Page 1 of 24
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter ended March 31, 1997 Commission File Number 0-22109
----------------
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 A200, Scottsdale, Arizona 85251
(Address of principal executive offices)
Registrant's telephone number, including area code: (602) 840-1040
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES NO X
--- ---
As of April 25, 1997 there were 24,852,542 partnership units outstanding.
Page 1 OF 24
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
----------------------------------
INDEX
-----
<TABLE>
<CAPTION>
Part I FINANCIAL INFORMATION Page
- ------ --------------------- ----
<S> <C>
Item 1 Financial Statements
Consolidated Balance Sheets as of March 31, 1997 ( Unaudited) and
December 31, 1996 ........................................................... 3
Consolidated Statements of Income for the three months
ended March 31, 1997 and 1996 (Unaudited) ................................... 4
Consolidated Statement of Partners' Capital as of March 31, 1997
(Unaudited) ................................................................. 5
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 (Unaudited) ................................... 6
Notes to Consolidated Financial Statements .................................. 7
Item 2 Management's Discussion
and Analysis of Financial
Condition and Results of
Operations ......................................................... 13
Part II OTHER INFORMATION
- ------- -----------------
Item 6 Exhibits and Reports on Form 8-K.................................... 23
Signatures ............................................................................. 24
</TABLE>
Page 2 of 24
<PAGE>
EVANS WITHYCOMBE
RESIDENTIAL, L.P.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Real Estate:
Land.................................................. $ 133,704 $ 121,915
Buildings and improvements............................ 584,866 543,839
Furniture and fixtures................................ 31,090 29,567
Construction-in-progress.............................. 57,431 66,229
807,091 761,550
--------------- ---------------
Less accumulated depreciation......................... (44,432) (38,331)
--------------- ---------------
762,659 723,219
Cash and cash equivalents............................... 2,942 2,568
Restricted cash......................................... 1,710 1,622
Accounts and notes receivable........................... 2,055 2,702
Deferred costs, net of accumulated amortization
of $1,281 and $1,265 at March 31, 1997 and
December 31, 1996, respectively ...................... 3,484 3,838
Other assets ........................................... 1,404 1,518
--------------- ---------------
Total assets ........................................... $ 774,254 $ 735,467
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Mortgage and notes payable.............................. $ 435,917 $ 436,172
Accounts payable and other liabilities ................. 5,758 7,782
Distributions payable .................................. 10,065 -
Accrued interest ....................................... 1,249 1,417
Accrued property taxes ................................. 5,003 2,912
Resident security deposits ............................. 2,161 1,818
Prepaid rent ........................................... 898 585
--------------- ---------------
Total liabilities ...................................... 461,051 450,686
Minority interest ...................................... 828 827
Partners' capital ...................................... 312,375 283,954
--------------- ---------------
Total liabilities and partners' capital................. $ 774,254 $ 735,467
=============== ===============
</TABLE>
See Notes to Consolidated Financial Statements
Page 3 of 24
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except for number of units and per unit amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months Ended
--------------------------------------------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Revenues:
Rental...................................................... $ 27,152 $ 22,136
Third party management fees ................................ 110 287
Interest and other ......................................... 1,745 1,738
---------------- ---------------
Total revenues ........................................... 29,007 24,161
Expenses:
Repairs and maintenance .................................... 2,941 2,556
Property operating ......................................... 4,200 2,683
Advertising ................................................ 414 433
Real estate taxes .......................................... 2,119 1,649
Property management ........................................ 907 884
General and administrative ................................. 419 421
Interest ................................................... 7,389 5,424
Depreciation and amortization .............................. 6,178 4,770
---------------- ---------------
Total expenses ............................................... 24,567 18,820
---------------- ---------------
Income before minority interest and extraordinary item ....... 4,440 5,341
Minority interest ............................................ (17) (23)
---------------- ---------------
Income before extraordinary item.............................. 4,423 5,318
Extraordinary item - loss from early extinguishment of debt... (1,500) -
---------------- ---------------
Net income ................................................... $ 2,923 $ 5,318
================ ===============
Earnings per unit before extraordinary item................... $ 0.18 $ 0.25
================ ===============
Earnings per unit ............................................ $ 0.12 $ 0.25
================ ===============
Weighted average units outstanding ........................... 23,968,328 20,941,426
================ ===============
</TABLE>
See Notes to Consolidated Financial Statements
Page 4 of 24
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(Amounts in thousands, except for number of units and per unit amounts)
(Unaudited)
<TABLE>
<CAPTION>
Unamortized
Evans Other Employee
Withycombe Limited Restricted
Number of Residential, Partners' Stock
Units Inc. Capital Compensation Total
-------------- ------------ ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Partners' capital, December 31, 1996........... 23,044,712 $ 226,301 $ 58,118 $ (465) $ 283,954
Net income................................. - 2,387 536 - 2,923
Distributions ($0.405 per unit) ........... - (8,199) (1,866) - (10,065)
Proceeds of third offering, net of
underwriting discount and offering costs
of $406.................................. 1,800,000 35,415 - - 35,415
Conversion of units to common stock........ 70,332 1,360 (1,360) - -
Exercise of stock options.................. 5,000 100 - - 100
Issuance of restricted stock............... 2,930 64 - (64) -
Forfeiture of restricted stock............. (100) - - - -
Amortization of deferred compensation...... - - - 48 48
---------- --------- ----------- ---------- ---------
Partners' capital, March 31, 1997.............. 24,922,874 $ 257,428 $ 55,428 $ (481) $ 312,375
========== ========= =========== ========== =========
</TABLE>
See Notes to Consolidated Financial Statements
Page 5 of 24
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended March 31,
--------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income ..................................................... $ 2,923 $ 5,318
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .............................. 6,355 4,889
Amortization of executive deferred comp .................... 48 170
Minority interest .......................................... 17 23
Write-off of development and acquisition costs ............. 68 36
Write-off of deferred loan costs ........................... 294 -
Decrease (increase) in assets
Restricted cash ............................................ (88) (149)
Accounts and notes receivable .............................. 647 (269)
Other assets ............................................... 114 2
(Decrease) increase in liabilities
Accounts payable and other liabilities ..................... (2,024) 2,364
Accrued interest ........................................... (168) 207
Accrued property taxes ..................................... 2,091 1,472
Resident security deposits ................................. 343 3
Prepaid rent ............................................... 313 (2)
--------------- ---------------
Net cash provided by operating activities ...................... 10,933 14,064
Cash flows from investing activities
Purchase of real estate assets ................................. (27,290) (30,756)
--------------- ---------------
Net cash used in investing activities .......................... (27,290) (30,756)
Cash flows from financing activities
Proceeds from Third Public Offering, net of expenses ........... 35,415 -
Proceeds from exercise of options............................... 100 145
Proceeds from mortgage notes and
credit facility .............................................. 49,021 133,217
Principal payments on mortgage notes ........................... (67,595) (111,087)
Payment for loan costs ......................................... (194) (312)
Distributions paid ............................................. - (7,902)
Minority interest distributions ................................ (16) (58)
Net cash provided by financing activities ...................... 16,731 14,003
--------------- ---------------
Net increase (decrease) in cash and cash
equivalents .................................................. 374 (2,689)
Cash and cash equivalents, beginning of period ................. 2,568 3,634
--------------- ---------------
Cash and cash equivalents, end of period ....................... $ 2,942 $ 945
=============== ===============
Supplemental information
Cash paid during the period for interest ....................... $ 7,318 $ 5,054
=============== ===============
Supplemental disclosure of non-cash activity
Assumption of debt related to the acquisition of
apartment communities ........................................ $ 18,318 $ -
=============== ===============
Issuance of stock under restricted stock incentive plan ........ $ - $ 9
=============== ===============
Conversion of units to common stock ............................ $ 1,360 $ 204
=============== ===============
</TABLE>
See Notes to Consolidated Financial Statements
Page 6 of 24
<PAGE>
EVANS WITHYCOMBE
RESIDENTIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(Amounts in thousands, except for number of units or shares and per
unit amounts)
(Unaudited)
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 52 stabilized multifamily apartment
communities containing 14,799 units, of which 45 stabilized multifamily
apartment communities are located in Phoenix and Tucson, Arizona, containing a
total of 12,401 units and seven stabilized multifamily apartment communities are
located in the Southern California market containing a total of 2,398 units. The
Operating Partnership is also in the process of developing or expanding five
multifamily apartment communities comprising 1,146 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 600 employees at March 31, 1997.
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. (the
"Company") 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, 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 81.46 percent and 77.08 percent interest in the Operating Partnership at
March 31, 1997 and 1996, respectively.
In the second quarter of 1996, Evans Withycombe Residential, Inc. completed the
Second Public Offering. The net proceeds of $40,891,000 from the sale of
2,088,889 shares of common stock from the Second Public Offering were used to
purchase 2,088,889 units in the Operating Partnership. The Operating Partnership
used the proceeds to repay a portion of the $225 million unsecured Revolving
Credit Facility (Revolving Credit Facility).
In the first quarter of 1997, Evans Withycombe Residential, Inc. completed the
Third Public Offering. The net proceeds of $35,415,000 from the sale of
1,800,000 shares of common stock from the Third Public Offering were used to
purchase 1,800,000 units in the Operating Partnership. The Operating Partnership
used the proceeds to repay a portion of the Revolving Credit Facility.
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.
The accompanying unaudited consolidated financial statements have been presented
by the Operating Partnership's management in accordance with generally accepted
accounting principles for interim financial information and the rules and
regulations of the Securities and Exchange Commission (SEC). Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. All
significant intercompany accounts and transactions have been eliminated in
consolidation. In the opinion of management, all adjustments (consisting of
normally recurring accruals) considered necessary for a fair presentation have
been included. The results of operations for the three month period ended March
31, 1997 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1997.
Page 7 of 24
<PAGE>
These consolidated financial statements should be read in conjunction with the
Operating Partnership's December 31, 1996 audited consolidated financial
statements and accompanying notes in the Evans Withycombe Residential, L.P. Form
10/A.
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."
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 estimated 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 March 31, 1997, the Operating
Partnership did 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 $478 and $720, for the three months ended March 31,
1997 and 1996, 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 betterments 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.
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
$15,142 and $16,542 at March 31, 1997 and December 31,1996, 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.
Page 8 of 24
<PAGE>
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 three months
ended March 31, 1997 and 1996, respectively, by the weighted average number of
units outstanding.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share" which is required to be adopted on December 31, 1997. At
that time, the Operating Partnership will be required to change the method
currently used to compute earnings per unit and to restate all prior periods
presented. Under the new requirements for calculating basic earnings per unit,
the dilutive effect of stock options will be excluded. The impact of SFAS No.
128 is not expected to be material.
4. Mortgage and Notes Payable
The Operating Partnership's mortgage notes and notes payable consists of the
following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Mortgage note payable at fixed interest rate of 8.0 percent, monthly principal $ - $ 5,380
and interest payments. The unpaid principal balance was repaid on January 9,
1997.
Mortgage note payable at fixed interest rate of 8.0 percent, monthly principal - 4,340
and interest payments. The unpaid principal balance was repaid on January 9, 1997.
Mortgage note payable at fixed interest rate of 8.0 percent, monthly principal - 8,951
and interest payments. The unpaid principal balance was repaid on January 9, 1997.
Mortgage note payable at fixed interest rate of 8.28 percent, monthly principal - 6,225
and interest payments. The unpaid principal balance was repaid on January 31,
1997.
Mortgage note payable at fixed interest rate of 9.95 percent, monthly principal 12,033 12,065
and interest payments through September 15, 1997, remaining balance due September
15, 1997.
Mortgage note payable at fixed interest rate of 9.3 percent, monthly principal 3,174 3,182
and interest payments through September 15, 1997, remaining balance due September
15, 1997
Mortgage note payable at fixed interest rates ranging from 6.25 percent to 9.0 18,318 -
percent, monthly principal and interest payments through August 17, 2004,
remaining balance due August 17, 2004. Interest rate increases 0.25 percent
annually each September. The mortgage note can be repaid at any time at the
Operating Partnership's option without prepayment penalty.
</TABLE>
Page 9 of 24
<PAGE>
4. Mortgage and Notes Payable (continued)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
<C> <C> <C>
$50 million securitized debt at a fixed interest rate of 7.17 percent, monthly $ 49,381 $ 49,509
principal and 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 130,542 130,520
effective interest rate of 8.05 percent, monthly interest payments only through
August 1, 2001. Secured by first mortgage liens on 21 communities. The face
amount of $131 million is due August 1, 2001. The balance is net of unamortized
discount of $458 and $480 at March 31, 1997 and December 31, 1996, respectively.
$17.3 million tax exempt bonds with a floating interest rate based on the tax 17,300 17,300
exempt note 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, interest payments only,
matures December 1, 2007 (Effective interest rate of 4.95 percent at March 31,
1997).
$22.6 million tax exempt bonds with a floating interest rate based on the tax 22,650 22,650
exempt note 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 5.05 percent at March 31, 1997).
$24.05 million tax exempt bonds with a floating interest rate based on the tax 24,050 24,050
exempt note rate set by the remarketing agent, interest payments only. Secured
by a $24.4 million direct pay letter of credit, matures August 1, 2005.
(Effective interest rate of 6.06 percent at March 31, 1997).
$225 million unsecured Revolving Credit Facility with floating interest rate 158,469 152,000
based on LIBOR plus 1.50 percent or at the option of the Operating Partnership at
prime rate, interest payments only. Matures September 24, 1999 (Effective
interest rate of 7.25 percent at March 31, 1997).
------------- ------------
$435,917 $436,172
============= ============
</TABLE>
Each of the mortgage loans is secured by a first mortgage on separate
communities.
Principal maturities as of March 31, 1997 are as follows:
1997 $ 15,724
1998 784
1999 159,300
2000 882
2001 131,479
Thereafter 127,748
-------------
$ 435,917
=============
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.
Page 10 of 24
<PAGE>
In January 1997, the Operating Partnership extinguished the debt on four
mortgages with unpaid principal balances of approximately $25,000 with proceeds
from the Revolving Credit Facility. As a result, the Operating Partnership
incurred a loss from the early extinguishment of debt of approximately $1,500.
5. Distributions
On April 15, 1997, the Operating Partnership paid a distribution of $0.405 per
unit ($10,065) to unitholders of record as of March 31, 1997.
6. Management Fees
The Operating Partnership through the Management Company performs management
services for certain unaffiliated communities. Management fees received from
managed communities were $110 and $287 for the three months ended March 31, 1997
and 1996, respectively.
7. 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 the alternative fair value accounting provided for under
SFAS 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. Proforma information regarding net
income and earnings per share is required by SFAS No. 123 and is provided by the
Company in its annual report.
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 the three months ended March 31, 1997 is as follows:
Weighted
Average
Exercise Price
Shares Per Share
------ ---------
Options outstanding at December 31, 1996 908,850 $20.63
Exercised (5,000) 20.00
Granted 12,000 20.77
Forfeited (23,775) 21.26
Options outstanding at March 31, 1997 ------------- --------------
892,075 $20.68
============= ==============
Options exercisable:
December 31, 1996 357,700 $19.98
March 31, 1997 502,775 $20.45
Options to purchase 913,425 and 901,650 shares of common stock were available
for grant under the plan at March 31, 1997 and December 31, 1996, respectively.
Executive Stock Incentive Plan
Prior to the 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 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 during such
Page 11 of 24
<PAGE>
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. The expense is being amortized ratably over the periods in which
the shares vest and an expense of $30 and $170 for the three months ended March
31, 1997 and 1996, respectively, is included in general and administrative
expense. Information with respect to the executive restricted stock incentive
plan is as follows:
Shares
----------
Restricted stock, net of forfeitures, at March 31, 1997 74,348
Number of shares vested at March 31, 1997 27,600
Restricted Stock Program
The Company has awarded 12,850 shares of restricted stock to certain employees
of the Company 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
$19.13 to $22.25. The related expense will be amortized ratably over the periods
in which the shares vest and an expense of $18 and $9 for the three months ended
March 31, 1997 and 1996, respectively, is included in general and administrative
expense.
The Company uses the proceeds from the exercise of stock options and the
issuance of restricted stock to acquire a similar number of units in the
Operating Partnership.
8. Minority Interest
Evans Withycombe Finance, Inc., a wholly owned subsidiary of Evans Withycombe
Residential, Inc., owns a one percent interest in the Financing Partnership at
March 31, 1997 as follows:
Dollars
------------------
$ 827
Balance at December 31, 1996
Allocation of net income 17
Distributions (16)
Balance at March 31, 1997 ------------------
$ 828
==================
9. Subsequent Event
On April 2, 1997, the Operating Partnership completed the sale of $75 million
senior unsecured notes priced at 99.44 percent of par with a coupon rate of 7.50
percent due April 15, 2004 and $50 million senior unsecured notes priced at
99.21 percent of par with a coupon rate of 7.625 percent due April 15, 2007.
Proceeds to the Operating Partnership from the sale of the notes, net of
underwriter's discount and out-of-pocket costs, was approximately $122.8
million. In anticipation of the offering, the Operating Partnership entered into
two forward treasury lock agreements on February 25, 1997. The treasury lock
agreements were settled concurrently with the completion of the sale of the
senior unsecured notes on April 2, 1997, and the Operating Partnership received
proceeds from the settlement of the treasury lock agreements of approximately $3
million. The Operating Partnership is amortizing the gain on the settlement of
the treasury lock transaction as a reduction in interest expense on the notes
using the effective interest rate method. The effective interest rates on the
senior unsecured notes inclusive of the benefit from the settlement of the
treasury lock transaction is 7.18 percent and 7.36 percent, respectively. The
Operating Partnership used the proceeds from the sale of the notes and
settlement of the treasury lock transaction to pay down its Revolving Credit
Facility.
Page 12 of 24
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Amounts in thousands, except apartment data and
number of units)
The following discussion, which is based primarily on the consolidated financial
statements of Evans Withycombe Residential, L.P. should be read in conjunction
with the consolidated financial statements appearing elsewhere in this report.
The consolidated financial statements of the Operating Partnership consist of
the Operating Partnership, the Financing Partnership, and the Management
Company.
Overview
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 three months ended March 31, 1997 and 1996,
respectively, were significantly affected by acquisitions, developments and
expansions.
Comparison of Results of Operations for the Three Months Ended March 31, 1997 to
the Three Months Ended March 31, 1996
<TABLE>
<CAPTION>
March 31,
---------------------------- Percentage
1997 1996 Change
------------ ------------- ---------------
<S> <C> <C> <C>
Rental income $ 27,152 $ 22,136 22.7%
Third party management fees 110 287 (61.6)
Interest and other 1,745 1,738 0.4
------------ ------------- ---------------
Total revenues 29,007 24,161 20.0
Property operating and
maintenance (1) 7,555 5,672 33.2
Real estate taxes 2,119 1,649 28.5
Property management 907 884 2.6
General and administrative 419 421 -
Interest 7,389 5,424 36.2
Depreciation and amortization 6,178 4,770 29.5
------------ ------------- ---------------
Total expenses 24,567 18,820 30.5
------------ ------------- ---------------
Income before minority interest and
extraordinary item $ 4,440 $ 5,341 (16.9)%
============ ============= ===============
Weighted average monthly rental
revenue per unit, net of
concessions $ 688 $ 672
============ =============
Weighted average number of
apartments 14,766 11,929
============ =============
Economic occupancy (2) 89.2% 92.3%
============ =============
</TABLE>
(1) The Operating Partnership defines property operating and
maintenance expense as repairs and maintenance, other property
operating and advertising expense.
(2) Stabilized properties only.
Page 13 of 24
<PAGE>
Rental revenues increased by $5,016 or 22.7 percent for the three months ended
March 31, 1997 as compared to the similar period in 1996 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.
Interest and other income for the three months ended March 31, 1997 was
comparable to the similar period in 1996. Interest and other income for 1996
included a $235 gain on the sale of telephone servicing rights on certain
properties.
Third party management fees decreased $177 or 61.6 percent due to the sale of
several properties in the management portfolio.
Property operating and maintenance expense and real estate taxes increased due
to the increase in the weighted average number of apartments for the three
months ended March 31, 1997 as compared to the same period in 1996,
respectively.
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 $478 of interest for the three
months ended March 31, 1997 compared to $720 for the same period in 1996 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, 1996. Same store portfolio
consists of 41 stabilized properties containing 11,053 apartment units that were
owned by the Operating Partnership for the three months ended March 31, 1997 and
1996.
<TABLE>
<CAPTION>
March 31,
---------------------------- Percentage
1997 1996 Change
------------ ------------- -------------
<S> <C> <C> <C>
Rental income $ 19,802 $ 20,240 (2.2)%
Other income 1,113 1,173 (5.1)
------------ ------------- -------------
20,915 21,413 (2.3)
Property operating and maintenance 5,448 5,174 5.3
Real estate taxes 1,498 1,478 1.4
------------ ------------- -------------
6,946 6,652 4.4
------------ ------------- -------------
Property net operating income $ 13,969 $ 14,761 (5.4)%
============ ============= =============
Weighted average monthly rental
revenue per unit, net of
concessions $ 671 $ 661
============ =============
Economic occupancy 89.2% 92.3%
============ =============
</TABLE>
Rental income for the three months ended March 31, 1997 decreased $438 as
compared to the same period in 1996 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. Other income for the three months ended March 31, 1997
decreased as a result of the 1996 amount including $235 gain from the sale of
telephone servicing rights at various communities.
Property operating and maintenance expense increased $274 or 5.3 percent over
1996 due to higher apartment turnover and utility costs associated with an
increased number of vacant apartments in its "same store" portfolio.
Page 14 of 24
<PAGE>
Communities Stabilized Less Than Two Years
Communities stabilized less than two years consist of the development of four
new apartment communities and the expansion of four existing apartment
communities by the Operating Partnership, containing an aggregate of 1,444 new
apartment units that reached stabilized occupancy during the year ended December
31, 1996. Increases in the three month period ended March 31, 1997 as compared
to the three month period ended March 31, 1996 are the result of the increase in
the weighted average number of apartments.
March 31,
---------------------------
1997 1996
------------ -------------
Rental income $ 3,062 $ 1,894
Other income 159 135
------------ -------------
3,221 2,029
Property operating and maintenance 717 482
Real estate taxes 245 171
------------ -------------
962 653
------------ -------------
Property net operating income $ 2,259 $ 1,376
============ =============
Weighted average number of
apartments 1,444 874
============ =============
Development and Lease Up Communities
Development and lease up communities consist of the development of seven new
apartment communities or the expansion of existing apartment communities
containing an aggregate of 1,542 apartment units that were in the
"construction," "development," or "lease up" stage during 1997 and therefore,
not considered to have achieved stabilized occupancy for all of the periods
presented. Increases in the three month period ended March 31, 1997 as compared
to the three month period ended March 31, 1996 are the result of an increase in
the weighted average number of apartments.
March 31,
---------------------------
1997 1996
------------ -------------
Rental income $ 1,349 $ 2
Other income 121 1
------------ -------------
1,470 3
Property operating and maintenance 484 16
Real estate taxes 128 -
------------ -------------
612 16
------------ -------------
Property net operating income $ 858 $ (13)
============ =============
(loss)
Weighted average number of
apartments in leaseup 695 2
============ =============
Page 15 of 24
<PAGE>
Acquisitions
Acquisitions consist of 6 properties containing 1,906 apartment units, which
have been acquired by the Operating Partnership since January 1, 1996. There
were no acquisitions of apartment communities in the First Quarter of 1996.
March 31,
---------------------------
1997 1996
------------ -------------
Rental income $ 2,939 $ -
Other income 73 -
------------ -------------
3,012 -
Property operating and maintenance 906 -
Real estate taxes 248 -
------------ -------------
1,154 -
------------ -------------
Property net operating income $ 1,858 $ -
============ =============
Weighted average number of
apartments
1,574 -
============ =============
Liquidity and Capital Resources
Liquidity
The Operating Partnership's net cash provided by operating activities decreased
from $14.1 million for the three months ended March 31, 1996 to $10.9 million
for the three months ended March 31, 1997 principally due to a reduction in
accounts payable and other liabilities related to the decrease in construction
activity and the decrease in net income related to the loss from the early
extinguishment of debt. Net cash used in investing activities decreased from
$30.8 million for the three months ended March 31, 1996 to $27.3 million for the
three months ended March 31, 1997. The decrease is the result of a reduction in
construction activity for the first quarter 1997 of $9.8 million as compared to
$30.2 million in the first quarter 1996 being offset by $16.5 million related to
the acquisitions of two apartment communities, net of assumed debt. Net cash
provided by financing activities increased from $14.0 million for the three
months ended March 31, 1996 to $16.7 million for the three months ended March
31, 1997 due to the proceeds from the sale of 1,800,000 shares of common stock
from the Third Public Offering and borrowings under the 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 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
Page 16 of 24
<PAGE>
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 March 31, 1997, the Operating Partnership's total debt was approximately
$435.9 million and the Operating Partnership's debt to total market
capitalization (Market Equity plus Debt) was approximately 46.0 percent. The
Operating Partnership received an investment grade security rating of "BBB-"
from Standards and Poors Corporation, "Baa3" from Moody's Investor Services, Inc
and " BBB-" from Fitch Investors Service, Inc. in December 1996 with respect to
prospective issuances of senior unsecured debt.
A security rating is not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time by the assigning rating
organization, and each rating should be evaluated independently of any other
rating. A rating of (a) BBB- from Standard & Poors Corporation indicates that
the obligations of the Operating Partnership are in the lower range of those
obligations that exhibit adequate protection parameters, (b) Baa3 from Moody's
Investor Service Inc. indicates that the obligations of the Operating
Partnership are considered to be in the lower range of medium-grade obligations,
which are not considered to be highly protected or poorly secured and (c) BBB-
from Fitch Investors Service, Inc. indicates that the obligations of the
Operating Partnership are considered to be in the lower range of obligations
considered to be of investment grade and of satisfactory credit quality and that
its ability to pay interest and to repay principal is considered to be adequate.
Conventional Mortgage Loans
Conventional mortgage loans are comprised of three fixed rate loans at March 31,
1997, 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
August 17, 2004. The conventional mortgage loans aggregated $33.5 million at
March 31, 1997 with interest rates ranging from 6.25 percent to 9.95 percent. In
January 1997, the Operating Partnership extinguished the debt on four mortgages
with unpaid principal balances of approximately $25.0 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 $1.5 million.
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 $49.4 million at March 31, 1997. The loan is convertible to unsecured upon
the Operating Partnership achieving an investment grade rating of BBB or better.
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 first mortgage liens on 21
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 Poors.
In March 1997, the Operating Partnership substituted two apartment communities,
Sonoran and The Heritage, as collateral for the securitized loan in exchange for
releasing the liens on three apartment communities, The Pines, La Valencia and
Deer Creek Village, which are held for sale.
Page 17 of 24
<PAGE>
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 March 31, 1997 with interest rates ranging from 4.95
percent to 6.06 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 London Inter
Bank Offered Rate (LIBOR ) plus 150 basis points (100 basis points equals one
percent) (or, at the option of the Operating Partnership, at the prime rate
announced by the banks). 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 March
31, 1997, there was $158.5 million outstanding on the Revolving Credit Facility,
with an effective interest rate of 7.25 percent. The Revolving Credit Facility
contains customary representations, covenants and events of default, including a
limitation which restricts dividends to 95 percent of Funds From Operations, as
defined. The Operating Partnership does not expect that the covenants will
affect its ability to pay dividends in accordance with its current dividend
policy or its ability to maintain a REIT status.
<TABLE>
<CAPTION>
The table below outlines the Operating Partnership's debt structure as of March 31, 1997
Outstanding Weighted Average
Balance Interest Rate
-------------------- --------------------
<S> <C> <C>
Fixed Rate Debt:
Mortgage Debt
Conventional.................................................... $ 82,906 7.40%
Mortgage Loan Certificates...................................... 130,542 8.05
-------------------- --------------------
Total Fixed Rate Debt....................................... 213,448 7.80
Variable Rate Debt:
Tax Exempt Bonds.................................................. 64,000 5.40
Revolving Credit Facility......................................... 158,469 7.25
-------------------- --------------------
Total Variable Rate Debt.................................... 222,469 6.72
-------------------- --------------------
Total Debt.................................................. $ 435,917 7.25%
==================== ====================
</TABLE>
The Operating Partnership had 5,714 unencumbered apartment units related to the
Stabilized Communities and 1,146 unencumbered apartment units related to the
Communities Under Construction and in Lease-Up at March 31, 1997.
Subsequent Offerings
On May 28, 1996, the Company completed the Second Public Offering of 4,500,000
shares of its Common Stock of which 2,000,000 shares were sold by the Company
and an aggregate of 2,500,000 were sold by two institutional stockholders. On
June 25, 1996, the underwriters exercised their over-allotment option for
200,000 shares and 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 the over-allotment option granted to the
underwriters. Net proceeds to the Company from the Second Public Offering was
approximately $40,891,000. The Company used the proceeds from the sale of Common
Stock to purchase 2,088,889 units in the Operating Partnership. The Operating
Partnership used the proceeds to pay down a portion of its Revolving Credit
Facility.
Page 18 of 24
<PAGE>
In January 1997, the Company 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. The registration statement, which has been declared effective by
the SEC, includes $125 million of available equity securities under the
September 1995 registration statement. These registration statements provide the
Company with the ability to issue and sell a portion of such securities from
time to time.
On February 14, 1997, the Company completed the Third Public Offering of
1,800,000 shares of its Common Stock. Net proceeds to the Company from the
February 1997 Offering was approximately $35,415,000. The Company used the
proceeds from the sale of Common Stock to purchase 1,800,000 units in the
Operating Partnership. The Operating Partnership used the proceeds to pay down a
portion of its Revolving Credit Facility.
On April 2, 1997, the Operating Partnership completed the sale of $75 million
senior unsecured notes priced at 99.44 percent of par with a coupon rate of 7.50
percent due April 15, 2004 and $50 million senior unsecured notes priced at
99.21 percent of par with a coupon rate of 7.625 percent due April 15, 2007.
Proceeds to the Operating Partnership from the sale of the notes, net of
underwriter's discount and out-of-pocket costs, was approximately $122.8
million. In anticipation of the offering, the Operating Partnership entered into
two forward treasury lock agreements on February 25, 1997. The treasury lock
agreements were settled concurrently with the completion of the sale of the
senior unsecured notes on April 2, 1997, and the Operating Partnership received
proceeds from the settlement of the treasury lock agreements of approximately $3
million. The Operating Partnership is amortizing the gain on the settlement of
the treasury lock transaction as a reduction in interest expense on the notes
using the effective interest rate method. The effective interest rates on the
senior unsecured notes inclusive of the benefit from the settlement of the
treasury lock transaction is 7.18 percent and 7.36 percent, respectively. The
Operating Partnership used the proceeds from the sale of the notes and the
settlement of the treasury lock transaction to pay down its 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.
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. Funds from Operations 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 document.
Three Months Ended
March 31,
----------------------
1997 1996
----------------------
Income before extraordinary
items and minority interest $ 4,440 $ 5,341
Depreciation and amortization, net of corporate
depreciation of $66 and $39, respectively 6,112 4,731
Amortization of executive deferred
compensation expense 30 170
----------------------
Funds from Operations $ 10,582 $ 10,242
======================
Page 19 of 24
<PAGE>
Number of Units
The Operating Partnership had 23,968,328 and 20,941,426 weighted average number
of units at March 31, 1997 and 1996, 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 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 three months ended
March 31, are as follows:
1997 1996
--------- ----------
New community development $ 9,793 $ 30,276
Acquisitions 34,800 -
Nonrecurring capital expenditures:
Vehicle access control gates 313 -
Computer upgrade 71 28
Recurring capital expenditures:
Community additions and
improvements 552 416
Corporate additions and improvements 12 -
--------- ----------
$ 45,541 $ 30,720
========= ==========
Development and Construction Activity
The apartment communities under construction and in lease-up are listed below:
<TABLE>
<CAPTION>
Actual Actual or
Average Estimated Date of Estimated Estimated
Unit Construction Construction Commence- Date of
Total Size Cost Commence- ment of Stabilized
Name City Units (Sq. Ft.) (Millions) ment Lease-Up Occupancy
- --------------------------------------------------------------------------------------------------------------------
Quarter
------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Phoenix
The Isle at Arrowhead Ranch Glendale 256 940 $ 17 2:96 4:96 4:97
The Retreat Phase I Phoenix 240 973 14 1:97 3:97 2:98
Vista Grove Mesa 224 911 14 1:97 3:97 2:98
------- -----------
720 45
Tucson
Bear Canyon Tucson 238 973 15 3:95 2:96 2:97
Harrison Park II Expansion Tucson 188 974 10 3:95 2:96 2:97
------- -----------
426 25
------- -----------
Total 1,146 $ 70
======= ===========
</TABLE>
Page 20 of 24
<PAGE>
The Operating Partnership owns sites intended for the development of two
additional multifamily apartment communities and Phase II of the Retreat, which,
if completed, are expected to contain approximately 651 apartment units. There
can be no assurance that the Operating Partnership will succeed in obtaining any
necessary governmental approvals or any financing required to develop these
projects, or that the Operating Partnership will decide to develop any
particular project.
The information set forth in the table above is based upon a number of estimates
and assumptions that are inherently subject to business, economic and
competitive uncertainties and contingencies, many of which are beyond the
Operating Partnership's control. The actual development cost, completion date
and stabilization date of any project will be dependent upon a variety of
factors beyond the control of the Operating Partnership including, for example,
labor and other personnel costs, material costs, weather conditions, government
fees and leasing rates.
Acquisition Activity
On February 27, 1997, the Operating Partnership acquired Canyon Ridge, a 162
unit apartment community located in San Diego, California for a total purchase
price of approximately $11.1 million cash. On March 14, 1997, the Operating
Partnership acquired Marquessa Apartments, a 336 unit apartment community
located in Corona Hills, California for $5.1 million cash and the assumption of
a note for $18.3 million.
The Operating Partnership is actively pursuing and in preliminary negotiations
regarding additional properties in Riverside/San Bernardino and San Diego,
California, but no assurance can be given that it will continue to pursue or
consummate any acquisitions as a result of these negotiations.
Disposition Activity
The Operating Partnership has entered into agreements to sell three properties,
Deer Creek Village, The Pines, and La Valencia containing 863 apartment units.
The aggregate sales price is approximately $42.2 million. The sales are subject
to due diligence procedures and no assurance can be given that the sales will be
consummated.
Page 21 of 24
<PAGE>
Apartment Communities
The following sets forth certain information regarding the current apartment
communities at March 31, 1997. All of the communities are owned 100 percent in
fee by the Operating Partnership or the Financing Partnership.
<TABLE>
<CAPTION>
Year
Developed
Number of Developed/ or
Apartment Communities City Apartments Acquired Acquired
--------------------- ---- ---------- -------- --------
<S> <C> <C> <C> <C>
Same Store
Arizona
- -------
Phoenix:
Acacia Creek Scottsdale 508 Acquired 1995
Bayside at the Islands Gilbert 272 Developed 1988
Country Brook Chandler 276 Acq/Dev 1991/1993
Deer Creek Village Phoenix 308 Acquired 1991
Gateway Villas Phoenix 180 Developed 1995
Greenwood Village Tempe 270 Acquired 1993
Heritage Point Mesa 148 Acquired 1994
La Mariposa Mesa 222 Acquired 1990
La Valencia Mesa 361 Acquired 1990
Little Cottonwoods Tempe 379 Acq/Acq/Dev 1989/89/90
Los Arboles Chandler 232 Developed 1985
Miramonte Scottsdale 151 Developed 1983
Morningside Scottsdale 160 Acquired 1992
Mountain Park Ranch Phoenix 240 Developed 1995
Park Meadow Gilbert 156 Acquired 1992
Preserve at Squaw Peak Phoenix 108 Acquired 1991
Promontory Pointe Phoenix 304 Acquired 1988
Rancho Murietta Tempe 292 Acquired 1995
Scottsdale Courtyards Scottsdale 274 Developed 1993
Scottsdale Meadows Scottsdale 168 Developed 1984
Shadow Brook Phoenix 224 Acquired 1993
Shores at Andersen Springs Chandler 299 Developed 1989/1993
Silver Creek Phoenix 174 Acquired 1991
Sonoran Phoenix 429 Developed 1995
Sun Creek Glendale 175 Acquired 1993
Superstition Vista Mesa 316 Acquired 1995
The Enclave Tempe 204 Developed 1995
The Heritage Phoenix 204 Developed 1995
The Meadows Mesa 306 Acquired 1987
The Palms Phoenix 132 Developed 1990
The Pines Mesa 194 Acquired 1992
Towne Square Chandler 468 Acq/Dev 1992/1995
Villa Encanto Phoenix 382 Developed 1983
Village at Lakewood Phoenix 240 Developed 1988
----------
8,756
Tucson:
Harrison Park Tucson 172 Acquired 1991
La Reserve Oro Valley 240 Developed 1988
Orange Grove Village Tucson 256 Acquired 1991
Suntree Village Oro Valley 424 Acquired 1992
The Arboretum Tucson 496 Acq/Dev 1992/1995
Village at Tanque Verde Tucson 217 Acq/Dev 1990/1994
----------
1,805
California:
The Ashton Corona Hills 492 Acquired 1995
----------
492
----------
Total Same Store 11,053
==========
</TABLE>
Page 22 of 24
<PAGE>
<TABLE>
<CAPTION>
Year
Developed
Number of Developed/ or
Apartment Communities City Apartments Acquired Acquired
--------------------- ---- ---------- -------- --------
<S> <C> <C> <C> <C>
Communities Stabilized Less than Two Years
Arizona
- -------
Phoenix:
Country Brook Expansion Phase III Chandler 120 Developed 1995/96
Ingleside Phoenix 120 Developed 1995/96
Ladera Phoenix 248 Developed 1995/96
Mirador Phoenix 316 Developed 1995/96
Park Meadow Expansion Phase II Gilbert 68 Developed 1995/96
Towne Square Expansion Phase III Chandler 116 Developed 1995/96
----------
988
Tucson:
The Legends Tucson 312 Developed 1995/96
Orange Grove Expansion Phase II Tucson 144 Developed 1995/96
----------
456
----------
Total Communities Stabilized Less than Two Years 1,444
==========
Developments and Lease-Up Properties
Arizona
- -------
Phoenix:
The Hawthorne (1) Phoenix 276 Developed 1995/96
The Retreat Phase I Glendale 240 Developed 1996/97
Vista Grove Mesa 224 Developed 1996/97
The Isle at Arrowhead Ranch (2) Glendale 256 Developed 1996
Promontory Pointe Expansion Phase II (1) Phoenix 120 Developed 1995/96
----------
1,116
Tucson:
Bear Canyon (2) Tucson 238 Developed 1995/96
Harrison Park Expansion Phase II (2) Tucson 188 Developed 1995/96
----------
426
----------
Total Developments and Lease-Up Properties 1,542
==========
Acquisitions
California
----------
Canyon Crest Views Riverside 178 Acquired 1996
Canyon Ridge San Diego 162 Acquired 1997
Marquessa Corona Hills 336 Acquired 1997
Portofino Chino Hills 176 Acquired 1996
Parkview Terrace Club Redlands 558 Acquired 1996
Redlands Lawn & Tennis Club Redlands 496 Acquired 1996
----------
1,906
==========
Total 15,945
==========
</TABLE>
(1) Community reached stabilized occupancy in the first quarter 1997
(2) Community is in lease-up
PART II OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K.
(b) No current reports on Form 8-K were filed during the quarter ended March 31,
1997
Page 23 of 24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EVANS WITHYCOMBE RESIDENTIAL, L.P.
By: Evans Withycombe Residential, Inc., as
General Partner
May 13, 1997 /s/ Stephen O. Evans
- ------------------- ------------------------------
(Date) Stephen O. Evans,
Chairman of the Board and
Chief Executive Officer
May 13, 1997 /s/ Paul R. Fannin
- ------------------- ------------------------------
(Date) Paul R. Fannin,
Senior Vice President and
Chief Financial Officer
Page 24 of 24
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 4,652
<SECURITIES> 0
<RECEIVABLES> 2,055
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 807,091
<DEPRECIATION> 44,432
<TOTAL-ASSETS> 774,254
<CURRENT-LIABILITIES> 0
<BONDS> 435,917
0
0
<COMMON> 0
<OTHER-SE> 312,375
<TOTAL-LIABILITY-AND-EQUITY> 774,254
<SALES> 0
<TOTAL-REVENUES> 29,007
<CGS> 0
<TOTAL-COSTS> 9,674
<OTHER-EXPENSES> 7,504
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,389
<INCOME-PRETAX> 4,440
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,440
<DISCONTINUED> 0
<EXTRAORDINARY> (1,500)
<CHANGES> 0
<NET-INCOME> 2,940
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
