UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-22109
----------------------
EVANS WITHYCOMBE RESIDENTIAL, L.P.
(Exact name of Registrant as specified in its charter)
Delaware 86-0766007
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Riverside Plaza, Suite 400
Chicago, Illinois 60606
(Address of Principal Executive (Zip Code)
Offices)
Registrant's telephone number, including area code: (312) 474-1300
------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of limited
partnership interests
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 X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ X ]
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
TABLE OF CONTENTS
Item No. Page No.
PART I
1. Business .............................................................. 1
2. Properties ............................................................ 6
3. Legal Proceedings ..................................................... 8
4. Submission of Matters to a Vote of Security Holders ................... 8
PART II
5. Market for Registrant's Common Equity and Related Shareholder Matters . 9
6. Selected Financial Data ............................................... 10
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................... 12
8. Financial Statements and Supplementary Data ........................... 21
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ................................................ 21
PART III
10. Trustees and Executive Officers of the Registrant ..................... 22
11. Executive Compensation ................................................ 25
12. Security Ownership of Certain Beneficial Owners and Management ........ 25
13. Certain Relationships and Related Transactions ........................ 26
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ....... 26
<PAGE>
ITEM 1. BUSINESS
Evans Withycombe Residential, L.P. (the "Operating Partnership") owns and
manages 44 stabilized multifamily apartment communities located in Arizona, one
stabilized multifamily apartment community each in Minnesota and Massachusetts,
and seven stabilized multifamily communities in Southern California, containing
a total of 15,331 apartments, of which 12,349 are in Arizona, 248 in Minnesota,
336 in Massachusetts, and 2,398 in Southern California. The 53 stabilized
communities are referred to herein as the "Stabilized Properties." The Operating
Partnership is also in the process of developing three apartment communities in
Arizona with a total of 953 apartments (the "Properties Under Construction" and,
together with the Stabilized Properties, the "Properties"). The Operating
Partnership generally considers a property stabilized when it first reaches 93%
physical occupancy.
Business Combination
The Operating Partnership entered into an Asset Contribution Agreement, dated as
of August 27, 1997 (the "Agreement"), with ERP Operating Limited Partnership
("ERP") pursuant to which the Operating Partnership agreed, subject to certain
conditions, to contribute all of its assets to ERP in exchange for units of
limited partnership interest in ERP following the Merger (as defined below). The
Agreement was entered into in connection with the business combination of Evans
Withycombe Residential, Inc. (the "Predecessor"), a Maryland real estate
investment trust ("REIT"), previously the sole general partner of the Operating
Partnership, with and into Equity Residential Properties Trust ("EQR"), a
Maryland real estate investment trust and sole general partner of ERP, pursuant
to an Agreement and Plan of Merger between the Predecessor and EQR dated August
27, 1997 (the "Merger"). The Agreement provided for the exchange of all
outstanding limited partnership units in the Operating Partnership for limited
partnership units in ERP, at an exchange ratio of 0.50 units of ERP for each
unit of the Operating Partnership.
On December 23, 1997, the Merger was approved by the shareholders of both EQR
and the Predecessor. On December 23, 1997, the Predecessor and certain limited
partners who held 24,811,438 units in the Operating Partnership exchanged their
limited partnership units for limited partnership units in ERP. EQR and ERP
replaced the Predecessor as co-general partners of the Operating Partnership and
owned 82.1 percent and 17.1 percent, respectively, of the Operating Partnership
at December 31, 1997.
Organization Structure
Prior to December 23, 1997, the effective date of the Merger, the general
partner of the Operating Partnership was the Predecessor, which operated as a
self-administered and self-managed REIT. All of the Properties and substantially
all other assets of the Predecessor were held by, and substantially all of the
Predecessor's operations were conducted through, the Operating Partnership
(either directly or through subsidiaries). The Predecessor was the sole general
partner and was also a limited partner of the Operating Partnership and owned an
approximate 82.4 percent interest therein at December 23, 1997. To maintain the
Predecessor's qualification as a REIT while realizing income from its fee
management and related service business, the Predecessor's management operations
were 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").
The structure of EQR, the Predecessor, the Operating Partnership, the Financing
Partnership and the Management Company and the ownership of the equity in such
entities, as of December 22, 1997 and December 31, 1997, respectively, were as
set forth below.
1
<PAGE>
<TABLE>
<CAPTION>
Company
As of December 31, 1997
- ---------------------------------------------------------------------------------------------------------------------
EQUITY RESIDENTIAL PROPERTIES TRUST
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Other
------------------
General partner Limited partner
Interest Interest
1% 89.1%
--------------------------------------
ERP
OPERATING PARTNERSHIP
--------------------------------------
General partner Limited partner General partner Limited partner Limited partner 100%
Interest Interest Interest Interest Interest common stock
1% 81.1% 1% 16.1% .8%
----------------------------------------------------------------------------- -------------------
Evans Withycombe Evans
Residential, L.P. Withycombe
[Operating Partnership] Finance Inc.
----------------------------------------------------------------------------- -------------------
Current members of
senior management of
EQR
- -----------------------------
100% Non-voting common stock 99% 1%
1% Voting common stock Limited partner General partner
(99% of economic interest) interest interest
99% Voting common stock
(1% economic interest)
------------------------------------------------ ------------------------------------------------
Evans Withycombe Evans Withycombe
Management, Inc. Finance Partnership, L.P.
[Management Company] [Financing Partnership]
------------------------------------------------ ------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Predecessor Company
As of December 22, 1997
- ---------------------------------------------------------------------------------------------------------------------
EVANS WITHYCOMBE RESIDENTIAL, INC.
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Other
------------------
General partner Limited partner Limited partner 100%
Interest Interest Interest common stock
1% 81.4% 17.6%
----------------------------------------------------------------------------- -------------------
Evans Withycombe Evans
Residential, L.P. Withycombe
[Operating Partnership] Finance Inc.
----------------------------------------------------------------------------- -------------------
Current and former
members of senior
management
- -----------------------------
100% Non-voting common stock 99% 1%
1% Voting common stock Limited partner General partner
(99% of economic interest) interest interest
99% Voting common stock
(1% economic interest)
------------------------------------------------ ------------------------------------------------
Evans Withycombe Evans Withycombe
Management, Inc. Finance Partnership, L.P.
[Management Company] [Financing Partnership]
------------------------------------------------ ------------------------------------------------
</TABLE>
3
<PAGE>
The Operating Partnership's principal executive office is located at Two North
Riverside Plaza, Chicago, Illinois 60606, and its telephone number is
312-474-1300. EQR has approximately 4,200 full-time employees. Each of the
Properties is directed by an on-site manager, who supervises the on-site
employees and is responsible for the day-to-day operations of the Property. The
manager is generally assisted by a leasing administrator and/or property
administrator. In addition, a maintenance director at each Property supervises a
maintenance staff whose responsibilities include a variety of tasks, including
responding to service requests, preparing vacant apartments for the next
resident and performing preventive maintenance procedures year-round.
Business Objectives and Operating Strategies
The Operating Partnership seeks to maximize both current income and long-term
growth in income, thereby increasing: (i) the value of the Properties; (ii)
distributions on a per limited partnership interest ("OP Units") basis; and
(iii) EQR's shareholders' value.
The Operating Partnership's strategies for accomplishing these objectives are:
o maintaining and increasing Property occupancy while increasing
rental rates and
o controlling expenses, providing regular preventive
maintenance, making periodic renovations and enhancing
amenities.
The Operating Partnership is committed to tenant satisfaction by striving to
anticipate industry trends and implementing strategies and policies consistent
with providing quality tenant services. In addition, the Operating Partnership
continuously surveys rental rates of competing properties and conducts
satisfaction surveys of residents to determine the factors they consider most
important in choosing a particular apartment unit.
Acquisition Strategies
EQR intends to pursue property acquisitions through ERP and not through the
Operating Partnership.
Development Strategies
The Operating Partnership seeks to make investments towards the development of
properties in markets where it discerns strong demand, which the Operating
Partnership believes will enable it to achieve superior rates of return. The
Operating Partnership's current communities under development are in markets
where certain market demographics justify the development of high quality
multifamily communities offering extensive amenities and services to residents.
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, and (vi) the purchase price and yields of
available existing stabilized communities, if any.
Disposition Strategies
Management will use market information to evaluate dispositions. Factors the
Operating Partnership considers in deciding whether to dispose of its Properties
include the following: (i) potential increases in new construction; (ii) areas
where the economy is expected to decline substantially; and (iii) markets where
the Operating Partnership does not intend to establish long-term concentrations.
The Operating Partnership will reinvest the proceeds received from property
dispositions to fund property acquisitions. In addition, when feasible the
Operating Partnership will structure these transactions as tax deferred
exchanges.
4
<PAGE>
Competition
All of the Properties are located in developed areas that include other
multifamily properties. The number of competitive multifamily properties in a
particular area could have a material effect on the Operating Partnership's
ability to lease units at the Properties or at any newly acquired properties and
on the rents charged. The Operating Partnership may be competing with other
entities that have greater resources than the Operating Partnership and whose
managers have more experience than the Operating Partnership's officers and
trustees. In addition, other forms of multifamily properties, including
multifamily properties and manufactured housing controlled by Mr. Zell, and
single-family housing, provide housing alternatives to potential residents of
multifamily properties.
Potential Environmental Liability Affecting the Operating Partnership
Under various federal, state and local environmental laws, ordinances and
regulations, an owner of real estate may be liable for the costs of removal or
remediation of certain hazardous or toxic substances on such property. These
laws often impose environmental liability without regard to whether the owner
knew of, or was responsible for, the presence of such hazardous or toxic
substances. The presence of such substances, or the failure properly to
remediate such substances, may adversely affect the owner's ability to sell or
rent the property or to borrow using the property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances may also
be liable for the costs of removal or remediation of such substances at a
disposal or treatment facility, whether or not such facility is owned or
operated by such person. Certain laws impose liability for release of
asbestos-containing materials ("ACMs") into the air and third parties may seek
recovery from owners or operators of real properties for personal injury
associated with ACMs. In connection with the ownership (direct or indirect),
operation, management and development of real properties, the Operating
Partnership or the Subsidiaries, as the case may be, may be considered an owner
or operator of such properties or as having arranged for the disposal or
treatment of hazardous or toxic substances and, therefore, potentially liable
for removal or remediation costs, as well as for certain other related costs,
including governmental fines and injuries to persons and property.
All the Properties have been the subject of a Phase I, and in certain cases a
supplemental, environmental assessment completed by qualified independent
environmental consultant companies. Environmental assessments were obtained
prior to the acquisition by the Operating Partnership of each of the Properties.
These environmental assessments have not revealed, nor is the Operating
Partnership aware of, any environmental liability that the Operating
Partnership's management believes would have a material adverse effect on the
Operating Partnership's business, results of operations, financial condition or
liquidity.
No assurance can be given that existing environmental assessments with respect
to any of the Properties reveal all environmental liabilities, that any prior
owner of a Property did not create any material environmental condition not
known to the Operating Partnership, or that a material environmental condition
does not otherwise exist as to any one or more Properties.
5
<PAGE>
ITEM 2. PROPERTIES
The following sets forth certain information regarding the Stabilized Properties
at December 31, 1997. The Operating Partnership beneficially owns fee simple
title to all 53 properties. For description of liens on certain of the
Properties listed below, see Schedule III - Real Estate Investments and
Accumulated Depreciation on page S-1.
<TABLE>
<CAPTION>
Average Physical
Year Average Physical Occupancy
Developed Unit Occupancy as of
Number of Developed/ or Size During December 31,
Properties City Apartments Acquired Acquired (square feet) 1997 (1) 1997 (1)
---------- ---- ---------- -------- -------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Stabilized Properties
Arizona
- -------
Phoenix:
Acacia Creek Scottsdale 508 Acquired 1995 910 96% 98%
Bayside at the Islands Gilbert 272 Developed 1988 870 96% 98%
Country Brook Chandler 396 Acq/Dev/Dev 1991/1993/1996 961 97% 99%
Gateway Villas Phoenix 180 Developed 1995 998 94% 97%
Greenwood Village Tempe 270 Acquired 1993 884 96% 96%
Hawthorne (3) Phoenix 276 Developed 1995/1996 904 96% 91%
Heritage Point (2) Mesa 148 Acquired 1994 773 95% 96%
Isle at Arrowhead Ranch (3) Glendale 256 Developed 1996/1997 940 91% 96%
La Mariposa Mesa 222 Acquired 1990 928 95% 98%
La Valencia Mesa 361 Acquired 1990 950 92% 97%
Ladera Phoenix 248 Developed 1995/1996 1,012 96% 98%
Little Cottonwoods Tempe 379 Acq/Acq/Dev 1989/89/90 1,023 94% 97%
Mirador Phoenix 316 Developed 1995/1996 987 94% 98%
Miramonte Scottsdale 151 Developed 1983 782 98% 98%
Morningside Scottsdale 160 Acquired 1992 1,019 96% 100%
Mountain Park Ranch Phoenix 240 Developed 1995 961 95% 98%
Park Meadow Gilbert 224 Acquired 1992 880 96% 99%
Preserve at Squaw Peak Phoenix 108 Acquired 1991 952 95% 95%
Promontory Pointe (Phase I &
II) (3) Phoenix 424 Acq/Dev/Dev 1988/1996/1997 986 93% 97%
Rancho Murietta Tempe 292 Acquired 1995 866 92% 98%
Scottsdale Courtyards Scottsdale 274 Developed 1993 1,044 98% 100%
Scottsdale Meadows Scottsdale 168 Developed 1984 888 95% 99%
Shadow Brook Phoenix 224 Acquired 1993 1,010 96% 99%
Shores at Andersen Springs Chandler 299 Developed 1989/1993 889 97% 97%
Silver Creek Phoenix 174 Acquired 1991 775 95% 97%
Sonoran Phoenix 429 Developed 1995 965 95% 95%
Sun Creek Glendale 175 Acquired 1993 762 95% 97%
Superstition Vista Mesa 316 Acquired 1995 950 95% 96%
The Enclave Tempe 204 Developed 1995 952 96% 100%
The Heritage Phoenix 204 Developed 1995 973 93% 94%
The Ingleside Phoenix 120 Developed 1995/1996 987 97% 100%
The Meadows Mesa 306 Acquired 1987 809 95% 97%
The Palms Phoenix 132 Developed 1990 1,026 98% 100%
Towne Square Chandler 584 Acq/Dev 1992/1995 960 95% 98%
Villa Encanto Phoenix 382 Developed 1983 810 95% 97%
Village at Lakewood Phoenix 240 Developed 1988 857 94% 94%
--------------
9,662
Tucson:
Bear Canyon (3) Tucson 238 Developed 1995/1996 973 93% 95%
Harrison Park (Phase I & II)
(3) Tucson 360 Acq/Dev 1991/1996 809 91% 94%
La Reserve Oro Valley 240 Developed 1988 900 90% 98%
Orange Grove Village Tucson 400 Acq/Dev 1991/1996 714 87% 94%
Suntree Village Oro Valley 424 Acquired 1992 831 88% 96%
The Arboretum Tucson 496 Acq/Dev 1992/1995 886 94% 98%
The Legends Tucson 312 Developed 1995/1996 1,041 92% 96%
Village at Tanque Verde Tucson 217 Acq/Dev 1990/1994 694 90% 94%
--------------
2,687
</TABLE>
6
<PAGE>
ITEM 2. PROPERTIES (continued)
<TABLE>
<CAPTION>
Average Physical
Year Average Physical Occupancy
Developed Unit Occupancy as of
Number of Developed/ or Size During December 31,
Stabilized Properties City Apartments Acquired Acquired (square feet) 1997 (1) 1997 (1)
--------------------- ---- ---------- -------- -------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
California:
Canyon Crest Views Riverside 178 Acquired 1996 1,193 95% 100%
Canyon Ridge (4) San Diego 162 Acquired 1997 778 99% 100%
Marquessa (4) Corona Hills 336 Acquired 1997 892 97% 96%
Portofino Chino Hills 176 Acquired 1996 873 99% 100%
Parkview Terrace Club Redlands 558 Acquired 1996 801 96% 98%
Redlands Lawn & Tennis Club Redlands 496 Acquired 1996 795 93% 97%
The Ashton Corona Hills 492 Acquired 1995 850 95% 93%
--------------
2,398
Massachusetts:
Lincoln Heights (5) Quincey 336 Acquired 1997 793 96% 96%
--------------
336
Minnesota:
Woodlands at Minnetonka (5) Minnetonka 248 Acquired 1997 1,083 98% 98%
--------------
248
--------------
Total 15,331
==============
</TABLE>
(1) Physical occupancy is defined as apartments occupied or leased (including
models and employee apartments) divided by the total number of leaseable
apartments within the Property, expressed as a percentage.
(2) Property was combined with Superstition Vista and operated as one apartment
community in 1997.
(3) Property or an expansion phase of this property reached stabilized occupancy
during 1997.
(4) Property was acquired in the first quarter 1997.
(5) Property was acquired in the fourth quarter 1997.
Of the current Stabilized Properties included in the table, 36 are located in
the greater Phoenix areas, eight are located in the Tucson area, seven are
located in California, one in Minnesota and one in Massachusetts. All of the
Stabilized Properties are managed and operated by the Operating Partnership and
have an average size of 289 units. The Stabilized Properties are primarily
oriented to upscale residents seeking high levels of amenities, such as
clubhouses, exercise rooms, tennis courts, swimming pools, therapy pools and
covered parking. The average unit size of the Stabilized Properties and
Properties under Construction combined is 903 square feet per unit. All units
have fully-equipped kitchens with upgraded cabinets, individual utility
metering, dishwashers, microwave ovens, separate dining areas, individual
storage, spacious patios and balconies, and ceramic tile entries. Most have
washers/dryers; and many offer high ceilings, fireplaces and alarm system
prewiring.
7
<PAGE>
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
- -------
Montierra Scottsdale 249 1,052 $ 21 3:97 2:98 1:99
The Retreat Phase I Phoenix 240 973 14 1:97 3:97 2:98
The Retreat Phase II Phoenix 240 973 17 3:97 2:98 1:99
Vista Grove Mesa 224 911 14 1:97 3:97 2:98
------- -------
Total 953 $ 66
======= =======
</TABLE>
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.
ITEM 3. LEGAL PROCEEDINGS
Neither the Operating Partnership, nor the Management Company and the Financing
Partnership, or any of the Properties is presently subject to material
litigation nor, to the Operating Partnership's knowledge, is any litigation
threatened against the Operating Partnership or any of the Properties, other
than routine litigation 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 23, 1997, at a Special Meeting of the Stockholders of the
Predecessor, the sole general partner of the Operating Partnership, approved the
Merger of the Predecessor with EQR and the Agreement. The stockholders voted to
approve the merger as follows:
Total Votes for Total Votes Against
The Merger The Merger Abstained
---------- ---------- ---------
13,928,169 63,424 47,194
8
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
There is no established public trading market for the Units. As of January 30,
1998, there were 24,947,481 outstanding Units of record in the Operating
Partnership.
The Operating Partnership has made consecutive quarterly distributions since its
formation in the third quarter of 1994. In connection with the Merger, the
annual distribution was reduced to $1.335 per unit which is equivalent to the
distribution paid to unit holders of ERP.
Distributions Declared
Period and Paid
------ ----------------------
1997:
Fourth Quarter.................................. $0.335
Third Quarter................................... $0.38
Second Quarter.................................. $0.405
First Quarter................................... $0.405
1996:
Fourth Quarter.................................. $0.40
Third Quarter................................... $0.40
Second Quarter.................................. $0.39
First Quarter................................... $0.39
9
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
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 the Predecessor. The following information should be read in
conjunction with all of the consolidated financial statements and notes thereto
included elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Period from
--------------------------------
December 23, January 1,
1997 1997 Year Ended December 31,
through through -------------------------------------------------
December 31, December 22,
1997 1997 1996 1995 1994 1993
---------------------------------------------------------------------------------
(Amounts in thousands, except per unit and property information)
<S> <C> <C> <C> <C> <C> <C>
Operating Information:
Revenues:
Total revenues $2,779 $117,394 $101,626 $74,531 $56,959 $43,938
Expenses:
Total expenses 2,305 109,079 82,821 53,517 45,374 37,326
---------------------------------------------------------------------------------
Income before gain on disposition
of properties, extraordinary
items and allocation to
minority interest $474 $8,315 $18,805 $21,014 $11,585 $6,612
=================================================================================
Net income $473 $14,269 $18,730 $20,925 $11,543 $12,673
=================================================================================
Net income per weighted average
unit (1) $0.84 $ 1.02
========================
Net income per weighted average
unit for the period (1) $0.02 $0.58
================================
Net income per weighted average
unit for the period August 17
to December 31, 1994 (1) $ 0.38
===========
</TABLE>
<TABLE>
<CAPTION>
Period from
--------------------------------
December 23, January 1,
1997 1997 Year Ended December 31,
through through -------------------------------------------------
December 31, December 22,
1997 1997 1996 1995 1994 1993
---------------------------------------------------------------------------------
(Amounts in thousands, except per unit and property information)
<S> <C> <C> <C> <C> <C> <C>
Other Information:
Cash flows from:
Operating activities $(2,362) $46,504 $38,721 $36,983 $21,998 $20,897
Investing activities - (89,313) (127,811) (116,716) (211,651) (79,511)
Financing activities 1,170 47,175 88,024 80,928 189,614 57,417
Total Stabilized Properties
(end of period) 53 53 49 41 32 31
Total number of units
Stabilized Properties
(end of period) 15,331 15,331 13,905 11,053 7,924 7,695
Physical occupancy
Stabilized Properties
(end of period) (2) 97% 97% 93% 96% 97% 97%
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
December 31,
1997 1996 1995 1994 1993
---------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Information:
Real estate, before accumulated depreciation $1,142,177 $761,550 $587,183 $399,987 $292,513
Total assets $1,152,063 $735,467 $579,564 $402,486 $271,055
Total debt $499,000 $436,172 $297,456 $127,787 $106,545
Partners' Capital $630,815 $283,954 $259,055 $253,867 $142,886
</TABLE>
- --------------------------------------------------------------------------------
(1) 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, and 24,669,769 and 24,978,056 for the periods
from January 1, 1997 through December 22, 1997 and December 23, 1997
through December 31, 1997, respectively.
(2) 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.
11
<PAGE>
ITEM 7. 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 the Operating Partnership, should be read in conjunction with the
"Selected Financial Data" and all financial statements appearing elsewhere in
this Annual Report on Form 10-K. The consolidated financial statements of the
Operating Partnership consist of the Stabilized Properties, Properties Under
Construction 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, the Operating
Partnership's ability to successfully manage its planned expansion into Southern
California and the culmination of the Operating Partnership's and Predecessor's
merger with EQR and ERP. 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, 1997 and 1996,
respectively, were significantly affected by acquisitions, dispositions,
developments and expansions and the Merger of the Predecessor with EQR.
Comparison of Results of Operations for the Year Ended December 31, 1997 to the
Year Ended December 31, 1996
Years Ended
December 31,
--------------------------- Percentage
1997 1996 Change
---------- ---------- ----------
Rental income $ 112,375 $ 94,350 19.1%
Third party management fees 711 1,157 (38.5)
Interest income -
investment in mortgage
notes 273 - N/A
Interest and other 6,814 6,119 11.4
---------- ---------- ----------
Total revenues 120,173 101,626 18.3
Property operating and
maintenance (1) 40,413 33,099 22.1
Property management 3,634 3,225 12.7
Depreciation and
amortization 26,386 20,885 26.3
Interest:
Expensed 30,476 23,446 30.0
Amortized 1,097 779 40.8
Other 7,493 - N/A
General and administrative 1,885 1,387 35.9
---------- ---------- ----------
Total expenses 111,384 82,821 34.5
---------- ---------- ----------
Income before minority
interest, gain on sale
of real estate assets
and extraordinary item $ 8,789 $ 18,805 (53.3)%
========== ========== ==========
Weighted average monthly
rental revenue per
unit, net of concessions $ 692 $ 678
========== ==========
Weighted average number of
apartments 14,998 12,887
========== ==========
Economic occupancy (2) 90.0% 90.0%
========== ==========
12
<PAGE>
(1) The Operating Partnership defines property operating and
maintenance expense as property and maintenance, real estate taxes
and insurance.
(2) Stabilized Properties only.
Rental income increased by $18,025 or 19.1 percent for the year ended December
31, 1997 as compared to the similar period in 1996 as a result of increases in
the weighted average number of apartments and the weighted average monthly
revenue per occupied apartment, and a change in economic occupancy. 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 $446 or 38.5 percent for the year ended
December 31, 1997 due to the sale of several properties in the management
portfolio in 1996 including a $500 one time termination fee for the sale of
management contracts received in the second quarter of 1996, as compared to $250
gain on the sale of a management contract received in the third quarter of 1997.
Interest income - investment in mortgage notes of $273 relates to the mortgage
notes receivable arising from the sale of Deer Creek Village and The Pines in
June 1997. Both mortgage notes were repaid during the third and fourth quarters
of 1997.
Interest and other income for the year ended December 31, 1997 increased $695 or
11.4 percent as compared to the similar period in 1996 as a result of an
increase in ancillary income related to the weighted average number of units,
additional interest income from funds held by third party intermediaries, and
cable revenue sharing.
Property operating and maintenance expense increased due to the increase in the
weighted average number of apartments for the year ended December 31, 1997 as
compared to the same period in 1996, respectively.
Other expenses of $7,493 represent the amortization of the remaining deferred
compensation, cash out of employee stock options, payments under change in
control agreements and other merger related costs.
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 $1,919 of interest for the year
ended December 31, 1997 compared to $2,714 for the same periods 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 its same store portfolio as those Properties
that reached stabilized occupancy prior to January 1, 1996. The same store
portfolio consists of 38 Stabilized Properties containing 10,319 apartment units
that were owned by the Operating Partnership for the year ended December 31,
1997 and 1996. The same store portfolio was adjusted to reflect the sale of Deer
Creek Village, The Pines and Los Arboles during the second and third quarter of
1997.
13
<PAGE>
"Same Store" Portfolio (continued)
Years Ended
December 31,
---------------------------- Percentage
1997 1996 Change
------------ ------------- ---------------
Rental income $ 74,957 $ 74,698 0.3%
Other income 3,874 4,308 (10.1)
------------ ------------- ---------------
78,831 79,006 (0.2)
Property operating and
maintenance 27,318 25,968 5.2
------------ ------------- ---------------
Property net operating income $ 51,513 $ 53,038 (2.9)%
============ ============= ===============
Weighted average monthly rental
revenue per unit, net of
concessions $ 673 $ 671
============ =============
Economic occupancy 90.0% 89.9%
============ =============
Rental income for the year ended December 31, 1997 was comparable to the same
period in 1996. Other income for the year ended December 31, 1997 decreased as a
result of the 1996 balance including a one-time gain on the sale of telephone
servicing rights. Property operating and maintenance expense increased 5.3
percent due to higher labor costs and real estate tax expense.
Properties Stabilized Less Than Two Years
Properties stabilized less than two years consist of the development of four new
properties and the expansion of four existing properties 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
year ended December 31, 1997 as compared to the year ended December 31, 1996 are
the result of the increase in the weighted average number of apartments.
Years Ended
December 31,
-------------------------
1997 1996
----------- ----------
Rental income $ 12,085 $ 9,922
Other income 603 573
----------- ----------
12,688 10,495
Property operating and
maintenance 4,042 3,187
----------- ----------
Property net operating income $ 8,646 $ 7,308
=========== ==========
Weighted average number of
apartments 1,444 1,208
=========== ==========
14
<PAGE>
Properties Under Construction and in Lease Up
Properties under construction and in lease up consist of the development of six
new properties and the expansion of two existing properties containing an
aggregate of 2,031 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 year ended December 31, 1997 as compared to the year ended December 31,
1996 are the result of an increase in the weighted average number of apartments.
Years Ended
December 31,
------------------------
1997 1996
----------- ----------
Rental income $ 7,520 $ 1,354
Other income 560 147
----------- ----------
8,080 1,501
Property operating and
maintenance 2,589 806
----------- ----------
Property net operating income $ 5,491 $ 695
=========== ==========
Weighted average number of
apartments in lease up 952 190
=========== ==========
Acquisitions
Acquisitions consist of eight properties containing 2,490 apartment units, which
have been acquired by the Operating Partnership since January 1, 1996. The
Operating Partnership acquired 1,408 apartment units in 1996 and 1,082 apartment
units in 1997.
Years Ended
December 31,
----------------------------
1997 1996
----------- ----------
Rental income $ 15,050 $ 3,593
Other income 525 200
----------- ----------
15,575 3,793
Property operating and
maintenance 5,255 1,352
----------- ----------
Property net operating income $ 10,320 $ 2,441
=========== ==========
Weighted average number of
apartments 1,858 436
=========== ==========
15
<PAGE>
Dispositions
Dispositions consist of three Properties containing 734 apartment units, which
were sold by the Operating Partnership in 1997. The Operating Partnership sold
one property, containing 232 units, in the third quarter of 1997 and two
properties, containing 502 units, in the second quarter of 1997. There were no
dispositions of properties during 1996.
Years Ended
December 31,
------------------------
1997 1996
----------- ----------
Rental income $ 2,763 $ 4,783
Other income 126 195
----------- ----------
2,889 4,978
Property operating and
maintenance 1,209 1,786
----------- ----------
Property net operating income $ 1,680 $ 3,192
=========== ==========
Weighted average number of
apartments 425 734
=========== ==========
Comparison of Results of Operations for the Year Ended December 31, 1996 to the
Year Ended December 31, 1995
The results of operations for the years ended December 31, 1996 and 1995,
respectively, were significantly affected by acquisitions, developments and
expansions.
Years 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) 33,099 22,959 44.2
Property management 3,225 2,825 14.2
Depreciation and amortization 20,885 13,762 51.8
Interest:
Expensed 23,446 11,957 96.1
Amortized 779 693 12.4
General and administrative 1,387 1,321 5.0
---------- ---------- ----------
Total expenses 82,821 53,517 54.8
---------- ---------- ----------
Income before minority interest $ 18,805 $ 21,014 (10.5)%
========== ========== ==========
Weighted average monthly rental
revenue per unit, net of
concessions $ 678 $ 640
========== ==========
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,
advertising expense, real estate taxes and insurance.
(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
16
<PAGE>
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 8.8 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 1,298 apartment
units in the second quarter 1996.
Interest and other income increased $1,720 or 39.1 percent 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.
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 properties 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.
Years 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 20,129 18,525 8.7
----------- ----------- ----------
Property net operating income $ 38,241 $ 39,258 (2.6)%
=========== =========== ==========
Weighted average monthly rental
revenue per unit, net of
concessions $ 646 $ 637
=========== ===========
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
properties.
Property operating and maintenance expense increased $1,604 or 8.7 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.
17
<PAGE>
Properties Stabilized Less Than Two Years
Properties stabilized less than two years consist of the development of five new
properties and the expansion of two existing properties 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.
Years Ended
December 31,
------------------------
1996 1995
---------- ----------
Rental income $ 12,606 $ 7,113
Other income 680 541
---------- ----------
13,286 7,654
Property operating and maintenance 3,543 2,141
---------- ----------
Property net operating income $ 9,743 $ 5,513
========== ==========
Weighted average number of
apartments 1,521 888
========== ==========
Properties Under Construction and in Lease Up
Properties under construction and in lease up consist of the development of 13
new properties or the expansion of existing properties 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.
Years Ended
December 31,
-----------------------
1996 1995
--------- ---------
Rental income $ 11,276 $ 1,281
Other income 720 128
--------- ---------
11,996 1,409
Property operating and maintenance 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
had been acquired by the Operating Partnership since January 1, 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.
Years Ended
December 31,
------------------------
1996 1995
---------- ----------
Rental income $ 15,394 $ 5,268
Other income 727 193
---------- ----------
16,121 5,461
Property operating and maintenance 5,434 1,563
---------- ----------
Property net operating income $ 10,687 $ 3,898
========== ==========
Weighted average number of
apartments 2,044 769
========== ==========
18
<PAGE>
Liquidity and Capital Resources
Liquidity
The Operating Partnership's net cash provided by operating activities increased
$5.4 million from $38.7 million for the year ended December 31, 1996 to $44.1
million for the year ended December 31, 1997 principally due to increased rental
operations from additional Properties acquired and developed subsequent to
December 31, 1996. Net cash used in investing activities decreased from $127.8
million for the year ended December 31, 1996 to $89.3 million for the year ended
December 31, 1997. Net cash provided by financing activities decreased from
$88.0 million for the year ended December 31, 1996 to $48.3 million for the year
ended December 31, 1997. The decrease in both cash used in investing activities
and cash provided by financing activities is the result of the Operating
Partnership slowing down its activity in the development and acquisition of
properties.
The Operating Partnership expects to meet its short-term liquidity requirements
relating to maintaining its existing properties, generally through its working
capital and net cash provided by operating activities. The Operating Partnership
considers its cash provided by operating activities to be adequate to meet
operating requirements and payments of distributions. The Operating Partnership
also expects to meet its long-term liquidity requirements, such as scheduled
mortgage debt maturities, financing of construction and development activities
and capital improvements from undistributed funds from operations ("FFO") and
proceeds received from the disposition of certain properties.
Capital Resources
As of December 31, 1997, the Operating Partnership's total indebtedness was
approximately $499 million.
Accounting for the Merger
The Merger is accounted for under the purchase method of accounting in
accordance with Accounting Principles Board Opinion No. 16. Purchase accounting
for a merger is the same as the accounting treatment used for the acquisition of
any group of assets. The fair market value of the combination given by EQR in
the Merger was used as the valuation basis of the combination. Accordingly, the
assets acquired and liabilities assumed of the Operating Partnership were
recorded at the relative fair market value as of December 23, 1997. The debt
discussed below include $7.2 million premium arising from the allocation of fair
market value.
Conventional Mortgage Loans
Conventional mortgage loans are comprised of one fixed rate loan at December 31,
1997 which is collateralized by a first mortgage lien on a property included in
real estate assets. The mortgage is payable in monthly installments of principal
and interest and matures on August 17, 2004. The conventional mortgage loan
aggregated $18.2 million at December 31, 1997 with an interest rate of 6.5
percent. In January 1997, the Operating Partnership extinguished the debt on
four mortgages with unpaid principal balances of approximately $25.0 million. As
a result, the Operating Partnership incurred a loss from the early
extinguishment of debt of approximately $1.5 million. On July 15, 1997, the
Operating Partnership repaid two additional mortgage loans with principal
balances of approximately $15.2 million. There were no prepayment penalties
associated with the repayment of these two mortgages.
In December 1995, the Operating Partnership entered into a ten year $50 million
fixed rate loan from an insurance company that bears a stated interest rate 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 properties. The outstanding debt was $50.2 million
at December 31, 1997 inclusive of a $1.2 million premium. The effective interest
rate inclusive of the premium at December 31, 1997 is 6.5 percent. The loan is
convertible to an unsecured borrowing status upon the Operating Partnership
achieving an investment grade rating of BBB or better.
19
<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 21
Properties. 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. The balance inclusive of a $2.7 million premium was
$133.7 million at December 31, 1997. The effective interest rate inclusive of
the premium at December 31, 1997 is 6.84 percent.
Senior Unsecured Notes
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, were approximately $122.8
million. In anticipation of this 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 in April 1997, and the Operating Partnership received
proceeds from the settlement of the treasury lock agreements of approximately $3
million which were deferred and amortized as a reduction in interest expense by
the Operating Partnership under the effective interest rate method through the
date of the Merger.
At the Merger date, the basis in the bonds was adjusted to $76,726 and $51,618
at December 31, 1997, inclusive of the premiums of $1.7 million and $1.6
million, respectively. The effective interest rates inclusive of the premium are
6.73 percent and 6.86 percent, respectively, at December 31, 1997.
Tax Exempt Bonds
Tax exempt bonds are 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 properties.
Revolving Credit Facility
On June 13, 1997, the Operating Partnership amended its existing $225 million
unsecured Revolving Credit Facility with a bank group to decrease the commitment
amount from $225 million to $150 million and decrease the interest rate from a
floating rate of London Inter Bank Offered Rate (LIBOR ) plus 1.50 percent to
LIBOR plus 1.15 percent (or, at the option of the Operating Partnership, at the
prime rate announced by the banks). The Operating Partnership repaid the
outstanding balance on the Revolving Credit Facility with proceeds from a note
payable from ERP on November 4, 1997 and terminated the Revolving Credit
Facility agreement on January 1, 1998.
Intercompany Note Payable
On November 4, 1997, the Operating Partnership entered a note payable agreement
with ERP to provide funds to pay off the Operating Partnership's Revolving
Credit Facility, provide proceeds to fund the completion of the current
construction and development activity and acquire properties to complete the
Section 1031 tax free exchanges that were already in progress. The note payable
bears interest at LIBOR plus 1.15 percent. At December 31, 1997, there was
$104,596 outstanding on the note payable, with an effective interest rate of
7.14 percent.
20
<PAGE>
Indebtedness of the Operating Partnership as of December 31, 1997
Outstanding Weighted Average
Balance Interest Rate
---------------- ----------------
Fixed Rate Debt:
Mortgage Debt:
Conventional........................ $ 68,372 6.50%
Mortgage Loan Certificates.......... 133,688 6.84
Unsecured:
$75 million senior notes ........... 76,726 6.73
$50 million senior notes ........... 51,618 6.86
---------------- ----------------
Total Fixed Rate Debt........... 330,404 6.74
Variable Rate Debt:
Intercompany note payable ............ 104,596 7.14
Tax Exempt Bonds...................... 64,000 5.75
---------------- ----------------
Total Variable Rate Debt........ 168,596 6.61
---------------- ----------------
Total Debt...................... $ 499,000 6.70%
================ ================
The Operating Partnership had 6,754 unencumbered apartment units related to the
Stabilized Properties and 953 unencumbered apartment units related to the
Properties Under Construction and in Lease-Up at December 31, 1997.
Inflation
Most of the leases at the Properties 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.
Year 2000
The Operating Partnership has conducted a review of its computer operating
systems and has identified those areas that could be affected by the "Year 2000"
issue and has developed a plan to resolve this issue. The Operating Partnership
believes that by modifying certain existing hardware and software and , in other
cases, converting to new application systems, the Year 2000 problem can be
resolved without significant operational difficulties. The Operating Partnership
has also identified the cost of the Year 2000 issue and does not expect the
financial impact to be material to the Operating Partnership's results of
operations or financial position.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Auditors, Consolidated Financial Statements and
selected Quarterly Financial Information are set forth on Pages F-1 to F-18 and
S-1 to S-6 of this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in accountants or disagreements with the Operating
Partnership's accountants on accounting and financial disclosures in 1997.
21
<PAGE>
PART III
ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a,b,c,d,e & f) TRUSTEES AND EXECUTIVE OFFICERS
-------------------------------
The Operating Partnership does not have any trustees or executive officers. The
trustees and executive officers, as of March 1, 1998, of EQR (which is also the
general partner of ERP Operating Partnership, a co-general partner of the
Operating Partnership), their ages and their positions and offices are set forth
in the following table:
<TABLE>
<CAPTION>
Name Age Positions and Offices Held
- -------------------------- --- ---------------------------------------------------------------
<S> <C> <C>
Samuel Zell 56 Chairman of the Board of Trustees (term expires in 1999)
Douglas Crocker II 57 President, Chief Executive Officer and Trustee (term expires in
1998)
John W. Alexander 51 Trustee (term expires in 1999)
Stephen O. Evans 52 Executive Vice President - Strategic Investments and Trustee (term
expires in 2000)
Henry H. Goldberg 59 Trustee (term expires in 1999)
Errol R. Halperin 57 Trustee (term expires in 1999)
James D. Harper, Jr. 64 Trustee (term expires in 1998)
Edward Lowenthal 53 Trustee (term expires in 2000)
Jeffrey H. Lynford 50 Trustee (term expires in 2000)
Sheli Z. Rosenberg 56 Trustee (term expires in 1998)
Gerald A. Spector 51 Executive Vice President, Chief Operating Officer and Trustee
(term expires in 1998)
Barry S. Sternlicht 37 Trustee (term expires in 2000)
B. Joseph White 50 Trustee (term expires in 2000)
Richard G. Berry 53 Executive Vice President - Development
Alan W. George 40 Executive Vice President-Acquisitions
Edward J. Geraghty 48 Executive Vice President - Development and Asset Management
Michael J. McHugh 42 Executive Vice President, Chief Accounting Officer and Treasurer
David J. Neithercut 42 Executive Vice President and Chief Financial Officer
Gregory H. Smith 46 Executive Vice President-Asset Management
Bruce C. Strohm 43 Executive Vice President, General Counsel and Secretary
Frederick C. Tuomi 43 Executive Vice President-Property Management
</TABLE>
The following is a biographical summary of the experience of the trustees and
executive officers of EQR. Officers serve at the pleasure of the Board of
Trustees.
Samuel Zell. Mr. Zell has been Chairman of the Board of EQR since March 1993.
Mr. Zell is chairman of the board of directors of Equity Group Investments,
Inc., an owner, manager and financier of real estate and corporations ("EGI"),
Jacor Communications, Inc., an owner and operator of radio stations ("Jacor"),
American Classic Voyages Co., an owner and operator of cruise lines ("American
Classic") and Anixter International Inc., a provider of integrated network and
cabling systems ("Anixter"), and Manufactured Home Communities, Inc., a REIT
specializing in the ownership and management of manufactured home communities
("MHC"). Mr. Zell is chairman of the board of trustees of Equity Office
Properties Trust, a REIT specializing in the ownership and management of office
buildings ("EOP") and Capital Trust, a specialized finance company. He is a
director of Fred Meyer, Inc., an owner and operator of supermarkets, Chart House
Enterprises, Inc., an owner and operator of restaurants, Ramco Energy plc, an
independent oil company based in the United Kingdom, and TeleTech Holdings,
Inc., a provider of telephone and computer based customer care solutions.
Douglas Crocker II. Mr. Crocker II has been a Trustee, Chief Executive Officer
and President of EQR since March 1993. Mr. Crocker is a director of Horizon
Group Inc., an owner, developer and operator of outlet retail properties and has
been a director of WRP, a publicly traded real estate merchant banking firm
since its formation in June 1997. Mr.
22
<PAGE>
Crocker has been President and Chief Executive Officer of First Capital
Financial Corporation, previously a sponsor of public limited real estate
partnerships ("First Capital"), since December 1992 and a director of First
Capital since January 1993. He was an Executive Vice President of Equity
Financial and Management Company ("EF&M"), a subsidiary of EGI, providing
strategic direction and services for EGI's real estate and corporate activities
from November 1992 until March 1997.
John W. Alexander. Mr. Alexander has been a Trustee of EQR since May 1993 and is
the President of Mallard Creek Capital Partners, Inc., an investment company
with interests in real estate and development entities. He is also a partner of
Meringoff Equities, a real estate investment and development company, and is a
director of Jacor.
Stephen O. Evans. Mr. Evans has been Executive Vice President - Strategic
Investments and Trustee of EQR since December 23, 1997, the date of the Merger
with Evans Withycombe Residential, Inc. Prior to the Evans Withycombe Merger,
Mr. Evans served as the Chairman of the Board and Chief Executive Officer of
Evans Withycombe since its formation in May 1994. Mr. Evans founded Evans
Withycombe, Inc., the predecessor of Evans Withycombe, in 1977 and served as its
Chairman of the Board and Chief Executive Officer from 1977 to 1994. Mr. Evans
is a member of the National Multi-Housing Counsel, NAREIT, Lambda Alpha, a
national land economic fraternity, and the Urban Land Institute.
Henry H. Goldberg. Mr. Goldberg has been a Trustee of EQR since January 1995.
Mr. Goldberg is Chairman of the Board, Chief Executive Officer and founder of
The Artery Group, L.L.C., a diversified real estate company. Mr. Goldberg was
the direct or indirect general partner (or an executive thereof) of four
partnerships owning residential apartment communities and one commercial office
building, each of which filed petitions under the Federal bankruptcy laws during
1993. Each of the partnerships is now out of bankruptcy through a reorganization
plan agreed to by the project lender.
Errol R. Halperin. Mr. Halperin has been a Trustee of EQR since May 1993. Mr.
Halperin has been an attorney at Rudnick & Wolfe, a law firm, since 1979,
serving as a senior partner and a member of such firm's policy committee since
1981, specializing in Federal income tax counseling and real estate and
corporate transactions.
James D. Harper, Jr. Mr. Harper has been a Trustee of EQR since May 1993. Mr.
Harper is the President of JDH Realty Co., a real estate development and
investment company, and is the principal partner in AH Development, S.E. and AH
HA Investments, S.E., special limited partnerships formed to develop over 400
acres of land in Puerto Rico. He is a Trustee of EOP, and a director of Burnham
Pacific Properties Inc., a REIT that owns, develops and manages commercial real
estate properties in California and American Health Properties, Inc., a REIT
specializing in health care facilities. Mr. Harper is also a trustee of the
Urban Land Institute.
Edward Lowenthal. Mr. Lowenthal has been a Trustee of EQR since June 1997. Mr.
Lowenthal has been the President, Chief Executive Officer and director of WRP
since its formation in January 1997 and had been the President and Chief
Executive Officer and a trustee of Wellsford, a multifamily property REIT, since
its formation in July 1992 until the Wellsford Merger on May 30, 1997. Mr.
Lowenthal is a director of United American Energy Corporation, a developer,
owner and operator of hydroelectric and other alternative energy facilities,
Corporate Renaissance Group, Inc., a mutual fund, Omega Healthcare, Inc., a
healthcare REIT, and Great Lakes REIT, Inc., an office building REIT. He is also
a member of the Board of Governors of NAREIT and a member of the New York bar.
Jeffrey H. Lynford. Mr. Lynford has been a Trustee of EQR since June 1997. Mr.
Lynford has been the Chairman of the Board, Secretary and Director of WRP since
its formation in January 1997 and had been the Chairman of the Board and
Secretary of Wellsford since its formation in July 1992 until the Wellsford
Merger, and was the Chief Financial Officer of Wellsford from July 1992 until
December 1994. Mr. Lynford currently serves as a trustee emeritus of the
National Trust for Historic Preservation and as a director of five mutual funds:
Cohen & Steers Total Return Realty Fund, Inc., Cohen & Steers Realty Shares,
Inc., Cohen & Steers Realty Income Fund, Inc., Cohen & Steers Special Equity
Fund, Inc. and Cohen & Steers Equity Income Fund, Inc. He is also a member of
the New York bar.
23
<PAGE>
Sheli Z. Rosenberg. Ms. Rosenberg has been a Trustee of EQR since March 1993.
Ms. Rosenberg is Chief Executive Officer, President and a director of EGI and
was a principal of the law firm of Rosenberg & Liebentritt, P.C., a law firm
("R&L"), from 1980 to 1997. Ms. Rosenberg is a trustee of Capital Trust and EOP
and is a director of Jacor, American Classic, MHC, Anixter, CVS Corporation, a
drugstore chain, Illinois Power Co., a supplier of electricity and natural gas
in Illinois, and its parent holding company, Illinova Corp.
Gerald A. Spector. Mr. Spector has been a Trustee and Executive Vice President
of EQR since March 1993 and Chief Operating Officer of EQR since February 1995.
Mr. Spector was Treasurer of EQR from March 1993 through February 1995. From
January 1973 until January 1996, Mr. Spector was an officer of EF&M, most
recently serving as Vice President from November 1994 through January 1996. Mr.
Spector was Executive Vice President and Chief Operating Officer of EF&M from
September 1990 through November 1994. From January 1988 until January 1996, Mr.
Spector was an officer of EGI, most recently serving as Vice President from
November 1994 through January 1996. Mr. Spector was Executive Vice President and
Chief Operating Officer of EGI from January 1991 through January 1994.
Barry S. Sternlicht. Mr. Sternlicht has been a Trustee of EQR since May 1993.
Mr. Sternlicht is Chief Executive Officer and President of Starwood Capital
Group, L.P., a privately owned real estate investment firm. Mr. Sternlicht is
Chairman of the Board and Chief Executive Officer of Starwood Hotels & Resorts
Trust, a REIT specializing in the ownership of hotels. Mr. Sternlicht is
Chairman of the Board of Starwood Financial Trust, a mortgage REIT, and a
director of U.S. Franchise Systems, a hotel franchise company, and Starwood
Hotel & Resorts Worldwide, which manages hotels owned by Starwood Hotels &
Resorts Trust.
B. Joseph White. Mr. White has been a Trustee of EQR since May 1993. Mr. White
is the Dean of the University of Michigan Business School. Mr. White is a
director of Kelly Services, Inc., a temporary services firm, Gordon Food
Service, Inc., a midwestern food distribution company, and the Cummins Engine
Foundation, the philanthropic arm of Cummins Engine Co., a heavy duty engine
manufacturer.
Richard G. Berry. Mr. Berry has been Executive Vice President-Development of EQR
since the Merger with Evans Withycombe Residential, Inc.. Mr. Berry was a
director of Evans Withycombe Residential, Inc. since its formation in May 1994
until the Evans Withycombe Residential, Inc. Merger and had been President and
Chief Operating Officer of Evans Withycombe Residential, Inc. from January 1997
until the Evans Withycombe Residential, Inc. Merger. Mr. Berry had been
Executive Vice President of Evans Withycombe Residential, Inc. since May 1994
until December 1997 and served as the Executive Vice President of Evans
Withycombe, Inc., (the predecessor of Evans Withycombe Residential, Inc.) from
1992 until 1994.
Alan W. George. Mr. George has been Executive Vice President-Acquisitions of EQR
since February 1997, Senior Vice President-Acquisitions of EQR from December
1995 until February 1997 and Vice President-Acquisitions and asset manager of
EQR from December 1993 until December 1995. Mr. George was Vice President-Asset
Management of Equity Assets Management, Inc. ("EAM"), a subsidiary of EGI
providing real estate ownership services, from June 1992 to August 1993.
Edward G. Geraghty. Mr. Geraghty has been Executive Vice President-Development
and Asset Management since March 1, 1998. Mr. Geraghty was a Managing
Director-Real Estate of The Travelers Insurance Company from January 1995 to
March 1998. Mr. Geraghty was an officer of The Travelers Realty Investment
Company, a subsidiary of The Travelers Insurance Company, from July 1989 to
January 1995, most recently serving as an Executive Vice President from December
1992 to January 1995.
Michael J. McHugh. Mr. McHugh has been Executive Vice President of EQR since
January 1998 and Chief Accounting Officer and Treasurer of EQR since February
1995. Mr. McHugh was Senior Vice President of EQR from November 1994 until
January 1998 and, from May 1990 until January 1995, Mr. McHugh was a Senior Vice
President and Chief Financial Officer of First Capital.
David J. Neithercut. Mr. Neithercut has been Executive Vice President and Chief
Financial Officer of EQR since February 1995. Mr. Neithercut had been Vice
President--Financing of EQR from September 1993 until February
24
<PAGE>
1995. Mr. Neithercut was a Senior Vice President--Finance of EGI from January
1995 until February 1995. He was a Vice President--Finance of EAM from October
1990 until December 1994.
Gregory H. Smith. Mr. Smith has been Executive Vice President--Asset Management
of EQR since December 1994. Mr. Smith was a Senior Vice President of Strategic
Realty Advisors, Inc., a real estate and advisory company, from January 1994
until December 1994. Mr. Smith was employed at VMS Realty Partners, a sponsor of
public and private real estate limited partnerships, from June 1989 until
December 1993, most recently serving as First Vice President.
Bruce C. Strohm. Mr. Strohm has been Executive Vice President and General
Counsel of EQR since March 1995 and Secretary since November 1995. Mr. Strohm
was a Vice President of EQR from March 1993 through March 1995 and an Assistant
Secretary of EQR from March 1995 through November 1995. Mr. Strohm was a Vice
President of R&L from January 1988 to March 1995, most recently serving as a
member of the firm's management committee.
Frederick C. Tuomi. Mr. Tuomi has been Executive Vice President--Property
Management of EQR since January 1994. Mr. Tuomi had been President of RAM
Partners, Inc., a subsidiary of Post Properties, Inc., a REIT, from March 1991
to January 1994.
Pursuant to EQR's declaration of trust, the trustees are divided into three
classes as nearly equal in number as possible, with each class having a term of
three years.
ITEM 11. EXECUTIVE COMPENSATION
The Operating Partnership does not have any executive compensation. Information
concerning the Equity Residential Properties Trust's executive compensation is
contained in its definitive proxy statement relating to the 1998 Annual Meeting
of Shareholders to be held on May 14, 1998, which proxy statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of March 1, 1998, (except as
otherwise indicated in the footnotes) regarding the beneficial ownership of the
OP Units by each person known by the Operating Partnership to be the beneficial
owner of more than five percent of the Operating Partnership's outstanding OP
Units, and in addition, by all trustees and executive officers of EQR as a
group. None of the trustees or executive officers of EQR own any OP Units in the
Operating Partnership. Each person named in the table has sole voting and
investment power with respect to all OP Units shown as beneficially owned by
such person, except as otherwise set forth in the notes to the table.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(continued)
<TABLE>
<CAPTION>
OP Units
Beneficially Owned
------------------
Name and Business Percent
Address of Beneficial Owner Amount of Class
--------------------------- ------ --------
<S> <C> <C>
Equity Residential Properties Trust(1) 20,577,220 82.1%
ERP Operating Limited Partnership(1) 4,234,218 17.1%
All trustees and executive officers of the Company as a
group None
</TABLE>
* Less than 1%
(1) The business address for each of these entities and individuals is Two
North Riverside Plaza, Chicago, Illinois 60606.
25
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under heading "Certain Relationships and Related Transactions -
Interest of Messrs. Evans and Berry in the Evans Merger" contained in the EQR
Proxy Statement relating to the 1998 Annual Meeting of Shareholders to be held
on May 14, 1998 is incorporated herein by reference.
PART IV
ITEM 14. FINANCIAL STATEMENTS AND EXHIBITS
(a) The following documents are filed as part of this report
1 & 2 See Index to Financial Statements and Schedule on
Page F-1 of this Form 10-K
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.
3. 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.
Exhibit
Number Description of Document
------ -----------------------
2.1+++ Asset Contribution Agreement by and among Equity
Residential Properties Trust and Equity Residential
Operating Partnership, as purchasers and Evans
Withycombe Residential, Inc. and Evans Withycombe
Residential, L.P., dated as of August 27, 1997.
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.
26
<PAGE>
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.
10.7**** Prospectus Supplement relating to the issuance and
sale of $75 million senior unsecured notes due
April 15, 2004 and $50 million senior unsecured
notes due April 15, 2007 and exhibits relating to
the sale and issuance of these notes.
10.8++ Modification of 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 June 13,
1997.
12.1 Ratio of Earnings to Fixed Charges
21.1+ List of Subsidiaries.
24.1 Power of Attorney for John W. Alexander dated March
27, 1998
24.2 Power of Attorney for James D. Harper, Jr. dated
March 20, 1998
24.3 Power of Attorney for Errol R. Halperin dated March
19, 1998
24.4 Power of Attorney for B. Joseph White dated March
19, l 998
24.5 Power of Attorney for Barry S. Sternlicht dated
March 19, 1998
24.6 Power of Attorney for Henry H. Goldberg dated March
23, 1998
24.7 Power of Attorney for Edward Lowenthal dated March
19, 1998
24.8 Power of Attorney for Jeffrey H. Lynford dated
March 25, 1998
24.9 Power of Attorney for Stephen O. Evans dated March
23, 1998
*Previously filed as an exhibit to the Evans Withycombe Residential, Inc.'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 Evans Withycombe Residential Inc.'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 Evans Withycombe Inc.'s Registration
Statement on Form S-3 and amendments thereto (File No. 333-17805) and is
incorporated herein by reference.
**** Previously filed as an exhibit to Evans Withycombe Residential L.P.'s Form
8-K dated April 2, 1997 and Registration Statement on Form S-3 and amendments
thereto (File No. 333-19879) and incorporated herein by reference.
+ Previously filed as an exhibit to Evans Withycombe Residential L.P.'s Form
10/A for the fiscal year ended December 31, 1996 and 1995 and incorporated
herein by reference.
++ Previously filed as an exhibit to Evans Withycombe Residential, L.P.'s Form
8-K dated August 25, 1997 and incorporated herein by reference.
27
<PAGE>
+++ Previously filed as an exhibit to Evans Withycombe Residential, L.P.'s Form
8-K dated August 27, 1997 and incorporated herein by reference.
(b) The Registrant filed a Current Report on Form 8-K dated December 23,
1997 reporting a Change in Control of the Registrant pursuant to Item 1
and an Acquisition or Disposition of Assets pursuant to Item 2, which
report was filed on January 8, 1998.
SIGNATURES
----------
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
behalf by the undersigned thereunto duly authorized.
EQUITY RESIDENTIAL PROPERTIES TRUST
Date: March 27, 1998 By: /s/ Douglas Crocker II
-------------------- ----------------------
Douglas Crocker II
President, Chief Executive Officer,
Trustee and *Attorney-in-Fact
Date: March 27, 1998 By: /s/ David J. Neithercut
-------------------- -----------------------
David J. Neithercut
Executive Vice-President and
Chief Financial Officer
Date: March 27, 1998 By: /s/ Michael J. McHugh
-------------------- ---------------------
Michael J. McHugh
Executive Vice-President, Chief Accounting
Officer, Treasurer and *Attorney-in fact
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: March 27, 1998 By: /s/ Samuel Zell
-------------------- ---------------
Samuel Zell
Chairman of the Board of Trustees
Date: March 27, 1998 By: /s/ Gerald A. Spector
-------------------- ---------------------
Gerald A. Spector
Executive Vice-President, Chief
Operating Officer and Trustee
Date: March 27, 1998 By: /s/ Sheli Z. Rosenberg
-------------------- ----------------------
Sheli Z. Rosenberg
Trustee
Date: March 27, 1998 By: /s/ James D. Harper
-------------------- -------------------
James D. Harper
Trustee
Date: March 27, 1998 By: /s/ Errol R. Halperin
-------------------- ---------------------
Errol R. Halperin
Trustee
28
<PAGE>
Date: March 27, 1998 By: /s/ Barry S. Sternlicht
-------------------- -----------------------
Barry S. Sternlicht
Trustee
Date: March 27, 1998 By: /s/ John W. Alexander
-------------------- ---------------------
John W. Alexander
Trustee
Date: March 27, 1998 By: /s/ B. Joseph White
-------------------- -------------------
B. Joseph White
Trustee
Date: March 27, 1998 By: /s/ Henry H. Goldberg
-------------------- ---------------------
Henry H. Goldberg
Trustee
Date: March 27, 1998 By: /s/ Jeffrey H. Lynford
-------------------- ----------------------
Jeffrey H. Lynford
Trustee
Date: March 27, 1998 By: /s/ Edward Lowenthal
-------------------- --------------------
Edward Lowenthal
Trustee
Date: March 27, 1998 By: /s/ Stephen O. Evans
-------------------- --------------------
Stephen O. Evans
Trustee
29
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
EVANS WITHYCOMBE RESIDENTIAL, L.P.
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT PAGE
----
<S> <C>
Report of Independent Auditors ............................................ F-2
Consolidated Balance Sheets as of
December 31, 1997 and 1996 ........................................... F-3
Consolidated Statements of Operations for the periods from
December 23, 1997 through December 31, 1997 and
January 1, 1997 through December 22, 1997 and
For the years ended December 31, 1996 and 1995 ....................... F-4
Consolidated Statements of Partners' Capital for the periods from
December 23, 1997 through December 31, 1997 and
January 1, 1997 through December 22, 1997 and
For the years ended December 31, 1996 and 1995 ....................... F-5 to F-6
Consolidated Statements of Cash Flows for the period from
December 23, 1997 through December 31, 1997 and
January 1, 1997 through December 22, 1997 and
For the years ended December 31, 1996 and 1995 ....................... F-7 to F-8
Notes to Consolidated Financial Statements ................................ F-9
SCHEDULE FILED AS PART OF THIS REPORT
Schedule III - Real Estate and Accumulated Depreciation ................... S-1
</TABLE>
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, 1997 and 1996
and the related consolidated statements of income, partners' capital and cash
flows for the periods from December 23, 1997 through December 31, 1997 and
January 1, 1997 through December 22, 1997 and for each of the two years in the
period ended December 31, 1996. Our audits also included the financial statement
schedule listed in the Index at Item 14 (a). 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, 1997 and 1996, and the consolidated
results of its operations and its cash flows for the periods from December 23,
1997 through December 31, 1997 and January 1, 1997 through December 22, 1997 and
for each of the two 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
February 26, 1998
F-2
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
ASSETS
Investment in real estate:
Land.......................................................... $ 137,646 $ 121,915
Buildings and improvements ................................... 953,160 543,839
Furniture and fixtures ....................................... 15,331 29,567
Construction-in-progress...................................... 36,040 66,229
--------------- ---------------
1,142,177 761,550
Accumulated depreciation ..................................... (609) (38,331)
--------------- ---------------
Investment in real estate, net of accumulated depreciation 1,141,568 723,219
Cash and cash equivalents....................................... 5,742 2,568
Restricted cash................................................. 2,546 1,622
Rents and notes receivable...................................... 1,493 2,702
Deferred costs, net of accumulated amortization
of $1,265 at December 31, 1996 ............................... - 3,838
Other assets ................................................... 714 1,518
--------------- ---------------
Total assets ................................................... $ 1,152,063 $ 735,467
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Intercompany note payable ...................................... $ 104,596 $ -
Mortgage and notes payable ..................................... 394,404 436,172
Accounts payable and other liabilities ......................... 10,096 7,782
Accrued interest payable ....................................... 3,161 1,417
Accrued property taxes ......................................... 3,476 2,912
Resident security deposits ..................................... 3,020 1,818
Prepaid rent ................................................... 453 585
--------------- ---------------
Total liabilities .............................................. 519,206 450,686
Minority interest .............................................. 2,042 827
Partners' capital .............................................. 630,815 283,954
--------------- ---------------
Total liabilities and partners' capital ........................ $ 1,152,063 $ 735,467
=============== ===============
</TABLE>
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)
<TABLE>
<CAPTION>
For the Period from
-----------------------------
December 23, January 1, Year Ended
1997 through 1997 through December 31,
December 31, December 22, ------------------------------
1997 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental income .................................. $ 2,667 $ 109,708 $ 94,350 $ 68,864
Third party management fees .................... 7 704 1,157 1,268
Interest income - investment in mortgage notes . - 273 - -
Interest and other income ...................... 105 6,709 6,119 4,399
-------------- ----------- ------------- -------------
Total revenues ................................... 2,779 117,394 101,626 74,531
Expenses:
Property and maintenance ....................... 641 29,797 25,194 17,576
Real estate taxes and insurance ................ 199 9,776 7,905 5,383
Property management ............................ 92 3,542 3,225 2,825
Depreciation ................................... 609 25,777 20,885 13,762
Interest:
Expense incurred, net of amounts capitalized . 713 29,763 23,446 11,957
Amortization of deferred financing costs ..... - 1,097 779 693
Other .......................................... - 7,493 - -
General and administrative ..................... 51 1,834 1,387 1,321
-------------- ----------- ------------- -------------
Total expenses ................................... 2,305 109,079 82,821 53,517
-------------- ----------- ------------- -------------
Income before gain on disposition of properties,
extraordinary items and allocation to
minority interest............................... 474 8,315 18,805 21,014
Gain on disposition of properties ................ - 7,510 - -
-------------- ----------- ------------- -------------
Income before extraordinary items and allocation
to minority interest ........................... 474 15,825 18,805 21,014
Loss on early extinguishment of debt.............. - (1,500) - -
-------------- ----------- ------------- -------------
Income before allocation to minority interest .... 474 14,325 18,805 21,014
Income allocated to minority interest ............ (1) (56) (75) (89)
-------------- ----------- ------------- -------------
Net income ....................................... $ 473 $ 14,269 $ 18,730 $ 20,925
============== =========== ============= =============
Net income per weighted average unit ............. $ 0.02 $ 0.58 $ 0.84 $ 1.02
============== =========== ============= =============
Weighted average units outstanding ............... 24,978,056 24,669,769 22,184,395 20,590,873
============== =========== ============= =============
</TABLE>
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>
Equity Equity Evans Other
Residential Residential Withycombe Limited
Number of Properties Operating Residential, Partners
Units Trust Partnership Inc. Capital
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Partners' capital, December 31, 1994 20,140,530 $ - $ - $ 201,241 $ 52,626
Net income .................................... - - - 16,331 4,594
Distributions ($1.50 per unit) ................ - - - (24,102) (6,801)
Issuance of units for acquisition of apartment
Communities ................................. 710,550 - - - 14,207
Conversion of limited partners' units into
Common stock................................. - - 390 (390)
Issuance of restricted units for
Executive deferred compensation ............. 82,802 - - 1,657 -
Amortization of deferred compensation ......... - - - - -
------------ ------------ ------------ ------------ -------------
Partners' capital, December 31, 1995................ 20,933,882 - - 195,517 64,236
Net income...................................... - - - 14,720 4,010
Distributions on units ($1.58 per unit)......... - - - (28,040) (7,545)
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 -
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 -
Issuance of restricted units.................... 10,895 - - 240 -
Forfeiture of restricted units.................. (8,454) - - - -
Amortization of deferred compensation........... - - - - -
------------ ------------ ------------ ------------ -------------
Partners' capital, December 31, 1996 ............... 23,044,712 - - 226,301 58,118
Unamortized
Restricted
Units Employee
Compensation Total
------------- -------------
<S> <C> <C>
Partners' capital, December 31, 1994 $ - $ 253,867
Net income .................................... - 20,925
Distributions ($1.50 per unit) ................ - (30,903)
Issuance of units for acquisition of apartment
Communities ................................. - 14,207
Conversion of limited partners' units into
Common stock................................. - -
Issuance of restricted units for
Executive deferred compensation ............. (1,657) -
Amortization of deferred compensation ......... 959 959
------------- -------------
Partners' capital, December 31, 1995................ (698) 259,055
Net income...................................... - 18,730
Distributions on units ($1.58 per unit)......... - (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 ...................... - 40,891
Conversion of limited partners' units
into common stock.............................. - -
Purchase of units from proceeds from the
exercise of stock options...................... - 390
Issuance of restricted units.................... (240) -
Forfeiture of restricted units.................. - -
Amortization of deferred compensation........... 473 473
------------- -------------
Partners' capital, December 31, 1996 ............... (465) 283,954
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (continued)
(Amounts in thousands, except for number of units and per unit amounts)
<TABLE>
<CAPTION>
Equity Equity Evans Other
Residential Residential Withycombe Limited
Number of Properties Operating Residential, Partners
Units Trust Partnership Inc. Capital
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Net income.................................. - - - 11,738 2,531
Distributions on units ($1.525 per unit).... - - - (31,067) (6,915)
Capital contribution from ERP Operating
Partnership ("ERP") ....................... - - 6,000 - -
Purchase of units by Evans Withycombe
Residential, Inc. from proceeds of third
offering, net of underwriting discount and
offering costs of $406..................... 1,800,000 - - 35,415 -
Conversion of limited partners' units
into common stock.......................... - - - 5,509 (5,509)
Purchase of units from proceeds from the
exercise of stock options.................. 67,075 - - 1,323 -
Issuance of restricted units ............... 69,775 - - 1,435 -
Forfeiture of restricted units.............. (3,506) - - - -
Amortization of deferred compensation....... - - - - -
------------ ------------ ------------ ------------ -------------
Partners' capital, December 22, 1997............ 24,978,056 - 6,000 250,654 48,225
Adjust to reflect fair market value of
Operating Partnership units at date of
Merger .................................... - 507,535 104,427 (250,654) (44,098)
Capital contribution from ERP .............. - - 9,567 - -
Adjust to reflect fair market value of
minority interest in Financing Partnership
at date of Merger ......................... - (1,082) (223) - (9)
Net Income ................................. - 390 80 - 3
------------ ------------ ------------ ------------ -------------
Partners' capital, December 31, 1997 ........... 24,978,056 $ 506,843 $ 119,851 $ - $ 4,121
============ ============ ============ ============ =============
Unamortized
Restricted
Units Employee
Compensation Total
------------- -------------
<S> <C> <C>
Net income.................................. - 14,269
Distributions on units ($1.525 per unit).... - (37,982)
Capital contribution from ERP Operating
Partnership ("ERP") ....................... - 6,000
Purchase of units by Evans Withycombe
Residential, Inc. from proceeds of third
offering, net of underwriting discount and
offering costs of $406..................... - 35,415
Conversion of limited partners' units
into common stock.......................... - -
Purchase of units from proceeds from the
exercise of stock options.................. - 1,323
Issuance of restricted units ............... (1,435) -
Forfeiture of restricted units.............. - -
Amortization of deferred compensation....... 1,900 1,900
------------- -------------
Partners' capital, December 22, 1997............ - 304,879
Adjust to reflect fair market value of
Operating Partnership units at date of
Merger .................................... - 317,210
Capital contribution from ERP .............. - 9,567
Adjust to reflect fair market value of
minority interest in Financing Partnership
at date of Merger ......................... - (1,314)
Net Income ................................. - 473
------------- -------------
Partners' capital, December 31, 1997 ........... $ - $ 630,815
============ =============
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
For the period ended
------------------------------------
December 23, 1997 January 1, 1997 For the year ended December 31,
through through -------------------------------
December 31, 1997 December 22, 1997 1996 1995
----------------- ----------------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income ......................................... $ 473 $ 14,269 $ 18,730 $ 20,925
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................. 609 25,517 20,799 13,727
Minority Interest ............................. 1 56 75 89
Amortization of restricted stock ............... -- 1,900 390 693
Amortization of financing costs ................ -- 1,097 779 693
Write-off of real estate assets ................ -- 423 227 --
Write-off of deferred loan costs ............... -- 269 -- 172
Gain on sale of real estate .................... -- (7,510) -- --
Decrease (increase) in assets
Restricted cash ................................ -- (923) (1,100) 561
Accounts and notes receivable .................. (7) 1,208 (1,356) (934)
Due from related parties ....................... -- (765) -- --
Other assets ................................... -- (883) (74) (1,051)
(Decrease) increase in liabilities
Accounts payable and other liabilities ......... (407) 5,444 (1,583) 540
Accrued interest ............................... (456) 2,194 812 505
Accrued property taxes ......................... 199 365 554 825
Resident security deposits ..................... -- 1,202 321 500
Prepaid rent ................................... (2,774) 2,641 147 (262)
--------- --------- --------- ---------
Net cash provided (used) by operating activities.... (2,362) 46,504 38,721 36,983
Cash flows from investing activities
Purchase of real estate assets ..................... -- (121,820) (127,811) (116,716)
Sale of real estate assets ......................... -- 32,507 -- --
--------- --------- --------- ---------
Net cash (used) in investing activities ............ -- (89,313) (127,811) (116,716)
Cash flows from financing activities
Proceeds from Public Offering, net of expenses ..... -- 35,415 40,891 --
Proceeds from exercise of options .................. -- 1,323 390 --
Proceeds from intercompany revolving note payable... -- 104,596 -- --
Proceeds from mortgage notes and
credit facility .................................. -- 223,185 269,778 315,653
Principal payments on mortgage notes ............... (40) (291,774) (177,762) (202,477)
Payment for organization and loan costs ............ -- (1,789) (1,650) (1,345)
Minority interest distributions .................... -- (156) (137) (447)
Distributions paid ................................. (8,357) (29,625) (43,486) (30,456)
Capital contributions .............................. 9,567 6,000 -- --
--------- --------- --------- ---------
Net cash provided by financing activities .......... 1,170 47,175 88,024 80,928
--------- --------- --------- ---------
Net increase (decrease) in cash and cash
Equivalents ...................................... (1,192) 4,366 (1,066) 1,195
Cash and cash equivalents, beginning of period ..... 6,934 2,568 3,634 2,439
--------- --------- --------- ---------
Cash and cash equivalents, end of period ........... $ 5,742 $ 6,934 $ 2,568 $ 3,634
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
F-7
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Amounts in thousands)
<TABLE>
<CAPTION>
For the period ended
----------------------------------
December 23, January 1,
1997 1997
through through For the year ended December 31,
December 31, December 22, --------------------------------
1997 1997 1996 1995
-------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Supplemental information
Cash paid during the period for interest .......... $ 1,201 $ 29,563 $ 22,648 $ 11,487
========= =========== ========= =========
Supplemental disclosure of non-cash activity
Assumption of debt related to the acquisition
of Apartment communities ........................... $ - $ 18,318 $ 46,700 $ 56,493
========= =========== ========= =========
Acquisition of apartment communities through
issuance of units in the Operating Partnership... $ - $ - $ - $ 14,207
========= =========== ========= =========
Issuance of stock under executive stock incentive plan $ - $ - $ 83 $ 959
========= =========== ========= =========
Allocation of fair market value in connection with the Merger
Increase in real estate assets .................... $ 268,964 $ - $ - $ -
========= =========== ========= =========
Decrease in accumulated depreciation .............. $ 60,651 $ - $ - $ -
========= =========== ========= =========
Decrease in deferred costs and other assets ....... $ 6,734 $ - $ - $ -
========= =========== ========= =========
Increase in mortgage notes payable ................ $ 8,379 $ - $ - $ -
========= =========== ========= =========
Increase in other liabilities ..................... $ 2,708 $ - $ - $ -
========= =========== ========= =========
Increase in minority interest ..................... $ 1,314 $ - $ - $ -
========= =========== ========= =========
Increase in partners' capital ..................... $ 315,896 $ - $ - $ -
========= =========== ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
F-8
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Amounts in thousands, except for apartment data, 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 owners of upscale apartment communities in Arizona and
has expanded its operations into selected sub-markets. The Operating Partnership
owns and operates 53 stabilized multifamily apartment communities containing
15,331 units. The multifamily apartment communities are located in Phoenix and
Tucson, Arizona, which are comprised of 44 stabilized multifamily apartment
communities containing a total of 12,349 units, seven stabilized multifamily
apartment communities are located in the Southern California market containing a
total of 2,398 units, one stabilized multifamily community of 248 units in
Minnetonka, Minnesota and one stabilized multifamily apartment community of 336
units in Quincey, Massachusetts. The Operating Partnership is also in the
process of developing or expanding four multifamily apartment communities
comprising 953 units in its Phoenix market. The Operating Partnership is fully
integrated with expertise in development, acquisitions, construction and
management of apartment communities.
The Operating Partnership was formed in June 1994 to develop, acquire, own and
operate upscale multifamily apartment communities for Evans Withycombe
Residential, Inc. On August 17, 1994, Evans Withycombe Residential, Inc. (the
"Predecessor") completed an Initial Public Offering and engaged in various
formation transactions designed to transfer ownership of the communities and
other assets of Evans Withycombe, Inc. 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"). The Predecessor was the sole general partner of and owned
a 82.4 percent, 79.7 percent and 77.3 percent interest in the Operating
Partnership at December 22, 1997, and December 31, 1996 and 1995, respectively.
In the second quarter of 1996, the Predecessor completed the Second Public
Offering. The net proceeds of $40,891 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 unsecured Revolving Credit Facility ("Revolving Credit
Facility").
In the first quarter of 1997, the Predecessor completed the Third Public
Offering. The net proceeds of $35,415 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. Business Combination
The Operating Partnership entered into an Asset Contribution Agreement, dated as
of August 27, 1997 (the "Agreement"), with ERP Operating Partnership ("ERP")
pursuant to which the Operating Partnership agreed, subject to certain
conditions, to contribute all of its assets to ERP in exchange for units of
limited partnership interest in ERP following the Merger (as defined below). The
Agreement was entered into in connection with a business combination of the
Predecessor, previously the sole general partner of Operating Partnership, with
and into Equity Residential Properties Trust ("EQR"), a Maryland real estate
investment trust and sole general partner of ERP, pursuant to an Agreement and
Plan of Merger between the Predecessor and EQR dated August 27, 1997 (the
"Merger"). The Agreement provides for the exchange of all outstanding limited
partnership units in the Operating Partnership for limited partnership units in
ERP, at an exchange ratio of 0.50 units of ERP for each unit of the Operating
Partnership.
F-9
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Amounts in thousands, except for apartment data, number of units or shares
and per unit amounts)
(Continued)
2. Business Combination (continued)
On December 23, 1997, the Merger was approved by the shareholders of both EQR
and the Predecessor. On December 23, 1997, the Predecessor and certain limited
partners who held 24,811,438 units in the Operating Partnership exchanged their
limited partnership units for limited partnership units in ERP. EQR and ERP
replaced the Predecessor as co-general partners of the Operating Partnership
which owned 82.1 percent and 17.1 percent interest in the Operating Partnership
at December 31, 1997, respectively.
3. Basis of Presentation
The accompanying consolidated financial statements of the Predecessor include
the consolidated accounts of the Operating Partnership, the Financing
Partnership and the Management Company.
The Merger is accounted for under the purchase method of accounting in
accordance with Accounting Principles Board Opinion No. 16. Purchase accounting
for a merger is the same as the accounting treatment used for the acquisition of
any group of assets. The fair market value of the consideration given by EQR in
the Merger was used as the valuation basis of the combination. Accordingly, the
assets acquired and liabilities assumed of the Operating Partnership were
recorded at the relative fair market value as of December 23, 1997.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
Certain amounts in the consolidated statements of income and cash flows for 1996
and 1995 have been reclassified to conform to the 1997 presentation.
4. Summary of Significant Accounting Policies
(a) 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 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, 1997 the Operating Partnership does
not hold any assets that meet the impairment criteria of SFAS No. 121.
Costs related 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 $38 and $1,881 for the periods from December 23, 1997 through
December 31, 1997 and January 1, 1997 through December 22, 1997 and $2,714 and
$5,048 for the years ended December 31, 1996 and 1995, respectively.
F-10
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Amounts in thousands, except for apartment data, number of units or shares
and per unit amounts)
(Continued)
4. Summary of Significant Accounting Policies (continued)
(a) Real Estate Assets and Depreciation (continued)
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.
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
$8,272 and $16,542 at December 31, 1997 and 1996, respectively.
(b) 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.
(c) 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.
(d) Restricted Cash
Restricted cash includes restricted deposits for sinking fund accounts related
to tax exempt bonds, property taxes and escrow accounts.
(e) 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.
(f) Premiums and Discounts
Premiums and discounts on mortgage and notes payable are amortized using the
straight-line basis over the life of the mortgage and notes payable which
approximates the effective interest rate method.
(g) 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.
F-11
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Amounts in thousands, except for apartment data, number of units or shares
and per unit amounts)
(Continued)
4. Summary of Significant Accounting Policies (continued)
(h) 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.
(i) Net Income Per Unit
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share." Statement No. 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. All earnings
per unit amounts for all periods have been presented.
No diluted earnings per unit are presented as they were the same as the basic
earnings per unit.
(j) 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, 1997 and 1996. The Operating Partnership's debt has an estimated aggregate
fair value of approximately $394,404 at December 31, 1997 which equals the
carrying value of $394,404 inclusive of the premium of $7,248. At December 31,
1996, the Operating Partnership's debt had an estimated fair value of
approximately $437,800 compared to the carrying value of $436,172. 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-12
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Amounts in thousands, except for apartment data, number of units or shares
and per unit amounts)
(Continued)
5. Other
Prior to the Merger, the Predecessor set in place a Stock Incentive Plan ("Stock
Incentive Plan"). Pursuant to the Stock Incentive Plan, certain officers and
employees ("Participants") of the Management Company were granted the right to
receive shares of restricted stock and/or options to acquire shares of common
stock in the Predecessor. The awards would have vested over a three to four year
period from the date of grant. At the effective date of the Merger, the
Participants' unvested portion of restricted stock and options to acquire shares
of the Predecessor's common stock vested. The Participant's received cash for
the difference between the exercise price per share and $25.06 per share price
at the effective date of the Merger. The cash payment to Participants relating
to accelerated vesting of the options of $3,437 and the $1,544 unamortized
portion of restricted units were expensed by the Operating Partnership.
The remaining amount of $2,512 relates to payments made to certain officers of
the Predecessor Company under the terms of their respective change in control
agreements and other merger related costs.
6. Intercompany Note Payable
The Operating Partnership has an unsecured note payable to ERP that bears
interest at LIBOR plus 1.15 percent and is due on demand. Proceeds from the note
payable were used to repay the outstanding balance on the Operating
Partnership's revolving credit facility and provide funds to acquire a 336-unit
apartment community. The outstanding balance was $104,596 with accrued interest
payable of $847 at December 31, 1997.
F-13
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Amounts in thousands, except for apartment data, number of units or shares
and per unit amounts)
(Continued)
7. Mortgage and Notes Payable
The Operating Partnership's mortgage notes and notes payable consists of the
following:
<TABLE>
<CAPTION>
December 31,
1997 1996
---- ----
<S> <C> <C>
Conventional Mortgage Loans:
- ----------------------------
Mortgage note payable at a 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 a 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 a 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 a fixed interest rate of 8.28 percent, monthly - 6,225
principal and interest payments. The unpaid principal balance was repaid on
January 31, 1997.
Mortgage note payable at a fixed interest rate of 9.95 percent, monthly principal - 12,065
and interest payments. The unpaid principal balance was repaid on July 15, 1997.
Mortgage note payable at a fixed interest rate of 9.3 percent, monthly principal - 3,182
and interest payments. The unpaid principal balance was repaid on July 15, 1997.
Mortgage note payable at fixed interest rates ranging from 6.5 percent to 9.0 18,169 -
percent, monthly principal and interest payments through August 17, 2004,
remaining balance due August 17, 2004. Interest rate increases annually each
September. Secured by a first mortgage lien on one apartment community. The
mortgage note can be repaid at any time at the Operating Partnership's option
without prepayment penalty.
$50 million securitized debt at a fixed stated interest rate of 7.17 percent, 50,203 49,509
monthly principal and interest payments through January 1, 2006, remaining
balance due January 1, 2006. Secured by first mortgage liens on 5 apartment
communities. The balance includes a premium of $1.2 million at December 31,
1997. The effective interest rate inclusive of the premium at December 31, 1997
is 6.5 percent. _______ ______
68,372 89,652
Mortgage Loan Certificates:
- ---------------------------
Securitized debt at a fixed stated interest rate of 7.98 percent, monthly 133,688 130,520
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 includes a premium of $2.7 million at December 31, 1997 and is net of a
discount of $480 at December 31, 1996. The effective interest rate inclusive of
the premium at December 31, 1997 is 6.84 percent.
Senior Unsecured Notes:
- -----------------------
$75 million senior unsecured notes with a fixed coupon rate of 7.50 percent. 76,726 -
Semiannual interest only payments due April 15 and October 15 commencing October
15, 1997. Face amount of $75 million is due April 15, 2004. The balance includes
a premium of $1.7 million at December 31, 1997. The effective interest
rate inclusive of the premium at December 31, 1997 is 6.73 percent.
</TABLE>
F-14
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Amounts in thousands, except for apartment data, number of units or shares
and per unit amounts)
(Continued)
<TABLE>
<S> <C> <C>
7. Mortgage and Notes Payable (continued)
$50 million senior unsecured notes with a fixed coupon rate of 7.625 percent. $ 51,618 -
Semiannual interest only payments due April 15 and October 15 commencing October
15, 1997. Face amount of $50 million is due April 15, 2007. The balance
includes a premium of $1.6 million at December 31, 1997. The effective interest
rate inclusive of the premium at December 31, 1997 is 6.86 percent. _______ _______
128,344 -
Tax Exempt Bonds:
- -----------------
$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 5.52 percent at December
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 $22.9 million direct pay letter of credit, matures February 1, 2016.
(Effective interest rate of 5.95 percent at December 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 5.72 percent at December 31, 1997). ______ ______
64,000 64,000
Revolving Credit Facility:
- --------------------------
Unsecured Revolving Credit Facility with floating interest rate based on LIBOR - 152,000
plus 1.15 percent (1.50 percent at December 31, 1996) or at the option of the
Operating Partnership at prime rate, interest payments only. The Revolving Credit
Facility was repaid on November 4, 1997 and the facility agreement terminated on
January 1, 1998.
--------------- -----------
$394,404 $436,172
=============== ===========
</TABLE>
Scheduled principal payments on debt are as follows, net of the $7,248 premium
at December 31, 1997:
<TABLE>
<CAPTION>
--------------- --------------- -------------- --------------- -----------------
Mortgage Mortgage Senior
Notes Loan Unsecured Tax-Exempt
Payable Certificates Notes Bonds Total
--------------- --------------- -------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
1998 $ 743 $ - $ - $ - $ 743
1999 834 - - - 834
2000 886 - - - 886
2001 942 131,000 - - 131,942
2002 999 - - - 999
Thereafter 62,752 - 125,000 64,000 251,752
--------------- --------------- -------------- --------------- -----------------
Total $ 67,156 $ 131,000 $ 125,000 $ 64,000 $ 387,156
--------------- --------------- -------------- --------------- -----------------
</TABLE>
F-15
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Amounts in thousands, except for apartment data, number of units or shares
and per unit amounts)
(Continued)
7. Mortgage and Notes Payable (continued)
On June 13, 1997, the Operating Partnership amended its existing $225 million
Revolving Credit Facility with a bank group to decrease the commitment amount
from $225 million to $150 million and reduce the interest rate from LIBOR plus
1.50 percent to LIBOR plus 1.15 percent. The Revolving Credit Facility provided
funding for working capital, construction activities and acquisitions. The
Revolving Credit Facility was repaid on November 4, 1997 and the facility
agreement terminated on January 1, 1998.
The Operating Partnership has three direct pay letters of credit of $17,500,
$22,900 and $24,400 which serve as a credit enhancement for the tax exempt
bonds. The letters of credit are secured by a first mortgage liens on four
apartment communities.
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.
8. Distributions
On December 30, 1997, the Operating Partnership paid a distribution of $.335 per
unit ($8,357) to unitholders of record as of December 14, 1997. Approximately 51
percent, 36 percent and 30 percent of the distributions paid during 1997, 1996
and 1995 represented return of capital to the unit holders.
9. Management and Development Fees
The Operating Partnership, through the Management Company performs management
services for certain unaffiliated communities. Management fees received from
managed communities were $7 and $704 for the periods from December 23, 1997
through December 31, 1997 and January 1, 1997 through December 22, 1997 and
$1,157 and $1,268 for the years ended December 31, 1996 and 1995, respectively.
Included in third party management fees is a $250 gain on the sale of a
management contract in the third quarter 1997 and 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.
10. Disposition Activity
During the second quarter of 1997, the Operating Partnership sold two
properties, Deer Creek Village and The Pines, containing 502 apartment units.
The aggregate sales price was approximately $22.4 million resulting in a gain
from the sale of approximately $5.2 million. The Operating Partnership received
cash of approximately $7.3 million and two carryback mortgage notes of
approximately $15.1 million. The $7.9 million mortgage note on Deer Creek
Village was repaid on July 23, 1997. The mortgage note on The Pines was repaid
on November 19, 1997.
On September 30, 1997, the Operating Partnership sold Los Arboles Apartments, a
232 unit apartment community located in Chandler, Arizona. The aggregate
proceeds were approximately $12.5 million resulting in a gain from the sale of
approximately $2.3 million. In connection with the sale, the Operating
Partnership sold the management contract on an adjoining apartment community,
Los Arboles II and the Predecessor received payment of the unpaid principal
balance and accrued interest on the mortgage note on that property.
F-16
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Amounts in thousands, except for apartment data, number of units or shares
and per unit amounts)
(Continued)
11. Retirement Plan
The Operating Partnership has a defined contribution wealth accumulation plan
and trust (the "Plan") covering all employees whom 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 $3 and $116 for the periods from December
23, 1997 through December 31, 1997 and January 1, 1997 through December 22, 1997
and $113 and $53 for 1996 and 1995, respectively.
12. 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,
1997:
1998 $ 364
1999 224
2000 4
-------
$ 592
=======
Rent expense for the periods from December 23, 1997 through December 31, 1997
and January 1, 1997 through December 22, 1997 was $9 and $405 and for the years
ended December 31, 1996 and 1995 was $360 and $300, respectively.
13. Minority Interest
Evans Withycombe Finance, Inc. owns a one percent interest in the Financing
Partnership at December 31, 1997, 1996 and 1995, respectively, as follows:
Dollars
-----------
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
Allocation of net income 56
Distributions (156)
---------
Balance at December 22, 1997 727
Fair market value related to the Merger 1,314
Allocation of net income 1
---------
Balance at December 31, 1997 $ 2,042
=========
F-17
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Amounts in thousands, except for apartment data, number of units or shares
and per unit amounts)
(Continued)
14. Selected Quarterly Financial Information (Unaudited, amounts in thousands,
except per unit amounts).
<TABLE>
<CAPTION>
Quarter
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
1997
Revenue ....................... $29,007 $29,593 $31,241 $30,332
Net operating income .......... 19,333 20,098 20,980 19,349
Income (loss) before gain
on disposition of properties,
extraordinary items and
allocation to Minority Interest 4,440 4,740 5,313 (5,704)
Minority Interest ............. (17) (13) (15) (12)
Gain on disposition of
Properties .................. - 5,253 2,278 (21)
Extraordinary item - loss
on early extinguishment of
debt ........................ (1,500) - - -
Net income (loss) ............. 2,923 9,980 7,576 (5,737)
Net income (loss) per unit .... $.12 $.40 $.30 $(.24)
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
Net income per unit............ $.25 $.22 $.17 $.20
</TABLE>
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, 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent Gross Amounts at Which
to Acquisition / Carried at Close of
Initial Cost Construction Period
-----------------------------------------------------------------------------
Buildings Buildings Buildings
and and and
Description Encumbrances Land Improvements Land Improvements Land Improvements Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Same Store
Phoenix
Acacia Creek
Scottsdale, AZ $- $6,122 $24,382 $- $10,918 $6,122 $35,300 $41,422
Bayside at the Islands
Gilbert, AZ 6,752 1,877 6,623 1,429 8,918 3,306 15,541 18,847
Country Brook
Chandler, AZ 7,982 937 3,886 25 15,111 962 18,997 19,959
Gateway Villas
Phoenix, AZ - 1,431 11,238 - 3,664 1,431 14,902 16,333
Greenwood Village
Tempe, AZ 6,711 1,770 7,119 349 10,102 2,119 17,221 19,340
Heritage Point (1)
Mesa, AZ - 666 5,125 - 3,322 666 8,447 9,113
La Mariposa
Mesa, AZ 4,866 1,440 3,962 608 8,463 2,048 12,425 14,473
La Valencia
Mesa, AZ - 2,485 6,569 1,068 13,930 3,553 20,499 24,052
Little Cottonwoods
Tempe, AZ 9,652 2,834 6,655 216 20,326 3,050 26,981 30,031
Miramonte
Scottsdale, AZ - 1,133 3,711 - 5,135 1,133 8,846 9,979
Morningside
Scottsdale, AZ 4,653 533 6,316 137 6,276 670 12,592 13,262
Mountain Park Ranch
Phoenix, AZ 9,839 1,662 12,540 - 5,684 1,662 18,224 19,886
Park Meadow
Gilbert, AZ 3,008 607 2,828 225 6,147 832 8,975 9,807
Preserve at Squaw Peak
Phoenix, AZ 3,248 377 4,252 141 4,267 518 8,519 9,037
Promontory Pointe
Phoenix, AZ 7,794 2,038 6,987 (379) 14,831 1,659 21,818 23,477
Rancho Murietta
Tempe, AZ - 1,766 10,208 - 7,341 1,766 17,549 19,315
Scottsdale Courtyards
Scottsdale, AZ 10,695 2,946 8,385 33 16,624 2,979 25,009 27,988
Scottsdale Meadows
Scottsdale, AZ - 1,512 4,203 - 7,178 1,512 11,381 12,893
Shadow Brook
Phoenix, AZ 8,115 2,440 9,320 625 9,008 3,065 18,328 21,393
</TABLE>
<TABLE>
<CAPTION>
Depreciable
Accumulated Year Year Lives in
Description Depreciation Developed Acquired Years
- ----------------------- ------------------------------------------
<S> <C> <C> <C> <C>
Same Store
Phoenix
Acacia Creek
Scottsdale, AZ $20 1995 5 to 40 years
Bayside at the Islands
Gilbert, AZ 10 1988-1989 5 to 40 years
Country Brook
Chandler, AZ 11 1991 5 to 40 years
Gateway Villas
Phoenix, AZ 9 1994-1995 5 to 40 years
Greenwood Village
Tempe, AZ 10 1993 5 to 40 years
Heritage Point (1)
Mesa, AZ 5 1994 5 to 40 years
La Mariposa
Mesa, AZ 8 1990 5 to 40 years
La Valencia
Mesa, AZ 13 1990 5 to 40 years
Little Cottonwoods
Tempe, AZ 16 1989 5 to 40 years
Miramonte
Scottsdale, AZ 5 1993 5 to 40 years
Morningside
Scottsdale, AZ 8 1992 5 to 40 years
Mountain Park Ranch
Phoenix, AZ 11 1994-1995 5 to 40 years
Park Meadow
Gilbert, AZ 6 1992 5 to 40 years
Preserve at Squaw Peak
Phoenix, AZ 5 1991 5 to 40 years
Promontory Pointe
Phoenix, AZ 13 1988 5 to 40 years
Rancho Murietta
Tempe, AZ 11 1995 5 to 40 years
Scottsdale Courtyards
Scottsdale, AZ 15 1993 5 to 40 years
Scottsdale Meadows
Scottsdale, AZ 7 1993 5 to 40 years
Shadow Brook
Phoenix, AZ 11 1993 5 to 40 years
</TABLE>
S-1
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
SCHEDULE III - REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent Gross Amounts at Which
to Acquisition / Carried at Close of
Initial Cost Construction Period
-----------------------------------------------------------------------------
Buildings Buildings Buildings
and and and
Description Encumbrances Land Improvements Land Improvements Land Improvements Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Same Store (continued)
Shores at Andersen Springs
Chandler, AZ $8,396 $2,095 $9,682 $649 $13,051 $2,744 $22,733 $25,477
Silver Creek
Phoenix, AZ 3,289 484 3,157 228 3,531 712 6,688 7,400
Sonoran
Phoenix, AZ 11,534 2,362 20,802 - 10,958 2,362 31,760 34,122
Sun Creek
Glendale, AZ 3,903 715 3,950 182 3,095 897 7,045 7,942
Superstition Vista
Mesa, AZ - 1,641 12,272 - 7,759 1,641 20,031 21,672
The Enclave
Tempe, AZ 8,485 1,500 10,527 - 8,735 1,500 19,262 20,762
The Heritage
Phoenix, AZ 5,484 1,211 12,370 - 734 1,211 13,104 14,315
The Meadows
Mesa, AZ - 650 4,797 - 10,610 650 15,407 16,057
The Palms
Phoenix, AZ 5,013 2,152 4,455 1,133 6,787 3,285 11,242 14,527
Towne Square
Chandler, AZ - 1,042 14,474 277 13,380 1,319 27,854 29,173
Villa Encanto
Phoenix, AZ - 2,884 8,558 - 13,536 2,884 22,094 24,978
Village at Lakewood
Phoenix, AZ 8,434 1,652 5,776 1,514 8,037 3,166 13,813 16,979
Tucson
Harrison Park
Tucson, AZ 3,395 516 3,511 - 2,248 516 5,759 6,275
La Reserve
Oro, Valley 6,564 2,309 6,356 956 (1,433) 3,265 4,923 8,188
Orange Grove Village
Tucson, AZ 3,877 814 3,233 906 3,756 1,720 6,989 8,709
Suntree Village
Oro, Valley 8,757 1,246 8,862 326 4,206 1,572 13,068 14,640
The Arboretum
Tucson, AZ 16,919 1,928 16,706 1,525 2,272 3,453 18,978 22,431
Village at Tanque Verde
Tucson, AZ 6,526 690 1,280 745 5,846 1,435 7,126 8,561
</TABLE>
<TABLE>
<CAPTION>
Depreciable
Accumulated Year Year Lives in
Description Depreciation Developed Acquired Years
- ----------------------- ------------------------------------------
<S> <C> <C> <C> <C>
Same Store (continued)
Shores at Andersen Springs
Chandler, AZ $14 1993 5 to 40 years
Silver Creek
Phoenix, AZ 4 1991 5 to 40 years
Sonoran
Phoenix, AZ 19 1994-1995 5 to 40 years
Sun Creek
Glendale, AZ 5 1993 5 to 40 years
Superstition Vista
Mesa, AZ 12 1995 5 to 40 years
The Enclave
Tempe, AZ 11 1994-1995 5 to 40 years
The Heritage
Phoenix, AZ 8 1994-1995 5 to 40 years
The Meadows
Mesa, AZ 10 1987 5 to 40 years
The Palms
Phoenix, AZ 7 1990 5 to 40 years
Towne Square
Chandler, AZ 17 1992 5 to 40 years
Villa Encanto
Phoenix, AZ 14 1991 5 to 40 years
Village at Lakewood
Phoenix, AZ 8 1991 5 to 40 years
Tucson
Harrison Park
Tucson, AZ 4 1991 5 to 40 years
La Reserve
Oro, Valley 4 1988 5 to 40 years
Orange Grove Village
Tucson, AZ 5 1991 5 to 40 years
Suntree Village
Oro, Valley 9 1992 5 to 40 years
The Arboretum
Tucson, AZ 12 1992 5 to 40 years
Village at Tanque Verde
Tucson, AZ 5 1990 5 to 40 years
</TABLE>
S-2
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
SCHEDULE III - REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent Gross Amounts at Which
to Acquisition / Carried at Close of
Initial Cost Construction Period
-----------------------------------------------------------------------------
Buildings Buildings Buildings
and and and Accumulated
Description Encumbrances Land Improvements Land Improvements Land Improvements Total Depreciation
- ------------------------------------------------------------------------------------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Same Store (continued)
California
The Ashton
Corona Hills, CA $17,300 $2,594 $18,679 $- $14,333 $2,594 $33,012 $35,606 $19
-----------------------------------------------------------------------------------------------------
Subtotal Same Store 201,191 63,061 313,756 12,918 308,686 75,979 622,442 698,421 381
Communities Stabilized
Less Than Two Years
Phoenix
Country Brook Expansion
Phase III
Chandler, AZ - 543 6,779 - 3,710 543 10,489 11,032 6
Ingleside
Phoenix, AZ - 1,204 6,242 - 4,421 1,204 10,663 11,867 6
Ladera
Phoenix, AZ - 2,979 14,884 - 5,714 2,979 20,598 23,577 12
Mirador
Phoenix, AZ - 2,597 20,885 - 2,483 2,597 23,368 25,965 14
Park Meadow Expansion
Phase II
Gilbert, AZ - 4 3,998 - 2,122 4 6,120 6,124 4
Towne Square Expansion
Phase III
Chandler, AZ - 605 6,092 - 2,420 605 8,512 9,117 5
Tucson
The Legends
Tucson, AZ - 2,728 17,893 - (26) 2,728 17,867 20,595 11
Orange Grove Expansion
Phase II
Tucson, AZ - 93 7,213 - 665 93 7,878 7,971 5
-----------------------------------------------------------------------------------------------------
Subtotal Communities
Stabilized
Less than Two Years - 10,753 83,986 - 21,509 10,753 105,495 116,248 63
Developments and Lease-Up
Properties
Phoenix
The Hawthorne
Phoenix, AZ - 2,695 14,087 2 1,583 2,697 15,670 18,367 10
The Retreat
Phoenix, AZ - 1,738 2,578 - 10,654 1,738 13,232 14,970 7
The Retreat Phase II
Phoenix, AZ - 1,739 - - 4,412 1,739 4,412 6,151 2
Vista Grove
Mesa, AZ - 1,343 1,897 - 9,316 1,343 11,213 12,556 6
The Gates Project (2)
Various Locations - - 551 - 1,794 - 2,345 2,345 1
</TABLE>
<TABLE>
<CAPTION>
Depreciable
Year Year Lives in
Description Developed Acquired Years
- ----------------------- -------------------------------
<S> <C> <C> <C>
Same Store (continued)
California
The Ashton
Corona Hills, CA 1995 5 to 40 years
Subtotal Same Store
Communities Stabilized
Less Than Two Years
Phoenix
Country Brook Expansion
Phase III
Chandler, AZ 1995-1996 5 to 40 years
Ingleside
Phoenix, AZ 1995 5 to 40 years
Ladera
Phoenix, AZ 1994-1995 5 to 40 years
Mirador
Phoenix, AZ 1994-1995 5 to 40 years
Park Meadow Expansion
Phase II
Gilbert, AZ 1995-1996 5 to 40 years
Towne Square Expansion
Phase III
Chandler, AZ 1995-1996 5 to 40 years
Tucson
The Legends
Tucson, AZ 1994-1995 5 to 40 years
Orange Grove Expansion
Phase II
Tucson, AZ 1995-1996 5 to 40 years
Subtotal Communities
Stabilized
Less than Two Years
Developments and Lease-Up
Properties
Phoenix
The Hawthorne
Phoenix, AZ 1995-1997 5 to 40 years
The Retreat
Phoenix, AZ 1997 5 to 40 years
The Retreat Phase II
Phoenix, AZ 1997 5 to 40 years
Vista Grove
Mesa, AZ 1997 5 to 40 years
The Gates Project (2)
Various Locations Various 5 to 40 years
</TABLE>
S-3
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
SCHEDULE III - REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent Gross Amounts at Which
to Acquisition / Carried at Close of
Initial Cost Construction Period
-----------------------------------------------------------------------------
Buildings Buildings Buildings
and and and Accumulated
Description Encumbrances Land Improvements Land Improvements Land Improvements Total Depreciation
- ------------------------------------------------------------------------------------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Developments and Lease-Up
Properties (continued)
The Isle at Arrowhead
Ranch
Glendale, AZ $ - $1,652 $9,806 $- $9,927 $1,652 $19,733 $21,385 $12
Promontory Pointe
Expansion Phase II
Phoenix, AZ - 665 8,141 32 428 697 8,569 9,266 5
Montierra
Scottsdale, AZ - 3,456 508 - 4,331 3,456 4,839 8,295 3
Tucson
Bear Canyon
Tucson, AZ - 1,645 12,926 16 (1,723) 1,661 11,203 12,864 7
Harrison Park Expansion
Phase II
Tucson, AZ - 749 8,912 - 1,644 749 10,556 11,305 7
-----------------------------------------------------------------------------------------------------
Subtotal Developments and
Lease-Up Properties - 15,682 59,406 50 42,366 15,732 101,772 117,504 60
Acquisitions
California
Canyon Crest Views
Riverside, CA - 1,745 12,163 - 5,193 1,745 17,356 19,101 10
Canyon Ridge
San Diego, CA - 4,869 7,316 - 4,656 4,869 11,972 16,841 7
Marquessa
Corona Hills, CA 18,169 6,888 17,221 - 4,549 6,888 21,770 28,658 13
Portofino
Chino Hills, CA - 3,572 9,031 - 5,597 3,572 14,628 18,200 9
Parkview Terrace Club
Redlands, CA 22,650 4,969 28,301 - 7,350 4,969 35,651 40,620 22
Redlands Lawn and Tennis
Club
Redlands, CA 24,050 4,822 24,045 - 2,267 4,822 26,312 31,134 16
Massachusetts
Lincoln Heights
Quincey, MA - 5,925 33,586 - (11) 5,925 33,575 39,500 20
Minnesota
Woodlands at Minnetonka
Minnetonka, MN - 2,392 13,570 - (12) 2,392 13,558 15,950 8
-----------------------------------------------------------------------------------------------------
Subtotal Acquisitions 64,869 35,182 145,233 - 29,589 35,182 174,822 210,004 105
</TABLE>
<TABLE>
<CAPTION>
Depreciable
Year Year Lives in
Description Developed Acquired Years
- ----------------------- -------------------------------
<S> <C> <C> <C>
Developments and Lease-Up
Properties (continued)
The Isle at Arrowhead
Ranch
Glendale, AZ 1996 5 to 40 years
Promontory Pointe
Expansion Phase II
Phoenix, AZ 1995 5 to 40 years
Montierra
Scottsdale, AZ 1997 5 to 40 years
Tucson
Bear Canyon
Tucson, AZ 1995 5 to 40 years
Harrison Park Expansion
Phase II
Tucson, AZ 1995 5 to 40 years
Subtotal Developments and
Lease-Up Properties
Acquisitions
California
Canyon Crest Views
Riverside, CA 1996 5 to 40 years
Canyon Ridge
San Diego, CA 1997 5 to 40 years
Marquessa
Corona Hills, CA 1997 5 to 40 years
Portofino
Chino Hills, CA 1996 5 to 40 years
Parkview Terrace Club
Redlands, CA 1996 5 to 40 years
Redlands Lawn and Tennis
Club
Redlands, CA 1996 5 to 40 years
Massachusetts
Lincoln Heights
Quincey, MA 1997 5 to 40 years
Minnesota
Woodlands at Minnetonka
Minnetonka, MN 1997 5 to 40 years
Subtotal Acquisitions
</TABLE>
S-4
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, L.P.
SCHEDULE III - REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent Gross Amounts at Which
to Acquisition / Carried at Close of
Initial Cost Construction Period
-----------------------------------------------------------------------------
Buildings Buildings Buildings
and and and Accumulated
Description Encumbrances Land Improvements Land Improvements Land Improvements Total Depreciation
- ------------------------------------------------------------------------------------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Corporate Office
Scottsdale, AZ $ - $ - $ 325 $ - $(325) $ - $- $- $-
=====================================================================================================
Total $266,060 $124,678 $602,706 $12,968 $401,825 $137,646 $1,004,531 $1,142,177 $609
=====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Depreciable
Year Year Lives in
Description Developed Acquired Years
- ----------------------- -------------------------------
<S> <C> <C> <C>
Corporate Office
Scottsdale, AZ 1994 5 to 8 years
1997
Total
</TABLE>
(1) Heritage Point serves as collateral for a letter of credit for The Ashton
tax exempt bonds.
(2) The Gates Project represents the costs associated with the Company's
investment in constructing security gate systems at all its apartment
communities.
S-5
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, INC.
SCHEDULE III - REAL ESTATE INVESTMENT AND ACCUMULATED DEPRECIATION
A summary of activity for real estate investments and accumulated depreciation
is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
------------ ------------ ------------
(Amounts in thousands)
<S> <C> <C> <C>
Balance at beginning of period $ 761,550 $ 587,183 $ 399,987
Acquisitions, including construction costs 91,767 88,648 77,895
Disposals (28,475) - -
Improvements, including construction costs 48,371 85,719 109,301
Fair value adjustment 268,964 - -
------------ ------------ ------------
Balance at close of period $ 1,142,177 $ 761,550 $ 587,183
============ ============ ============
Accumulated depreciation
Balance at beginning of period $ 38,331 $ 17,511 $ 3,749
Depreciation 26,386 20,885 13,762
Accumulated depreciation on disposals (3,457) (65) -
Elimination of accumulated depreciation
at date of acquisition (60,651) - -
------------ ------------ ------------
Balance at close of period $ 609 $ 38,331 $ 17,511
============ ============ ============
</TABLE>
S-6
EXHIBIT 12.1
EVANS WITHYCOMBE RESIDENTIAL, L.P.
CALCULATION OF THE RATIO OF DEBT TO MARKET
CAPITALIZATION AS OF DECEMBER 31, 1997
(DOLLARS IN THOUSANDS EXCEPT FOR UNITS
AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
<S> <C>
Issued and outstanding Units 24,978,056
Exchange ratio of 0.50 share of common stock of Equity Residential Properties Trust (1) 0.50
----
Equivalent number of issued and outstanding shares 12,489,028
Closing price of stock at December 31, 1997 $50.875
Equity Capitalization $635,379,300
Debt $499,000,000
Total Capitalization $1,134,379,300
Debt/Total Capitalization 44.0%
</TABLE>
(1) The Asset Contribution Agreement dated August 27, 1997 provides for the
exchange of all outstanding limited partnership units at an exchange ratio
of 0.50 units/shares of EQR for every one unit of the Operating
Partnership.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 8,288
<SECURITIES> 0
<RECEIVABLES> 1,493
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,142,177
<DEPRECIATION> 609
<TOTAL-ASSETS> 1,152,063
<CURRENT-LIABILITIES> 0
<BONDS> 499,000
0
0
<COMMON> 0
<OTHER-SE> 630,815
<TOTAL-LIABILITY-AND-EQUITY> 1,152,063
<SALES> 0
<TOTAL-REVENUES> 120,173
<CGS> 0
<TOTAL-COSTS> 40,413
<OTHER-EXPENSES> 39,398
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,573
<INCOME-PRETAX> 16,242
<INCOME-TAX> 0
<INCOME-CONTINUING> 16,242
<DISCONTINUED> 0
<EXTRAORDINARY> (1,500)
<CHANGES> 0
<NET-INCOME> 14,742
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
</TABLE>
