<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 21, 1997
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM-10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
------------------------
SUMMIT PROPERTIES PARTNERSHIP, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 56-1857809
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
212 SOUTH TRYON STREET,
SUITE 500 28281
CHARLOTTE, NORTH CAROLINA (Zip Code)
(Address of Principal Executive Offices)
(704) 334-9905
(Registrant's telephone number,
including area code)
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE IN WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
------------------- ------------------------------
<S> <C>
Not Applicable Not Applicable
</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Units of Limited Partnership Interest
(Title of Class)
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C> <C>
Item 1. Business.................................................................. 1
Item 2. Financial Information..................................................... 3
Item 3. Properties................................................................ 18
Item 4. Security Ownership of Certain Beneficial Owners and Management............ 21
Item 5. Directors and Officers.................................................... 22
Item 6. Executive Compensation.................................................... 24
Item 7. Certain Relationships and Related Transactions............................ 27
Item 8. Legal Proceedings......................................................... 27
Item 9. Market Price and Distributions and Related Security Holder Matters........ 27
Item 10. Recent Sales of Unregistered Securities................................... 28
Item 11. Description of Registrant's Securities to be Registered................... 29
Item 12. Indemnification of Directors and Officers................................. 31
Item 13. Financial Statements and Supplementary Data............................... 31
Item 14. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................ 32
Item 15. Financial Statements and Exhibits......................................... 32
</TABLE>
i
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ITEM 1. BUSINESS
THE OPERATING PARTNERSHIP
Summit Properties Partnership, L.P. (the "Operating Partnership") is one of
the largest developers and operators of luxury garden apartment communities in
the southeastern United States. The sole general partner of the Operating
Partnership is Summit Properties Inc. ("Summit Properties"), a fully integrated
real estate investment trust ("REIT"). Summit Properties' common stock, par
value $.01 per share (the "Common Stock") is listed on the New York Stock
Exchange under the symbol "SMT." The Operating Partnership manages its
properties and conducts its third party management business through Summit
Management Company (the "Management Company"), in which it owns a 1% voting
interest and a 99% economic interest. The Operating Partnership's development
and construction activities are conducted through Summit Apartment Builders,
Inc. (the "Construction Company"), which is a wholly owned subsidiary of the
Management Company. Unless the context otherwise requires, all references in
this Form 10 to the Operating Partnership shall mean Summit Properties
Partnership, L.P., the Management Company, the Construction Company and their
predecessors on an aggregated basis.
As of March 31, 1997, the Operating Partnership's portfolio consisted of 54
apartment communities (the "Communities") with 12,670 apartment homes, including
Summit Foxcroft in which the Operating Partnership has a 75% managing general
partner interest. Immediately following the initial public offering of Summit
Properties (the "Initial Offering"), the Operating Partnership's portfolio
consisted of 28 Communities with 6,979 apartment homes. During the second
quarter of 1995, the Operating Partnership completed an acquisition of 12
Communities and a 75% interest in another Community, which were owned by The
Crosland Group, Inc. and its affiliates (the "Crosland Acquisition"). The
Crosland Acquisition added a total of 2,025 apartment homes to the Operating
Partnership's portfolio. As of March 31, 1997, the Operating Partnership had ten
apartment communities with 2,770 apartment homes under construction or in
lease-up. The Management Company also manages approximately 5,818 apartment
homes for unrelated third parties. The Operating Partnership is a fully
integrated organization with multifamily development, construction, acquisition
and management expertise which is supported by approximately 560 employees.
The Operating Partnership has chosen to focus its efforts in three high
growth regions of the southeast: the corridor connecting Atlanta, Charlotte and
the Raleigh-Durham area (the "I-85 Corridor"); central and south Florida; and
the greater Washington, DC/Virginia area. In keeping with this strategy, the
Operating Partnership has established city operating offices in Charlotte, North
Carolina, Tampa, Florida, Reston, Virginia, Atlanta, Georgia, Fort Lauderdale,
Florida and Raleigh, North Carolina. These city offices have direct
responsibility for selecting and overseeing new developments and for managing
the Communities in their geographic areas. This decentralized structure enables
corporate management to maintain tight controls and allows the Operating
Partnership to compete effectively in its core markets, while efficiently
allocating development and acquisition capital to those markets that will yield
the highest risk-adjusted return.
The Operating Partnership was organized as a Delaware limited partnership
on January 14, 1994 in connection with the Initial Offering. Its executive
offices are located at 212 South Tryon Street, Suite 500, Charlotte, North
Carolina 28281, its telephone number is (704) 334-9905 and its facsimile number
is (704) 333-8340.
The Operating Partnership was formed to continue and expand the multifamily
apartment community development, construction, operation, management and leasing
activities of the entities through which Summit Properties historically
conducted operations prior to its initial public offering (the "Summit
Entities"). The Summit Entities were founded in 1972 by William B. McGuire, Jr.
and initially focused on the development, construction, acquisition and
syndication of multifamily properties. In 1981, William F. Paulsen joined the
predecessor to Summit Properties as Chief Executive Officer and shepherded the
growth of its multifamily property development and management activities.
<PAGE> 4
OPERATING PHILOSOPHY
The Operating Partnership seeks to maximize the economic return from its
Communities by optimizing the trade-off between increasing rental rates and
maintaining high occupancy levels. Consistent with this strategy, the Operating
Partnership is among the rental rate leaders in its markets. Although this
strategy may result in slightly lower occupancy rates, the Operating Partnership
believes that the dynamic tension created by this balancing strategy maximizes
operating income at the property level and improves growth in the Operating
Partnership's cash flow over the long term. Generally, the Operating Partnership
has found that it is not maximizing property operating income per apartment home
when occupancy levels are above 95%.
Historically, the Operating Partnership has been able to charge market
leading rents to its residents while maintaining high occupancy rates due to:
the upscale features of its Communities, the comprehensive service provided by
its on-site management and its favorable mix of apartment homes. The Operating
Partnership's geographic market focus and decentralized structure further
promote income growth.
Development. As of March 31, 1997, the Operating Partnership had ten
apartment communities containing 2,770 apartment homes under construction. In
1996, the Operating Partnership also completed development of four Communities
containing 1,061 apartment homes and acquired the remaining 75% interest in a
joint venture with 262 apartment homes. Development of new communities has been
the foundation of the Operating Partnership's growth. Collectively, the
Operating Partnership and the Summit Entities have developed more than $1
billion of multifamily apartment communities, representing over 20,000 apartment
homes. Of the Operating Partnership's 54 Communities, 34 have been developed by
the Operating Partnership or the Summit Entities. The Operating Partnership
attributes much of its historical cash flow growth to the quality of the
apartment communities it has developed over the years. Where favorable
opportunities exist, the Operating Partnership plans to continue to capitalize
on its extensive experience and proven reputation as a developer by developing
new communities.
Acquisition. The Operating Partnership also seeks to grow cash flow by
acquiring existing communities that have prospects for long-term growth in
excess of industry averages. The Operating Partnership recently hired an
acquisition specialist to support its efforts in this area. Since January 1,
1997, the Operating Partnership has acquired an aggregate of 882 apartment homes
through the acquisition of Summit Portofino in Broward County, Florida, Summit
Mayfaire in Raleigh, North Carolina, and Summit Sand Lake in Orlando, Florida.
Additionally, the Operating Partnership from time to time will dispose of those
Communities within its portfolio which do not align with the Operating
Partnership's long term strategic plan and growth objective.
Upscale Apartment Communities. Since its inception, the Operating
Partnership has been dedicated to developing, acquiring and managing upscale
apartment communities designed to satisfy the aesthetic and lifestyle desires of
their residents. The Communities are characterized by high-quality construction,
superior architecture and design and extensive resident amenities. The
Communities target middle to upper income professionals who are generally
attracted to these communities because of their interior and exterior ambiance,
floor plan design, community location and amenities. Because these professionals
often can afford to pay higher rents, the ability of the Operating Partnership
to raise rents is constrained only by its markets and not the income of its
residents. The Operating Partnership believes that this resident profile results
in rental growth potential and risk-adjusted returns that are more favorable
than those available in other classes of apartment communities.
Dedication to Customer Service. The Operating Partnership has long
stressed the importance of developing strong customer relationships with its
residents. The Operating Partnership's total commitment to resident satisfaction
is further evidenced by its "Sundown Policy" which mandates a response by the
appropriate employee to any resident inquiry or complaint no later than
"sundown" of the day on which the inquiry or complaint was received. The
Operating Partnership has sought to provide its residents with experienced,
well-trained and attentive management staffs. Every Community employee enters
into a comprehensive training program when he or she is hired. This training
program ensures that employees have a clear understanding of their job
responsibilities, the high standards of performance expected of them and the
Operating Partnership's operating philosophies. On-going training following each
employee's initial employment period further enhances employee productivity. The
Operating Partnership believes that this training
2
<PAGE> 5
regimen along with a proven hiring process has produced a higher quality
management staff, evidenced by higher resident satisfaction at the Communities
and lower employee turnover.
Mix of Apartment Homes. The Operating Partnership has sought to respond to
the desires of its target customer base by adjusting the unit composition and
features of the Communities. There have been broad demographic changes in the
Operating Partnership's resident mix over the past ten years. Today's renters
are older, more affluent and, accordingly, desire larger apartment homes with
more amenities. The Operating Partnership has responded to these shifts by
developing and acquiring Communities with a greater proportion of large two and
three bedroom units with extensive amenities. Because these features are
generally not present in older apartment properties, the Operating Partnership,
especially through its development activity, believes it is more competitively
positioned to meet the desires of its target renter group than some of its
competitors with older apartment portfolios.
Market Focus. Ninety-three percent of the Operating Partnership's current
portfolio is located in its three core markets: the I-85 Corridor, central and
south Florida and the Greater Washington, DC/Virginia area. This market focus
has enabled the Operating Partnership to capitalize on the stronger than average
growth in population, employment and household formation experienced in these
markets in the past several years. Additionally, it allows the Operating
Partnership to gain better brand recognition and improve operating efficiencies.
The Operating Partnership's property revenue growth rate for 1996 was lower than
in 1995 primarily as a result of a new supply of competing multifamily
communities in the markets in which the Operating Partnership operates. In 1997,
the Operating Partnership expects the supply of new multifamily communities in
its markets to continue to increase. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Operating Performance of the
Operating Partnership's Stabilized Communities."
Decentralized Organizational Structure. The Operating Partnership's
operational structure reflects its geographic market focus. The Operating
Partnership's decentralized format provides each of its six city offices with
operating accountability and control over its respective market area. In
addition, it capitalizes on specific market knowledge which allows for superior
site selection and valuation in connection with the development of new
communities, enhanced asset management and the efficient allocation of capital
to those development opportunities with the greatest potential for financial
performance.
ITEM 2. FINANCIAL INFORMATION
SELECTED FINANCIAL DATA
The following table sets forth selected financial and other information on
a historical basis for the Operating Partnership and its predecessors, the
Summit Entities, as of and for each of the years in the five-year period ended
December 31, 1996. This table should be read in conjunction with the Financial
Statements of Summit Properties Partnership, L.P. and the Notes thereto included
elsewhere herein.
SELECTED FINANCIAL DATA
SUMMIT PROPERTIES PARTNERSHIP, L.P. (HISTORICAL) (1)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
--------- -------- --------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER UNIT AND PROPERTY
INFORMATION)
<S> <C> <C> <C> <C> <C>
OPERATING INFORMATION:
Revenue:
Rental.............................. $ 88,864 $ 70,773 $ 54,198 $ 45,561 $ 39,693
Property management(2).............. -- -- 536 4,102 2,988
Interest and other.................. 5,625 4,221 3,700 3,779 4,393
--------- -------- -------- -------- --------
Total............................ 94,489 74,994 58,434 53,442 47,074
--------- -------- -------- -------- --------
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
--------- -------- --------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER UNIT AND PROPERTY
INFORMATION)
<S> <C> <C> <C> <C> <C>
Expense:
Property operating and maintenance
expense (before depreciation and
amortization).................... 35,226 28,012 21,502 18,991 17,306
Property management expenses(2)..... -- -- 366 2,799 2,453
Interest expense.................... 17,138 14,802 14,067 26,400 25,925
Depreciation and amortization....... 18,208 15,141 11,700 9,735 9,219
REIT formation costs................ -- -- 457 -- --
General and administrative
expense.......................... 2,557 1,949 1,756 1,375 1,973
Loss from equity investments........ 173 39 59 -- --
--------- -------- --------- -------- --------
Total............................ 73,302 59,943 49,907 59,300 56,876
--------- -------- --------- -------- --------
Income (loss) before extraordinary
items............................... $ 21,187 $ 15,051 $ 8,527 $ (5,858) $ (9,802)
========= ======== ========= ======== ========
Net income (loss)..................... $ 20,561 $ 14,512 $ 17,093 $ (3,408) $ (9,802)
========= ======== ========= ======== ========
Income per unit before extraordinary
items............................... .92 .83 .64 N/A N/A
========= ======== =========
Net income per unit................... .90 .80 1.28 N/A N/A
========= ======== =========
Distributions declared per unit....... 1.55 1.51 1.29 N/A N/A
========= ======== =========
Weighted average units outstanding.... 22,941 18,117 13,390 N/A N/A
========= ======== =========
OTHER INFORMATION:
Cash flow provided by (used in):
Operating activities................ 41,176 30,994 17,525 8,712 4,475
Investing activities................ (103,971) (63,734) (113,741) (2,092) (16,106)
Financing activities................ 63,579 34,440 88,993 (9,141) 14,123
Funds from Operations(3).............. 39,391 30,148 20,120 3,777 (683)
Recurring capital expenditures........ 3,291 2,180 1,710 1,050 591
Funds Available for Distribution(4)... 36,100 27,968 18,410 2,727 (1,274)
Non-recurring capital
expenditures(5)..................... 2,973 864 -- -- --
Total completed communities (at end of
period)............................. 51 46 32 27 26
Total apartment homes developed(6).... 1,061 379 -- 320 788
Total apartment homes acquired........ 262 2,025 1,332 -- --
Total apartment homes (at end of
period)(7).......................... 11,788 10,465 8,061 6,729 6,409
Average monthly rental revenue per
apartment home(8)................... 698 669 657 617 576
Average physical occupancy(9)......... 93.3% 94.5% 93.5% 93.1% 93.3%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
--------- -------- --------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation........................ $ 704,779 $586,264 $ 439,025 $317,374 $313,634
Total assets.......................... 635,364 533,609 397,945 297,670 309,239
Total long-term debt.................. 309,933 297,010 249,009 315,847 319,916
Partners' equity (deficiency)......... 303,416 217,496 138,089 (38,127) (28,825)
</TABLE>
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(1) For purposes of the Selected Financial Data, historical information is
presented both for the Operating Partnership and, for periods prior to
February 15, 1994, its predecessors; provided that historical financial
information for its predecessors only includes information relating to the
Communities held by the Operating Partnership immediately following the
Initial Offering and the entities which provided property and general
management services for those Communities.
(2) Consists of revenues and expenses from property management services provided
to communities owned by unrelated third parties and by certain predecessor
partnerships prior to the Initial Offering. Since the Initial Offering,
these services have been performed by the Management Company, which is
accounted for under the equity method of accounting.
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<PAGE> 7
(3) Summit Properties generally considers Funds from Operations to be an
appropriate measure of the performance of an equity REIT. Funds from
Operations, as defined by the National Association of Real Estate Investment
Trusts (NAREIT), represents net income (loss) determined in accordance with
generally accepted accounting principles (GAAP), excluding gains or losses
from sales of assets or debt restructuring, plus certain non-cash items,
primarily real estate depreciation, and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for all periods consisted only
of real estate depreciation. Funds from Operations should not be considered
as an alternative to net income (determined in accordance with GAAP), as an
indication of the Operating Partnership's financial performance, or to cash
flow from operating activities (determined in accordance with GAAP) as a
measure of liquidity. Funds from Operations is calculated as follows
(dollars in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income (loss) before extraordinary items........................ $21,187 $15,051 $ 8,527 $(5,858) $(9,802)
Real estate depreciation........................................ 18,204 15,097 11,593 9,635 9,119
------- ------- ------- ------- -------
Funds from Operations........................................... $39,391 $30,148 $20,120 $ 3,777 $ (683)
======= ======= ======= ======= =======
</TABLE>
(4) Funds Available for Distribution is defined as Funds from Operations less
recurring capital expenditures.
(5) Represents improvements made in conjunction with acquisitions, construction
of garages and other major non-recurring capital expenditures.
(6) Represents the total number of apartment homes in Communities completed and
owned by the Operating Partnership during the period.
(7) Represents the total number of apartment homes in Communities completed and
owned by the Operating Partnership at the end of the period.
(8) Represents the average monthly rental revenue per occupied apartment home at
Communities deemed to have achieved stabilized occupancy on the earlier of
the attainment of 93% physical occupancy or one year after the completion of
construction ("Stabilized Communities").
(9) Physical occupancy is defined as the number of apartment homes occupied
divided by the total number of apartment homes contained in the Communities,
expressed as a percentage, and reflects only Stabilized Communities.
Physical occupancy has been calculated using the average of the midweek
occupancy that existed during each week of the period.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10 contains forward-looking statements including, without
limitation, statements relating to development activities of the Operating
Partnership within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, as amended. Although the
Operating Partnership believes that the expectations reflected in such
forward-looking statements are based on reasonable assumptions, the Operating
Partnership's actual results and performance of development communities could
differ materially from those set forth in the forward-looking statements.
Certain factors that might cause such a difference include general economic
conditions, local real estate conditions, construction delays due to
unavailability of materials, weather conditions or other delays and those
factors discussed in the section entitled "Development Activity -- Certain
Factors Affecting the Performance of Development Communities" on page 15 of this
Form 10.
OVERVIEW
The following discussion should be read in conjunction with the Financial
Statements of Summit Properties Partnership, L.P. and the Notes thereto
appearing elsewhere herein.
As of December 31, 1996, there were 26,434,920 units of limited partnership
interest of the Operating Partnership ("Units") outstanding, of which
22,409,638, or 84.8% were owned by Summit Properties and 4,025,282, or 15.2%
were owned by other partners (including certain officers and Directors of Summit
Properties).
FORMATION OF THE OPERATING PARTNERSHIP, THE INITIAL OFFERING AND SUBSEQUENT
OFFERINGS
The Operating Partnership was formed on January 14, 1994, to succeed to
interests in a portfolio of 27 Communities, comprising a total of 6,729
apartment homes, to acquire Summit Stony Point comprising 250 apartment homes
and to acquire certain development, construction, management and leasing
businesses
5
<PAGE> 8
of the Summit Entities. On February 15, 1994, Summit Properties completed its
Initial Offering, the proceeds of which were used to acquire a controlling
interest in the Operating Partnership. The Operating Partnership conducts the
business of developing and leasing multifamily apartment communities for Summit
Properties. In connection with the Initial Offering, the Summit Entities' third
party management businesses were transferred to the Management Company, in which
the Operating Partnership owns a 1% voting interest and a 99% economic interest.
The Construction Company, which was formed to perform certain construction
services for the Operating Partnership, is wholly-owned by the Management
Company. The Operating Partnership's interest in the Management Company and the
Construction Company is accounted for under the equity method of accounting.
On June 2, 1995, Summit Properties completed an offering of four million
shares of Common Stock (the "1995 Offering"). On August 7, 1996, Summit
Properties completed an offering of five million shares of Common Stock and sold
an additional 750,000 shares upon exercise of the underwriters' over-allotment
option on August 12, 1996 (the "1996 Offering"). The proceeds of the 1995 and
1996 Offerings were contributed by Summit Properties to the Operating
Partnership in exchange for Units, and the Operating Partnership used such
proceeds to repay debt and fund development costs.
HISTORICAL RESULTS OF OPERATIONS
The Operating Partnership's net income is generated primarily from the
operations of the Communities. The changes in operating results from period to
period reflect changes in existing Community performance as well as increases in
the number of apartment homes due to the acquisition and development of
Communities. Where appropriate, comparisons are made on a "stabilized
Communities," "acquisition Communities" and "Communities in lease-up" basis in
order to adjust for changes in the number of apartment homes. A Community is
deemed to be a "Stabilized" Community at the earlier of when it has attained a
physical occupancy level of at least 93% or when construction has been completed
for one year. A summary of the Operating Partnership's apartment homes for the
years ended December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -----
<S> <C> <C> <C>
Apartment homes at the beginning of the year.................. 11,286 8,061 --
Initial business combination.................................. -- -- 6,729
Acquisitions.................................................. 262 2,025 1,332
Developments which began rental operations during the year.... 906 1,200 --
------ ------ -----
Apartment homes at the end of the year........................ 12,454 11,286 8,061
====== ====== =====
</TABLE>
The 1995 acquisitions were completed in the second quarter and consisted of
twelve apartment communities and a 75% interest in another apartment community,
all of which were owned by The Crosland Group Inc. and its affiliates.
Results of Operations for the Years Ended December 31, 1996, 1995 and 1994
Income before extraordinary items increased from 1994 ($8.5 million) to
1995 ($15.1 million) and from 1995 to 1996 ($21.2 million) primarily due to
increased property operating income at Stabilized Communities, property
operating income from acquisition Communities and Communities in lease-up.
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<PAGE> 9
OPERATING PERFORMANCE OF THE OPERATING PARTNERSHIP'S PORTFOLIO OF COMMUNITIES
The operating performance of the Communities is summarized below (dollars
in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------- ----------------------------
1996 1995 % CHANGE 1995 1994 % CHANGE
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Property revenues:
Stabilized Communities(1).................. $66,974 $64,646 3.6 % $53,566 $50,579 5.9%
Acquisition Communities.................... 16,993 8,716 95.0 % 19,796 6,201 219.2%
Communities in lease-up(2)................. 9,580 767 1,149.0 % 767 -- 100.0%
------- ------- ------- -------
Total property revenues........................ 93,547 74,129 26.2 % 74,129 56,780 30.6%
------- ------- ------- -------
Property operating and maintenance expense(3):
Stabilized Communities..................... 25,302 24,245 4.4 % 20,206 19,277 4.8%
Acquisition Communities.................... 6,444 3,492 84.5 % 7,531 2,225 238.5%
Communities in lease-up.................... 3,480 275 1,165.5 % 275 -- 100.0%
------- ------- ------- -------
Total property operating and maintenance
expense...................................... 35,226 28,012 25.8 % 28,012 21,502 30.3%
------- ------- ------- -------
Property operating income...................... $58,321 $46,117 26.5 % $46,117 $35,278 30.7%
======= ======= ======= =======
Apartment homes, end of period................. 12,454 11,286 10.3 % 11,286 8,061 40.0%
======= ======= ======= =======
</TABLE>
- ---------------
(1) Includes Communities which were stabilized during the entire period for each
of the comparable periods presented. The 1995 and 1994 comparison includes
Communities acquired during the initial business combination while the 1996
and 1995 comparison also includes the Communities acquired in 1994.
(2) Includes seven Communities in 1996, of which five had completed construction
as of December 31, 1996. Includes four Communities in 1995, of which one had
completed construction as of December 31, 1995.
(3) Before real estate depreciation and amortization expense.
7
<PAGE> 10
OPERATING PERFORMANCE OF THE OPERATING PARTNERSHIP'S STABILIZED COMMUNITIES
The operating performance of the Communities stabilized during the entire
period in each of the comparable periods presented is summarized below (dollars
in thousands except average monthly rental revenue):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------- -----------------------------
1996 1995 % CHANGE 1995 1994 % CHANGE
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Property revenues:
Rental................................. $63,556 $61,613 3.2% $50,971 $48,234 5.7%
Other.................................. 3,418 3,033 12.7% 2,595 2,345 10.7%
------- ------- ------- -------
Total property revenues.................... 66,974 64,646 3.6% 53,566 50,579 5.9%
------- ------- ------- -------
Property operating and maintenance
expense(1):
Personnel.............................. 5,879 5,570 5.5% 4,640 4,520 2.7%
Advertising and promotion.............. 680 561 21.2% 469 452 3.8%
Utilities.............................. 3,041 3,034 0.2% 2,616 2,568 1.9%
Building repairs and maintenance....... 5,657 5,290 6.9% 4,480 3,985 12.4%
Real estate taxes and insurance........ 6,595 6,257 5.4% 5,077 4,931 3.0%
Property supervision................... 1,671 1,602 4.3% 1,326 1,272 4.2%
Other operating expense................ 1,779 1,931 (7.9)% 1,598 1,549 3.2%
------- ------- ------- -------
Total property operating and maintenance
expense.................................. 25,302 24,245 4.4% 20,206 19,277 4.8%
------- ------- ------- -------
Property operating income.................. $41,672 $40,401 3.1% $33,360 $31,302 6.6%
======= ======= ======= =======
Average physical occupancy(2).............. 93.1% 94.3% (1.2)% 94.0% 93.3% 0.8%
======= ======= ======= =======
Average monthly rental revenue(3).......... $ 714 $ 688 3.8% $ 682 $ 650 4.9%
======= ======= ======= =======
Number of apartment homes.................. 8,061 8,061 6,729 6,729
======= ======= ======= =======
</TABLE>
- ---------------
(1) Before real estate depreciation and amortization expense.
(2) Average physical occupancy is defined as the number of apartment homes
occupied divided by the total number of apartment homes contained in the
Communities, expressed as a percentage. Average physical occupancy has been
calculated using the average of the midweek occupancy that existed during
each week of the period.
(3) Represents the average monthly net rental revenue per occupied apartment
home.
Rental and other revenue increased from 1995 to 1996 due to higher rental
rates partially offset by a decrease in occupancy. The 3.6% property revenue
growth rate was lower than the prior year rate of growth primarily as a result
of a new supply of competing multifamily communities in the markets in which the
Operating Partnership operates. In 1997, the Operating Partnership expects the
rate of growth to be similar to the growth rate in 1996 as the supply of new
multifamily communities continues to increase balanced by the continued strength
of the local economies in which the Operating Partnership operates. The
Operating Partnership believes its expectations relative to property revenue
growth are based on reasonable assumptions as to future economic conditions and
the quantity of competitive multifamily communities in the markets in which the
Operating Partnership does business. However, there can be no assurance that
actual results will not differ from these assumptions, which could significantly
reduce the 1997 growth rate.
The increase in property operating and maintenance expenses from 1995 to
1996 was primarily due to increased insurance costs ($240,000 or a 40%
increase), higher advertising costs and higher building and repair costs. The
increase in insurance expense was due to higher insurance rates in the Operating
Partnership's Florida markets, caused by the significant storm damage losses
incurred in the past years by the insurance industry. Included in the building
repairs and maintenance cost was $148,000 for replacement of carpets,
representing a 14% increase. Rental and other revenue increased from 1994 to
1995 due to higher rental rates and increased occupancy. The increase in
property operating and maintenance expenses from 1994 to 1995 was due primarily
to building repairs and maintenance expense. Replacement carpets increased
$196,000, or 28.6%, which was a significant component of the building repairs
and maintenance increase. As a percentage of total property revenues, property
operating and maintenance expense was 37.8%, 37.5% and 38.1% for the years ended
December 31, 1996, 1995 and 1994, respectively.
8
<PAGE> 11
OPERATING PERFORMANCE OF THE OPERATING PARTNERSHIP'S ACQUISITION COMMUNITIES
Acquisition Communities consist of Summit Plantation (262 apartment homes)
in 1996 and the Crosland Acquisition Communities (2,025 apartment homes) in
1995. Acquisition Communities in 1994 consist of five Communities (Summit Stony
Point, Summit Reston, Summit Hill I, Summit Creek and Summit Lofts). The
operations of these Communities are summarized as follows (dollars in thousands
except average monthly rental revenue):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER YEAR ENDED DECEMBER
31, 31,
-------------------- --------------------
1996 1995 1995 1994
------- ------ ------- ------
<S> <C> <C> <C> <C>
Property revenues:
Rental.................................... $16,401 $8,467 $19,109 $5,964
Other..................................... 592 249 687 237
------- ------ ------- ------
Total property revenues........................ 16,993 8,716 19,796 6,201
------- ------ ------- ------
Property operating and maintenance
expense(1)................................... 6,444 3,492 7,531 2,225
------- ------ ------- ------
Property operating income...................... $10,549 $5,224 $12,265 $3,976
======= ====== ======= ======
Average physical occupancy(2).................. 94.0% 96.1% 95.5% 94.7%
======= ====== ======= ======
Average monthly rental revenue(3).............. $ 672 $ 592 $ 643 $ 688
======= ====== ======= ======
Number of apartment homes:
1994 Acquisitions......................... -- -- 1,332 1,332
1995 Acquisitions......................... 2,025 2,025 2,025 --
1996 Acquisitions......................... 262 -- -- --
------- ------ ------- ------
Total number of apartment homes................ 2,287 2,025 3,357 1,332
======= ====== ======= ======
</TABLE>
- ---------------
(1) Before real estate depreciation and amortization expense.
(2) Average physical occupancy is defined as the number of apartment homes
occupied divided by the total number of apartment homes contained in the
Communities, expressed as a percentage. Average physical occupancy has been
calculated using the average of the midweek occupancy that existed during
each week of the period.
(3) Represents the average monthly net rental revenue per occupied apartment
home.
The unleveraged yield, defined as property operating income over total
acquisition cost, for the year ended December 31, 1996 on the Crosland
Acquisition Communities was 10.7% compared to an annualized yield of 10.0% for
the period from acquisition (May 16, 1995, except Summit East Ridge which was
acquired June 22, 1995) to December 31, 1995.
As a percentage of total property revenues, property operating and
maintenance expense was 37.9%, 40.1% and 35.9% for the years ended December 31,
1996, 1995 and 1994, respectively.
OPERATING PERFORMANCE OF THE OPERATING PARTNERSHIP'S COMMUNITIES IN LEASE-UP
The Operating Partnership had seven communities in lease-up with a total of
2,106 apartment homes during the year ended December 31, 1996. A community in
lease-up is defined as one which has commenced rental operations but has not
achieved stabilization as of the beginning of the period. Five of the seven
communities had completed construction as of December 31, 1996. In order to
evaluate the impact of developments and lease-ups on the Operating Partnership's
operations, the amount of interest expensed on communities in development and
lease-up is presented. The results of operations of these seven communities
9
<PAGE> 12
in lease-up for the last four quarters, including interest expense incurred
during construction and lease-up, are summarized as follows (dollars in
thousands except average monthly rental revenue):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1996 1996 1996 1996
------------ ------------- -------- ---------
<S> <C> <C> <C> <C>
Property revenues:
Rental...................................... $3,317 $ 2,792 $1,756 $ 1,042
Other....................................... 241 213 135 84
------ ------- ------ -------
Total property revenues.......................... 3,558 3,005 1,891 1,126
Property operating and maintenance expense(1).... 1,192 1,003 762 523
------ ------- ------ -------
Property operating income........................ 2,366 2,002 1,129 603
Interest expense................................. 1,775 1,400 999 662
------ ------- ------ -------
Property income (loss) after interest expense.... $ 591 $ 602 $ 130 $ (59)
====== ======= ====== =======
Average monthly rental revenue(2)................ $ 873 $ 877 $ 876 $ 889
====== ======= ====== =======
Number of apartment homes completed.............. 1,708 1,526 1,178 870
====== ======= ====== =======
Number of apartment homes leased................. 1,481 1,345 1,041 681
====== ======= ====== =======
Number of apartment homes occupied............... 1,414 1,242 895 539
====== ======= ====== =======
</TABLE>
- ---------------
(1) Before real estate depreciation, amortization and interest expense.
(2) Represents the average monthly net rental revenue per occupied apartment
home.
A summary of the five communities (1,440 apartment homes) in lease-up which
had completed construction as of December 31, 1996 is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
% LEASED
NUMBER OF ACTUAL/ AVERAGE AS OF
APARTMENT TOTAL CONSTRUCTION ANTICIPATED OCCUPANCY MARCH 31,
COMMUNITY HOMES COST COMPLETION STABILIZATION 1996 1997
- ---------------------------- ---------- ------- ------------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Summit Aventura............. 379 $31,255 Q4 1995 Q3 1996 78.8% 97.4%
Summit Hill II.............. 207 11,383 Q2 1996 Q3 1996 75.1% 93.7%
Summit Green................ 300 18,552 Q2 1996 Q4 1996 60.1% 92.7%
Summit River Crossing....... 314 19,111 Q3 1996 Q4 1996 48.8% 96.8%
Summit Fairways............. 240 17,668 Q4 1996 Q3 1997 11.1% 67.1%
----- -------
1,440 $97,969
===== =======
</TABLE>
The remaining communities in lease-up, Summit on the River and Summit
Russett, are still under construction, with completion anticipated in the second
quarter of 1997. As of March 31, 1997, the Operating Partnership had leased:
57.7%, or 203, of the 352 apartment homes at Summit on the River, which opened
in May 1996; and 43.6%, or 137, of the 314 apartment homes at Summit Russett,
which opened in November 1996. These two communities are expected to represent a
total investment upon completion of approximately $46.0 million.
10
<PAGE> 13
OPERATING PERFORMANCE OF SUMMIT MANAGEMENT COMPANY
The operating performance of the Management Company and its wholly-owned
subsidiary, the Construction Company is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
--------------------------- ---------------------------
1996 1995 % CHANGE 1995 1994 % CHANGE
------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Property management revenue................... $4,706 $5,189 (9.3)% $5,189 $5,122 1.3%
Construction Company income................... 529 288 83.7 % 288 264 9.1%
Other Management Company income............... 129 155 (16.8)% 155 149 4.0%
------ ------ ------ ------
Total revenue........................ 5,364 5,632 (4.8)% 5,632 5,535 1.8%
Property management expenses:
Operating................................. 4,407 4,581 (3.8)% 4,581 4,512 1.5%
Depreciation.............................. 110 120 (8.3)% 120 53 126.4%
Amortization.............................. 278 274 1.5 % 274 219 25.1%
Interest.................................. 300 300 0.0 % 300 262 14.5%
------ ------ ------ ------
Total property management expenses... 5,095 5,275 (3.4)% 5,275 5,046 4.5%
Construction Company expenses................. 442 437 1.1 % 437 378 15.6%
------ ------ ------ ------
Total expenses....................... 5,537 5,712 (3.1)% 5,712 5,424 5.3%
------ ------ ------ ------
Net income (loss) of Management Company....... $ (173) $ (80) (116.3)% $ (80) $ 111 (172.1%)
====== ====== ====== ======
</TABLE>
The decrease in property management revenue from 1994 to 1996 was the
result of a reduction in the average number of communities managed for third
parties partially offset by an increase in the average number of the Operating
Partnership's Communities. Total average third party apartment homes under
management were 7,919, 10,927 and 12,362 during each of the years ended December
31, 1996, 1995 and 1994, respectively. The decrease was primarily due to the
termination of the Management Company's contract to manage a portfolio of 4,050
apartment homes effective October 1, 1995. This contract was terminated as a
result of the owner's decision to provide its own property management for these
apartment homes.
Property management revenues include $2.3 million, $3.3 million and $3.9
million of revenues from third parties for the years ended December 31, 1996,
1995 and 1994, respectively. Property management revenues from third parties as
a percentage of total property management revenues were 48.1%, 62.9% and 73.0%
for the years ended December 31, 1996, 1995 and 1994, respectively. The
Operating Partnership expects third party management revenue as a percentage of
total property management revenues to continue to decline as revenues from the
Operating Partnership's Communities continue to increase.
Construction Company revenues and expenses increased in 1996 compared to
1995 primarily due to the increased number of construction projects. The
increase in construction projects was a result of the Operating Partnership's
decision to expand its in-house construction operations in the state of Florida
to cover the entire geographic area in which the Operating Partnership operates.
All of the Construction Company's income for the years ended December 31, 1996,
1995 and 1994 is from contracts with the Operating Partnership, except for the
contract to build Summit Plantation (formerly Plantation Cove). The Operating
Partnership owned a 25% interest in the Plantation Cove joint venture during
construction and subsequently acquired the remaining 75% interest.
OTHER INCOME AND EXPENSES
Interest income increased $97,000 to $558,000 in 1996 compared to 1995,
primarily due to interest earned on the proceeds from the 1996 Offering prior to
using the proceeds to fund development projects.
Development and other fees from related parties decreased in 1995 compared
to 1994, primarily due to the development of Summit Plantation in 1994. The
Operating Partnership held a joint venture interest in this Community until
April 1, 1996, when the Operating Partnership acquired the remaining 75%
interest.
Interest expense increased $2.3 million or 15.8% to $17.1 million in 1996
compared to 1995, primarily due to interest on debt related to the Operating
Partnership's 1995 acquisitions and an increase in interest expense related to
the communities in lease-up, partially offset by the Operating Partnership's
repayment of
11
<PAGE> 14
debt in connection with the 1995 and 1996 Offerings. The 1995 and 1996 Offerings
together resulted in aggregate net proceeds of approximately $163.0 million.
Interest expense increased $735,000 or 5.22% in 1995 compared to 1994, primarily
due to interest incurred in connection with the Operating Partnership's 1994 and
1995 acquisitions and communities in lease-up in 1995, substantially offset by
the Operating Partnership's repayment of debt in connection with the 1995
Offering.
General and administrative expense increased in 1996 compared to 1995 and
in 1995 compared to 1994 primarily due to increased compensation costs and
professional fees. The increase in compensation in 1996 includes the cost of
restricted stock grants and the cost of the employee stock purchase plan. The
Operating Partnership issues a Unit in the Operating Partnership to Summit
Properties for each share of Common Stock issued in conjunction with Summit
Properties' stock option plan and the employee stock purchase plan. As a
percentage of revenues, general and administrative cost was 2.7%, 2.6% and 3.0%
for the years ended December 31, 1996, 1995 and 1994, respectively.
The extraordinary items in 1996 and 1995 resulted primarily from the
write-off of deferred financing costs in conjunction with the repayment of debt
with the proceeds from the 1996 and 1995 Offerings and with the proceeds of the
$31.0 million unsecured debt financing received in August, 1996. The 1994
extraordinary item resulted from debt repayment related to the Initial Offering.
The Operating Partnership incurred prepayment penalties of $4.3 million on
certain mortgage indebtedness, expenses of $2.5 million associated with the
write-off of deferred financing costs related to mortgages satisfied with
proceeds of the Initial Offering, and the write-off of accrued interest and
mortgages payable that was not required to be repaid of $15.4 million.
LIQUIDITY AND CAPITAL RESOURCES
In August 1996, Summit Properties completed the sale of an additional 5.75
million shares of Common Stock resulting in net proceeds of $97.6 million.
Summit Properties then contributed the $97.6 million in net proceeds to the
Operating Partnership in exchange for 5.75 million Units in the Operating
Partnership. In addition, in August 1996, the Operating Partnership obtained
$31.0 million of unsecured debt financing consisting of a $15.0 million
unsecured note with a four-year term and a $16.0 million unsecured note with a
six-year term, which bear interest at 7.61% and 7.85%, respectively.
Approximately $97.7 million of the proceeds from the issuance of Units in the
Operating Partnership and the unsecured debt financing were utilized to fully
repay the outstanding balance under the Operating Partnership's revolving credit
facility and development loans. The remaining $30.9 million of the proceeds were
used to fund current development projects.
In November 1996, the Operating Partnership replaced its $50 million
revolving credit facility with a new unsecured $150 million credit facility (the
"Unsecured Credit Facility"). The Unsecured Credit Facility has a three year
term and currently bears interest at LIBOR + 110 basis points based upon a
current credit rating of BBB- by Standard & Poors Ratings Group. The interest
rate can be reduced in the event of an upgrade of the Operating Partnership's
unsecured credit rating as assigned by Standard & Poors Rating Group (which
rating must be accompanied by the comparable senior unsecured bond rating from
either Moodys Investor Service, Duff & Phelps Credit Rating Co. or Fitch
Investors Service, L.P.) as follows:
<TABLE>
<CAPTION>
CREDIT RATING RATE
---------------------------------------------------------- ------------
<S> <C>
BBB-.................................................... LIBOR + 110
BBB .................................................... LIBOR + 95
BBB+.................................................... LIBOR + 80
</TABLE>
There can be no assurance that the Operating Partnership will be able to
obtain an upgrade of its unsecured credit rating in the future or that it will
be able to maintain its current unsecured credit rating.
The Unsecured Credit Facility provides $25 million for general working
capital purposes with the remaining $125 million available to finance new
development and acquisitions.
The Operating Partnership's outstanding indebtedness at December 31, 1996
totaled $309.9 million. This amount includes approximately $193.3 million in
fixed rate conventional mortgages, $53.8 million of variable
12
<PAGE> 15
rate tax-exempt bonds, $31.0 million of unsecured notes, $9.4 million of tax
exempt fixed rate loans, and $22.4 million under the Unsecured Credit Facility.
The Operating Partnership's outstanding indebtedness had an average
maturity of 8.7 years as of December 31, 1996. The aggregate maturities of all
outstanding debt as of December 31, 1996 for each of the years ended after
December 31, 1996 were as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................... $ 4,620
1998........................................................... 4,902
1999........................................................... 27,563
2000........................................................... 20,501
2001........................................................... 114,262
Thereafter..................................................... 138,085
--------
$309,933
========
</TABLE>
Of the significant maturities in the above table, $22.4 million relates to
the expiration of the Unsecured Credit Facility in 1999, $15.0 million and $16.0
million relate to the unsecured notes that mature in 2000 and 2002,
respectively; and $111.4 million relates to a mortgage loan balloon payment in
2001.
The Operating Partnership's net cash provided by operating activities
increased from $31.0 million for the year ended December 31, 1995 to $41.2
million for the same period in 1996 primarily due to a $12.2 million increase in
property operating income, offset by a $2.3 million increase in interest
expense. The increase in interest expense was small relative to the increase in
property operating income due to the retirement of debt with the proceeds from
the 1995 and 1996 Offerings.
Net cash used in investing activities increased from $63.7 million for the
year ended December 31, 1995 to $104.0 million for the same period in 1996 due
to an increase in the development of Communities, higher capital expenditures on
existing properties and an increase in the number of acquisition Communities.
Net cash provided by financing activities increased from $34.4 million for
the year ended December 31, 1995 to $63.6 million for the same period in 1996,
primarily due to an increase in Summit Properties' offering proceeds contributed
to the Operating Partnership, partially offset by distributions to unitholders.
The Operating Partnership expects to meet its short-term liquidity
requirements generally through its net cash provided by operations and
borrowings under the Unsecured Credit Facility. The Operating Partnership
believes that its net cash provided by operations will be adequate to meet its
operating requirements and to satisfy Summit Properties' applicable REIT
dividend payment requirements in both the short-term and in the long-term.
Improvements and renovations at existing Communities are expected to also be
funded from property operations.
The Operating Partnership expects to meet its long-term liquidity
requirements, such as future developments, debt maturities, acquisitions,
renovations and other non-recurring capital expenditures, with borrowings under
its Unsecured Credit Facility, through the issuance of long-term secured and
unsecured debt securities and additional equity securities of Summit Properties
which will then be contributed to the Operating Partnership, or in connection
with the acquisition of land or improved property, through the issuance of Units
of the Operating Partnership.
13
<PAGE> 16
The following table sets forth certain information regarding debt financing
as of December 31, 1996 and 1995 (dollars in thousands):
<TABLE>
<CAPTION>
PRINCIPAL OUTSTANDING
INTEREST DECEMBER 31,
RATE AS OF MATURITY ---------------------
DECEMBER 31, 1996 DATE 1996 1995
----------------- -------- -------- --------
<S> <C> <C> <C> <C>
FIXED RATE DEBT
MORTGAGE LOAN(1)......................... 5.88% 2/15/01 $122,950 $125,000
MORTGAGE LOAN(1)......................... 7.71% 12/15/05 29,653 30,000
MORTGAGE LOAN(2)......................... 8.00% 9/1/05 8,638 8,712
MORTGAGE NOTES
Summit Hollow I..................... 8.00% 11/1/18 2,286 2,326
Summit Hollow II.................... 7.75% 1/1/29 2,587 2,607
Summit Creekside.................... 8.00% 6/1/22 2,877 2,914
Summit Old Town..................... 8.00% 9/1/20 3,097 3,143
Summit Eastchester.................. 8.00% 5/1/21 3,872 3,925
Summit Foxcroft..................... 8.00% 4/1/20 2,788 2,844
Summit Oak.......................... 7.75% 12/1/23 2,585 2,615
Summit Sherwood..................... 7.88% 3/1/29 3,329 3,353
Summit Radbourne.................... 9.80% 3/1/02 8,683 8,758
TAX EXEMPT MORTGAGE NOTES
Summit Crossing..................... 6.95% 11/1/25 4,213 4,261
Summit East Ridge................... 7.25% 12/1/26 5,156 5,207
-------- --------
TOTAL MORTGAGE DEBT............ 202,714 205,665
-------- --------
UNSECURED NOTES
Bank Note........................... 7.85% 8/3/02 16,000 --
Bank Note........................... 7.61% 8/3/00 15,000 --
-------- --------
TOTAL UNSECURED NOTES.......... 31,000 --
-------- --------
TOTAL FIXED RATE DEBT.......... 233,714 205,665
VARIABLE RATE DEBT
UNSECURED CREDIT FACILITY................ LIBOR+110 11/18/99 22,357 4,396
TAX EXEMPT BONDS
Summit Belmont...................... 5.60% 4/1/07 11,850 11,900
Summit Hampton...................... 5.60% 6/1/07 12,700 12,800
Summit Pike Creek................... 5.60% 8/15/20 13,262 13,545
Summit Gateway...................... 5.60% 7/1/07 7,300 7,700
Summit Stony Point.................. 5.60% 4/1/29 8,750 8,895
-------- --------
TOTAL TAX EXEMPT BONDS......... 53,862 54,840
DEVELOPMENT LOANS REPAID IN 1996......... -- 32,109
-------- --------
TOTAL VARIABLE RATE DEBT............ 76,219 91,345
-------- --------
TOTAL OUTSTANDING
INDEBTEDNESS................. $309,933 $297,010
======== ========
</TABLE>
- ---------------
(1) Mortgage Loans secured by fifteen Communities
(2) Mortgage Loan secured by two Communities
The London Interbank Offered Rate (LIBOR) at December 31, 1996 was 5.56%.
14
<PAGE> 17
ACQUISITIONS SUBSEQUENT TO YEAR END
The Operating Partnership acquired three Communities subsequent to December
31, 1996. The three acquisitions are summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
FUNDED BY
UNSECURED FUNDED BY FUNDED BY
ACQUISITION APARTMENT PURCHASE CREDIT ISSUANCE ISSUANCE
COMMUNITY DATE HOMES PRICE FACILITY OF UNITS OF SHARES
- ------------------------------------ ------------ ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Summit Portofino -- Broward County,
FL................................ 1/6/97 322 $28,000 $ 21,187 -- $ 6,813
Summit Mayfaire -- Raleigh, NC...... 1/15/97 144 9,650 9,650 -- --
Summit Sand Lake -- Orlando, FL..... 2/20/97 416 26,798 2,700 3,939 4,933
--- ------- -------- ------ --------
882 $64,448 $ 33,537 $3,939 $ 11,746
=== ======= ======== ====== ========
</TABLE>
Concurrently with the purchase of Summit Portofino, Summit Properties sold
315,029 shares of Common Stock for cash in the amount of $6.8 million. Such cash
was then contributed to the Operating Partnership for 315,029 Units in the
Operating Partnership. The Operating Partnership used the net proceeds of this
sale to fund a portion of the purchase price. The Operating Partnership issued
438,103 Units in the Operating Partnership in conjunction with the purchase of
Summit Sand Lake (243,608 of the Units were issued to Summit Properties who
issued a similar amount of shares of Common Stock to the seller). In addition,
the Operating Partnership assumed $15.2 million of debt in connection with the
purchase of Summit Sand Lake.
DEVELOPMENT ACTIVITY
The Operating Partnership's developments in process at December 31, 1996
are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
TOTAL ESTIMATED ANTICIPATED
APARTMENT ESTIMATED COST TO COST TO CONSTRUCTION
COMMUNITY HOMES COSTS DATE COMPLETE COMPLETION
- ------------------------------------------------ ---------- ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Summit on the River -- Atlanta, GA.............. 352 $ 23,900 $20,496 $ 3,404 Q2 1997
Summit Russett -- Laurel, MD.................... 314 22,100 17,729 4,371 Q2 1997
Summit Stonefield -- Yardley, PA................ 216 18,370 7,893 10,477 Q4 1997
Summit Sedgebrook I -- Charlotte, NC............ 248 15,640 3,520 12,120 Q4 1997
Summit Ballantyne I -- Charlotte, NC............ 246 16,800 4,138 12,662 Q4 1997
Summit Plantation II -- Plantation, FL.......... 240 22,000 6,217 15,783 Q4 1997
Summit Lake I -- Raleigh, NC.................... 302 19,700 2,805 16,895 Q2 1998
Summit Fair Lakes I -- Fairfax, VA.............. 370 32,900 6,790 26,110 Q4 1998
Summit New Albany -- Columbus, OH............... 428 30,100 3,778 26,322 Q1 1999
Other development and construction costs........ -- -- 12,791 --
----- -------- ------- --------
2,716 $201,510 $86,157 $128,144
===== ======== ======= ========
</TABLE>
As of March 31, 1997, total estimated cost had not changed while cost to
date on the nine communities was $89.7 million.
In addition, the Operating Partnership has a commitment to purchase a
community (Summit St. Claire) currently under construction in Atlanta, Georgia
for approximately $27.5 million, subject to adjustment based on the percentage
of apartment homes leased as of the date of acquisition. The 336 apartment home
community is expected to be purchased, after reaching rental stabilization which
is currently expected in the fourth quarter of 1998.
In March 1997, the Operating Partnership started construction on Summit
Norcroft II, located in Charlotte, North Carolina. Summit Norcroft II will have
54 apartment homes and will cost an estimated $3.75 million to complete.
Certain Factors Affecting the Performance of Development Communities
The Operating Partnership is optimistic about the operating prospects of
the communities under construction even with the increased supply of newly
constructed apartment homes of comparable quality in many of its markets. As
with any development community, there are uncertainties and risks associated
with the development of the communities described above. While the Operating
Partnership has prepared
15
<PAGE> 18
development budgets and has estimated completion and stabilization target dates
based on what it believes are reasonable assumptions in light of current
conditions, there can be no assurance that actual costs will not exceed current
budgets or that the Operating Partnership will not experience construction
delays due to the unavailability of materials, weather conditions or other
events.
Other development risks include the possibility of incurring additional
cost or liability resulting from defects in construction materials and the
possibility that financing may not be available on favorable terms, or at all,
to pursue or complete development activities. Similarly, market conditions at
the time these communities become available for leasing will affect the rental
rates that may be charged and the period of time necessary to achieve
stabilization, which could make one or more of the development communities
unprofitable or result in achieving stabilization later than currently
anticipated. In addition, the Operating Partnership is conducting feasibility
and other pre-development work for eight additional communities. The Operating
Partnership could abandon the development of any one or more of these potential
communities in the event that it determines that market conditions do not
support development, financing is not available on favorable terms or other
circumstances prevent development. Similarly, there can be no assurance that if
the Operating Partnership does pursue one or more of these potential communities
that it will be able to complete construction within the currently estimated
development budgets or that construction can be started at the time currently
anticipated.
CAPITALIZATION OF FIXED ASSETS AND PROPERTY IMPROVEMENTS
The Operating Partnership has established a policy of capitalizing those
expenditures relating to acquiring new assets, materially enhancing the value of
an existing asset, or substantially extending the useful life of an existing
asset. All expenditures necessary to maintain a community in ordinary operating
condition (including replacement carpets) are expensed as incurred.
Capitalized expenditures for the years ended December 31, 1996, 1995 and
1994 are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Acquisition of Communities(1).................................. $ 21,913 $ 82,935 $ 75,921
Construction of Communities(2)................................. 88,064 58,104 26,694
Capitalized interest........................................... 4,266 3,110 686
Cost of acquiring existing Communities in conjunction with the
initial business combination................................. -- -- 1,469
Non-recurring capital expenditures:
Construction of garages................................... 578 153 --
Access gates.............................................. 138 -- --
New signage............................................... 225 -- --
Water meters.............................................. 201 -- --
Washer/dryer units........................................ 74 -- --
Major improvements........................................ 1,698 -- --
Improvements at acquisition............................... -- 706 --
Other..................................................... 59 5 --
-------- -------- --------
Total non-recurring.................................. 2,973 864 --
-------- -------- --------
Recurring capital expenditures:
Exterior painting......................................... 1,131 810 980
Other..................................................... 2,160 1,370 730
-------- -------- --------
Total recurring...................................... 3,291 2,180 1,710
-------- -------- --------
$120,507 $147,193 $106,480
======== ======== ========
</TABLE>
- ---------------
(1) Includes the assumption of $14.3 million, $52.6 million and $9.1 million of
debt in 1996, 1995 and 1994 respectively. In addition, includes conversion
of equity investment into fixed assets of $1.2 million in conjunction with
the purchase of Summit Plantation in 1996 and the issuance of 1.5 million
Units of the Operating Partnership with a value of $26.2 million in 1995.
16
<PAGE> 19
(2) Includes the issuance of $2.1 million, $896,000 and $735,000 of Units in the
Operating Partnership for the acquisition of land in 1996, 1995 and 1994,
respectively.
Construction of communities was funded primarily by development loans,
equity offering proceeds and borrowings under the Operating Partnership's credit
facilities. Other additions and improvements were funded primarily by the
Operating Partnership's operations and credit facilities.
ENVIRONMENTAL MATTERS
The Operating Partnership believes, based on internal reviews and
environmental site assessments performed by consultants, that there are no
material environmental conditions that require remediation.
INFLATION
Substantially all of the leases at the Communities are for a term of one
year or less, which, coupled with the relatively high occupancy rates, may
enable the Operating Partnership to seek increased rents upon renewal of
existing leases or commencement of new leases. The short-term nature of these
leases generally serves to reduce the risk to the Operating Partnership of the
adverse effect of inflation.
FUNDS FROM OPERATIONS
Summit Properties generally considers Funds from Operations to be an
appropriate measure of performance of an equity REIT. Funds from Operations, as
defined by the National Association of Real Estate Investment Trusts (NAREIT),
represents net income (loss) determined in accordance with generally accepted
accounting principles (GAAP), excluding gains or losses from sales of assets or
debt restructuring, plus certain non-cash items, primarily real estate
depreciation, and after adjustments for unconsolidated partnerships and joint
ventures. Adjustments for all periods presented below consisted only of real
estate depreciation. Funds Available for Distribution is defined as Funds from
Operations less recurring capital expenditures funded by operations. Funds from
Operations and Funds Available for Distribution should not be considered as an
alternative to net income (determined in accordance with GAAP), as an indication
of the Company's financial performance, or to cash flow from operating
activities (determined in accordance with GAAP) as a measure of liquidity.
Funds from Operations and Funds Available for Distribution are calculated
as follows (dollars in thousands):
<TABLE>
<CAPTION>
PRO FORMA
1996 1995 1994(1) 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income...................................... $20,561 $14,512 $11,060 $17,093
Extraordinary items............................. 626 539 -- (8,566)
Depreciation:
Real estate assets......................... 18,171 15,021 11,702 11,593
Summit Plantation.......................... 33 76 -- --
---------- ---------- ---------- ----------
Funds from Operations........................... 39,391 30,148 22,762 20,120
Recurring capital expenditures.................. (3,291) (2,180) (1,710) (1,710)
---------- ---------- ---------- ----------
Funds Available for Distribution................ $36,100 $27,968 $21,052 $18,410
---------- ---------- ---------- ----------
Weighted average units outstanding.............. 22,940,998 18,116,664 14,827,257 13,389,757
========== ========== ========== ==========
</TABLE>
- ---------------
(1) The Pro Forma 1994 information is presented as if the Initial Offering had
occurred as of January 1, 1994.
The above Funds from Operations calculations in 1996, 1995, pro-forma 1994
and historical 1994 reflect changes required by NAREIT for fiscal years
beginning in 1996. The primary effect of the changes on the Operating
Partnership's calculation of Funds from Operations was that amortization of
financing costs is no longer added back in calculating Funds from Operations.
Funds from Operations under the previous calculation method would have been
$40.5 million, $31.4 million, $23.9 million and $21.3 million for the years
ended December 31, 1996, 1995, pro-forma 1994 and historical 1994, respectively.
17
<PAGE> 20
ITEM 3. PROPERTIES
THE COMMUNITIES
As of March 31, 1997, the Operating Partnership owned and managed 54
Communities consisting of 12,670 luxury garden apartment homes. Twenty-six of
the Communities have been completed since January 1, 1990 and, as of December
31, 1996, the average age of the stabilized Communities was approximately 7.8
years. A Community is considered to be stabilized at the earlier of its
attainment of 93.0% physical occupancy or one year from the completion of its
construction. The average physical occupancy rate at the stabilized Communities
was 93.3% and 94.5% for the years ended December 31, 1996 and 1995,
respectively. The average monthly rental revenue per apartment home at the
stabilized Communities during 1996 and 1995 was $698 and $669, respectively.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
NUMBER OF APARTMENT APARTMENT
CITY OR REGION COMMUNITIES HOMES HOMES
- ------------------------------------------------------------ ---------- ---------- -----------
<S> <C> <C> <C>
Tampa/Sarasota, Florida..................................... 9 2,248 17.7%
Charlotte, North Carolina................................... 12 2,164 17.1
Raleigh/Central North Carolina.............................. 10 1,841 14.5
South Florida............................................... 5 1,519 12.0
Washington, D.C............................................. 5 1,307 10.3
Atlanta, Georgia............................................ 3 877 6.9
Richmond, Virginia.......................................... 3 862 6.8
Orlando, Florida............................................ 2 656 5.2
Blue Ash/Forest Park, Ohio.................................. 2 558 4.4
Greenville, South Carolina.................................. 2 324 2.6
Indianapolis, Indiana....................................... 1 314 2.5
--
------ -----
Total............................................. 54 12,670 100.0%
== ====== =====
</TABLE>
18
<PAGE> 21
All of the Communities target middle to upper income apartment renters as
customers and have amenities, unit sizes and unit mixes consistent with the
desires of this resident population. The Communities are located in six states
throughout the southeastern United States (Florida, Georgia, Maryland, North
Carolina, South Carolina and Virginia) as well as in Delaware, Ohio and Indiana.
The following table highlights certain information regarding the Communities:
<TABLE>
<CAPTION>
AVERAGE AVERAGE AVERAGE
MARKET AREA/ NUMBER OF YEAR APARTMENT OCCUPANCY OCCUPANCY
COMMUNITY LOCATION APARTMENTS COMPLETED SIZE 1996 1995
- ---------------------------------------- --------------------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ATLANTA
Summit Glen............................. Atlanta, GA 242 1992 983 91.9 93.7
Summit Springs.......................... Norcross, GA 312 1990 934 92.6 95.6
Summit Village.......................... Marietta, GA 323 1991 984 91.8 95.0
----- ----- ---- ----
ATLANTA WEIGHTED AVERAGE 877 966 92.1 94.9
CHARLOTTE
Summit Arbors........................... Charlotte, NC 120 1986 944 94.8 95.8
Summit Charleston....................... Charlotte, NC 214 1986 806 93.3 94.7
Summit Creek............................ Charlotte, NC 260 1983 910 92.7 95.7
Summit Crossing......................... Charlotte, NC 128 1985 978 96.3 97.6
Summit Fairview......................... Charlotte, NC 135 1983 1,036 93.6 94.1
Summit Foxcroft(1)...................... Charlotte, NC 156 1979 940 93.4 96.6
Summit Green(2)......................... Charlotte, NC 300 1996 1,098 N/A N/A
Summit Hollow........................... Charlotte, NC 232 1978 949 94.5 95.3
Summit Norcroft......................... Charlotte, NC 162 1991 1,112 94.0 94.6
Summit Radbourne........................ Charlotte, NC 225 1991 1,006 92.0 96.7
Summit Simsbury......................... Charlotte, NC 100 1985 874 93.6 95.3
Summit Touchstone....................... Charlotte, NC 132 1986 899 94.0 94.8
----- ----- ---- ----
CHARLOTTE WEIGHTED AVERAGE 2,164 969 93.7 95.6
INDIANAPOLIS
Summit River Crossing(2)................ Indianapolis, IN 314 1996 1,086 N/A N/A
ORLANDO
Summit Fairways(2)...................... Orlando, FL 240 1996 1,304 N/A N/A
Summit Sand Lake(4)..................... Orlando, FL 416 1995 1,035 N/A N/A
----- ----- ---- ----
ORLANDO WEIGHTED AVERAGE 656 1,133 N/A N/A
RALEIGH/CENTRAL NORTH CAROLINA
Summit Creekside........................ Hickory, NC 118 1981 1,006 96.2 97.6
Summit Eastchester...................... High Point, NC 172 1981 947 96.1 97.5
Summit Highland......................... Raleigh, NC 172 1987 986 94.5 94.2
Summit Hill I........................... Chapel Hill, NC 204 1991 904 93.3 95.4
Summit Hill II(2)....................... Chapel Hill, NC 207 1996 1,023 N/A N/A
Summit Mayfaire(4)...................... Raleigh, NC 144 1995 952 N/A N/A
Summit Oak.............................. Goldsboro, NC 100 1982 918 96.7 97.3
Summit Old Town......................... Winston-Salem, NC 172 1979 954 90.9 95.5
Summit Sherwood......................... Winston-Salem, NC 190 1968 1,028 95.2 95.0
Summit Square........................... Durham, NC 362 1990 925 92.1 91.7
----- ----- ---- ----
RALEIGH/CENTRAL NORTH CAROLINA WEIGHTED AVERAGE 1,841 962 93.9 94.9
<CAPTION>
MORTGAGE
NOTES
AVERAGE AVERAGE PAYABLE AT
RENT PER RENT PER DECEMBER 31,
MARKET AREA/ APARTMENT APARTMENT 1996
COMMUNITY 1996 1995 (IN THOUSANDS)
- ---------------------------------------- ---------- ---------- ---------------
<S> <C> <C> <C>
ATLANTA
Summit Glen............................. $847 $823 $ (5)
Summit Springs.......................... 708 673 (5)
Summit Village.......................... 735 705 (5)
---- ----
ATLANTA WEIGHTED AVERAGE 756 726
CHARLOTTE
Summit Arbors........................... 748 692 --
Summit Charleston....................... 581 562 (5)
Summit Creek............................ 624 580 --
Summit Crossing......................... 649 609 4,213
Summit Fairview......................... 726 724 --
Summit Foxcroft(1)...................... 643 600 2,788
Summit Green(2)......................... N/A N/A --
Summit Hollow........................... 656 610 4,873
Summit Norcroft......................... 805 800 (5)
Summit Radbourne........................ 786 770 8,683
Summit Simsbury......................... 734 701 (6)
Summit Touchstone....................... 677 639 (6)
---- ----
CHARLOTTE WEIGHTED AVERAGE 687 656
INDIANAPOLIS
Summit River Crossing(2)................ N/A N/A --
ORLANDO
Summit Fairways(2)...................... N/A N/A --
Summit Sand Lake(4)..................... N/A N/A (7)
---- ----
ORLANDO WEIGHTED AVERAGE N/A N/A
RALEIGH/CENTRAL NORTH CAROLINA
Summit Creekside........................ 566 517 2,877
Summit Eastchester...................... 559 510 3,872
Summit Highland......................... 703 693 --
Summit Hill I........................... 687 653 --
Summit Hill II(2)....................... N/A N/A --
Summit Mayfaire(4)...................... N/A N/A --
Summit Oak.............................. 532 508 2,585
Summit Old Town......................... 542 500 3,097
Summit Sherwood......................... 526 487 3,329
Summit Square........................... 763 745 (5)
---- ----
RALEIGH/CENTRAL NORTH CAROLINA WEIGHTED 635 604
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
AVERAGE AVERAGE
MARKET AREA/ NUMBER OF YEAR APARTMENT AVERAGE AVERAGE RENT PER
COMMUNITY LOCATION APARTMENTS COMPLETED SIZE OCCUPANCY 1996 OCCUPANCY 1995 APARTMENT 1996
- ------------------- --------------------- ---------- ---------- ---------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
RICHMOND
Summit
Beckenridge....... Glen Allen, VA 300 1987 928 95.1 95.0 706
Summit Stony
Point............. Richmond, VA 250 1986 1,045 93.2 95.6 724
Summit Waterford... Midlothian, VA 312 1990 995 91.4 95.2 685
------ ----- ---- ---- ------
RICHMOND WEIGHTED AVERAGE 862 986 93.2 95.2 704
SOUTH FLORIDA
Summit
Aventura(2)....... Aventura, FL 379 1995 1,170 N/A N/A N/A
Summit Del Ray..... Delray Beach, FL 252 1993 968 91.5 93.2 852
Summit Palm Lake... W. Palm Beach, FL 304 1992 919 96.7 94.1 743
Summit
Plantation(3)..... Plantation, FL 262 1995 1,283 N/A N/A N/A
Summit
Portofino(4)...... Broward County, FL 322 1995 1,112 N/A N/A N/A
------ ----- ---- ---- ------
SOUTH FLORIDA WEIGHTED AVERAGE 1,519 1,093 94.3 93.7 792
TAMPA/SARASOTA
Summit Gateway..... St. Petersburg, FL 212 1987 828 93.7 94.4 626
Summit Hampton..... Bradenton, FL 352 1988 933 93.0 94.2 630
Summit Heron's
Run............... Sarasota, FL 274 1990 863 92.5 92.0 653
Summit Lofts....... Palm Harbour, FL 200 1990 1,045 90.8 90.7 690
Summit McIntosh.... Sarasota, FL 212 1990 855 93.9 93.0 684
Summit Perico...... Bradenton, FL 256 1990 911 93.5 94.4 657
Summit
Providence........ Brandon, FL 444 1991 952 93.0 92.2 659
Summit Station..... Tampa, FL 230 1990 902 92.6 94.8 619
Summit Walk........ Tampa, FL 68 1993 1,614 95.9 95.1 1,052
------ ----- ---- ---- ------
TAMPA/SARASOTA WEIGHTED AVERAGE 2,248 936 93.0 93.2 663
WASHINGTON, D.C.
Summit Belmont..... Fredricksburg, VA 300 1987 881 90.2 93.9 622
Summit Meadow...... Columbia, MD 178 1990 1,020 93.6 94.8 864
Summit Pike
Creek............. Newark, DE 264 1988 899 95.8 94.3 800
Summit Reston...... Reston, VA 418 1987 854 93.9 95.5 917
Summit Windsor..... Frederick, MD 147 1989 911 92.7 93.7 681
------ ----- ---- ---- ------
WASHINGTON, D.C. WEIGHTED AVERAGE 1,307 898 93.2 94.6 792
OTHER
Summit Blue Ash.... Blue Ash, OH 242 1992 1,158 95.6 97.0 769
Summit Park........ Forest Park, OH 316 1989 963 91.7 94.7 602
Summit Beacon
Ridge............. Greenville, SC 144 1988 1,046 91.9 95.4 653
Summit East
Ridge............. Greenville, SC 180 1986 959 92.0 93.5 568
------ ----- ---- ---- ------
OTHER WEIGHTED AVERAGE 882 1,029 92.9 95.2 649
------ ----- ---- ---- ------
Total Weighted
Average 12,670 986 93.3% 94.6% $698
===== ==== ==== ======
<CAPTION>
MORTGAGE
AVERAGE NOTES PAYABLE AT
MARKET AREA/ RENT PER DECEMBER 31,
COMMUNITY LOCATION APARTMENT 1995 1996 (IN THOUSANDS)
- ------------------- -------------------- ---------------- ---------------------
<S> <C> <C> <C>
RICHMOND
Summit
Beckenridge....... Glen Allen, VA 665 --
Summit Stony
Point............. Richmond, VA 692 (8)
Summit Waterford... Midlothian, VA 636 (5)
------
RICHMOND WEIGHTED AVERAGE 662
SOUTH FLORIDA
Summit
Aventura(2)....... Aventura, FL N/A --
Summit Del Ray..... Delray Beach, FL 870 (5)
Summit Palm Lake... W. Palm Beach, FL 713 (5)
Summit
Plantation(3)..... Plantation, FL N/A --
Summit
Portofino(4)...... Broward County, FL N/A --
------
SOUTH FLORIDA WEIGHTED AVERAGE 784
TAMPA/SARASOTA
Summit Gateway..... St. Petersburg, FL 611 (8)
Summit Hampton..... Bradenton, FL 598 (8)
Summit Heron's
Run............... Sarasota, FL 632 (5)
Summit Lofts....... Palm Harbour, FL 694 --
Summit McIntosh.... Sarasota, FL 655 --
Summit Perico...... Bradenton, FL 621 (5)
Summit
Providence........ Brandon, FL 658 (5)
Summit Station..... Tampa, FL 594 --
Summit Walk........ Tampa, FL 1,005 --
------
TAMPA/SARASOTA WEIGHTED AVERAGE 644
WASHINGTON, D.C.
Summit Belmont..... Fredricksburg, VA 600 (8)
Summit Meadow...... Columbia, MD 832 (5)
Summit Pike
Creek............. Newark, DE 738 (8)
Summit Reston...... Reston, VA 866 --
Summit Windsor..... Frederick, MD 675 (5)
------
WASHINGTON, D.C. WEIGHTED AVERAGE 753
OTHER
Summit Blue Ash.... Blue Ash, OH 735 (5)
Summit Park........ Forest Park, OH 575 --
Summit Beacon
Ridge............. Greenville, SC 632 --
Summit East
Ridge............. Greenville, SC 544 5,156
----
OTHER WEIGHTED AVERAGE 622
------
Total Weighted
Average $ 669
======
- ---------------
(1) Summit Foxcroft is held by a partnership in which the Operating Partnership is a 75% managing general partner.
(2) Community was not stabilized for entire period.
(3) Community acquired April 1, 1996.
(4) Community acquired in 1997.
(5) Collateral for fixed rate mortgages of $153 million.
(6) Collateral for a fixed rate mortgage of $8.6 million.
(7) Community acquired in 1997. A fixed rate mortgage of $15.2 million was assumed at date of purchase.
(8) Collateral for letters of credit in an aggregate amount of $55.6 million which serve as collateral for $53.9 million in tax
exempt bonds.
</TABLE>
20
<PAGE> 23
Each Community has many of the following features: swimming pools, tennis,
racquetball and volleyball courts, saunas, whirlpools, fitness facilities,
picnic areas, large clubhouses and convenient parking facilities. Most of the
apartment homes offer amenities that include spacious open living areas,
sunrooms, patios or balconies, sunken living rooms, fireplaces, built-in shelves
or entertainment centers, large storage areas or walk-in closets, vaulted
ceilings, ceiling fans and separate in-home laundry facilities or laundry
hook-ups. In addition to these physical amenities, each Community has its own
highly trained and experienced on-site management and maintenance staff to
ensure that courteous and responsive service is provided to its residents.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Units for (i)
Directors, the Chief Executive Officer and the other four most highly
compensated executive officers of Summit Properties (together with the Chief
Executive Officer, the "Named Executive Officers"), (ii) the Directors and Named
Executive Officers of Summit Properties as a group and (iii) each limited
partner of the Operating Partnership that the Operating Partnership believes
holds more than a 5% beneficial interest in the Operating Partnership. Unless
otherwise indicated in the footnotes, all of such interests are owned directly,
and the indicated person has sole voting and investment power. The information
in the following table was provided by the unitholders listed and reflects their
beneficial ownership known by the Operating Partnership and Summit Properties on
March 31, 1997.
<TABLE>
<CAPTION>
NUMBER
OF UNITS
NAME AND BUSINESS ADDRESS BENEFICIALLY PERCENT OF
OF BENEFICIAL OWNER* OWNED ALL UNITS
-------------------------------------------------- ------------ ----------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
William B. McGuire, Jr............................ 620,313 2.272%
William F. Paulsen................................ 596,045 2.184%
Raymond V. Jones.................................. 274,526 1.006%
David F. Tufaro................................... 206,388 **
John T. Gray...................................... 695 **
Michael L. Schwarz................................ -- --
Henry H. Fishkind................................. -- --
James H. Hance, Jr................................ -- --
Nelson Schwab III................................. -- --
John Crosland, Jr................................. 1,152,723*** 4.223%
ALL DIRECTORS AND NAMED EXECUTIVE OFFICERS AS A
GROUP (10 PERSONS).............................. 2,850,690 10.443%
5% HOLDERS
Summit Properties Inc............................. 23,078,821 84.546%
</TABLE>
- ---------------
* The business address of each person is: c/o Summit Properties Inc., 212
South Tryon Street, Suite 500, Charlotte, NC, 28281.
** Less than one percent.
*** The indicated ownership includes (a) 307,311 Units owned by JMJ Associates
Limited Partnership, a limited partnership in which Mr. Crosland owns a 33%
equity interest and indirectly serves as the general partner, (b) 387,646
Units owned by The Crosland Group, Inc., a corporation in which Mr. Crosland
owns a 57.1673% equity interest (the "Crosland Group"), (c) 51,101 Units
owned by Crosland-Erwin & Associates, No. VI, a general partnership in which
the Crosland Group owns a 87% equity interest, (d) 108,554 Units, 86,125
Units and 91,162 Units owned by Westbury Place Associates, Westbury Woods
Associates and Westbury Park Associates, respectively, each a limited
partnership with respect to which Mr. Crosland serves as co-general partner,
(e) 2,381 Units owned by Crosland Investors, Inc., a corporation in which
Mr. Crosland owns a 57.20% equity interest and (f) 11,566 shares owned by
the John Crosland, Sr. Trust, a trust with respect to which Mr. Crosland
serves as co-trustee, as to all of which Mr. Crosland disclaims beneficial
interest. Mr. Crosland owns 106,877 Units directly.
21
<PAGE> 24
ITEM 5. DIRECTORS AND OFFICERS
The Operating Partnership is managed by Summit Properties, in its capacity
as the general partner of the Operating Partnership. Consequently, the Operating
Partnership has no directors or executive officers. This Item 5 reflects
information with respect to the directors and executive officers of Summit
Properties.
Directors
JAMES H. HANCE, JR. Mr. Hance has been a director since 1994. He is a Vice
Chairman and the Chief Financial Officer of NationsBank Corporation, where he is
responsible for NationsBanc Services Company, which performs NationsBank
Corporation's operations functions, the Management Services Group, and
NationsBank Corporation's finance group. He also has responsibility for
NationsBank's non-bank consumer and commercial credit companies, NationsCredit
Consumer Corporation and NationsCredit Commercial Corporation, and serves as
Managing Director of several of NationsBank's banks and subsidiaries. Mr. Hance
is the Vice Chairman of the Board of Trustees of Presbyterian Health Services
Corporation. He also is a Member of the Board of Visitors of the Duke University
School of Business and the Washington University National Council for the John
M. Olin School of Business. He is on the Board of Directors of Caraustar
Industries, Inc., Family Dollar Stores, Inc. and Lance, Inc. Additionally, Mr.
Hance is a certified public accountant, a 1988 International Business Fellow,
former Chairman of the Charlotte Chamber of Commerce and is the vice chairman of
the Board of Trustees of the Charlotte Country Day School. Mr. Hance is 52 years
old.
HENRY H. FISHKIND. Dr. Fishkind has been a director since 1994. He is the
President of Fishkind & Associates, Inc., a private consulting firm based in
Orlando, Florida that he founded in 1988. Dr. Fishkind is a member of the Board
of Directors of Engle Homes. Dr. Fishkind served on the Florida Governor's
Economic Advisory Board from 1979 to 1981. He is 47 years old.
NELSON SCHWAB III. Mr. Schwab has been a director since 1994. He is a
Managing Director of Carousel Capital, a merchant banking firm based in
Charlotte, North Carolina specializing in middle market acquisitions. Mr. Schwab
is a Member of the Board of Directors of First Union National Bank of North
Carolina, Silver Dollar City, Inc., Griffin Corporation and Burlington
Industries. He served as the Chairman of the Carolinas Partnership and the
Charlotte Chamber of Commerce. Mr. Schwab is 52 years old.
JOHN CROSLAND, JR. Mr. Crosland has been a director since 1995. He has
been Chairman and Chief Executive Officer of The Crosland Group, Inc., a fully
diversified real estate development company, since 1971. Mr. Crosland is a
member of the Board of Directors of First Union National Bank of North Carolina,
Fox Ridge Homes and Writer Corporation. He has been active in the home-building
industry holding office at local, state and national levels. From 1977 to 1989
he served as Chairman of the North Carolina Housing Finance Agency. Among his
diverse civic involvement, Mr. Crosland was a founder and first Chairman of
Charlotte's Habitat for Humanity; currently serves on the Habitat for Humanity
International Affiliates Advisory Committee; was 1996 Chairman of the Davidson
College Board of Visitors and is a member of the Davidson Board of Trustees. Mr.
Crosland was honored by the home building industry by being named 1985 Builder
of the Year by Professional Builder Magazine and has been inducted into both the
National and North Carolina Housing Halls of Fame. Mr. Crosland is 68 years old.
WILLIAM B. MCGUIRE, JR. Mr. McGuire is the Chairman of the Board. Prior to
the formation of Summit Properties, Mr. McGuire served as a senior partner of
the predecessor to Summit Properties and as a general partner of each of the
partnerships which transferred Communities to the Operating Partnership when it
was formed. Mr. McGuire founded McGuire Properties, Inc., the predecessor to
Summit Properties, in 1972. He has been active in the following professional and
community organizations: Residential, Multifamily and Urban Development Mixed
Use Councils of the Urban Land Institute; Charlotte Advisory Board of
NationsBank of North Carolina, N.A.; and the Board of Governors of The Charlotte
City Club. He was a Trustee of the North Carolina Nature Conservancy; a Founder
and Director of Habitat for Humanity of Charlotte; and the Founder and President
of The Neighborhood Medical Clinic. Mr. McGuire is 52 years old.
WILLIAM F. PAULSEN. Mr. Paulsen is the President and Chief Executive
Officer and a director. Prior to the formation of Summit Properties, Mr. Paulsen
was a senior partner and the Chief Executive Officer of the
22
<PAGE> 25
predecessor to Summit Properties and a general partner of each of the
partnerships which transferred Communities to the Operating Partnership when it
was formed. Mr. Paulsen joined the predecessor to Summit Properties in 1982. He
was selected as North Carolina Entrepreneur of the Year in 1990. In addition to
his responsibilities with Summit Properties, Mr. Paulsen is a full Member and
Residential Council Member of the Urban Land Institute. He is a Member of the
Board of Directors of The Beach Company, a real estate investment company
specializing primarily in commercial and resort development in the southeastern
United States and is a trustee of The Asheville School. Mr. Paulsen also served
as a Vice President of the Charlotte Apartment Association. He is 50 years old.
Executive Officers Who Are Not Directors
RAYMOND V. JONES. Mr. Jones is the Executive Vice President/Development
and Construction. Prior to the formation of Summit Properties, Mr. Jones served
as regional partner for the Charlotte division of the predecessor to Summit
Properties, as well as a general partner of several of the partnerships which
transferred Communities to the Operating Partnership when it was formed. Mr.
Jones is a member of the Board of Directors and Chairman of the Charlotte
Mecklenburg Housing Partnership, a non-profit venture organized to provide low
income housing. Additionally, he is a member of the Board of Directors of Golf
Trust of America, Inc. a recently formed real estate investment trust listed on
the American Stock Exchange. He also served as President of the Charlotte
Apartment Association and the Apartment Association of North Carolina. Mr. Jones
is 49 years old.
MICHAEL L. SCHWARZ. Mr. Schwarz is an Executive Vice President and Chief
Financial Officer. Prior to joining Summit Properties in 1994, Mr. Schwarz was a
co-founder and spent five years as the Senior Vice President and Chief Financial
Officer of Industrial Developments International, Inc., a developer of
industrial real estate. He is a certified public accountant. Mr. Schwarz served
as the Chairman of the Board of The Study Hall of Emmaus House, a non-profit
educational facility serving inner-city youths. Mr. Schwarz is 36 years old.
WILLIAM B. HAMILTON. Mr. Hamilton was hired by Summit Properties in
December 1996 to assume the positions of Executive Vice President/Property
Management of Summit Properties and President of Summit Management Company, the
Operating Partnership's management subsidiary. Prior to joining Summit
Properties, Mr. Hamilton spent one year as a Senior Vice President with Insignia
Management Group in Atlanta, Georgia where he was responsible for property and
asset management for 50,000 multifamily apartments. For the four years
immediately prior thereto, Mr. Hamilton was the President of NPI Property
Management Corporation, where his management portfolio consisted of 31,000
multifamily apartments. Mr. Hamilton's experience in the property and asset
management field for multifamily apartments has spanned more than 20 years. Mr.
Hamilton has been designated a certified property manager by the Institute of
Real Estate Management and a Certified Apartment Supervisor by the National
Apartment Association. Mr. Hamilton is 49 years old.
DAVID F. TUFARO. Mr. Tufaro is an Executive Vice President and Chief
Investment Officer. Prior to the formation of Summit Properties, Mr. Tufaro
served as regional partner for the Baltimore division of the predecessor to
Summit Properties, as well as a general partner of several of the partnerships
which transferred Communities to the Operating Partnership when it was formed.
Mr. Tufaro currently serves as President of the Board of Directors of the
Baltimore Corporation for Housing Partnerships, a non-profit housing sponsor for
low income families, and is President of the Board of Directors of the Roland
Park Community Foundation. Mr. Tufaro is 50 years old.
JOHN T. GRAY. Mr. Gray was the Executive Vice President/Property
Management of Summit Properties and the President of Summit Management Company,
the Operating Partnership's management subsidiary, until his departure from
Summit Properties in January 1997. Prior to the formation of Summit Properties,
Mr. Gray was President of Old Summit Management Company, as well as a general
partner of several of the partnerships which transferred Communities to the
Operating Partnership when it was formed. From the formation of Old Summit
Management Company in 1985 until his depature, he was responsible for
23
<PAGE> 26
the leasing, management and maintenance of the Communities, as well as all
residential properties managed for related and unrelated third parties. Mr. Gray
is 41 years old.
ITEM 6. EXECUTIVE COMPENSATION
The Operating Partnership is managed by Summit Properties, in its capacity
as the general partner of the Operating Partnership. Consequently, the Operating
Partnership has no directors or executive officers and pays no compensation. The
information provided in this Item 6 reflects compensation paid to the Directors
and executive officers of Summit Properties.
DIRECTOR COMPENSATION
Directors of Summit Properties who are also employees receive no additional
compensation for their services as directors. Non-employee Directors of Summit
Properties (the "Independent Directors") received an annual director's fee of
$12,000 in 1996. Each Independent Director also receives $1,000 for each regular
meeting of the Board of Directors attended, $1,000 for each special meeting of
the Board of Directors attended, $250 for each committee meeting attended if
held concurrently with a Board of Directors regular or special meeting and $500
for each committee meeting attended if not held concurrently with a Board of
Directors regular or special meeting. Under the Summit Properties 1994 Stock
Option Plan, following each annual meeting of stockholders, each Independent
Director also receives a non-qualified option to purchase 2,000 shares of Common
Stock of Summit Properties ("Common Stock") at a price equal to the market price
of the Common Stock on the date of grant.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the cash and
non-cash compensation awarded to the Named Executive Officers, whose
compensation exceeded $100,000 during the fiscal year ended December 31, 1996.
Because Summit Properties completed its Initial Offering on February 15, 1994,
amounts paid during 1994 reflect only the portion of the year following
completion of the Initial Offering.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL -------------------------
COMPENSATION RESTRICTED SECURITIES
------------------ STOCK UNDERLYING ALL OTHER
SALARY BONUS AWARDS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($) ($) (#) ($)(2)
- --------------------------------- ---- ------- ------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
William F. Paulsen............... 1996 232,875 0 231,075(3) 0 4,750
President and Chief Executive 1995 232,875 72,491 0 0 4,620
Officer 1994 225,000 33,840 0 40,000 3,653
Raymond V. Jones................. 1996 165,000 60,000 154,050(4) 0 4,750
Executive Vice President/ 1995 155,250 100,359 0 0 4,620
Development and Construction 1994 150,000 22,560 0 27,000 3,131
Michael L. Schwarz............... 1996 155,250 38,812 0 0 4,750
Executive Vice President and 1995 155,250 63,414 0 30,000 0
Chief Financial Officer 1994 150,000 39,420 0 27,000 0
David F. Tufaro.................. 1996 155,250 43,112 154,050(5) 0 4,750
Executive Vice President and 1995 155,250 40,000 0 0 4,130
Chief Investment Officer 1994 150,000 22,560 0 27,000 1,666
John T. Gray..................... 1996 155,250 23,250 0 0 4,750
Executive Vice President/ 1995 155,250 59,533 0 30,000 4,192
Property Management and 1994 150,000 26,280 0 27,000 3,553
President of Summit Management
Company
</TABLE>
24
<PAGE> 27
- ---------------
(1) Includes amounts deferred under Summit Properties' 401(k) plan. Under the
plan, employees generally are permitted to invest up to 17% of their salary
on a pre-tax basis, subject to a statutory maximum.
(2) Amounts represent matching contributions made by Summit Properties to the
Named Executive Officer's account under Summit Properties' 401(k) plan.
(3) Mr. Paulsen received an award of 11,700 shares of restricted stock on
January 12, 1996 under the Summit Properties 1994 Stock Option and Incentive
Plan that vest over a five year period. The value of vested and unvested
shares of such restricted stock as of December 31, 1996 was $258,862. Twenty
percent (20%) of the shares of restricted stock vested on the date of the
grant and twenty percent (20%) will vest on January 1st of each of the next
four years. Dividends will be paid on the shares of restricted stock.
(4) Mr. Jones received an award of 7,800 shares of restricted stock on January
12, 1996 under the Summit Properties 1994 Stock Option and Incentive Plan
that vest over a five year period. The value of vested and unvested shares
of such restricted stock as of December 31, 1996 was $172,575. Twenty
percent (20%) of the shares of restricted stock vested on the date of the
grant and twenty percent (20%) will vest on January 1st of each of the next
four years. Dividends will be paid on the shares of restricted stock.
(5) Mr. Tufaro received an award of 7,800 shares of restricted stock on January
12, 1996 under the Summit Properties 1994 Stock Option and Incentive Plan
that vest over a five year period. The value of vested and unvested shares
of such restricted stock as of December 31, 1996 was $172,575. Twenty
percent (20%) of the shares of restricted stock vested on the date of the
grant and twenty percent (20%) will vest on January 1st of each of the next
four years. Dividends will be paid on the shares of restricted stock.
Option Grants in Fiscal Year 1996. No options have been or will be granted
to executive officers of Summit Properties with respect to the fiscal year ended
December 31, 1996.
Option Exercises and Year-End Holdings. The following table sets forth the
aggregated number of options to purchase shares of Common Stock exercised in
1996 and the value of options to purchase shares of Common Stock held on
December 31, 1996 by the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1996 AND
FISCAL YEAR-END 1996 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FISCAL OPTIONS AT FISCAL
ACQUIRED ON VALUE YEAR-END(#) YEAR-END($)(1)
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------ ----------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
William F. Paulsen............ 0 0 40,000/0 125,000/0
Raymond V. Jones.............. 0 0 27,000/0 84,375/0
David F. Tufaro............... 0 0 27,000/0 84,375/0
John T. Gray.................. 0 0 39,000/18,000 144,315/89,910
Michael L. Schwarz............ 0 0 39,000/18,000 144,315/89,910
</TABLE>
- ---------------
(1) Based on a closing price of $22.125 per share of Common Stock on December
31, 1996, the last 1996 trading day for Summit Properties' Common Stock.
EMPLOYMENT AND NONCOMPETITION AGREEMENTS
Summit Properties has entered into employment agreements (the "Employment
Agreements") with each of Messrs. Paulsen, Jones, Tufaro, Gray, Schwarz and
Hamilton. The employment agreement with Mr. Gray has terminated as a result of
his departure from Summit Properties in January 1997. The agreements with
Messrs. Paulsen, Jones and Tufaro will expire on February 15, 1999 unless
otherwise extended, although these officers can resign at any time after giving
180 days' prior written notice, without breaching such agreements. The agreement
with Mr. Schwarz had an original term through February 16, 1996, and has been
automatically extended until such time as terminated pursuant to the terms of
such agreement. Mr. Hamilton's agreement will expire on December 5, 1998 unless
otherwise extended pursuant to the terms of the agreement. The Employment
Agreements provide that the officers will be paid the base salaries set forth
next to their names in the Summary Compensation Table above, which amounts may
be increased or decreased (subject to certain limitations) at the discretion of
Summit Properties' Compensation Committee, plus any other amounts the
Compensation Committee, in its discretion, determines to award. The Employment
Agreements also provide for certain severance benefits. If the employment of
Messrs. Paulsen, Jones or Tufaro is terminated by either Summit Properties
without "cause" or by the employee for "cause"
25
<PAGE> 28
(as defined in the Employment Agreements) during the original term of the
Employment Agreement, the terminated employee will be entitled to receive as
severance an amount equal to his base salary, as in effect on the date of
termination, through the remainder of his original term of employment under his
Employment Agreement, payable over time. If the employment of Mr. Hamilton is
terminated by Summit Properties without "cause" or by Mr. Hamilton for "cause"
(as defined in the Employment Agreement), Mr. Hamilton will be entitled to
receive as severance an amount equal to his base salary as in effect on the date
of termination for a period of twelve months, payable over time, if such
termination occurs during the original term of his Employment Agreement, or for
a period of six months, payable over time, if such termination occurs subsequent
to the original term of his Employment Agreement. Upon the termination of the
employment of Messrs. Paulsen, Jones or Tufaro by reason of death or disability,
his estate or he, as the case may be, will be entitled to receive a payment
equal to his base salary, as in effect on the date of termination, through the
remainder of his original term of employment under his Employment Agreement,
except that in the case of termination by reason of disability the amount of
such benefit shall be offset by the proceeds of any disability plan awards
provided by Summit Properties. Upon the termination of the employment of Mr.
Hamilton by reason of death or disability, his estate or he, as the case may be,
will be entitled to receive a payment equal to his base salary, as in effect on
the date of termination, for a period of twelve months, except that in the case
of termination by reason of disability the amount of such benefit shall be
offset by the proceeds of any disability plan awards provided by Summit
Properties. The Employment Agreements provide that if any of Messrs. Paulsen,
Jones, Tufaro or Hamilton are terminated by Summit Properties for "cause" or if
they voluntarily terminate their employment (as defined in the Employment
Agreements), no severance amount will be payable. If the employment of any of
Messrs. Paulsen, Jones, Schwarz or Tufaro is terminated for any reason after the
original term of his employment, no severance amount will be payable.
Each of these officers also entered into noncompetition agreements (the
"Noncompetition Agreements") with Summit Properties. These agreements (except
for the agreements with Mr. Schwarz and Mr. Hamilton), subject to certain
limited exceptions, prohibit such individuals from engaging, directly or
indirectly, during the noncompetition period (the "Noncompetition Period") in
any business which engages or attempts to engage in, directly or indirectly, the
acquisition, development, construction, operation, management or leasing of any
multifamily apartment residential real estate property within a 30 mile radius
of any property that Summit Properties owns, operates or manages or that Summit
Properties has undertaken to acquire, develop, construct, operate, manage or
lease. The Noncompetition Period is the period beginning on the date of
termination of employment and ending on the latest of (i) one year from the
termination of their employment with Summit Properties or (ii) the date on which
the severance amounts described above cease. Prior to their termination of
employment, subject to certain limited exceptions, the Noncompetition Agreements
prohibit all of the executive officers from engaging in any businesses other
than those of Summit Properties without the prior written consent of the Board
of Directors of Summit Properties (or in the case of Mr. Schwarz and Mr.
Hamilton, without the prior written consent of the President of Summit
Properties). The Noncompetition Agreements with each of the officers also
prohibit such officers for certain periods after their termination from Summit
Properties from hiring certain key employees of Summit Properties or
participating in any efforts to persuade such employees to leave Summit
Properties and from engaging in any manner, directly or indirectly, in any
business which engages or attempts to engage in the acquisition, development,
construction, operation, management or leasing of any of Summit Properties' then
existing communities or development or acquisition opportunities. Under the
Noncompetition Agreements, such officers are prohibited from disclosing trade
secrets and, for certain periods, other confidential information of Summit
Properties.
SEVERANCE AGREEMENTS
On January 2, 1997, Summit Properties entered into Severance Agreements
with each of Messrs. Paulsen, Jones, Schwarz, Hamilton and McGuire (the
"Severance Agreements"). The Severance Agreements provide for the payment of
severance benefits of up to three times such officer's annual base salary and
cash bonus in the event of the termination of the officer's employment under
certain circumstances following certain "change in control" or "combination
transactions" involving a consolidation or merger. The benefits payable under
the terms of the Severance Agreements are subject to reduction by the amount of
any severance benefits payable under applicable Employment Agreements.
26
<PAGE> 29
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Summit Properties' Compensation Committee consists of Messrs. Fishkind,
Hance, Schwab and Crosland. None of these individuals has served as an officer
of Summit Properties. Messrs. Hance, Schwab and Crosland serve as officers and
directors of lending institutions that have provided financing and related
services to the Operating Partnership. James H. Hance, Jr. is a Vice Chairman
and the Chief Financial Officer of NationsBank Corporation ("NationsBank") and
Nelson Schwab III and John Crosland, Jr. are members of the Board of Directors
of First Union National Bank of North Carolina ("First Union"). NationsBank and
First Union have provided the Operating Partnership with credit enhancements on
certain of its communities financed with tax-exempt bonds. First Union is also
the joint provider of the Operating Partnership's $150 million unsecured credit
facility. In connection with the development of Summit Norcroft II, the
Operating Partnership purchased a parcel of land in August 1996 from an
affiliate of Mr. Crosland for a purchase price of $378,000.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Operating Partnership is managed by Summit Properties, in its capacity
as the general partner of the Operating Partnership. As discussed above, Messrs.
Hance and Schwab serve as officers and directors of lending institutions that
have provided financing and related services to the Operating Partnership. James
H. Hance, Jr. is a Vice Chairman and the Chief Financial Officer of NationsBank,
and Nelson Schwab III is a member of the Board of Directors of First Union. Both
NationsBank and First Union provided the Operating Partnership with credit
enhancements on certain of its Communities financed with tax-exempt bonds. First
Union is also the joint provider of the Operating Partnership's $150 million
unsecured credit facility. In connection with the development of Summit Norcroft
II, the Operating Partnership purchased a parcel of land in August 1996 from an
affiliate of Mr. Crosland for a purchase price of $378,000.
ITEM 8. LEGAL PROCEEDINGS
Neither the Operating Partnership nor any of the Communities is presently
subject to any material litigation nor, to the Operating Partnership's
knowledge, is any litigation threatened against the Operating Partnership or any
of the Communities, other than routine actions for negligence or other claims
and administrative proceedings arising in the ordinary course of business, some
of which are expected to be covered by liability insurance and all of which
collectively are not expected to have a material adverse effect on the business,
financial condition or results of operations of the Operating Partnership.
ITEM 9. MARKET PRICE AND DISTRIBUTIONS AND RELATED SECURITY HOLDER MATTERS
There is no established public trading market for the Units. As of March
31, 1997, there were 113 holders of record of Units.
The Operating Partnership increased its annualized distributions to
unitholders to $1.59 per share from $1.55 in the first quarter of 1997. The
Operating Partnership expects any future increases in its distributions to be
made at levels that allow it to achieve a conservative payout ratio. The
Operating Partnership currently intends to make regular quarterly distributions
to unitholders. Any future distributions will be declared at the discretion of
the Board of Directors of Summit Properties and will depend on actual cash flow
of the Operating Partnership, its financial condition, capital requirements, the
annual distribution requirements under the REIT provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), and such other factors as the
Board of Directors may deem relevant.
27
<PAGE> 30
The following table sets forth the quarterly distributions per Unit
declared by the Operating Partnership during the periods noted:
<TABLE>
<CAPTION>
CALENDAR PERIOD DISTRIBUTION
------------------------------------------------------------ ------------
<S> <C>
1995:
First Quarter............................................. $.3775
Second Quarter............................................ $.3775
Third Quarter............................................. $.3775
Fourth Quarter............................................ $.3775
1996:
First Quarter............................................. $.3875
Second Quarter............................................ $.3875
Third Quarter............................................. $.3875
Fourth Quarter............................................ $.3875
1997:
First Quarter............................................. $.3975
</TABLE>
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Operating Partnership has issued Units in
private placements in reliance on the exemption from registration under Section
4(2) of the Securities Act in the amounts and for the consideration set forth
below:
- In October 1994, the Operating Partnership issued an aggregate of 38,500
Units (valued at approximately $735,000 at the time of the acquisition)
to the seller of the land for Summit River Crossing in consideration of
its interest in the property.
- In connection with the Crosland Acquisition in May 1995, the Operating
Partnership issued an aggregate of 1,485,998 Units (valued at
approximately $26.2 million at the time of the acquisition) to the
sellers of the Crosland Acquisition Communities in consideration of their
interests in such properties.
- In June 1995, the Operating Partnership issued 4,000,000 Units to Summit
Properties in exchange for a cash contribution of approximately $65.9
million.
- In December 1995, the Operating Partnership issued an aggregate of 45,359
Units (valued at approximately $896,000 at the time of the acquisition)
to the seller of the land for Summit Ballantyne in consideration of its
interest in the property.
- In January 1996, the Operating Partnership issued an aggregate of 106,330
Units (valued at approximately $2.1 million at the time of the
acquisition) to the sellers of the land for Summit Sedgebrook in
consideration of their interest in the property.
- In August 1996, the Operating Partnership issued 5,750,000 Units to
Summit Properties in exchange for a cash contribution of approximately
$97.6 million.
- In January 1997, the Operating Partnership issued 315,029 Units to Summit
Properties in exchange for a cash contribution of approximately $6.8
million.
- In connection with the purchase of Summit Sand Lake in February 1997, the
Operating Partnership issued (a) an aggregate of 194,495 Units (valued at
approximately $3.9 million at the time of the acquisition) to the sellers
of Summit Sand Lake in partial consideration of their interest in the
property and (b) 243,608 Units to Summit Properties in exchange for
Summit Properties' interest in the property, which was acquired through
the issuance of 243,608 shares of Common Stock.
- From time to time, Summit Properties has issued an aggregate of 59,527
shares of Common Stock pursuant to its Dividend Reinvestment Plan. Summit
Properties has contributed the proceeds (approximately $1.0 million) of
these sales to the Operating Partnership in consideration of an aggregate
of 59,527 Units.
28
<PAGE> 31
- From time to time, Summit Properties has issued an aggregate of 85,856
shares of Common Stock pursuant to its 1996 Non-Qualified Employee Stock
Purchase Plan. Summit Properties has contributed the proceeds
(approximately $1.8 million) of these sales to the Operating Partnership
in consideration of an aggregate of 85,856 Units.
- From time to time, Summit Properties has issued an aggregate of 54,073
shares of Common Stock upon the exercise of stock options. Summit
Properties has contributed the proceeds (approximately $1.0 million) of
these sales to the Operating Partnership in consideration of an aggregate
of 54,073 Units.
- From time to time, Summit Properties has issued an aggregate of 72,939
shares of Common Stock in connection with restricted stock awards. Each
time a share of Common Stock is issued in connection with such an award,
the Operating Partnership issues a Unit to Summit Properties;
consequently, 72,939 Units have been issued to Summit Properties to date.
- From time to time, Summit Properties has issued an aggregate of 4,501
shares of Common Stock in connection with unrestricted stock awards. Each
time a share of Common Stock is issued in connection with such an award,
the Operating Partnership issues a Unit to Summit Properties;
consequently, 4,501 Units have been issued to Summit Properties to date.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
GENERAL
The following description is only a summary of certain provisions of the
partnership agreement of the Operating Partnership (the "Operating Partnership
Agreement") and is subject to, and qualified in its entirety by, the Operating
Partnership Agreement, a copy of which has been filed with the Securities and
Exchange Commission.
VOTING RIGHTS
Under the Operating Partnership Agreement, the Operating Partnership's
limited partners (the "Limited Partners") do not have voting rights relating to
the operation and management of the Operating Partnership except in connection
with certain amendments to the Operating Partnership Agreement.
TRANSFERABILITY OF INTERESTS
Summit Properties may not transfer any of its general partner interest or
withdraw as the general partner of the Operating Partnership (the "General
Partner"), or transfer any of its Units, unless Limited Partners (other than
Summit Properties) holding a majority of Units consent to such transfer or
withdrawal or such transfer is to an entity which is wholly-owned by Summit
Properties and is a "qualified REIT subsidiary" under the Code.
The Limited Partners generally may transfer their interests in the
Operating Partnership, in whole or in part, without the consent of the General
Partner. No Limited Partner has the right to substitute a transferee as a
Limited Partner in his place without the consent of the General Partner, which
consent may be withheld in the sole discretion of the General Partner.
ISSUANCE OF ADDITIONAL UNITS
The Operating Partnership is authorized to issue Units and other
partnership interests to its partners or to other persons for such consideration
and on such terms and conditions as Summit Properties, as the General Partner,
in its sole discretion, may deem appropriate.
REDEMPTION RIGHTS; PREEMPTIVE RIGHTS
Pursuant to the Operating Partnership Agreement, the Limited Partners have
redemption rights which, subject to certain limitations, enable them to cause
the Operating Partnership to redeem each Unit for cash equal to the value of a
share of Common Stock of Summit Properties or, at Summit Properties' election,
29
<PAGE> 32
Summit Properties may purchase each Unit offered for redemption for cash or one
share of Common Stock of Summit Properties (the "Redemption Rights"). In
connection with any capital contribution made to the Operating Partnership, the
Limited Partners (other than Summit Properties) have the right to contribute to
the Operating Partnership an amount equal to or less than their then-existing
percentage interest in such capital contribution.
MANAGEMENT LIABILITY AND INDEMNIFICATION
The Operating Partnership Agreement generally provides that the General
Partner will incur no liability to the Operating Partnership or any Limited
Partner for losses sustained or liabilities incurred as a result of errors in
judgment or of any act or omission if the General Partner acted in good faith.
In addition, the General Partner is not responsible for any misconduct or
negligence on the part of its agents provided the General Partner appointed such
agents in good faith. The Operating Partnership Agreement also provides for
indemnification of the General Partner, the Directors and officers of the
General Partner, and such other persons as the General Partner may from time to
time designate, against any and all losses, claims, damages, liabilities, joint
or several expense (including reasonable legal fees and expenses), judgments,
fines, settlements and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
that relate to the operations of the Operating Partnership in which such person
may be involved.
AMENDMENT
Amendments to the Operating Partnership Agreement may be proposed by the
General Partner or by Limited Partners (other than Summit Properties) holding
twenty percent (20%) or more of the partnership interests. Certain amendments
that would, among other things, convert a Limited Partner's interest to a
General Partner interest, modify the limited liability of a Limited Partner in a
manner adverse to such Limited Partner, alter rights of a Limited Partner to
receive distributions or allocations, alter or modify the Redemption Rights in a
manner adverse to a Limited Partner, or cause the termination of the Operating
Partnership prior to the expiration of the term of the Operating Partnership
Agreement, require the consent of each Limited Partner adversely affected by
such amendment.
MANAGEMENT FEES AND EXPENSES
Summit Properties may not be compensated for its services as General
Partner. However, Summit Properties may be reimbursed for all expenses that it
incurs relating to the ownership and operation of, or for the benefit of, the
Operating Partnership.
DISTRIBUTIONS AND ALLOCATIONS
The Operating Partnership Agreement provides that the Operating Partnership
will distribute all available cash (as defined in the Operating Partnership
Agreement) on at least a quarterly basis, in amounts determined by the General
Partner in its sole discretion, to the partners in accordance with their
respective percentage interests in the Operating Partnership. Upon liquidation
of the Operating Partnership, after payment of, or adequate provision for, debts
and obligations of the Operating Partnership, including any partner loans, any
remaining assets of the Operating Partnership will be distributed to all
partners with positive capital accounts in accordance with their respective
positive capital account balances.
Profit and loss of the Operating Partnership for each fiscal year of the
Operating Partnership generally will be allocated among the partners in
accordance with their respective interests in the Operating Partnership. Taxable
income and loss will be allocated in the same manner, subject to compliance with
the provisions of Code sections 704(b) and 704(c) and Treasury Regulations
promulgated thereunder.
TERM
The Operating Partnership will continue until December 31, 2093, or until
sooner dissolved upon (i) withdrawal of the General Partner (unless the Limited
Partners elect to continue the Operating Partnership), (ii) through December 31,
2053, an election to dissolve the Operating Partnership made by the General
30
<PAGE> 33
Partner with the consent of the Limited Partners (including Summit Properties)
holding 85% of the limited partner interests in the Operating Partnership, (iii)
on or after January 1, 2054, an election to dissolve the Operating Partnership
made by the General Partner in its sole and absolute discretion, (iv) entry of a
decree of judicial dissolution, (v) the sale of all or substantially all of the
assets of the Operating Partnership, or (vi) a final and non-appealable judgment
ruling the General Partner bankrupt or insolvent (unless the Limited Partners
elect to continue the Operating Partnership prior to the entry of such order or
judgment).
TAX MATTERS
Pursuant to the Operating Partnership Agreement, the General Partner will
be the tax matters partner of the Operating Partnership and, as such, will have
authority to handle tax audits and to make tax elections under the Code on
behalf of the Operating Partnership.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Operating Partnership is managed by Summit Properties, which serves as
general partner of the Operating Partnership.
Summit Properties' Articles of Incorporation and Bylaws limit the liability
of Summit Properties' Directors and officers to Summit Properties and its
stockholders to the fullest extent permitted from time to time by Maryland law.
Maryland law presently permits the liability of directors and officers to a
corporation or its stockholders for money damages to be limited, except (i) to
the extent that it is proved that the director or officer actually received an
improper benefit or profit; or (ii) if a judgment or other final adjudication is
entered in a proceeding based on a finding that the director's or officer's
action or failure to act was the result of active and deliberate dishonesty and
was material to the cause of action adjudicated in the proceeding. This
provision does not limit the ability of Summit Properties or its stockholders to
obtain other relief, such as an injunction or rescission.
Summit Properties' Articles of Incorporation and Bylaws also require Summit
Properties to indemnify its Directors, officers and certain other parties to the
fullest extent permitted from time to time by Maryland law. Maryland law permits
a corporation to indemnify its directors, officers and certain other parties
against judgements, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may be
made a party by reason of their service to or at the request of the corporation,
unless it is established that (i) the act or omission was committed in bad faith
or was the result of active and deliberate dishonesty; (ii) the indemnified
party actually received an improper personal benefit; or (iii) in the case of
any criminal proceeding, the indemnified party had reasonable cause to believe
that the act or omission was unlawful.
Pursuant to the authority granted in Summit Properties' Articles of
Incorporation and Bylaws, Summit Properties and its affiliate the Operating
Partnership have entered into indemnification agreements with each of Summit
Properties' Directors and executive officers. The indemnification agreements
require, among other matters, that Summit Properties indemnify its executive
officers and Directors to the fullest extent permitted by law and advance to
such officers and Directors all related expenses, subject to reimbursement if it
is subsequently determined that indemnification is not permitted. Summit
Properties must also indemnify and advance all expenses incurred by such
officers and Directors seeking to enforce their rights under the indemnification
agreements and may cover such officers and Directors under the Summit
Properties' directors' and officers' liability insurance. Although the form of
indemnification agreement offers substantially the same scope of coverage
afforded by law, it provides assurance to Directors and officers that
indemnification will be available, because, as a contract, it cannot be modified
unilaterally in the future by the Board of Directors or the Stockholders to
eliminate the rights it provides.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Financial Statements and Supplementary Data" on page F-1 of
this Form 10.
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<PAGE> 34
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a)Financial Statements and Financial Statement Schedules
See "Index to Financial Statements and Supplementary Data" on page F-1
of this Form 10.
(b) Exhibits
<TABLE>
<S> <C>
3.1 Agreement of Limited Partnership of the Operating Partnership, as amended
10.1 Option and Transfer Agreement among the Management Company, William F. Paulsen
and the Operating Partnership*
10.2 Letter of Commitment to enter into the Mortgage Loan between the Operating
Partnership and The Northwestern Mutual Life Insurance Company*
10.2.1 Promissory Note**
10.2.2 Mortgage and Security Agreement and Financing Statement**
10.3 $31,000,000 Loan Agreement from Wachovia Bank of North Carolina, N.A.***
10.4 $150,000,000 Credit Agreement****
12.1 Calculation of Ratios of Earnings to Fixed Charges
21.1 List of Subsidiaries
27.1 Financial Data Schedule
</TABLE>
- ---------------
* Previously filed as an exhibit to Summit Properties' Registration Statement
on Form S-11, File Number 33-72454.
** Previously filed as an exhibit to Summit Properties' Annual Report on Form
10-K for the fiscal year ended December 31, 1993.
*** Previously filed as an exhibit to Summit Properties' Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1996.
**** Previously filed as an exhibit to Summit Properties' Annual Report on Form
10-K for the fiscal year ended December 31, 1996.
32
<PAGE> 35
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SUMMIT PROPERTIES PARTNERSHIP, L.P.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Balance Sheets as of December 31, 1996 and 1995....................................... F-3
Statements of Earnings for the Years Ended December 31, 1996, 1995 and 1994........... F-4
Statements of Partners' Equity for the Years Ended December 31, 1996, 1995 and 1994... F-5
Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994......... F-6
Notes to Financial Statements......................................................... F-7
The following financial statement supplementary data of the Operating Partnership
required to be included is listed below:
Schedule III -- Real Estate and Accumulated Depreciation.............................. F-19
</TABLE>
All other schedules are omitted because they are not applicable or not required.
F-1
<PAGE> 36
INDEPENDENT AUDITORS' REPORT
Board of Directors
Summit Properties Inc.
Charlotte, North Carolina
We have audited the accompanying balance sheets of Summit Properties
Partnership, L.P. as of December 31, 1996 and 1995, and the related statements
of earnings, partners' equity, and cash flows of Summit Properties Partnership,
L.P. and Predecessors (Summit Entities -- see Note 1), as more fully described
in Note 1, for each of the three years in the period ended December 31, 1996.
Our audits also included the financial statement schedule listed in the Index on
page F-1. These financial statements and financial statement schedule are the
responsibility of the management of Summit Properties Partnership, L.P. and
Predecessors. Our responsibility is to express an opinion on these financial
statements and financial statement 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, such financial statements present fairly, in all material
respects, the financial position of Summit Properties Partnership, L.P. as of
December 31, 1996 and 1995, and the results of operations and cash flows of
Summit Properties Partnership, L.P. and Predecessors for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, such 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.
/s/ Deloitte & Touche LLP
- ------------------------------------
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
March 24, 1997
F-2
<PAGE> 37
SUMMIT PROPERTIES PARTNERSHIP, L.P.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Real estate assets:
Land and land improvements........................................ $102,605 $ 90,336
Buildings and improvements........................................ 472,996 399,057
Furniture, fixtures and equipment................................. 43,021 36,336
-------- --------
618,622 525,729
Less: accumulated depreciation.................................... (85,651) (67,884)
-------- --------
Operating real estate assets................................. 532,971 457,845
Construction in progress.......................................... 86,157 59,300
Investment in real estate joint venture........................... -- 1,235
-------- --------
Net real estate assets....................................... 619,128 518,380
Cash and cash equivalents.............................................. 3,665 2,881
Restricted cash........................................................ 4,121 4,188
Investment in Summit Management Company................................ 687 590
Deferred financing costs, net of accumulated amortization of $2,441 and
$1,914 in 1996 and 1995.............................................. 4,675 5,398
Other assets........................................................... 3,088 2,172
-------- --------
Total assets........................................................... $635,364 $533,609
======== ========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Notes payable..................................................... $309,933 $297,010
Accrued interest payable.......................................... 1,318 903
Accounts payable and accrued expenses............................. 7,257 7,850
Distributions payable............................................. 10,244 7,699
Security deposits and prepaid rents............................... 3,196 2,651
-------- --------
Total liabilities............................................ 331,948 316,113
-------- --------
Commitments
Partners' equity....................................................... 303,416 217,496
-------- --------
Total liabilities and partners' equity................................. $635,364 $533,609
======== ========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 38
SUMMIT PROPERTIES PARTNERSHIP, L.P.
STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Rental......................................... $ 88,864 $ 70,773 $ 54,198
Other property income.......................... 4,683 3,356 2,582
Property management............................ -- -- 536
Interest....................................... 558 461 416
Development and other fees from related
parties...................................... 72 112 385
Other income................................... 312 292 317
----------- ----------- -----------
Total revenues....................... 94,489 74,994 58,434
----------- ----------- -----------
Expenses:
Property operating and maintenance:
Personnel................................. 8,368 6,640 5,033
Advertising and promotion................. 1,417 698 504
Utilities................................. 4,115 3,432 2,782
Building repairs and maintenance.......... 7,547 6,116 4,456
Real estate taxes and insurance........... 8,823 6,965 5,552
Depreciation.............................. 18,208 15,141 11,700
Property supervision...................... 2,240 1,848 1,430
Other operating expenses.................. 2,716 2,313 1,745
----------- ----------- -----------
53,434 43,153 33,202
Property management............................ -- -- 366
Interest....................................... 17,138 14,802 14,067
General and administrative..................... 2,557 1,949 1,756
REIT formation costs........................... -- -- 457
Loss (income) in equity investments:
Summit Management Company................. 173 80 59
Real estate joint venture................. -- (41) --
----------- ----------- -----------
Total expenses....................... 73,302 59,943 49,907
----------- ----------- -----------
Income before extraordinary items................... 21,187 15,051 8,527
Extraordinary items................................. (626) (539) 8,566
----------- ----------- -----------
Net income.......................................... $ 20,561 $ 14,512 $ 17,093
=========== =========== ===========
Per unit data:
Income before extraordinary items.............. $ 0.92 $ 0.83 $ 0.64
=========== =========== ===========
Net income..................................... $ 0.90 $ 0.80 $ 1.28
=========== =========== ===========
Distributions declared......................... $ 1.55 $ 1.51 $ 1.29
=========== =========== ===========
Weighted average units......................... 22,940,998 18,116,664 13,389,757
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 39
SUMMIT PROPERTIES PARTNERSHIP, L.P.
STATEMENTS OF PARTNERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
------- -------- --------
<S> <C> <C> <C>
Balance, December 31, 1993................................... $(38,127) $(38,127)
Capital distributions................................... (16,308) (16,308)
Distributions........................................... $ (191) (18,885) (19,076)
Contributions from Summit Properties related to:
Proceeds from public offering...................... 1,996 197,601 199,597
Issuance of stock grants........................... 1 59 60
Purchase of prior owner's interest...................... (59) (5,826) (5,885)
Contributions related to land acquisition............... 7 728 735
Net income.............................................. 171 16,922 17,093
------- -------- --------
Balance, December 31, 1994................................... 1,925 136,164 138,089
Distributions........................................... (284) (28,112) (28,396)
Contributions from Summit Properties related to:
Proceeds from public offering...................... 659 65,278 65,937
Proceeds from Dividend Reinvestment Plan........... 2 238 240
Issuance of stock grants........................... -- 28 28
Contributions related to property acquisitions.......... 262 25,928 26,190
Contributions related to land acquisition............... 9 887 896
Net income.............................................. 145 14,367 14,512
------- -------- --------
Balance, December 31, 1995................................... 2,718 214,778 217,496
Distributions........................................... (365) (36,096) (36,461)
Contributions from Summit Properties related to:
Proceeds from public offering...................... 976 96,658 97,634
Proceeds from Dividend Reinvestment and Employee
Stock Purchase Plans............................. 16 1,581 1,597
Exercise of stock options.......................... 3 284 287
Amortization of restricted stock................... 2 200 202
Contributions related to land acquisition............... 210 1,890 2,100
Net income.............................................. 2,056 18,505 20,561
------- -------- --------
Balance, December 31, 1996................................... $ 5,616 $297,800 $303,416
======= ======== ========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 40
SUMMIT PROPERTIES PARTNERSHIP, L.P.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 20,561 $ 14,512 $ 17,093
Adjustments to reconcile net income to net cash provided
by operating activities:
Extraordinary items..................................... 626 539 (8,566)
Loss on equity method investments....................... 173 39 59
Depreciation and amortization........................... 19,183 15,978 12,542
Decrease (increase) in restricted cash.................. 235 575 (239)
Decrease (increase) in other assets..................... (866) (992) 582
Increase (decrease) in accrued interest payable......... 333 (47) (4,388)
Increase in accounts payable and accrued expenses....... 386 209 112
Increase in security deposits and prepaid rents......... 545 181 330
-------- -------- --------
Net cash provided by operating activities....... 41,176 30,994 17,525
-------- -------- --------
Cash flows from investing activities:
Construction of real estate assets and land acquisitions,
net of payables......................................... (87,081) (52,499) (94,249)
Capitalized interest...................................... (4,266) (3,110) (686)
Recurring capital expenditures............................ (3,291) (2,180) (1,710)
Non-recurring capital expenditures........................ (2,973) (864) --
Purchase of Communities................................... (6,360) (5,081) --
Purchase of non-continuing investors' interests........... -- -- (20,834)
Investment in Summit Management Company................... -- -- (260)
Proceeds from investments................................. -- -- 3,998
-------- -------- --------
Net cash used in investing activities........... (103,971) (63,734) (113,741)
-------- -------- --------
Cash flows from financing activities:
Debt proceeds............................................. 89,359 97,075 193,542
Debt repayments........................................... (90,783) (101,650) (269,021)
Distributions to unitholders.............................. (34,000) (26,157) (13,615)
Payment of financing costs................................ (515) (1,033) (5,202)
Contributions from Summit Properties related to:
Proceeds from public offering........................... 97,634 65,937 199,597
Proceeds from Dividend Reinvestment and Employee Stock
Purchase Plans....................................... 1,597 268 --
Exercise of stock options............................... 287 -- --
Capital distributions..................................... -- -- (16,308)
-------- -------- --------
Net cash provided by financing activities....... 63,579 34,440 88,993
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........... 784 1,700 (7,223)
Cash and cash equivalents, beginning of year................... 2,881 1,181 8,404
-------- -------- --------
Cash and cash equivalents, end of year......................... $ 3,665 $ 2,881 $ 1,181
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest, net of capitalized interest............ $ 15,780 $ 13,762 $ 15,027
======== ======== ========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 41
SUMMIT PROPERTIES PARTNERSHIP, L.P.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND FORMATION OF THE OPERATING PARTNERSHIP
Summit Properties Partnership, L.P. (the "Operating Partnership"), a
Delaware limited partnership, was formed on January 14, 1994 to conduct the
business of developing, leasing and managing multifamily apartment communities
for Summit Properties Inc. ("Summit Properties"). On February 15, 1994, Summit
Properties completed an initial public offering ("Initial Offering"). In
connection with the Initial Offering, the Operating Partnership consummated a
business combination involving the partnerships (the "Property Partnerships")
which owned the 27 communities acquired in connection with the Initial Offering
and the affiliated entities which provided development, construction, management
and leasing services to each of those communities prior to the Initial Offering
(collectively, the "Summit Entities"). A portion of the proceeds from the
Initial Offering was used by Summit Properties to acquire an economic and voting
interest in the Operating Partnership, which was formed to succeed to
substantially all of the interests of the Property Partnerships in the 27
communities and the operations of the Summit Entities (the "Formation"). Summit
Properties became the sole general partner and the majority owner of the
Operating Partnership upon completion of the Initial Offering. Summit Properties
is a self-administered and self-managed equity real estate investment trust
("REIT").
In June 1995, Summit Properties completed the sale of 4 million shares of
Common Stock (the "1995 Offering"). In August 1996, Summit Properties completed
the sale of 5.75 million shares of Common Stock (the "1996 Offering"). The net
proceeds of $65.9 million and $97.6 million from the 1995 and 1996 Offerings,
respectively, were contributed to the Operating Partnership in exchange for
units of limited partnership interest in the Operating Partnership ("Units"),
and the Operating Partnership used the proceeds to repay mortgage debt and to
fund current development projects.
Net income per Unit on a pro forma basis for the years ended December 31,
1996 and 1995 would not have changed materially assuming the 1996 Offering and
the 1995 Offering had occurred on January 1, 1996 and 1995, respectively.
Summit Properties conducts all of its business through the Operating
Partnership and its subsidiaries. Summit Properties holds 84.8% of the
outstanding partnership interests of the Operating Partnership, consisting of a
1% general partner interest and an 83.8% limited partner interest. The Operating
Partnership is obligated to redeem each Unit at the request of the holder for
cash equal to the fair market value of one share of Common Stock, except that
Summit Properties may elect to acquire each Unit presented for redemption for
cash or one share of Common Stock. Summit Properties has issued Common Stock in
connection with all redemptions to date. With each redemption of outstanding
Units for Summit Properties' Common Stock, Summit Properties' percentage
ownership interest in the Operating Partnership will increase. In addition,
whenever Summit Properties issues shares of Common Stock, Summit Properties will
contribute any net proceeds therefrom to the Operating Partnership and the
Operating Partnership will issue an equivalent number of Units to Summit
Properties.
Distributions to holders of Units are made to enable distributions to be
made to Summit Properties' shareholders under Summit Properties' dividend
policy. Federal income tax laws require Summit Properties, as a REIT, to
distribute 95% of its ordinary taxable income. The Operating Partnership makes
distributions to Summit Properties to enable it to satisfy this requirement.
2. BASIS OF PRESENTATION
For the period after the Initial Offering, the accompanying financial
statements include the accounts of the Operating Partnership. For the period
prior to the Initial Offering, the accompanying financial statements reflect the
combined accounts of the Summit Entities.
In conjunction with the Initial Offering, construction, management and
leasing activities for third parties were transferred to Summit Management
Company (the "Management Company"). The Operating Partner-
F-7
<PAGE> 42
SUMMIT PROPERTIES PARTNERSHIP, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ship has a 99% economic interest in the Management Company but controls only 1%
of the voting stock. The remaining 99% of the voting stock is held by an
executive officer of the Operating Partnership, which stock is subject to
certain restrictions on transfer designed to ensure that the holder of the
Management Company's voting stock will have interests aligned with those of the
Operating Partnership. Because of the Operating Partnership's ability to
exercise significant influence, the Management Company is accounted for on the
equity method of accounting. Prior to the Initial Offering on February 15, 1994,
these activities were included in the Statement of Earnings on a combined basis.
As a result of the Formation, the partners and owners of the entities
comprising the Summit Entities have either retained their existing ownership
interests, received shares of Common Stock of Summit Properties or received
Units in the Operating Partnership. Purchase accounting was applied to the
acquisition of all non-controlled interests in which cash consideration was
paid. The acquisition of all other interests was accounted for as a
reorganization of entities under common control and, accordingly, was reflected
at historical cost in a manner similar to that in pooling of interests
accounting.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REAL ESTATE ASSETS AND DEPRECIATION -- Real estate assets are stated at
depreciated cost reduced for any estimated impairment in value of which there is
none.
Expenditures directly related to the acquisition, development and
improvement of real estate assets are capitalized at cost as land, buildings and
improvements. Improvements are broken down into recurring capital expenditures
and nonrecurring capital expenditures. Nonrecurring capital expenditures
primarily consist of the cost of improvements such as new garages, initial water
meters, major renovations and improvements made in conjunction with
acquisitions. All other improvements are deemed to be recurring capital
expenditures.
Ordinary repairs and maintenance, including carpet replacements and
interior painting, are expensed as incurred; major replacements and betterments
are capitalized and depreciated over their estimated useful lives. Depreciation
is computed on a straight-line basis over the useful lives of the properties
(buildings -- 40 years; land improvements -- 15 years; furniture, fixtures and
equipment -- 5 to 7 years).
The Financial Accounting Standard Board's Statement of Financial Accounting
Standard No. 121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of," became effective in 1996. FAS 121
established standards for determining when impairments on long-lived assets have
occurred and how impairment losses should be measured. The new standard had no
impact on the Operating Partnership's financial statements in 1996.
RENTAL REVENUE RECOGNITION -- The Operating Partnership leases its
residential properties under operating leases with terms which are generally one
year or less. Rental revenue is recognized on the accrual method of accounting
as earned.
PROPERTY MANAGEMENT -- The Management Company provides property management
services for properties which it does not own. Revenue is recognized when
earned, as the services are provided.
CASH AND CASH EQUIVALENTS -- For purposes of the statement of cash flows,
the Operating Partnership considers all highly liquid investments purchased with
an original maturity of three months or less to be cash equivalents.
RESTRICTED CASH -- Restricted cash is comprised primarily of resident
security deposits, bond repayment escrows and replacement reserve escrows.
DEFERRED FINANCING COSTS -- Deferred financing costs include fees and costs
incurred to obtain long-term financings and are amortized on the straight-line
method over the terms of the related debt. Such amortization is included in
interest expense in the accompanying statements of earnings.
F-8
<PAGE> 43
SUMMIT PROPERTIES PARTNERSHIP, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INTEREST AND REAL ESTATE TAXES -- Interest and real estate taxes incurred
during the construction period are capitalized and depreciated over the lives of
the constructed assets. Interest capitalized was $4.3 million, $3.1 million and
$686,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
INCOME TAXES -- Operations were conducted through a variety of partnerships
prior to the Formation, and through the Operating Partnership subsequent to the
Formation. In accordance with partnership taxation, each partner was responsible
for reporting its share of taxable income or loss. Accordingly, no provision has
been made in the accompanying financial statements for federal, state or local
income taxes.
Financial Accounting Standard No. 109, "Accounting for Income Taxes"
requires a public enterprise to disclose the aggregate difference in the basis
of its net assets for financial and tax reporting purposes. The carrying value
reported in the Operating Partnership's financial statements exceeded the tax
basis by approximately $24.1 million and $28.5 million, as of December 31, 1996
and 1995, respectively. The change between December 31, 1996 and 1995 was
primarily due to financial depreciation exceeding tax depreciation by
approximately $5.7 million.
PER UNIT DATA -- Earnings per Unit with respect to the Operating
Partnership for the years ended December 31, 1996, 1995 and 1994 are computed
based upon the weighted average number of Units outstanding during the period.
ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
4. PROPERTY MANAGEMENT AND RELATED PARTY TRANSACTIONS
In conjunction with the Formation, construction, management and leasing
activities for third parties were transferred to the Management Company, which
is accounted for using the equity method of accounting. Prior to the Formation
on February 15, 1994, these activities were included in the Summit Entities'
Statement of Earnings on a combined basis. The net assets of the Management
Company are not material, therefore no balance sheet information is presented.
The Management Company has a wholly-owned subsidiary, Summit Apartment
Builders, Inc. (the "Construction Company"), which conducts certain construction
activities. The activities of the Construction Company are accounted for on a
consolidated basis with those of the Management Company. The net assets of the
Construction Company are not material.
F-9
<PAGE> 44
SUMMIT PROPERTIES PARTNERSHIP, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Management Company operations for the years ended December
31, 1996, 1995, and 1994 is as follows (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 16, JANUARY 1,
1994 TO 1994 TO
TOTAL DECEMBER 31, FEBRUARY 15,
1996 1995 1994 1994 1994
------ ------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Property management fees................... $4,706 $5,189 $5,122 $4,586 $536
Construction company income................ 529 288 264 264 --
Other management company income............ 129 155 149 149 --
------ ------ ------ ------ ----
Total revenues...................... 5,364 5,632 5,535 4,999 536
Property management expenses:
Operating................................ 4,407 4,581 4,512 4,146 366
Depreciation............................. 110 120 53 53 --
Amortization............................. 278 274 219 219 --
Interest................................. 300 300 262 262 --
------ ------ ------ ------ ----
5,095 5,275 5,046 4,680 366
Construction company expenses.............. 442 437 378 378 --
------ ------ ------ ------ ----
Total expenses...................... 5,537 5,712 5,424 5,058 366
------ ------ ------ ------ ----
Net income (loss) of Summit Management
Company.................................. $ (173) $ (80) $ 111 $ (59) $170
====== ====== ====== ====== ====
</TABLE>
Interest and amortization expenses are related to the Management Company's
purchase from the Operating Partnership of its rights to third party management
contracts for $2.5 million, payable over time under a promissory note executed
by the Management Company. Corresponding amounts of interest income and
amortization of deferred revenue (included in other income) are included in the
Operating Partnership's operating results.
The Management Company provides management services to apartment
communities in which executive officers and certain Directors of Summit
Properties are general partners. The Management Company received management fees
of approximately $267,000, $294,000 and $1.0 million for the performance of such
services for the years ended December 31, 1996, 1995 and 1994, respectively.
Property management fees include $2.0 million, $3.0 million and $2.9
million of fees from unrelated third parties in 1996, 1995 and 1994,
respectively.
Construction Company income is earned from construction contracts with the
Operating Partnership or from joint ventures in which the Operating Partnership
has an interest. Income from contracts with the Operating Partnership was
$529,000, $311,000 and $154,000 for the years ended December 31, 1996, 1995 and
1994 respectively. The Operating Partnership had $1.3 million and $978,000 of
construction contracts payable to the Construction Company as of December 31,
1996 and 1995, respectively.
The Operating Partnership's investment in the Management Company as of
December 31, 1996 and 1995, reported on the equity method, includes the
following (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Equity investment.............................................. $ (32) $ 121
Note receivable................................................ 2,500 2,500
Deferred gain on sale of third party contract rights........... (1,781) (2,031)
------- -------
$ 687 $ 590
======= =======
</TABLE>
F-10
<PAGE> 45
SUMMIT PROPERTIES PARTNERSHIP, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. NOTES PAYABLE
Notes payable consist of the following (in thousands):
<TABLE>
<CAPTION>
INTEREST PRINCIPAL OUTSTANDING
RATE AS OF DECEMBER 31,
DECEMBER 31, ----------------------
1996 1996 1995
------------ -------- --------
<S> <C> <C> <C>
FIXED RATE DEBT
Mortgage Loan.................................. 5.88% $122,950 $125,000
Mortgage Loan.................................. 7.71% 29,653 30,000
Mortgage Loan.................................. 8.00% 8,638 8,712
Mortgage Notes................................. 7.75%-9.80% 32,104 32,485
Tax Exempt Mortgage Notes...................... 6.95%-7.25% 9,369 9,468
-------- --------
Total Mortgage Debt....................... 202,714 205,665
Unsecured Note................................. 7.85% 16,000 --
Unsecured Note................................. 7.61% 15,000 --
-------- --------
Total Fixed Rate Debt..................... 233,714 205,665
VARIABLE RATE DEBT
Unsecured Credit Facility...................... LIBOR + 110 22,357 4,396
Tax Exempt Bonds............................... 5.60% 53,862 54,840
Development Loans Repaid in 1996............... -- 32,109
-------- --------
Total Variable Rate Debt.................. 76,219 91,345
-------- --------
Total Outstanding Indebtedness...................... $309,933 $297,010
======== ========
</TABLE>
The London Interbank Offered Rate (LIBOR) at December 31, 1996 was 5.56%.
MORTGAGE LOANS -- The 5.88% fixed rate Mortgage Loan requires monthly
principal and interest payments on a 24-year amortization schedule with a
balloon payment due at maturity in February, 2001. The Operating Partnership has
an option to extend the final maturity date for a period of up to two years at
an interest rate equal to the then current year treasury rate plus a
predetermined spread.
The 7.71% fixed rate Mortgage Loan requires monthly principal and interest
payments on a 25-year amortization schedule with a balloon payment due at
maturity in December, 2005.
The 8.00% Mortgage Loan requires monthly principal and interest payments on
a 30-year amortization schedule with a balloon payment due at maturity in
September, 2005.
MORTGAGE NOTES -- The Mortgage Notes bear interest at fixed rates ranging
from 7.75% to 9.80% and require monthly interest and principal payments over the
life of the notes. The weighted average interest rate and debt maturity at
December 31, 1996 for these nine Mortgage Notes were 8.43% and 20.6 years,
respectively.
TAX EXEMPT MORTGAGE NOTES -- The Tax Exempt Mortgage Notes bear interest at
fixed rates ranging from 6.95% to 7.25% and require monthly interest and
principal payments over the life of the notes. The weighted average interest
rate and debt maturity at December 31, 1996 for these two mortgage notes were
7.12% and 29.5 years, respectively.
UNSECURED NOTES -- In August 1996, the Operating Partnership obtained $31.0
million of unsecured debt financing consisting of a $16.0 million note with a
six-year term and a $15.0 million note with a four-year term (collectively, the
"Unsecured Notes"). The notes require quarterly interest only payments until the
end of the respective terms.
UNSECURED CREDIT FACILITY -- The Operating Partnership obtained a $150
million unsecured credit facility (the "Unsecured Credit Facility") on November
18, 1996 to replace a $50 million secured credit facility. The
F-11
<PAGE> 46
SUMMIT PROPERTIES PARTNERSHIP, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Unsecured Credit Facility has a three-year term and currently bears interest at
LIBOR + 110 basis points. The interest rate can be reduced based upon an upgrade
in the Company's unsecured credit rating. The Unsecured Credit Facility provides
$25 million for general working capital purposes with the remainder available to
finance development projects and acquisitions. The Unsecured Credit Facility is
repayable monthly on an interest-only basis with the balance of all principal
and accrued interest due no later than November 18, 1999.
The Unsecured Credit Facility and the Unsecured Notes require Summit
Properties and the Operating Partnership to comply with certain affirmative and
negative covenants including the requirements: (i) that Summit Properties
maintain its qualification as a REIT; (ii) that the ratio of unencumbered assets
to debt equal or exceed 150%; (iii) that the ratio of debt to assets not exceed
60%; (iv) that the maximum secured debt not exceed $350 million or 40% of
assets; (v) that the Operating Partnership maintain a debt service ratio of not
less than 1.75 to 1; and (vi) that the Operating Partnership maintain a ratio of
adjusted funds flow, as defined, to debt of greater than .15 to 1.
VARIABLE RATE TAX EXEMPT BONDS -- The effective interest rate of the
variable rate tax exempt bonds was 4.99% for the year ended December 31, 1996.
These bonds bear interest at various rates set by a remarketing agent at the
demand note index plus 0.50%, set weekly, or the lowest percentage of prime
which allows the resale at a price of par. The bonds contain covenants which
require that the Operating Partnership lease or hold for lease 20% (or 25% under
certain state or local requirements) of the apartment homes for moderate-income
residents. The bonds require maintenance of letters of credit or surety bonds
(credit enhancements) aggregating $55.6 million. The credit enhancements on four
of the five tax exempt bonds ($46.6 million of debt) provide for a principal
amortization schedule which approximates a 25-year term during the term of the
credit enhancement.
Real estate assets with a net book value of $297.8 million serve as
collateral for the various debt agreements.
The aggregate maturities of all debt for each of the years ending December
31 are as follows (in thousands):
<TABLE>
<CAPTION>
FIXED RATE FIXED RATE FIXED RATE TAX EXEMPT UNSECURED
MORTGAGE MORTGAGE UNSECURED VARIABLE CREDIT
LOANS NOTES NOTES RATE BONDS FACILITY TOTAL
----------- ----------- ----------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
1997......................... $ 3,091 $ 519 $ -- $ 1,010 $ -- $ 4,620
1998......................... 3,287 560 -- 1,055 -- 4,902
1999......................... 3,497 604 -- 1,105 22,357 27,563
2000......................... 3,718 653 15,000 1,130 -- 20,501
2001......................... 112,407 705 -- 1,150 -- 114,262
Thereafter................... 35,241 38,432 16,000 48,412 -- 138,085
--------- ------- ------- ------- -------- --------
$ 161,241 $41,473 $31,000 $53,862 $ 22,357 $309,933
========= ======= ======= ======= ======== ========
</TABLE>
EXTRAORDINARY ITEMS -- The 1996 extraordinary item resulted from the
write-off of deferred financing costs on development loans repaid with the
proceeds from the 1996 Offering and with the proceeds of the $31.0 million of
unsecured notes.
The 1995 extraordinary items resulted from the write-off of deferred
financing costs on variable rate mortgage debt repaid with the proceeds from the
1995 Offering and with the proceeds of the $30 million mortgage loan, and from
the write-off of deferred financing costs related to the refunding of two
variable rate tax exempt bonds.
In conjunction with the debt repayment related to the Initial Offering in
1994, the Operating Partnership incurred prepayment penalties of $4.3 million on
certain mortgage indebtedness, expenses of $2.5 million associated with the
write-off of deferred financing costs related to mortgages satisfied with
proceeds of the
F-12
<PAGE> 47
SUMMIT PROPERTIES PARTNERSHIP, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Initial Offering, and the write-off of accrued interest and mortgages payable
that was not required to be repaid of $15.4 million.
6. CROSLAND ACQUISITION
During the second quarter of 1995, the Operating Partnership completed an
acquisition of 12 apartment communities and a 75% interest in another apartment
community, which were owned by The Crosland Group, Inc. and its affiliates (the
"Crosland Acquisition"). The Crosland Acquisition added a total of 2,025
apartments to the Operating Partnership's portfolio and was accounted for using
the purchase method of accounting. The costs of the Crosland Acquisition have
been allocated on the basis of the fair values of the assets acquired and
liabilities assumed (See Note 9-D).
The following summary of unaudited pro forma results of operations presents
information as if the Crosland Acquisition had occurred at the beginning of each
fiscal year. In addition, the year ended December 31, 1994 information is
presented as if the Initial Offering had occurred at the beginning of 1994. The
pro forma information for the years ended December 31, 1995 and 1994 is provided
for informational purposes only and is not indicative of results which would
have occurred or which may occur in the future (in thousands, except per Unit
amounts):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Net revenues............................................................... $80,239 $71,298
Income before extraordinary items.......................................... 15,358 11,776
Net income................................................................. 14,819 11,776
Earnings per Unit:
Income before extraordinary items........................................ .82 .72
Net income............................................................... .79 .72
</TABLE>
7. COMMITMENTS
The estimated cost to complete nine development projects currently under
construction was approximately $128.1 million at December 31, 1996. Anticipated
construction completion dates of the projects range from the second quarter of
1997 to the first quarter of 1999.
The Operating Partnership has a commitment to purchase a Community being
constructed in Atlanta, Georgia for approximately $27.5 million. The Operating
Partnership expects the purchase to close in the fourth quarter of 1998 after
the Community reaches rental stabilization.
The Operating Partnership rents office space in several locations. Rental
expense for the years ended December 31, 1996, 1995 and 1994 amounted to
$109,000, $125,000 and $123,000 ($376,000 in 1996, $405,000 in 1995 and $377,000
in 1994 including amounts recorded at the Management Company). Future minimum
rental payments for the next five years for those operating leases (including
the Management Company) that have initial or remaining non-cancelable lease
terms in excess of one year are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31:
-----------------------------------------------------------------
<S> <C>
1997............................................................. $ 395
1998............................................................. 402
1999............................................................. 407
2000............................................................. 131
2001............................................................. 72
Thereafter....................................................... 2
------
$1,409
======
</TABLE>
F-13
<PAGE> 48
SUMMIT PROPERTIES PARTNERSHIP, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. EMPLOYEE BENEFIT PLANS
Profit Sharing Plan
The employees of Summit Properties, the Operating Partnership and its
subsidiaries (the "Summit Employees") are participants in Summit Properties'
defined contribution plan pursuant to Section 401(k) of the Internal Revenue
Code which covers all Summit Employees with one year or greater service. The
Operating Partnership's contributions are equal to one-half of each Summit
Employee's contribution up to a maximum of 3% of each Summit Employee's
compensation. Aggregate contributions (including the Management Company) of
approximately $223,000, $191,000 and $189,000 were made for the years ended
December 31, 1996, 1995 and 1994, respectively.
Stock Option Plan
In 1994, Summit Properties established the 1994 Stock Option Plan ("the
Plan") in which the Summit Employees participate. Under the Plan, 1,000,000
shares of Summit Properties' Common Stock are reserved for issuance. The
Operating Partnership must issue a Unit for each share of Common Stock issued
under the Plan. The Plan provides that the option price shall not be less than
the fair market value of the shares at the date of grant. The options vest in
three or five annual installments on the anniversaries of the date of grant,
except for shares granted to independent directors of Summit Properties, which
vest at the date of grant.
A summary of changes in common stock options for the three years ended
December 31, 1996 is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
-------- -----------------
<S> <C> <C>
YEAR ENDED DECEMBER 1994
Granted........................................................ 482,500 $ 19.13
Forfeited...................................................... (52,600) 19.00
-------
Outstanding at December 31, 1994.......................... 429,900 19.14
YEAR ENDED DECEMBER 1995
Granted........................................................ 130,000 17.13
Forfeited...................................................... (20,800) 19.72
-------
Outstanding at December 31, 1995.......................... 539,100 18.64
YEAR ENDED DECEMBER 1996
Granted........................................................ 28,000 19.30
Exercised...................................................... (15,073) 19.04
Forfeited...................................................... (53,381) 19.22
-------
Outstanding at December 31, 1996.......................... 498,646 18.60
=======
</TABLE>
Exercise prices for options outstanding as of December 31, 1996 ranged from
$17.13 to $20.75. The weighted average remaining contractual life of those
options is 7.5 years.
As of December 31, 1996, 1995 and 1994 options to purchase 283,228, 132,784
and 9,000 shares of Common Stock were exercisable, respectively. The weighted
average exercise price for the shares exercisable as of December 31, 1996, 1995
and 1994 was $18.36, $19.03 and $19.83, respectively.
The estimated weighted average fair value of options granted were $2.10 per
share in 1996 and $1.61 per share in 1995. Summit Properties applies Accounting
Principal Board Opinion No. 25 and related interpretations in measuring
compensation costs for its stock options. Accordingly, no compensation cost has
been recognized for its stock options granted to the Summit Employees. Had
compensation cost for the Summit Properties' stock options been determined based
on the fair value at the grant dates, consistent with the method of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", the Operating Partnership's net income and net income per Unit
for the years ended December 31, 1996
F-14
<PAGE> 49
SUMMIT PROPERTIES PARTNERSHIP, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and 1995 would have changed to the pro forma amounts indicated below (dollars in
thousands except per Unit amounts):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Pro forma net income....................................................... $20,501 $14,499
Pro forma net income per Unit.............................................. .89 .80
</TABLE>
The fair value of options granted during 1996 and 1995 were estimated on
the date of grant using the binomial option-pricing model with the following
weighted-average assumptions: dividend yields ranging from 7.80% to 8.82%,
expected volatility of 16%, risk free interest rate of 6.52%, and expected lives
of 10 years.
In addition, the Plan provides for the issuance of stock grants to the
Summit Employees. Summit Properties granted 56,046 shares of restricted stock
grants under the Plan in January, 1996. The market value of the restricted stock
grants, net of shares subsequently retired, totaled $1.0 million. Unearned
compensation is being amortized to expense over the five year vesting period.
Unrestricted stock grants of 1,639 shares were issued in the year ended December
31, 1995. The Operating Partnership recognized $223,000 and $28,000 of expense
in the statement of earnings in the years ended December 31, 1996 and 1995,
respectively, relative to the stock grants.
Employee Stock Purchase Plan
In 1996, Summit Properties established a non-qualified employee stock
purchase plan. The plan allows Summit Employees to purchase up to $100,000 per
year of Summit Properties Common Stock. The price of the shares of the Common
Stock purchased will be the lesser of 85 percent of the closing price of such
shares either on (a) the first day of each six month purchase period, or (b) the
last day of each six month purchase period. Total shares issued under the plan
in 1996 were 44,362 with a market value of approximately $871,000. An additional
41,493 shares with a market value of approximately $908,000 were issued in
January, 1997 under the plan. The Operating Partnership recognized (including
the Management Company) $151,000 of expense in the statement of earnings in the
year ended December 31, 1996 relative to the employee stock purchase plan.
9. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the years ended December
31, 1996, 1995 and 1994 are as follows:
A. The Operating Partnership issued 106,330 Units, valued at $2.1 million
at issuance, for the purchase of land in the first quarter of 1996.
B. In 1996, Summit Properties awarded 52,086 shares (net of 3,960 shares
issued but subsequently retired) of restricted stock valued at $1.0 million to
Summit Employees.
C. On April 1, 1996, the Operating Partnership acquired its joint venture
partner's interest in the Summit Plantation (formerly Plantation Cove) apartment
community. The Operating Partnership paid $6.4 million in cash for the remaining
75% interest in this joint venture, which is now owned entirely by the Operating
Partnership. The recording of the purchase is summarized as follows (in
thousands):
<TABLE>
<S> <C>
Fixed assets............................................................. $ 21,913
Current assets........................................................... 202
Deferred charges......................................................... 95
Debt assumed............................................................. (14,347)
Current liabilities assumed.............................................. (288)
Investment in real estate joint venture.................................. (1,215)
--------
Net cash paid............................................................ $ 6,360
========
</TABLE>
F-15
<PAGE> 50
SUMMIT PROPERTIES PARTNERSHIP, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
D. In the second quarter of 1995, the Operating Partnership completed its
Crosland Acquisition. The Operating Partnership purchased the communities by
assuming debt, issuing approximately 1.5 million Operating Partnership Units,
assuming certain liabilities and current assets, and the payment of cash. The
recording of the purchase is summarized as follows (in thousands):
<TABLE>
<S> <C>
Fixed assets............................................................. $ 82,935
Restricted cash.......................................................... 1,427
Other assets............................................................. 481
Debt assumed............................................................. (52,576)
Current liabilities assumed.............................................. (996)
Value of units issued.................................................... (26,190)
--------
Net cash paid............................................................ $ 5,081
========
</TABLE>
E. A $9.1 million tax-exempt bond was assumed with the purchase of the
Stony Point Community in 1994.
F. The Operating Partnership transferred certain third party property
management contracts to the Management Company in exchange for a promissory note
of $2.5 million in 1994. To record the transaction, the Operating Partnership
recorded the promissory note and included in other liabilities $2.5 million of
deferred revenue to be amortized over the estimated lives of the contracts.
G. The Operating Partnership accrued a distribution payable of $10.2
million, $7.7 million and $5.5 million at December 31, 1996, 1995 and 1994,
respectively.
H. Purchase accounting was applied to the acquisition of non-continuing
investors' interests for which cash consideration was paid resulting in an
increase of $14.9 million in the historical cost basis of the related real
estate assets in 1994.
I. The Operating Partnership issued 45,359 Units (valued at $896,000) for
the purchase of land in 1995.
J. The Operating Partnership issued 38,500 Units (valued at $735,000) for
the purchase of land in 1994.
10. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by
management using available market information and appropriate valuation
methodologies. However, considerable judgment is necessary to interpret market
data and develop the related estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that could be
realized upon 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 and cash equivalents, rents receivable, accounts payable, accrued
expenses, security deposits, other liabilities, tax-exempt bond indebtedness and
the Unsecured Credit Facility are carried at amounts which reasonably
approximate their fair values at December 31, 1996.
Fixed rate mortgage debt and unsecured notes with a carrying value of
$233.7 million has an estimated aggregate fair value of $229.3 million at
December 31, 1996. Rates currently available to the Operating Partnership for
debt with similar terms and maturities were used to estimate the fair value of
this debt.
The fair value estimates presented herein are based on information
available to management as of December 31, 1996. Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively re-valued for purposes of
these financial statements since that date, and current estimates of fair value
may differ significantly from the amounts presented herein.
F-16
<PAGE> 51
SUMMIT PROPERTIES PARTNERSHIP, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. GEOGRAPHIC CONCENTRATION
The Operating Partnership's completed Communities are concentrated in three
major markets:
<TABLE>
<CAPTION>
NUMBER OF APARTMENT
APARTMENT HOMES--% % OF
MARKET HOMES OF PORTFOLIO REVENUES
- ------------------------------------------------------------ --------- ------------ --------
<S> <C> <C> <C>
I-85 Corridor (Raleigh, NC to Atlanta, GA).................. 5,062 43% 42%
Washington, DC/Virginia..................................... 2,169 19% 21%
Central/South Florida....................................... 3,685 31% 31%
Other....................................................... 872 7% 6%
------ --- ---
11,788 100% 100%
====== === ===
</TABLE>
12. SUBSEQUENT EVENTS
On January 6, 1997, the Operating Partnership purchased Summit Portofino
(formerly Portofino Place), a 322 apartment community located in Broward County,
Florida. Summit Portofino, built in 1995, was purchased for $28.0 million in
cash. Concurrently with the purchase, Summit Properties sold 315,029 shares of
Common Stock for cash. Summit Properties contributed the proceeds of the sale of
Common Stock to the Operating Partnership in exchange for Units. The proceeds
were then used to fund a portion of the purchase price.
On January 15, 1997, the Operating Partnership purchased Summit Mayfaire
(formerly The Mayfaire), a 144 apartment community located in Raleigh, North
Carolina. Summit Mayfaire, built in 1995, was purchased for $9.65 million in
cash.
On February 20, 1997, the Operating Partnership purchased Summit Sand Lake
(formerly The Vining at Sand Lake), a 416 apartment community located in
Orlando, Florida. Summit Sand Lake, built in 1995, was purchased for $26.8
million. The Operating Partnership issued 194,495 Units in the Operating
Partnership to the seller, issued 243,608 Units to Summit Properties in exchange
for Summit Properties issuing 243,608 shares of Common Stock to the seller,
assumed $15.2 million in debt and paid the remaining $2.7 million balance in
cash.
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for the years 1996 and 1995 are as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues............................................ $21,430 $23,062 $24,771 $25,226
Income before extraordinary items................... 4,237 4,345 5,740 6,865
Extraordinary items................................. -- -- (626) --
Net income.......................................... 4,237 4,345 5,114 6,865
Income per unit:
Income before extraordinary items.............. 0.21 0.21 0.24 0.26
Net income..................................... 0.21 0.21 0.21 0.26
</TABLE>
F-17
<PAGE> 52
SUMMIT PROPERTIES PARTNERSHIP, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues............................................ $15,891 $17,872 $20,267 $20,964
Income before extraordinary items................... 2,804 3,345 4,479 4,423
Extraordinary items................................. -- (78) -- (461)
Net income.......................................... 2,804 3,267 4,479 3,962
Income per unit:
Income before extraordinary items.............. 0.19 0.20 0.22 0.22
Net income..................................... 0.19 0.19 0.22 0.19
</TABLE>
F-18
<PAGE> 53
SCHEDULE III
SUMMIT PROPERTIES PARTNERSHIP, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH
INITIAL COSTS COSTS CARRIED AT CLOSE OF PERIOD
------------------------------------------ CAPITALIZED ---------------------------------------
BUILDINGS SUBSEQUENT BUILDINGS
RELATED AND TO AND
COMMUNITY ENCUMBRANCES LAND IMPROVEMENTS(6) ACQUISITION LAND IMPROVEMENTS(6) TOTAL(1)
- -------------------------- ------------ ------- --------------- ----------- -------- --------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Atlanta, GA
Summit Glen............. $ (2) $ 3,652 $ -- $ 11,732 $ 3,693 $ 11,691 $ 15,384
Summit Springs.......... (2) 2,575 -- 11,974 2,667 11,882 14,549
Summit Village.......... (2) 3,212 -- 13,132 3,653 12,691 16,344
Charlotte, NC
Summit Arbors........... -- 780 5,066 33 780 5,099 5,879
Summit Charleston....... (2) 1,094 -- 6,129 1,095 6,128 7,223
Summit Creek............ -- 1,430 9,125 154 1,430 9,279 10,709
Summit Crossing......... 4,213 768 5,174 58 768 5,232 6,000
Summit Fairview......... -- 404 -- 4,299 536 4,167 4,703
Summit Foxcroft......... 2,788 925 3,797 178 925 3,975 4,900
Summit Green............ -- 1,970 -- 16,582 1,970 16,582 18,552
Summit Hollow I & II.... 4,873 1,470 7,463 290 1,472 7,751 9,223
Summit Norcroft......... (2) 1,072 -- 7,063 1,253 6,882 8,135
Summit Radbourne........ 8,683 1,395 12,607 53 1,395 12,660 14,055
Summit Simsbury......... (3) 650 4,570 58 650 4,628 5,278
Summit Touchstone....... (3) 766 5,568 77 766 5,645 6,411
Greenville, SC
Summit Beacon Ridge..... -- 1,053 -- 5,691 1,154 5,590 6,744
Summit East Ridge....... 5,156 900 6,303 97 910 6,390 7,300
Indianapolis, IN
Summit River Crossing... -- 2,562 -- 16,549 2,562 16,549 19,111
Ohio
Summit Blue Ash......... (2) 2,033 -- 11,712 2,170 11,575 13,745
Summit Park............. -- 1,680 -- 10,603 1,921 10,362 12,283
Orlando, FL
Summit Fairways......... -- 2,819 -- 14,849 2,819 14,849 17,668
Raleigh/Central, NC Summit
Creekside............... 2,877 414 3,614 35 414 3,649 4,063
Summit Eastchester...... 3,872 912 4,699 124 912 4,823 5,735
Summit Highland......... -- 1,374 -- 6,214 1,374 6,214 7,588
Summit Hill I........... -- 1,224 8,500 27 1,224 8,527 9,751
Summit Hill II.......... -- 1,474 -- 9,909 1,474 9,909 11,383
Summit Oak.............. 2,585 400 3,065 25 400 3,090 3,490
Summit Old Town......... 3,097 774 4,693 64 774 4,757 5,531
Summit Sherwood......... 3,329 1,102 4,863 46 1,106 4,905 6,011
Summit Square........... (2) 2,757 -- 14,986 3,775 13,968 17,743
Richmond, VA
Summit Breckenridge..... -- 812 -- 11,700 812 11,700 12,512
Summit Stony Point...... (4) 1,638 13,041 286 1,638 13,327 14,965
Summit Waterford........ (2) 1,568 -- 14,265 1,949 13,884 15,833
<CAPTION>
DEPRECIABLE
ACCUMULATED DATE OF DATE LIVES
COMMUNITY DEPRECIATION CONSTRUCTION ACQUIRED YEARS
- -------------------------- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C>
Atlanta, GA
Summit Glen............. $ (2,117) 5/90-8/92 4/90 5-40 years
Summit Springs.......... (3,225) 12/88-4/90 12/88 5-40 years
Summit Village.......... (2,921) 9/89-1/91 8/89 5-40 years
Charlotte, NC
Summit Arbors........... (318) 1986(5) 5/95 5-40 years
Summit Charleston....... (2,270) 10/85-12/86 7/85 5-40 years
Summit Creek............ (959) 1983(5) 9/94 5-40 years
Summit Crossing......... (342) 1985(5) 5/95 5-40 years
Summit Fairview......... (1,844) 3/82-3/83 3/82 5-40 years
Summit Foxcroft......... (288) 1979(5) 5/95 5-40 years
Summit Green............ (428) 1/95-6/96 12/94 5-40 years
Summit Hollow I & II.... (552) 1976(5) 5/95 5-40 years
Summit Norcroft......... (1,560) 2/90-3/91 12/89 5-40 years
Summit Radbourne........ (675) 1991(5) 5/95 5-40 years
Summit Simsbury......... (294) 1985(5) 5/95 5-40 years
Summit Touchstone....... (358) 1986(5) 5/95 5-40 years
Greenville, SC
Summit Beacon Ridge..... (1,713) 1/88-7/88 1/88 5-40 years
Summit East Ridge....... (388) 1986(5) 6/95 5-40 years
Indianapolis, IN
Summit River Crossing... (334) 3/95-9/96 10/94 5-40 years
Ohio
Summit Blue Ash......... (1,893) 1/92-5/92 1/91 5-40 years
Summit Park............. (2,998) 4/88-4/89 1/88 5-40 years
Orlando, FL
Summit Fairways......... (100) 9/95-12/96 8/95 5-40 years
Raleigh/Central, NC Summit
Creekside............... (258) 1981(5) 5/95 5-40 years
Summit Eastchester...... (356) 1981(5) 5/95 5-40 years
Summit Highland......... (2,270) 3/86-1/87 11/85 5-40 years
Summit Hill I........... (880) 1991(5) 6/94 5-40 years
Summit Hill II.......... (292) 11/94-6/96 6/94 5-40 years
Summit Oak.............. (220) 1982(5) 5/95 5-40 years
Summit Old Town......... (347) 1979(5) 5/95 5-40 years
Summit Sherwood......... (360) 1968(5) 5/95 5-40 years
Summit Square........... (3,138) 3/89-8/90 2/89 5-40 years
Richmond, VA
Summit Breckenridge..... (4,021) 7/85-5/87 6/85 5-40 years
Summit Stony Point...... (1,568) 1986(5) 2/94 5-40 years
Summit Waterford........ (3,229) 1/89-6/90 11/88 5-40 years
</TABLE>
F-19
<PAGE> 54
SCHEDULE III -- CONTINUED
SUMMIT PROPERTIES PARTNERSHIP, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH
INITIAL COSTS COSTS CARRIED AT CLOSE OF PERIOD
------------------------------------------ CAPITALIZED ---------------------------------------
BUILDINGS SUBSEQUENT BUILDINGS
RELATED AND TO AND
COMMUNITY ENCUMBRANCES LAND IMPROVEMENTS(6) ACQUISITION LAND IMPROVEMENTS(6) TOTAL(1)
- -------------------------- ------------ ------- --------------- ----------- -------- --------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
South Florida
Summit Aventura......... -- 6,367 -- 24,923 6,368 24,922 31,290
Summit Del Ray.......... (2) 3,120 -- 14,772 5,402 12,490 17,892
Summit Palm Lake........ (2) 4,949 -- 16,764 5,083 16,630 21,713
Summit Plantation....... -- 3,428 18,485 0 3,428 18,485 21,913
Tampa/Sarasota, FL
Summit Gateway.......... (4) 1,738 -- 10,235 2,256 9,717 11,973
Summit Hampton.......... (4) 2,577 -- 12,009 2,972 11,614 14,586
Summit Heron's Run...... (2) 3,154 -- 10,429 3,192 10,391 13,583
Summit Lofts............ -- 1,800 7,337 582 1,800 7,919 9,719
Summit McIntosh......... -- 1,862 -- 10,047 1,942 9,967 11,909
Summit Perico........... (2) 1,588 -- 11,616 2,174 11,030 13,204
Summit Providence....... (2) 3,043 -- 16,841 3,391 16,493 19,884
Summit Station.......... -- 1,688 -- 10,062 1,989 9,761 11,750
Summit Walk............. -- 568 237 5,392 983 5,214 6,197
Washington, DC
Summit Belmont.......... (4) 974 -- 10,944 984 10,934 11,918
Summit Meadow........... (2) 2,313 -- 8,397 2,539 8,171 10,710
Summit Pike Creek....... (4) 1,132 -- 10,895 1,259 10,768 12,027
Summit Reston........... -- 5,434 26,255 403 5,434 26,658 32,092
Summit Windsor.......... (2) 644 6,297 969 5,972 6,941
------- --------- --------- -------- --------- --------
Total............. $94,038 $ 154,462 $ 369,602 $102,606 $ 515,496 $618,102
======= ========= ========= ======== ========= ========
<CAPTION>
DEPRECIABLE
ACCUMULATED DATE OF DATE LIVES
COMMUNITY DEPRECIATION CONSTRUCTION ACQUIRED YEARS
- -------------------------- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C>
South Florida
Summit Aventura......... (965) 6/94-12/95 12/93 5-40 years
Summit Del Ray.......... (2,016) 1/92-2/93 1/92 5-40 years
Summit Palm Lake........ (3,196) 3/90-2/92 1/90 5-40 years
Summit Plantation....... (453) 1/94-7/95(5) 4/96 5-40 years
Tampa/Sarasota, FL
Summit Gateway.......... (2,856) 1/86-1/87 12/85 5-40 years
Summit Hampton.......... (4,089) 11/86-3/88 10/86 5-40 years
Summit Heron's Run...... (2,449) 7/89-10/90 6/89 5-40 years
Summit Lofts............ (835) 1990(5) 10/94 5-40 years
Summit McIntosh......... (2,514) 7/89-6/90 1/89 5-40 years
Summit Perico........... (2,687) 1/89-2/90 8/88 5-40 years
Summit Providence....... (4,168) 9/88-2/91 4/88 5-40 years
Summit Station.......... (2,074) 10/89-9/90 9/89 5-40 years
Summit Walk............. (665) 4/92-2/93 4/92 5-40 years
Washington, DC
Summit Belmont.......... (3,621) 1/86-5/87 1/86 5-40 years
Summit Meadow........... (2,025) 8/89-8/90 2/89 5-40 years
Summit Pike Creek....... (3,436) 11/86-2/88 4/86 5-40 years
Summit Reston........... (2,785) 1987(5) 4/94 5-40 years
Summit Windsor.......... (1,681) 8/88-8/89 3/95 5-40 years
--------
Total............. $(85,031)
========
</TABLE>
- ---------------
(1) The aggregate cost for federal income tax purposes at December 31, 1996 is
$559.0 million.
(2) Encumbered by fixed rate mortgages of $153 million.
(3) Encumbered by fixed rate mortgage of $8.6 million.
(4) Collateral for letters of credit in an aggregate amount of $55.6 million
which serve as collateral for $53.9 million in tax exempt bonds.
(5) Property purchased by Operating Partnership. Date reflects date construction
completed.
(6) Includes furniture, fixtures and equipment.
F-20
<PAGE> 55
SCHEDULE III
SUMMIT PROPERTIES PARTNERSHIP, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
A summary of activity for real estate assets and accumulated depreciation
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
REAL ESTATE ASSETS (1):
Balance at beginning of year.......................... $524,772 $407,707 $313,698
-------- -------- --------
Acquisitions.......................................... 21,913 82,935 75,921
Improvements.......................................... 4,780 2,560 1,710
Developments.......................................... 66,637 31,570 --
Step-up in basis and other costs related to Initial
Offering............................................ -- -- 16,378
-------- -------- --------
93,330 117,065 94,009
-------- -------- --------
Balance at end of year................................ $618,102 $524,772 $407,707
======== ======== ========
ACCUMULATED DEPRECIATION (1):
Balance at beginning of year.......................... $ 66,978 $ 51,957 $ 40,367
Depreciation.......................................... 18,053 15,021 11,590
-------- -------- --------
Balance at end of year................................ $ 85,031 $ 66,978 $ 51,957
======== ======== ========
</TABLE>
- ---------------
(1) Includes only apartment communities and does not include fixed assets used
in property development, construction and management of apartment
communities.
F-21
<PAGE> 56
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Charlotte, State of North Carolina on this 21st day of April, 1997.
SUMMIT PROPERTIES PARTNERSHIP, L.P.
By: Summit Properties Inc.
Its: General Partner
By: /s/ WILLIAM F. PAULSEN
----------------------------------
WILLIAM F. PAULSEN
President and Chief Executive
Officer
<PAGE> 57
EXHIBIT INDEX
<TABLE>
<S> <C>
3.1 Agreement of Limited Partnership of the Operating Partnership, as amended
10.1 Option and Transfer Agreement among the Management Company, William F. Paulsen
and the Operating Partnership*
10.2 Letter of Commitment to enter into the Mortgage Loan between the Operating
Partnership and The Northwestern Mutual Life Insurance Company*
10.2.1 Promissory Note**
10.2.2 Mortgage and Security Agreement and Financing Statement**
10.3 $31,000,000 Loan Agreement from Wachovia Bank of North Carolina, N.A.***
10.4 $150,000,000 Credit Agreement****
12.1 Calculation of Ratios of Earnings to Fixed Charges
21.1 List of Subsidiaries
27.1 Financial Data Schedule
</TABLE>
- ---------------
* Previously filed as an exhibit to Summit Properties' Registration Statement
on Form S-11, File
Number 33-72454.
** Previously filed as an exhibit to Summit Properties' Annual Report on Form
10-K for the fiscal year ended December 31, 1993.
*** Previously filed as an exhibit to Summit Properties' Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1996.
**** Previously filed as an exhibit to Summit Properties' Annual Report on Form
10-K for the fiscal year ended December 31, 1996.
<PAGE> 1
EXHIBIT 3.1
AGREEMENT OF LIMITED PARTNERSHIP
OF
SUMMIT PROPERTIES PARTNERSHIP, L.P.
January 29, 1994
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C>
ARTICLE 1 DEFINED TERMS................................................................................. 1
ARTICLE 2 ORGANIZATIONAL MATTERS........................................................................ 11
Section 2.1 Formation............................................................................ 11
Section 2.2 Name................................................................................. 12
Section 2.3 Registered Office and Agent; Principal Office........................................ 12
Section 2.4 Power of Attorney.................................................................... 12
Section 2.5 Term................................................................................. 14
ARTICLE 3 PURPOSE....................................................................................... 14
Section 3.1 Purpose and Business................................................................. 14
Section 3.2 Powers............................................................................... 14
ARTICLE 4 CAPITAL CONTRIBUTIONS......................................................................... 14
Section 4.1 Capital Contributions of the Partners................................................ 15
Section 4.2 Issuances of Additional Partnership Interests........................................ 15
Section 4.3 Contribution of Proceeds of Issuance of REIT Shares.................................. 16
Section 4.4 Preemptive Rights.................................................................... 16
ARTICLE 5 DISTRIBUTIONS................................................................................. 17
Section 5.1 Requirement and Characterization of Distributions.................................... 17
Section 5.2 Amounts Withheld..................................................................... 17
Section 5.3 Distributions Upon Liquidation....................................................... 18
ARTICLE 6 ALLOCATIONS................................................................................... 18
Section 6.1 Allocations For Capital Account Purposes............................................. 18
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 7 MANAGEMENT AND OPERATIONS OF BUSINESS......................................................... 19
Section 7.1 Management........................................................................... 19
Section 7.2 Certificate of Limited Partnership................................................... 23
Section 7.3 Restrictions on General Partner Authority............................................ 23
Section 7.4 Reimbursement of the General Partner and the Company................................. 23
Section 7.5 Outside Activities of the General Partner............................................ 24
Section 7.6 Contracts with Affiliates............................................................ 24
Section 7.7 Indemnification...................................................................... 25
Section 7.8 Liability of the General Partner..................................................... 27
Section 7.9 Other Matters Concerning the General Partner......................................... 27
Section 7.10 Title to Partnership Assets.......................................................... 28
Section 7.11 Reliance by Third Parties............................................................ 28
ARTICLE 8 RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS.................................................... 29
Section 8.1 Limitation of Liability.............................................................. 29
Section 8.2 Management of Business............................................................... 29
Section 8.3 Outside Activities of Limited Partners............................................... 29
Section 8.4 Return of Capital.................................................................... 30
Section 8.5 Rights of Limited Partners Relating to the Partnership............................... 30
Section 8.6 Redemption Right..................................................................... 31
ARTICLE 9 BOOKS, RECORDS, ACCOUNTING AND REPORTS........................................................ 32
Section 9.1 Records and Accounting............................................................... 32
Section 9.2 Fiscal Year.......................................................................... 33
Section 9.3 Reports.............................................................................. 33
ARTICLE 10 TAX MATTERS................................................................................... 33
Section 10.1 Preparation of Tax Returns........................................................... 33
Section 10.2 Tax Elections........................................................................ 34
Section 10.3 Tax Matters Partner.................................................................. 34
Section 10.4 Organizational Expenses.............................................................. 36
Section 10.5 Withholding.......................................................................... 36
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 11 TRANSFERS AND WITHDRAWALS..................................................................... 37
Section 11.1 Transfer............................................................................. 37
Section 11.2 Transfer of the Company's General Partner Interest and Limited Partner Interest...... 37
Section 11.3 Limited Partners' Rights to Transfer................................................. 37
Section 11.4 Substituted Limited Partners......................................................... 38
Section 11.5 Assignees............................................................................ 39
Section 11.6 General Provisions................................................................... 39
ARTICLE 12 ADMISSION OF PARTNERS......................................................................... 40
Section 12.1 Admission of Successor General Partner............................................... 40
Section 12.2 Admission of Additional Limited Partners............................................. 40
Section 12.3 Amendment of Agreement and Certificate of Limited Partnership........................ 41
ARTICLE 13 DISSOLUTION, LIQUIDATION AND TERMINATION...................................................... 41
Section 13.1 Dissolution.......................................................................... 41
Section 13.2 Winding Up........................................................................... 42
Section 13.3 Compliance with Timing Requirements of Regulations................................... 44
Section 13.4 Deemed Distribution and Recontribution............................................... 44
Section 13.5 Rights of Limited Partners........................................................... 45
Section 13.6 Notice of Dissolution................................................................ 45
Section 13.7 Termination of Partnership and Cancellation of Certificate of Limited
Partnership.......................................................................... 45
Section 13.8 Reasonable Time for Winding-Up....................................................... 45
Section 13.9 Waiver of Partition.................................................................. 45
ARTICLE 14 AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS.................................................. 45
Section 14.1 Amendments........................................................................... 45
Section 14.2 Meetings of the Partners............................................................. 47
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 15 GENERAL PROVISIONS............................................................................ 48
Section 15.1 Addresses and Notice................................................................. 48
Section 15.2 Titles and Captions.................................................................. 48
Section 15.3 Pronouns and Plurals................................................................. 48
Section 15.4 Further Action....................................................................... 49
Section 15.5 Binding Effect....................................................................... 49
Section 15.6 Creditors............................................................................ 49
Section 15.7 Waiver............................................................................... 49
Section 15.8 Counterparts......................................................................... 49
Section 15.9 Applicable Law....................................................................... 49
Section 15.10 Invalidity of Provisions............................................................. 49
Section 15.11 Entire Agreement..................................................................... 50
Section 15.12 Guaranty by the Company.............................................................. 50
</TABLE>
(iv)
<PAGE> 6
EXHIBITS
- --------
Exhibit A - Partners Contributions and Partnership Interests
Exhibit B - Capital Account Maintenance
Exhibit C - Special Allocation Rules
Exhibit D - Value of Contributed Property
Exhibit E - Notice of Redemption
(v)
<PAGE> 7
AGREEMENT OF LIMITED PARTNERSHIP
OF
SUMMIT PROPERTIES PARTNERSHIP, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP OF SUMMIT PROPERTIES PARTNERSHIP,
L.P. (this "Agreement"), dated as of January 29, 1994, is entered into by and
among Summit Properties Inc. (the "Company") and the Persons (as defined below)
whose names are set forth on EXHIBIT A as attached hereto (as it may be amended
from time to time).
WHEREAS, the Company and the Persons whose names are set forth on
EXHIBIT A, as attached hereto, desire to form a limited partnership under the
laws of the State of Delaware; and
WHEREAS, the Company and the Persons whose names are set forth on
EXHIBIT A, as attached hereto, will make certain capital contributions in
forming this partnership;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, and other valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto form Summit Properties
Partnership, L.P., a Delaware limited partnership (the "Partnership"), and do
hereby agree as follows:
ARTICLE 1
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"ACT" means the Delaware Revised Uniform Limited Partnership Act, as it
may be amended from time to time, and any successor to such statute.
"ADDITIONAL LIMITED PARTNER" means a Person admitted to the Partnership
as a Limited Partner pursuant to Section 4.2 hereof and who is shown as such on
the books and records of the Partnership.
"ADJUSTED CAPITAL ACCOUNT" means the Capital Account maintained for
each Partner as of the end of each Partnership taxable year (i) increased by any
amounts which such Partner is obligated to restore pursuant to any provision of
this Agreement or is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5);
and (ii) decreased by the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
<PAGE> 8
"ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any Partner,
the deficit balance, if any, in such Partner's Adjusted Capital Account as of
the end of the relevant Partnership taxable year.
"ADJUSTED PROPERTY" means any property, the Carrying Value of which has
been adjusted pursuant to EXHIBIT B hereof. Once an Adjusted Property is deemed
distributed by, and recontributed to, the Partnership for federal income tax
purposes upon a termination thereof pursuant to Section 708 of the Code, such
property shall thereafter constitute a Contributed Property until the Carrying
Value of such property is further adjusted pursuant to EXHIBIT B hereof.
"AFFILIATE" means, with respect to any Person, (i) any Person directly
or indirectly controlling, controlled by or under common control with such
Person; (ii) any Person owning or controlling ten percent (10%) or more of the
outstanding voting interests of such Person; (iii) any Person of which such
Person owns or controls ten percent (10%) or more of the voting interests; or
(iv) any officer, director, general partner or trustee of such Person or of any
Person referred to in clauses (i), (ii), and (iii) above.
"AGREED VALUE" means (i) in the case of any Contributed Property set
forth in EXHIBIT D and as of the time of its contribution to the Partnership,
the Agreed Value of such property as set forth in EXHIBIT D; (ii) in the case of
any Contributed Property not set forth in EXHIBIT D and as of the time of its
contribution to the Partnership, the 704(c) Value of such property, reduced by
any liabilities either assumed by the Partnership upon such contribution or to
which such property is subject when contributed; and (iii) in the case of any
property distributed to a Partner by the Partnership, the Partnership's Carrying
Value of such property at the time such property is distributed, reduced by any
indebtedness either assumed by such Partner upon such distribution or to which
such property is subject at the time of distribution as determined under Section
752 of the Code and the Regulations thereunder.
"AGREEMENT" means this Agreement of Limited Partnership, as it may be
amended, supplemented or restated from time to time.
"ARTICLES OF INCORPORATION" means the Articles of Incorporation of
Summit Properties Inc. filed in the State of Maryland on January 13, 1994, as
amended and restated from time to time.
"ASSIGNEE" means a Person to whom one or more Partnership Units have
been transferred in a manner permitted under this Agreement, but who has not
become a Substituted Limited Partner, and who has the rights set forth in
Section 11.5.
2
<PAGE> 9
"AVAILABLE CASH" means, with respect to any period for which such
calculation is being made, (i) the sum of:
(a) the Partnership's Net Income or Net Loss (as the case may
be) for such period (without regard to adjustments resulting from
allocations described in Sections 1.A through 1.E of EXHIBIT C);
(b) Depreciation and all other noncash charges deducted in
determining Net Income or Net Loss for such period;
(c) the amount of any reduction in the reserves of the
Partnership referred to in clause (ii)(f) below (including, without
limitation, reductions resulting because the General Partner determines
such amounts are no longer necessary);
(d) the excess of proceeds from the sale, exchange,
disposition, or refinancing of Partnership property for such period
over the gain recognized from such sale, exchange, disposition, or
refinancing during such period (excluding Terminating Capital
Transactions); and
(e) all other cash received by the Partnership for such period
that was not included in determining Net Income or Net Loss for such
period;
(ii) less the sum of:
(a) all principal debt payments made by the Partnership during
such period;
(b) capital expenditures made by the Partnership during such
period;
(c) investments made by the Partnership during such period in
any entity (including loans made thereto) to the extent that such
investments are not otherwise described in clause (ii)(a) or (ii)(b);
(d) all other expenditures and payments not deducted in
determining Net Income or Net Loss for such period;
(e) any amount included in determining Net Income or Net Loss
for such period that was not received by the Partnership during such
period;
(f) the amount of any increase in reserves during such period
which the General Partner determines to be necessary or appropriate in
its sole and absolute discretion; and
3
<PAGE> 10
(g) the amount of any working capital accounts and other cash
or similar balances which the General Partner determines to be
necessary or appropriate, in its sole and absolute discretion.
Notwithstanding the foregoing, Available Cash shall not include any
cash received or reductions in reserves, or take into account any disbursements
made or reserves established, after commencement of the dissolution and
liquidation of the Partnership.
"BOOK-TAX DISPARITIES" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all of
its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to EXHIBIT B and the hypothetical balance of such Partner's Capital Account
computed as if it had been maintained strictly in accordance with federal income
tax accounting principles.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in New York, New York are authorized or required by law
to close.
"CAPITAL ACCOUNT" means the Capital Account maintained for a Partner
pursuant to EXHIBIT B hereof.
"CAPITAL CONTRIBUTION" means, with respect to any Partner, any cash,
cash equivalents or the Agreed Value of Contributed Property which such Partner
contributes or is deemed to contribute to the Partnership pursuant to Section
4.1, 4.2, or 4.3 hereof.
"CARRYING VALUE" means (i) with respect to a Contributed Property or
Adjusted Property, the 704(c) Value of such property, reduced (but not below
zero) by all Depreciation with respect to such Property charged to the Partners'
Capital Accounts following the contribution of or adjustment with respect to
such Property; and (ii) with respect to any other Partnership property, the
adjusted basis of such property for federal income tax purposes, all as of the
time of determination. The Carrying Value of any property shall be adjusted from
time to time in accordance with EXHIBIT B hereof, and to reflect changes,
additions or other adjustments to the Carrying Value for dispositions and
acquisitions of Partnership properties, as deemed appropriate by the General
Partner.
"CASH AMOUNT" means an amount of cash per Partnership Unit equal to the
Value on the Valuation Date of the REIT Shares Amount.
"CERTIFICATE" means the Certificate of Limited Partnership relating to
the Partnership to be filed simultaneously herewith in the office of the
Delaware Secretary of State, as amended from time to time in accordance with the
terms hereof and the Act.
4
<PAGE> 11
"CODE" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, as interpreted by the applicable regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provision of future
law.
"CONSENT" means the consent or approval of a proposed action by a
Partner given in accordance with Section 14.2 hereof.
"CONTRIBUTED PROPERTY" means each property or other asset, in such form
as may be permitted by the Act (but excluding cash), contributed or deemed
contributed to the Partnership (including deemed contributions to the
Partnership on termination and reconstitution thereof pursuant to Section 708 of
the Code). Once the Carrying Value of a Contributed Property is adjusted
pursuant to EXHIBIT B hereof, such property shall no longer constitute a
Contributed Property for purposes of EXHIBIT B hereof, but shall be deemed an
Adjusted Property for such purposes.
"CONVERSION FACTOR" means 1.0, PROVIDED THAT in the event that the
Company (i) declares or pays a dividend on its outstanding REIT Shares in REIT
Shares or makes a distribution to all holders of its outstanding REIT Shares in
REIT Shares; (ii) subdivides its outstanding REIT Shares; or (iii) combines its
outstanding REIT Shares into a smaller number of REIT Shares, the Conversion
Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the
numerator of which shall be the number of REIT Shares issued and outstanding on
the record date for such dividend, distribution, subdivision or combination
assuming for such purpose that such dividend, distribution, subdivision or
combination has occurred as of such time, and the denominator of which shall be
the actual number of REIT Shares (determined without the above assumption)
issued and outstanding on the record date for such dividend, distribution,
subdivision or combination. Any adjustment to the Conversion Factor shall become
effective immediately after the effective date of such event retroactive to the
record date, if any, for such event.
"DEPRECIATION" means, for each taxable year, an amount equal to the
federal income tax depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such year, except that if the Carrying
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Carrying Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year bears to such beginning adjusted tax basis; PROVIDED, however,
that if the federal income tax depreciation, amortization, or other cost
recovery deduction for such year is zero, Depreciation shall be determined with
reference to such beginning Carrying Value using any reasonable method selected
by the General Partner.
"EFFECTIVE DATE" means the date of closing of the initial public
offering of REIT Shares pursuant to that certain purchase agreement among the
Company and Morgan Stanley & Co.
5
<PAGE> 12
Incorporated, Prudential Securities Incorporated, Robinson-Humphrey Company,
Inc. and Interstate/Johnson Lane, as representatives of the underwriters.
"GENERAL PARTNER" means the Company, in its capacity as the general
partner of the Partnership, or its successors as general partner of the
Partnership.
"GENERAL PARTNER INTEREST" means a Partnership Interest held by the
General Partner, in its capacity as general partner. A General Partner Interest
may be expressed as a number of Partnership Units.
"IRS" means the Internal Revenue Service, which administers the
internal revenue laws of the United States.
"IMMEDIATE FAMILY" means, with respect to any natural Person, such
natural Person's spouse and such natural Person's natural or adoptive parents,
descendants, nephews, nieces, brothers, and sisters.
"INCAPACITY" or "INCAPACITATED" means, (i) as to any individual
Partner, death, total physical disability or entry by a court of competent
jurisdiction adjudicating him incompetent to manage his Person or his estate;
(ii) as to any corporation which is a Partner, the filing of a certificate of
dissolution, or its equivalent, for the corporation or the revocation of its
charter; (iii) as to any partnership which is a Partner, the dissolution and
commencement of winding up of the partnership; (iv) as to any estate which is a
Partner, the distribution by the fiduciary of the estate's entire interest in
the Partnership; (v) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee); or (vi) as
to any Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief under any bankruptcy, insolvency or other similar law now or hereafter in
effect; (b) the Partner is adjudged as bankrupt or insolvent, or a final and
nonappealable order for relief under any bankruptcy, insolvency or similar law
now or hereafter in effect has been entered against the Partner; (c) the Partner
executes and delivers a general assignment for the benefit of the Partner's
creditors; (d) the Partner files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against the
Partner in any proceeding of the nature described in clause (b) above; (e) the
Partner seeks, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for the Partner or for all or any substantial part of the
Partner's properties; (f) any proceeding seeking liquidation, reorganization or
other relief of or against such Partner under any bankruptcy, insolvency or
other similar law now or hereafter in effect has not been dismissed within one
hundred twenty (120) days after the commencement thereof; (g) the appointment
without the Partner's consent or acquiescence of a trustee, receiver or
liquidator has not been vacated or stayed within ninety (90) days of such
appointment; or (h) an appointment referred to in clause (g) which has been
stayed is not vacated within ninety (90) days after the expiration of any such
stay.
6
<PAGE> 13
"INDEMNITEE" means (i) any Person made a party to a proceeding by
reason of (A) his status as the General Partner, or as a director, trustee or
officer of the Partnership or the General Partner, or (B) his or its
liabilities, pursuant to a loan guarantee or otherwise, for any indebtedness of
the Partnership or any Subsidiary of the Partnership (including, without
limitation, any indebtedness which the Partnership or any Subsidiary of the
Partnership has assumed or taken assets subject to); and (ii) such other Persons
(including Affiliates of the General Partner or the Partnership) as the General
Partner may designate from time to time (whether before or after the event
giving rise to potential liability), in its sole and absolute discretion.
"LIMITED PARTNER" means the Company and any other Person named as a
Limited Partner in EXHIBIT A attached hereto, as such Exhibit may be amended
from time to time, or any Substituted Limited Partner or Additional Limited
Partner, in such Person's capacity as a Limited Partner of the Partnership.
"LIMITED PARTNER INTEREST" means a Partnership Interest of a Limited
Partner in the Partnership representing a fractional part of the Partnership
Interests of all Partners and includes any and all benefits to which the holder
of such a Partnership Interest may be entitled, as provided in this Agreement,
together with all obligations of such Person to comply with the terms and
provisions of this Agreement. A Limited Partner Interest may be expressed as a
number of Partnership Units.
"LIQUIDATING EVENT" has the meaning set forth in Section 13.1.
"LIQUIDATOR" has the meaning set forth in Section 13.2.
"NET INCOME" means, for any taxable period, the excess, if any, of the
Partnership's items of income and gain for such taxable period over the
Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
federal income tax accounting principles, subject to the specific adjustments
provided for in EXHIBIT B.
"NET LOSS" means, for any taxable period, the excess, if any, of the
Partnership's items of loss and deduction for such taxable period over the
Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
federal income tax accounting principles, subject to the specific adjustments
provided for in EXHIBIT B.
"NONRECOURSE BUILT-IN GAIN" means, with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or negative
pledge securing a Nonrecourse Liability, the amount of any taxable gain that
would be allocated to the Partners pursuant to Section 2.B of EXHIBIT C if such
properties were disposed of in a taxable transaction in full satisfaction of
such liabilities and for no other consideration.
7
<PAGE> 14
"NONRECOURSE DEDUCTIONS" has the meaning set forth in Regulations
Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a
Partnership taxable year shall be determined in accordance with the rules of
Regulations Section 1.704-2(c).
"NONRECOURSE LIABILITY" has the meaning set forth in Regulations
Section 1.752-1(a)(2).
"NOTICE OF REDEMPTION" means the Notice of Redemption substantially in
the form of EXHIBIT E to this Agreement.
"PARTNER" means a General Partner or a Limited Partner, and "PARTNERS"
means the General Partner and the Limited Partners collectively.
"PARTNER MINIMUM GAIN" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"PARTNER NONRECOURSE DEBT" has the meaning set forth in Regulations
Section 1.704-2(b)(4).
"PARTNER NONRECOURSE DEDUCTIONS" has the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership taxable
year shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
"PARTNERSHIP" means the limited partnership formed under the Act and
pursuant to this Agreement, as it may be amended and restated, and any successor
thereto.
"PARTNERSHIP INTEREST" means an ownership interest in the Partnership
representing a Capital Contribution by either a Limited Partner or the General
Partner and includes any and all benefits to which the holder of such a
Partnership Interest may be entitled as provided in this Agreement, together
with all obligations of such Person to comply with the terms and provisions of
this Agreement. A Partnership Interest may be expressed as a number of
Partnership Units.
"PARTNERSHIP MINIMUM GAIN" has the meaning set forth in Regulations
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or decrease in a Partnership Minimum Gain, for a Partnership
taxable year shall be determined in accordance with the rules of Regulations
Section 1.704-2(d).
"PARTNERSHIP RECORD DATE" means the record date established by the
General Partner for the distribution of Available Cash pursuant to Section 5.1
hereof, which record date shall
8
<PAGE> 15
be the same as the record date established by the Company for a distribution to
its shareholders of some of all of its portion of such distribution.
"PARTNERSHIP UNIT" means a fractional, undivided share of the
Partnership Interests of all Partners issued pursuant to Sections 4.1, 4.2 and
4.3. The number of Partnership Units outstanding and the Percentage Interest in
the Partnership represented by such Units are set forth in EXHIBIT A attached
hereto, as such Exhibit may be amended from time to time. The ownership of
Partnership Units shall be evidenced by such form of certificate for units as
the General Partner adopts from time to time unless the General Partner
determines that the Partnership Units shall be uncertificated securities.
"PARTNERSHIP YEAR" means the fiscal year of the Partnership, which
shall be the calendar year.
"PERCENTAGE INTEREST" means, as to a Partner, its interest in the
Partnership as determined by dividing the Partnership Units owned by such
Partner by the total number of Partnership Units then outstanding and as
specified in EXHIBIT A attached hereto, as such Exhibit may be amended from time
to time.
"PERSON" means an individual or a corporation, partnership, trust,
unincorporated organization, association or other entity.
"RECAPTURE INCOME" means any gain recognized by the Partnership upon
the disposition of any property or asset of the Partnership, which gain is
characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.
"REDEEMING PARTNER" has the meaning set forth in Section 8.6 hereof.
"REDEMPTION RIGHT" shall have the meaning set forth in Section 8.6
hereof.
"REGULATIONS" means the Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"REIT" means a real estate investment trust under Section 856 of the
Code.
"REIT SHARE" shall mean a share of common stock of the Company, par
value $.01 per share.
"REIT SHARES AMOUNT" shall mean a number of REIT Shares equal to the
product of the number of Partnership Units offered for redemption by a Redeeming
Partner, multiplied by the Conversion Factor, PROVIDED THAT in the event the
Company issues to all holders of REIT
9
<PAGE> 16
Shares rights, options, warrants or convertible or exchangeable securities
entitling the shareholders to subscribe for or purchase REIT Shares, or any
other securities or property (collectively, the "rights"), then the REIT Shares
Amount shall also include such rights that a holder of that number of REIT
Shares would be entitled to receive.
"RESIDUAL GAIN" or "RESIDUAL LOSS" means any item of gain or loss, as
the case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of Contributed Property or
Adjusted Property, to the extent such item of gain or loss is not allocated
pursuant to Section 2.B.1(a) or 2.B.2(a) of EXHIBIT C to eliminate Book-Tax
Disparities.
"704(c) VALUE" of any Contributed Property means the value of such
property as set forth in EXHIBIT D, or if no value is set forth in EXHIBIT D,
the fair market value of such property or other consideration at the time of
contribution, as determined by the General Partner using such reasonable method
of valuation as it may adopt; PROVIDED, HOWEVER, that the 704(c) Value of any
property deemed contributed to the Partnership for federal income tax purposes
upon termination and reconstitution thereof pursuant to Section 708 of the Code
shall be determined in accordance with EXHIBIT B hereof. Subject to EXHIBIT B
hereof, the General Partner shall, in its sole and absolute discretion, use such
method as it deems reasonable and appropriate to allocate the aggregate of the
704(c) Values of Contributed Properties in a single or integrated transaction
among the separate properties on a basis proportional to their respective fair
market values.
"SPECIFIED REDEMPTION DATE" means the tenth (10TH) Business Day after
receipt by the Company of a Notice of Redemption; PROVIDED THAT no Specified
Redemption Date shall occur before one (1) year from the date of this Agreement,
PROVIDED FURTHER that if the Company combines its outstanding REIT Shares, no
Specified Redemption Date shall occur after the record date of such combination
of REIT Shares and prior to the effective date of such combination.
"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership or other entity of which a majority of (i) the voting power of the
voting equity securities; or (ii) the outstanding equity interests, is owed,
directly or indirectly, by such Person.
"SUBSTITUTED LIMITED PARTNER" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 11.4.
"TERMINATING CAPITAL TRANSACTION" means any sale or other disposition
of all or substantially all of the assets of the Partnership or a related series
of transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.
10
<PAGE> 17
"UNREALIZED GAIN" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (i) the fair
market value of such property (as determined under EXHIBIT B hereof) as of such
date; over (ii) the Carrying Value of such property (prior to any adjustment to
be made pursuant to EXHIBIT B hereof) as of such date.
"UNREALIZED LOSS" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (i) the Carrying
Value of such property (prior to any adjustment to be made pursuant to EXHIBIT B
hereof) as of such date; over (ii) the fair market value of such property (as
determined under EXHIBIT B hereof) as of such date.
"VALUATION DATE" means the date of receipt by the General Partner of a
Notice of Redemption or, if such date is not a Business Day, the first Business
Day thereafter.
"VALUE" means, with respect to a REIT Share, the average of the daily
market price for the ten (10) consecutive trading days immediately preceding the
Valuation Date. The market price for each such trading day shall be: (i) if the
REIT Shares are listed or admitted to trading on any securities exchange or the
NASDAQ-National Market System, the closing price on such day, or if no such sale
takes place on such day, the average of the closing bid and asked prices on such
day; (ii) if the REIT Shares are not listed or admitted to trading on any
securities exchange or the NASDAQ-National Market System, the last reported sale
price on such day or, if no sale takes place on such day, the average of the
closing bid and asked prices on such day, as reported by a reliable quotation
source designated by the General Partner; or (iii) if the REIT Shares are not
listed or admitted to trading on any securities exchange or the NASDAQ-National
Market System and no such last reported sale price or closing bid and asked
prices are available, the average of the reported high bid and low asked prices
on such day, as reported by a reliable quotation source designated by the
General Partner, or if there shall be no bid and asked prices on such day, the
average of the high bid and low asked prices, as so reported, on the most recent
day (not more than ten (10) days prior to the date in question) for which prices
have been so reported; PROVIDED THAT if there are no bid and asked prices
reported during the ten (10) days prior to the date in question, the Value of
the REIT Shares shall be determined by the General Partner acting in good faith
on the basis of such quotations and other information as it considers, in its
reasonable judgment, appropriate. In the event the REIT Shares Amount includes
rights that a holder of REIT Shares would be entitled to receive, then the Value
of such rights shall be determined by the General Partner acting in good faith
on the basis of such quotations and other information as it considers, in its
reasonable judgment, appropriate.
ARTICLE 2
ORGANIZATIONAL MATTERS
Section 2.1 Formation
---------
11
<PAGE> 18
The Partners hereby form a limited partnership under and pursuant to
the Act. Except as expressly provided herein to the contrary, the rights and
obligations of the Partners and the administration and termination of the
Partnership shall be governed by the Act. The Partnership Interest of each
Partner shall be personal property for all purposes.
Section 2.2 Name
----
The name of the Partnership shall be Summit Properties Partnership,
L.P. The Partnership's business may be conducted under any other name or names
deemed advisable by the General Partner, including the name of the General
Partner or any Affiliate thereof. The words "Limited Partnership," "L.P.,"
"Ltd." or similar words or letters shall be included in the Partnership's name
where necessary for the purposes of complying with the laws of any jurisdiction
that so requires. The General Partner in its sole and absolute discretion may
change the name of the Partnership at any time and from time to time and shall
notify the Limited Partners of such change in the next regular communication to
the Limited Partners.
Section 2.3 Registered Office and Agent; Principal Office
---------------------------------------------
The address of the registered office of the Partnership in the State of
Delaware and the name and address of the registered agent for service of process
on the Partnership in the State of Delaware is The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. The
principal office of the Partnership shall be 212 South Tryon Street, Suite 500,
Charlotte, North Carolina 28281, or such other place as the General Partner may
from time to time designate by notice to the Limited Partners. The Partnership
may maintain offices at such other place or places within or outside the State
of Delaware as the General Partner deems advisable.
Section 2.4 Power of Attorney
-----------------
A. Each Limited Partner and each Assignee hereby constitutes and
appoints the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, and each of those acting singly, in each case with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead to:
(1) execute, swear to, acknowledge, deliver, file and
record in the appropriate public offices (a) all
certificates, documents and other instruments
(including, without limitation, this Agreement and
the Certificate and all amendments or restatement
thereof) that the General Partner or the Liquidator
deems appropriate or necessary to form, qualify or
continue the existence or qualification of the
Partnership as a limited partnership (or a
partnership in which the Limited Partners have
limited liability) in the State of Delaware and in
all other jurisdictions in which the Partnership may
or plans to conduct business or own property;
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(b) all instruments that the General Partner deems
appropriate or necessary to reflect any amendment,
change, modification or restatement of this Agreement
in accordance with its terms; (c) all conveyances and
other instruments or documents that the General
Partner or the Liquidator deems appropriate or
necessary to reflect the dissolution and liquidation
of the Partnership pursuant to the terms of this
Agreement, including, without limitation, a
certificate of cancellation; (d) all instruments
relating to the admission, withdrawal, removal or
substitution of any Partner pursuant to, or other
events described in, Article 11, 12 or 13 hereof or
the Capital Contribution of any Partner; and (e) all
certificates, documents and other instruments
relating to the determination of the rights,
preferences and privileges of Partnership Interest;
and
(2) execute, swear to, seal, acknowledge and file all
ballots, consents, approvals, waivers, certificates
and other instruments appropriate or necessary, in
the sole and absolute discretion of the General
Partner or any Liquidator, to make, evidence, give,
confirm or ratify any vote, consent, approval,
agreement or other action which is made or given by
the Partners hereunder or is consistent with the
terms of this agreement or appropriate or necessary,
in the sole discretion of the General Partner or any
Liquidator, to effectuate the terms or intent of this
Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
or any Liquidator to amend this Agreement except in accordance with Article 14
hereof or as may be otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to be irrevocable
and a power coupled with an interest, in recognition of the fact that each of
the Partners will be relying upon the power of the General Partner and any
Liquidator to act as contemplated by this agreement in any filing or other
action by it on behalf of the Partnership, and it shall survive and not be
affected by the subsequent Incapacity of any Limited Partner or Assignee and the
transfer of all or any portion of such Limited Partner's or Assignee's
Partnership Units and shall extend to such Limited Partner's or Assignee's
heirs, successors, assigns and personal representatives. Each such Limited
Partner or Assignee hereby agrees to be bound by any representation made by the
General Partner or any Liquidator, acting in good faith pursuant to such power
of attorney, and each such Limited Partner or Assignee hereby waives any and all
defenses which may be available to contest, negate or disaffirm the action of
the General Partner or any Liquidator, taken in good faith under such power of
attorney. Each Limited Partner or Assignee shall execute and deliver to the
General Partner or the Liquidator, within fifteen (15) days after receipt of the
General Partner's or Liquidator's request therefor, such further designation,
powers of attorney and other instruments as the General Partner or
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<PAGE> 20
the Liquidator, as the case may be, deems necessary to effectuate this Agreement
and the purposes of the Partnership.
Section 2.5 Term
----
The term of the Partnership shall commence on the date hereof and shall
continue until December 31, 2093, unless, the Partnership is dissolved sooner
pursuant to the provisions of Article 13 or as otherwise provided by law.
ARTICLE 3
PURPOSE
Section 3.1 Purpose and Business
--------------------
The purpose and nature of the business to be conducted by the
Partnership is (i) to conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Act; PROVIDED, HOWEVER, that such
business shall be limited to and conducted in such a manner as to permit the
Company at all times to be classified as a REIT, unless the Company ceases to
qualify as a REIT for reasons other than the conduct of the business of the
Partnership; (ii) to enter into any partnership, joint venture or other similar
arrangement to engage in any of the foregoing or to own interests in any entity
engaged in any of the foregoing; and (iii) to do anything necessary or
incidental to the foregoing. In connection with the foregoing, and without
limiting the Company's right, in its sole discretion, to cease qualifying as a
REIT, the Partners acknowledge the Company's current status as a REIT inures to
the benefit of all of the Partners and not solely the General Partner.
Section 3.2 Powers
------
The Partnership is empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership; PROVIDED, HOWEVER, that the
Partnership shall not take, or refrain from taking, any action which, in the
judgment of the General Partner, in its sole and absolute discretion, (i) could
adversely affect the ability of the Company to continue to qualify as a REIT;
(ii) could subject the Company to any additional taxes under Section 857 or
Section 4981 of the Code; or (iii) could violate any law or regulation of any
governmental body or agency having jurisdiction over the Company or its
securities, unless such action (or inaction) shall have been specifically
consented to by the General Partner in writing.
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ARTICLE 4
CAPITAL CONTRIBUTIONS
Section 4.1 Capital Contributions of the Partners
-------------------------------------
At the time of the execution of this agreement, the Partners shall make
the Capital Contributions set forth in EXHIBIT A to this Agreement. To the
extent the Partnership acquires any property by the merger of any other Person
into the Partnership, Persons who receive Partnership Interests in exchange for
their interests in the Person merging into the Partnership shall become Partners
and shall be deemed to have made Capital Contributions as provided in the
applicable merger agreement and as set forth in EXHIBIT A, as amended to reflect
such deemed Capital Contributions. The Partners shall own Partnership Units in
the amounts set forth for such Partner in EXHIBIT A and shall have a Percentage
Interest in the Partnership as set forth in EXHIBIT A, which Percentage Interest
shall be adjusted in EXHIBIT A from time to time by the General Partner to the
extent necessary to reflect accurately redemptions, additional Capital
Contributions, the issuance of additional Partnership Units (pursuant to any
merger or otherwise), or similar events having an effect on any Partner's
Percentage Interest. The number of Partnership Units held by the General
Partner, in its capacity as general partner, (equal to one percent (1%) of all
outstanding Partnership Units from time to time) shall be deemed to be the
General Partner Interest. Except as provided in Sections 4.2 and 10.5, the
Partners shall have no obligation to make any additional Capital Contributions
or loans to the Partnership.
Section 4.2 Issuances of Additional Partnership Interests
---------------------------------------------
A. The General Partner is hereby authorized to cause the Partnership
from time to time to issue to the Partners (including the General Partner) or
other Persons additional Partnership Units or other Partnership Interests in one
or more classes, or one or more series of any of such classes, with such
designations, preferences and relative, participating, optional or other special
rights, powers and duties, including rights, powers and duties senior to Limited
Partner Interests, all as shall be determined by the General Partner in its sole
and absolute discretion subject to Delaware law, including, without limitation,
(i) the allocations of items of Partnership income, gain, loss, deduction and
credit to each such class or series of Partnership Interests; (ii) the right of
each such class or series of Partnership Interests to share in Partnership
distributions; and (iii) the rights of each such class or series of Partnership
Interests upon dissolution and liquidation of the Partnership; PROVIDED THAT no
such additional Partnership Units or other Partnership Interests shall be issued
to the Company, as the General Partner or a Limited Partner, unless either
(a)(1) the additional Partnership Interests are issued in connection with an
issuance of REIT Shares or other shares by the Company, which shares have
designations, preferences and other rights such that the economic interests
attributable to such shares are substantially similar to the designations,
preferences and other rights of the additional Partnership Interests issued to
the Company in accordance with this Section 4.2.A, and (2) the Company shall
make a Capital Contribution to the Partnership in an amount equal
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<PAGE> 22
to the proceeds raised in connection with such issuance, or (b) the additional
Partnership Interests are issued to all Partners in proportion to their
respective Percentage Interests.
B. After the initial public offering of REIT Shares, the Company shall
not issue any additional REIT Shares (other than REIT Shares issued pursuant to
Section 8.6), or rights, options, warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase REIT Shares
(collectively "NEW SECURITIES") other than to all holders of REIT Shares unless
(i) the General Partner shall cause the Partnership to issue to the Company,
Partnership Interests or rights, options, warrants or convertible or
exchangeable securities of the Partnership having designations, preferences and
other rights, all such that the economic interests are substantially similar to
those of the New Securities; and (ii) the Company contributes to the Partnership
the proceeds from the issuance of such New Securities and from the exercise of
rights contained in such New Securities. Without limiting the foregoing, the
Company is expressly authorized to issue New Securities for less than fair
market value, and the General Partner is expressly authorized to cause the
Partnership to issue to the Company corresponding Partnership Interests, so long
as (x) the General Partner concludes in good faith that such issuance is in the
interests of the Company and the Partnership (for example, and not by way of
limitation, the issuance of REIT Shares and corresponding Units pursuant to an
employee stock purchase plan providing for employee purchases of REIT Shares at
a discount from fair market value or employee stock options that have an
exercise price that is less than the fair market value of the REIT Shares,
either at the time of issuance or at the time of exercise); and (y) the Company
contributes all proceeds from such issuance and exercise to the Partnership.
Section 4.3 Contribution of Proceeds of Issuance of REIT Shares
---------------------------------------------------
In connection with the initial public offering of REIT Shares by the
Company and any other issuance of REIT Shares or New Securities pursuant to
Section 4.2, the Company shall contribute to the Partnership any proceeds (or a
portion thereof) raised in connection with such issuance; PROVIDED THAT if the
proceeds actually received by the Company are less than the gross proceeds of
such issuance as a result of any underwriter's discount or other expenses paid
or incurred in connection with such issuance, then the Company shall be deemed
to have made a Capital Contribution to the Partnership in the amount equal to
the sum of the net proceeds of such issuance plus the amount of such
underwriter's discount and other expenses paid by the Company.
Section 4.4 Preemptive Rights
-----------------
Except as otherwise provided in this Section 4.4, no Person shall have
any preemptive, preferential or other similar right with respect to (i)
additional Capital Contributions or loans to the Partnership; or (ii) issuance
or sale of any Partnership Units or other Partnership Interests. Notwithstanding
the foregoing, in connection with any Capital Contribution made pursuant to
Sections 4.2 and 4.3 hereof, Limited Partners (other than the Company) shall
have
16
<PAGE> 23
the right to contribute to the Partnership an amount equal to or less than their
then-existing Percentage Interest in such Capital Contribution. The General
Partner, prior to making a Capital Contribution pursuant to Sections 4.2 and
4.3, shall deliver notice to all Limited Partners of its intent to make such a
Capital Contribution and of the contemplated amount thereof. Limited Partners
must deliver written notice to the Partnership of their intent to exercise their
rights hereunder and of the amount of their intended contribution, within five
business days of their receipt of such notice from the General Partner. The
amount of any Capital Contribution made to the Partnership pursuant to Sections
4.2 and 4.3 shall be reduced to reflect all corresponding Capital Contributions
made by Limited Partners pursuant to this Section.
ARTICLE 5
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions
-------------------------------------------------
The General Partner shall distribute at least quarterly an amount equal
to 100% of Available Cash generated by the Partnership during such quarter or
shorter period to the Partners who are Partners on the Partnership Record Date
with respect to such quarter or shorter period in accordance with their
respective Percentage Interests on such Partnership Record Date; PROVIDED THAT
in no event may a Partner receive a distribution of Available Cash with respect
to a Partnership Unit if such Partner is entitled to receive a distribution out
of such Available Cash with respect to a REIT Share for which such Partnership
Unit has been redeemed or exchanged. The General Partner shall take such
reasonable efforts, as determined by it in its sole and absolute discretion and
consistent with the Company's qualification as a REIT, to distribute Available
Cash to the Limited Partners so as to preclude any such distribution or portion
thereof from being treated as part of a sale of property to the Partnership by a
Limited Partner under Section 707 of the Code or the Regulations thereunder;
PROVIDED THAT the General Partner and the Partnership shall not have liability
to a Limited Partner under any circumstances as a result of any distribution to
a Limited Partner being so treated.
Section 5.2 Amounts Withheld
----------------
All amounts withheld pursuant to the Code or any provisions of any
state or local tax law and Section 10.5 hereof with respect to any allocation,
payment or distribution to the Partners or Assignees shall be treated as amounts
distributed to the Partners or Assignees pursuant to Section 5.1 for all
purposes under this Agreement.
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<PAGE> 24
Section 5.3 Distributions Upon Liquidation
------------------------------
Proceeds from a Terminating Capital Transaction and any other cash
received or reductions in reserves made after commencement of the liquidation of
the Partnership shall be distributed to the Partners in accordance with Section
13.2
ARTICLE 6
ALLOCATIONS
Section 6.1 Allocations For Capital Account Purposes
----------------------------------------
For purposes of maintaining the Capital Accounts and in determining the
rights of the Partners among themselves, the Partnership's items of income,
gain, loss and deduction (computed in accordance with EXHIBIT B hereof) shall be
allocated among the Partners in each taxable year (or portion thereof) as
provided herein below.
A. Net Income shall be allocated (i) first, to the General Partner to
the extent that Net Losses previously allocated to the General Partner pursuant
to the last sentence of Section 6.1.B exceed Net Income previously allocated to
the General Partner pursuant to this clause (i) of Section 6.1.A; and (ii)
thereafter, Net Income shall be allocated to the Partners in accordance with
their respective Percentage Interests.
B. After giving effect to the special allocations set forth in Section
1 of EXHIBIT C attached hereto, Net Losses shall be allocated to the Partners in
accordance with their respective Percentage Interests; PROVIDED THAT Net Losses
shall not be allocated to any Limited Partner pursuant to this Section 6.1.B to
the extent that such allocation would cause such Limited Partner to have an
Adjusted Capital Account Deficit at the end of such taxable year (or increase
any existing Adjusted Capital Account Deficit). All Net Losses in excess of the
limitations set forth in this Section 6.1.B shall be allocated to the General
Partner.
C. For purposes of Regulations Section 1.752-3(a), the Partners agree
that Nonrecourse Liabilities of the Partnership in excess of the sum of (i) the
amount of Partnership Minimum Gain; and (ii) the total amount of Nonrecourse
Built-in Gain shall be allocated among the Partners in accordance with their
respective Percentage Interests.
D. Any gain allocated to the Partners upon the sale or other taxable
disposition of any Partnership asset shall, to the extent possible, after taking
into account other required allocations of gain pursuant to EXHIBIT C, be
characterized as Recapture Income in the same proportions and to the same extent
as such Partners have been allocated any deductions directly or indirectly
giving rise to the treatment of such gains as Recapture Income.
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ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management
----------
A. Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs the Partnership are and shall be
exclusively vested in the General Partner, and no Limited Partner shall have any
right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the Limited Partners with or without cause. In addition to the powers now or
hereafter granted a general partner of a limited partnership under applicable
law or which are granted to the General Partner under any other provision of
this Agreement, the General Partner, subject to Section 7.3 hereof, shall have
full power and authority to do all things deemed necessary or desirable by it to
conduct the business of the Partnership, to exercise all powers set forth in
Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1
hereof, including, without limitation:
(1) the making of any expenditures, the lending or
borrowing of money (including, without limitation,
making prepayments on loans and borrowing money to
permit the Partnership to make distributions to its
Partners in such amounts as will permit the Company
(so long as the Company qualifies as a REIT) to avoid
the payment of any federal income tax (including, for
this purpose, any excise tax pursuant to Section 4981
of the Code) and to make distributions to its
shareholders in amounts sufficient to permit the
Company to maintain REIT status), the assumption or
guarantee of, or other contracting for, indebtedness
and other liabilities, the issuance of evidence of
indebtedness (including the securing of the same by
deed, mortgage, deed of trust or other lien or
encumbrance on the Partnership's assets) and the
incurring of any obligations it deems necessary for
the conduct of the activities of the Partnership;
(2) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to
governmental or other agencies having jurisdiction
over the business or assets of the Partnership;
(3) the acquisition, disposition, mortgage, pledge,
encumbrance, hypothecation or exchange of any assets
of the Partnership (including the exercise or grant
of any conversion, option, privilege, or subscription
right or other right available in connection with any
assets at any time held by the Partnership) or the
merger or other combination of the Partnership with
or into another entity (all of the foregoing subject
to any prior approval only to the extent required by
Section 7.3 hereof);
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<PAGE> 26
(4) the use of the assets of the Partnership (including,
without limitation, cash on hand) for any purpose
consistent with the terms of this Agreement and on
any terms it sees fit, including, without limitation,
the financing of the conduct of the operations of the
Company, the Partnership or any of the Partnership's
Subsidiaries, the lending of funds to other Persons
(including, without limitation, the Subsidiaries of
the Partnership and/or the Company) and the repayment
of obligations of the Partnership and its
Subsidiaries and any other Person in which it has an
equity investment, and the making of capital
contributions to its Subsidiaries;
(5) the management, operation, leasing, landscaping,
repair, alteration, demolition or improvement of any
real property or improvements owed by the Partnership
or any Subsidiary of the Partnership;
(6) the negotiation, execution, and performance of any
contracts, conveyances or other instruments that the
General Partner considers useful or necessary to the
conduct of the Partnership's operations or the
implementation of the General Partner's powers under
this Agreement, including contracting with
contractors, developers, consultants, accountants,
legal counsel, other professional advisors and other
agents and the payment of their expenses and
compensation out of the Partnership's assets;
(7) the distribution of Partnership cash or other
Partnership assets in accordance with this Agreement;
(8) holding, managing, investing and reinvesting cash and
other assets of the Partnership;
(9) the collection and receipt of revenues and income of
the Partnership;
(10) the establishment of one or more divisions of the
Partnership, the selection and dismissal of employees
of the Partnership (including, without limitation,
employees having titles such as "president," "vice
president," "secretary" and "treasurer" of the
Partnership), and agents, outside attorneys,
accountants, consultants and contractors of the
Partnership, and the determination of their
compensation and other terms of employment or hiring;
(11) the maintenance of such insurance for the benefit of
the Partnership and the Partners as it deems
necessary or appropriate;
20
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(12) the formation of, or acquisition of an interest in,
and the contribution of property to, any further
limited or general partnerships, joint ventures or
other relationships that it deems desirable
(including, without limitation, the acquisition of
interests in, and the contributions of property to,
its Subsidiaries and any other Person in which it has
an equity investment from time to time);
(13) the control of any matters affecting the rights and
obligations of the Partnership, including the
settlement, compromise, submission to arbitration or
any other form of dispute resolution, or abandonment
of, any claim, cause of action, liability, debt or
damages, due or owing to or from the Partnership, the
commencement or defense of suits, legal proceedings,
administrative proceedings, arbitration or other
forms of dispute resolution, and the representation
of the Partnership in all suits or legal proceedings,
administrative proceedings, arbitrations or other
forms of dispute resolution, the incurring of legal
expense, and the indemnification of any Person
against liabilities and contingencies to the extent
permitted by law;
(14) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its
Subsidiaries or any other Person (including, without
limitation, the contribution or loan of funds by the
Partnership to such Persons);
(15) the determination of the fair market value of any
Partnership property distributed in kind using such
reasonable method of valuation as the General Partner
may adopt;
(16) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited
power of attorney, of any right, including the right
to vote, appurtenant to any asset or investment held
by the Partnership;
(17) the exercise of any of the powers of the General
Partner enumerated in this Agreement on behalf of or
in connection with any Subsidiary of the Partnership
or any other Person in which the Partnership has a
direct or indirect interest, or jointly with any such
Subsidiary or other Person;
(18) the exercise of any of the powers of the General
Partner enumerated in this Agreement on behalf of any
Person in which the Partnership does not have an
interest pursuant to contractual or other
arrangements with such Person; and
21
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(19) the making, execution and delivery of any and all
deeds, leases, notes, mortgages, deeds of trust,
security agreements, conveyances, contracts,
guarantees, warranties, indemnities, waivers,
releases or legal instruments or agreements in
writing necessary or appropriate, in the judgment of
the General Partner, for the accomplishment of any of
the powers of the General Partner enumerated in this
Agreement.
(20) the issuance of additional Partnership Units, as
appropriate, in connection with Capital Contributions
by Additional Limited Partners and additional Capital
Contributions by Partners pursuant to Article 4
hereof.
B. Each of the Limited Partners agrees that the General Partner is
authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the Partners, notwithstanding any other provision of this Agreement
(except as provided in Section 7.3), the Act or any applicable law, rule or
regulation, to the fullest extent permitted under the Act or other applicable
law, rule or regulation. The execution, delivery or performance by the General
Partner or the Partnership of any agreement authorized or permitted under this
Agreement shall not constitute a breach by the General Partner of any duty that
the General Partner may owe the Partnership or the Limited Partners or any other
Persons under this Agreement or of any duty stated or implied by law or equity.
C. At all times from and after the date hereof, the General Partner may
cause the Partnership to establish and maintain at any and all times working
capital accounts and other cash or similar balances in such amounts as the
General Partner, in its sole and absolute discretion, deems appropriate and
reasonable from time to time.
D. In exercising its authority under this Agreement, the General
Partner may, but shall be under no obligation to, take into account the tax
consequences to any Partner of any action taken by it; PROVIDED that, if the
General Partner decides to refinance (directly or indirectly) any outstanding
indebtedness of the Partnership, the General Partner shall use reasonable
efforts to structure such refinancing in a manner that minimizes any adverse tax
consequences therefrom to the Limited Partners, and PROVIDED FURTHER that, in
deciding whether or not to dispose of any property that represents more than one
percent of the Partnership's total assets, the General Partner shall consider in
good faith the income tax consequences of such disposition for both the General
Partner and the Limited Partners. The General Partner and the Partnership shall
not have liability to a Limited Partner under any circumstances as a result of
an income tax liability incurred by such Limited Partner as a result of an
action (or inaction) by the General Partner taken pursuant to its authority
under this Agreement and in accordance with the terms of Section 7.3.
22
<PAGE> 29
Section 7.2 Certificate of Limited Partnership
----------------------------------
The General Partner shall file, simultaneously herewith, the
Certificate with the Secretary of State of Delaware as required by the Act. The
General Partner shall use all reasonable efforts to cause to be filed such other
certificates or documents as may be reasonable and necessary or appropriate for
the formation, continuation, qualification and operation of a limited
partnership (or a partnership in which the limited partners have limited
liability) in the State of Delaware and any other state, or the District of
Columbia, in which the Partnership may elect to do business or own property. To
the extent that such action is determined by the General Partner to be
reasonable and necessary or appropriate, the General Partner shall file
amendments to and restatements of the Certificate and do all of the things to
maintain the Partnership as a limited partnership (or a partnership in which the
limited partners have limited liability) under the laws of the State of Delaware
and each other state, or the District of Columbia, in which the Partnership may
elect to do business or own property. Subject to the terms of Section 8.5.A(4)
hereof, the General Partner shall not be required, before or after filing, to
deliver or mail a copy of the Certificate or any amendment thereto to any
Limited Partner.
Section 7.3 Restrictions on General Partner Authority
-----------------------------------------
A. The General Partner may not take any action in contravention of an
express prohibition or limitation of this Agreement without the written Consent
of Limited Partners holding a majority of the Percentage Interests of the
Limited Partners (including Limited Partner Interests held by the Company), or
such other percentage of the Limited Partners as may be specifically provided
for under a provision of this Agreement.
B. Except as provided in Article 13 hereof, the General Partner may not
cause the Partnership to engage in a Terminating Capital Transaction (including
by way of merger, consolidation or other combination with any other Person), or
enter into any other similar transaction (regardless of its form) that would
result in the recognition of significant taxable gain to Limited Partners (other
than the Company), without the Consent of Limited Partners holding 85% or more
of the Percentage Interests of the Limited Partners (including Limited
Partnership Interest held by the Company).
Section 7.4 Reimbursement of the General Partner and the
--------------------------------------------
Company
-------
A. Except as provided in this Section 7.4 and elsewhere in this
Agreement (including the provisions of Articles 5 and 6 regarding distributions,
payments, and allocations to which it may be entitled), the General Partner
shall not be compensated for its services as general partner of the Partnership.
B. The General Partner, shall be reimbursed on a monthly basis, or such
other basis as it may determine in its sole and absolute discretion, for all
expenses that it incurs
23
<PAGE> 30
relating to the ownership and operation of, or for the benefit of, the
Partnership; PROVIDED THAT the amount of any such reimbursement shall be reduced
by any interest earned by the General Partner with respect to bank accounts or
other instruments or accounts held by it on behalf of the Partnership. Such
reimbursement shall be in addition to any reimbursement made as a result of
indemnification pursuant to Section 7.7 hereof.
C. As set forth in Section 4.3, the Company shall be treated as having
made a Capital Contribution in the amount of all expenses that it incurs
relating to the Company's initial public offering of REIT Shares.
D. In the event that the Company shall elect to purchase from its
shareholders REIT Shares for the purpose of delivering such REIT Shares to
satisfy an obligation under any dividend reinvestment program adopted by the
Company, any employee stock purchase plan adopted by the Company, or any similar
obligation or arrangement undertaken by the Company in the future, the purchase
price paid by the Company for such REIT Shares and any other expenses incurred
by the Company in connection with such purchase shall be considered expenses of
the Partnership and shall be reimbursed to the Company, subject to the condition
that: (i) if such REIT Shares subsequently are to be sold by the Company, the
Company shall pay to the Partnership any proceeds received by the Company for
such REIT Shares (provided that a transfer of REIT Shares for Units pursuant to
Section 8.6 would not be considered a sale for such purposes); and (ii) if such
REIT Shares are not retransferred by the Company within 30 days after the
purchase thereof, the Company, as General Partner, shall cause the Partnership
to cancel a number of Partnership Units held by the Company, as a Limited
Partner, equal to the product obtained by multiplying the Conversion Factor by
the number of such REIT Shares.
Section 7.5 Outside Activities of the General Partner
-----------------------------------------
The General Partner shall not directly or indirectly enter into or
conduct any business other than in connection with the ownership, acquisition
and disposition of Partnership Interests and the management of the business of
the Partnership, and such activities as are incidental thereto. The General
Partner and any Affiliates of the General Partner may acquire Limited Partner
Interests and shall be entitled to exercise all rights of a Limited Partner
relating to such Limited Partner Interests.
Section 7.6 Contracts with Affiliates
-------------------------
A. The Partnership may lend or contribute funds or other assets to its
Subsidiaries or other Persons in which it has an equity investment and such
Persons may borrow funds from the Partnership, on terms and conditions
established in the sole and absolute discretion of the General Partner. The
foregoing authority shall not create any right or benefit in favor of any
Subsidiary or any other Person.
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B. Except as provided in Section 7.5, the Partnership may transfer
assets to joint ventures, other partnerships, corporations or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions consistent with this Agreement and applicable law as
the General Partner, in its sole and absolute discretion, believes are
advisable.
C. Except as expressly permitted by this Agreement, neither the General
Partner nor any of its Affiliates shall sell, transfer or convey any property
to, or purchase any property from, the Partnership, directly or indirectly,
except pursuant to transactions that are determined by the General Partner in
good faith to be fair and reasonable.
D. The General Partner, in its sole and absolute discretion and without
the approval of the Limited Partners, may propose and adopt, on behalf of the
Partnership, employee benefit plans, stock option plans, and similar plans
funded by the Partnership for the benefit of employees of the General Partner,
the Partnership, Subsidiaries of the Partnership or any Affiliate of any of them
in respect of services performed, directly or indirectly, for the benefit of the
Partnership, the General Partner, or any Subsidiaries of the Partnership.
E. The General Partner is expressly authorized to enter into, in the
name and on behalf of the Partnership, a right of first opportunity arrangement
and other conflict avoidance agreements with various Affiliates of the
Partnership and the General Partner, on such terms as the General Partner, in
its sole and absolute discretion, believes are advisable.
Section 7.7 Indemnification
---------------
A. To the fullest extent permitted by Delaware law, the Partnership
shall indemnify each Indemnitee from and against any and all losses, claims,
damages, liabilities, joint or several, expenses (including, without limitation,
attorneys fees and other legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
that relate to the operations of the Partnership or the Company as set forth in
this Agreement, in which such Indemnitee may be involved, or is threatened to be
involved, as a party or otherwise. Without limitation, the foregoing indemnity
shall extend to any liability of any Indemnitee, pursuant to a loan guaranty or
otherwise for any indebtedness of the Partnership or any Subsidiary of the
Partnership (including without limitation, any indebtedness which the
Partnership or any Subsidiary of the Partnership has assumed or taken subject
to), and the General Partner is hereby authorized and empowered, on behalf of
the Partnership, to enter into one or more indemnity agreements consistent with
the provisions of this Section 7.7 in favor of any Indemnitee having or
potentially having liability for any such indebtedness. Any indemnification
pursuant to this Section 7.7 shall be made only out of the assets of the
Partnership, and neither the General Partner nor any Limited Partner shall have
any obligation to contribute to the capital of the Partnership, or otherwise
provide funds, to enable the Partnership to fund its obligations under this
Section 7.7.
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B. Reasonable expenses incurred by an Indemnitee who is a party to a
proceeding shall be paid or reimbursed by the Partnership in advance of the
final disposition of the proceeding.
C. The indemnification provided by this Section 7.7 shall be in
addition to any other rights to which an Indemnitee or any other Person may be
entitled under any agreement, pursuant to any vote of the Partners, as a matter
of law or otherwise, and shall continue as to an Indemnitee who has ceased to
serve in such capacity unless otherwise provided in a written agreement pursuant
to which such Indemnities are indemnified.
D. The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of the Indemnities and such other Persons as the
General Partner shall determine, against any liability that may be asserted
against or expenses that may be incurred by such Person in connection with the
Partnership's activities, regardless of whether the Partnership would have the
power to indemnify such Person against such liability under the provisions of
this Agreement.
E. For purposes of this Section 7.7, the Partnership shall be deemed to
have requested an Indemnitee to serve as fiduciary of an employee benefit plan
whenever the performance by it of its duties to the Partnership also imposes
duties on, or otherwise involves services by, it to the plan or participants or
beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect
to an employee benefit plan pursuant to applicable law shall constitute fines
within the meaning of Section 7.7; and actions taken or omitted by the
Indemnitee with respect to an employee benefit plan in the performance of its
duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a purpose
which is not opposed to the best interests of the Partnership.
F. In no event may an Indemnitee subject any of the Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
G. An Indemnitee shall not be denied indemnification in whole or in
part under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.7 are for the benefit of the
Indemnities, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.7 or any provision hereof
shall be prospective only and shall not in any way affect the Partnership's
liability to any Indemnitee under this Section 7.7, as in effect immediately
prior to such amendment, modification, or repeal with respect to claims arising
from or relating to
26
<PAGE> 33
matters occurring, in whole or in part, prior to such amendment, modification or
repeal, regardless of when such claims may arise or be asserted.
Section 7.8 Liability of the General Partner
--------------------------------
A. Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner and its officers and directors shall not be
liable for monetary damages to the Partnership, any Partners or any Assignees
for losses sustained or liabilities incurred as a result of errors in judgment
or of any act or omission if the General Partner acted in good faith.
B. The Limited Partners expressly acknowledge that the General Partner
is acting on behalf of the Partnership and the shareholders of the Company
collectively, that the General Partner is under no obligation to consider the
separate interests of the Limited Partners (except as otherwise provided herein)
in deciding whether to cause the Partnership to take (or decline to take) any
actions, and that the General Partner shall not be liable for monetary damages
for losses sustained, liabilities incurred, or benefits not derived by Limited
Partners in connection with such decisions, provided that the General Partner
has acted in good faith.
C. Subject to its obligations and duties as General Partner set forth
in Section 7.1.A hereof, the General Partner may exercise any of the powers
granted to it by this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its agents. The General Partner shall
not be responsible for any misconduct or negligence on the part of any such
agent appointed by the General Partner in good faith.
D. Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's and its officers' and directors' liability
to the Partnership and the Limited Partners under this Section 7.8 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
Section 7.9 Other Matters Concerning the General Partner
--------------------------------------------
A. The General Partner may rely and shall be protected in acting, or
refraining from acting, upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, or other
paper or document believed by it in good faith to be genuine and to have been
signed or presented by the proper party or parties.
B. The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers, architects, engineers,
environmental consultants and other consultants and advisers selected by it, and
any act taken or omitted to be taken in
27
<PAGE> 34
reliance upon the opinion of such Persons as to matters which such General
Partner reasonably believes to be within such Person's professional or expert
competence shall be conclusively presumed to have been done or omitted in good
faith and in accordance with such opinion.
C. The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers and duly appointed attorneys-in-fact. Each such attorney shall, to the
extent provided by the General Partner in the power of attorney, have full power
and authority to do and perform all and every act and duty which is permitted or
required to be done by the General Partner hereunder.
D. Notwithstanding any other provisions of this Agreement or the Act,
any action of the General Partner on behalf of the Partnership or any decision
of the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable in order (i) to protect the ability of the Company to continue to
qualify as a REIT; or (ii) to avoid the Company incurring any taxes under
Section 857 or Section 4981 of the Code, is expressly authorized under this
Agreement and is deemed approved by all of the Limited Partners.
Section 7.10 Title to Partnership Assets
---------------------------
Title to Partnership assets, whether real, personal or mixed and
whether tangible or intangible, shall be deemed to be owned by the Partnership
as an entity, and no Partner, individually or collectively, shall have any
ownership interest in such Partnership assets or any portion thereof. Title to
any or all of the Partnership assets may be held in the name of the Partnership,
the General Partner or one or more nominees, as the General Partner may
determine, including Affiliates of the General Partner. The General Partner
hereby declares and warrants that any Partnership assets for which legal title
is held in the name of the General Partner or any nominee or Affiliate of the
General Partner shall be held by the General Partner for the use and benefit of
the Partnership in accordance with the provisions of this Agreement; PROVIDED,
HOWEVER,that the General Partner shall use its best efforts to cause beneficial
and record title to such assets to be vested in the Partnership as soon as
reasonably practicable. All Partnership assets shall be recorded as the property
of the Partnership in its books and records, irrespective of the name in which
legal title to such Partnership assets is held.
Section 7.11 Reliance by Third Parties
-------------------------
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority, without consent or approval of any other
Partner or Person, to encumber, sell or otherwise use in any manner any and all
assets of the Partnership and to enter into any contracts on behalf of the
Partnership, and take any and all actions on behalf of the Partnership and such
Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally and
beneficially. Each Limited
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<PAGE> 35
Partner hereby waives any and all defenses or other remedies which may be
available against such Person to contest, negate or disaffirm any action of the
General Partner in connection with any such dealing. In no event shall any
Person dealing with the General Partner or its representatives be obligated to
ascertain that the terms of this Agreement have been complied with or to inquire
into the necessity or expedience of any act or action of the General Partner or
its representatives. Each and every certificate, document or other instrument
executed on behalf of the Partnership by the General Partner or its
representatives shall be conclusive evidence in favor of any and every Person
relying thereon or claiming thereunder that (i) at the time of the execution and
delivery of such certificate, document or instrument, this Agreement was in full
force and effect; (ii) the Person executing and delivering such certificate,
document or instrument was duly authorized and empowered to do so for and on
behalf of the Partnership; and (iii) such certificate, document or instrument
was duly executed and delivered in accordance with the terms and provisions of
this Agreement and is binding upon the Partnership.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability
-----------------------
The Limited Partners shall have no liability under this Agreement
except as expressly provided in this Agreement, including Section 10.5 hereof,
or under the Act.
Section 8.2 Management of Business
----------------------
No Limited Partner or Assignee (other than the General Partner, any of
its Affiliates or any officer, director, employee, agent or trustee of the
General Partner, the Partnership or any of their Affiliates, in their capacity
as such) shall take part in the operation, management or control (within the
meaning of the Act) of the Partnership's business, transact any business in the
Partnership's name or have the power to sign documents for or otherwise bind the
Partnership. The transaction of any such business by the General Partner, any of
its Affiliates or any officer, director, employee, partner, agent or trustee of
the General Partner, the Partnership or any of their Affiliates, in their
capacity as such, shall not affect, impair or eliminate the limitations on the
liability of the Limited Partners or Assignees under this Agreement.
Section 8.3 Outside Activities of Limited Partners
--------------------------------------
Subject to any agreements entered into pursuant to Section 7.6.E hereof
and any other agreements entered into by a Limited Partner or its Affiliates
with the Partnership or any of its Subsidiaries, any Limited Partner (other than
the Company) and any officer, director, employee, agent, trustee, Affiliate or
shareholder of any Limited Partner (other than the
29
<PAGE> 36
Company) shall be entitled to and may have business interests and engage in
business activities in addition to those relating to the Partnership, including
business interests and activities that are in direct competition with the
Partnership or that are enhanced by the activities of the Partnership. Neither
the Partnership nor any Partners shall have any rights by virtue of this
Agreement in any business ventures of any Limited Partner or Assignee. None of
the Limited Partners (other than the Company) nor any other Person shall have
any rights by virtue of this Agreement or the Partnership relationship
established hereby in any business ventures of any other Person and such Person
shall have no obligation pursuant to this Agreement to offer any interest in any
such business ventures to the Partnership, any Limited Partner or any such other
Person, even if such opportunity is of a character which, if presented to the
Partnership, any Limited Partner or such other Person, could be taken by such
Person.
Section 8.4 Return of Capital
-----------------
Except pursuant to the right of redemption set forth in Section 8.6, no
Limited Partner shall be entitled to the withdrawal or return of its Capital
Contribution, except to the extent of distributions made pursuant to this
Agreement or upon termination of the Partnership as provided herein. Except to
the extent provided by EXHIBIT C hereof or as otherwise expressly provided in
this Agreement, no Limited Partner or Assignee shall have priority over any
other Limited Partner or Assignee, either as to the return of Capital
Contributions or as to profits, losses or distributions.
Section 8.5 Rights of Limited Partners Relating to the
------------------------------------------
Partnership
-----------
A. In addition to the other rights provided by this Agreement or by the
Act, and except as limited by Section 8.5.C hereof, each Limited Partner shall
have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon written demand with a
statement of the purpose of such demand and at such Limited Partner's own
expense (including such copying and administrative charges as the General
Partner may establish from time to time):
(1) to obtain a copy of the most recent annual and
quarterly reports filed with the Securities and
Exchange Commission by the Company pursuant to the
Securities Exchange Act of 1934;
(2) to obtain a copy of the Partnership's federal, state
and local income tax returns for each Partnership
Year;
(3) to obtain a current list of the name and last known
business, residence or mailing address of each
Partner;
(4) to obtain a copy of this Agreement and the
Certificate and all amendments thereto, together with
executed copies of all powers of
30
<PAGE> 37
attorney pursuant to which this Agreement, the
Certificate and all amendments thereto have been
executed; and
(5) to obtain true and full information regarding the
amount of cash and a description and statement of any
other property or services contributed by each
Partner and which each Partner has agreed to
contribute in the future, and the date on which each
became a Partner.
B. The Partnership shall notify each Limited Partner, upon request, of
the then current Conversion Factor.
C. Notwithstanding any other provision of this Section 8.5, the General
Partner may keep confidential from the Limited Partners, for such period of time
as the General Partner determines in its sole and absolute discretion to be
reasonable, any information that (i) the General Partner reasonably believes to
be in the nature of trade secrets or other information, the disclosure of which
the General Partner in good faith believes is not in the best interests of the
Partnership or could damage the Partnership or its business; or (ii) the
Partnership is required by law or by agreements with an unaffiliated third party
to keep confidential.
Section 8.6 Redemption Right
----------------
A. Subject to Sections 8.6.B and 8.6.C hereof, on or after the date one
(1) year after the closing of the initial public offering of REIT Shares by the
Company, each Limited Partner (other than the Company) shall have the right (the
"REDEMPTION RIGHT") to require the Partnership to redeem on a Specified
Redemption Date all or a portion of the Partnership Units held by such Limited
Partner at a redemption price equal to and in the form of the Cash Amount to be
paid by the Partnership. The Redemption Right shall be exercised pursuant to a
Notice of Redemption delivered to the Partnership (with a copy to the Company)
by the Limited Partner who is exercising the redemption right (the "Redeeming
Partner"); PROVIDED, HOWEVER, that the Partnership shall not be obligated to
satisfy such Redemption Right if the Company elects to purchase the Partnership
Units subject to the Notice of Redemption pursuant to Section 8.6.B. A Limited
Partner may not exercise the Redemption Right for less than one thousand (1,000)
Partnership Units or, if such Limited Partner holds less than one thousand
(1,000) Partnership Units, all of the Partnership Units held by such Partner.
The Redeeming Partner shall have no right, with respect to any Partnership Units
so redeemed, to receive any distributions paid on or after the Specified
Redemption Date. The Assignee of any Limited Partner may exercise the rights of
such Limited Partner pursuant to this Section 8.6, and such Limited Partner
shall be deemed to have assigned such rights to such Assignee and shall be bound
by the exercise of such rights by such Assignee. In connection with any exercise
of such rights by an Assignee on behalf of a Limited Partner, the Cash Amount
shall be paid by the Partnership directly to such Assignee and not to such
Limited Partner.
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B. Notwithstanding the provisions of Section 8.6.A, a Limited Partner
that exercises the Redemption Right shall be deemed to have offered to sell the
Partnership Units described in the Notice of Redemption to the Company, and the
Company may, in its sole and absolute discretion, elect to purchase directly and
acquire such Partnership Units by paying to the Redeeming Partner either the
Cash Amount or the REIT Shares Amount, as elected by the Company (in its sole
and absolute discretion), on the Specified Redemption Date, whereupon the
Company shall acquire the Partnership Units offered for redemption by the
Redeeming Partner and shall be treated for all purposes of this Agreement as the
owner of such Partnership Units. If the Company shall elect to exercise its
right to purchase Partnership Units under this Section 8.6.B with respect to a
Notice of Redemption, it shall so notify the Redeeming Partner within five
Business Days after the receipt by it of such Notice of Redemption. Unless the
Company (in its sole and absolute discretion) shall exercise its right to
purchase Partnership Units from the Redeeming Partner pursuant to this Section
8.6.B, the Company shall not have any obligation to the Redeeming Partner or the
Partnership with respect to the Redeeming Partner's exercise of the Redemption
Right. In the event the Company shall exercise its right to purchase Partnership
Units with respect to the exercise of a Redemption Right in the manner described
in the first sentence of this Section 8.6.B, the Partnership shall have no
obligation to pay any amount to the Redeeming Partner with respect to such
Redeeming Partner's exercise of such Redemption Right, and each of the Redeeming
Partner, the Partnership, and the Company shall treat the transaction between
the Company and the Redeeming Partner, for federal income tax purposes, as a
sale of the Redeeming Partner's Partnership Units to the Company. Each Redeeming
Partner agrees to execute such documents as the Company may reasonably require
in connection with the issuance of REIT Shares upon exercise of the Redemption
Right.
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting
----------------------
The General Partner shall keep or cause to be kept at the principal
office of the Partnership those records and documents required to be maintained
by the Act and other books and records deemed by the General Partner to be
appropriate with respect to the Partnership's business, including, without
limitation, all books and records necessary to provide to the Limited Partners
any information, lists and copies of documents required to be provided pursuant
to Section 9.3 hereof. Any records maintained by or on behalf of the Partnership
in the regular course of its business may be kept on, or be in the form of,
punch cards, magnetic tape, photographs, micrographics or any other information
storage device, PROVIDED THAT the records so maintained are convertible into
clearly legible written form within a reasonable period of time. The books of
the Partnership shall be maintained, for financial and tax reporting purposes,
on an accrual basis in accordance with generally accepted accounting
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principles, or such other basis as the General Partner determines to be
necessary or appropriate.
C. Notwithstanding the provisions of Section 8.6.A and Section 8.6.B, a
Partner shall not be entitled to exercise the Redemption Right pursuant to
Section 8.6.A if the delivery of REIT Shares to such Partner on the Specified
Redemption Date by the Company pursuant to Section 8.6.B (regardless of whether
or not the Company would in fact exercise its rights under Section 8.6.B) would
be prohibited under the Articles of the Company.
Section 9.2 Fiscal Year
-----------
The fiscal year of the Partnership shall be the calendar year.
Section 9.3 Reports
-------
A. As soon as practicable, but in no event later than one hundred five
(105) days after the close of each Partnership Year, the General Partner shall
cause to be mailed to each Limited Partner as of the close of the Partnership
Year, an annual report containing financial statements of the Partnership, or of
the Company if such statements are prepared solely on a consolidated basis with
the Company, for such Partnership Year, presented in accordance with generally
accepted accounting principles, such statements to be audited by a nationally
recognized firm of independent public accountants selected by the General
Partner.
B. As soon as practicable, but in no event later than one hundred five
(105) days after the close of each calendar quarter (except the last calendar
quarter of each year), the General Partner shall cause to be mailed to each
Limited Partner as of the last day of the calendar quarter, a report containing
unaudited financial statements of the Partnership, or of the Company, if such
statements are prepared solely on a consolidated basis with the Company, and
such other information as may be required by applicable law or regulation, or as
the General Partner determines to be appropriate.
ARTICLE 10
TAX MATTERS
Section 10.1 Preparation of Tax Returns
--------------------------
The General Partner shall arrange for the preparation and timely filing
of all returns of Partnership income, gains, deductions, losses and other items
required of the Partnership for federal and state income tax purposes and shall
use all reasonable efforts to furnish, within ninety (90) days of the close of
each taxable year, the tax information reasonably required by Limited Partners
for federal and state income tax reporting purposes.
33
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Section 10.2 Tax Elections
-------------
Except as otherwise provided herein, the General Partner shall, in its
sole and absolute discretion, determine whether to make any available election
pursuant to the Code. Notwithstanding the above, in making any such tax election
the General Partner shall take into account the tax consequences to the Limited
Partners resulting from any such election. The General Partner shall make such
tax elections on behalf of the Partnership as the Limited Partners holding a
majority of the Percentage Interests of the Limited Partners (excluding Limited
Partner Interests held by the Company) request, provided that the General
Partner believes that such election is not adverse to the interests of the
General Partner, including its interest in preserving its qualification as a
REIT under the Code. The General Partner intends to elect the so-called
"traditional method" of making Section 704(c) allocations pursuant to
Regulations Section 1.704-3 with respect to property contributed as of the date
hereof. The General Partner shall have the right to seek to revoke any tax
election it makes (including, without limitation, the election under Section 754
of the Code) upon the General Partner's determination, in its sole and absolute
discretion, that such revocation is in the best interests of the Partners.
Section 10.3 Tax Matters Partner
-------------------
A. The General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes. Pursuant to Section 6230(e) of the
Code, upon receipt of notice from the IRS of the beginning of an administrative
proceeding with respect to the Partnership, the tax matters partner shall
furnish the IRS with the name, address, taxpayer identification number, and
profit interest of each of the Limited Partners and the Assignees; PROVIDED,
HOWEVER, that such information is provided to the Partnership by the Limited
Partners and the Assignees.
B. The tax matters partner is authorized, but not required.
(1) to enter into any settlement with the IRS with
respect to any administrative or judicial proceedings
for the adjustment of Partnership items required to
be taken into account by a Partner for income tax
purposes (such administrative proceedings being
referred to as a "tax audit" and such judicial
proceedings being referred to as "judicial review"),
and in the settlement agreement the tax matters
partner may expressly state that such agreement shall
bind all Partners, except that such settlement
agreement shall not bind any Partner (i) who (within
the time prescribed pursuant to the Code and
Regulations) files a statement with the IRS providing
that the tax matters partner shall not have the
authority to enter into a settlement agreement on
behalf of such Partner; or (ii) who is a "notice
partner" (as defined in Section 6231(a)(8) of the
34
<PAGE> 41
Code) or a member of a "notice group" (as defined in
Section 6223(b)(2) of the Code);
(2) in the event that a notice of a final administrative
adjustment at the Partnership level of any item
required to be taken into account by a Partner for
tax purposes (a "final adjustment") is mailed to the
tax matters partner, to seek judicial review of such
final adjustment, including the filing of a petition
for readjustment with the Tax Court or the filing of
a complaint for refund with the United States Claims
Court or the District Court of the United States for
the district in which the Partnership's principal
place of business is located;
(3) to intervene in any action brought by any other
Partner for judicial review of a final adjustment;
(4) to file a request for an administrative adjustment
with the IRS and, if any part of such request is not
allowed by the IRS, to file an appropriate pleading
(petition or complaint) for judicial review with
respect to such request;
(5) to enter into an agreement with the IRS to extend the
period for assessing any tax which is attributable to
any item required to be taken account of by a Partner
for tax purposes, or an item affected by such item;
and
(6) to take any other action on behalf of the Partners or
the Partnership in connection with any tax audit or
judicial review proceeding to the extent permitted by
applicable law or regulations.
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of the General
Partner set forth in Section 7.7 of this Agreement shall be fully applicable to
the tax matters partner in its capacity as such.
C. The tax matters partner shall receive no compensation for its
services. All third party costs and expenses incurred by the tax matters partner
in performing its duties as such (including legal and accounting fees and
expenses) shall be borne by the Partnership. Nothing herein shall be construed
to restrict the Partnership from engaging an accounting firm to assist the tax
matters partner in discharging its duties hereunder, so long as the compensation
paid by the Partnership for such services is reasonable.
35
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Section 10.4 Organizational Expenses
-----------------------
The Partnership shall elect to deduct expenses, if any, incurred by it
in organizing the Partnership ratably over a sixty (60) month period as provided
in Section 709 of the Code.
Section 10.5 Withholding
-----------
Each Limited Partner hereby authorizes the Partnership to withhold
from, or pay on behalf of or with respect to, such Limited Partner any amount of
federal, state, local, or foreign taxes that the General Partner determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to Sections 1441, 1442, 1445, or 1446 of the Code. Any
amount paid on behalf of or with respect to a Limited Partner shall constitute a
loan by the Partnership to such Limited Partner, which loan shall be repaid by
such Limited Partner within fifteen (15) days after notice from the General
Partner that such payment must be made unless (i) the Partnership withholds such
payment from a distribution which would otherwise be made to the Limited
Partner; or (ii) the General Partner determines, in its sole and absolute
discretion, that such payment may be satisfied out of the available funds of the
Partnership which would, but for such payment, be distributed to the Limited
Partner. Any amounts withheld pursuant to the foregoing clauses (i) or (ii)
shall be treated as having been distributed to such Limited Partner. Each
Limited Partner hereby unconditionally and irrevocably grants to the Partnership
a security interest in such Limited Partner's Partnership Interest to secure
such Limited Partner's obligation to pay to the Partnership any amounts required
to be paid pursuant to this Section 10.5. In the event that a Limited Partner
fails to pay any amounts owed to the Partnership pursuant to this Section 10.5
when due, the General Partner may, in its sole and absolute discretion, elect to
make the payment to the Partnership on behalf of such defaulting Limited
Partner, and in such event shall be deemed to have loaned such amount to such
defaulting Limited Partner and shall succeed to all rights and remedies of the
Partnership as against such defaulting Limited Partner. Without limitation, in
such event the General Partner shall have the right to receive distributions
that would otherwise be distributable to such defaulting Limited Partner until
such time as such loan, together with all interest thereon, has been paid in
full, and any such distributions so received by the General Partner shall be
treated as having been distributed to the defaulting Limited Partner and
immediately paid by the defaulting Limited Partner to the General Partner in
repayment of such loan. Any amounts payable by a Limited Partner hereunder shall
bear interest at the lesser of (A) the base rate on corporate loans at large
United States money center commercial banks, as published from time to time in
the WALL STREET JOURNAL, plus four (4) percentage points, or (B) the maximum
lawful rate of interest on such obligation, such interest to accrue from the
date such amount is due (i.e., fifteen (15) days after demand) until such amount
is paid in full. Each Limited Partner shall take such actions as the Partnership
or the General Partner shall request in order to perfect or enforce the security
interest created hereunder.
36
<PAGE> 43
ARTICLE 11
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer
--------
A. The term "transfer," when used in this Article 11 with respect to a
Partnership Unit, shall be deemed to refer to a transaction by which the General
Partner purports to assign all or any part of its General Partner Interest to
another Person or by which a Limited Partner purports to assign all or any part
of its Limited Partner Interest to another Person, and includes a sale,
assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any
other disposition by law or otherwise. The term "transfer" when used in this
Article 11 does not include any redemption of Partnership Interests by the
Partnership from a Limited Partner or any acquisition of Partnership Units from
a Limited Partner by the Company pursuant to Section 8.6.
B. No Partnership Interest shall be transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article 11.
Any transfer or purported transfer of a Partnership Interest not made in
accordance with this Article 11 shall be null and void.
Section 11.2 Transfer of the Company's General Partner Interest
--------------------------------------------------
and Limited Partner Interest
----------------------------
The Company may not transfer any of its General Partner Interest or
withdraw as General Partner, or transfer any of its Limited Partner Interest,
unless Limited Partners holding a majority of the Percentage Interests of the
Limited Partners (other than Limited Partner Interests held by the Company)
consent to such transfer or withdrawal or such transfer is to an entity which is
wholly-owned by the Company and is a Qualified REIT Subsidiary under Section
856(i) of the Code.
Section 11.3 Limited Partners' Rights to Transfer
------------------------------------
A. Subject to the provisions of Sections 11.3.C, 11.3.D, 11.3.E, and
11.4, a Limited Partner (other than the Company) may transfer, with or without
the consent of the General Partner, all or any portion of its Partnership
Interest, or any of such Limited Partner's economic rights as a Limited Partner.
B. If a Limited Partner is subject to Incapacity, the executor,
administrator, trustee, committee, guardian, conservator or receiver of such
Limited Partner's estate shall have all of the rights of a Limited Partner, but
not more rights than those enjoyed by other Limited Partners, for the purpose of
settling or managing the estate and such power as the Incapacitated Limited
Partner possessed to transfer all or any part of his or its interest in the
37
<PAGE> 44
Partnership. The Incapacity of a Limited Partner, in and of itself, shall not
dissolve or terminate the Partnership.
C. The General Partner may prohibit any transfer by a Limited Partner
of its Partnership Units if, in the opinion of legal counsel to the Partnership,
such transfer would require filing of a registration statement under the
Securities Act of 1933 or would otherwise violate any federal or state
securities laws or regulations applicable to the Partnership or the Partnership
Units.
D. No transfer by a Limited Partner of its Partnership Units may be
made to any Person if (i) in the opinion of legal counsel for the Partnership,
it would result in the Partnership being treated as an association taxable as a
corporation; (ii) it is made within one year after the consummation of the
initial public offering of the Company; (iii) such transfer is effectuated
through an "established securities market" or a "secondary market (or the
substantial equivalent thereof)" with the meaning of Section 7704 of the Code;
(iv) such transfer would cause the Partnership to become, with respect to any
employee benefit plan subject to Title I of ERISA, a "party-in-interest" (as
defined in Section 3(14) of ERISA) or a "disqualified person" (as defined in
Section 4975(c) of the Code); (v) such transfer would, in the opinion of legal
counsel for the Partnership, cause any portion of the assets of the Partnership
to constitute assets of any employee benefit plan pursuant to Department of
Labor Regulations Section 2510.2-101; or (vi) such transfer would subject the
Partnership to be regulated under the Investment Company Act of 1940, the
Investment Advisors Act of 1940 or the Employee Retirement Income Security Act
of 1974, each as amended.
E. No transfer of any Partnership Units may be made to a lender to the
Partnership or any Person who is related (within the meaning of Section
1.752-4(b) of the Regulations) to any lender to the Partnership whose loan
constitutes a Nonrecourse Liability, without the consent of the General Partner,
in its sole and absolute discretion; PROVIDED THAT as a condition to such
consent the lender will be required to enter into an arrangement with the
Partnership and the General Partner to exchange or redeem for the Cash Amount
any Partnership Units in which a security interest is held simultaneously with
the time at which such lender would be deemed to be a partner in the Partnership
for purposes of allocating liabilities to such lender under Section 752 of the
Code.
Section 11.4 Substituted Limited Partners
----------------------------
A. No Limited Partner shall have the right to substitute a transferee
as a Limited Partner in his place. The General Partner shall, however, have the
right to consent to the admission of a transferee of the interest of a Limited
Partner pursuant to this Section 11.4 as a Substituted Limited Partner, which
consent may be given or withheld by the General Partner in its sole and absolute
discretion. The General Partner's failure or refusal to permit a transferee of
any such interests to become a Substituted Limited Partner shall not give rise
to any cause of action against the Partnership or any Partner.
38
<PAGE> 45
B. A transferee who has been admitted as a Substituted Limited Partner
in accordance with this Article 11 shall have all the rights and powers and be
subject to all the restrictions and liabilities of a Limited Partner under this
Agreement.
C. Upon the admission of a Substituted Limited Partner, the General
Partner shall amend EXHIBIT A to reflect the name, address, number of
Partnership Units, and Percentage Interest of such Substituted Limited Partner
and to eliminate or adjust, if necessary, the name, address and interest of the
predecessor of such Substituted Limited Partner.
Section 11.5 Assignees
---------
If the General Partner, in its sole and absolute discretion, does not
consent to the admission of any permitted transferee as a Substituted Limited
Partner, as described in Section 11.4, such transferee shall be considered an
Assignee for purposes of this Agreement. An Assignee shall be deemed to have had
assigned to it, and shall be entitled to receive distributions from the
Partnership and the share of Net Income, Net Losses, Recapture Income, and any
other items, gain, loss deduction and credit of the Partnership attributable to
the Partnership Units assigned to such transferee, but shall not be deemed to be
a holder of Partnership Units for any other purpose under this Agreement, and
shall not be entitled to vote such Partnership Units in any matter presented to
the Limited Partners for a vote (such Partnership Units being deemed to have
been voted on such matter in the same proportion as all other Partnership Units
held by Limited Partners are voted). In the event any such transferee desires to
make a further assignment of any such Partnership Units, such transferee shall
be subject to all of the provisions of this Article 11 to the same extent and in
the same manner as any Limited Partner desiring to make an assignment of
Partnership Units.
Section 11.6 General Provisions
------------------
A. No Limited Partner may withdraw from the Partnership other than as a
result of a permitted transfer of all of such Limited Partner's Partnership
Units in accordance with this Article 11 or pursuant to redemption of all of its
Partnership Units under Section 8.6.
B. Any Limited Partner who shall transfer all of its Partnership Units
in a transfer permitted pursuant to this Article 11 shall cease to be a Limited
Partner upon the admission of all Assignees of such Partnership Units as
Substitute Limited Partners. Similarly, any Limited Partner who shall transfer
all of its Partnership Units pursuant to a redemption of all of its Partnership
Units under Section 8.6 shall cease to be a Limited Partner.
C. Transfers pursuant to this Article 11 may only be made on the first
day of a fiscal quarter of the Partnership, unless the General Partner otherwise
agrees.
D. If any Partnership Interest is transferred or assigned during any
quarterly segment of the Partnership's fiscal year in compliance with the
provisions of this Article 11 or
39
<PAGE> 46
redeemed or transferred pursuant to Section 8.6 on any day other than the first
day of a Partnership Year, then Net Income, Net Losses, each item thereof and
all other items attributable to such interest for such Partnership Year shall be
divided and allocated between the transferor Partner and the transferee Partner
by taking into account their varying interests during the Partnership Year in
accordance with Section 706(d) of the Code, using the interim closing of the
books method. Solely for purposes of making such allocations, each of such items
for the calendar month in which the transfer or assignment occurs shall be
allocated to the transferee Partner, and none of such items for the calendar
month in which a redemption occurs shall be allocated to the Redeeming Partner.
All distributions of Available Cash attributable to such Partnership Unit with
respect to which the Partnership Record Date is before the date of such
transfer, assignment, or redemption shall be made to the transferor Partner or
the Redeeming Partner, as the case may be, and in the case of a transfer or
assignment other than a redemption, all distributions of Available Cash
thereafter attributable to such Partnership Unit shall be made to the transferee
Partner.
ARTICLE 12
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner
--------------------------------------
A successor to all of the General Partner Interest pursuant to Section
11.2 hereof who is proposed to be admitted as a successor General Partner shall
be admitted to the Partnership as the General Partner, effective upon such
transfer. Any such transferee shall carry on the business of the Partnership
without dissolution. In each case, the admission shall be subject to the
successor General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission. In the case
of such admission on any day other than the first day of a Partnership Year, all
items attributable to the General Partner Interest for such Partnership Year
shall be allocated between the transferring General Partner and such successor
as provided in Section 11.6.D hereof.
Section 12.2 Admission of Additional Limited Partners
----------------------------------------
A. After the admission to the Partnership of the initial Limited
Partners on the date hereof, a Person who makes a Capital Contribution to the
Partnership in accordance with this Agreement shall be admitted to the
Partnership as an Additional Limited Partner only upon furnishing to the General
Partner (i) evidence of acceptance in form satisfactory to the General Partner
of all of the terms and conditions of this Agreement, including, without
limitation, the power of attorney granted in Section 2.4 hereof and (ii) such
other documents or instruments as may be required in the discretion of the
General Partner in order to effect such Person's admission as an Additional
Limited Partner.
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<PAGE> 47
B. Notwithstanding anything to the contrary in this Section 12.2, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's sole and absolute discretion. The admission of any Person as an
Additional Limited Partner shall become effective on the date upon which the
name of such Person is recorded on the books and records of the Partnership,
following the consent of the General Partner to such admission.
C. If any Additional Limited Partner is admitted to the Partnership on
any day other than the first day of a Partnership Year, then Net Income, Net
Losses, each item thereof and all other items allocable among Partners and
Assignees for such Partnership Year shall be allocated among such Additional
Limited Partner and all other Partners and Assignees by taking into account
their varying interests during the Partnership Year in accordance with Section
706(d) of the Code, using the interim closing of the books method. Solely for
purposes of making such allocations, each of such item for the calendar month in
which an admission of any Additional Limited Partner occurs shall be allocated
among all of the Partners and Assignees, including such Additional Limited
Partner. All distributions of Available Cash with respect to which the
Partnership Record Date is before the date of such admission shall be made
solely to Partners and Assignees, other than the Additional Limited Partner, and
all distributions of Available Cash thereafter shall be made to all of the
Partners and Assignees, including such Additional Limited Partner.
Section 12.3 Amendment of Agreement and Certificate of Limited
-------------------------------------------------
Partnership
-----------
For the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Act to amend
the records of the Partnership and, if necessary, to prepare as soon as
practical an amendment of this Agreement (including an amendment of EXHIBIT A)
and, if required by law, shall prepare and file an amendment to the Certificate
and may for this purpose exercise the power of attorney granted pursuant to
Section 2.4 hereof.
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1 Dissolution
-----------
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the withdrawal of the General Partner, any successor General Partner shall
continue the business of the Partnership. The Partnership shall dissolve, and
its affairs shall be wound up, only upon the first to occur of any of the
following ("Liquidating Events"):
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<PAGE> 48
A. the expiration of its term as provided in Section 2.5 hereof;
B. an event of withdrawal of the General Partner, as defined in the Act
(other than an event of bankruptcy), unless, within ninety (90) days after such
event of withdrawal a majority in interest of the remaining Partners agree in
writing to continue the business of the Partnership and to the appointment,
effective as of the date of withdrawal, of a successor General Partner;
C. from and after the date of this Agreement through December 31, 2053,
an election to dissolve the Partnership made by the General Partner with the
Consent of Partners holding 85% of the Percentage Interests of the Limited
Partners (including Limited Partner Interests held by the Company);
D. on or after January 1, 2054, an election to dissolve the Partnership
made by the General Partner, in its sole and absolute discretion;
E. entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Act;
F. the sale of all or substantially all of the assets and properties of
the Partnership; or
G. a final and non-appealable judgment is entered by a court of
competent jurisdiction ruling that the General Partner is bankrupt or insolvent,
or a final and non-appealable order for relief is entered by a court with
appropriate jurisdiction against the General Partner, in each case under any
federal or state bankruptcy or insolvency laws as now or hereafter in effect,
unless prior to the entry of such order or judgment all of the remaining
Partners agree in writing to continue the business of the Partnership and to the
appointment, effective as of a date prior to the date of such order or judgment,
of a substitute General Partner.
Section 13.2 Winding Up
----------
A. Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Partners.
No Partner shall take any action that is inconsistent with, or not necessary to
or appropriate for, the winding up of the Partnership's business and affairs.
The General Partner, or, in the event there is no remaining General Partner, any
Person elected by a majority in interest of the Limited Partners (the General
Partner or such other Person being referred to herein as the "Liquidator"),
shall be responsible for overseeing the winding up and dissolution of the
Partnership and shall take full account of the Partnership's liabilities and
property and the Partnership property shall be liquidated as promptly as is
consistent with obtaining the fair value thereof, and the proceeds therefrom
42
<PAGE> 49
(which may, to the extent determined by the General Partner, include shares of
common stock in the Company) shall be applied and distributed in the following
order:
(1) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors
other than the Partners;
(2) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to the General
Partner;
(3) Third, to the payment and discharge of all of the
Partnership's debts and liabilities to the other
Partners; and
(4) The balance, if any, to the General Partner and
Limited Partners in accordance with their Capital
Accounts, after giving effect to all contributions,
distributions, and allocations for all periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13.
B. Notwithstanding the provisions of Section 13.2.A hereof which
require liquidation of the assets of the Partnership, but subject to the order
of priorities set forth therein, if prior to or upon dissolution of the
Partnership the Liquidator determines that an immediate sale of part or all of
the Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership (including to those Partners as creditors) and/or
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 13.2.A hereof, undivided interests in
such Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith judgment
of the Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
such time. The Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.
C. In the discretion of the Liquidator, a pro rata portion of the
distributions that would otherwise be made to the General Partner and Limited
Partners pursuant to this Article 13 may be:
(1) distributed to a trust established for the benefit of
the General Partner and Limited Partners for the
purposes of liquidating Partnership assets,
collecting amounts owed to the Partnership, and
paying any contingent or unforeseen liabilities or
obligations of the Partnership or the General
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<PAGE> 50
Partner arising out of or in connection with the
Partnership. The assets of any such trust shall be
distributed to the General Partner and Limited
Partners from time to time, in the reasonable
discretion of the Liquidator, in the same proportions
as the amount distributed to such trust by the
Partnership would otherwise have been distributed to
the General Partner and Limited Partners pursuant to
this Agreement; or
(2) withheld or escrowed to provide a reasonable reserve
for Partnership liabilities (contingent or otherwise)
and to reflect the unrealized portion of any
installment obligations owed to the Partnership,
PROVIDED THAT such withheld or escrowed amounts shall
be distributed to the General Partner and Limited
Partners in the manner and order of priority set
forth in Section 13.2.A as soon as practicable.
Section 13.3 Compliance with Timing Requirements of Regulations
--------------------------------------------------
In the event the Partnership is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant
to this Article 13 to the General Partner and Limited Partners who have positive
Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2).
If any Partner has a deficit balance in his Capital Account (after giving effect
to all contributions, distributions and allocations for all taxable years,
including the year during which such liquidation occurs), such Partner shall
have no obligation to make any contribution to the capital of the Partnership
with respect to such deficit, and such deficit shall not be considered a debt
owed to the Partnership or to any other Person for any purpose whatsoever.
Section 13.4 Deemed Distribution and Recontribution
--------------------------------------
Notwithstanding any other provision of this Article 13, in the event
the Partnership is considered "liquidated" within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g), but no Liquidating Event has occurred, the
Partnership's property shall not be liquidated, the Partnership's liabilities
shall not be paid or discharged, and the Partnership's affairs shall not be
wound up. Instead, for federal income tax purposes and for purposes of
maintaining Capital Accounts pursuant to EXHIBIT B hereto, the Partnership shall
be deemed to have distributed the property in kind to the General Partner and
Limited Partners, who shall be deemed to have assumed and taken such property
subject to all Partnership liabilities, all in accordance with their respective
Capital Accounts. Immediately thereafter, the General Partner and Limited
Partners shall be deemed to have recontributed the Partnership property in kind
to the Partnership, which shall be deemed to have assumed and taken such
property subject to all such liabilities.
44
<PAGE> 51
Section 13.5 Rights of Limited Partners
--------------------------
Except as otherwise provided in this Agreement, each Limited Partner shall
look solely to the assets of the Partnership for the return of its Capital
Contributions and shall have no right or power to demand or receive property
other than cash from the Partnership. Except as otherwise provided in this
Agreement, no Limited Partner shall have priority over any other Partner as to
the return of its Capital Contributions, distributions, or allocations.
Section 13.6 Notice of Dissolution
---------------------
In the event a Liquidating Event occurs or an event occurs that would, but
for the provisions of an election or objection by one or more Partners pursuant
to Section 13.1, result in a dissolution of the Partnership, the General Partner
shall, within thirty (30) days thereafter, provide written notice thereof to
each of the Partners.
Section 13.7 Termination of Partnership and Cancellation of Certificate
----------------------------------------------------------
of Limited Partnership
----------------------
Upon the completion of the liquidation of the Partnership's assets, as
provided in Section 13.2 hereof, the Partnership shall be terminated, a
certificate of cancellation shall be filed, and all qualifications of the
Partnership as a foreign limited partnership in jurisdictions other than the
State of Delaware shall be cancelled and such other actions as may be necessary
to terminate the Partnership shall be taken.
Section 13.8 Reasonable Time for Winding-Up
------------------------------
A reasonable time shall be allowed for the orderly winding-up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 hereof, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect between the Partners during the period of liquidation.
Section 13.9 Waiver of Partition
-------------------
Each Partner hereby waives any right to partition of the Partnership
property.
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 Amendments
----------
A. Amendments to this Agreement may be proposed by the General
Partner or by any Limited Partners (other than the Company) holding twenty
percent (20%) or more of the
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<PAGE> 52
Partnership Interests. Following such proposal, the General Partner shall submit
any proposed amendment to the Limited Partners. The General Partner shall seek
the written vote of the Partners on the proposed amendment or shall call a
meeting to vote thereon and to transact any other business that it may deem
appropriate. For purposes of obtaining a written vote, the General Partner may
require a response within a reasonable specified time, but not less than fifteen
(15) days, and failure to respond in such time period shall constitute a vote
which is consistent with the General Partner's recommendation with respect to
the proposal. Except as provided in Section 7.3.A, 7.3.B, 13.1.C, 14.1.B, 14.1.C
or 14.1.D, a proposed amendment shall be adopted and be effective as an
amendment hereto if it is approved by the General Partner and it receives the
Consent of Partners holding a majority of the Percentage Interests of the
Limited Partners (including Limited Partner Interests held by the Company).
B. Notwithstanding Section 14.1.A, the General Partner shall have the
power, without the consent of the Limited Partners, to amend this Agreement as
may be required to facilitate or implement any of the following purposes:
(1) to add to the obligations of the General Partner or surrender any
right or power granted to the General Partner or any Affiliate of
the General Partner for the benefit of the Limited Partners;
(2) to reflect the admission, substitution, termination, or
withdrawal of Partners in accordance with this Agreement;
(3) to set forth the designations, rights, powers, duties, and
preferences of the holders of any additional Partnership
Interests issued pursuant to Section 4.2.A hereof;
(4) to reflect a change that is of an inconsequential nature and does
not adversely affect the Limited Partners in any material
respect, or to cure any ambiguity, correct or supplement any
provision in this Agreement not inconsistent with law or with
other provisions, or make other changes with respect to matters
arising under this Agreement that will not be inconsistent with
law or with the provisions of this Agreement; and
(5) to satisfy any requirements, conditions, or guidelines contained
in any order, directive, opinion, ruling or regulation of a
federal or state agency or contained in federal or state law.
The General Partner shall provide notice to the Limited Partners when any action
under this Section 14.1.B is taken.
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<PAGE> 53
C. Notwithstanding Section 14.1.A and 14.1.B hereof, this Agreement shall
not be amended without the Consent of each Partner adversely affected if such
amendment would (i) convert a Limited Partner's interest in the Partnership into
a General Partner Interest; (ii) modify the limited liability of a Limited
Partner in a manner adverse to such Limited Partner; (iii) alter rights of the
Partner to receive distributions pursuant to Article 5 or Article 13, or the
allocations specified in Article 6 (except as permitted pursuant to Section 4.2
and Section 14.1.B(3) hereof); (iv) alter or modify the Redemption Right and
REIT Shares Amount as set forth in Sections 8.6 and 11.2.B, and the related
definitions, in a manner adverse to such Partner; (v) cause the termination of
the Partnership prior to the time set forth in Sections 2.5 or 13.1; or (vi)
amend this Section 14.1.C. Further, no amendment may alter the restrictions on
the General Partner's authority set forth in Section 7.3.B without the Consent
specified in that section.
D. Notwithstanding Section 14.1.A or Section 14.1.B hereof, the General
Partner shall not amend Sections 4.2.A, 7.5, 7.6, 11.2 or 14.2 without the
Consent of Limited Partners holding a majority of the Percentage Interests of
the Limited Partners, excluding Limited Partner Interests held by the General
Partner.
Section 14.2 Meetings of the Partners
------------------------
A. Meetings of the Partners may be called by the General Partner and
shall be called upon the receipt by the General Partner of a written request by
Limited Partners (other than the Company) holding twenty percent (20%) or more
of the Partnership Interests. The request shall state the nature of the business
to be transacted. Notice of any such meeting shall be given to all Partners not
less than seven (7) days nor more than thirty (30) days prior to the date of
such meeting. Partners may vote in person or by proxy at such meeting. Whenever
the vote or Consent of the Partners is permitted or required under this
Agreement, such vote or Consent may be given at a meeting of the Partners or may
be given in accordance with the procedure prescribed in Section 14.1.A hereof.
Except as otherwise expressly provided in this Agreement, the Consent of holders
of a majority of the Percentage Interests held by Limited Partners (including
Limited Partnership Interests held by the Company) shall control.
B. Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action so taken is signed by a majority of the Percentage Interests of the
Partners (or such other percentage as is expressly required by this Agreement).
Such consent may be in one instrument or in several instruments, and shall have
the same force and effect as a vote of a majority of the Percentage Interests of
the Partners (or such other percentage as is expressly required by this
Agreement). Such consent shall be filed with the General Partner. An action so
taken shall be deemed to have been taken at a meeting held on the effective date
so certified.
C. Each Limited Partner may authorize any Person or Persons to act for
him by proxy on all matters in which a Limited Partner is entitled to
participate, including waiving
47
<PAGE> 54
notice of any meeting, or voting or participating at a meeting. Every proxy must
be signed by the Limited Partner or his attorney-in-fact. No proxy shall be
valid after the expiration of eleven (11) months from the date thereof unless
otherwise provided in the proxy. Every proxy shall be revocable at the pleasure
of the Limited Partner executing it, such revocation to be effective upon the
Partnership's receipt of written notice of such revocation from the Limited
Partner executing such proxy.
D. Each meeting of the Partners shall be conducted by the General Partner
or such other Person as the General Partner may appoint pursuant to such rules
for the conduct of the meeting as the General Partner or such other Person deems
appropriate. Without limitation, meetings of Partners may be conducted in the
same manner as meetings of the shareholders of the Company and may be held at
the same time, and as part of, meetings of the shareholders of the Company.
ARTICLE 15
GENERAL PROVISIONS
Section 15.1 Addresses and Notice
--------------------
Any notice, demand, request or report required or permitted to be given or
made to a Partner or Assignee under this Agreement shall be in writing and shall
be deemed given or made when delivered in person or when sent by first class
United States mail or by other means of written communication to the Partner or
Assignee at the address set forth in EXHIBIT A or such other address of which
the Partner shall notify the General Partner in writing.
Section 15.2 Titles and Captions
-------------------
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement.
Section 15.3 Pronouns and Plurals
--------------------
Whenever the context may require, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa.
48
<PAGE> 55
Section 15.4 Further Action
--------------
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
Section 15.5 Binding Effect
--------------
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
Section 15.6 Creditors
---------
Other than as expressly set forth herein with respect to the Indemnities,
none of the provisions of this Agreement shall be for the benefit of, or shall
be enforceable by, any creditor of the Partnership.
Section 15.7 Waiver
------
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
Section 15.8 Counterparts
------------
This Agreement may be executed in counterparts, all of which together shall
constitute one agreement binding on all of the parties hereto, notwithstanding
that all such parties are not signatories to the original or the same
counterpart. Each party shall become bound by this Agreement immediately upon
affixing its signature hereto.
Section 15.9 Applicable Law
--------------
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law.
Section 15.10 Invalidity of Provisions
------------------------
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
49
<PAGE> 56
Section 15.11 Entire Agreement
----------------
This Agreement contains the entire understanding and agreement among the
Partners with respect to the subject matter hereof and supersedes the Prior
Agreement and any other prior written or oral understandings or agreements among
them with respect thereto.
Section 15.12 Guaranty by the Company
-----------------------
The Company unconditionally and irrevocably guarantees to the Limited
Partners the performance by the General Partner of the General Partner's
obligations under this agreement. This guarantee is exclusively for the benefit
of the Limited Partners and shall not extend to the benefit any creditor of the
Partnership.
50
<PAGE> 57
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
GENERAL PARTNER:
Summit Properties Inc.
By: /s/ William B. McGuire
-----------------------
Title: Chairman
-----------------------
[CORPORATE SEAL]
LIMITED PARTNERS:
By: /s/ William F. Paulsen
-----------------------
as Attorney-in-Fact for the Limited Partners
By: William F. Paulsen
-----------------------
Title:
-----------------------
[CORPORATE SEAL]
<PAGE> 58
Exhibit B
Capital Account Maintenance
1. Capital Accounts of the Partners
--------------------------------
A. The Partnership shall maintain for each Partner a separate Capital
Account in accordance with the rules of Regulations Section 1.704-1(b)(2)(iv).
Such Capital Account shall be increased by (i) the amount of all Capital
Contributions and any other deemed contributions made by such Partner to the
Partnership pursuant to this Agreement; and (ii) all items of Partnership income
and gain (including income and gain exempt from tax) computed in accordance with
Section 1.B hereof and allocated to such Partner pursuant to Section 6.1.A of
the Agreement and EXHIBIT C hereof, and decreased by (x) the amount of cash or
Agreed Value of all actual and deemed distributions of cash or property made to
such Partner pursuant to this Agreement; and (y) all items of Partnership
deduction and loss computed in accordance with Section 1.B hereof and allocated
to such Partner pursuant to Section 6.1.B of the Agreement and EXHIBIT C hereof.
B. For purposes of computing the amount of any item of income, gain,
deduction or loss to be reflected in the Partners' Capital Accounts, unless
otherwise specified in this Agreement, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes determined in
accordance with Section 703(a) of the Code (for this purpose all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a)(1) of the Code shall be included in taxable income or loss), with
the following adjustments:
(1) Except as otherwise provided in Regulations Section
1.704-1(b)(2)(iv)(m), the computation of all items of income,
gain, loss and deduction shall be made without regard to any
election under Section 754 of the Code which may be made by the
Partnership, provided that the amounts of any adjustments to the
adjusted bases of the assets of the Partnership made pursuant to
Section 734 of the Code as a result of the distribution of
property by the Partnership to a Partner (to the extent that such
adjustments have not previously been reflected in the Partners'
Capital Accounts) shall be reflected in the Capital Accounts of
the Partners in the manner and subject to the limitations
prescribed in Regulations Section 1.704(b)(2)(iv)(m)(4).
(2) The computation of all items of income, gain, and deduction shall
be made without regard to the fact that items described in
Sections 705(a)(1)(B) or 705(a)(2)(B) of the Code are not
includable gross income
4
<PAGE> 59
or are neither currently deductible nor capitalized for federal
income tax purposes.
(3) Any income, gain or loss attributable to the taxable disposition
of any Partnership property shall be determined as if the
adjusted basis of such property as of such date of disposition
were equal in amount to the Partnership's Carrying Value with
respect to such property as of such date.
(4) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation
for such fiscal year.
(5) In the event the Carrying Value of any Partnership Asset is
adjusted pursuant to Section 1.D hereof, the amount of any such
adjustment shall be taken into account as gain or loss from the
disposition of such asset.
(6) Any items specifically allocated under Section 2 of EXHIBIT C
hereof shall not be taken into account.
C. Generally, a transferee (including an Assignee) of a Partnership Unit
shall succeed to a pro rata portion of the Capital Account of the transferor;
provided, however, that, if the transfer causes a termination of the Partnership
under Section 708(b)(1)(B) of the Code, the Partnership's properties shall be
deemed solely for federal income tax purposes, to have been distributed in
liquidation of the Partnership to the holders of Partnership Units (including
such transferee) and recontributed by such Persons in reconstitution of the
Partnership. In such event, the Carrying values of the Partnership properties
shall be adjusted immediately prior to such deemed distribution pursuant to
Section 1.D(2) hereof. The Capital Accounts of such reconstituted Partnership
shall be maintained in accordance with the principles of this EXHIBIT B.
D. (1) Consistent with the provisions of Regulations Section
1.704-1(b)(2)(iv)(f), and as provided in Section 1.D(2), the
Carrying Value of all Partnership assets shall be adjusted upward
or downward to reflect any Unrealized Gain or Unrealized Loss
attributable to such Partnership property, as of the times of the
adjustments provided in Section 1.D(2) hereof, as if such
Unrealized Gain or Unrealized Loss had been recognized on an
actual sale of each such property and allocated pursuant to
Section 6.1 of the Agreement.
(2) Such adjustments shall be made as of the following times: (a)
immediately prior to the acquisition of an additional interest in
the Partnership by any new or existing Partner in exchange for
more than a de minimis Capital Contribution; (b) immediately
prior to the
5
<PAGE> 60
distribution by the Partnership to a Partner of more than a de
minimis amount of property as consideration for an interest in
the Partnership; and (c) immediately prior to the liquidation of
the Partnership within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), PROVIDED, HOWEVER, that adjustments
pursuant to clauses (a) and (b) above shall be made only if the
General Partner determines that such adjustments are necessary or
appropriate to reflect the relative economic interests of the
Partners in the Partnership.
(3) In accordance with Regulations Section 1.704-1(b)(2)(iv)(e), the
Carrying Value of Partnership assets distributed in kind shall be
adjusted upward or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Partnership property, as of
the time any such asset is distributed.
(4) In determining Unrealized Gain or Unrealized Loss for purposes of
this EXHIBIT B, the aggregate cash amount and fair market value
of all Partnership assets (including cash or cash equivalents)
shall be determined by the General Partner using such reasonable
method of valuation as it may adopt, or in the case of a
liquidating distribution pursuant to Article 13 of the Agreement,
shall be determined and allocated by the Liquidator using such
reasonable methods of valuation as it may adopt. The General
Partner, or the Liquidator, as the case may be, shall allocate
such aggregate value among the assets of the Partnership (in such
manner as it determines in its sole and absolute discretion to
arrive at a fair market value for individual properties).
E. The provisions of this Agreement (including this EXHIBIT B and other
Exhibits to this Agreement) relating to the maintenance of Capital Accounts are
intended to comply with Regulations Section 1.704-1(b), and shall be interpreted
and applied in a manner consistent with such Regulations. In the event the
General Partner shall determine that it is prudent to modify (i) the manner in
which the Capital Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities which are secured by
contributed or distributed property or which are assumed by the Partnership, the
General Partner, or the Limited Partners) are computed; or (ii) the manner in
which items are allocated among the Partners for federal income tax purposes in
order to comply with such Regulations or to comply with Section 704(c) of the
Code, the General Partner may make such modification without regard to Article
14 of the Agreement, provided that it is not likely to have a material effect on
the amounts distributable to any Person pursuant to Article 13 of the Agreement
upon the dissolution of the Partnership. The General Partner also shall (i) make
any adjustments that are necessary or appropriate to maintain equality between
the Capital Accounts of the Partners and the amount of Partnership capital
reflected on the Partnership's balance sheet, as computed for book purposes, in
accordance with Regulations Section
6
<PAGE> 61
1.704-1(b)(2)(iv)(q); and (ii) make any appropriate modifications in the event
unanticipated events might otherwise cause this Agreement not to comply with
Regulations Section 1.704-1(b). In addition, the General Partner may adopt
and employ such methods and procedures for (i) the maintenance of book and tax
capital accounts; (ii) the determination and allocation of adjustments under
Sections 704(c), 734 and 743 of the Code; (iii) the determination of Net
Income, Net Loss, taxable loss and items thereof under this Agreement and
pursuant to the Code; (iv) the adoption of reasonable conventions and methods
for the valuation of assets and the determination of tax basis; (v) the
allocation of asset value and tax basis; and (vi) conventions for the
determination of cost recovery, depreciation and amortization deductions, as it
determines in its sole discretion are necessary or appropriate to execute the
provisions of this Agreement, to comply with federal and state tax laws, and
are in the best interest of the Partners.
2. No Interest
-----------
No interest shall be paid by the Partnership on Capital Contributions or on
balances in Partners' Capital Accounts.
3. No Withdrawal
-------------
No Partner shall be entitled to withdraw any part of his Capital
Contribution or his Capital Account or to receive any distribution from the
Partnership, except as provided in Articles 4, 5, 7 and 13 of the Agreement.
7
<PAGE> 62
Exhibit C
Special Allocation Rules
1. Special Allocation Rules
------------------------
Notwithstanding any other provision of the Agreement or this EXHIBIT C, the
following special allocations shall be made in the following order:
A. MINIMUM GAIN CHARGEBACK. Notwithstanding the provisions of Section 6.1
of the Agreement or any other provisions of this EXHIBIT C, if there is a net
decrease in Partnership Minimum Gain during any Partnership taxable year, each
Partner shall be specially allocated items of Partnership income and gain for
such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partnership Minimum Gain, as determined
under Regulations Section 1.704-2(g). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Regulations Section 1.704-2(f)(6). This Section
1.A is intended to comply with the minimum gain chargeback requirements in
Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.
Solely for purposes of this Section 1.A, each Partner's Adjusted Capital Account
Deficit shall be determined prior to any other allocations pursuant to Section
6.1 of Partner Minimum Gain during such Partnership taxable year.
B. PARTNER MINIMUM GAIN CHARGEBACK. Notwithstanding any other provision
of Section 6.1 of this Agreement or any other provisions of this EXHIBIT C
(except Section 1.A hereof), if there is a net decrease in Partner Minimum Gain
attributable to a Partner Nonrecourse Debt during any Partnership taxable year,
each Partner who has a share of the Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.702-2(i)(5), shall be specially allocated items of Partnership income and gain
for such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be so allocated shall be determined in accordance
with Regulations Section 1.704-2(i)(4). This Section 1.B is intended to comply
with the minimum gain chargeback requirement in such Section of the Regulations
and shall be interpreted consistently therewith. Solely for purposes of the
Section 1.B, each Partner's Adjusted Capital Account Deficit shall be determined
prior to any other allocations pursuant to Section 6.1 of the Agreement or this
Exhibit with respect to such Partnership taxable year, other than allocations
pursuant to Section 1.A hereof.
C. QUALIFIED INCOME OFFSET. In the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
1.704-1(b)(2)(ii)(d)(6), and after giving
<PAGE> 63
effect to the allocations required under Sections 1.A and 1.B hereof such
Partner has an Adjusted Capital Account Deficit, items of Partnership income and
gain (consisting of a pro rata portion of each item of Partnership income,
including gross income and gain for the Partnership taxable year) shall be
specifically allocated to such Partner in an amount and manner sufficient to
eliminate, to the extent required by the Regulations, its Adjusted Capital
Account Deficit created by such adjustments, allocations or distributions as
quickly as possible.
D. NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any Partnership
taxable year shall be allocated to the Partners in accordance with their
respective Percentage Interests. If the General Partner determines in its good
faith discretion that the Partnership's Nonrecourse Deductions must be allocated
in a different ratio to satisfy the safe harbor requirements of the Regulations
promulgated under Section 704(b) of the Code, the General Partner is authorized,
upon notice to the Limited Partners, to revise the prescribed ratio to the
numerically closest ratio for such Partnership taxable year which would satisfy
such requirements.
E. PARTNER NONRECOURSE DEDUCTIONS. Any Partner Nonrecourse Deductions for
any Partnership taxable year shall be specially allocated to the Partner who
bears the economic risk of loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Section 1.704-2(i).
F. CODE SECTION 754 ADJUSTMENTS. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b)
of the Code is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis, and such item of gain or loss shall be specially allocated
to the Partners in a manner consistent with the manner in which their Capital
Accounts are required to be adjusted pursuant to such Section of the
Regulations.
G. CURATIVE ALLOCATIONS. The allocations set forth in Section 1.A through
1.F of this EXHIBIT C (the "Regulatory Allocations") are intended to comply with
certain requirements of the Regulations under Section 704(b) of the Code. The
Regulatory Allocations may not be consistent with the manner in which the
Partners intend to divide Partnership distributions. Accordingly, the General
Partner is hereby authorized to divide other allocations of income, gain,
deduction and loss among the Partners so as to prevent the Regulatory
Allocations from distorting the manner in which Partnership distributions will
be divided among the Partners. In general, the Partners anticipate that this
will be accomplished by specially allocating other items of income, gain, loss
and deduction among the Partners so that the net amount of the Regulatory
Allocations and such special allocations to each person is zero. However, the
General Partner will have discretion to accomplish this result in any reasonable
manner; PROVIDED, HOWEVER, that no allocation pursuant to this Section 1.G shall
2
<PAGE> 64
cause the Partnership to fail to comply with the requirements of Regulations
Sections 1.704-1(b)(2)(ii)(d), -2(e) or -2(i).
2. Allocations for Tax Purposes
----------------------------
A. Except as otherwise provided in this Section 2, for federal income tax
purposes, each item of income, gain, loss and deduction shall be allocated among
the Partners in the same manner as its correlative item of "book" income, gain,
loss or deduction is allocated pursuant to Section 6.1 of the Agreement and
Section 1 of this EXHIBIT C.
B. In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss, and
deduction shall be allocated for federal income tax purposes among the Partners
as follows:
(1) (a) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the Partners,
consistent with the principles of Section 704(c) of the Code
and the Regulations thereunder, to take into account the
variation between the 704(c) Value of such property and its
adjusted basis at the time of contribution; and
(b) any item of Residual Gain or Residual Loss attributable to a
Contributed Property shall be allocated among the Partners
in the same manner as its correlative item of "book" gain or
loss is allocated pursuant to Section 6.1 of the Agreement
and Section 1 of this EXHIBIT C.
(2) (a) In the case of an Adjusted Property, such items shall
(1) first, be allocated among the Partners in a manner
consistent with the principles of Section 704(c) of the Code
and the Regulations thereunder to take into account the
Unrealized Gain or Unrealized Loss attributable to such
property and the allocations thereof pursuant to EXHIBIT B;
and
(2) second, in the event such property was originally a
Contributed Property, be allocated among the Partners in a
manner consistent with Section 2.B(1) of this EXHIBIT C; and
(b) any item of Residual Gain or Residual Loss attributable to
an Adjusted Property shall be allocated among the Partners
in the same manner its correlative item of "book" gain or
loss is
3
<PAGE> 65
allocated pursuant to Section 6.1 of the Agreement and
Section 1 of this EXHIBIT C.
(3) all other items of income, gain, loss and deduction shall be
allocated among the Partners the same manner as their correlative
item of "book" gain or loss is allocated pursuant to Section 6.1
of the Agreement and Section 1 of the EXHIBIT C.
C. To the extent that the Treasury Regulations promulgated pursuant to
Section 704(c) of the Code permit the Partnership to utilize alternative methods
to eliminate the disparities between the Carrying Value of property and its
adjusted basis, the General Partner shall have the authority to elect the method
to be used by the Partnership and such election shall be binding on all
Partners.
3. No Withdrawal
-------------
No Partner shall be entitled to withdraw any part of his Capital
Contribution or his Capital Account or to receive any distribution from the
Partnership, except as provided in Articles 4, 5, 8 and 13 of the Agreement.
4
<PAGE> 66
Exhibit E
Notice of Redemption
The undersigned Limited Partner hereby irrevocably (i) redeems __________
Limited Partnership Units in Summit Properties Partnership, L.P. in accordance
with the terms of the Agreement of Limited Partnership of Summit Properties
Partnership, L.P. and the Redemption Right referred to therein; (ii) surrenders
such Limited Partnership Units and all right, title and interest therein; and
(iii) directs that the Cash Amount or REIT Shares Amount (as determined by the
General Partner) deliverable upon exercise of the Redemption Right be delivered
to the address specified below, and if REIT Shares are to be delivered, such
REIT Shares be registered or placed in the name(s) and at the address(es)
specified below. The undersigned hereby, represents, warrants, and certifies
that the undersigned (a) has marketable and unencumbered title to such Limited
Partnership Units, free and clear of the rights or interests of any other person
or entity; (b) has the full right, power, and authority to redeem and surrender
such Limited Partnership Units as provided herein; and (c) has obtained the
consent or approval of all person or entities, if any, having the right to
consent or approve such redemption and surrender.
Dated:_________________________
Name of Limited Partner:____________________________________
Please Print
_____________________________________
(Signature of Limited Partner)
_____________________________________
(Street Address)
_____________________________________
(City) (State) (Zip Code)
Signature Guaranteed by:
_____________________________________
<PAGE> 67
If REIT Shares are to be issued, issue to:
Name:_________________________________
Please insert social security or identifying number:__________________
2
<PAGE> 68
ANNEX A
-------
FIRST AMENDMENT TO AGREEMENT OF LIMITED PARTNERSHIP
OF SUMMIT PROPERTIES PARTNERSHIP, L.P.
--------------------------------------
THIS FIRST AMENDMENT TO AGREEMENT OF LIMITED PARTNERSHIP OF SUMMIT
PROPERTIES PARTNERSHIP, L.P. (this "Amendment") is dated as of October 3, 1994
and entered into by and among SUMMIT PROPERTIES INC. (the "Company") and those
Persons whose names are set forth on EXHIBIT A and attached hereto.
WHEREAS, the Company and the Persons whose names are set forth on
EXHIBIT A formed Summit Properties Partnership, L.P. (the "Partnership")
pursuant to an Agreement of Limited Partnership dated as of January 24, 1994
(the "Agreement" - all capitalized terms contained herein and not otherwise
defined herein shall have the meaning attributed to them in the Agreement); and
WHEREAS, the Partners desire to amend the Partnership Agreement to
permit the Limited Partners to pledge Partnership Units as collateral for loans
to be received by them; and
WHEREAS, such a pledge of Partnership Units would require an
amendment to Section 11.3D; and
WHEREAS, a majority of the Percentage Interest of the Limited Partners
have approved this proposed Amendment.
NOW, THEREFORE, Section 11.3D of the Partnership Agreement is hereby
amended to read as follows:
"D. No transfer by a Limited Partner of its
Partnership Units may be made to any Person if (i) in the
opinion of legal counsel for the Partnership, it would result
in the Partnership being treated as an association taxable as
a corporation; (ii) it is made within one year after the
consummation of the initial public offering of the Company;
or (iii) such transfer is effectuated through an "established
securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of Section 7704 of
the Code; provided, however, the restriction set forth in
clause (ii) will not apply to a pledge by any Limited Partner
who is NOT listed on SCHEDULE 1 attached hereto of all or any
portion of his Partnership Units to an unrelated third party
lender as collateral for a BONA FIDE arms-length loan made to
such Limited Partner by such lender so long as all other
provisions of this Partnership Agreement are complied with
with respect to any such transfer."
<PAGE> 69
Except as expressly amended by the provisions hereof or as may be
necessary to effect the intent of the parties as evidenced by this Amendment,
all other terms and provisions of this Agreement are hereby ratified and
confirmed and remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
GENERAL PARTNER:
SUMMIT PROPERTIES INC.
By: /s/ Michael G. Malone
------------------------------------
Michael G. Malone
Senior Vice President
LIMITED PARTNERS:
Those Persons on Exhibit A attached
hereto
By: Summit Properties Inc., their
attorney-in-fact
By: /s/ Michael G. Malone
--------------------------------
Michael G. Malone
Senior Vice President
2
<PAGE> 70
THIRD AMENDMENT TO AGREEMENT OF LIMITED PARTNERSHIP
OF SUMMIT PROPERTIES PARTNERSHIP, L.P.
--------------------------------------
THIS THIRD AMENDMENT TO AGREEMENT OF LIMITED PARTNERSHIP OF SUMMIT
PROPERTIES PARTNERSHIP, L.P. (this "Amendment") is dated as of May 16, 1995, and
entered into by and among Summit Properties Inc. (the "Company") and the Persons
whose names are set forth on EXHIBIT A as attached hereto.
WHEREAS, the Company and the Persons whose names are set forth on
EXHIBIT A (the "Partners") have formed Summit Properties Partnership, L.P. (the
"Partnership") pursuant to an Agreement of Limited Partnership dated as of
January 29, 1994, as previously amended (as amended, the "Agreement" -- all
capitalized terms contained herein and not otherwise defined herein shall have
the meaning attributed to them in the Agreement); and
WHEREAS, the Partners desire to amend the Partnership Agreement to add
certain provisions required by the Department of Housing and Urban Development
("HUD") as a condition to its consent to allow the Partnership to acquire
certain real property subject to mortgage loans insured by HUD; and
WHEREAS, this Amendment has been approved by the General Partner and
the requisite Limited Partners.
NOW, THEREFORE, the Agreement is hereby amended as follows:
1. A new Section 15.13 is hereby added to the Partnership
Agreement to read as follows:
"15.13. SPECIAL PROVISIONS RELATING TO HUD INSURED
LOANS. So long as the Secretary of Housing and Urban
Development, or his successors or assigns, is the insurer or
holder of the deeds of trust on Cedar Ridge Phase I Project
Number 053-35180-PM, Cedar Ridge (Phase II) Project Number
053-11076-REF/CON, Foxcroft East Project Number 053-35213-PM,
Westbury Park Project Number 053-35485-PM, Cross Creek
Project Number 053-35202-PM, Sherwood Colony Project Number
053-11077-REF/CON, Eastchester Ridge Project Number
053-35277-PM, Creekside Project Number 053-353310-PM, and Oak
Creek Project Number 053-35307-PM (collectively, the "insured
projects"), no amendment to this Agreement which results in
any of the following shall be of force or effect without the
prior written consent of the Department of Housing and Urban
Development ("HUD"): (1) any amendment which modifies the
duration of the Agreement; (2) any amendment which results in
the requirement that a HUD prior participation certification
be obtained for any additional party; (3) any amendment which
in any way
<PAGE> 71
affects the deeds of trust encumbering the insured projects
or the regulatory agreements related thereto.
The Partnership is authorized to execute notes and deeds of
trust in order to secure loans (or acquire properties subject
to loans) to be insured by HUD and to execute related
regulatory agreements and other documents required by HUD in
connection with such loans or acquisitions.
Any incoming general partner shall as a condition of
receiving an interest in the Partnership agree to be bound by
the notes, deeds of trust, and related regulatory agreements
affecting the insured projects and other documents required
in connection with the insured loans to the same extent and
on the same terms as the other general partners.
Notwithstanding any other provisions of this Agreement, upon
any dissolution, no title or right to possession and control
of the insured projects, and no right to collect the rents
therefrom shall pass to any person who is not bound by the
then applicable regulatory agreements in a manner
satisfactory to HUD.
Notwithstanding any other provision of this Agreement, in the
event that any provision of this Agreement conflicts with any
provisions of any then applicable regulatory agreement
relating to an insured project, the provision of such
regulatory agreement shall control.
So long as the Secretary of Housing and Urban Development, or
his successors or assigns, is the insurer or holder of a deed
of trust on any of the insured projects, this Partnership
shall not be voluntarily dissolved without the prior written
approval of the Secretary of Housing and Urban Development."
2. A new clause (6) is added to Section 14.1.B which reads
as follows:
"(6) to modify, as required by the Department of
Housing and Urban Development or any successor department,
agency or delegee, Section 15.13 in connection with the
acquisition of any properties subject to loans held by or
insured by The Secretary of Housing and Urban Development (or
any successor department, agency or delegee) or in obtaining
such financing (for example, by adding additional properties
to the definition of "insured projects" or by conforming the
restrictions contained in Section 15.13 to then current
regulatory requirements)."
2
<PAGE> 72
Except as expressly amended by the provisions hereof or as may be
necessary to effect the intent of the parties as evidenced by this Amendment,
all other terms and provisions of the Agreement are hereby ratified and
confirmed and remain in full force and effect.
3
<PAGE> 73
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
GENERAL PARTNER:
SUMMIT PROPERTIES INC.
By: /s/ Michael G. Malone
-------------------------------
Michael G. Malone
Senior Vice President
LIMITED PARTNERS:
Those Persons listed on Exhibit A
attached hereto
By: Summit Properties Inc., their
attorney-in-fact
By: /s/ Michael G. Malone
---------------------------
Michael G. Malone
Senior Vice President
4
<PAGE> 74
FOURTH AMENDMENT TO AGREEMENT OF LIMITED PARTNERSHIP
OF SUMMIT PROPERTIES PARTNERSHIP, L.P.
--------------------------------------
THIS FOURTH AMENDMENT TO AGREEMENT OF LIMITED PARTNERSHIP OF SUMMIT
PROPERTIES PARTNERSHIP, L.P. (this "Amendment") is dated as of May 16, 1995, and
entered into by and among Summit Properties Inc. (the "Company") and the Persons
whose names are set forth on EXHIBIT A as attached hereto.
WHEREAS, the Company and the Persons whose names are set forth on
SCHEDULE 1 (the "Partners") have formed or were subsequently admitted as
partners to Summit Properties Partnership, L.P. (the "Partnership") pursuant to
an Agreement of Limited Partnership dated as of January 29, 1994, as
subsequently amended (as amended, the "Agreement" -- all capitalized terms
contained herein and not otherwise defined herein shall have the meaning
attributed to them in the Agreement); and
WHEREAS, those persons, firms and entities listed on SCHEDULE 2 have
agreed to make contributions of property to the capital of the Partnership in
consideration for being admitted as Additional Limited Partners pursuant to
Sections 4.2 and 12.2 of the Agreement and for receiving the Partnership Units
set forth opposite his, hers, or its name on EXHIBIT A attached hereto; and
WHEREAS, the Partners desire to cause the Agreement to be amended to
reflect the admission of such persons, firms and entities listed on SCHEDULE 2
and the issuance of Partnership Units thereto and certain other amendments as
set forth below.
NOW, THEREFORE, the Agreement is hereby amended as follows:
1. In accordance with the provisions of Section 4.2, Section 12.2
and Section 12.3 of the Agreement, the Agreement is hereby amended to admit
those persons, firms and entities listed on SCHEDULE 2 as Additional Limited
Partners, and the Agreement is hereby further amended to substitute the EXHIBIT
A attached hereto for the Exhibit A attached to the Agreement.
2. A new Section 15.14 is hereby added to the Partnership
Agreement to read as follows:
"15.14. SPECIAL PROVISIONS RELATING TO CROSLAND
LIMITED PARTNERS. For purposes of this Section 15.14, the
term "Crosland Limited Partners" shall mean and refer to
those persons, firms and entities admitted as Additional
Limited Partners to the Partnership pursuant to the Fourth
Amendment to Agreement of Limited Partnership of Summit
Properties Partnership, L.P. together with all Constitutive
Partners who are subsequently admitted as Additional Limited
Partners to
<PAGE> 75
the Partnership. The phrase "Constitutive Partners" and any
other capitalized term which is not defined in the Agreement
or this Amendment or otherwise defined in this Section 15.14
shall, for purposes of this Section 15.14 have the meaning
attributed to such term in that certain Agreement to
Contribute between the Partnership, the Company and the
Owners listed on Schedule 1 attached thereto and the Crosland
Partnerships listed on Schedule 2 attached thereto dated as
of February 13, 1995, as amended (the "Crosland Contribution
Agreement").
(a) Each Crosland Limited Partner that
entered into a "Lock-Up Letter Agreement" addressed
to the Partnership and the Company in connection
with the closing under the Crosland Contribution
Agreement will not exercise its Redemption Rights
during the 365 days following the Closing Date.
After the termination of such period, any such
Crosland Limited Partner will have the same
Redemption Rights as all other Limited Partners. In
the event such Redemption Rights are exercised, and
the Company elects to fulfill its obligations by
paying the REIT Shares Amount, the Partnership shall
have the right to require such Crosland Limited
Partners to deliver a subscriber questionnaire in
the form set forth in Schedule 13 to the Crosland
Contribution Agreement.
(b) Except to the extent otherwise required
by the Code, the "traditional method" provided for
in Regulation ss.1.704-3(b) shall apply to all tax
allocations governed by Code ss.704(c) and all
"reverse Section 704(c) allocations" with respect to
the Projects.
(c) Subject to the provisions of Section
3.17 and Section 3.11(b) of the Crosland
Contribution Agreement, the Partnership acknowledges
that the Direct Owners intend in the future to
distribute their Partnership Units to their
Constitutive Partners. Upon such distributions, such
Constitutive Partners shall constitute Additional
Limited Partners with all rights attendant thereto
and such distributing Direct Owner shall cease to
constitute Limited Partners to the extent such
Direct Owners' Partnership Units are so distributed,
in each case upon such distribution. The Partnership
and the Company shall execute and deliver such
documents as may be reasonably requested by the
Direct Owners or such Constitutive Partners in
connection therewith.
2
<PAGE> 76
(d) All distributions being made to the
Crosland Limited Partners for the Partnership's
fiscal quarter in which the closing (or if more than
one, then each such closing) under the Crosland
Contribution Agreement occurs will be prorated
consistently with the provisions of Section 6.5 of
the Crosland Contribution Agreement."
Except as expressly amended by the provisions hereof or as
may be necessary to effect the intent of the parties as evidenced by
this Amendment, all other terms and provisions of the Agreement are
hereby ratified and confirmed and remain in full force and effect.
3
<PAGE> 77
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date first above written.
GENERAL PARTNER:
SUMMIT PROPERTIES INC.
By: /s/ Michael G. Malone
------------------------------------
Michael G. Malone
Senior Vice President
LIMITED PARTNERS:
Those Persons listed on Exhibit A
attached hereto
By: Summit Properties Inc., their
attorney-in-fact
By: /s/ Michael G. Malone
--------------------------------
Michael G. Malone
Senior Vice President
4
<PAGE> 78
SUMMIT PROPERTIES PARTNERSHIP, L.P.
SIGNATURE PAGE
TO BE EXECUTED BY EACH ADDITIONAL LIMITED PARTNER
-------------------------------------------------
The undersigned hereby executes this Signature Page to the Agreement of
Limited Partnership dated as of January 29, 1994, as subsequently amended (the
"Agreement") of Summit Properties Partnership, L.P., a Delaware limited
partnership, for the purpose of being admitted to said Limited Partnership, as
a Limited Partner, and the undersigned does further hereby adopt, accept,
ratify, confirm and agree to be bound by all of the terms and conditions of
said Agreement including, without limitation, the provisions of Section 2.4 and
any other provision of the Agreement appointing the General Partner or the
Liquidator (as those terms are defined in the Agreement) as attorney-in-fact
for the undersigned.
CEDAR RIDGE APARTMENT INVESTORS, A
NORTH CAROLINA LIMITED PARTNERSHIP
By: The Crosland Group, Inc., a
North Carolina corporation,
General Partner
ATTEST:
/s/ Melanie Mastalski By: /s/ Charles E. Teal
- --------------------- ------------------------
Asst. Secretary Vice President
[CORPORATE SEAL]
By: /s/ John Crosland, Jr. [SEAL]
----------------------
John Crosland, Jr.,
General Partner
<PAGE> 79
SUMMIT PROPERTIES PARTNERSHIP, L.P.
SIGNATURE PAGE
TO BE EXECUTED BY EACH ADDITIONAL LIMITED PARTNER
-------------------------------------------------
The undersigned hereby executes this Signature Page to the Agreement of
Limited Partnership dated as of January 29, 1994, as subsequently amended (the
"Agreement") of Summit Properties Partnership, L.P., a Delaware limited
partnership, for the purpose of being admitted to said Limited Partnership, as
a Limited Partner, and the undersigned does further hereby adopt, accept,
ratify, confirm and agree to be bound by all of the terms and conditions of
said Agreement including, without limitation, the provisions of Section 2.4 and
any other provision of the Agreement appointing the General Partner or the
Liquidator (as those terms are defined in the Agreement) as attorney-in-fact
for the undersigned.
CREEKSIDE ASSOCIATES, A NORTH
CAROLINA LIMITED PARTNERSHIP
By: The Crosland Group, Inc., a
North Carolina corporation,
General Partner
ATTEST:
/s/ Melanie Mastalski By: /s/ Charles E. Teal
- --------------------- ------------------------
Asst. Secretary Vice President
[CORPORATE SEAL]
By: /s/ John Crosland, Jr. [SEAL]
----------------------
John Crosland, Jr.,
General Partner
2
<PAGE> 80
SUMMIT PROPERTIES PARTNERSHIP, L.P.
SIGNATURE PAGE
TO BE EXECUTED BY EACH ADDITIONAL LIMITED PARTNER
-------------------------------------------------
The undersigned hereby executes this Signature Page to the Agreement of
Limited Partnership dated as of January 29, 1994, as subsequently amended (the
"Agreement") of Summit Properties Partnership, L.P., a Delaware limited
partnership, for the purpose of being admitted to said Limited Partnership, as
a Limited Partner, and the undersigned does further hereby adopt, accept,
ratify, confirm and agree to be bound by all of the terms and conditions of
said Agreement including, without limitation, the provisions of Section 2.4 and
any other provision of the Agreement appointing the General Partner or the
Liquidator (as those terms are defined in the Agreement) as attorney-in-fact
for the undersigned.
CROSS CREEK ASSOCIATES, A NORTH
CAROLINA LIMITED PARTNERSHIP
By: The Crosland Group, Inc., a
North Carolina corporation,
General Partner
ATTEST:
/s/ Melanie Mastalski By: /s/ Charles E. Teal
- --------------------- ------------------------
Asst. Secretary Vice President
[CORPORATE SEAL]
By: /s/ John Crosland, Jr. [SEAL]
----------------------
John Crosland, Jr.,
General Partner
3
<PAGE> 81
SUMMIT PROPERTIES PARTNERSHIP, L.P.
SIGNATURE PAGE
TO BE EXECUTED BY EACH ADDITIONAL LIMITED PARTNER
-------------------------------------------------
The undersigned hereby executes this Signature Page to the Agreement of
Limited Partnership dated as of January 29, 1994, as subsequently amended (the
"Agreement") of Summit Properties Partnership, L.P., a Delaware limited
partnership, for the purpose of being admitted to said Limited Partnership, as
a Limited Partner, and the undersigned does further hereby adopt, accept,
ratify, confirm and agree to be bound by all of the terms and conditions of
said Agreement including, without limitation, the provisions of Section 2.4 and
any other provision of the Agreement appointing the General Partner or the
Liquidator (as those terms are defined in the Agreement) as attorney-in-fact
for the undersigned.
HAMILTON RIDGE ASSOCIATES, A NORTH
CAROLINA LIMITED PARTNERSHIP
By: The Crosland Group, Inc., a
North Carolina corporation,
General Partner
ATTEST:
/s/ Melanie Mastalski By: /s/ Charles E. Teal
- --------------------- ------------------------
Asst. Secretary Vice President
[CORPORATE SEAL]
4
<PAGE> 82
SUMMIT PROPERTIES PARTNERSHIP, L.P.
SIGNATURE PAGE
TO BE EXECUTED BY EACH ADDITIONAL LIMITED PARTNER
-------------------------------------------------
The undersigned hereby executes this Signature Page to the Agreement of
Limited Partnership dated as of January 29, 1994, as subsequently amended (the
"Agreement") of Summit Properties Partnership, L.P., a Delaware limited
partnership, for the purpose of being admitted to said Limited Partnership, as
a Limited Partner, and the undersigned does further hereby adopt, accept,
ratify, confirm and agree to be bound by all of the terms and conditions of
said Agreement including, without limitation, the provisions of Section 2.4 and
any other provision of the Agreement appointing the General Partner or the
Liquidator (as those terms are defined in the Agreement) as attorney-in-fact
for the undersigned.
WESTBURY PARK ASSOCIATES, A NORTH
CAROLINA LIMITED PARTNERSHIP
By: Crosland Management Limited
Partnership, a North Carolina
Limited Partnership, General
Partner
By: Crosland Apartment Investors, Inc.,
a North Carolina corporation,
General Partner
ATTEST:
/s/ Melanie Mastalski By: /s/ Charles E. Teal
- --------------------- ------------------------
Asst. Secretary Vice President
[CORPORATE SEAL]
By: /s/ John Crosland, Jr.
----------------------
John Crosland, Jr.,
General Partner
5
<PAGE> 83
SUMMIT PROPERTIES PARTNERSHIP, L.P.
SIGNATURE PAGE
TO BE EXECUTED BY EACH ADDITIONAL LIMITED PARTNER
-------------------------------------------------
The undersigned hereby executes this Signature Page to the Agreement of
Limited Partnership dated as of January 29, 1994, as subsequently amended (the
"Agreement") of Summit Properties Partnership, L.P., a Delaware limited
partnership, for the purpose of being admitted to said Limited Partnership, as
a Limited Partner, and the undersigned does further hereby adopt, accept,
ratify, confirm and agree to be bound by all of the terms and conditions of
said Agreement including, without limitation, the provisions of Section 2.4 and
any other provision of the Agreement appointing the General Partner or the
Liquidator (as those terms are defined in the Agreement) as attorney-in-fact
for the undersigned.
WESTBURY PLACE ASSOCIATES, A NORTH
CAROLINA LIMITED PARTNERSHIP
By: Crosland Management Limited
Partnership, a North Carolina
Limited Partnership, General
Partner
By: Crosland Apartment Investors, Inc.,
a North Carolina corporation,
General Partner
ATTEST:
/s/ Melanie Mastalski By: /s/ Charles E. Teal
- --------------------- ------------------------
Asst. Secretary Vice President
[CORPORATE SEAL]
By: /s/ John Crosland, Jr.
----------------------
John Crosland, Jr.,
General Partner
6
<PAGE> 84
SUMMIT PROPERTIES PARTNERSHIP, L.P.
SIGNATURE PAGE
TO BE EXECUTED BY EACH ADDITIONAL LIMITED PARTNER
-------------------------------------------------
The undersigned hereby executes this Signature Page to the Agreement of
Limited Partnership dated as of January 29, 1994, as subsequently amended (the
"Agreement") of Summit Properties Partnership, L.P., a Delaware limited
partnership, for the purpose of being admitted to said Limited Partnership, as
a Limited Partner, and the undersigned does further hereby adopt, accept,
ratify, confirm and agree to be bound by all of the terms and conditions of
said Agreement including, without limitation, the provisions of Section 2.4 and
any other provision of the Agreement appointing the General Partner or the
Liquidator (as those terms are defined in the Agreement) as attorney-in-fact
for the undersigned.
WESTBURY WOODS ASSOCIATES, A NORTH
CAROLINA LIMITED PARTNERSHIP
By: Crosland Management Limited
Partnership, North Carolina
Limited Partnership, General
Partner
By: Crosland Apartment Investors, Inc.,
a North Carolina corporation,
General Partner
ATTEST:
/s/ Melanie Mastalski By: /s/ Charles E. Teal
- --------------------- ------------------------
Asst. Secretary Vice President
[CORPORATE SEAL]
By: The Crosland Group, Inc., a
North Carolina corporation,
General Partner
ATTEST:
/s/ Melanie Mastalski By: /s/ Charles E. Teal
- --------------------- ------------------------
Asst. Secretary Vice President
[CORPORATE SEAL]
7
<PAGE> 85
SUMMIT PROPERTIES PARTNERSHIP, L.P.
SIGNATURE PAGE
TO BE EXECUTED BY EACH ADDITIONAL LIMITED PARTNER
-------------------------------------------------
The undersigned hereby executes this Signature Page to the Agreement of
Limited Partnership dated as of January 29, 1994, as subsequently amended (the
"Agreement") of Summit Properties Partnership, L.P., a Delaware limited
partnership, for the purpose of being admitted to said Limited Partnership, as
a Limited Partner, and the undersigned does further hereby adopt, accept,
ratify, confirm and agree to be bound by all of the terms and conditions of
said Agreement including, without limitation, the provisions of Section 2.4 and
any other provision of the Agreement appointing the General Partner or the
Liquidator (as those terms are defined in the Agreement) as attorney-in-fact
for the undersigned.
CROSLAND INVESTORS, INC., a North
Carolina corporation
ATTEST:
/s/ Melanie Mastalski By: /s/ Charles E. Teal
- --------------------- ------------------------
Asst. Secretary Vice President
[CORPORATE SEAL]
8
<PAGE> 86
SUMMIT PROPERTIES PARTNERSHIP, L.P.
SIGNATURE PAGE
TO BE EXECUTED BY EACH ADDITIONAL LIMITED PARTNER
-------------------------------------------------
The undersigned hereby executes this Signature Page to the Agreement of
Limited Partnership dated as of January 29, 1994, as subsequently amended (the
"Agreement") of Summit Properties Partnership, L.P., a Delaware limited
partnership, for the purpose of being admitted to said Limited Partnership, as
a Limited Partner, and the undersigned does further hereby adopt, accept,
ratify, confirm and agree to be bound by all of the terms and conditions of
said Agreement including, without limitation, the provisions of Section 2.4 and
any other provision of the Agreement appointing the General Partner or the
Liquidator (as those terms are defined in the Agreement) as attorney-in-fact
for the undersigned.
CROSLAND ARBORS ASSOCIATES LIMITED
PARTNERSHIP, a North Carolina
limited partnership
By: Crosland Investors, Inc., a
North Carolina corporation,
General Partner
ATTEST:
/s/ Melanie Mastalski By: /s/ Charles E. Teal
- --------------------- ------------------------
Asst. Secretary Vice President
[CORPORATE SEAL]
9
<PAGE> 87
SUMMIT PROPERTIES PARTNERSHIP, L.P.
SIGNATURE PAGE
TO BE EXECUTED BY EACH ADDITIONAL LIMITED PARTNER
-------------------------------------------------
The undersigned hereby executes this Signature Page to the Agreement of
Limited Partnership dated as of January 29, 1994, as subsequently amended (the
"Agreement") of Summit Properties Partnership, L.P., a Delaware limited
partnership, for the purpose of being admitted to said Limited Partnership, as
a Limited Partner, and the undersigned does further hereby adopt, accept,
ratify, confirm and agree to be bound by all of the terms and conditions of
said Agreement including, without limitation, the provisions of Section 2.4 and
any other provision of the Agreement appointing the General Partner or the
Liquidator (as those terms are defined in the Agreement) as attorney-in-fact
for the undersigned.
JMJ ASSOCIATES, A NORTH CAROLINA
LIMITED PARTNERSHIP, a North Carolina
limited partnership
By: /s/ John Crosland, Jr.
-------------------------------
John Crosland, Jr., Trustee
Under John Crosland, Jr.
Declaration of Trust, dated
December 30, 1987,
General Partner
10
<PAGE> 88
SUMMIT PROPERTIES PARTNERSHIP, L.P.
SIGNATURE PAGE
TO BE EXECUTED BY EACH ADDITIONAL LIMITED PARTNER
-------------------------------------------------
The undersigned hereby executes this Signature Page to the Agreement of
Limited Partnership dated as of January 29, 1994, as subsequently amended (the
"Agreement") of Summit Properties Partnership, L.P., a Delaware limited
partnership, for the purpose of being admitted to said Limited Partnership, as
a Limited Partner, and the undersigned does further hereby adopt, accept,
ratify, confirm and agree to be bound by all of the terms and conditions of
said Agreement including, without limitation, the provisions of Section 2.4 and
any other provision of the Agreement appointing the General Partner or the
Liquidator (as those terms are defined in the Agreement) as attorney-in-fact
for the undersigned.
/s/ Justin F. Little [SEAL]
---------------------
Justin F. Little
11
<PAGE> 89
SUMMIT PROPERTIES PARTNERSHIP, L.P.
SIGNATURE PAGE
TO BE EXECUTED BY EACH ADDITIONAL LIMITED PARTNER
-------------------------------------------------
The undersigned hereby executes this Signature Page to the Agreement of
Limited Partnership dated as of January 29, 1994, as subsequently amended (the
"Agreement") of Summit Properties Partnership, L.P., a Delaware limited
partnership, for the purpose of being admitted to said Limited Partnership, as
a Limited Partner, and the undersigned does further hereby adopt, accept,
ratify, confirm and agree to be bound by all of the terms and conditions of
said Agreement including, without limitation, the provisions of Section 2.4 and
any other provision of the Agreement appointing the General Partner or the
Liquidator (as those terms are defined in the Agreement) as attorney-in-fact
for the undersigned.
THE CROSLAND GROUP, INC., a North
Carolina corporation
ATTEST:
/s/ Melanie Mastalski By: /s/ Charles E. Teal
- --------------------- ------------------------
Asst. Secretary Vice President
[CORPORATE SEAL]
12
<PAGE> 90
SUMMIT PROPERTIES PARTNERSHIP, L.P.
SIGNATURE PAGE
TO BE EXECUTED BY EACH ADDITIONAL LIMITED PARTNER
-------------------------------------------------
The undersigned hereby executes this Signature Page to the Agreement of
Limited Partnership dated as of January 29, 1994, as subsequently amended (the
"Agreement") of Summit Properties Partnership, L.P., a Delaware limited
partnership, for the purpose of being admitted to said Limited Partnership, as
a Limited Partner, and the undersigned does further hereby adopt, accept,
ratify, confirm and agree to be bound by all of the terms and conditions of
said Agreement including, without limitation, the provisions of Section 2.4 and
any other provision of the Agreement appointing the General Partner or the
Liquidator (as those terms are defined in the Agreement) as attorney-in-fact
for the undersigned.
/s/ Charles E. Teal
--------------------- [SEAL]
Charles E. Teal
13
<PAGE> 91
SUMMIT PROPERTIES PARTNERSHIP, L.P.
SIGNATURE PAGE
TO BE EXECUTED BY EACH ADDITIONAL LIMITED PARTNER
-------------------------------------------------
The undersigned hereby executes this Signature Page to the Agreement of
Limited Partnership dated as of January 29, 1994, as subsequently amended (the
"Agreement") of Summit Properties Partnership, L.P., a Delaware limited
partnership, for the purpose of being admitted to said Limited Partnership, as
a Limited Partner, and the undersigned does further hereby adopt, accept,
ratify, confirm and agree to be bound by all of the terms and conditions of
said Agreement including, without limitation, the provisions of Section 2.4 and
any other provision of the Agreement appointing the General Partner or the
Liquidator (as those terms are defined in the Agreement) as attorney-in-fact
for the undersigned.
/s/ John Crosland, Jr.
---------------------- [SEAL]
John Crosland, Jr.
14
<PAGE> 92
SUMMIT PROPERTIES PARTNERSHIP, L.P.
SIGNATURE PAGE
TO BE EXECUTED BY EACH ADDITIONAL LIMITED PARTNER
-------------------------------------------------
The undersigned hereby executes this Signature Page to the Agreement of
Limited Partnership dated as of January 29, 1994, as subsequently amended (the
"Agreement") of Summit Properties Partnership, L.P., a Delaware limited
partnership, for the purpose of being admitted to said Limited Partnership, as
a Limited Partner, and the undersigned does further hereby adopt, accept,
ratify, confirm and agree to be bound by all of the terms and conditions of
said Agreement including, without limitation, the provisions of Section 2.4 and
any other provision of the Agreement appointing the General Partner or the
Liquidator (as those terms are defined in the Agreement) as attorney-in-fact
for the undersigned.
CROSLAN-ERWIN & ASSOCIATES, NO. VI,
A NORTH CAROLINA GENERAL PARTNERSHIP
By: The Crosland Group, Inc., a
North Carolina corporation,
Managing General Partner
ATTEST:
/s/ Melanie Mastalski By: /s/ Charles E. Teal
- --------------------- ------------------------
Asst. Secretary Vice President
[CORPORATE SEAL]
15
<PAGE> 93
SUMMIT PROPERTIES PARTNERSHIP, L.P.
SIGNATURE PAGE
TO BE EXECUTED BY EACH ADDITIONAL LIMITED PARTNER
-------------------------------------------------
The undersigned hereby executes this Signature Page to the Agreement of
Limited Partnership dated as of January 29, 1994, as subsequently amended (the
"Agreement") of Summit Properties Partnership, L.P., a Delaware limited
partnership, for the purpose of being admitted to said Limited Partnership, as
a Limited Partner, and the undersigned does further hereby adopt, accept,
ratify, confirm and agree to be bound by all of the terms and conditions of
said Agreement including, without limitation, the provisions of Section 2.4 and
any other provision of the Agreement appointing the General Partner or the
Liquidator (as those terms are defined in the Agreement) as attorney-in-fact
for the undersigned.
/s/ Roger M. Lewis
---------------------- [SEAL]
Roger M. Lewis
17
<PAGE> 94
FIFTH AMENDMENT TO AGREEMENT OF LIMITED PARTNERSHIP
OF SUMMIT PROPERTIES PARTNERSHIP, L.P.
--------------------------------------
THIS FIFTH AMENDMENT TO AGREEMENT OF LIMITED PARTNERSHIP OF SUMMIT
PROPERTIES PARTNERSHIP, L.P. (this "Amendment") is dated as of June 15, 1995,
and entered into by and among Summit Properties Inc. (the "Company") and the
Persons whose names are set forth on EXHIBIT A as attached hereto.
WHEREAS, the Company and the Persons whose names are set forth on
EXHIBIT A (the "Partners") have formed Summit Properties Partnership, L.P. (the
"Partnership") pursuant to an Agreement of Limited Partnership dated as of
January 29, 1994, as previously amended (as amended, the "Agreement" -- all
capitalized terms contained herein and not otherwise defined herein shall have
the meaning attributed to them in the Agreement); and
WHEREAS, the Partners desire to amend the Partnership Agreement to add
certain provisions required by the Department of Housing and Urban Development
("HUD") as a condition to its consent to allow the Partnership to acquire
certain real property subject to mortgage loans insured by HUD; and
WHEREAS, this Amendment has been approved by the General Partner and
does not require the approval of the Limited Partners.
NOW, THEREFORE, the Agreement is hereby amended as follows:
Section 15.13 is hereby amended to read as follows:
"15.13. SPECIAL PROVISIONS RELATING TO HUD INSURED
LOANS. So long as the Secretary of Housing and Urban
Development, or his successors or assigns, is the insurer or
holder of the deeds of trust on Cedar Ridge Phase I Project
Number 053-35180-PM, Cedar Ridge (Phase II) Project Number
053-11076-REF/CON, Foxcroft East Project Number 053-35213-PM,
Westbury Park Project Number 053-35485-PM, Cross Creek
Project Number 053-35202-PM, Sherwood Colony Project Number
053-11077-REF/CON, Eastchester Ridge Project Number
053-35277-PM, Creekside Project Number 053-353310-PM, Oak
Creek Project Number 053-35307-PM, Westbury Place Project
Number 054-35523 (collectively, the "insured projects"), no
amendment to this Agreement which results in any of the
following shall be of force or effect without the prior
written consent of the Department of Housing and Urban
Development ("HUD"): (1) any amendment which modifies the
duration of the Agreement; (2) any amendment which results in
the requirement that a HUD prior participation certification
be obtained for any additional party; (3) any amendment which
in any way affects the deeds of trust
<PAGE> 95
or mortgages encumbering the insured projects or the
regulatory agreements related thereto. In the event of a
conflict between this Section and any other Section of this
Agreement, this Section shall control.
The Partnership is authorized to execute notes and deeds of
trust or mortgages in order to secure loans (or acquire
properties subject to loans) to be insured by HUD and to
execute related regulatory agreements and other documents
required by HUD in connection with such loans or
acquisitions.
Any incoming general partner shall as a condition of
receiving an interest in the Partnership agree to be bound by
the notes, deeds of trust or mortgages, and related
regulatory agreements affecting the insured projects and
other documents required in connection with the insured loans
to the same extent and on the same terms as the other general
partners.
Notwithstanding any other provisions of this Agreement, upon
any dissolution, no title or right to possession and control
of the insured projects, and no right to collect the rents
therefrom shall pass to any person who is not bound by the
then applicable regulatory agreements in a manner
satisfactory to HUD.
Notwithstanding any other provision of this Agreement, the
regulatory agreements affecting the insured projects shall be
binding upon the Partnership, its successors and assigns. The
Partnership shall comply in every respect with the regulatory
agreements affecting the insured projects and all applicable
federal, state and local statues and regulations, including
HUD Regulations without limitation.
Notwithstanding any other provision of this Agreement, in the
event that any provision of this Agreement conflicts with any
provisions of any then applicable regulatory agreement
relating to an insured project, the provision of such
regulatory agreement shall control.
So long as the Secretary of Housing and Urban Development, or
his successors or assigns, is the insurer or holder of a deed
of trust or a mortgage on any of the insured projects, this
Partnership shall not be voluntarily dissolved without the
prior written approval of the Secretary of Housing and Urban
Development.
Notwithstanding any provision of Article 5 or Article 13 to
the contrary, no distribution of cash generated from the
operation or disposition of any property encumbered
2
<PAGE> 96
by a HUD-insured loan or loan held by HUD will be made to
anyone except in compliance with all HUD rules and
regulations regarding the distribution of "surplus cash" and
the requirements of any applicable regulatory agreement. For
purposes hereof, the phrase, "surplus cash" with respect to
any project encumbered by a HUD insured loan or loan held by
HUD means any cash remaining after
(1) the payment of:
(i) All sums due or currently required
to be paid under the terms of any
mortgage or note insured or held by
HUD;
(ii) All amounts required to be
deposited in the reserve fund for
replacements;
(iii) All obligations of the project
other than the insured mortgage
unless funds for payment are set
aside or deferment of payment has
been approved by HUD; and
(2) the segregation of:
(i) An amount equal to the aggregate of
all special funds required to be
maintained by the project; and
(ii) All tenant security deposits held."
Except as expressly amended by the provisions hereof or as may be
necessary to effect the intent of the parties as evidenced by this Amendment,
all other terms and provisions of the Agreement are hereby ratified and
confirmed and remain in full force and effect.
3
<PAGE> 97
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
GENERAL PARTNER:
SUMMIT PROPERTIES INC.
By: /s/ Michael G. Malone
------------------------------------
Michael G. Malone
Senior Vice President
LIMITED PARTNERS:
Those Persons listed on Exhibit A
attached hereto
By: Summit Properties Inc., their
attorney-in-fact
By: /s/ Michael G. Malone
--------------------------------
Michael G. Malone
Senior Vice President
4
<PAGE> 98
EIGHTH AMENDMENT TO AGREEMENT OF LIMITED PARTNERSHIP
OF SUMMIT PROPERTIES PARTNERSHIP, L.P.
--------------------------------------
THIS EIGHTH AMENDMENT TO AGREEMENT OF LIMITED PARTNERSHIP OF SUMMIT
PROPERTIES PARTNERSHIP, L.P. (this "Amendment") is dated as of April 4, 1996,
and entered into by and among Summit Properties Inc. (the "Company") and the
Persons whose names are set forth on EXHIBIT A as attached hereto.
WHEREAS, the Company and the Persons whose names are set forth on
EXHIBIT A are partners (the "Partners") of Summit Properties Partnership, L.P.
(the "Partnership") pursuant to an Agreement of Limited Partnership dated as of
January 29, 1994, as previously amended (as amended, the "Agreement" -- all
capitalized terms contained herein and not otherwise defined herein shall have
the meaning attributed to them in the Agreement); and
WHEREAS, the Partners desire to change certain provisions in the
Agreement regarding the allocation of Nonrecourse Liabilities of the
Partnership.
WHEREAS, Section 14.1.B.(4) of the Agreement permits the General
Partner to amend the Agreement without the consent of the Limited Partners to
reflect a change that is of an inconsequential nature and does not adversely
affect the Limited Partners in any material respect; and
WHEREAS, the amendment to the Agreement set forth below is of an
inconsequential nature and does not adversely affect the Limited Partners in any
material respect, and therefore does not require the consent of any Limited
Partner.
NOW, THEREFORE, Section 6.1.C is deleted in its entirety and with the
following is substituted in lieu thereof:
C. For purposes of Regulations Section 1.752-3(a),
the Partners agree that Nonrecourse Liabilities of the
Partnership in excess of the sum of (i) the amount of
Partnership Minimum Gain; and (ii) the total amount of
Nonrecourse Built-in Gain shall be allocated among the
Partners in a manner that takes into account Code Section
704(c) gain, as discussed in Section (3)(a) of Revenue Ruling
95-41 issued by the IRS.
This Amendment will be effective as of January 1, 1995.
Except as expressly amended by the provisions hereof or as may be
necessary to effect the intent of the parties as evidenced by this Amendment,
all other terms and provisions of the Agreement are hereby ratified and
confirmed and remain in full force and effect.
<PAGE> 99
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
GENERAL PARTNER:
SUMMIT PROPERTIES INC.
By: /s/ Michael G. Malone
----------------------------------
Michael G. Malone
Senior Vice President
LIMITED PARTNERS:
Those Persons listed on Exhibit A
attached hereto
By: Summit Properties Inc., their
attorney-in-fact
By: /s/ Michael G. Malone
------------------------------
Michael G. Malone
Senior Vice President
2
<PAGE> 1
EXHIBIT 12.1
SUMMIT PROPERTIES PARTNERSHIP, L.P.
<TABLE>
CALCULATION OF RATIOS OF EARNINGS TO FIXED CHARGES
YEARS ENDED DECEMBER 31, 1996, 1995, 1994, 1993 AND 1992
(Dollars in Thousands)
<CAPTION>
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Funds from operations before fixed charges:
Income (loss) before extraordinary items $21,187 $15,051 $ 8,527 $(5,858) $(9,802)
Interest:
Expense incurred 16,113 13,715 13,006 25,286 24,834
Amortization of deferred financing costs 1,025 1,087 1,061 1,114 1,091
------- ------- ------- ------- -------
Total $38,325 $29,853 $22,594 $20,542 $16,123
======= ======= ======= ======= =======
Fixed charges:
Interest expense $16,113 $13,715 $13,006 $25,286 $24,834
Interest capitalized 4,266 3,110 686 0 136
Amortization of deferred financing costs 1,025 1,087 1,061 1,114 1,091
------- ------- ------- ------- -------
Total $21,404 $17,912 $14,753 $26,400 $26,061
======= ======= ======= ======= =======
Ratio of earnings to fixed charges 1.79 1.67 1.53 0.78 0.62
======= ======= ======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF SUMMIT PROPERTIES PARTNERSHIP, L.P.
1. Stony Point/Summit Limited Partnership, a North Carolina limited
partnership*
2. Summit/Belmont Limited Partnership, a North Carolina limited
partnership*
3. Hampton/McGuire Limited Partnership, a North Carolina limited
partnership*
4. Henderson/McGuire Partners (Limited Partnership), a North Carolina
limited partnership*
5. McGregor/McGuire Limited Partnership, a North Carolina limited
partnership*
6. Summit Stonefield, LLC, a Pennsylvania limited liability company**
* Summit Properties Partnership, L.P. (the "Operating Partnership") owns
99% of the outstanding partnership interests of such limited
partnership.
** The Operating Partnership owns 100% of the outstanding membership
interests of such limited liability company.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,665
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 704,779
<DEPRECIATION> 85,651
<TOTAL-ASSETS> 635,364
<CURRENT-LIABILITIES> 0
<BONDS> 309,933
0
0
<COMMON> 0
<OTHER-SE> 303,416
<TOTAL-LIABILITY-AND-EQUITY> 635,364
<SALES> 93,547
<TOTAL-REVENUES> 94,489
<CGS> 0
<TOTAL-COSTS> 35,399
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,138
<INCOME-PRETAX> 21,187
<INCOME-TAX> 0
<INCOME-CONTINUING> 21,187
<DISCONTINUED> 0
<EXTRAORDINARY> 626
<CHANGES> 0
<NET-INCOME> 20,561
<EPS-PRIMARY> .90
<EPS-DILUTED> 0
</TABLE>
