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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
--------------------------
EVANS WITHYCOMBE RESIDENTIAL, L.P.
(Exact name of registrant as specified in its charter)
Delaware 86-0766007
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
6991 East Camelback Road, Suite A-200
Scottsdale, Arizona 85251
(Address of principal executive offices)
(602) 840-1040
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
------------------- ------------------------------
Not applicable Not applicable
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of Class
--------------
Partnership Interests ("Units")
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ITEM 1. BUSINESS
Evans Withycombe Residential, L.P. (the "Operating Partnership") is one
of the largest developers and managers of upscale apartment communities in
Arizona and is expanding its operations into selected sub-markets in Southern
California. The Operating Partnership's property portfolio consists of
stabilized properties and properties under construction and in lease-up. The
Operating Partnership owns and manages 44 stabilized multifamily apartment
communities located in Arizona and five stabilized multifamily communities in
Southern California, containing a total of 13,905 apartments, of which 12,005
are in Arizona and 1,900 are in Southern California. The 49 stabilized
communities in Arizona and California are referred to herein as the
"Stabilized Communities." The Operating Partnership is also in the process of
developing or expanding five apartment communities in Arizona with a total of
1,078 apartments (the "Communities Under Construction" and, together with the
Stabilized Communities, the "Communities"). The Operating Partnership
considers a property stabilized when it reaches 93% physical occupancy. The
Operating Partnership has also entered into agreements to purchase an
additional two apartment communities in Southern California with an aggregate
of 498 apartment units. The Operating Partnership owns sites intended for
the development of four additional multifamily apartment communities, which,
if completed, are expected to contain approximately 1,115 apartments.
ORGANIZATION STRUCTURE
The general partner of the Operating Partnership, Evans Withycombe
Residential, Inc. (the "Company"), operates as a self-administered and
self-managed real estate investment trust (a "REIT"). All of the Communities
and substantially all other assets of the Company are held by, and
substantially all of the Company's operations are conducted through, the
Operating Partnership (either directly or through subsidiaries). The Company
is the sole general partner and also a limited partner of the Operating
Partnership and owns an approximately 79.7% interest therein at December 31,
1996. To maintain the Company's qualification as a REIT while realizing
income from its fee management and related service business, the Company's
management operations are conducted through Evans Withycombe Management, Inc.
(the "Management Company") pursuant to the terms of management agreements
with the Operating Partnership and Evans Withycombe Finance Partnership, L.P.
(the "Financing Partnership").
In August 1994, the Company completed an initial public offering of
8,685,000 shares of its common stock (the "Initial Public Offering"), and
subsequently completed the sale of an additional 1,302,750 shares of common
stock upon exercise of the underwriters' over-allotment option. Concurrent with
completing the Initial Public Offering, the Company engaged in various formation
transactions designed to transfer the ownership of the Communities and certain
development rights and the business of the Company's predecessor, Evans
Withycombe, Inc., and its affiliates, predecessors and partners (collectively,
"Evans Withycombe") and other assets to the Operating Partnership. In May 1996
the Company completed a second public offering of 2,000,000 shares of its common
stock (an additional 2,500,000 shares were sold by two institutional
stockholders) and an additional 88,889 shares pursuant to the partial exercise
of the underwriters' over-allotment option (111,111 additional shares were sold
by the institutional
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stockholders pursuant to such exercise). The net proceeds to the Company
from the public offering of approximately $41 million were used to pay down
the Company's revolving credit facility.
The Operating Partnership's principal executive office is located at
6991 East Camelback Road, Suite A-200, Scottsdale, Arizona 85251, and its
telephone number is 602-840-1040.
OPERATING PARTNERSHIP ADVANTAGES
The Operating Partnership believes that the following factors have
accounted for the Operating Partnership's success and will continue to
contribute to the Operating Partnership's prospects for future growth:
- REGIONAL FOCUS. The Operating Partnership has focused on becoming a
major presence in each of its markets, allowing it to capitalize on
its superior customer service, product design and property locations
while establishing and maintaining a strong brand identity. The
Operating Partnership seeks to operate in markets where population and
employment growth rates are expected to exceed the national averages
and where it believes it can become one of the regionally significant
owners and managers of multifamily apartment properties.
ARIZONA. The Operating Partnership's size and prominence in its
primary Arizona markets provide it with a number of competitive
advantages, including superior market knowledge resulting in
choice site selection, superior employee training and retention,
product differentiation, economies of scale in operations and the
ability to utilize specialized marketing techniques.
CALIFORNIA. After conducting an extensive study of a number of
potential markets within its region, the Operating Partnership
has determined that certain selected sub-markets in
Riverside/San Bernardino and San Diego, California present
significant opportunities for growth and attractive investment
opportunities. The Operating Partnership has acquired 1,900
units in these markets and believes that properties continue to
be available for purchase in such markets at prices below
replacement costs which could result in attractive yields and
growth for the Operating Partnership.
- PROPERTY LOCATIONS. The Communities are located in growing
sub-markets in Phoenix and Tucson, Arizona and in Riverside/San
Bernardino, California. The Communities are in submarkets close to
areas of employment, transportation and shopping, principally in
"in-fill" areas and master planned communities.
- REPUTATION FOR QUALITY. As a long-term investor, the Operating
Partnership develops its communities for long term value. The
properties developed by the Operating Partnership share an innovative
design approach characterized by high-quality construction,
architectural detail, attractive landscaping, extensive amenities and
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interior features. Similarly, in seeking acquisition properties, the
Operating Partnership identifies properties which after refurbishment
meet the same standards. The Operating Partnership's reputation for
quality in its markets has led to success in obtaining development
entitlements and brand name identification in its primary markets.
- EXPERIENCED MANAGEMENT IN FULLY-INTEGRATED ORGANIZATION. With an
average of over 18 years in the multifamily apartment business, the
Operating Partnership's executive management team has extensive
development, construction, acquisition, refurbishment, marketing and
property management experience, and has gained in-depth knowledge of
the multifamily apartment industry and in the Operating Partnership 's
markets. Of the Stabilized Communities, the Operating Partnership has
developed 19 new properties and 9 expansions to existing properties
consisting of 5,682 apartments. It has acquired and refurbished 30
properties consisting of 8,223 apartments.
- WELL-TRAINED WORKFORCE. The Operating Partnership believes that
employee training and retention has been integral to its success. The
Operating Partnership conducts numerous training sessions throughout
the year and prides itself on the quality and experience of its
employees. The Operating Partnership's size and concentration provide
qualified employees with opportunities for advancement within the
Operating Partnership and contribute to employee retention. The
Operating Partnership believes employee stability enhances customer
service, operating efficiency and productivity.
- SERVICE-ORIENTED PHILOSOPHY. The Operating Partnership will continue
its tradition of focusing on extensive resident amenities and customer
service designed to maintain high occupancy, premium rental rates and
low resident turnover. By providing efficient service and soliciting
customer feedback, the Operating Partnership believes it maintains a
high level of customer satisfaction which results in lower turnover
and more frequent rental referrals by existing residents. Emphasizing
product differentiation and customer service, the Operating
Partnership has created and continues to strengthen its brand image in
its primary markets.
The above statements regarding the Operating Partnership's expectations and
projections of population and employment growth rates and household formations,
and the availability of properties for purchase are forward-looking and involved
risks and uncertainties beyond the Operating Partnership's control. No assurance
can be given that actual results will meet such expectations and projections.
OVERVIEW
The Operating Partnership's portfolio consists of Stabilized Communities
and Communities Under Construction:
- STABILIZED COMMUNITIES. The Operating Partnership owns and manages 44
Stabilized Communities located in the Phoenix and Tucson, Arizona
areas, containing a total of
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12,005 apartments. In addition, the Operating Partnership owns and
manages five Stabilized Communities in the Riverside/San Bernardino,
California region, which contain a total of 1,900 apartments.
- COMMUNITIES UNDER CONSTRUCTION AND IN LEASE-UP. The Operating
Partnership owns five apartment Communities Under Construction and in
Lease-Up in Arizona with a total of 1,078 apartments. Three of these
Communities were new developments and two were expansions of existing
Communities owned by the Operating Partnership.
GROWTH STRATEGY
The Operating Partnership intends to grow by improving cash flow from
existing properties through intensive management, focusing on resident
satisfaction and retention, increasing rents and maintaining high community
occupancy levels and controlling operating expenses. The Operating
Partnership's strategy is also to grow through development and acquisition of
multifamily properties which will provide both favorable initial returns and
long-term growth prospects.
- GROWTH FROM EXISTING PROPERTIES. The Operating Partnership believes
that cash flow from existing properties will improve as supply and
demand of apartment units stabilize in Tucson and certain Phoenix
sub-markets, rising rents in the San Bernardino/Riverside market, and
through the Operating Partnership's property management programs.
The property management team for each apartment community includes
on-site management and maintenance personnel. The property management
teams perform leasing and rent collection functions and coordinate
resident services. All personnel are extensively trained and are
encouraged to continue their education through both Company-sponsored
and outside training. Property management personnel utilize
state-of-the-art on-site computer management systems to assist in the
timely leasing of vacant apartments, collection of rents, maintenance
management and delivery of services to the apartment residents.
The focus of the Operating Partnership's on-site management program is
on providing prompt, courteous and responsive service to its residents.
The Operating Partnership believes that a strong resident retention
program which emphasizes customer service reduces the Operating
Partnership's turnover rate and encourages residents to refer new
customers. The Operating Partnership solicits resident feedback and
responds to maintenance requests on a same day basis and provides
24 hour a day emergency maintenance services.
The Operating Partnership conducts periodic capital and preventative
maintenance programs at each Community. In addition, periodic
preventive maintenance checks are made in each apartment, pursuant to
which appliances, heating and cooling systems and apartment interiors
are inspected and serviced as necessary. The Operating Partnership
believes that these programs lower operating costs over the life of the
Communities, increase the long-term value and maintain the upscale
market position of the Communities.
- DEVELOPMENT STRATEGY. The Operating Partnership seeks to develop
properties in markets where it discerns a strong demand, which the
Operating Partnership anticipates will enable it
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to achieve attractive rates of return. Projects currently under
construction and the number of Communities stabilized since the
Initial Public Offering are specific examples of the Operating
Partnership's implementation of its growth strategy through
development.
The Operating Partnership develops its Communities in markets where
resident profiles justify the development of high quality
apartments offering extensive amenities and services. In
evaluating whether to develop an apartment community in a
particular location, the Operating Partnership analyzes relevant
demographic, economic and financial data. Specifically, the
Operating Partnership considers the following factors, among
others, in determining the viability of a potential new apartment
community: (i) income levels and employment growth trends in the
relevant market, (ii) uniqueness of location, (iii) household
growth and net migration of the relevant market's population, (iv)
supply/demand ratio, competitive housing alternatives, sub-market
occupancy and rent levels and (v) barriers to entry that would
limit competition. The Operating Partnership currently intends to
develop apartment communities in select sub-markets in Phoenix and
intends to develop communities in its California markets when
market conditions warrant. Based on currect market conditions and
until such time as market conditions warrant, the Operating
Partnership intends to discontinue development in its Tucson market
upon completion and stabilization of the two current Tucson projects.
- ACQUISITION STRATEGY. The Operating Partnership believes that it is
well positioned to take advantage of market timing opportunities in
certain Southern California markets, including Riverside/San
Bernardino and San Diego, which will permit it to acquire existing
apartment properties at favorable prices. The Operating Partnership
focuses on properties with below market occupancies and rents, so that
it can benefit both from property repositioning and market
improvements. The target acquisition properties will often be
under-managed, but fundamentally sound properties. Improvements to
landscaping, recreational amenities and apartment interiors, coupled
with more effective management and marketing, may result in
significant revenue increases over revenue levels at the time of
acquisition. Such repositioning may require substantial expenditures
for capital improvements, refurbishments and marketing.
The Operating Partnership believes that the Company's status as a
publicly traded REIT will enhance the Operating Partnership's ability
to acquire properties or development sites by providing property
sellers a means to defer federal income taxes on gains through the use
of units of partnership interest in the Operating Partnership ("Units")
as consideration for the acquisition. Units were utilized in the
acquisition of Acacia Creek in the first quarter of 1995 and The Ashton
in the fourth quarter of 1995. In addition, the Company's access to the
capital markets allows for additional financing flexibility for
acquisitions.
- DISPOSITION STRATEGY. The Operating Partnership may, from time to
time, elect to sell certain of its properties or exchange such
properties for other properties in a tax-free exchange when it
believes that such resources could be better allocated elsewhere.
- THIRD PARTY FEE MANAGEMENT BUSINESS. The Operating Partnership
succeeded to the third party property management activities of its
predecessor. Although it contributes a small part of the Operating
Partnership's revenues, the Management Company continues to manage
multifamily properties owned by third parties. The fee management
business is highly competitive and fragmented. The Operating
Partnership's competitors include a variety of local, regional and
national firms with no one firm controlling a significant market share
in the
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Operating Partnership's markets. The Operating Partnership will take
advantage of its reputation and experience as a property manager and
accept property management assignments that it expects to be profitable
and which fit well with the Operating Partnership's property portfolio.
The Operating Partnership's growth strategies stated above include estimates and
forward-looking statements and prospects regarding, among other things, the
stability of occupancy and rent levels in the Operating Partnership's markets
and its ability to acquire existing apartment communities at favorable prices.
This forward-looking information involves risks and uncertainties that could
significantly impact the Operating Partnership's ability to successfully
implement these strategies. Among the factors that could cause actual results
to differ materially from the forward-looking statements above are: the timing
of the Operating Partnership's acquisitions and planned development of new, and
expansion of existing, communities; the actual costs associated with such
acquisitions and developments; the demand for apartments in its markets; the
strength of the local economies; and the Operating Partnership's ability to
successfully expand its operations into Southern California, a market in which
it did not have any operating experience prior to 1995.
COMMUNITIES
The Operating Partnership's goal is for each Community to be a market
leader in its property type and geographical sub-market. Each Community is
individually designed to suit the specific site characteristics and anticipated
needs and desires of the residents. The design and construction of the
Communities attempt to integrate with and respect the natural surroundings and
architectural character of the neighborhood. The Communities are landscaped to
create an inviting atmosphere starting with the first approach to the
properties. Landscaping is designed to complement the building architecture,
and provide residents with attractive open spaces. The objectives of the site
layout and building design are to provide residents with premium views,
convenient parking, easy access to amenities and a comfortable living
environment. After completion of the Communities Under Construction, the
average age of the Communities will be seven years.
COMPETITION
The Communities are located in areas that include other apartment
communities and that may include new apartment communities that are under
construction. The number of competitive communities in a particular area could
have an effect on the Operating Partnership's ability to lease apartments at the
Communities or at any newly developed or acquired properties and on the rents
charged by the Operating Partnership. Also, other forms of housing provide
alternatives to potential residents of high quality apartment complexes like
the Communities.
ENVIRONMENTAL MATTERS
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real estate may be
required to investigate and clean up hazardous or toxic substances or petroleum
product releases at such property, and may be held
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liable to a governmental entity or to third parties for property damage and
for investigation and clean-up costs incurred by such parties in connection
with the contamination.
The Operating Partnership believes that the Communities are in compliance
in all material respects with all federal, state and local laws, ordinances and
regulations regarding hazardous or toxic substances or petroleum products. The
Operating Partnership has not been notified by any governmental authority, and
is not otherwise aware, of any material noncompliance, liability or claim
relating to hazardous or toxic substances or petroleum products in connection
with any of its present properties.
EMPLOYEES
As of January 15, 1997, the Operating Partnership, primarily through the
Management Company, employed, in the aggregate, a total of 583 persons. The
Management Company and/or the Operating Partnership employ substantially all of
the professional employees that are currently engaged in the residential
property management, development and construction businesses of the Company.
The Operating Partnership believes that its relations with its employees are
good.
REGULATION
Apartment communities are subject to various laws, ordinances and
regulations, including laws, ordinances and regulations related to fair housing,
Americans with disabilities and building safety. The Operating Partnership
believes that each Community has the necessary permits and approvals to operate
its business and that each Community is in material compliance with present
laws, ordinances and regulations.
SEASONALITY
The fall and winter months in the Operating Partnership's primary markets
generally experience somewhat higher seasonal occupancies.
ITEM 2. FINANCIAL INFORMATION
The following table sets forth certain financial and operating data on a
consolidated basis for the Operating Partnership and on a combined historical
basis for Evans Withycombe. The following information should be read in
conjunction with all of the consolidated financial statements and notes thereto
included elsewhere in this Form 10.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992
(Amounts in thousands, except per unit and property information)
<S> <C> <C> <C> <C> <C>
OPERATING INFORMATION:
REVENUES:
Rental $94,350 $68,864 $51,097 $38,613 $26,876
Third party management fees 1,157 1,268 1,668 2,213 2,204
Interest and other 6,119 4,399 4,194 3,112 2,373
------------------------------------------------
Total revenues 101,626 74,531 56,959 43,938 31,453
EXPENSES:
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Repairs and maintenance 11,607 8,293 6,288 4,730 3,272
Other property operating 12,713 8,699 7,834 6,593 4,684
Advertising 1,864 1,244 966 1,022 783
Real estate taxes 6,915 4,723 3,204 2,869 2,307
Property management 3,225 2,825 2,505 2,605 2,417
General and administrative 1,387 1,321 1,175 1,466 1,360
Interest 24,225 12,650 7,836 6,361 5,909
Depreciation and amortization 20,885 13,762 10,333 10,319 7,146
Write-down of real estate assets(1) - - - 1,361 10,284
Other(2) - - 5,233 - -
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Total expenses 82,821 53,517 45,374 37,326 38,162
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Income (loss) before minority 18,805 21,014 11,585 6,612 (6,709)
interest and extraordinary item
Minority interest(3) (75) (89) (42) - -
Extraordinary item-gain on - - - 6,061 12,569
extinguishment of debt(1)
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Net income $18,730 $20,925 $11,543 $12,673 $5,860
------------------------------------------------
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Earnings per unit(4) $0.84 $ 1.02
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Earnings per unit for the period
August 17 to December 31, 1994
(4) $ 0.38
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-------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
----------------------------------------------------------------
(Amounts in thousands, except per unit and property information)
<S> <C> <C> <C> <C> <C>
OTHER INFORMATION:
Cash flows from:
Operating activities $38,721 $36,983 $21,998 $20,897 $13,271
Investing activities (129,461) (118,061) (211,651) (79,511) (61,829)
Financing activities 89,674 82,273 189,614 57,417 50,792
Total rental communities (end
of period) 49 41 32 31 27
Total number of apartments
(end of period) 13,905 11,053 7,924 7,695 6,502
Physical occupancy (end of
period)(5) 93% 96% 97% 97% 97%
Weighted average number of
apartments(6) 12,887 9,798 7,740 6,641 4,998
Weighted average monthly revenue
per unit(7) $715 $641 $586 $532 $498
</TABLE>
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<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994 1993 1992
---------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation $761,550 $587,183 $399,987 $292,513 $215,549
Total assets 735,467 579,564 402,486 271,055 204,836
Total debt 436,172 297,456 127,787 106,545 64,792
Minority interest 827 889 1,247 - -
Equity $283,954 $259,055 $253,867 $142,886 $122,135
</TABLE>
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(1) During 1993, the Operating Partnership negotiated a discounted
payoff of a mortgage loan secured by The Meadows and Promontory Pointe
(1992). The excess of the amounts owed for principal and interest over
the amount paid to pay off the loan is recorded as an extraordinary
item-gain on extinguishment of debt. The Operating Partnership
determined that the carrying values of the communities were in excess of
net realizable value. The excess of $1,361 and $10,284 was charged to
write down of real estate assets.
(2) In connection with the repayment of existing indebtedness at the time of
the Initial Public Offering, prepayment penalties and lender
participation (additional interest) totaling $2,594 were paid. Prior to
the Initial Public Offering, an Executive Incentive Deferred
Compensation Plan was canceled and the $2,639 that was funded by the
Operating Partnership was expensed during 1994.
(3) Net income includes an adjustment for Evans Withycombe Finance, Inc.'s
one percent interest in the Financing Partnership for the years ended
December 31, 1996 and 1995 and the period from August 17 to December 31,
1994, respectively.
(4) Net income per Unit is based on 22,184,395, 20,590,873 and 20,086,884
weighted average number of Units outstanding for the years ended
December 31, 1996 and 1995 and the period from August 17 to December 31,
1994, respectively.
(5) Physical Occupancy is defined as the number of apartments occupied or
leased (including models and employee apartments) divided by the total
number of leaseable apartments within the community, expressed as a
percentage. Physical occupancy has been calculated using the average of
the occupancy that existed on the last day of each month over each
period.
(6) Weighted average number of apartments is the average of all apartments
during the period. For stabilized properties, all apartments are
included in the calculation of the weighted average. For communities in
the lease-up phase, only apartments that are completed and occupied are
included in the weighted average calculation.
(7) Weighted average monthly revenue per apartment is derived by dividing
rental income by the weighted average number of apartments.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except apartment data)
OVERVIEW
The following discussion, which is based primarily on the consolidated
financial statements of Evans Withycombe Residential, L.P. and the combined
financial statements of its predecessor, should be read in conjunction with
the "Selected Financial Data" and all financial statements appearing
elsewhere in this Registration Statement on Form 10. The consolidated
financial statements of the Operating Partnership consist of the
Stabilized Communities, Communities Under Construction and in
Lease-up and the Management Company.
When used in the following discussion, the words "believes,"
"anticipates," "expects" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially from
those projected, including, but not limited to, the actual timing of the
Operating Partnership's planned acquisitions and developments, the strength
of the local economies in the sub-markets in which the Operating Partnership
operates, and the Operating Partnership's ability to successfully manage its
planned expansion into Southern California. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as
of the date hereof. The Operating Partnership undertakes no obligation to
publicly release any revisions to these forward-looking statements which may
be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS - CONSOLIDATED FINANCIAL STATEMENTS
The results of operations for the years ended December 31, 1996 and 1995,
respectively, were significantly affected by acquisitions, developments and
expansions.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996
TO THE YEAR ENDED DECEMBER 31, 1995
YEAR ENDED
DECEMBER 31,
------------------------- PERCENTAGE
1996 1995 CHANGE
--------- ---------- -----------
Rental income $ 94,350 $68,864 37.0%
Third party management fees 1,157 1,268 (8.8)
Interest and other 6,119 4,399 39.1
-------- ------- -----
Total revenues 101,626 74,531 36.4
Property operating and maintenance (1) 26,184 18,236 43.6
Real estate taxes 6,915 4,723 46.4
Property management 3,225 2,825 14.2
General and administrative 1,387 1,321 5.0
Interest 24,225 12,650 91.5
Depreciation and amortization 20,885 13,762 51.8
-------- ------- -----
Total expenses 82,821 53,517 54.8
-------- ------- -----
Income before minority interest $ 18,805 $21,014 (10.5)%
-------- -------
-------- -------
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Weighted average monthly rental revenue per unit $ 715 $ 641
------- ------
------- ------
Weighted average number of apartments 12,887 9,798
------- ------
------- ------
Economic occupancy (2) 90.0% 91.6%
------- ------
------- ------
- -----------
(1) The Operating Partnership defines property operating and maintenance
expense as repairs and maintenance, other property operating and advertising
expense.
(2) Stabilized properties only.
Rental revenues increased by $25,486 or 37.0 percent for the year ended
December 31, 1996 as compared to the similar period in 1995, respectively as
a result of increases in the weighted average number of apartments and
weighted average monthly revenue per occupied apartment. The Operating
Partnership believes that the increase in rental income was largely
attributable to the acquisitions and stabilization of properties developed by
the Operating Partnership in its rental markets.
Third party management fees decreased $111 or 8.7 percent due to the sale
of several properties from the management portfolio. Included in third party
management fees is a non recurring $500 fee received in exchange for
terminating the management contract on nine apartment communities containing
1298 apartment units in the second quarter 1996.
Interest and other income increased $1,720 for the year ended
December 31, 1996 compared to the year ended December 31, 1995 as a result of
the sale of telephone servicing rights on certain properties and an increase
in ancillary income such as redecoration and application fees as a result of
the increase in the weighted average number of apartments.
Property operating and maintenance expense increased due to the increase
in the weighted average number of apartments for the year ended December 31,
1996 as compared to the same period in 1995, respectively. Real estate taxes
increased primarily due to the increase in the number of properties for the
year ended December 31, 1996.
Interest expense increased due to an increase in debt resulting from
acquisitions and the increase in weighted average number of units in the
portfolio. The Operating Partnership capitalized $2,714 of interest for the
year ended December 31,1996 compared to $5,048 for the year ended December
31, 1995 due to a decrease in construction activity. Interest costs incurred
during construction of a new property are capitalized until completion of
construction on a building-by-building basis.
"SAME STORE" PORTFOLIO
The Operating Partnership defines same store portfolio as those
communities that reached stabilized occupancy prior to January 1, 1995.
Same store portfolio consists of 32 stabilized properties containing 7,924
apartment units that were owned by the Operating Partnership for the years
ended December 31, 1996 and 1995.
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YEAR ENDED
DECEMBER 31,
------------------------- PERCENTAGE
1996 1995 CHANGE
--------- ---------- -----------
Rental income $55,074 $55,202 (.2)%
Other income 3,296 2,581 27.7
------- ------- ------
58,370 57,783 1.0
Property operating and maintenance 16,134 14,619 10.4
Real estate taxes 3,995 3,906 2.3
------- ------- ------
20,129 18,525 8.7
------- ------- ------
Property net operating income $38,241 $39,258 (2.6)%
------- ------- ------
------- ------- ------
Weighted average monthly rental
revenue per unit $ 654 $ 638
------- -------
------- -------
Economic occupancy 89.7% 91.1%
------- -------
------- -------
Rental income for the year ended December 31, 1996 was comparable with
the same period in 1995 as a result of the increase in the weighted average
monthly rental revenue per unit being offset by a decline in the average
economic occupancy during the year ended December 31, 1996 as compared to the
year ended December 31, 1995. Other income for the year ended December 31,
1996 increased as a result of gains from the sale of telephone servicing
rights at various communities.
Property operating and maintenance expense increased $1,515 or 10.4
percent over 1995 due to higher apartment turnover and utility costs
associated with an increased number of vacant apartments and higher
advertising costs incurred by the Operating Partnership in its "same store"
portfolio.
COMMUNITIES STABILIZED LESS THAN TWO YEARS
Communities stabilized less than two years consist of the development of
five new apartment communities and the expansion of two existing apartment
communities by the Operating Partnership, containing 1,521 apartment units
that reached stabilized occupancy during the year ended December 31, 1995.
Increases in the year ended December 31, 1996 as compared to the year ended
December 31, 1995 are the result of the increase in the weighted average
number of apartments.
YEAR ENDED DECEMBER 31,
----------------------
1996 1995
-------- -------
Rental income $12,606 $7,113
Other income 680 541
------- ------
13,286 7,654
Property operating and maintenance 2,532 1,734
Real estate taxes 1,011 407
------- ------
3,543 2,141
------- ------
Property net operating income $9,743 $5,513
------- ------
------- ------
Weighted average number of apartments 1,521 888
------- ------
------- ------
-13-
<PAGE>
DEVELOPMENT AND LEASE UP PROPERTIES
Development and lease up properties consist of the development of 13 new
apartment communities or the expansion of existing apartment communities
containing 2,522 apartment units that were in the "construction,"
"development" or "lease up" stage during 1996 and therefore, not considered
to have achieved stabilized occupancy for all of the periods presented.
Increases in the year ended December 31, 1996 as compared to the year ended
December 31, 1995 are the result of an increase in the weighted average
number of apartments.
YEAR ENDED
DECEMBER 31,
-------------------
1996 1995
------ ------
Rental income $11,276 $1,281
Other income 720 128
------ ------
11,996 1,409
Property operating and maintenance 3,203 700
Real estate taxes 790 30
------ ------
3,993 730
------ ------
Property net operating income $ 8,003 $ 679
------ ------
------ ------
Weighted average number of
apartments in lease-up 1,398 174
------ ------
------ ------
ACQUISITIONS
Acquisitions consist of eight properties containing 3,016 apartment
units, which have been acquired by the Operating Partnership since January 1,
1995. Increase in the year ended December 31, 1996, as compared to the year
ended December 31, 1995, are the result of the increase in the weighted
average number of apartments.
YEAR ENDED
DECEMBER 31,
-------------------
1996 1995
------ ------
Rental income $15,394 $5,268
Other income 727 193
------- ------
16,121 5,461
Property operating and maintenance 4,315 1,183
Real estate taxes 1,119 380
------- ------
5,434 1,563
------- ------
Property net operating income $10,687 $3,898
------- ------
------- ------
Weighted average number of apartments 2,044 769
------- ------
------- ------
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 TO
THE YEAR ENDED DECEMBER 31, 1994
YEAR ENDED
TOTAL PORTFOLIO DECEMBER 31,
------------------------- PERCENTAGE
1995 1994 CHANGE
--------- ---------- -----------
Rental income $68,864 $51,097 34.8%
Third party management fees 1,268 1,668 (24.0)%
Interest and other 4,399 4,194 4.9%
------- ------- -----
74,531 56,959 30.9%
-14-
<PAGE>
Property operating and maintenance 18,236 15,088 20.9%
Real estate taxes 4,723 3,204 47.4%
Property management 2,825 2,505 12.8%
General and administrative 1,321 1,175 12.4%
Interest 12,650 7,836 61.4%
Depreciation and amortization 13,762 10,333 33.2%
Other - 5,233 -
------ ------ -----
53,517 45,374 17.9%
------ ------ -----
Income before minority interest $21,014 $11,585 81.4%
------ ------ -----
------ ------ -----
Weighted average number of apartments 9,798 7,740
------ ------
Economic occupancy 91.6% 92.3%
------ ------
------ ------
Rental revenues increased by $17,767 or 34.8 percent as a result of
increases in the weighted average number of apartments and weighted average
monthly revenue per occupied apartment. The Operating Partnership believes
that the increase in rental income, other than that attributable to the
acquisitions and developments, was achieved as a result of the Operating
Partnership's ability to capitalize on continuing improvement in the
Operating Partnership's rental markets.
The decrease in third party management fees of $400, a 24.0 percent
decrease from the 1994 period, is due to the sale of several properties from
the management portfolio, including 508 units which the Operating Partnership
purchased.
Property operating and maintenance expense increased $3,148 or 20.9
percent (versus a 26.6 percent increase in the weighted average number of
units) due to the increase in the number of properties. Real estate taxes
increased $1,519 or 47.4 percent (versus a 26.6 percent increase in the
weighted average number of units) primarily due to the increase in the number
of properties and higher values placed on properties due to improved market
conditions.
Property management expense increased $320 or 12.8 percent due to the
increase in the number of properties under management.
Interest expense increased $4,814 or 61.4 percent due to an increase in
debt resulting from acquisitions and more units under construction. The
Operating Partnership capitalized $5,048 of interest in 1995 compared to
$2,724 in 1994 due to an increase in construction activity. Interest costs
incurred during construction of a new property is capitalized until
completion of construction on a building-by-building basis.
"SAME STORE" PORTFOLIO
In 1995, the Operating Partnership defined the same store portfolio as
those communities that reached stabilization prior to January 1, 1994.
Same store portfolio consists of 30 stabilized operating properties
containing 7,559 apartment units that were owned by the Operating Partnership
for the years ended December 31, 1995 and 1994.
-15-
<PAGE>
YEAR ENDED
DECEMBER 31,
------------------------- PERCENTAGE
1995 1994 CHANGE
--------- ---------- -----------
Rental income $52,940 $49,712 6.5%
Other income 2,568 3,180 (19.2)%
------- ------- -----
55,508 52,892 4.9%
Property operating and maintenance 14,213 14,589 (2.6)%
Real estate taxes 3,671 3,180 15.4%
------- ------- -----
17,884 17,769 .6%
------- ------- -----
Property net operating income $37,624 $35,123 7.1%
------- ------- -----
------- ------- -----
Weighted average monthly rental
revenue per unit $638 $586
------- -------
------- -------
Economic occupancy 91.5% 92.5%
------- -------
------- -------
Rental income for the year ended December 31, 1995 increased $3,228 or
6.5 percent as a result of an increase in the weighted average monthly
revenue per occupied unit which increased $52 or 8.9 which was partially
offset by a decline in the average economic occupancy from 92.5 percent
during the year ended December 31, 1994 and 91.5 percent during the year
ended December 31, 1995.
Property operating and maintenance expense decreased $376 or 2.6 percent
due to the Operating Partnership beginning to realize economies of scale from
consolidated operations of the integrated property portfolio.
Real estate taxes increased $491 or 15.4 percent due to higher values
placed on properties due to improved market conditions and property values.
DEVELOPMENT AND LEASE UP PROPERTIES
Development properties consist of 15 developments or expansion of
existing properties containing 2,878 apartment units that have been developed
by the Operating Partnership since the Initial Public Offering in August
1994. Increases in 1995 as compared to 1994 are the result of development
units stabilized or in lease-up increasing to 15 properties and 2,878
apartment units in 1995 as compared to three properties and 661 apartment
units in 1994.
DECEMBER 31,
-------------------
1995 1994
------- -------
Rental income $9,766 $1,248
Other income 636 84
------- -------
10,402 1,332
Property operating and maintenance 2,604 459
Real estate taxes 560 18
------- -------
3,164 477
------- -------
Property net operating income $7,238 $ 855
------- -------
------- -------
ACQUISITIONS
Acquisitions consist of five properties containing 1,756 apartment units
which have been acquired by the Operating Partnership since the Initial
Public Offering in August 1994. Increases
-16-
<PAGE>
in 1995 as compared to 1994 are the result of acquiring four properties in
1995 consisting of 1,608 apartment units compared to one property consisting
of 148 apartment units in 1994.
DECEMBER 31,
-------------------
1995 1994
------- -------
Rental income $6,158 $137
Other income 239 5
------- -------
6,397 142
Property operating and maintenance 1,419 40
Real estate taxes 492 6
------- -------
1,911 46
------- -------
Property net operating income $4,486 $ 96
------- -------
------- -------
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
The Operating Partnership's net cash provided by operating activities
increased from $37.0 million for the year ended December 31, 1995 to $38.7
million for the year ended December 31, 1996 principally due to increased
rental operations from additional properties acquired and developed
subsequent to December 31, 1995. Net cash used in investing activities
increased from $118.1 million for the year ended December 31, 1995 to $129.5
million for the year ended December 31, 1996. Cash used in investing
activities largely relates to the Operating Partnership's development and
construction of new apartment communities in Phoenix and Tucson, Arizona and
acquisitions of apartment communities in its markets. Net cash provided by
financing activities increased from $82.3 million for the year ended
December 31, 1995 to $89.7 million for the year ended December 31, 1996 due to
the proceeds from the sale of 2,088,889 shares of common stock of the Company
and borrowings under the Operating Partnership's Revolving Credit Facility
("Revolving Credit Facility") which were used to fund the development and
acquisition of apartment communities.
The Operating Partnership expects to meet its short-term liquidity
requirements, including capital expenditures relating to maintaining
Stabilized Communities, generally through its net cash provided by operations
and borrowings under its credit arrangements and anticipates meeting
long-term liquidity requirements, such as scheduled debt maturities,
financing of construction and development activities and possible
acquisitions through long-term unsecured borrowings, issuance of additional
equity securities of the Company or debt securities of the Operating
Partnership, or, possibly in connection with acquisitions of land or existing
properties, Units of the Operating Partnership. The Operating Partnership
believes that its net cash provided by operations will be adequate and
anticipates that it will continue to be adequate to meet both operating
requirements and payment of dividends by the Operating Partnership in
accordance with REIT requirements in both the short and the long-term.
The information in the immediately preceding paragraph is forward looking
and involves risks and uncertainties that could significantly impact the
Operating Partnership's expected liquidity requirements in the short and long
term. While it is impossible to itemize the many factors and specific events
that could affect the Operating Partnership's outlook for its liquidity
-17-
<PAGE>
requirements, such factors would include the actual timing of the Operating
Partnership's planned development of new, and expansion of existing,
communities; acquisitions of existing apartment communities; the actual costs
associated with such developments and acquisitions; and the strength of the
local economies in the sub-markets in which the Operating Partnership
operates. The Operating Partnership is further subject to risks relating to
the limited geographic area in which it operates and its ability to
successfully manage its planned expansion into Southern California, a market
in which it did not have any operating history prior to 1995. Higher than
expected costs, delays in development of communities, a downturn in the local
economies and/or the lack of growth of such economies could reduce the
Operating Partnership's revenues and increase its expenses, resulting in a
greater burden on the Operating Partnership's liquidity than that which the
Operating Partnership has described above.
CAPITAL RESOURCES
At December 31, 1996, the Operating Partnership's total debt was
approximately $436.2 million and the Operating Partnership's debt to total
market capitalization (market equity plus debt) was approximately 47.4 percent.
The Operating Partnership received an investment grade rating of "BBB-" from
Standard & Poor's Corporation, "Baa3" from Moody's Investor Service Inc. and
"BBB-" from Fitch Investors Service, L.P. in December 1996.
CONVENTIONAL MORTGAGE LOANS
Conventional mortgage loans were comprised of six fixed rate loans at
December 31, 1996, each of which is collateralized by a first mortgage lien
on an apartment community included in real estate assets. The mortgages are
payable in monthly installments of principal and interest and mature at
various dates through 1997. The conventional mortgage loans aggregated $40.1
million at December 31, 1996 with interest rates ranging from 8.0 percent to
9.95 percent. On January 9, 1997, the Operating Partnership extinguished the
debt on three mortgages with unpaid principal balances of approximately $18.7
million with proceeds from the Revolving Credit Facility. As a result, the
Operating Partnership incurred a loss from the early extinguishment of debt
of approximately $1.2 million. The Operating Partnership prepaid a $6.2
million mortgage note on January 31, 1997 which resulted in an additional
loss from the early extinguishment of debt of approximately $300. The loss
from the early extinguishment of debt was recorded by the Operating
Partnership in the first quarter of 1997.
In December 1995, the Operating Partnership entered into a ten year $50
million fixed rate loan from an insurance company that bears interest at 7.17
percent, with principal and interest due monthly based on a 25-year
amortization schedule beginning January 1, 1996 through January 1, 2006, and
the remaining unpaid principal balance due January 1, 2006. The loan is
secured by a first deed of trust on five apartment communities. Proceeds
from the loan were used to pay down outstanding balances on the Revolving
Credit Facility. The outstanding debt was $49.5 million at December 31, 1996.
The loan is convertible to unsecured upon the Operating Partnership
achieving an investment grade rating of "BBB" or better.
-18-
<PAGE>
MORTGAGE LOAN CERTIFICATES
The Operating Partnership, through the Financing Partnership, borrowed
$102.0 million under a securitized loan in August 1994. During January 1995,
the Operating Partnership borrowed the balance of $29.0 million (increasing the
total to $131.0 million). The loan is secured by the first mortgage liens on 22
of the Communities. The $102.0 million was issued at 99.97 percent of its face
amount and the $29.0 million was issued at 97.9375 percent of its face amount
and will mature on August 1, 2001. Although both amounts bear interest at 7.98
percent, the $29.0 million has an effective interest rate of 8.40 percent due to
the discount. The weighted average effective interest rate of the total $131
million loan is 8.05 percent. The bonds have been rated "AA" by Standard and
Poor's Corporation.
TAX EXEMPT BONDS
Tax exempt bonds were comprised of three floating rate bonds based on the
tax exempt note rate set by the respective remarketing agents (or at the
option of the Operating Partnership at a fixed rate determined by the
remarketing agents). The bonds are secured by letters of credit which are
secured by first mortgage liens on four apartment communities. The tax
exempt bonds have monthly interest only payments and mature at various dates
through 2016. The tax exempt bonds aggregated $64 million at December 31,
1996 with interest rates ranging from 5.16 percent to 6.14 percent.
REVOLVING CREDIT FACILITY
On September 25, 1996, the Operating Partnership expanded its existing
$125 million unsecured Revolving Credit Facility to $225 million with a bank
group. The Revolving Credit Facility bears interest at a floating rate of
LIBOR plus 150 basis points (or, at the option of the Operating Partnership,
at the prime rate announced by the banks). The interest rate was reduced 25
basis points upon the Operating Partnership achieving an investment grade
rating of "Baa3" or "BBB-." The Revolving Credit Facility has a term of three
years, with an option to extend for one year and provides for monthly
payments of interest only. It will be used to finance acquisitions, to fund
construction and development and renovation costs, and for working capital
purposes. At December 31, 1996, there was $152 million outstanding on the
Revolving Credit Facility, with an effective interest rate of 7.20 percent.
The Revolving Credit Facility contains customary representations, covenants
and events of default, including a limitation which restricts distributions
to 95 percent of Funds From Operations, as defined. The Operating
Partnership does not expect that the covenants will affect its ability to pay
distributions in accordance with its current distribution policy.
The table below outlines the Operating Partnership's debt structure as of
December 31, 1996 (amounts in thousands).
-19-
<PAGE>
OUTSTANDING WEIGHTED AVERAGE
BALANCE INTEREST RATE
------------ ----------------
FIXED RATE DEBT:
Mortgage Debt
Conventional . . . . . . . . . $ 89,652 7.87%
Mortgage Loan Certificates . . 130,520 8.05
--------- -----
Total Fixed Rate Debt . . 220,172 7.98
VARIABLE RATE DEBT:
Tax Exempt Bonds . . . . . . . . 64,000 5.70
Revolving Credit Facility . . . . 152,000 7.20
--------- -----
Total Variable Rate Debt . . 216,000 6.76
--------- -----
Total Debt . . . . . . . . . $ 436,172 7.37%
--------- -----
--------- -----
The Operating Partnership had 4,806 unencumbered apartment units related
to the Stabilized Communities (including properties with debt that was repaid
in January 1997) and 1,198 unencumbered apartment units related to the
Communities Under Construction and in Lease-Up at December 31, 1996.
SECOND OFFERING
In September 1995, the Company filed a shelf registration statement with
the Securities and Exchange Commission ("SEC") for up to $200 million of debt
securities, common stock and warrants. The registration statement was declared
effective by the SEC in December 1995.
In January 1997, the Company and the Operating Partnership filed a shelf
registration statement with the SEC for up to $125 million of common stock,
preferred stock and warrants issuable by the Company and $200 million of debt
securities issuable by the Operating Partnership. This registration
statement, which has not yet been declared effective by the SEC, subsumed
$125 million of available securities under the September 1995 registration
statement. These registration statements will provide the Company and the
Operating Partnership with the ability to issue and sell a portion of such
securities from time to time.
On May 28, 1996, the Company completed a public offering of 4,500,000
shares of common stock of which 2,000,000 shares were sold by the Company and
an aggregate of 2,500,000 shares were sold by two institutional stockholders.
On June 25, 1996, the Company issued an additional 88,889 shares of its
common stock and the institutional stockholders sold an additional 111,111
shares pursuant to a partial exercise of an over-allotment option granted to
the underwriters. Net proceeds to the Company from the second offering were
approximately $40,891,000. The Company used the proceeds from the sale of
common stock offering to pay down the Revolving Credit Facility.
INFLATION
Most of the leases at the Communities are for a term of one year or less,
which may enable the Operating Partnership to seek increased rents upon
renewal of existing leases or commencement of new leases. The short-term
nature of the leases generally serves to reduce the risk to the Operating
Partnership of the adverse effects of inflation.
-20-
<PAGE>
FUNDS FROM OPERATIONS
The Operating Partnership and industry analysts consider Funds from
Operations ("FFO") to be an appropriate measure of the performance of an
equity REIT because it is predicated on cash flow analyses. The Operating
Partnership computes FFO in accordance with standards established by the
National Association of Real Estate Investment Trusts ("NAREIT"). FFO is
defined as net income (loss) determined in accordance with GAAP, excluding
gains (or losses) from debt restructuring and sales of property plus
depreciation and amortization, excluding depreciation on non-real estate
assets and amortization of deferred financing costs. FFO should not be
considered as an alternative to net income (determined in accordance with
GAAP) as an indicator of the Operating Partnership's financial performance or
to cash flow from operating activities (determined in accordance with GAAP)
as a measure of the Operating Partnership's needs. The Operating Partnership
believes that in order to facilitate a clear understanding of the
consolidated historical operating results of the Operating Partnership, FFO
should be examined in conjunction with net income, as presented in the
consolidated financial statements and elsewhere in this Registration
Statement on Form 10.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994(a) 1993 1992
------ ------ ------- ----- ------
<S> <C> <C> <C> <C> <C>
(Amounts in thousands)
Income (loss) before extraordinary
items and minority interest $18,805 $21,014 $16,818 $6,612 $(6,709)
Depreciation and amortization 20,712 13,624 10,333 10,319 7,146
Amortization of executive
deferred compensation expense 390 693 267 - -
------- ------- ------- ------ -------
Funds from operations $39,907 $35,331 $27,418 $16,931 $437
------- ------- ------- ------ -------
------- ------- ------- ------ -------
</TABLE>
- -------------
(a) 1994 FFO has been adjusted to include other expenses ($5,233) that were
incurred relating to the repayment of existing indebtedness at the time of
the Initial Public Offering, prepayment penalties and lender participation
(additional interest) totaling $2,594. Prior to the Initial Public
Offering, an Executive Incentive Deferred Compensation Plan was canceled
and the $2,639 that was funded by the Operating Partnership was expensed
in 1994. The Operating Partnership believes it is appropriate to add back
other expenses to net income for the FFO calculation in 1994 as these
expenses represent nonrecurring costs directly related to the Initial
Public Offering rather than recurring expenses from operations.
NUMBER OF UNITS
The Operating Partnership had 22,184,395 and 20,590,873 weighted average
number of units for the years ended December 31, 1996 and 1995, respectively.
CAPITALIZATION OF FIXED ASSETS AND COMMUNITY IMPROVEMENTS.
The Operating Partnership has established a policy of capitalizing those
expenditures relating to acquiring new assets, materially enhancing the value of
an existing asset, or
-21-
<PAGE>
substantially extending the useful life of an existing asset. All
expenditures necessary to maintain a Community in ordinary operating
condition are expensed as incurred.
Acquisition of assets and community expenditures for the years ended
December 31 are as follows:
1996 1995
--------- ---------
New community development $82,177 $107,223
Acquisitions 88,648 77,895
Nonrecurring capital expenditures
Vehicle access control gates 551 -
Computer upgrade 413 202
Recurring capital expenditures:
Community additions and improvements 2,374 1,547
Corporate additions and improvements 348 549
-------- --------
$174,511 $187,416
-------- --------
-------- --------
ITEM 3. PROPERTIES
The information under the heading "Item 2. Properties" on pages 6 through
8 of the Company's Annual Report on Form 10-K for the year ended December 31,
1996 is hereby incorporated by reference.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Units as of
January 15, 1997 for (i) the Chief Executive Officer and each of the four other
most highly compensated executive officers of the Company (collectively, the
"Named Executive Officers"), (ii) directors of the Company, (iii) each person
who is a Unitholder of the Operating Partnership holding more than a 5% interest
in the Operating Partnership and (iv) the directors and executive officers of
the Company, as a group. Unless otherwise indicated in the footnotes, all of
such units are owned directly, and the indicated person or entity has sole
voting and disposition power.
PERCENT OF ALL
NAME AND ADDRESS OF BENEFICIAL OWNER (1) NUMBER OF UNITS UNITS OUTSTANDING
- ---------------------------------------- --------------- -----------------
Stephen O. Evans 1,808,136 7.8%
F. Keith Withycombe 1,674,886 7.3%
Richard G. Berry 110,000 *
G. Edward O'Clair 4,724 *
Paul Fannin -- --
Joseph F. Azrack -- --
Joseph W. O'Connor -- --
G. Peter Bidstrup -- --
John O. Theobald -- --
Evans Withycombe Residential, Inc. 18,426,240 80.0%
-22-
<PAGE>
EW Investments Limited Partnership 1,632,114 7.1%
All Executive Officers and Directors
as a Group (12 persons) 3,600,331 15.6%
- -------------
*Less than 1%
(1) The address for each of the persons or entities listed above, except
Mr. O'Connor and Mr. Azrack, is 6991 East Camelback Road, Suite A-200,
Scottsdale, Arizona 85251. The address for Mr. O'Connor is 399 Boylston
Street, Boston, Massachusetts 02116. The address for Mr. Azrack is 225
Franklin Street, Boston, Massachusetts 02110.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The information under the headings "Item 10. Director and Executive
Officers of the Registrant" and "Item 4A. Executive Officers of the Registrant"
in the Company's Form 10-K for the year ended December 31, 1996 is hereby
incorporated by reference. These individuals are executive officers of the
Company, rather than of the Operating Partnership itself. The Operating
Partnership is a limited partnership and has no directors.
ITEM 6. EXECUTIVE COMPENSATION
The information under the heading "Item 11. Executive Compensation" in the
Company's Form 10-K for the year ended December 31, 1996 is hereby incorporated
by reference. In 1996, the Operating Partnership did not pay any compensation
to the Company. The Operating Partnership is a limited partnership and has no
directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the heading "Item 13. Certain Relationships and
Related Transactions" in the Company's Form 10-K for the year ended December 31,
1996 is hereby incorporated by reference.
ITEM 8. LEGAL PROCEEDINGS
Neither the Company, the Operating Partnership, the Management Company, the
Financing Partnership or any of the Communities is presently subject to any
material litigation nor, to the Operating Partnership's knowledge, is any
litigation threatened against the Operating Partnership or any of the
Communities, other than routine actions for negligence or other claims and
administrative proceedings arising in the ordinary course of business, some of
which are expected to be covered by liability insurance and all of which
collectively are not expected to have a material adverse effect on the business
or financial condition of the Operating Partnership.
-23-
<PAGE>
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Units. As of
January 23, 1997, there were 49 holders of record of Units in the Operating
Partnership.
The Operating Partnership has made consecutive quarterly distributions
since its formation in the third quarter of 1994. The current indicated
annual dividend rate is $1.60 per Unit. The Operating Partnership's ability
to make distributions depends on a number of factors, including its net cash
provided by operating activities, capital commitments and debt repayment
schedules. Holders of Units are entitled to receive distributions when, as
and if declared by the Board of Directors of the Company, out of any fund
legally available for that purpose.
DISTRIBUTIONS DECLARED
PERIOD AND PAID
------ ----------------------
1996:
Fourth Quarter ......................................... $0.40
Third Quarter ......................................... $0.40
Second Quarter ......................................... $0.39
First Quarter ......................................... $0.39
1995:
Fourth Quarter ......................................... $0.38
Third Quarter ......................................... $0.38
Second Quarter ......................................... $0.37
First Quarter ......................................... $0.37
1994:
Fourth Quarter ......................................... $0.37
Third Quarter (from August 10 to September 30, 1994).... $0.18(1)
- ---------------------
(1) Paid with respect to the period August 17, 1994 to September 30, 1994.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
Since its formation in June 1994, the Operating Partnership has issued
Units in private placements exempt from registration under the Securities Act
pursuant to Section 4(2) thereof, in the amounts, for the consideration and
at the times set forth below:
- In connection with the Company's Initial Public Offering in August 1994:
* 14,718,328 Units (including its 1% general partnership
interest) were issued to the Company in exchange for the contribution
of 42 apartment communities and certain other assets to the Operating
Partnership;
* 241,536 Units were issued the Evans Withycombe Andersen
Spring I Limited Partnership (the "Andersen Springs I Venture")
pursuant to an acquisition agreement whereby the Andersen Springs I
Venture transferred its interest in a certain apartment community. The
Units were distributed to certain partners of the Andersen Springs I
Venture in redemption of such partners' interests;
24
<PAGE>
* 111,552 Units were issued to the partners of Evans Withycombe
Andersen Springs II Limited Partnership partially in exchange for this
interests in such partnership;
* 3,644,376 Units were issued to Stephen O. Evans, F. Keith
Withycombe and certain affiliated entities and certain officers and
employees of the Company and the Operating Partnership (collectively,
the "EW Group") in exchange for certain of the interests held by the EW
Group in certain apartment communities and the Management Company, and
the development sites of seven multifamily apartment communities.
* 121,988 Units were issued to certain minority partners in
certain Evans Withycombe affiliated entities and certain other
investors in exchange for certain of their interests in certain
apartment communities.
- In March 1995, 530,165 Units were issued to the sellers of Acacia
Creek as partial payment for the Operating Partnership's acquisition of
Acacia Creek.
- In December 1995, 180,385 Units were issued to the sellers of The
Ashton as partial payment for the Operating Partnership's acquisition of The
Ashton.
- In May 1996, 2,088,899 Units were issued to the Company in exchange
for the contribution by the Company of the net proceeds from a public
offering of the Company's common stock and from the partial exercise of the
underwriters' over-allotment option, as described under "Item 1. Business"
above.
- From time to time under the Company's 1994 Stock Incentive Plan, new
and restricted shares of common stock of the Company are issued and the
proceeds of such issuances are contributed to the Operating Partnership in
exchange for additional Units. As of December 31, 1996, 85,243 Units had
been issued to the Company in connection therewith.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
GENERAL
All the Company's assets are held by, and all of its operations are
conducted through, the Operating Partnership (either directly or through
subsidiaries). The Company is the sole general partner and also a limited
partner of the Operating Partnership and as of December 31, 1996, held an
approximately 79.7% interest therein. The Company, in its capacity as
general partner, owns a number of Units equal to 1.0% of all Units
outstanding, and holds the balance of its Units in its capacity as a limited
partner. Accordingly, the Company is a limited partner and will have the
rights of a limited partner (including the voting and consent rights of a
limited partner), with
25
<PAGE>
respect to all Units held by the Company from time to time in excess of 1.0%
of the total number of Units outstanding.
The remaining Units are held by persons who contributed interests in
certain Communities and/or other assets to the Company or the Operating
Partnership. Holders of Units (other than the Company in its capacity as
general partner) hold a limited partnership interest in the Operating
Partnership, and all holders of Units (including the Company in its capacity
as general partner) are entitled to share in cash distributions from, and in
the profits and losses of, the Operating Partnership in proportion to their
respective percentage interests therein. Holders of Units will have the
rights to which limited partners are entitled under the Partnership Agreement
(described below) and the Delaware Revised Uniform Limited Partnership Act,
as amended (the "Partnership Act"). The Units are not listed on any exchange
or quoted on any national market system. The Partnership Agreement imposes
certain restrictions on the transfer of Units, as described below.
A summary of certain provisions of the Agreement of Limited Partnership
of the Operating Partnership (the "Partnership Agreement") and a description
of the material terms of the Units are set forth below. The following
description does not purport to be complete and is subject to and qualified
in its entirety by reference to applicable provisions of the Partnership Act
and the Partnership Agreement.
PURPOSES, BUSINESS AND MANAGEMENT
The purpose of the Operating Partnership includes the conduct of any
business that may be conducted lawfully by a limited partnership organized
pursuant to the Partnership Act, except that the Partnership Agreement
requires the business of the Operating Partnership to be conducted in such a
manner that will permit the Company to be classified as a REIT under Section
856 of the Internal Revenue Code of 1986, as amended (the "Code"), unless the
general partner provides notice to the Operating Partnership that it intends
to cease or has ceased to qualify as a REIT. Subject to the foregoing
limitation, the Operating Partnership may enter into partnerships, joint
ventures or similar arrangements and may own interests in any other entity.
In general, the Board of Directors of the Company, in its capacity as
sole general partner of the Operating Partnership, will manage the affairs of
the Operating Partnership by directing the affairs of the Company.
Under the Partnership Agreement, the limited partners of the Operating
Partnership (the "Limited Partners") have no authority to transact business
for, or participate in the management activities or decisions of, the
Operating Partnership. Consent of the holders of majority of the limited
partnership interests (including Units held by the Company) is required in
connection with a sale of all or substantially all of the assets of the
Operating Partnership or in connection with the termination or dissolution of
the Operating Partnership (until 2053).
The Partnership Agreement permits the Operating Partnership to take all
actions consistent with the purpose and business of the Operating
Partnership, except that the Operating Partnership is specifically precluded
from taking actions which, in the judgment of the Company, could adversely
affect the ability of the Company to qualify as a REIT, subject the Company to
26
<PAGE>
certain income and excise taxes, or violate any law or regulation of any
governmental body or agency having jurisdiction over the Company or its
securities, unless the Company specifically consents in writing to such
action.
ABILITY TO ENGAGE IN OTHER BUSINESSES; CONFLICTS OF INTEREST
The Company may not conduct any business other than the business of the
Operating Partnership and activities incidental thereto. Other persons
(including officers, directors, employees, agents and other affiliates of the
Company) are not prohibited under the Partnership Agreement from engaging in
other business activities and are not required to present any business
opportunities to the Operating Partnership; however, certain officers of the
Company (Messrs. Evans, Withycombe and Berry) have entered into employment
agreements with the Company, which include noncompetition provisions. In
addition, the Company, on behalf of the Operating Partnership, has adopted
certain policies regarding avoidance of conflicts of interest.
DISTRIBUTIONS
The Partnership Agreement provides for the quarterly distribution of
Available Cash (as such term is defined in the Partnership Agreement), as
determined in the manner provided in the Partnership Agreement, to the
Company and the Limited Partners in proportion to their percentage interests
in the Operating Partnership. Neither the Company nor the Limited Partners
is entitled to any preferential or disproportionate distributions of
Available Cash.
BORROWING BY THE PARTNERSHIP
The Company is authorized to cause the Operating Partnership to borrow
money and to issue and guarantee debt as it deems necessary for the conduct
of the activities of the Operating Partnership. Such debt may be secured by,
among other things, mortgages, deeds of trust, liens or encumbrances on
properties of the Operating Partnership.
LIABILITY OF COMPANY AND LIMITED PARTNERS
The Company, as general partner of the Operating Partnership, will be
liable for all general recourse obligations of the Operating Partnership to
the extent not paid by the Operating Partnership. The Limited Partners are
not required to make additional contributions to the Operating Partnership.
Assuming that a Limited Partner does not take part in the control of the
business of the Operating Partnership and otherwise acts in conformity with
the provisions of the Partnership Agreement, the liability of the Limited
Partner for obligations of the Operating Partnership under the Partnership
Agreement and the Partnership Act is limited, subject to certain possible
exceptions, generally to the loss of the Limited Partner's investment in the
Operating Partnership represented by its Units. Under the Partnership Act, a
Limited Partner may not receive a distribution from the Operating Partnership
if, at the time of the distribution and after giving effect thereto, the
liabilities of the Operating Partnership, other than liabilities to parties
on account of their interests in the Operating Partnership and liabilities
for which recourse is limited to specified property of the Operating
Partnership, exceed the fair value of the Operating Partnership's assets,
other than the fair value of any property subject to nonrecourse liabilities
of
27
<PAGE>
the Operating Partnership but only to the extent of such liabilities. The
Partnership Act provides that a Limited Partner who receives a distribution
knowing at the time that it violates the foregoing prohibition is liable to
the Operating Partnership for the amount of the distribution. Unless
otherwise agreed, such a Limited Partner will not be liable for the return of
such distribution after the expiration of three years from the date of such
distribution.
The Operating Partnership has qualified to conduct business in Arizona
and California and may in the future qualify in certain other jurisdictions.
Maintenance of limited liability may require compliance with certain legal
requirements of those jurisdictions and certain other jurisdictions.
Limitations on the liability of a Limited Partner for the obligations of a
limited partnership have not been clearly established in many jurisdictions.
Accordingly, if it were determined that the right, or exercise of the right
by the Limited Partners, to make certain amendments to the Partnership
Agreement or to take other action pursuant to the Partnership Agreement
constituted "control" of the Operating Partnership's business for the
purposes of the statutes of any relevant jurisdiction, the Limited Partners
might be held personally liable for the Operating Partnership's obligations.
The Operating Partnership will operate in a manner the Company deems
reasonable, necessary and appropriate to preserve the limited liability of
the Limited Partners.
EXCULPATION AND INDEMNIFICATION OF THE COMPANY
The Partnership Agreement generally provides that the Company, as
general partner of the Operating Partnership, will incur no liability to the
Operating Partnership or any Limited Partner for losses sustained or
liabilities incurred as a result of errors in judgment or of any act or
omission if the Company carried out its duties in good faith. In addition,
the Company is not responsible for any misconduct or negligence on the part
of its agents, provided the Company appointed such agents in good faith. The
Company may consult with legal counsel, accountants, appraisers, management
consultants, investment bankers and other consultants and advisors, and any
action it takes or omits to take in reliance upon the opinion of such
persons, as to matters that the Company reasonably believes to be within
their professional or expert competence, shall be conclusively presumed to
have been done or omitted in good faith and in accordance with such opinion.
The Partnership Agreement also provides for indemnification of the
Company, the officers of the Company and such other persons (including
affiliates of the Company or Operating Partnership) as the Company may from
time to time designate against any judgments, penalties, fines, settlements
and reasonable expenses actually incurred by such person in connection with
the proceeding subject to certain limitations set forth in the Partnership
Agreement.
REMOVAL OF THE COMPANY, TRANSFER OF THE COMPANY'S INTEREST
The Partnership Agreement provides that the Limited Partners may not
remove the Company as general partner of the Operating Partnership. In
general, the Company may not transfer or assign its general partnership
interest nor sell all or substantially all its assets, or enter into a merger
unless (i) pursuant to such a transaction the Limited Partners will not
engage in a sale or exchange for federal income tax purposes of their Units
or (ii) the sale or merger includes the sale of all or substantially all of
the assets of or the merger of the Operating Partnership with
28
<PAGE>
partners of the Operating Partnership receiving substantially the same
consideration as holders of shares of common stock of the Company.
RESTRICTIONS ON TRANSFER OF UNITS BY LIMITED PARTNERS
A Limited Partner may not transfer its Units without the prior consent
of the Company, with certain exceptions which include a transfer to an
immediate family member or an affiliate of the Limited Partner, a transfer
upon the death of a Limited Partner or a pledge to a lending institution as
collateral for a bona fide loan. A transferee of Units will be admitted to
the Operating Partnership as a substitute Limited Partner only with the
consent of the Company as general partner. If the Company does not consent to
the admission of a transferee of Units as a substitute Limited Partner, the
transferee will be entitled to all the rights of an assignee of a limited
partnership interest under the Partnership Act, and will succeed to all
economic rights and benefits attributable to such Units, but will not become
a Limited Partner or possess any other rights of Limited Partners (including
the right to vote, with such right to vote remaining in the transferor).
ISSUANCE OF ADDITIONAL LIMITED PARTNERSHIP INTERESTS
The Company is authorized without the consent of the Limited Partners to
cause the Operating Partnership to issue additional Units to itself, to the
Limited Partners or to other persons for such consideration and on such terms
and conditions as the Company deems appropriate. In addition, the Company
may cause the Operating Partnership to issue to the Company additional
partnership interests in different series or classes, which may be senior to
the Units, in conjunction with an offering of securities of the Company
having substantially similar rights, in which the proceeds thereof are
contributed to the Operating Partnership. Consideration for additional
partnership interests may be cash or any property or other assets permitted
by the Partnership Act. No Limited Partner has preemptive, preferential or
similar rights with respect to additional capital contributions to the
Operating Partnership or the issuance or sale of any partnership interests
therein. In addition, whenever the Company issues shares of common stock,
the Company will be obligated to contribute any net proceeds therefrom to the
Operating Partnership and the Operating Partnership will be obligated to
issue an equivalent number of Units to the Company. Additional Units will be
issued to the Company upon the exercise of awards granted under the 1994
Stock Incentive Plan, and it is expected that such Units will be purchased at
a price equal to fair market value. The Company will acquire the cash for
such purchase from the sale of shares of common stock used to fund the award
to the Operating Partnership.
MEETINGS; VOTING
Meetings of the Limited Partners may be called only by the Company, on
its own motion or upon written request of Limited Partners owning at least
25% of the Units. Limited Partners may vote either in person or by proxy at
meetings. Any action that is required or permitted to be taken by the
Limited Partners of the Operating Partnership may be taken either at a
meeting of the Limited Partners or without a meeting if consents in writing
setting forth the action so taken are signed by Limited Partners owning not
less than the minimum number of Units that would be necessary to authorize or
take such action at a meeting of the Limited Partners at which all
29
<PAGE>
Limited Partners entitled to vote on such action were present. On matters on
which Limited Partners are entitled to vote, each Limited Partner (including
the Company to the extent it holds Units of limited partnership interest)
will have a vote equal to the number of Units it holds in the Operating
Partnership. The Partnership Agreement does not provide for annual meetings
of the Limited Partners, and the Company does not anticipate calling such
meetings.
AMENDMENT OF THE PARTNERSHIP AGREEMENT
Amendments to the Partnership Agreement may be proposed by the Company
or by Limited Partners owning at least 25% of the Units.
Generally, the Partnership Agreement may be amended with the approval of
the Company, as general partner, and holders of a majority or some greater
percentage of the Units, including Units held by the Company. As holder of
over 75% of the limited partnership Units, the Company has the requisite
ownership interest to approve certain amendments without the consent of other
Limited Partners. However, certain amendments that would, among other
things, (i) convert a Limited Partner's interest into a general partner's
interest, (ii) modify the limited liability of a Limited Partner, (iii) alter
the interest of a partner to receive distributions or alter the allocations
of profits or losses, with certain limited exceptions, (iv) alter or modify
the exchange right or redemption amount described above or (v) cause the
termination of the Operating Partnership at a time or on terms inconsistent
with those set forth in the Partnership Agreement, must be approved by the
Company and each Limited Partner that would be adversely affected by such an
amendment.
Notwithstanding the foregoing, the Company, as general partner, has the
power, without the consent of the Limited Partners, to amend the Partnership
Agreement as may be required to (1) add to the obligations of the Company as
general partner or surrender any right or power granted to the Company as
general partner or any affiliate of the Company as Company for the benefit of
the Limited Partners, (2) reflect the admission, substitution, termination or
withdrawal of partners in accordance with the terms of the Partnership
Agreement, (3) establish the rights, powers, duties and preferences of any
additional partnership interests issued in accordance with the terms of
certain provisions of the Partnership Agreement, (4) reflect a change of an
inconsequential nature that does not materially adversely affect the Limited
Partners, or cure any ambiguity, correct or supplement any provisions of the
Partnership Agreement not inconsistent with law or with other provisions of
the Partnership Agreement, or make other changes concerning matters under the
Partnership Agreement that are not otherwise inconsistent with the
Partnership Agreement or law, (5) satisfy any requirements of federal or
state law or (6) reflect such changes as are reasonably necessary for the
Company to maintain its status as a REIT.
DISSOLUTION, WINDING UP AND TERMINATION
The Operating Partnership will continue until December 31, 2093, unless
sooner dissolved and terminated. The Operating Partnership will be dissolved
prior to the expiration of its term, and its affairs wound up upon the
occurrence of the earliest of: (1) the withdrawal of the Company as general
partner without the permitted transfer of the Company's interest to a
successor general partner (except in certain limited circumstances), (2) the
sale of all or
30
<PAGE>
substantially all the Operating Partnership's assets and properties, (3) the
entry of a decree of judicial dissolution of the Operating Partnership
pursuant to the provisions of the Partnership Act or the entry of a final
order for relief in a bankruptcy proceeding of the general partner, (4) the
entry of a final judgment ruling that the general partner is bankrupt or
insolvent, (5) the merger or other combination of the Operating Partnership
with or into another entity or (6) (a) from and after the date of the
Partnership Agreement through December 31, 2053, an election by the Company,
with the consent of the holders of a majority of limited partnership
interests (including limited partnership interests held by the Company) and
(b) on or after January 1, 2054, an election by the Company, in its sole and
absolute discretion. Upon dissolution, the Company, as general partner, or
any liquidator will proceed to liquidate the assets of the Operating
Partnership and apply the proceeds therefrom in the order of priority set
forth in the Partnership Agreement.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As a matter of Delaware law, the general partner has liability for the
payment of the obligations and debts of the Operating Partnership unless
limitations upon such liability are stated in the document or instrument
evidencing the obligation. Under the Partnership Agreement, the Operating
Partnership has agreed to indemnify the Company, as general partner, any
officer of the Operating Partnership of the Company, as general partner, and
such other persons as the Company may designate from and against all losses,
claims, damages, liabilities, joint or several, expenses (including legal
fees and expenses), judgments, fines, settlements and other amounts arising
from any and all claims, demands, actions, suits or proceedings, civil,
criminal, administrative or investigative, that relate to the operation of
the Operating Partnership in which such person is involved, or is threatened
to be involved, unless it is established that (i) the act or omission of such
person was material to the matter giving rise to the proceeding and either
was committed in bad faith or was the result of active and deliberate
dishonesty, (ii) such party actually received an improper personal benefit or
(iii) in the case of any criminal proceeding, such party had reasonable cause
to believe the act or omission was unlawful. The reasonable expenses
incurred by an indemnitee may be reimbursed by the Operating Partnership in
advance of the final disposition of the proceeding upon receipt by the
Operating Partnership of a written affirmation by such indemnitee of his, her
or its good faith belief that the standard of conduct necessary for
indemnification has been met and a written undertaking by such indemnitee to
repay the amount reimbursed if it is determined that such standard was not
met.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements on page F-1 of this Registration Statement
on Form 10.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
31
<PAGE>
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
See Index to Financial Statements on page F-1 of this Form 10.
(b) EXHIBITS
Certain of the exhibits required by Item 601 of Regulation S-K
have been filed with previous reports by the Company and are
herein incorporated by reference thereto.
4.1* Amended and Restated Agreement of Limited Partnership
of the Evans Withycombe Residential, L.P., dated as
of August 17, 1994.
10.1** Asset Contribution Agreement by and among Evans
Withycombe Residential, Inc. and Evans Withycombe
Residential, L.P., as purchasers, and the Sellers
listed therein, dated as of June 9, 1994.
10.2* Revolving Loan Agreement by and between Bank One,
Arizona, NA and Evans Withycombe Residential, L.P.,
dated December 1, 1995.
10.3* Property Management Agreement by and between Evans
Withycombe Residential, L.P. and Evans Withycombe
Management, Inc. dated August 17, 1994.
10.4* Property Contribution Agreement by and between Evans
Withycombe Residential, L.P., Evans Withycombe
Residential, Inc. and Acacia Creek Limited Partnership
dated as of February 1, 1995.
10.5* Loan Agreement by and between Northwestern Mutual Life
Insurance and Evans Withycombe Residential, L.P.,
dated December 15, 1995.
10.6*** Revolving Loan Agreement by and between the Banks
named herein, Bank One Arizona, N.A., as
administrative agent, and Bank of America, National
Trust and Savings Association and Wells Fargo Bank,
National Association as co-agents, and Evans
Withycombe Residential, L.P., dated September 24,
1996.
12.1 Calculation of Ratio of Debt to Market Capitalization.
21.1 List of Subsidiaries.
99.1+ Item 2. Properties, pages 6 through 8 from the
Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
99.2+ Item 4A. Executive Officers of the Registrant,
pages 8 through 9 from the Company's Annual Report
on Form 10-K for the year ended December 31, 1996.
32
<PAGE>
99.3+ Item 10. Directors and Executive Officers of the
Registrant, pages 23 through 26 from the Company's
Annual Report on Form 10-K for the year ended
December 31, 1996.
99.4+ Item 11. Executive Compensation, page 26 from the
Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
99.5+ Item 13. Certain Relationships and Related
Transactions, page 35 from the Company's Annual Report
on Form 10-K for the year ended December 31, 1996.
*Previously filed as an exhibit to the Company's annual report on Form 10-K
for the fiscal year ended December 31, 1995 and 1994 and incorporated herein
by reference.
**Previously filed as an exhibit to the Company's Registration Statement on
Form S-11 and amendments thereto (File No. 33-80150) and incorporated herein
by reference.
***Previously filed as an Exhibit to the Company's Registration Statement
on Form S-3 and amendments thereto (File No. 333-17805) and is incorporated
herein by reference.
+ To be filed by amendment.
33
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Auditors F-2
Consolidated Balance Sheets as of December 31, 1996 F-3
and 1995.
Consolidated Statements of Income for the years ended F-4
December 31, 1996,1995 and 1994.
Consolidated Statements of Partners' Capital for the F-5
years ended December 31, 1996,1995 and 1994.
Consolidated Statements of Cash Flows for the years ended F-6
December 31, 1996,1995 and 1994.
Notes to Consolidated Financial Statements. F-7
Schedule III - Real Estate Investments and Accumulated F-19
Depreciation as of December 31, 1996.
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable and therefore have been
omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Partners
Evans Withycombe Residential, L.P.
We have audited the accompanying consolidated balance sheets of Evans
Withycombe Residential, L.P. (the "Operating Partnership") as of December 31,
1996 and 1995 and the related consolidated statements of income, partners'
capital and cash flows for each of the three years in the period ended
December 31, 1996. Our audits also included the financial statement schedule
listed in the Index on Page F-1. These financial statements and the schedule
are the responsibility of the Operating Partnership's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of the Operating Partnership at December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also in our opinion the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects the information set forth therein.
Ernst & Young LLP
Phoenix, Arizona
January 31, 1997
F-2
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
ASSETS
REAL ESTATE:
Land................................... $ 121,915 $ 95,908
Buildings and improvements............. 543,839 389,846
Furniture and fixtures................. 29,567 23,736
Construction-in-progress............... 66,229 77,693
----------------- -----------------
761,550 587,183
Less accumulated depreciation.......... (38,331) (17,511)
----------------- -----------------
723,219 569,672
Cash and cash equivalents.............. 2,568 3,634
Restricted cash........................ 1,622 522
Accounts and notes receivable.......... 2,702 1,346
Deferred costs, net of accumulated
amortization of $1,265 and $507 at
December 31, 1996 and 1995,
respectively.......................... 3,838 2,946
Other assets........................... 1,518 1,444
----------------- -----------------
Total assets........................... $ 735,467 $ 579,564
----------------- -----------------
----------------- -----------------
LIABILITIES AND PARTNERS' CAPITAL
Mortgage and notes payable............. $ 436,172 $ 297,456
Accounts payable and other
liabilities........................... 7,782 9,365
Distributions payable.................. - 7,901
Accrued interest....................... 1,417 605
Accrued property taxes................. 2,912 2,358
Resident security deposits............. 1,818 1,497
Prepaid rent........................... 585 438
----------------- -----------------
Total liabilities...................... 450,686 319,620
Minority interest...................... 827 889
Partners' capital...................... 283,954 259,055
----------------- -----------------
Total liabilities and partners'
capital............................... $ 735,467 $ 579,564
----------------- -----------------
----------------- -----------------
See Notes to Consolidated Financial Statements
F-3
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except for number of units and per unit amounts)
EVANS
EVANS EVANS WITHYCOMBE
WITHYCOMBE WITHYCOMBE RESIDENTIAL,
RESIDENTIAL, RESIDENTIAL, L.P.
L.P. L.P. AND GROUP
------------- ------------ ------------
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
Revenues:
Rental............................ $ 94,350 $ 68,864 $ 51,097
Third party management fees....... 1,157 1,268 1,668
Interest and other................ 6,119 4,399 4,194
----------- ----------- -----------
Total revenues.................. 101,626 74,531 56,959
Expenses:
Repairs and maintenance........... 11,607 8,293 6,288
Property operating................ 12,713 8,699 7,834
Advertising....................... 1,864 1,244 966
Real estate taxes................. 6,915 4,723 3,204
Property management............... 3,225 2,825 2,505
General and administrative........ 1,387 1,321 1,175
Interest.......................... 24,225 12,650 7,836
Depreciation and amortization..... 20,885 13,762 10,333
Other............................. - - 5,233
----------- ----------- -----------
Total expenses.................. 82,821 53,517 45,374
----------- ----------- -----------
Income before minority interest..... 18,805 21,014 11,585
Minority interest................... (75) (89) (42)
----------- ----------- -----------
Net income.......................... $ 18,730 $ 20,925 $ 11,543
----------- ----------- -----------
----------- ----------- -----------
Earnings per unit................... $ 0.84 $ 1.02
----------- -----------
----------- -----------
Earnings per unit, period from
August 17 to December 31, 1994.. $ 0.38
-----------
-----------
Weighted average units outstanding.. 22,184,395 20,590,873 20,086,884
----------- ----------- -----------
----------- ----------- -----------
See Notes to Consolidated Financial Statements
F-4
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(Amounts in thousands, except for number of units and per unit amounts)
<TABLE>
<CAPTION>
UNAMORTIZED
EVANS OTHER RESTRICTED
WITHYCOMBE LIMITED UNITS
NUMBER OF RESIDENTIAL, PARTNERS EMPLOYEE
UNITS INC. CAPITAL COMPENSATION TOTAL
----------- ------------ ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
Partners' capital, December 31, 1993 - $ - $ 142,886 $ - $142,886
Capital contributions................................. - - 9,660 - 9,660
Distributions......................................... - - (15,204) - (15,204)
Net income, January 1 to August 16, 1994.............. - - 4,012 - 4,012
----------- ------------ ---------- ------------ --------
- - 141,354 - 141,354
The Offering and formation of the Operating
Partnership 20,140,530 205,664 (88,011) - 117,653
Minority interest in Financing Partnership at date of
offering - (1,594) - - (1,594)
Net Income, August 17 to December 31, 1994............ - 5,983 1,548 - 7,531
Distributions ($.55 per unit)......................... - (8,812) (2,265) - (11,077)
----------- ------------ ---------- ------------ --------
Partners' capital, December 31, 1994.................... 20,140,530 201,241 52,626 - 253,867
Net income............................................ - 16,331 4,594 - 20,925
Distributions ($1.50 per unit)........................ - (24,102) (6,801) - (30,903)
Issuance of units for acquisition of apartment
communities......................................... 710,550 - 14,207 - 14,207
Conversion of limited partners' units into common
stock............................................... 390 (390) - -
Issuance of restricted units for executive deferred
compensation........................................ 82,802 1,657 - (1,657) -
Amortization of deferred compensation..................... - - - 959 959
----------- ------------ ---------- ------------ --------
Partners' capital, December 31, 1995.................... 20,933,882 195,517 64,236 (698) 259,055
Net income............................................ - 14,720 4,010 - 18,730
Distributions on units ($1.58 per unit)............... - (28,040) (7,545) - (35,585)
Purchase of units by Evans Withycombe Residential,
Inc. from proceeds of second offering, net of
underwriting discount and offering costs of
$3,237.............................................. 2,088,889 40,891 - - 40,891
Conversion of limited partners' units into common
stock............................................... - 2,583 (2,583) - -
Purchase of units from proceeds from the exercise of
stock options....................................... 19,500 390 - - 390
Issuance of restricted units.......................... 10,895 240 - (240) -
Forfeiture of restricted units........................ (8,729) - - - -
Amortization of deferred compensation................. - - - 473 473
----------- ------------ ---------- ------------ --------
Partners' capital, December 31, 1996.................... 23,044,712 $ 226,301 $ 58,118 $ (465) $283,954
----------- ------------ ---------- ------------ --------
----------- ------------ ---------- ------------ --------
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
EVANS
EVANS EVANS WITHYCOMBE
WITHYCOMBE WITHYCOMBE RESIDENTIAL, L.P.
RESIDENTIAL, L.P. RESIDENTIAL, L.P. AND GROUP
----------------- ----------------- -----------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1996 1995 1994
----------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.......................................... $ 18,730 $ 20,925 $ 11,543
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 21,578 14,420 10,703
Minority Interest.............................. 75 89 42
Amortization of executive deferred comp......... 390 693 267
Write-off of real estate assets................. 227 - -
Write-off of deferred loan costs................ - 172 -
Decrease (increase) in assets
Restricted cash................................. (1,100) 561 (129)
Accounts and notes receivable................... (1,356) (934) (468)
Other assets.................................... (74) (1,051) 3,279
(Decrease) increase in liabilities
Accounts payable and other liabilities.......... (1,583) 540 4,043
Due to related parties and owners............... - - (6,482)
Accrued interest................................ 812 505 (818)
Accrued property taxes.......................... 554 825 62
Resident security deposits...................... 321 500 54
Prepaid rent.................................... 147 (262) (98)
----------------- ----------------- -----------------
Net cash provided by operating activities........... 38,721 36,983 21,998
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of real estate assets...................... (127,811) (116,716) (207,978)
Payment for organization and loan costs............. (1,650) (1,345) (3,673)
----------------- ----------------- -----------------
Net cash (used) in investing activities............. (129,461) (118,061) (211,651)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Public Offering, net of expenses...... 40,891 - 181,262
Proceeds from exercise of options................... 390 - -
Proceeds from mortgage notes and credit facility.... 269,778 315,653 122,522
Principal payments on mortgage notes................ (177,762) (202,477) (101,280)
Minority interest distributions..................... (137) (447) (389)
Distributions paid.................................. (43,486) (30,456) (5,149)
Distributions to owners............................. - - (17,012)
Capital contributions............................... - - 9,660
----------------- ----------------- -----------------
Net cash provided by financing activities........... 89,674 82,273 189,614
----------------- ----------------- -----------------
Net increase (decrease) in cash and cash equivalents (1,066) 1,195 (39)
Cash and cash equivalents, beginning of year........ 3,634 2,439 2,478
----------------- ----------------- -----------------
Cash and cash equivalents, end of year.............. $ 2,568 $ 3,634 $ 2,439
----------------- ----------------- -----------------
----------------- ----------------- -----------------
SUPPLEMENTAL INFORMATION
Cash paid during the year for interest.............. $ 22,648 $ 11,487 $ 8,284
----------------- ----------------- -----------------
----------------- ----------------- -----------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY
Assumption of debt related to the acquisition of
apartment communities............................. $ 46,700 $ 56,493 $ -
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Acquisition of apartment communities through issuance
of units in the Operating Partnership............. $ - $ 14,207 $ -
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Issuance of stock under restricted stock
incentive plan..................................... $ 83 $ 959 $ -
----------------- ----------------- -----------------
----------------- ----------------- -----------------
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS,
EXCEPT FOR NUMBER OF UNITS OR SHARES AND PER UNIT AMOUNTS)
1. ORGANIZATION AND FORMATION OF THE OPERATING PARTNERSHIP
Evans Withycombe Residential, L.P. (the "Operating Partnership") is one
of the largest developers and managers of upscale apartment communities in
Arizona and is expanding its operation into selected sub-markets in Southern
California. The Operating Partnership owns and manages 49 stabilized
multifamily apartment communities containing 13,905 units, of which 44
stabilized multifamily apartment communities are located in Phoenix and
Tucson, Arizona, containing a total of 12,005 units and five stabilized
multifamily apartment communities are located in the Riverside/San
Bernardino, California market containing a total of 1,900 units. The
Operating Partnership considers an apartment community stabilized when it
reaches 93 percent physical occupancy. The Operating Partnership is also in
the process of developing or expanding five multifamily apartment communities
comprising 1,078 units in its Arizona markets. The Operating Partnership is
fully integrated with expertise in development, acquisitions, construction
and management of apartment communities. The Operating Partnership had
approximately 580 employees at December 31, 1996.
The Operating Partnership was formed in June 1994 to develop, acquire,
own and manage upscale multifamily apartment communities for Evans Withycombe
Residential, Inc. On August 17, 1994, Evans Withycombe Residential, Inc.
completed an Initial Public Offering and engaged in various formation
transactions designed to transfer ownership of the communities and other
assets of the predecessor company to the Operating Partnership or Evans
Withycombe Finance Partnership, L.P. (the "Financing Partnership"). The
Operating Partnership owns 99.0 percent of Evans Withycombe Finance
Partnership L.P. and has a 99.0 percent economic interest in Evans Withycombe
Management, Inc. (the "Management Company"). Evans Withycombe Residential,
Inc. is the sole general partner of and owned a 79.7 percent, 77.02 percent
and 79.50 percent interest in the Operating Partnership at December 31, 1996,
1995 and 1994, respectively.
In the second quarter of 1996 Evans Withycombe Residential, Inc.
completed the Second Offering. The net proceeds from the Second Offering
were used to repay a portion of the Revolving Credit Facility.
The Operating Partnership elected to be taxed as a partnership for
Federal income tax purposes.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements of Evans Withycombe
Residential, L.P. include the consolidated accounts of the Operating
Partnership, the Financing Partnership and the Management Company from the
date of the Initial Public Offering, August 17, 1994. The
F-7
<PAGE>
accompanying financial statements of Evans Withycombe Residential Group (the
"Predecessor") prior to August 17, 1994, include the accounts of various
partnerships sponsored by Evans Withycombe. The Predecessor was a combination
of affiliated entities that had ownership in multifamily communities in the
Phoenix and Tucson, Arizona area; it was not a separate legal entity. The
predecessor accounts are presented on a combined basis because all of the
communities were managed by Evans Withycombe which had a significant
ownership interest in each of the communities and because these communities
were the subject of business combination in connection with the formation of
the Operating Partnership.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REAL ESTATE ASSETS AND DEPRECIATION
The Operating Partnership records its real estate assets in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed of", which was issued by the Financial Accounting Standards Board
in March 1995 and the Operating Partnership adopted in 1996. SFAS No. 121
requires that long-lived assets such as real estate assets, be reviewed
whenever events or changes in circumstances indicate that the book value of
the asset may not be recoverable. If the sum of the expected future net cash
flows (undiscounted and without interest charges) from an asset to be held
and used is less than the book value of the asset, an impairment loss must be
recognized in the amount of the difference between book value and fair value
as opposed to the difference between book value and net realizable value
under the previous accounting standard. For long-term assets like apartment
communities, the determination of whether there is an impairment loss is
dependent primarily on the Operating Partnership's estimates on occupancy,
rent and expense increases, which involves numerous assumptions and judgments
as to future events over a period of many years. At December 31, 1996 the
Operating Partnership does not hold any assets that meet the impairment
criteria of SFAS No. 121.
Costs related directly to the acquisition and improvement of real estate
are capitalized. Interest costs incurred during construction of a new
property are capitalized until completion of construction on a
building-by-building basis. Interest capitalized was $2,714, $5,048 and
$2,724, for the years ended December 31, 1996, 1995 and 1994, respectively.
Ordinary repairs, maintenance and costs incurred in connection with
resident turnover such as unit cleaning, painting, and carpet cleaning are
expensed as incurred; major replacements and betterment's are capitalized and
depreciated over their estimated useful lives. Depreciation is computed on a
straight-line basis over the expected useful lives of depreciable property,
which ranges from 10 to 40 years for buildings and improvements and five to
eight years for furnishings and equipment.
F-8
<PAGE>
The Operating Partnership reports developments and lease-up properties
as construction-in-progress until construction on the apartment community has
been completed and the apartment community has reached stabilized occupancy.
The Operating Partnership also reports land relating to
construction-in-progress as land on its balance sheet. Land associated with
construction-in-progress was $16,542 and $16,414 at December 31, 1996 and
1995, respectively.
REVENUE RECOGNITION
Rental income attributable to residential leases is recorded when due
from residents. Leases are for periods of up to one year, with rental
payments due monthly.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all cash and cash equivalent
investments with original maturities of three months or less, primarily
consisting of demand deposits in banks.
RESTRICTED CASH
Restricted cash includes restricted deposits for sinking fund accounts
related to tax exempt bonds, property taxes and escrow accounts.
DEFERRED COSTS
Costs incurred in obtaining long-term financing are deferred. These
costs are amortized on the effective interest method over the terms of the
related debt agreements.
INCOME TAXES
The Operating Partnership has made an election to be taxed as a
partnership and accordingly, no federal or state income taxes have been
provided in the accompanying consolidated financial statements.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
EARNINGS PER UNIT
Earnings per unit has been computed by dividing net income for the years
ended December 31, 1996 and 1995 and the period ended December 31, 1994,
respectively, by the weighted average number of units outstanding.
Historical earnings per unit data for the periods ended prior to the Offering
on August 17, 1994 are not relevant since the financial information prior to
such date is comprised of combined operations of partnerships and
corporations.
F-9
<PAGE>
4. OTHER
Prior to the Initial Public Offering, Evans Withycombe, Inc. had in
place an Executive Incentive Deferred Compensation Plan (the "Executive
Plan"). Pursuant to the Executive Plan, certain executives of Evans
Withycombe, Inc. (the "Participants") were granted unfunded, unsecured rights
to receive cash payments based on the distributions from certain partnerships
in which Evans Withycombe owned an interest. The awards would have vested
over a six-year period from the date of grant. In connection with the
Initial Public Offering, all rights of Participants under the Executive Plan
were canceled, and the participants received (a) an aggregate of
approximately $2,600 in cash which was funded by Evans Withycombe, Inc. prior
to the Initial Public Offering and (b) the right to receive an aggregate of
98,500 shares of restricted stock from Evans Withycombe Residential, Inc. one
year following the Offering if they remain as employees of the Operating
Partnership during such period. One third of the shares vest on each of the
second, third and fourth anniversaries of the Initial Public Offering based
on an offering price per share of $20 (SEE STOCK INCENTIVE PLAN FOOTNOTE).
The $2,600 cash payment, which represents an estimate of the executives'
vested share of the gain, was expensed by Evans Withycombe, Inc. during the
third quarter of 1994 prior to the Offering.
In connection with the repayment of existing indebtedness at the time of
the offering, prepayment penalties and lender participation (additional
interest) totaling $2,600 were paid.
5. MORTGAGE AND NOTES PAYABLE
The Operating Partnership's mortgage notes and notes payable consists of
the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Mortgage note payable at fixed interest rate of 7.2 percent, monthly principal and interest $ - $ 5,457
payments through August 18, 1996 . The unpaid principal balance was repaid on
August 18, 1996.
Mortgage note payable at fixed interest rate of 8.0 percent, monthly principal and interest 5,380 5,463
payments. The unpaid principal balance was repaid on January 9, 1997.
Mortgage note payable at fixed interest rate of 8.0 percent, monthly principal and interest 4,340 4,406
payments. The unpaid principal balance was repaid on January 9, 1997.
Mortgage note payable at fixed interest rate of 8.0 percent, monthly principal and interest 8,951 9,063
payments. The unpaid principal balance was repaid on January 9, 1997.
Mortgage note payable at fixed interest rate of 8.28 percent, monthly principal and interest 6,225 6,339
payments. The unpaid principal balance was repaid on January 31, 1997.
Mortgage note payable at fixed interest rate of 9.95 percent, monthly principal and interest 12,065 12,184
payments through September 15, 1997, remaining balance due September 15, 1997.
Mortgage note payable at fixed interest rate of 9.3 percent, monthly principal and interest 3,182 3,212
payments through September 15, 1997, remaining balance due September 15, 1997
</TABLE>
F-10
<PAGE>
<TABLE>
<S> <C> <C>
$50 million securitized debt at a fixed interest rate of 7.17 percent, monthly principal and 49,509 50,000
interest payments through January 1, 2006, remaining balance due January 1, 2006.
Secured by first mortgage liens on 5 communities.
Securitized debt at a fixed stated interest rate of 7.98 percent, with an effective interest 130,520 130,439
rate of 8.05 percent, monthly interest only payments through August 1, 2001. The face
amount of $131 million is due August 1, 2001. Secured by first mortgage liens on 22
communities, the balance is net of unamortized discount of $480 and $561 at December
31, 1996 and 1995, respectively.
$13 million short term note payable at a fixed interest rate of 6.0 percent. Interest only - 13,000
payments, matured on January 5, 1996. The unpaid principal balance was repaid on
January 5, 1996.
$17.3 million tax exempt bonds with a floating interest rate based on the tax exempt note 17,300 17,300
rate set by the remarketing agent, or at the option of the Operating Partnership can convert
to a fixed rate as determined by the remarketing agent. Secured by a $17.5 million direct
pay letter of credit agreement, interest payments only, matures December 1, 2007
(Effective interest rate of 5.16 percent at December 31, 1996).
$22.6 million tax exempt bonds with a floating interest rate based on the tax exempt note 22,650 -
rate set by the remarketing agent, interest payments only. Secured by a $22.8 million
direct pay letter of credit, matures February 1, 2016. (Effective interest rate of 5.65
percent at December 31, 1996).
$24.05 million tax exempt bonds with a floating interest rate based on the tax exempt note 24,050 -
rate set by the remarketing agent. Interest payments only. Secured by a $24.4 million
direct pay letter of credit agreement, matures August 1, 2005. (Effective interest rate of
6.14 percent at December 31, 1996).
$225 million unsecured Revolving Credit Facility with floating interest rate based on 152,000 40,593
LIBOR plus 1.50 percent or at the option of the Company at prime, interest payments
only. Matures September 24, 1999 (Effective interest rate of 7.2 percent at December 31,
1996).
---------- ----------
$ 436,172 $ 297,456
---------- ----------
---------- ----------
</TABLE>
Each of the mortgage loans is secured by a first mortgage on separate
communities.
Principal maturities as of December 31, 1996 are as follows:
1997 $ 40,625
1998 563
1999 152,605
2000 650
2001 131,218
Thereafter 110,511
--------------
$ 436,172
--------------
--------------
F-11
<PAGE>
The $225 million Revolving Credit Facility provides funding for working
capital, construction activities and acquisitions.
The Operating Partnership has three direct pay letters of credit of
$17,500, $22,800 and $24,400 which serve as a credit enhancement for the tax
exempt bonds. The letters of credit are secured by a first mortgage on four
apartment communities.
On January 9, 1997, the Operating Partnership extinguished the debt on
three mortgages with unpaid principal balances of approximately $18,700 with
proceeds from the Revolving Credit Facility. As a result, the Operating
Partnership incurred a loss from the early extinguishment of debt of
approximately $1,200. The Operating Partnership prepaid the $6,225 mortgage
note on January 31, 1997 with proceeds form the Revolving Credit Facility
which resulted in an additional loss from the early extinguishment of debt of
approximately $300. The loss from the early extinguishment of debt was
recorded by the Operating Partnership in the first quarter of 1997.
6. DISTRIBUTIONS
On December 31, 1996, the Operating Partnership paid a distribution of
$.40 per share ($9,217) to unitholders of record as of December 24, 1996.
Approximately 36 percent and 30 percent of the distributions paid during 1996
and 1995 represented return of capital to the unitholders.
7. MANAGEMENT AND DEVELOPMENT FEES
The Operating Partnership, through Evans Withycombe Management, Inc.
performs management services for certain unaffiliated communities. Management
fees received from managed communities were $1,157, $1,268, and $1,668 for
the years ended December 31, 1996, 1995 and 1994, respectively. Included in
1996 third party management fees is a non recurring $500 fee received in
exchange for terminating the management contract on nine apartment
communities containing 1,298 apartment units in the second quarter 1996.
Prior to the Offering, in conjunction with development of projects, the
communities paid development fees to affiliates of $4,554 for the period
ended August 16, 1994.
8. RETIREMENT PLAN
The Operating Partnership has a defined contribution wealth accumulation
plan and trust (the "Plan") covering all employees who have elected to
participate in the Plan. Each participant may make pretax contributions to
the Plan up to the maximum allowed by the IRS. The Operating Partnership
makes a matching contribution of 25 percent of the participant's contribution
up to 1 percent of a participant's salary, which totaled $113, $53, and $91
for 1996, 1995, and 1994, respectively.
9. COMMITMENTS AND CONTINGENCIES
The Operating Partnership leases office space in buildings and certain
equipment under noncancelable operating leases. Future minimum payments under
these leases with initial terms of one year or more consist of the following
at December 31, 1996:
F-12
<PAGE>
1997 $358
1998 364
1999 224
2000 4
------
$950
------
------
Rent expense for the years ended December 31, 1996, 1995 and 1994 was
$360, $300, and $288, respectively.
10. STOCK INCENTIVE PLAN
STOCK OPTION PLAN
Evans Withycombe Residential, Inc. (the "Company") has elected to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) and related interpretations in accounting for its
employee stock options because, as discussed below, the alternative fair
value accounting provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation," requires use of option valuation models that were
not developed for use in valuing employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1995 and 1996, respectively: risk-free
interest rates of 6.5% and 6.5%; dividend yields of 7.5% and 7.4%; volatility
factors of the expected market price of the Company's common stock of 0.18
and 0.18; and a weighted-average expected life of the option of 5 years.
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until
1997.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (amounts in thousands except for
earnings per share information):
F-13
<PAGE>
1996 1995
--------- ---------
Pro forma net income $18,727 $20,925
Pro forma primary earnings per share $0.83 $1.02
Exercise prices for options outstanding as of December 31, 1996 ranged
from $18.25 to $22.25. The weighted-average remaining contractual life of
those options is 7.6 years.
Initially 1,830,000 shares of the Company's common stock were reserved
for issuance under the plan. Information with respect to stock options
granted during 1996, 1995 and 1994 is as follows:
Weighted
Average
Exercise Price
Shares Per Share
------------ ------------------
Options granted on August 17, 1994 685,200 $20.00
Exercised - -
Granted 16,000 19.65
Forfeited (4,840) 20.00
------------ ------------------
Options outstanding at December 31, 1994 696,360 19.99
Exercised - -
Granted 21,000 19.74
Forfeited (18,185) 20.00
------------ ------------------
Options outstanding at December 31, 1995 699,175 19.98
Exercised (19,500) 20.00
Granted 345,000 21.96
Forfeited (115,825) 20.00
------------ ------------------
Options outstanding at December 31, 1996 908,850 $20.63
------------ ------------------
------------ ------------------
Options exercisable:
December 31, 1994 - -
December 31, 1995 175,300 $20.00
December 31, 1996 357,700 $19.98
Options to purchase 901,650, 1,130,825 and 1,133,640 shares of common
stock were available for grant under the plan at December 31, 1996, 1995 and
1994, respectively.
EXECUTIVE STOCK INCENTIVE PLAN
Prior to the Initial Public Offering, the Company's predecessor Evans
Withycombe, Inc. had in place an Executive Incentive Deferred Compensation
Plan (the "Executive Plan"). Pursuant to the Executive Plan, certain
executives of Evans Withycombe, Inc. (the "Participants") were granted the
right to receive an aggregate of 98,500 shares of restricted stock from the
Company one year following the Initial Public Offering if they remain
employees of the Company
F-14
<PAGE>
during such period. One-third of the shares will vest on each of the second,
third and fourth anniversaries of the Initial Public Offering based on an
offering price per share of $20. The expense will be amortized ratably over
the periods in which the shares vest and an expense of $390 and $698 and $267
for the years ended December 31, 1996, 1995 and 1994 is included in general
and administrative expense. Information with respect to the executive
restricted stock incentive plan is as follows:
Shares
------------
Restricted stock at December 31, 1994 98,500
Forfeited (15,698)
------------
Restricted stock at December 31, 1995 82,802
Forfeited (8,454)
------------
Restricted stock at December 31, 1996 74,348
------------
------------
Number of shares vested 27,600
RESTRICTED STOCK PROGRAM
In 1996, the Company awarded 10,895 shares of restricted stock to certain
employees of the Operating Partnership under its 1994 Stock Incentive Plan.
The restricted stock vests ratably over periods ranging from one to four
years from the date of the award and are based on the price of the stock at
the award date which ranges from $20.75 to $22.25. The expense will be
amortized ratably over the periods in which the shares vest and an expense of
$83 is included in general and administrative expense for the year ended
December 31, 1996.
The Company uses the proceeds from exercise of stock options and the
issuance of restricted stock to acquire a similar number of units in the
Operating Partnership.
11. MINORITY INTEREST
Evans Withycombe Finance, Inc. owns a one percent interest in the
Financing Partnership at December 31, 1996, 1995 and 1994, respectively, as
follows:
F-15
<PAGE>
Dollars
-------------
Minority interest in the Financing Partnership
at date of offering $1,594
Allocation of net income 42
Distributions (389)
-------------
Balance at December 31, 1994 1,247
Allocation of net income 89
Distributions (447)
-------------
Balance at December 31, 1995 889
Allocation of net income 75
Distributions (137)
-------------
Balance at December 31, 1996 $ 827
-------------
-------------
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by
management using available market information and appropriate valuation
methodologies. Judgment is necessary to interpret market data and develop
estimated fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Operating Partnership could realize
on disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
Cash equivalents, accounts receivable, accounts payable and other
accruals are carried at amounts that reasonably approximate their fair values
as of December 31, 1996 and 1995. The Operating Partnership's debt has an
estimated aggregate fair value of approximately $437,800 at December 31, 1996
compared to the carrying value of $436,172. At December 31, 1995, the
Operating Partnership's debt had an estimated fair value of approximately
$298,800 compared to the carrying value of $297,456. Fair values were
estimated using discounted cash flow analyses, based on interest rates
currently available to the Operating Partnership for issuance of debt with
similar terms and remaining maturities.
F-16
<PAGE>
13. 1994 RESULTS OF OPERATIONS
The 1994 results of operations of the Operating Partnership and its
Predecessor are as follows:
EVANS EVANS
WITHYCOMBE WITHYCOMBE
RESIDENTIAL, L.P. RESIDENTIAL GROUP
----------------- -----------------
AUGUST 17 TO JANUARY 1 TO
DECEMBER 31, 1994 AUGUST 16, 1994
----------------- -----------------
Revenues:
Rental ............................... $ 20,185 $ 30,912
Third party management fees ........... 560 1,108
Interest and other .................... 1,028 3,166
----------------- -----------------
Total revenues .......................... 21,773 35,186
Expenses:
Repairs and maintenance ............... 2,642 3,646
Property operating .................... 2,392 5,442
Advertising ........................... 345 621
Real estate taxes ..................... 1,251 1,953
Property management ................... 1,104 1,401
General and administrative ............ 410 765
Interest .............................. 2,302 5,534
Depreciation and amortization ......... 3,754 6,579
Other ................................. - 5,233
----------------- -----------------
Total expenses .......................... 14,200 31,174
----------------- -----------------
Net income before minority interest ..... 7,573 4,012
Minority interest ....................... (42) -
----------------- -----------------
Net income .............................. $ 7,531 $ 4,012
----------------- -----------------
----------------- -----------------
F-17
<PAGE>
14. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED, AMOUNTS IN
THOUSANDS, EXCEPT PER UNIT AMOUNTS).
QUARTER
FIRST SECOND THIRD FOURTH
1996 ------- ------- ------- -------
Revenue ................ $24,161 $24,085 $25,938 $27,442
Net operating income ... 16,840 16,287 16,724 18,676
Income before
minority interest .... 5,341 4,748 3,986 4,730
Minority interest ...... (23) (16) (15) (21)
Net income ............. 5,318 4,732 3,971 4,709
Earnings per unit ...... $.25 $.22 $.17 $.20
1995
Revenue ................ $16,276 $17,531 $19,061 $21,663
Net operating income ... 11,413 11,999 12,296 15,864
Income before
minority interest .... 5,692 4,975 4,723 5,624
Minority interest ...... (26) (19) (16) (28)
Net income ............. 5,666 4,956 4,707 5,596
Earnings per unit ...... $.28 $.23 $.23 $.28
The Operating Partnership defines net operating income as earnings before
property management, general and administrative expense, interest and
depreciation.
F-18
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
SCHEDULE III - REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
Costs Capitalized Subsequent
Initial Cost to Acquisition / Construction
------------------------------------------------------------
Buildings and Buildings and
Description Encumbrances Land Improvements Land Improvements
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SAME STORE
PHOENIX
Bayside at the Islands
Gilbert, AZ $6,589 $1,877 $6,623 $1,429 $3,491
Country Brook
Chandler, AZ 7,792 937 3,886 25 6,578
Deer Creek Village
Phoenix, AZ 5,116 919 5,454 506 3,465
Greenwood Village
Tempe, AZ 6,553 1,770 7,119 349 2,322
Heritage Point
Mesa, AZ - 666 5,125 - 397
La Mariposa
Mesa, AZ 4,750 1,440 3,962 608 2,620
La Valencia
Mesa, AZ 7,792 2,485 6,569 1,068 4,283
Little Cottonwoods
Tempe, AZ 9,424 2,834 6,655 216 7,161
Los Arboles
Chandler, AZ - 1,160 7,836 - 237
Miramonte
Scottsdale, AZ 4,340 1,133 3,711 - 123
Morningside
Scottsdale, AZ 4,542 533 6,316 137 2,115
Park Meadow
Gilbert, AZ 2,936 607 2,828 225 1,275
Preserve at Squaw Peak
Phoenix, AZ 3,172 377 4,252 141 1,939
Promontory Pointe
Phoenix, AZ 7,610 2,038 6,987 (379) 7,861
(9,905)*
Scottsdale Courtyards
Scottsdale, AZ 10,442 2,946 8,385 33 3,087
Scottsdale Meadows
* Write-down of real estate assets
Gross Amounts at Which
Carried at Close of Period
-------------------------------------------
Buildings and Accumulated Year Year Depreciable
Description Land Improvements Total Depreciation Developed Acquired Lives in Years
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SAME STORE
PHOENIX
Bayside at the Islands
Gilbert, AZ $3,306 $10,114 $13,420 $815 1988-1989 5 to 40 years
Country Brook
Chandler, AZ 962 10,464 11,426 954 1991 5 to 40 years
Deer Creek Village
Phoenix, AZ 1,425 8,919 10,344 912 1991 5 to 40 years
Greenwood Village
Tempe, AZ 2,119 9,441 11,560 961 1993 5 to 40 years
Heritage Point
Mesa, AZ 666 5,522 6,188 424 1994 5 to 40 years
La Mariposa
Mesa, AZ 2,048 6,582 8,630 528 1990 5 to 40 years
La Valencia
Mesa, AZ 3,553 10,852 14,405 829 1990 5 to 40 years
Little Cottonwoods
Tempe, AZ 3,050 13,816 16,866 939 1989 5 to 40 years
Los Arboles
Chandler, AZ 1,160 8,073 9,233 895 1993 5 to 40 years
Miramonte
Scottsdale, AZ 1,133 3,834 4,967 481 1993 5 to 40 years
Morningside
Scottsdale, AZ 670 8,431 9,101 731 1992 5 to 40 years
Park Meadow
Gilbert, AZ 832 4,103 4,935 450 1992 5 to 40 years
Preserve at Squaw Peak
Phoenix, AZ 518 6,191 6,709 500 1991 5 to 40 years
Promontory Pointe
Phoenix, AZ 1,659 4,943 6,602 392 1988 5 to 40 years
Scottsdale Courtyards
Scottsdale, AZ 2,979 11,472 14,451 1,035 1993 5 to 40 years
Scottsdale Meadows
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
Costs Capitalized Subsequent
Initial Cost to Acquisition / Construction
------------------------------------------------------------
Buildings and Buildings and
Description Encumbrances Land Improvements Land Improvements
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Scottsdale, AZ 5,381 1,512 4,203 - 113
Shadow Brook
Phoenix, AZ 7,922 2,440 9,320 625 3,388
Shores at Andersen Springs
Chandler, AZ 8,196 2,095 9,682 649 3,949
Silver Creek
Phoenix, AZ 3,211 484 3,157 228 2,429
Gross Amounts at Which
Carried at Close of Period
-------------------------------------------
Buildings and Accumulated Year Year Depreciable
Description Land Improvements Total Depreciation Developed Acquired Lives in Years
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Scottsdale, AZ 1,512 4,316 5,828 539 1993 5 to 40 years
Shadow Brook
Phoenix, AZ 3,065 12,708 15,773 1,157 1993 5 to 40 years
Shores at Andersen Springs
Chandler, AZ 2,744 13,631 16,375 1,078 1993 5 to 40 years
Silver Creek
Phoenix, AZ 712 5,586 6,298 546 1991 5 to 40 years
</TABLE>
F-20
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
SCHEDULE III - REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
Costs Capitalized Subsequent Gross Amounts at Which
Initial Cost to Acquisition/Construction Carried at Close of Period
----------------------------------------------------------------------------------------
Buildings and Buildings and Buildings and
Description Encumbrances Land Improvements Land Improvements Land Improvements Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
SAME STORE (continued)
Sun Creek
Glendale, AZ $3,811 $715 $3,950 $182 $1,648 $897 $5,598 $6,495
The Meadows
Mesa, AZ - 650 4,797 - 2,795 650 6,231 6,881
(1,361)*
The Palms
Phoenix, AZ 4,895 2,152 4,455 1,133 2,764 3,285 7,219 10,504
The Pines
Mesa, AZ 3,707 577 3,725 351 2,559 928 6,284 7,212
Towne Square
Chandler, AZ - 1,042 8,413 277 3,614 1,319 12,027 13,346
Villa Encanto
Phoenix, AZ 8,951 2,884 8,558 - 844 2,884 9,402 12,286
Village at Lakewood
Phoenix, AZ 8,317 1,652 5,776 1,514 5,897 3,166 11,673 14,839
TUCSON
Harrison Park
Tucson, AZ 3,315 516 3,511 - 743 516 4,254 4,770
La Reserve
Oro, Valley 6,409 2,309 6,356 956 3,656 3,265 10,012 13,277
Orange Grove Village
Tucson, AZ 3,786 814 3,233 906 2,575 1,720 5,808 7,528
Suntree Village
Oro, Valley 8,550 1,246 8,862 326 3,713 1,572 12,575 14,147
The Arboretum
Tucson, AZ 16,684 1,014 8,323 1,526 3,349 2,540 11,672 14,212
Village at Tanque Verde
Tucson, AZ 6,436 690 1,280 745 4,895 1,435 6,175 7,610
---------------------------------------------------------------------------------------------------
SUBTOTAL SAME STORE 180,629 44,514 183,309 13,776 84,619 58,290 267,928 326,218
* Write-down of real estate assets
COMMUNITIES STABILIZED LESS THAN
TWO YEARS
PHOENIX
<CAPTION>
Accumulated Year Year Depreciable
Description Depreciation Developed Acquired Lives in Years
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
SAME STORE (continued)
Sun Creek
Glendale, AZ $624 1993 5 to 40 years
The Meadows
Mesa, AZ 532 1987 5 to 40 years
The Palms
Phoenix, AZ 512 1990 5 to 40 years
The Pines
Mesa, AZ 679 1992 5 to 40 years
Towne Square
Chandler, AZ 1,607 1992 5 to 40 years
Villa Encanto
Phoenix, AZ 983 1991 5 to 40 years
Village at Lakewood
Phoenix, AZ 915 1991 5 to 40 years
TUCSON
Harrison Park
Tucson, AZ 393 1991 5 to 40 years
La Reserve
Oro, Valley 732 1988 5 to 40 years
Orange Grove Village
Tucson, AZ 605 1991 5 to 40 years
Suntree Village
Oro, Valley 1,348 1992 5 to 40 years
The Arboretum
Tucson, AZ 1,584 1992 5 to 40 years
Village at Tanque Verde
Tucson, AZ 589 1990 5 to 40 years
------------
SUBTOTAL SAME STORE 25,269
COMMUNITIES STABILIZED LESS THAN
TWO YEARS
PHOENIX
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
Costs Capitalized Subsequent Gross Amounts at Which
Initial Cost to Acquisition/Construction Carried at Close of Period
----------------------------------------------------------------------------------------
Buildings and Buildings and Buildings and
Description Encumbrances Land Improvements Land Improvements Land Improvements Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Gateway Villas
Phoenix, AZ - 1,431 11,238 - (50) 1,431 11,188 12,619
Mountain Park Ranch
Phoenix, AZ 9,704 1,662 12,540 - 28 1,662 12,568 14,230
Sonoran
Phoenix, AZ - 2,362 20,802 - 17 2,362 20,819 23,181
<CAPTION>
Accumulated Year Year Depreciable
Description Depreciation Developed Acquired Lives in Years
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Gateway Villas 561 1994-1995 5 to 40 years
Phoenix, AZ
Mountain Park Ranch 1,032 1994-1995 5 to 40 years
Phoenix, AZ
Sonoran 1,142 1994-1995 5 to 40 years
Phoenix, AZ
</TABLE>
F-22
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
SCHEDULE III - REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1996
(Amounts in thousands
<TABLE>
<CAPTION>
Costs Capitalized Subsequent
Initial Cost to Acquisition/ Construction
------------------------------------------------------
Buildings and Buildings and
Description Encumbrances Land Improvements Land Improvements
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMUNITIES STABILIZED LESS THAN
TWO YEARS (continued)
The Enclave
Tempe, AZ $ 8,367 $1,500 $10,527 $ - $26
The Heritage
Phoenix, AZ - 1,211 12,370 - (13)
Towne Square Expansion Phase II
Chandler, AZ - - 6,061 - -
TUCSON
Arboretum Expansion Phase II
Tucson, AZ - 914 8,383 - -
----------------------------------------------------------------------
SUBTOTAL COMMUNITIES STABILIZED
LESS THAN TWO YEARS 18,071 9,080 81,921 - 8
DEVELOPMENTS AND LEASE-UP
PROPERTIES
PHOENIX
Country Brook Expansion Phase III
Chandler, AZ - 543 6,779 - -
The Hawthorne
Phoenix, AZ - 2,695 14,087 - -
Ingleside
Phoenix, AZ - 1,204 6,242 - -
The Isle at Arrowhead Ranch
Glendale, AZ - 1,652 9,806 - -
Ladera
Phoenix, AZ - 2,979 14,884 - -
Mirador
Phoenix, AZ - 2,597 20,885 - -
Park Meadow Expansion Phase II
Gilbert, AZ - 4 3,998 - -
Promontory Pointe Expansion Phase
II
<CAPTION>
Gross Amounts at Which
Carried at Close of Period
------------------------------
Buildings and Accumulated Year Year Depreciable
Description Land Improvements Total Depreciation Developed Acquired Lives in Years
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMUNITIES STABILIZED LESS THAN
TWO YEARS (continued)
The Enclave
Tempe, AZ $1,500 $10,553 $12,053 $860 1994-1995 5 to 40 years
The Heritage
Phoenix, AZ 1,211 12,357 13,568 769 1994-1995 5 to 40 years
Towne Square Expansion Phase II
Chandler, AZ - 6,061 6,061 - 1994-1995 5 to 40 years
TUCSON
Arboretum Expansion Phase II
Tucson, AZ 914 8,383 9,297 - 1994-1995 5 to 40 years
----------------------------------------------
SUBTOTAL COMMUNITIES STABILIZED
LESS THAN TWO YEARS 9,080 81,929 91,009 4,364
DEVELOPMENTS AND LEASE-UP
PROPERTIES
PHOENIX
Country Brook Expansion Phase III
Chandler, AZ 543 6,779 7,322 136 1995 5 to 40 years
The Hawthorne
Phoenix, AZ 2,695 14,087 16,782 122 1995 5 to 40 years
Ingleside
Phoenix, AZ 1,204 6,242 7,446 386 1995 5 to 40 years
The Isle at Arrowhead Ranch
Glendale, AZ 1,652 9,806 11,458 3 1996 5 to 40 years
Ladera
Phoenix, AZ 2,979 14,884 17,863 727 1994-1995 5 to 40 years
Mirador
Phoenix, AZ 2,597 20,885 23,482 921 1994-1995 5 to 40 years
Park Meadow Expansion Phase II
Gilbert, AZ 4 3,998 4,002 100 1995 5 to 40 years
Promontory Pointe Expansion Phase
II
F-23
<PAGE>
<CAPTION>
Costs Capitalized Subsequent
Initial Cost to Acquisition/ Construction
------------------------------------------------------
Buildings and Buildings and
Description Encumbrances Land Improvements Land Improvements
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Phoenix, AZ - 665 8,141 - -
Towne Square Expansion Phase III
Chandler, AZ - 605 6,092 - -
The Retreat (1)
Phoenix, AZ - 3,477 2,578 - -
Scottsdale & Mountain View (1)
Scottsdale, AZ - 3,456 508 - -
<CAPTION>
Gross Amounts at Which
Carried at Close of Period
------------------------------
Buildings and Accumulated Year Year Depreciable
Description Land Improvements Total Depreciation Developed Acquired Lives in Years
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Phoenix, AZ 665 8,141 8,806 68 1995 5 to 40 years
Towne Square Expansion Phase III
Chandler, AZ 605 6,092 6,697 177 1995 5 to 40 years
The Retreat
Phoenix, AZ 3,477 2,578 6,055 - 1997 5 to 40 years
Scottsdale & Mountain View (1)
Scottsdale, AZ 3,456 508 3,964 - 1997 5 to 40 years
</TABLE>
F-24
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
SCHEDULE III - REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
to Acquisition Gross Amounts at Which
Initial Cost /Construction Carried at Close of Period
--------------------- --------------------- ----------------------------
Buildings and Buildings and Buildings and
Description Encumbrances Land Improvements Land Improvements Land Improvements Total
- ----------- ------------ ------ ------------- ------ ------------- ------ ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEVELOPMENTS AND LEASE-UP
PROPERTIES (continued)
Vista Grove (1)
Mesa, AZ $- $1,343 $1,897 $- $- $1,343 $1,897 $3,240
The Gates Project (2)
Various Locations - - 551 - - - 551 551
Laguna at Arrowhead (1)
Glendale, AZ - 879 592 - - 879 592 1,471
TUCSON
Bear Canyon
Tucson, AZ - 1,645 12,926 - - 1,645 12,926 14,571
Harrison Park Expansion Phase II
Tucson, AZ - 749 8,912 - - 749 8,912 9,661
The Legends
Tucson, AZ - 2,728 17,893 - - 2,728 17,893 20,621
Orange Grove Expansion Phase II
Tucson, AZ - 93 7,213 - - 93 7,213 7,306
---------------------------------------------------------------------------------------------
SUBTOTAL DEVELOPMENTS AND
LEASE-UP PROPERTIES - 27,314 143,984 - - 27,314 143,984 171,298
ACQUISITIONS
PHOENIX
Acacia Creek
Scottsdale, AZ 15,247 6,122 24,382 - 599 6,122 24,981 31,103
Rancho Murietta
Tempe, AZ 6,225 1,766 10,208 - 993 1,766 11,201 12,967
Superstition Vista
Mesa, AZ - 1,641 12,272 - 1,512 1,641 13,784 15,425
<CAPTION>
Accumulated Year Year Depreciable
Description Depreciation Developed Acquired Lives in Years
- ----------- ------------ --------- -------- --------------
<S> <C> <C> <C> <C>
DEVELOPMENTS AND LEASE-UP
PROPERTIES (continued)
Vista Grove
Mesa, AZ $- 1997 5 to 40 years
The Gates Project (2)
Various Locations - Various 5 to 40 years
Laguna at Arrowhead (1)
Glendale, AZ - 1997 5 to 40 years
TUCSON
Bear Canyon
Tucson, AZ 237 1995 5 to 40 years
Harrison Park Expansion Phase II
Tucson, AZ 235 1995 5 to 40 years
The Legends
Tucson, AZ 1,235 1994-1995 5 to 40 years
Orange Grove Expansion Phase II
Tucson, AZ 297 1995 5 to 40 years
-----------
SUBTOTAL DEVELOPMENTS AND
LEASE-UP PROPERTIES 4,644
ACQUISITIONS
PHOENIX
Acacia Creek
Scottsdale, AZ 1,486 1995 5 to 40 years
Rancho Murietta
Tempe, AZ 698 1995 5 to 40 years
Superstition Vista
Mesa, AZ 480 1995 5 to 40 years
</TABLE>
F-25
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
SCHEDULE III - REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
to Acquisition Gross Amounts at Which
Initial Cost /Construction Carried at Close of Period
--------------------- --------------------- ----------------------------
Buildings and Buildings and Buildings and
Description Encumbrances Land Improvements Land Improvements Land Improvements Total
- ----------- ------------ ------ ------------- ------ ------------- ------ ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ACQUISITIONS (continued)
CALIFORNIA
Canyon Crest Views
Riverside, CA $ - $1,745 $12,163 $ - $ - $1,745 $12,163 $13,908
The Ashton
Corona Hills, CA 17,300 2,594 18,679 - 2,185 2,594 20,864 23,458
Portofino
Chino Hills, CA - 3,572 9,031 - - 3,572 9,031 12,603
Parkview Terrace Club
Redlands, CA 22,650 4,969 28,301 - - 4,969 28,301 33,270
Redlands Lawn and Tennis Club
Redlands, CA 24,050 4,822 24,045 - - 4,822 24,045 28,867
-------------------------------------------------------------------------------------------
SUBTOTAL ACQUISITIONS 85,472 27,231 139,081 - 5,289 27,231 144,370 171,601
CORPORATE OFFICE
Scottsdale, AZ - - 325 - 1,099 - 1,424 1,424
-------------------------------------------------------------------------------------------
TOTAL $284,172 $108,139 $548,620 $13,776 $91,015 $121,915 $639,635 $761,550
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
<CAPTION>
Accumulated Year Year Depreciable
Description Depreciation Developed Acquired Lives in Years
- ----------- ------------ --------- -------- --------------
<S> <C> <C> <C> <C>
ACQUISITIONS (continued)
CALIFORNIA
Canyon Crest Views
Riverside, CA $141 1996 5 to 40 years
The Ashton
Corona Hills, CA 510 1995 5 to 40 years
Portofino
Chino Hills, CA 91 1996 5 to 40 years
Parkview Terrace Club
Redlands, CA 286 1996 5 to 40 years
Redlands Lawn and Tennis Club
Redlands, CA 50 1996 5 to 40 years
-----------
SUBTOTAL ACQUISITIONS 3,742
CORPORATE OFFICE
Scottsdale, AZ 312 1994 5 to 8 years
-----------
TOTAL $38,331
-----------
-----------
</TABLE>
(1) Projects are currently in the early planning stage.
(2) The Gates Project represents the costs associated with the Company's
investment in constructing security gate systems at all its apartment
communities.
F-26
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, INC.
SCHEDULE III - REAL ESTATE INVESTMENTS AND
ACCUMULATED DEPRECIATION
A summary of activity for real estate investments and accumulated
depreciation is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
(Amounts in thousands)
Balance at beginning of period $587,183 $399,987 $292,513
Acquisitions 88,648 77,895 5,849
Improvements, including construction costs 85,719 109,301 66,604
Elimination of accumulated depreciation
at date of acquisition - - (38,360)(1)
Fair value adjustment - - 73,381
-------- -------- --------
Balance at close of period $761,550 $587,183 $399,987
-------- -------- --------
-------- -------- --------
Accumulated depreciation
Balance at beginning of period $ 17,511 $ 3,749 $ 32,065
Depreciation 20,885 13,762 10,333
Accumulated depreciation on disposals (65) - (289)
Elimination of accumulated depreciation
at date of acquisition - - (38,360)
-------- -------- --------
Balance at close of period $ 38,331 $ 17,511 $ 3,749
-------- -------- --------
-------- -------- --------
</TABLE>
Amount represents decrease in basis due to acquiring real estate at net
book value at the time of the Offering.
F-27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
EVANS WITHYCOMBE RESIDENTIAL, L.P.
By: Evans Withycombe Residential, Inc.,
as General Partner
By: /s/ Paul R. Fannin
---------------------------------
Paul R. Fannin
Senior Vice President and
Chief Financial Officer,
Secretary and Treasurer
Date: February 5, 1997
<PAGE>
EXHIBIT INDEX
Certain of the exhibits required by Item 601 of Regulation S-K have been
filed with previous reports by Evans Withycombe Residential, Inc. and are
herein incorporated by reference thereto.
Exhibit No. Exhibit
- ----------- -------
4.1* Amended and Restated Agreement of Limited Partnership of the Evans
Withycombe Residential, L.P., dated as of August 17, 1994.
10.1** Asset Contribution Agreement by and among Evans Withycombe
Residential, Inc. and Evans Withycombe Residential, L.P., as
purchasers, and the Sellers listed therein, dated as of June 9,
1994.
10.2* Revolving Loan Agreement by and between Bank One, Arizona, N.A.
and Evans Withycombe Residential, L.P., dated December 1, 1995.
10.3* Property Management Agreement by and between Evans Withycombe
Residential, L.P. and Evans Withycombe Management, Inc. dated
August 17, 1994.
10.4* Property Contribution Agreement by and between Evans Withycombe
Residential, L.P., Evans Withycombe Residential, Inc. and Acacia
Creek Limited Partnership dated as of February 1, 1995.
10.5* Loan Agreement by and between Northwestern Mutual Life Insurance
and Evans Withycombe Residential, L.P., dated December 15, 1995.
10.6*** Revolving Loan Agreement by and between the Banks named herein,
Bank One Arizona, N.A., as administrative agent, and Bank of
America, National Trust and Savings Association and Wells Fargo
Bank, National Association as co-agents, and Evans Withycombe
Residential, L.P., dated September 24, 1996.
12.1 Calculation of Ratio of Debt to Market Capitalization.
21.1 List of Subsidiaries.
99.1+ Item 2. Properties, pages 6 through 8 from the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
99.2+ Item 4A. Executive Officers of the Registrant, pages 8 through 9
from the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
99.3+ Item 10. Directors and Executive Officers of the Registrant,
pages 23 through 26 from the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
99.4+ Item 11. Executive Compensation, page 26 from the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
99.5+ Item 13. Certain Relationships and Related Transactions, page 35
from the Company's Annual Report on Form 10-K for the year ended
<PAGE>
December 31, 1996.
*Previously filed as an exhibit to the Company's annual report on Form 10-K
for the fiscal year ended December 31, 1995 and 1994 and incorporated herein
by reference.
**Previously filed as an exhibit to the Company's Registration Statement on
Form S-11 and amendments thereto (File No. 33-80150) and incorporated herein
by reference.
***Previously filed as an exhibit to the Company's Registration Statement
on Form S-3 and amendments thereto (File No. 333-17805) and is incorporated
herein by reference.
+ To be filed by amendment.
F-2
<PAGE>
EXHIBIT 12.1
EVANS WITHYCOMBE RESIDENTIAL, L.P.
CALCULATION OF THE RATIO OF DEBT TO MARKET
CAPITALIZATION AS OF DECEMBER 31, 1996
(DOLLARS EXCEPT FOR UNITS)
Issued and outstanding Units 23,044,712
Closing price of Evans Withycombe Residential, Inc. stock $21.00
at December 31, 1996
Equity Capitalization $483,938,952
Debt $436,172,000
Total Capitalization $920,110,952
Debt/Total Capitalization 47.4%
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF
EVANS WITHYCOMBE RESIDENTIAL, L.P.
Subsidiary State of Organization
- ---------- ---------------------
Evans Withycombe Management, Inc. Arizona
Evans Withycombe Finance Partnership, L.P. Delaware
