advance (the "Proposed Borrowing") as required by Section 3.2 of the Credit
Agreement:
1. The Business Day of the Proposed Borrowing is
________________, 19__.
2. The aggregate principal amount of the Proposed Borrowing is
$_____________.
3. The interest rate with respect to such Proposed Borrowing is,
subject to the provisions of the Credit Agree ment, one hundred ninety
(190) basis points (1.9%) above the Adjusted Eurodollar Rate to the
Maturity Date.
<PAGE>
4. The Interest Period with respect to such Proposed Borrowing is
__________ [one of the following to be inserted: (A) one month, (B) two
months, (C) three months or (D) six months] (subject to the provisions of
Section 2.7 of the Credit Agreement).
5. The funds under such Proposed Borrowing shall be disbursed as
follows:
_____________________
_____________________
_____________________
ABA #: _________
For credit to:
Homestead Village Incorporated
Account #: ___________
6. All of the documents, instruments, evidence and other matters and
things required pursuant to Article III and all of the other provisions of
the Credit Agreement to be furnished to Agent as a condition to the
Proposed Borrowing are either enclosed herewith or have been previously
furnished to Agent and, as required pursuant to the Credit Agreement,
previously or contemporaneously herewith furnished to Agent's counsel (or,
if any of documents or instruments have not been so enclosed or furnished,
the explanation for such omission, in reasonable detail, is attached hereto
as an exhibit (the "Exhibit"), Borrower agreeing that no such omission or
explanation shall constitute a waiver or modification of a condition to an
Advance or any other provision of the Credit Agreement or other Loan
Documents).
7. Borrower hereby certifies that the following statements are true
on the date hereof and will be true on the date of the Proposed Borrowing:
(a) No Default or Event of Default has occurred and is continuing
or would result from the Proposed Borrowing or from the application of the
proceeds thereof;
(b) The Proposed Borrowing shall not cause the aggregate
principal amount of all outstanding Advances (including and after giving
effect to the Proposed Borrowing) to exceed the lesser of (i) the
Commitment, and (ii) the Maximum Availability Amount. The Draw Request
attached hereto sets forth the calculations establishing the accuracy of
the foregoing;
(c) Subject to the provisions of Section 5.5 of the Credit
Agreement, unless limited to a specific date, all representations and
warranties contained in the Credit Agreement, before and after giving
effect to the Proposed Borrowing and to the application of the proceeds
thereof, are true and correct in all material respects with the same effect
as though such representations and warranties are being made as of the date
hereof and on and as of the date of the Proposed Borrowing and the
Borrower, before and after
A-2
<PAGE>
giving effect to the Proposed Borrowing and to the application of the
proceeds thereof, is in compliance in all material respects with all
covenants and agreements contained in Article V hereof and elsewhere in the
Credit Agreement;
(d) There has been no Material Adverse Change;
(e) Borrower has actually incurred the Total Costs for which it
is seeking reimbursement with respect to the requested Advance, such costs
have not been made the basis for any other request for an Advance under the
Credit Agreement, and the requested Advance will be used for (and only for)
the Permitted Purpose;
(f) If the Proposed Borrowing relates to the Acquisition Cost for
any Mortgaged Property, (i) the zoning district in which the Mortgaged
Property is located permits the development, use and operation of the
Mortgaged Property as an extended stay facility, and that all zoning,
planning board and similar approvals required to be obtained under any
Requirements of Law or Use Requirements for the development, use and
operation of an extended stay facility on such Mortgaged Property have been
obtained and are in full force and effect and (ii) the building permit and
all other permits, authorizations and approvals required to be obtained
under any Requirements of Law or Use Requirements for the construction and
operation of an extended stay facility on such Mortgaged Property will be
promptly and duly applied for, are capable of being obtained, Borrower will
pursue the obtainment of such permits, authorizations and approvals with
due diligence, the construction and operation of an extended stay facility
on such Mortgaged Property shall at all times comply with all applicable
Requirements of Law and Use Requirements;
(g) If the Proposed Borrowing relates to the Direct Cost for any
Mortgaged Property, (i) the building permit and all other permits,
authorizations and approvals required to be obtained under any Requirements
of Law or Use Requirements for the construction and operation of an
extended stay facility on such Mortgaged Property have been obtained and
are in full force and effect, (ii) final plans and specifications for the
construction of an extended stay facility on such Mortgaged Property have
been duly filed with all Governmental Authorities having jurisdiction over
the construction of such facility, and (iii) agreements with the general
contractor and all major trade contractors and subcontractors required for
the construction of an extended stay facility on such Mortgaged Property
have been duly executed and delivered by all parties thereto and are in
full force and effect;
A-3
<PAGE>
(h) Pursuant to Section 3.2 of the Credit Agreement, Borrower
hereby certifies that there has been no change in the state of title of any
Mortgaged Property to which this Proposed Borrowing relates since the date
of the most recent title continuation or endorsement or title policy, as
the case may be, issued with respect to any such Mortgaged Property; and
(i) All statements and certifications contained in the most
recent certificate delivered to Agent pursuant to Section 5.2(e) of the
Credit Agreement, before and after giving effect to the Proposed Borrowing
and to the application of the proceeds thereof, are true and correct in
all material respects with the same effect as though such statements and
certifications are being made as of the date hereof and on and as of the
date of the Proposed Borrowing.
8. All of the conditions and requirements required pursuant to
Article III and all of the other provisions of the Credit Agreement to be
satisfied as a condition to the Proposed Borrowing have been satisfied.
Exhibit attached: Yes___ No___
This Notice of Borrowing shall be deemed incomplete unless the Draw Request
referred to in Paragraph 7(b) is attached.
The Exhibit and the Draw Request attached hereto is hereby deemed incorporated
into this Notice of Borrowing by this reference as if fully set forth herein.
Very truly yours,
HOMESTEAD VILLAGE INCORPORATED
By:
Name:
Title:
A-4
<PAGE>
Exhibit B
AMENDED AND RESTATED GUARANTY
-----------------------------
THIS AMENDED AND RESTATED GUARANTY dated as of August 25, 1997 is made
by HOMESTEAD ALABAMA INCORPORATED, an Alabama corporation, having an address at
2030 Powers Ferry Road, Suite 200, Atlanta, Georgia 30339 ("Guarantor") in
favor of COMMERZBANK AG, LOS ANGELES BRANCH, a branch duly licensed under the
laws of the State of California, having an address at 633 West 5th Street, Suite
6600, Los Angeles, California, and the other lenders listed on Exhibit A
attached to the Credit Agreement (as hereinafter defined), as amended from time
to time (each a "Lender" and collectively, "Lenders") and COMMERZBANK AG, NEW
YORK BRANCH, a branch duly licensed under the laws of the State of New York,
having an address at 2 World Financial Center, New York, New York 10281-1050, as
agent for the Lenders (the "Agent").
BACKGROUND
----------
A. Lenders are making a loan in the principal amount of up to
$100,000,000 (the "Loan") to HOMESTEAD VILLAGE INCORPORATED, a Maryland
corporation ("Borrower"), pursuant to a Credit Agreement dated as of May 6, 1997
between Lenders and Borrower, as amended by that certain First Amendment to
Credit Agreement and Other Loan Documents of even date (the "First Amendment")
(as the same may be amended, supplemented, restated, replaced or otherwise
modified from time to time, the "Credit Agreement").
B. The Loan is evidenced by promissory notes (as the same may be amended,
supplemented, restated, replaced or otherwise modified from time to time, the
"Notes") of even date made by Borrower to each Lender and secured by certain
Deeds of Trust and Mortgages of even date made by Borrower in favor of Agent
(each as may be amended, supplemented, restated, replaced or otherwise modified
from time to time, a "Mortgage" and collectively, the "Mortgages").
C. The Borrower will apply a portion of the proceeds of the Loan to
develop the premises more particularly described in
<PAGE>
Exhibit A attached hereto, which premises is owned by Guarantor, and, therefore,
Guarantor shall derive substantial benefit as a result of the Lenders making the
Loan to Borrower.
D. Lenders are requiring Guarantor to deliver this Guaranty as a
condition to its making the Loan.
Guaranty
--------
Guarantor hereby agrees as follows:
1. Guaranty. Guarantor, as a primary obligor and not merely as a
surety, unconditionally and irrevocably guarantees to Agent and Lenders the
prompt and complete payment when due (whether at the stated maturity, by
acceleration or otherwise) of (i) all principal and interest due under the Notes
and (ii) all other obligations and liabilities of Borrower to Agent and Lenders
of every nature whatsoever, including all reimbursement obligations, fees, costs
and expenses, arising under or in connection with the Notes, the Credit
Agreement, the Mortgages, the Environmental Indemnity (as such term is defined
in the Credit Agreement) or any other document or instrument evidencing,
securing or otherwise relating to the Loan (the Notes, the Credit Agreement, the
Mortgages and any other document or instrument evidencing, securing or otherwise
relating to the Loan being referred to collectively as the "Loan Documents"),
and Guarantor further agrees to pay any and all expenses which may be incurred
by Agent or Lenders in collecting any or all of the obligations of Guarantor
under this Guaranty and/or enforcing any rights under this Guaranty. The
obligations and liabilities of Guarantor to Agent and Lenders under (i) and (ii)
above are referred to collectively in this Guaranty as the "Guaranteed
Obligations."
Guarantor agrees that whenever at any time or from time to time it
shall make any payment to Agent hereunder on account of Guarantor's liability
hereunder, it will notify Agent in writing that such payment is made under this
Guaranty for such purpose. No payment or payments made by Borrower or any other
person or received or collected by Agent or Lenders from Borrower or any other
person by virtue of any action or proceeding or any set-off or appropriation or
application at any time or from time to time in reduction of or in payment of
the Guaranteed Obligations shall be deemed to modify, reduce, release or
otherwise affect the liability of Guarantor hereunder which shall,
notwithstanding any such payment or payments, remain liable for the Guaranteed
Obligations until the earlier of (i) the date upon which the Guaranteed
Obligations are paid in full or (ii) the date upon which Guarantor's obligations
under this Guaranty are paid in full.
2. Right of Set-Off. Guarantor irrevocably authorizes Agent and
Lenders upon the occurrence and during the continuance of an Event of Default
(as such term is defined in the Credit Agreement) without notice to Guarantor or
any other guarantor to set off and apply any and all deposits and any other
credits or claims held or owing by Agent or Lenders, as the case may be, to or
for the credit or the account of Guarantor, or any part thereof in such amounts
as Agent or Lenders, as the case may
-2-
<PAGE>
be, may elect, against and on account of the obligations and liabilities of
Guarantor to Agent and Lenders under this Guaranty, whether or not Agent or
Lenders have made any demand for payment and although such obligations,
liabilities and claims may be contingent or unmatured. Agent and Lenders agree
to notify Guarantor promptly of any such set-off and the application made by
Agent or Lenders, as the case may be, provided that the failure to give such
notice shall not affect the validity of such set-off and application.
3. Waiver of subrogation. Notwithstanding anything to the contrary
in this Guaranty, Guarantor hereby irrevocably waives all rights which may have
arisen in connection with this Guaranty to be subrogated to any of the rights
(whether contractual, under the Federal Bankruptcy Code, including Section 509
thereof, under common law or otherwise) of Agent and Lenders against Borrower or
against any collateral security or guarantee or right of offset held by Agent
and Lenders for the payment of the Guaranteed Obligations. Guarantor hereby
further irrevocably waives all contractual, common law, statutory or other
rights of reimbursement, contribution, exoneration or indemnity (or any similar
right) from or against Borrower or any other person which may have arisen in
connection with this Guaranty. So long as the Guaranteed Obligations remain
outstanding, if any amount shall be paid by or on behalf of Borrower to
Guarantor on account of any of the rights waived in this paragraph, such amount
shall be held by Guarantor in trust, segregated from other funds of Guarantor,
and shall, forthwith upon receipt by Guarantor, be turned over to Agent in the
exact form received by Guarantor (duly indorsed by Guarantor to Agent, if
required), to be applied against the Guaranteed Obligations, whether matured or
unmatured, in such order as Agent may determine. The provisions of the first two
sentences of this Paragraph shall survive the term of this Guaranty and the
payment in full of the Guaranteed Obligations.
4. Amendments to Loan Documents; Demands. Guarantor shall remain
obligated under this Guaranty notwithstanding that, without any reservation of
rights against Guarantor and without notice to or further consent by Guarantor,
the Guaranteed Obligations, or the liability of any other party upon or for any
part of the Guaranteed Obligations, may, from time to time, in whole or in part,
be renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by Agent or Lenders, and the Notes, the Credit
Agreement, the Mortgages or any of the other Loan Documents may be amended,
restated, replaced, modified, supplemented or terminated, in whole or in part.
For the purposes of this Guaranty, any reference to the Notes, the Credit
Agreement, the Mortgages or any other Loan Document shall mean such document as
it now exists and as it may be modified, amended, restated, replaced, renewed or
extended from time to time. When making any demand against Guarantor, Agent may,
but shall be under no obligation to, make a
-3-
<PAGE>
similar demand on Borrower or any other guarantor and any failure by Agent to
make any such demand or to collect any payments from Borrower or any other
guarantor shall not relieve Guarantor of any of its liabilities under this
Guaranty and shall not impair or affect the rights and remedies of Agent or
Lenders against Guarantor.
5. Guaranty Absolute and Unconditional; Waivers. Guarantor waives any
and all notice of the creation, renewal, extension or accrual of any of the
Guaranteed Obligations and notice of or proof of reliance by Agent or Lenders
upon this Guaranty or acceptance of this Guaranty. The Guaranteed Obligations
shall conclusively be deemed to have been created, contracted or incurred, or
renewed, extended, amended or waived, in reliance upon this Guaranty. Guarantor
waives diligence, presentment, protest, demand for payment and notice of default
or nonpayment to or upon Borrower with respect to the Guaranteed Obligations.
Guarantor understands and agrees that this Guaranty shall be construed as a
continuing, absolute and unconditional guaranty of payment without regard to (a)
the validity, regularity or enforceability of the Notes, the Credit Agreement,
the Mortgages, any of the Loan Documents or any of the Guaranteed Obligations,
(b) any defense, set-off or counterclaim which at any time may be available to
or be asserted by Borrower against Lenders or (c) any other circumstance
whatsoever which constitutes, or might be construed to constitute, an equitable
or legal discharge of Borrower for the Guaranteed Obligations, or of Guarantor
under this Guaranty, in bankruptcy or in any other instance, except for payment
in full of such Guaranteed Obligations. Guarantor waives any right to require
Agent or Lenders to proceed against any collateral security in any manner which
would preserve any right of subrogation which Guarantor might have against
Borrower and also waives any defense arising from any action by Agent or Lenders
which may limit or affect adversely any such right of subrogation and any
defense based on any statutory or other limitation of the amount of any
deficiency judgment available to Agent or Lenders after foreclosure or other
proceedings to realize upon any collateral security. When pursuing their rights
and remedies against Guarantor, Agent and Lenders may, but shall be under no
obligation to, pursue such rights and remedies as it may have against Borrower
or any other person or entity or against any collateral security or guaranty for
the Guaranteed Obligations and any failure by Agent or Lenders to pursue such
other rights or remedies or to collect any payments from Borrower or any such
other person or entity or to realize upon any such collateral security or
guaranty, or any release of Borrower or any such other person or entity or any
such collateral security or guarantee, shall not relieve Guarantor of any
liability, and shall not impair or affect the rights and remedies of Agent and
Lenders against Guarantor. This Guaranty shall remain in full force and effect
and be binding in accordance with and to the extent of its terms upon Guarantor
-4-
<PAGE>
until the earlier of (i) the date upon which all the Guaranteed Obligations are
paid in full or (ii) the date upon which Guarantor's Obligations under this
Guaranty are paid in full.
6. Reinstatement. This Guaranty shall continue to be effective, or
be reinstated, as the case may be, if at any time payment, or any part thereof,
of any of the Guaranteed Obligations is rescinded or otherwise must be restored
or returned by Agent or Lenders upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of Borrower, or Guarantor, or upon or as a result
of the appointment of a receiver, intervenor or conservator of, or trustee or
similar officer for, Borrower or Guarantor or substantial part of its property,
or otherwise, all as though such payments had not been made.
7. Subordination. (a) All indebtedness, liabilities and obligations
of Borrower to Guarantor, whether secured or unsecured and whether or not
evidenced by any instrument, now existing or subsequently created or incurred,
are and shall be subordinate and junior in right of payment to the Guaranteed
Obligations.
(b) Guarantor shall not sell, assign or otherwise transfer, in
whole or in part, or create, incur or suffer to exist any security interest,
lien, charge or other encumbrance with respect to any indebtedness, liabilities
or obligations of Borrower to Guarantor or any instrument or document evidencing
or securing the same unless, in any such case, the person or entity to whom such
sale, assignment or transfer is made or the beneficiary of such security
interest, lien, charge or en cumbrance acknowledges the foregoing subordination
and agrees to be bound thereby.
(c) Guarantor shall cause each document or instrument evidencing
or securing any indebtedness, liabilities or obligations of Borrower to
Guarantor to contain a statement or legend to the effect that such indebtedness,
liabilities or obligations are subordinate and junior in right of payment to the
Guaranteed Obligations in the manner and to the extent set forth in this
Guaranty.
(d) Should any payment or distribution or security, or any
proceeds thereof, be collected or received by Guarantor in respect of any
indebtedness, liabilities or obligations of Borrower to Guarantor, and such
collection or receipt is not permitted under the subordination provisions of
this Guaranty, Guarantor shall immediately turn over such payment, distribution
or security or proceeds to Agent, in the form received, and, until so turned
over, the same shall be held in trust by Guarantor as the property of Agent.
-5-
<PAGE>
(e) For purposes of this Guaranty "subordinate and junior in
right of payment" shall mean:
(i) No part of any subordinated indebtedness, liabilities
or obligations shall have any claim to the assets of Borrower on a
parity with or prior to the claim of the Guaranteed Obligations or the
principal amount of the Loan and other amounts due under the Notes,
the Credit Agreement, the Mortgages and the other Loan Documents.
Unless and until the Guaranteed Obligations shall have been fully paid
and satisfied, Guarantor will not take, demand or receive, directly or
indirectly, by set-off, redemption, purchase or in any manner, any
payment or security for the whole or any part of any subordinated
indebtedness, liabilities or obligations, and Guarantor will not
accelerate the scheduled maturities of any amounts owing on account of
such indebtedness, liabilities or obligations or demand payment
thereof; provided that so long as no default or event of default under
the Notes, the Credit Agreement, the Mortgages, this Guaranty or any
other Loan Document exists or would be in existence immediately after
giving effect to such payment, Guarantor may receive currently
scheduled payments on account of such indebtedness, liabilities and
obligations; and
(ii) Guarantor will not enforce or take any action to
enforce or collect any subordinated indebt edness, liabilities or
obligations or any part thereof or to enforce any lien or security
interest securing payment or performance of subordinated indebtedness,
liabilities or obligations or exercise any claims, rights, remedies or
powers in connection with such indebtedness, liabilities or
obligations.
(iii) In the event of:
(A) any distribution, division or application, partial
or complete, voluntary or involuntary, by operation of law or
otherwise, of all or any substantial part of the property, assets
or business of Borrower or the proceeds thereof, to any creditor
or creditors of Borrower or
(B) any liquidation, dissolution or other winding-up
of Borrower or its business or any sale, receivership,
insolvency, reorganization or bankruptcy proceedings, assignment
for the benefit of creditors, arrangement or any proceeding by or
against Borrower for any relief
-6-
<PAGE>
under any bankruptcy, reorganization or insolvency law or laws,
Federal or state, or any law, Federal or state, relating to the
relief of debtors, readjustment of indebtedness, reorganization,
composition or extension or
(C) any indebtedness of Borrower to Guarantor being
declared due and payable prior to its stated maturity or
(D) the indebtedness evidenced by the Notes becoming
or being declared to be due and payable and not being paid in
accordance with its terms,
then and in any such event any payment or distribution of any kind or character,
whether in cash, property or securities which, but for the subordination
provisions contained herein would be payable or deliverable to Guarantor shall
instead be paid over or delivered to Agent for application to payment or
prepayment of the Guaranteed Obligations, and Guarantor shall not receive any
such payment or distribution therefrom unless and until the obligations have
been fully paid and satisfied.
8. Payments. Guarantor hereby agrees that payments under this
Guaranty will be paid to Agent without setoff or counterclaim in U.S. Dollars at
the office of Agent located at 2 World Financial Center, New York, New York
10038.
9. Representations and Warranties. Guarantor represents and warrants
that:
(a) this Guaranty constitutes a legal, valid and binding
obligation of Guarantor enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally;
(b) no litigation, investigation or proceeding of or before any
arbitrator or governmental authority is pending or, to the actual knowledge
of Guarantor, threatened by or against Guarantor or against any of its
properties or revenues (i) with respect to this Guaranty or in any way
relating to the Loan or (ii) which would constitute a Material Adverse
Change; and
(c) Guarantor has filed or caused to be filed all tax returns
required to be filed by it, and has paid all taxes due on said returns or
on any assessments made against it (other than those being contested in
good faith by
-7-
<PAGE>
appropriate proceedings for which adequate reserves have been provided on
its books).
Guarantor agrees that the foregoing representations and warranties shall be
deemed to have been made by Guarantor on the date of each borrowing by Borrower
under the Credit Agreement on and as of such date of borrowing as though made
hereunder on and as of such date.
10. Covenants. Guarantor covenants and agrees that:
(a) Guarantor will not convey, sell, lease, assign, transfer or
otherwise dispose of all or substantially all of its property, business or
assets, or make any material change in the present method of conducting
business.
(b) Guarantor will pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all
its material obligations of whatever nature, except when the amount or
validity is being contested currently in good faith by appropriate
proceedings.
11. Severability. Any provision of this Guaranty which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Guaranty, and any such prohibition
or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
12. No Waiver; Cumulative Remedies. Agent and Lenders will not by
any act, delay, omission or otherwise be deemed to have waived any right or
remedy under this Guaranty or to have acquiesced in any default or event of
default under the Notes, the Credit Agreement, the Mortgages or any of the other
Loan Documents. No failure to exercise, nor any delay in exercising, on the
part of Agent or any Lender, any right, power or privilege under this Guaranty
shall operate as a waiver. A waiver by Agent or any Lender of any right or
remedy under this Guaranty on any one occasion shall not be construed as a bar
to any right or remedy which Agent or Lenders otherwise would have on any future
occasion. The rights and remedies provided to Agent and Lenders are cumulative,
may be exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
13. Waivers and Amendments; Successors and Assigns. None of the terms
or provisions of this Guaranty may be waived, amended or supplemented or
otherwise modified except by a written instrument executed by Guarantor and
Agent. This Guaranty shall be binding upon the successors and assigns of
Guarantor and shall
-8-
<PAGE>
inure to the benefit of Agent and Lenders and each of their successors and
assigns.
14. Governing Law; Submission to Jurisdiction. This Guaranty is made
and delivered in New York, New York, and shall be governed by and construed and
interpreted in accordance with the laws of the State of New York, without regard
to principles of conflict of laws. All judicial actions, suits or proceedings
brought against Guarantor with respect to its obligations, liabilities or any
other matter under or arising out of or in connection with this Guaranty or any
transaction contemplated or for recognition or enforcement of any judgment
rendered in any such proceedings may be brought in any state or federal court of
competent jurisdiction in the City of New York. By execution and delivery of
this Guaranty, Guarantor accepts, generally and unconditionally, the
nonexclusive jurisdiction of such courts and irrevocably agrees to be bound by
any final judgment rendered thereby in connection with this Guaranty or any
transaction contemplated hereby from which no appeal has been taken or is
available. Guarantor irrevocably agrees that all process in any proceeding or
any court arising out of or in connection with this Guaranty may be effected by
mailing a copy thereof by registered or certified mail or any substantially
similar form of mail, postage prepaid, to Guarantor at its address referred to
in Section 15 hereof. Such service shall be effective five days after such
mailing. Guarantor hereby acknowledges that such service will be effective and
binding service in every respect. Guarantor shall not assert that such service
did not constitute effective and binding service within the meaning of any
applicable state or federal law, rule, regulation or the like. Guarantor, Agent
and each Lender hereby irrevocably waives trial by jury and Guarantor hereby
irrevocably waives any objections, including, without limitation, any objection
to the laying of venue or based on the grounds of forum non conveniens which it
now or hereafter may have to the bringing of any such action or proceeding in
any such jurisdiction. Nothing herein shall affect the right of Agent or any
Lender to serve process in any other manner permitted by law or limit the right
of Agent or any Lender to bring any action, suit or proceeding against Guarantor
in the court of any jurisdiction. Guarantor acknowledges that final judgment
against it in any action, suit or proceeding referred to in this Section shall
be conclusive and may be enforced in any other jurisdiction, by suit on the
judgment, a certified or exemplified copy of which shall be conclusive evidence
of the fact and of the amount of Guarantor's indebtedness.
15. Notices. All notices, requests and demands under this Guaranty
shall be in writing and shall be deemed to have been sufficiently given or
served when presented personally, when delivered to an overnight courier service
with guaranteed next business day delivery or, if deposited in the mail, postage
prepaid, certified or registered, addressed to Guarantor at
-9-
<PAGE>
___________________________, 2030 Powersferry Road, Suite 200, Atlanta, Georgia
30339, with a copy to Homestead Village Incorporated, 125 Lincoln Avenue, Santa
Fe, New Mexico 87501, and to Agent at 2 World Financial Center, New York, New
York 10038, Attention: David Schwarz upon the earlier of actual receipt or the
third calendar day after such mailing. Any party may change its address by
notice to the other parties.
16. Limitation on Liability Not Applicable. Any provisions in the
Notes and the other Loan Documents which limit Agent's or Lender's action upon a
default under the Notes to an action of foreclosure and realization on the
collateral encumbered thereby and prohibit any action to recover a deficiency
judgment following foreclosure and realization on the collateral encumbered
thereby, shall not be construed to abrogate or limit any Guarantor's obligations
hereunder.
This Guaranty has been duly executed by the undersigned.
HOMESTEAD ALABAMA INCORPORATED
By: ________________________
Name:
Title:
-10-
<PAGE>
STATE OF ________________ )
:
COUNTY OF _________________ )
I, the undersigned, a notary public in and for said county in said
state, hereby certify that _______________________ _________, whose name as
________________________ of Homestead Alabama Incorporated, a corporation, is
signed to the foregoing instrument, and who is known to me, acknowledged before
me on this day that, being informed of the contents of said instrument, he, as
such officer and with full authority, executed the same voluntarily for and as
the act of said corporation.
Given under my hand and official seal this _____ day of
______________, 1997.
___________________________________
Notary Public
[NOTARIAL SEAL] My commission expires:_____________
<PAGE>
Exhibit A
The Premises
<PAGE>
Exhibit 15
October 29, 1997
Board of Directors and Shareholders
Homestead Village Incorporated
We are aware of the incorporation by reference in the Registration
Statements (Form S-8, No. 333-17243 and 333-17245) pertaining to the Homestead
Village Incorporated 1996 Long-Term Incentive Plan and Homestead Village
Incorporated 1996 Outside Directors Plan and the Registration Statement
(Form S-3) pertaining to the offering of common stock of our report dated
October 29, 1997 relating to the unaudited condensed interim financial
statements of Homestead Village Incorporated that are included in its Form 10Q
for the quarter ended September 30, 1997.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a
part of the registration statements prepared or certified by accountants within
the meaning of Section 7 or 11 of the Securities Act of 1933.
Ernst & Young LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,053,000
<SECURITIES> 0
<RECEIVABLES> 2,643,000
<ALLOWANCES> 24,000
<INVENTORY> 0
<CURRENT-ASSETS> 8,631,000
<PP&E> 546,630,000
<DEPRECIATION> 14,117,000
<TOTAL-ASSETS> 630,324,000
<CURRENT-LIABILITIES> 78,474,000
<BONDS> 0
0
0
<COMMON> 254,000
<OTHER-SE> 291,615,000
<TOTAL-LIABILITY-AND-EQUITY> 630,324,000
<SALES> 0
<TOTAL-REVENUES> 41,250,000
<CGS> 0
<TOTAL-COSTS> 36,188,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,483,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,483,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,483,000
<EPS-PRIMARY> .22
<EPS-DILUTED> .14
</TABLE>
