<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
<TABLE>
<C> <S>
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________.
</TABLE>
COMMISSION FILE NUMBER 0-22411
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SUMMIT PROPERTIES PARTNERSHIP, L.P.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 56-1857809
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
212 S. TRYON STREET, SUITE 500, CHARLOTTE, NORTH CAROLINA 28281
(Address of principal executive offices -- zip code)
(704) 334-9905
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
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<PAGE> 2
SUMMIT PROPERTIES PARTNERSHIP, L.P.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997 (Unaudited)......................... 3
Consolidated Statements of Earnings for the three and
nine months ended September 30, 1998 and 1997
(Unaudited)............................................... 4
Consolidated Statement of Partners' Equity for the nine
months ended September 30, 1998 (Unaudited)............... 5
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998 and 1997 (Unaudited)............. 6
Notes to Consolidated Financial Statements.................. 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 12
PART II OTHER INFORMATION
Item 2 Changes in Securities....................................... 26
Item 6 Exhibits and Reports on Form 8-K............................ 27
SIGNATURES.......................................................... 28
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUMMIT PROPERTIES PARTNERSHIP, L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
ASSETS
Real estate assets:
Land and land improvements................................ $151,962 $133,316
Buildings and improvements................................ 732,246 643,812
Furniture, fixtures and equipment......................... 61,295 53,573
-------- --------
945,503 830,701
Less: accumulated depreciation............................ (121,631) (105,979)
-------- --------
Operating real estate assets...................... 823,872 724,722
Construction in progress.................................. 140,604 82,332
-------- --------
Net real estate assets............................ 964,476 807,054
Cash and cash equivalents................................... 4,823 3,563
Restricted cash............................................. 7,702 3,180
Deferred financing costs, net............................... 7,501 7,378
Other assets................................................ 5,498 4,520
-------- --------
Total assets................................................ $990,000 $825,695
======== ========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Notes payable............................................. $601,872 $474,673
Accrued interest payable.................................. 3,492 4,916
Accounts payable and accrued expenses..................... 21,244 19,945
Distributions payable..................................... 12,135 11,030
Security deposits and prepaid rents....................... 4,134 3,561
-------- --------
Total liabilities................................. 642,877 514,125
-------- --------
Commitments and contingencies
Partners' equity:
Partnership units issued and outstanding 29,679,038 and
27,339,016
General partner -- outstanding 296,790 and 273,390..... 4,202 3,847
Limited partners -- outstanding 29,382,248 and
27,065,626............................................ 342,921 307,723
-------- --------
Total partners' equity............................ 347,123 311,570
-------- --------
Total liabilities and partners' equity...................... $990,000 $825,695
======== ========
</TABLE>
See notes to consolidated financial statements (unaudited).
3
<PAGE> 4
SUMMIT PROPERTIES PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Rental.................................... $ 35,251 $ 28,240 $ 99,047 $ 80,348
Other property income..................... 2,144 1,660 5,733 4,558
Interest.................................. 233 97 511 305
Other income.............................. 628 71 775 209
----------- ----------- ----------- -----------
Total revenues.................... 38,256 30,068 106,066 85,420
----------- ----------- ----------- -----------
Expenses:
Property operating and maintenance:
Personnel.............................. 2,993 2,427 8,103 6,899
Advertising and promotion.............. 625 596 1,731 1,418
Utilities.............................. 1,619 1,312 4,502 3,623
Building repairs and maintenance....... 2,738 2,326 7,216 6,382
Real estate taxes and insurance........ 3,381 2,573 10,251 8,111
Depreciation........................... 7,373 5,852 20,774 16,463
Property supervision................... 904 701 2,545 2,041
Other operating expenses............... 1,011 797 2,851 2,356
----------- ----------- ----------- -----------
20,644 16,584 57,973 47,293
Interest.................................. 8,392 5,790 23,351 15,382
General and administrative................ 1,190 857 2,726 2,099
Loss (income) in equity investments....... 138 (111) 95 (86)
----------- ----------- ----------- -----------
Total expenses.................... 30,364 23,120 84,145 64,688
----------- ----------- ----------- -----------
Income before gain on sale of real estate
assets and extraordinary items............ 7,892 6,948 21,921 20,732
Gain on real estate assets.................. -- -- 8,731 4,366
----------- ----------- ----------- -----------
Income before extraordinary items........... 7,892 6,948 30,652 25,098
Extraordinary items......................... -- -- (185) --
----------- ----------- ----------- -----------
Net income.................................. 7,892 6,948 30,467 25,098
Net income allocated to general partner..... (79) (70) (305) (251)
=========== =========== =========== ===========
Net income allocated to limited partners.... $ 7,813 $ 6,878 $ 30,162 $ 24,847
=========== =========== =========== ===========
Per unit data:
Income before extraordinary items -- basic
and diluted............................ $ 0.27 $ 0.25 $ 1.06 $ 0.92
=========== =========== =========== ===========
Net income -- basic and diluted........... $ 0.27 $ 0.25 $ 1.06 $ 0.92
=========== =========== =========== ===========
Distributions declared.................... $ 0.41 $ 0.40 $ 1.23 $ 1.19
=========== =========== =========== ===========
Weighted average units -- basic........... 29,462,433 27,334,464 28,808,330 27,220,199
=========== =========== =========== ===========
Weighted average units -- diluted......... 29,468,032 27,369,316 28,825,095 27,252,718
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements (unaudited).
4
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SUMMIT PROPERTIES PARTNERSHIP, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNER TOTAL
------- -------- --------
<S> <C> <C> <C>
Balance, December 31, 1998.................................. $3,847 $307,723 $311,570
Distributions............................................. (358) (35,396) (35,754)
Contributions from Summit Properties related to:
Proceeds from dividend reinvestment and stock purchase
plans................................................ 370 36,631 37,001
Exercise of stock options.............................. 8 833 841
Amortization of restricted stock grants................ 3 302 305
Issuance of units related to property acquisition......... 52 5,161 5,213
Issuance of employee notes receivable..................... (25) (2,495) (2,520)
Net income................................................ 305 30,162 30,467
------ -------- --------
Balance, September 30, 1998................................. $4,202 $342,921 $347,123
====== ======== ========
</TABLE>
See notes to consolidated financial statements (unaudited).
5
<PAGE> 6
SUMMIT PROPERTIES PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 30,467 $ 25,098
Adjustments to reconcile net income to net cash provided
by operating activities:
Extraordinary items....................................... 185 --
(Gain) loss on equity method investments.................. 95 (86)
Gain on sale of real estate assets........................ (8,731) (4,366)
Depreciation and amortization............................. 21,778 17,336
Increase in restricted cash............................... (586) (994)
Increase in other assets.................................. (775) (699)
Increase (decrease) in accrued interest payable........... (1,439) 1,262
Increase in accounts payable and accrued expenses......... 6,156 4,484
Increase in security deposits and prepaid rents........... 301 (104)
--------- ---------
Net cash provided by operating activities......... 47,451 41,931
--------- ---------
Cash flows from investing activities:
Construction of real estate assets, net of payables....... (92,946) (68,980)
Purchase of Communities................................... (73,654) (57,749)
Proceeds from sale of a Community......................... 19,996 9,271
Capitalized interest...................................... (4,352) (4,528)
Recurring capital expenditures............................ (3,372) (2,589)
Non-recurring capital expenditures, net of payables....... (3,279) (3,317)
--------- ---------
Net cash used in investing activities............. (157,607) (127,892)
--------- ---------
Cash flows from financing activities:
Net borrowings on line of credit.......................... 103,627 (8,340)
Net borrowings on unsecured bonds......................... 29,510 121,627
Repayments of mortgage debt............................... (14,873) (2,847)
Repayments of tax exempt bonds............................ (945) (910)
Distributions to unitholders.............................. (34,724) (32,104)
Increase in employee notes................................ (2,520) --
Contributions from Summit Properties related to:
Net proceeds from dividend reinvestment and stock
purchase plans........................................ 30,500 1,760
Proceeds from public offerings......................... -- 6,813
Costs of shelf registrations........................... -- (511)
Exercise of stock options.............................. 841 738
--------- ---------
Net cash provided by financing activities......... 111,416 86,226
--------- ---------
Net increase in cash and cash equivalents................... 1,260 265
Cash and cash equivalents, beginning of period.............. 3,563 3,665
--------- ---------
Cash and cash equivalents, end of period.................... $ 4,823 $ 3,930
========= =========
Supplemental disclosure of cash flow information -- Cash
paid for interest, net of capitalized interest............ $ 24,066 $ 13,359
========= =========
</TABLE>
See notes to consolidated financial statements (unaudited).
6
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SUMMIT PROPERTIES PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by the
management of Summit Properties Partnership, L.P. (the "Operating Partnership")
in accordance with generally accepted accounting principles for interim
financial information and in conformity with the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary for a
fair presentation have been included. The results of operations for the nine
months ended September 30, 1998 are not necessarily indicative of the results
that may be expected for the full year. These financial statements should be
read in conjunction with the Operating Partnership's December 31, 1997 audited
financial statements and notes thereto included in the Operating Partnership's
Annual Report on Form 10-K.
The Operating Partnership conducts the business of developing, acquiring and
managing multi-family apartment communities for Summit Properties Inc. ("Summit
Properties"). Summit Properties is the sole general partner and majority owner
of the Operating Partnership. Summit Properties is a self-administered and
self-managed equity real estate investment trust ("REIT").
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128 "Earnings Per Share." This pronouncement
specifies the computation, presentation and disclosure requirements for earnings
per share. The new standard had no impact on the Operating Partnership's
financial statements as the "basic" and "diluted" earnings per unit disclosure
required by the pronouncement were the same as "primary" earnings per unit
previously reported. The only difference in "basic" and "diluted" weighted
average units is the dilutive effect of Summit Properties' stock options
outstanding (5,599 and 34,852 units added to weighted units outstanding for the
three months ended September 30, 1998 and 1997, respectively, and 16,765 and
32,519 units added to weighted units outstanding for the nine months ended
September 30, 1998 and 1997, respectively).
2. ACQUISITIONS, DISPOSITIONS AND COMMITMENTS
During the nine month period ending September 30, 1998, the Operating
Partnership completed the acquisition of three communities located in Atlanta,
Georgia: Summit St. Clair, purchased effective March 1, 1998, Summit Club at
Dunwoody, purchased effective May 22, 1998, and Summit at Lenox, purchased
effective July 8, 1998 (the "1998 Acquisitions"). The 1998 Acquisitions added a
total of 1,092 apartment homes to the Operating Partnership's portfolio at an
aggregate purchase price of $88.3 million.
The 1998 Acquisitions were financed with the issuance of 259,871 units of
limited partnership interest ("Units") valued at $5.2 million and the assumption
of $8.8 million of mortgage debt. The balance of the purchase price was paid in
cash.
The following summary of selected unaudited pro forma results of operations
presents information as if the 1998 Acquisitions had occurred as of January 1,
1998 for the 1998 pro-forma information. Pro forma information for the nine
months ended September 30, 1997 presents information as if the Summit at Lenox
acquisition had occurred as of January 1, 1997. Pro forma information for 1997
has not been presented for Summit St. Clair and Summit Club at Dunwoody as they
were under construction during that period and had insignificant operations. The
pro forma information for the nine months ended September 30, 1998 and 1997 is
7
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SUMMIT PROPERTIES PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
- --------------------------------------------------------------------------------
provided for informational purposes only and is not indicative of results that
would have occurred or which may occur in the future (dollars in thousands,
except per share amounts):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Total revenues............................................ $ 110,234 $ 88,683
=========== ===========
Income before gain on sale of real estate assets and
extraordinary items..................................... $ 21,192 $ 19,812
=========== ===========
Net income................................................ $ 29,738 $ 24,178
=========== ===========
Net income per share -- basic and diluted................. $ 1.03 $ 0.89
=========== ===========
Weighted average units -- basic........................... 28,911,507 27,220,199
=========== ===========
Weighted average units -- diluted......................... 28,928,272 27,252,718
=========== ===========
</TABLE>
On May 18, 1998, the Operating Partnership sold a community in Brandon, Florida
formerly known as Summit Providence for net proceeds of $23.9 million. A gain on
the sale of $8.7 million was recognized in the second quarter of 1998. Proceeds
from the sale were used to partially fund the acquisition of Summit Club at
Dunwoody.
The Operating Partnership has nine development projects currently under
construction with a total estimated cost of $161.7 million. The estimated cost
to complete these projects is $51.0 million.
3. REAL ESTATE JOINT VENTURES
The Operating Partnership owns a 49% interest in each of two joint ventures.
Each joint venture is developing a apartment community which will be accounted
for under the equity method of accounting. The projects are both under
construction and had no operations as of September 30, 1998. The construction
costs will be funded primarily through individual loans to each joint venture
from unrelated third parties equal to 100% of the construction costs. During the
construction period, in lieu of contributing equity to each of the respective
joint ventures, the Operating Partnership has under certain circumstances,
subsequent to demand by the third party lenders, agreed to make contributions
which would reduce the respective construction loan by an amount not to exceed
25% of the total construction loan amount. Any such contribution would be deemed
to be all or a portion of the equity required to be contributed by the Operating
Partnership to the respective joint venture at the end of the construction and
lease up period. The Operating Partnership has the right to purchase it's joint
venture partner interest after the projects are complete. The following is a
condensed balance sheet for the projects at September 30, 1998:
<TABLE>
<S> <C>
Cash........................................................ $ 16,098
Construction in progress.................................... 4,234,571
----------
Total assets...................................... $4,250,669
==========
Construction liabilities payable............................ $ 628,694
Construction loan payable................................... 3,611,975
Partner's capital........................................... 10,000
----------
Total liabilities and partners' capital........... $4,250,669
==========
</TABLE>
8
<PAGE> 9
SUMMIT PROPERTIES PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
- --------------------------------------------------------------------------------
4. NOTES PAYABLE
Line of Credit
The Operating Partnership obtained a new syndicated unsecured line of credit
(the "Unsecured Credit Facility") in the amount of $175 million in March 1998
which replaced the existing $150 million credit facility. The Unsecured Credit
Facility provides funds for new development, acquisitions and general working
capital purposes. The Unsecured Credit Facility has a three year term with two
one-year extension options and will initially bear interest at LIBOR + 90 basis
points based upon the Operating Partnership's current credit rating of BBB- by
Standard & Poor's Rating Services and Baa3 by Moody's Investors Service. The
interest rate will be reduced in the event an upgrade of the Operating
Partnership's unsecured credit rating is obtained. The Unsecured Credit Facility
also provides a bid option sub-facility equal to a maximum of fifty percent of
the total facility ($87.5 million). This sub-facility provides the Operating
Partnership with the option to place borrowings in a fixed LIBOR contract up to
180 days.
Mortgage Notes
On September 23, 1998, the Operating Partnership consolidated and renewed two
mortgage loans which had a $147.2 million balance. The original loans matured in
February 2001 ($118.3 million at 5.88%) and December 2005 ($28.9 million at
7.71%). The consolidation and renewal combined the two mortgage loans into one
loan at an interest rate equal to the weighted average interest rate of the two
previous mortgage loans (6.24%) up to February 2001. As of February 2001, the
rate of interest on the loan will increase to 6.76% until the loan matures in
October of 2008.
Medium-Term Notes
The Operating Partnership has established a program for the sale of up to $95
million aggregate principal amount of Medium-Term Notes due nine months or more
from the date of issuance (the "MTN Program"). On July 28, 1998, the Operating
Partnership sold $30 million of notes under the MTN Program. Such notes are due
on July 30, 2001 and bear interest at 6.75% per year. On October 5, 1998, the
Operating Partnership sold $25 million of notes under the MTN Program. Such
notes are due on October 5, 2000 and bear interest at 6.71% per year. Proceeds
from the notes issued in both July and October of 1998 were used to reduce the
Unsecured Credit Facility.
5. RESTRICTED STOCK
In the nine months ended September 30, 1998 and 1997, Summit Properties granted
6,592 and 26,528 shares, respectively, of restricted stock to employees of the
Operating Partnership and subsidiaries under Summit Properties' 1994 Stock
Option and Incentive Plan. The market value of the restricted stock grants in
1998 and 1997 totaled $135,000 and $570,000, respectively. Unearned compensation
is being amortized to expense over the vesting period which ranges from three to
five years.
9
<PAGE> 10
SUMMIT PROPERTIES PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
- --------------------------------------------------------------------------------
6. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the nine months ended September
30, 1998 and 1997 are as follows:
A. The Operating Partnership purchased the 1998 Acquisitions by issuing
259,871 Units, assuming a mortgage note, assuming certain liabilities and
the payment of cash. The recording of the purchase is summarized as follows
(in thousands):
<TABLE>
<S> <C>
Fixed assets................................................ $88,298
Current liabilities assumed................................. (681)
Value of Units issued....................................... (5,213)
Mortgage note assumed....................................... (8,750)
-------
Cash invested..................................... $73,654
=======
</TABLE>
B. The Operating Partnership sold a community on May 18, 1998 for net
proceeds of approximately $23.9 million. The proceeds of the sale were put
in escrow in accordance with like-kind exchange rules and regulations. On
May 22, 1998, $17.6 million of the escrow was used to fund the acquisition
of an apartment community (see Note 2). On July 24, 1998, $2.4 million of
the escrow was used to fund the acquisition of land for development. The
remaining $3.9 million held in escrow is shown in the balance sheet caption
"Restricted Cash" and will be used to fund the acquisition of other
like-kind property.
C. In the nine months ended September 30, 1997, the Operating Partnership
purchased four communities (Summit Mayfaire, Summit Portofino, Summit Sand
Lake and Summit Windsor II). The Operating Partnership completed the
purchase of the four Communities by assuming debt, issuing 194,495 Units,
issuing 243,608 Units to Summit Properties in exchange for Summit
Properties issuing 243,608 shares of Common Stock, 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................................................ $82,898
Other assets................................................ 30
Debt assumed................................................ (15,226)
Current liabilities assumed................................. (1,081)
Value of Units issued....................................... (3,939)
Value of Common Stock issued................................ (4,933)
-------
Cash invested..................................... $57,749
=======
</TABLE>
D. The Operating Partnership accrued a dividend and distribution payable in
the amount of $12.1 million and $10.9 million at September 30, 1998 and
1997, respectively.
E. Summit Properties issued 6,592 and 26,528 shares of restricted stock
valued at $135,000 and $570,000 during the nine months ended September 30,
1998 and 1997, respectively, to employees of the Operating Partnership and
subsidiaries.
7. NOTES RECEIVABLE FROM EMPLOYEES
On September 8, 1997, the Board of Directors of Summit Properties approved a
Statement of Company Policy, which has subsequently been amended and restated by
the Board, on loans to executive officers and certain key employees relating to
purchases of Summit Properties Common Stock (the "Loan Program"). Pursuant to
the Loan Program, Summit Properties may lend amounts to certain of Summit
Properties' executive officers and certain of it's key employees of the
Operating Partnership and subsidiaries for one or more of the following
purposes: (i) to finance the purchase of Common Stock (a) by certain executive
officers on the open market at the then-current market prices and (b) by other
eligible employees through Summit
10
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SUMMIT PROPERTIES PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
- --------------------------------------------------------------------------------
Properties 1996 Non-Qualified Employee Stock Purchase Plan; (ii) to finance an
executive officer's or key employee's payment of the exercise price of one or
more stock options to purchase shares of Common Stock granted to such employees
under Summit Properties 1994 Stock Option Plan; or (iii) to finance the annual
tax liability of certain executive officers related to the vesting of shares of
Common Stock which constitute a portion of a restricted stock award granted to
such employees under the 1994 Stock Option Plan. The maximum aggregate amount
Summit Properties may loan to an executive officer is determined on a case-by-
case basis by the Board of Directors or the Compensation Committee thereof, and
the maximum aggregate amount Summit Properties may loan to a qualified employee
is $100,000. Shares of Common Stock which are the subject of a loan serve as
collateral for the note until the note has been paid in full. Each note bears
interest at the applicable federal rate, as established by the Internal Revenue
Service in effect on the date of the note. The notes are payable through the
application to the outstanding loan balance of all dividends and distributions
related to the collateral stock, first to interest, with the remainder, if any,
to outstanding principal. Each note becomes due and payable in full on the tenth
anniversary of the respective note. As of September 30, 1998, Summit Properties
had issued loans in the net amount of $2,520,000.
8. EXTRAORDINARY ITEMS
The extraordinary items in the nine months ended September 30, 1998 resulted
from the write-off of deferred financing cost in conjunction with the
replacement by the Operating Partnership of its prior credit facility with the
Unsecured Credit Facility and prepayment penalties on four mortgage notes which
were repaid during the period.
9. SUBSEQUENT EVENTS
On October 23, 1998, the Operating Partnership sold a community in Atlanta,
Georgia formerly known as Summit Springs for $17.5 million. The Operating
Partnership will recognize a gain of approximately $6.0 million on the sale.
Proceeds from the sale will be used to fund future development.
On November 4, 1998, the Operating Partnership acquired a portfolio of
multifamily properties in Texas (the "Ewing Portfolio") through a merger with
Ewing Industries, a private developer of luxury apartment homes. The Ewing
Portfolio consists of 2,465 apartment homes in seven communities located in
Dallas, Austin and San Antonio. The acquisition of the Ewing Portfolio was
effected pursuant to an Agreement and Plan of Reorganization dated as of October
31, 1998 (the "Merger Agreement") among Summit Properties, affiliates of Summit
Properties (including the Operating Partnership), Ewing Industries, Inc., an
Ohio corporation ("Ewing Industries"), affiliates of Ewing, and their respective
partners, shareholders and members (together with Ewing Industries, "Ewing").
Pursuant to the Merger Agreement, the acquisition was funded through (i) the
issuance to Ewing of 1,008,987 shares of common stock of Summit Properties
(each, a "Share") and 141,921 units of limited partnership interest of the
Operating Partnership (each, a "Unit"), valued at $18.50 per Share and per Unit
(or $21,291,801 in the aggregate), (ii) the assumption of $79,851,773 in
long-term fixed-rate mortgage indebtedness, (iii) the payment of $50,598,397 in
cash and (iv) receipt of $2,516,868 of credit for customary prorations and
reserves. A portion of the consideration is deferred until stabilization of one
community which is currently in lease-up. The current estimate of the additional
consideration to be paid at such time is (i) 1,030,009 Shares and 36,629 Units
valued at $18.50 per Share and per Unit (or $19,732,803 in the aggregate), and
(ii) cash in the amount of $1,314,144. The Operating Partnership filed a Current
Report on Form 8-K with the Securities and Exchange Commission on November 13,
1998 in connection with the acquisition of the Ewing Portfolio.
On November 12, 1998, the Operating Partnership sold a community located in
Winston Salem, North Carolina formerly known as Summit Old Town for
approximately $7.5 million. The Operating Partnership expects to recognize a
gain on the sale. Proceeds from the sale will be used to fund future
development.
11
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-Q contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including without limitation statements relating to the
operating performance of stabilized communities, to development activities of
the Operating Partnership and to the implementation of the Operating
Partnership's plan to address Year 2000 issues. The Operating Partnership
intends such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities
Reform Act of 1995, and is including this statement for purposes of complying
with these safe harbor provisions. Forward-looking statements, which are based
on certain assumptions and describe future plans, strategies and expectations of
the Operating Partnership are generally identifiable by use of the words
"believe," "expect," "intend," "anticipate," "estimate," "project" or similar
expressions. The Operating Partnership's ability to predict results or the
actual effect of future plans or strategies is inherently uncertain. 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 stabilized and development
Communities and the actual costs, progress and expenses with respect to its plan
to address Year 2000 issues could differ materially from those set forth in the
forward-looking statements. Factors which could have a material adverse effect
on the operations and future prospects of the Operating Partnership include, but
are not limited to, changes in: economic conditions generally and the real
estate market specifically, legislative/regulatory changes (including changes to
laws governing the taxation of real estate investment trusts ("REITs")),
availability of capital, interest rates, construction delays due to
unavailability of materials, weather conditions or other delays, competition,
supply and demand for apartment communities in the Operating Partnership's
current and proposed market areas, expenses of or delays in the identification
and upgrade or replacement by the Operating Partnership of its non-Year 2000
compliant computer information systems and computer systems that do not relate
to information technology, but include embedded technology, the Year 2000
compliance of vendors (including vendors of the Operating Partnership's computer
information systems) or third party service providers (including the Operating
Partnership's primary bank and payroll processor), generally accepted accounting
principles, policies and guidelines applicable to REITs, and those factors
discussed in the last paragraph under the heading "Operating Performance of the
Operating Partnership's Fully Stabilized Communities," in the section entitled
"Development Activity--Certain Factors Affecting the Performance of Development
Communities" and in the section entitled "Year 2000" on pages 14, 21 and 22
respectively, of this Form 10-Q. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements.
The following discussion should be read in conjunction with the Consolidated
Financial Statements of Summit Properties Partnership, L.P. and the Notes
thereto appearing elsewhere herein.
HISTORICAL RESULTS OF OPERATIONS
The Operating Partnership's net income is generated primarily from operations of
its apartment communities (the "Communities"). The changes in operating results
from period to period reflect changes in existing Community performance and
increases in the number of apartment homes due to development and acquisition of
new Communities. Where appropriate, comparisons are made on a "fully stabilized
Communities," "acquisition Communities," "stabilized development 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 "stabilized" when it has
attained a physical occupancy level of at least 93%. A Community is deemed
"fully stabilized" when stabilized for the two prior years as of the beginning
of the current year. A Community is deemed to be a "stabilized development" when
stabilized as of the beginning of the current year but not the entire two prior
years.
12
<PAGE> 13
Results of Operations for the Three and Nine Months Ended September 30, 1998
and 1997
For the three and nine months ended September 30, 1998, income before gain on
sale of real estate assets and extraordinary items increased $944,000 and
$1,189,000, respectively, to approximately $7.9 million and $21.9 million,
respectively, from the three and nine months ended September 30, 1997.
OPERATING PERFORMANCE OF THE OPERATING PARTNERSHIP'S PORTFOLIO OF COMMUNITIES
The operating performance of the Communities for the three and nine months ended
September 30, 1998 and 1997 is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1998 1997 % CHANGE 1998 1997 % CHANGE
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Property revenues:
Stabilized communities........ $21,664 $20,839 4.0% $63,240 $61,912 2.1%
Acquisition communities....... 6,095 2,428 151.0 14,042 5,697 146.5
Stabilized development
communities................ 5,564 5,170 7.6 16,401 13,647 20.2
Communities in lease-up....... 4,072 611 566.4 9,725 640 1419.5
Communities sold.............. -- 852 100.0 1,372 3,010 (54.4)
------- ------- ------- -------
Total property
revenues............ 37,395 29,900 25.1 104,780 84,906 23.4
------- ------- ------- -------
Property operating and
maintenance expense:(1)
Stabilized communities.......... 8,016 7,809 2.7 23,383 23,141 1.0
Acquisition communities....... 2,135 835 155.7 4,684 1,893 147.4
Stabilized development
communities................ 1,804 1,477 22.1 5,366 4,230 26.9
Communities in lease-up....... 1,316 241 446.1 3,232 306 956.2
Communities sold.............. -- 370 100.0 534 1,260 (57.6)
------- ------- ------- -------
Total property
operating and
maintenance
expense............. 13,271 10,732 23.7 37,199 30,830 20.7
------- ------- ------- -------
Property operating income....... $24,124 $19,168 25.9 $67,581 $54,076 25.0
======= ======= ======= =======
Apartment homes, end of
period........................ 16,695 14,734 13.3 16,695 14,734 13.3
======= ======= ======= =======
</TABLE>
- ---------------
(1) Before real estate depreciation expense.
A summary of the Operating Partnership's apartment homes for the nine months
ended September 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Apartment homes at the beginning of period.................. 14,980 12,454
Acquisitions................................................ 1,092 1,188
Developments which began rental operations during the
period.................................................... 1,067 1,306
Sale of apartment homes..................................... (444) (214)
------ ------
Apartment homes at the end of the period.................... 16,695 14,734
====== ======
</TABLE>
13
<PAGE> 14
OPERATING PERFORMANCE OF THE OPERATING PARTNERSHIP'S FULLY STABILIZED
COMMUNITIES
The operating performance of the 46 Communities stabilized since January 1, 1996
in each of the three and nine months ended September 30, 1998 and 1997,
respectively, are summarized below (dollars in thousands except average monthly
rental revenue):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1998 1997 % CHANGE 1998 1997 % CHANGE
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Property revenues:
Rental...................... $20,531 $19,855 3.4% $60,022 $59,000 1.7%
Other....................... 1,133 984 15.1 3,218 2,912 10.5
------- ------- ------- -------
Total property revenues....... 21,664 20,839 4.0 63,240 61,912 2.1
------- ------- ------- -------
Property operating and
maintenance expense(1):
Personnel................... 1,812 1,744 3.9 5,126 5,242 (2.2)
Advertising and promotion... 323 319 1.3 929 830 11.9
Utilities................... 969 945 2.5 2,824 2,713 4.1
Building repairs and
maintenance.............. 1,850 1,817 1.8 5,070 5,136 (1.3)
Real estate taxes and
insurance................ 1,916 1,896 1.1 6,030 5,927 1.7
Property supervision........ 532 518 2.7 1,563 1,548 1.0
Other operating expense..... 614 570 7.7 1,841 1,745 5.5
------- ------- ------- -------
Total property operating and
maintenance expense......... 8,016 7,809 2.7 23,383 23,141 1.0
------- ------- ------- -------
Property operating income..... $13,648 $13,030 4.7 $39,857 $38,771 2.8
======= ======= ======= =======
Average physical
occupancy(2)................ 94.6% 93.8% 0.8 93.0% 93.4% (0.4)
======= ======= ======= =======
Average monthly rental
revenue(3).................. $ 757 $ 729 3.9 $ 750 $ 726 3.4
======= ======= ======= =======
Number of apartment homes..... 9,834 9,834 9,834 9,834
======= ======= ======= =======
</TABLE>
- ---------------
(1) Before real estate depreciation 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 occupancy that existed on Sunday during
each week of the period.
(3) Represents the average monthly net rental revenue per occupied apartment
home.
The increase in rental revenue from fully stabilized Communities for the third
quarter and first nine months of 1998 compared to 1997 was primarily the result
of increases in average rental rates. As a percentage of total property revenue,
property operating and maintenance expenses decreased for the three month period
from 37.5% in 1997 to 37.0% in 1998 and for the nine month period from 37.4% in
1997 to 37.0% in 1998.
The 4.0% and 2.1 % rates of growth in property revenues were higher than the
1.4% and 1.8% rates of growth in property revenues achieved from the third
quarter of 1997 compared to third quarter 1996 the first nine months of 1997
compared to the first nine months of 1996, respectively. The property revenue
growth rates were higher primarily as a result of increasingly strong economies
in many of the markets in which the Operating Partnership operates. This higher
growth rate was especially noticeable in the Sarasota, Florida markets. The
Operating Partnership expects property revenue growth rates for the remainder of
1998 to be similar to the first nine months of 1998 due to the continued
strength of the local economies in which the Operating Partnership operates,
balanced by the continuing increase in the supply of new multi-family
communities. The Operating Partnership believes its expectations with respect to
property revenue growth are
14
<PAGE> 15
based on reasonable assumptions as to future economic conditions and the
quantity of competitive multi-family 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 result in
lower property revenue.
OPERATING PERFORMANCE OF THE OPERATING PARTNERSHIP'S ACQUISITION COMMUNITIES
Acquisition Communities consist of Summit Fair Oaks, Summit Portofino, Summit
Sand Lake and Summit Windsor II acquired in 1997 (1,290 apartment homes) and
Summit St. Clair, Summit Club at Dunwoody and Summit at Lenox acquired in 1998
(1,092 apartment homes). Summit Portofino and Summit Sand Lake were acquired in
the first quarter of 1997 and Summit Windsor II and Summit Fair Oaks were
acquired in the third and fourth quarters of 1997, respectively. Summit St.
Clair, Summit Club at Dunwoody and Summit at Lenox were acquired in the first,
second and third quarters of 1998, respectively. Summit Mayfaire was purchased
effective January 1, 1997 and therefore is included in stabilized Communities.
The operations of these Communities for the three and nine months ended
September 30, 1998 and 1997 are summarized as follows (dollars in thousands
except average monthly rental revenue):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- ------------------
1998 1997 1998 1997
------ ------ -------- -------
<S> <C> <C> <C> <C>
Property revenues:
Rental revenues................................. $5,776 $2,236 $13,310 $5,279
Other property revenue.......................... 319 192 732 418
------ ------ ------- ------
Total property revenues........................... 6,095 2,428 14,042 5,697
------ ------ ------- ------
Property operating and maintenance expense(1)..... 2,135 835 4,684 1,893
------ ------ ------- ------
Property operating income......................... $3,960 $1,593 $ 9,358 $3,804
====== ====== ======= ======
Average physical occupancy(2)..................... 95.2% 93.4% 94.9% 93.4%
====== ====== ======= ======
Average monthly rental revenue(3)................. $ 894 $ 809 $ 884 $ 809
====== ====== ======= ======
Number of apartment homes......................... 2,382 1,044 2,382 1,044
====== ====== ======= ======
</TABLE>
- ---------------
(1) Before real estate depreciation 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 occupancy that existed on Sunday during
each week of the period.
(3) Represents the average monthly net rental revenue per occupied apartment
home.
The unleveraged yield on investment for the acquisition Communities, defined as
property operating income for the three and nine months ended September 30, 1998
on an annualized basis over total acquisition cost, was 9.14% and 9.12%,
respectively.
15
<PAGE> 16
OPERATING PERFORMANCE OF THE OPERATING PARTNERSHIP'S STABILIZED DEVELOPMENT
COMMUNITIES
The Operating Partnership had seven development Communities (Summit Aventura,
Summit Hill II, Summit Green, Summit River Crossing, Summit Fairways, Summit on
the River and Summit Russett) which were stabilized during the entire three and
nine months ended September 30, 1998 but were stabilized subsequent to January
1, 1996. The operating performance of these seven Communities for the three and
nine months ended September 30, 1998 and 1997 is summarized below (dollars in
thousands except average monthly rental revenue):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- -----------------
1998 1997 1998 1997
------ ------ ------- -------
<S> <C> <C> <C> <C>
Property revenues:
Rental revenues................................ $5,139 $4,813 $15,301 $12,715
Other property revenue......................... 425 357 1,100 932
------ ------ ------- -------
Total property revenues................ 5,564 5,170 16,401 13,647
------ ------ ------- -------
Property operating and maintenance expense(1).... 1,804 1,477 5,366 4,230
------ ------ ------- -------
Property operating income........................ $3,760 $3,693 $11,035 $ 9,417
====== ====== ======= =======
Average physical occupancy(2).................... 93.5% 88.7% 92.6% 78.9%
====== ====== ======= =======
Average monthly rental revenue(3)................ $ 897 $ 865 $ 890 $ 864
====== ====== ======= =======
Number of apartment homes........................ 2,106 2,106 2,106 2,106
====== ====== ======= =======
</TABLE>
- ---------------
(1) Before real estate depreciation 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 occupancy that existed on Sunday during
each week of the period.
(3) Represents the average monthly net rental revenue per occupied apartment
home.
The unleveraged yield on investment for the stabilized development Communities,
defined as property operating income for the three and nine months ended
September 30, 1998 on an annualized basis over total development cost, was
10.53% and 10.22%, respectively.
16
<PAGE> 17
OPERATING PERFORMANCE OF THE OPERATING PARTNERSHIP'S COMMUNITIES IN LEASE-UP
The Operating Partnership had twelve Communities in lease-up during the nine
months ended September 30, 1998. A Community in lease-up is defined as one which
has commenced rental operations but was not stabilized as of the beginning of
the current year. A summary of the twelve Communities in lease-up as of
September 30, 1998 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
TOTAL ACTUAL/ HOMES % LEASED
NUMBER OF ACTUAL/ ANTICIPATED ACTUAL/ COMPLETED Q3 1998 AS OF
APARTMENT ESTIMATED CONSTRUCTION ANTICIPATED AT SEPT. 30, AVERAGE SEPT. 30,
COMMUNITY HOMES COST COMPLETION STABILIZATION 1998 OCCUPANCY 1998
- --------- --------- --------- ------------ ------------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Summit Norcroft II 54 $ 3,500 Q4 1997 Q1 1998 54 95.08% 96.30%
Summit Stonefield 216 19,650 Q1 1998 Q1 1998 216 98.50 100.00
Summit Ballantyne I 246 16,380 Q4 1997 Q3 1998 246 92.12 92.70
Summit Sedgebrook I 248 16,330 Q4 1997 Q3 1998 248 94.55 96.40
Summit Plantation II 240 21,240 Q4 1997 Q3 1998 240 96.16 100.00
Summit Lake I 302 20,170 Q2 1998 Q3 1998 302 90.62 99.30
Summit Ballantyne II(1) 154 10,100 Q4 1998 Q1 1999 126 33.82 60.40
Summit Fair Lakes I(1) 370 32,900 Q1 1999 Q2 1999 92 15.12 42.20
Summit Governor's
Village(1) 242 16,700 Q1 1999 Q2 1999 125 22.02 43.40
Summit New Albany I(1) 301 22,600 Q1 1999 Q3 1999 135 17.51 42.20
Summit Doral(1) 260 22,800 Q2 1999 Q3 1999 6 0.00 0.00
Summit Westwood(1) 354 24,400 Q3 1999 Q4 1999 32 0.00 5.60
----- --------
2,933 $223,270
===== ========
</TABLE>
- ---------------
(1) These properties are included in the Construction in Progress category at
September 30, 1998.
OPERATING PERFORMANCE OF SUMMIT MANAGEMENT COMPANY
The operating performance of Summit Management Company (the "Management
Company") and its wholly-owned subsidiary, Summit Apartment Builders Inc. (the
"Construction Company"), for the three and nine months ended September 30, 1998
and 1997 is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue....................................... $1,609 $1,604 $4,664 $4,502
Expenses:
Operating................................... 1,539 1,292 4,140 3,821
Depreciation................................ 61 48 179 144
Amortization................................ 72 78 215 226
Interest.................................... 75 75 225 225
------ ------ ------ ------
Total expenses.............................. 1,747 1,493 4,759 4,416
------ ------ ------ ------
Net income (loss) of Summit Management
Company..................................... $ (138) $ 111 $ (95) $ 86
====== ====== ====== ======
</TABLE>
The increase in revenue for the nine month period was primarily a result of
higher revenues from managing the Operating Partnership's communities offset by
lower revenues for managing third party communities.
Total average third party apartment homes under management were 2,965 and 4,769
at September 30, 1998 and 1997, respectively. The decrease was primarily due to
the termination of two of the Management Company's contracts which provided for
the management of six apartment communities. The contracts were terminated as a
result of a change in ownership of the apartment communities. Property
management fees include $276,000 and $415,000 of fees from third parties for the
three months ended September 30, 1998 and
17
<PAGE> 18
1997, respectively, and $934,000 and $1.3 million of fees from third parties for
the nine months ended September 30, 1998 and 1997, respectively. Property
management fees from third parties as a percentage of total property management
revenues were 14.6% and 25.9% for the three months ended September 30, 1998 and
1997, respectively, and 18.6% and 28.9% for the nine months ended September 30,
1998 and 1997, 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.
All of the Construction Company's revenues are from contracts with the Operating
Partnership.
OTHER INCOME AND EXPENSES
Interest expense, including amortization of deferred financing costs, increased
by $2.6 million and $8.0 million for the three and nine months ended September
30, 1998, respectively. This increase was primarily the result of an increase in
the Operating Partnership's average indebtedness outstanding. Average
indebtedness outstanding and effective interest cost increased $162.3 million
and .05% (6.74% to 6.79%) for the three months ended September 30, 1998 and
$149.8 million and .10% (6.64% to 6.74%) for the nine months ended September 30,
1998.
Other income increased from $71,000 to $628,000 for the three months ended
September 30, 1998 primarily as the result of an incentive fee earned in
connection with a property that the Operating Partnership had developed and
managed for a third party.
Depreciation expense increased $1.5 million and $4.3 million or 26.0% and 26.2%
for the three and nine months ended September 30, 1998, respectively, primarily
due to depreciation on recently acquired or developed Communities.
General and administrative expenses increased $333,000 and $627,000 or 38.9% and
29.9% for the three and nine months ended September 30, 1998, primarily due to
expenses related to the Operating Partnership's overall growth. As a percentage
of revenues, general and administrative expenses were 3.1% and 2.9% for the
three months ended September 30, 1998 and 1997, and 2.6% and 2.5% for the nine
months ended September 30, 1998 and 1997, respectively.
EXTRAORDINARY ITEMS
The extraordinary items in the nine months ended September 30, 1998 resulted
from the write-off of deferred financing cost in conjunction with the
replacement by the Operating Partnership of its prior credit facility with the
Unsecured Credit Facility (as hereafter defined) and prepayment penalties on
four mortgage notes which were repaid during the period.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The Operating Partnership's net cash provided by operating activities increased
from $41.9 million for the nine months ended September 30, 1997 to $47.5 million
for the same period in 1998, primarily due to a $13.5 million increase in
property operating income offset by a $10.7 million increase in interest paid.
The increase in interest paid was primarily due to an increase in the average
indebtedness outstanding.
Net cash used in investing activities increased from $127.9 million for the nine
months ended September 30, 1997 to $157.6 million for the same period in 1998
due to an increase in the acquisition of Communities, an increase in the
construction of Communities and higher recurring capital expenditures primarily
due to an increase in apartment homes owned, partially offset by higher proceeds
from the sale of a Community. In 1998 the Operating Partnership acquired three
apartment Communities containing 1,092 apartment homes for a total cost of $88.3
million which included the issuance of $5.2 million of Units and the assumption
of $8. million in mortgage debt. In addition, the Operating Partnership funded
$97.3 million in development costs and $6.7 million in capital improvements in
1998. The Operating Partnership had a total net cash proceeds of
18
<PAGE> 19
$23.9 million from the sale of an apartment community, which was deposited with
a qualified intermediary. Approximately $20.0 million of these funds were used
to fund the purchase of a Community and land. The remaining $3.9 million in
proceeds from the sale were being held in escrow in accordance with like-kind
exchange rules and regulations.
Net cash provided by financing activities increased from $86.2 million for the
nine months ended September 30, 1997 to $111.4 million for the same period in
1998, primarily due to an increase in equity proceeds from Summit Properties'
dividend reinvestment and stock purchase plans and an increase in net borrowings
from the Operating Partnership's credit facility offset by a higher repayment of
debt, lower borrowings on unsecured bonds, the issuance of notes receivable from
employees, the payment of higher distributions to unitholders and a decrease in
Summit Properties stock issuance proceeds contributed to the Operating
Partnership. Financing activities in 1998 included $103.6 million in net
borrowings from the Operating Partnership's credit facility and $30.5 million in
net proceeds from Summit Properties' dividend reinvestment and stock purchase
plans. Dividend reinvestment and stock purchase proceeds increased from 1997
primarily due to the replacement of the prior dividend reinvestment plan with a
dividend reinvestment and stock purchase plan which allows direct stock
purchases by shareholders and non-shareholders. These cash inflows were offset
by $34.7 million of dividends and distributions and the repayment of mortgage
debt of $14.9 million. Mortgage debt repayment included $11.9 million for the
prepayment of four mortgage notes.
The ratio of earnings to fixed charges was 1.94 for the nine months ended
September 30, 1998 compared to 2.02 for the nine months ended September 30,
1997. The decrease is primarily due to increased interest charges as discussed
in "Historical Results of Operations -- Other Income and Expenses" above offset
by an increase in the gain on real estate assets.
The Operating Partnership's outstanding indebtedness at September 30, 1998
totaled $601.9 million. This amount includes approximately $198.8 million in
fixed rate conventional mortgages, $51.9 million of variable rate tax-exempt
bonds, $216.0 million of unsecured notes, $9.2 million of tax-exempt fixed rate
loans, and $126.0 million under the Unsecured Credit Facility (as hereinafter
defined).
The Operating Partnership repaid four mortgage notes with a balance of $11.9
million during the first quarter of 1998. The mortgage notes had an 8% interest
rate and were repaid from the borrowings under the Operating Partnership's
credit facility.
The Operating Partnership expects to meet its short-term liquidity requirements
(i.e., liquidity requirements arising within 12 months) including recurring
capital expenditures relating to maintaining its existing properties, generally
through its working capital, net cash provided by operating activities and
borrowings under its line of credit. The Operating Partnership considers its
cash provided by operating activities to be adequate to meet operating
requirements and Summit Properties dividend REIT requirements. The Operating
Partnership expects to meet its long-term liquidity requirements (i.e.,
liquidity requirements arising after 12 months), such as scheduled mortgage debt
maturities, property acquisitions, financing of construction and development
activities and other non-recurring capital improvements, through the issuance of
unsecured notes and equity securities of Summit Properties, from undistributed
Funds from Operations (see page 24), from proceeds received from the disposition
of certain properties, and in connection with the acquisition of land or
improved property, and through the issuance of units of limited partnership
interest units.
Line of Credit
The Operating Partnership obtained a new syndicated unsecured line of credit
(the "Unsecured Credit Facility") in the amount of $175 million in March 1998
which replaced the existing $150 million credit facility. The Unsecured Credit
Facility provides funds for new development, acquisitions and general working
capital purposes. The Unsecured Credit Facility has a three year term with two
one-year extension options and will initially bear interest at LIBOR + 90 basis
points based upon the Operating Partnership's current credit rating of BBB- by
Standard & Poor's Rating Services and Baa3 by Moody's Investors Service. The
interest rate will be reduced in the event an upgrade of the Operating
Partnership's unsecured credit rating is obtained. The Unsecured Credit Facility
also provides a bid option sub-facility equal to a maximum of fifty percent of
19
<PAGE> 20
the total facility ($87.5 million). This sub-facility provides the Operating
Partnership with the option to place borrowings in a fixed LIBOR contract up to
180 days.
Mortgage Notes
On September 23, 1998, the Operating Partnership consolidated and renewed two
mortgage loans which had a $147.2 million balance. The original loans matured in
February 2001 ($118.3 million at 5.88%) and December 2005 ($28.9 million at
7.71%). The consolidation and renewal combined the two mortgage loans into one
loan at an interest rate equal to the weighted average interest rate of the two
previous mortgage loans (6.24%) up to February 2001. As of February 2001, the
rate of interest on the loan will increase to 6.76% until the loan matures in
October of 2008.
Medium-Term Notes
The Operating Partnership has established a program for the sale of up to $95
million aggregate principal amount of Medium-Term Notes due nine months or more
from the date of issuance (the "MTN Program"). On July 28, 1998, the Operating
Partnership sold $30 million of notes under the MTN Program. Such notes are due
on July 30, 2001 and bear interest at 6.75% per year. On October 5, 1998, the
Operating Partnership sold $25 million of notes under the MTN Program. Such
notes are due on October 5, 2000 and bear interest at 6.71% per year. Proceeds
from the notes issued in both July and October of 1998 were used to reduce the
Unsecured Credit Facility.
ACQUISITIONS AND DISPOSITION
During the nine month period ending September 30, 1998, the Operating
Partnership completed the acquisition of three communities located in Atlanta,
Georgia: Summit St. Clair, purchased effective March 1, 1998, Summit Club at
Dunwoody, purchased on May 22, 1998, and Summit at Lenox (formerly Lenox
Forest), purchased effective July 8, 1998 (the "1998 Acquisitions"). The 1998
Acquisitions added a total of 1,092 apartment homes to the Operating
Partnership's portfolio at an aggregate purchase price of $88.3 million.
The 1998 Acquisitions were financed with the issuance of 259,871 Units valued at
$5.2 million and the assumption of $8.8 million of mortgage debt. The balance of
the purchase price was paid in cash.
On May 18, 1998, the Operating Partnership sold a community in Brandon, Florida
formerly known as Summit Providence for net proceeds of $23.9 million. A gain on
the sale of $8.7 million was recognized. Proceeds from the sale were used to
partially fund the acquisition of Summit Club at Dunwoody.
On October 23, 1998, the Operating Partnership sold a community in Atlanta,
Georgia formerly known as Summit Springs for $17.5 million. The Operating
Partnership will recognize a gain of approximately $6.0 million on the sale.
Proceeds from the sale will be used to fund future development.
On November 3, 1998, the Operating Partnership acquired a portfolio of
multifamily properties in Texas (the "Ewing Portfolio") through a merger with
Ewing Industries, a private developer of luxury apartment homes. The Ewing
Portfolio consists of 2,465 apartment homes in seven communities located in
Dallas, Austin and San Antonio. The acquisition of the Ewing Portfolio was
effected pursuant to an Agreement and Plan of Reorganization dated as of October
31, 1998 (the "Merger Agreement") among Summit Properties, affiliates of Summit
Properties (including the Operating Partnership), Ewing Industries, Inc., an
Ohio corporation ("Ewing Industries"), affiliates of Ewing, and their respective
partners, shareholders and members (together with Ewing Industries, "Ewing").
Pursuant to the Merger Agreement, the acquisition was funded through (i) the
issuance to Ewing of 1,008,987 shares of common stock of Summit Properties
(each, a "Share") and 141,921 units of limited partnership interest of the
Operating Partnership (each, a "Unit"), valued at $18.50 per Share and per Unit
(or $21,291,801 in the aggregate), (ii) the assumption of $79,851,773 in
long-term fixed-rate mortgage indebtedness, (iii) the payment of $50,598,397 in
cash and (iv) receipt of $2,516,868 of credit for customary prorations and
reserves. A portion of the consideration is deferred until stabilization of one
community which is currently in lease-up. The current estimate of the additional
consideration to be paid
20
<PAGE> 21
at such time is (i) 1,030,009 Shares and 36,629 Units valued at $18.50 per Share
and per Unit (or $19,732,803 in the aggregate), and (ii) cash in the amount of
$1,314,144. The Operating Partnership filed a Current Report on Form 8-K with
the Securities and Exchange Commission on November 13, 1998 in connection with
the acquisition of the Ewing Portfolio.
On November 12, 1998, the Operating Partnership sold a community located in
Winston Salem, North Carolina formerly known as Summit Old Town for
approximately $7.5 million. The Operating Partnership expects to recognize a
gain on the sale. Proceeds from the sale will be used to fund future
development.
DEVELOPMENT ACTIVITY
The Operating Partnership's construction in progress at September 30, 1998 is
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 Doral -- Miami, FL(2).............. 260 $ 22,800 $ 11,564 $11,236 Q2 1999
Summit Westwood -- Raleigh, NC(2)......... 354 24,400 13,574 10,826 Q3 1999
Summit Fair Lakes I -- Fairfax, VA(2)..... 370 32,900 27,324 5,576 Q1 1999
Summit Fair Lakes II -- Fairfax, VA....... 160 14,200 5,519 8,681 Q3 1999
Summit New Albany I -- Columbus, OH(2).... 301 22,600 20,878 1,722 Q1 1999
Summit Governor's Village --
Chapel Hill, NC(2)...................... 242 16,700 15,435 1,265 Q1 1999
Summit Ballantyne II -- Charlotte,
NC(2)................................... 154 10,100 9,576 524 Q4 1998
Summit Lake II -- Raleigh, NC............. 144 10,200 4,564 5,636 Q2 1999
Summit Sedgebrook II -- Charlotte, NC..... 120 7,800 2,167 5,633 Q3 1999
----- -------- -------- -------
2,105 $161,700 110,601 $51,099
===== ======== ======== =======
Other development and construction
costs(1)................................ 30,003
--------
$140,604
========
</TABLE>
- ---------------
(1) Consists primarily of land held for development and other predevelopment
costs.
(2) These communities were in lease-up at September 30, 1998.
Estimated costs to complete the development communities represent all of the
Operating Partnership's material commitments for capital expenditures.
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 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 material 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 Communities. The Operating Partnership
21
<PAGE> 22
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.
YEAR 2000
The Securities and Exchange Commission has asked all public companies to provide
disclosure regarding their Year 2000 readiness. The term "Year 2000 issue" is a
general term used to describe various problems that may result from the improper
processing by computer systems of dates after 1999. These problems arise from
the inability of some hardware and software to distinguish dates before the year
2000 from dates in and after the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations. The Year 2000
issue affects virtually all companies and all organizations.
The Operating Partnership's efforts to address its Year 2000 issues are focused
in the following three areas: (i) reviewing and taking any necessary steps to
attempt to correct the Operating Partnership's computer information systems
(i.e., software applications and hardware platforms), (ii) evaluating and making
any necessary modifications to other computer systems that do not relate to
information technology but include embedded technology, such as
telecommunications, security, HVAC, elevator, fire and safety systems, and (iii)
communicating with certain significant third-party service providers to
determine whether there will be any interruption in their systems that could
affect the Operating Partnership.
The Operating Partnership's State of Readiness
The Operating Partnership has developed a four phase plan to address its Year
2000 issues (its "Year 2000 Plan"). The four phases are (i) Awareness, (ii)
Assessment, (iii) Remediation and (iv) Testing.
Awareness
The Operating Partnership has made the relevant employees, including its
property managers, aware of the Year 2000 issue and collected information from
such employees regarding systems that the Operating Partnership anticipates may
be affected. Management will oversee the Operating Partnership's progress with
respect to the implementation of its Year 2000 Plan. In addition, the Year 2000
Plan will be subject to review of the Audit Committee of the Board of Directors
of Summit Properties'.
Assessment
The Operating Partnership has substantially completed an assessment of its
standard computer information systems and is now taking the further necessary
steps to make its core computer information systems, in those situations in
which the Operating Partnership is required to do so, Year 2000 compliant. See
"Remediation" below. The Operating Partnership is in the process of attempting
to obtain written verification from vendors to the effect that the Operating
Partnership's other (i.e., non-core) standard computer information systems
acquired from such vendors correctly distinguish dates before the year 2000 from
dates in and after the year 2000. The Operating Partnership expects that it will
request such verifications, or a commitment from the relevant vendor to provide
a solution, by no later than December 31, 1998.
In addition, the Operating Partnership is currently evaluating and assessing its
other computer systems that do not relate to information technology but include
embedded technology, such as telecommunications, security, HVAC, elevator, fire
and safety systems, and expects that its assessment will be completed by the
second quarter of 1999. The Operating Partnership is aware that such systems
contain embedded chips that are difficult to identify and test and may require
complete replacement because they cannot be repaired. Failure of the Operating
Partnership to identify or remediate any embedded chips (either on an individual
or aggregate basis) on which significant business operations depend, such as
phone systems, could have a material adverse impact on the Operating
Partnership's business, financial condition and results of operations.
22
<PAGE> 23
The Operating Partnership rents apartments in its Communities to individuals and
does not have a single customer or group of customers who rents a significant
number of apartments. The Operating Partnership's primary purchases are
building-related products (e.g., carpets, paint and blinds) and services (e.g.,
lawn care services), all of which are available from numerous suppliers. The
Operating Partnership's primary financial service providers are its primary bank
and payroll processor. The primary bank has provided written verification to the
Operating Partnership that it will be Year 2000 compliant and the payroll
processor has a Year 2000 upgrade available. The Operating Partnership will
implement this upgrade in the first quarter of 1999. For the foregoing reasons,
the Operating Partnership does not believe that there is a significant risk
related to the failure of residents, vendors or third-party goods or service
providers to prepare for the Year 2000; however, the costs and timing of
third-party Year 2000 compliance is not within the Operating Partnership's
control and no assurances can be given with respect to the cost or timing of
such efforts or the potential effects of any failure to comply.
Remediation
The Operating Partnership's primary uses of software systems are its corporate
accounting and property on-site software. The Operating Partnership's corporate
accounting system is widely used in the real estate industry. A version upgrade,
installed in the second quarter of 1998, is designed to be Year 2000 compliant.
The Operating Partnership completed the replacement of its current property
on-site software in October 1998 with a new software system that is also
designed to be Year 2000 compliant. This new software is also widely used in the
real estate industry. The Operating Partnership has received written
verification from the vendors of each of the corporate accounting and on-site
systems that the relevant software is Year 2000 compliant. The Operating
Partnership had previously planned both the upgrade of the corporate accounting
system and implementation of the new property on-site system, and such changes
would have been undertaken without regard to Year 2000 remediation issues.
Accordingly, the Operating Partnership has not deferred any planned information
or software projects due to such Year 2000 projects, and the Operating
Partnership is not treating the costs of the above-referenced changes as Year
2000-related expenses.
Testing
To attempt to confirm that its computer systems are Year 2000 compliant, the
Operating Partnership expects to perform limited testing of its computer
information systems and its other computer systems that do not relate to
information technology but include embedded technology; however, unless Year
2000 issues arise in the course of its limited testing, the Operating
Partnership will rely on the written verification received from each vendor of
its computer systems that the relevant system is Year 2000 compliant.
Nevertheless, there can be no assurance that the computer systems on which the
Operating Partnership's business relies will correctly distinguish dates before
the year 2000 from dates in and after the year 2000. Any such failures could
have a material adverse effect on the Operating Partnership's business,
financial condition and results of operations. The Operating Partnership
currently anticipates that testing will commence no later than November 1998 and
expects that its testing will be complete by March 31, 1999.
Costs to Address the Operating Partnership's Year 2000 Issues
Based on current information from its review to date, the Operating Partnership
budgeted $500,000 for the cost of repairing, updating and replacing its standard
computer information systems. The primary component of the cost was replacing
the property on-site software. Because the Operating Partnership's Year 2000
assessment is ongoing and additional funds may be required as a result of future
findings, the Operating Partnership's current budget amounts may increase as a
result of unanticipated delays or preparedness issues. While the Operating
Partnership's efforts to address its Year 2000 issues will involve additional
costs, the Operating Partnership believes, based on available information, that
these costs will not have a material adverse effect on its business, financial
condition or results of operations. The Operating Partnership expects to fund
the costs of addressing the Year 2000 issue from cash flows resulting from
operations. While the Operating Partnership believes that it will be Year 2000
compliant by December 31, 1999, if these efforts are not completed on time, or
if the costs associated with updating or replacing the Operating Partnership's
23
<PAGE> 24
computer systems exceeds the Operating Partnership's estimates, the Year 2000
issue could have a material adverse effect on the Operating Partnership's
business, financial condition and results of operations.
Risks Presented by Year 2000 Issues
The Operating Partnership is still in the process of evaluating potential
disruptions or complications that might result from Year 2000-related problems;
however, at this time the Operating Partnership has not identified any specific
business functions that are likely to suffer material disruption as a result of
Year-2000 related events. It is possible, however, that the Operating
Partnership may identify business functions in the future that are specifically
at risk of Year 2000 disruption. The absence of any such determination as of the
date of this report represents only the Operating Partnership's current status
of evaluating potential Year-2000 related problems and facts presently known to
the Operating Partnership, and should not be construed to mean that here is no
risk of Year-2000 related disruption. Moreover, due to the unique and pervasive
nature of the Year 2000 issue, it is not possible to anticipate each of the wide
variety of Year 2000 events, particularly outside of the Operating Partnership,
that might arise in a worst case scenario which might have a material adverse
impact on the Operating Partnership's business, financial condition and results
of operations.
The Operating Partnership's Contingency Plans
The Operating Partnership intends to develop contingency plans for significant
business risks identified by the Operating Partnership that might result from
Year-2000 related events. Because the Operating Partnership has not yet
identified any specific business function that will be materially at risk of
significant Year-2000 related disruptions, and because a full assessment of the
Operating Partnership's risk from potential Year 2000 failures is still in
process, the Operating Partnership has not yet developed detailed contingency
plans specific to Year 2000 problems. In the event that the Operating
Partnership concludes that one or more contingency plans are required,
development of such contingency plans is currently scheduled to occur no later
than June 30, 1999 or as otherwise appropriate.
Year 2000 Information and Readiness Disclosure Act
The Operating Partnership supports the exchange of information relating to the
Year 2000 issue and designates the foregoing information as the Year 2000
Readiness Disclosure within the meaning of the Year 2000 Information and
Readiness Disclosure Act. Information set forth herein regarding the Year 2000
compliance of non-Operating Partnership products and services are
"republications" under the Year 2000 Information and Readiness Disclosure Act
and are based on information supplied by other companies about the products and
services they offer. The Operating Partnership has not independently verified
the contents of these republications and takes not responsibility for the
accuracy or completeness of information contained in such republications.
FUNDS FROM OPERATIONS
The White Paper on Funds from Operations approved by the Board of Governors of
NAREIT in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with generally accepted accounting principles ("GAAP")),
excluding gains (or losses) from debt restructuring and sales of property, plus
real estate related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. The Operating Partnership
computes Funds from Operations in accordance with the standards established by
the White Paper, which may differ from the methodology for calculating Funds
from Operations utilized by other equity REITs, and, accordingly, may not be
comparable to such other REITs. Funds Available for Distribution is defined as
Funds from Operations less capital expenditures funded by operations (recurring
capital expenditures). The Operating Partnership's methodology for calculating
Funds Available for Distribution may differ from the methodology for calculating
Funds Available for Distribution utilized by other REITs, and accordingly, may
not be comparable to other REITs. Funds from Operations and Funds Available for
Distribution do not represent amounts available for management's discretionary
use because of needed capital replacement or expansion, debt service
obligations, property acquisitions, development, distributions or other
commitments and uncertainties. Funds from Operations and Funds
24
<PAGE> 25
Available for Distribution should not be considered as alternatives to net
income (determined in accordance with GAAP) as an indication of the Operating
Partnership's financial performance or to cash flows from operating activities
(determined in accordance with GAAP) as a measure of the Operating Partnership's
liquidity, nor are they indicative of funds available to fund the Operating
Partnership's cash needs, including its ability to make distributions. The
Operating Partnership believes Funds from Operations and Funds Available for
Distribution are helpful to investors as measures of the performance of the
Operating Partnership because, along with cash flows from operating activities,
financing activities and investing activities, they provide investors with an
understanding of the ability of the Operating Partnership to incur and service
debt and make capital expenditures.
Funds from Operations and Funds Available for Distribution for the three and
nine months ended September 30, 1998 and 1997 are calculated as follows (dollars
in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income before extraordinary items... $ 7,892 $ 6,948 $ 30,652 $ 25,098
Gain on sale of real estate
assets............................ -- -- (8,731) (4,366)
Depreciation from real estate
assets............................ 7,338 5,843 20,701 16,436
----------- ----------- ----------- -----------
Funds from Operations............... 15,230 12,791 42,622 37,168
Recurring capital expenditures(1)... (611) (1,118) (3,372) (2,589)
----------- ----------- ----------- -----------
Funds Available for Distribution.... $ 14,619 $ 11,673 $ 39,250 $ 34,579
=========== =========== =========== ===========
Non-recurring Capital
Expenditures(2)................... $ 1,792 $ 1,170 $ 3,279 $ 3,317
=========== =========== =========== ===========
Cash Flow Provided By (Used In):
Operating Activities.............. $ 17,367 $ 14,770 $ 47,451 $ 41,931
Investing Activities.............. (62,499) (41,356) (157,607) (127,892)
Financing Activities.............. 47,568 25,170 111,416 86,226
Weighted average units
outstanding -- basic.............. 29,462,433 27,334,464 28,808,330 27,220,199
=========== =========== =========== ===========
Weighted average units outstanding--
diluted........................... 29,468,032 27,369,316 28,825,095 27,252,718
=========== =========== =========== ===========
</TABLE>
- ---------------
(1) Recurring capital expenditures are expected to be funded from operations and
consist primarily of exterior painting, new appliances, vinyl, blinds, tile,
and wallpaper. In contrast, non-recurring capital expenditures, such as
major improvements, new garages and access gates, are expected to be funded
by financing activities and are therefore not included in the calculation of
Funds Available for Distribution. The increase in recurring capital
expenditures for the nine months ended September 30, 1998 compared to 1997
was primarily due to the increase in the number of apartment homes owned.
Other changes are primarily due to the timing of capital improvement
projects. The Operating Partnership expects capital expenditures for the
year 1998 on a per unit basis to be equal to or less than 1997.
(2) Non-recurring capital expenditures include major renovations in the amount
of $442,000 in 1998 and $2.6 million in 1997; $765,000 and $19,000 for water
meters in 1998 and 1997, respectively; $21,000 and $71,000 for new signage
in 1998 and 1997, respectively; $223,000 for fitness center and key controls
in 1998; $421,000 and $203,000 for access gates and security fences in 1998
and 1997, respectively; $170,000 and $233,000 for construction of garages in
1998 and 1997, respectively and $191,000 for improvements at Summit Norcroft
I done in conjunction with development of Summit Norcroft II in 1998.
25
<PAGE> 26
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
During the three months ended September 30, 1998, 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:
A. Summit Properties Inc. ("Summit Properties") has issued an aggregate of
673,656 shares of Common Stock pursuant to its Dividend Reinvestment and
Stock Purchase Plan. Summit Properties has contributed the proceeds of
these sales (approximately $12.4 million) to the Operating Partnership in
consideration of an aggregate of 673,656 Units.
B. Summit Properties has issued an aggregate of 18,000 shares of Common
Stock pursuant to the exercise of stock options. Summit Properties has
contributed the proceeds (approximately $342,000) of these options to the
Operating Partnership in consideration of an aggregate 18,000 Units.
C. Summit Properties has issued an aggregate of 47,016 shares of Common
Stock pursuant to its Employee Stock Purchase Plan. Summit Properties has
contributed the proceeds (approximately $890,000) of these sales to the
Operating Partnership in consideration of an aggregate of 47,016 Units.
D. Summit Properties has issued an aggregate of 1,500 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, 1,500 Units
have been issued to Summit Properties.
In light of the circumstances under which such Units were issued and information
obtained by the Operating Partnership in connection with such transactions,
management of Summit Properties, in its capacity as general partner of the
Operating Partnership, believes that the Operating Partnership may rely on such
exemption.
26
<PAGE> 27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<C> <C> <S>
3.1 -- Amendment No. 13 to the Limited Partnership Agreement of
Summit Properties Partnership, L.P. (Incorporated by
reference to Exhibit 10.1 of Summit Properties Inc.'s
Current Report on Form 8-K filed on November 13, 1998, File
No. 1-12792).
10.1 -- 6.71% Medium-Term Note due on October 5, 2000 in principal
amount of $25,000,000 issued by Summit Properties
Partnership, L.P. on October 5, 1998 (filed herewith).
10.2 -- Promissory Note, dated as of August 5, 1998, evidencing a
loan of $961,000 to Steven R. LeBlanc for the purpose of
purchasing shares of Common Stock of Summit Properties Inc.
(Incorporated by reference to Exhibit 10.2 of Summit
Properties Inc.'s Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1998, File No.
1-12792).
12.1 -- Statement Regarding Calculation of Ratio of Earnings to
Fixed Charges for the Three and Nine Months ended September
30, 1998 (filed herewith).
27.1 -- Financial Data Schedule -- Nine Months ended September 30,
1998 (for SEC use only) (filed herewith).
27.2 -- Revised Financial Data Schedule -- Nine Months ended
September 30, 1997 (for SEC use only) (filed herewith).
</TABLE>
(b) Reports on Form 8-K
The Operating Partnership filed a Current Report on Form 8-K with the Securities
and Exchange Commission on November 13, 1998 in connection with the purchase of
the Ewing portfolio on November 4, 1998. Financial statements were not included
in such Form 8-K; however, financial statements will be filed by amendment of
the Form 8-K as soon as practicable, but in no event later than 60 days after
the Form 8-K is filed.
27
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in capacities and on the dates
indicated. Each of the persons set forth below has signed this report as an
officer of Summit Properties Inc., in its capacity as general partner of Summit
Properties Partnership, L.P.
<TABLE>
<S> <C>
SUMMIT PROPERTIES PARTNERSHIP, L.P.
November 13, 1998 /s/ WILLIAM F. PAULSEN
- ----------------------------------------------------- --------------------------------------------
(Date) William F. Paulsen,
President and Chief Executive Officer
November 13, 1998 /s/ MICHAEL L. SCHWARZ
- ----------------------------------------------------- --------------------------------------------
(Date) Michael L. Schwarz,
Executive Vice President and
Chief Financial Officer
</TABLE>
28
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<C> <C> <S>
3.1 -- Amendment No. 13 to the Limited Partnership Agreement of
Summit Properties Partnership, L.P. (Incorporated by
reference to Exhibit 10.1 of Summit Properties Inc.'s
Current Report on Form 8-K filed on November 13, 1998, File
No. 1-12792).
10.1 -- 6.71% Medium-Term Note due on October 5, 2000 in principal
amount of $25,000,000 issued by Summit Properties
Partnership, L.P. on October 5, 1998 (filed herewith).
10.2 -- Promissory Note, dated as of August 5, 1998, evidencing a
loan of $961,000 to Steven R. LeBlanc for the purpose of
purchasing shares of Common Stock of Summit Properties Inc.
(Incorporated by reference to Exhibit 10.2 of Summit
Properties Inc.'s Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1998, File No.
1-12792).
12.1 -- Statement Regarding Calculation of Ratio of Earnings to
Fixed Charges for the Three and Nine Months ended September
30, 1998 (filed herewith).
27.1 -- Financial Data Schedule -- Nine Months ended September 30,
1998 (for SEC use only) (filed herewith).
27.2 -- Revised Financial Data Schedule -- Nine Months ended
September 30, 1997 (for SEC use only) (filed herewith).
</TABLE>
29
<PAGE> 1
Exhibit 10.1
[FACE OF NOTE]
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY (THE "DEPOSITARY") (55 WATER STREET, NEW YORK, NEW YORK) TO THE
ISSUER HEREOF OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & COMPANY OR SUCH OTHER
NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY AND ANY
PAYMENT IS MADE TO CEDE & COMPANY, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER
HEREOF, CEDE & COMPANY, HAS AN INTEREST HEREIN.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.
REGISTERED $25,000,000
No. FXR-02
CUSIP: 86623XAB9
SUMMIT PROPERTIES PARTNERSHIP, L.P.
MEDIUM-TERM NOTE
(Fixed Rate)
ORIGINAL ISSUE DATE: 10/5/98 INTEREST RATE: 6.71% STATED MATURITY
INTEREST PAYMENT DATE(S): DEFAULT RATE: N/A DATE: 10/5/2000
4/15 and 10/15
Other:
INITIAL REDEMPTION INITIAL REDEMPTION ANNUAL
DATE: N/A PERCENTAGE: N/A REDEMPTION
PERCENTAGE
REDUCTION: N/A
OPTIONAL REPAYMENT [ ] CHECK IF AN
DATE(S): N/A ORIGINAL ISSUE
DISCOUNT NOTE
Issue Price: %
1
<PAGE> 2
REPAYMENT PRICE: N/A
SPECIFIED CURRENCY: AUTHORIZED EXCHANGE RATE
[X] United States dollars DENOMINATION: AGENT: N/A
[ ] Other: [X] $1,000 and integral
multiples thereof
[ ] Other:
EXCHANGE RATE: ADDENDUM ATTACHED: OTHER/
U.S. $1.00 = ________ [ ] Yes ADDITIONAL
[X] No PROVISIONS: N/A
Summit Properties Partnership, L.P., a limited partnership duly
organized and existing under the laws of Delaware (hereinafter referred to as
the "Partnership," which term includes any successor entity under the Indenture
hereinafter referred to), for value received, hereby promises to pay to CEDE &
COMPANY, or registered assigns, the principal sum of $25,000,000, on the Stated
Maturity Date specified above (or any Redemption Date or Repayment Date, each as
defined on the reverse hereof) (each such Stated Maturity Date, Redemption Date
or Repayment Date being hereinafter referred to as the "Maturity Date" with
respect to the principal repayable on such date) and to pay interest thereon, at
the Interest Rate per annum specific above, until the principal hereof is paid
or duly made available for payment, and (to the extent that the payment of such
interest shall be legally enforceable) at the Default Rate per annum specified
above on any overdue principal, premium and/or interest, including any overdue
sinking fund or redemption payment. The Partnership will pay interest in arrears
on each Interest Payment Date, if any, specified above (each, an "Interest
Payment Date"), commencing with the first Interest Payment Date next succeeding
the Original Issue Date specified above, and on the Maturity Date; provided,
however, that if the Original Issue Date occurs between a Record Date (as
defined below) and the next succeeding Interest Payment Date, interest payments
will commence on the second Interest Payment Date next succeeding the Original
Issue Date to the holder of this Note on the Record Date with respect to such
second Interest Payment Date. Interest on this Note will be computed on the
basis of a 360-day year of twelve 30-day months.
Interest on this Note will accrue from, and including, the immediately
preceding Interest Payment Date to which interest has been paid or duly provided
for (or from, and including, the Original Issue Date if no interest has been
paid or duly provided for) to, but excluding, the applicable Interest Payment
Date or the Maturity Date, as the case may be (each, an "Interest Period"). The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, subject to certain exceptions described herein, be paid to
the person in whose name this Note (or one or more predecessor Notes) is
registered at the close of business on the fifteenth calendar day (whether or
not a Business Day, as defined below) immediately preceding such Interest
Payment Date (the "Record Date"); provided,
2
<PAGE> 3
however, that interest payable on the Maturity Date will be payable to the
person to whom the principal hereto and premium, if any, hereon shall be
payable. Any such interest not so punctually paid or duly provided for
("Defaulted Interest") will forthwith cease to be payable to the holder on any
Record Date, and shall be paid to the person in whose name this Note is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee hereinafter referred to, notice whereof shall be given to the holder of
this Note by the Trustee not more than 15 days and not less than 10 days prior
to such Special Record Date or may be paid at any time in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which this Note may be listed, and upon such notice as may be required by such
exchange, all as more fully provided for in the Indenture.
Payment of principal, premium, if any, and interest in respect of this
Note due on the Maturity Date or any prior date on which the principal or an
installment of principal of this Note becomes due and payable, whether by the
declaration of acceleration or otherwise, will be made in immediately available
funds upon presentation and surrender of this Note (and, with respect to any
applicable repayment of this Note, upon presentation and surrender of this Note
and a duly completed election form as contemplated on the reverse hereof) at the
office or agency maintained by the Partnership for that purpose in the Borough
of Manhattan, The City of New York, currently the office of the Trustee or the
Designated Agent; provided, however, that if the Specified Currency specified
above is other than United States dollars and such payment is to be made in the
Specified Currency in accordance with the provisions set forth below, such
payment may be made by wire transfer of immediately available funds to an
account with a bank designated by the holder hereof at least 15 calendar days
prior to the Maturity Date, provided that such bank has appropriate facilities
therefor and that this Note (and, if applicable, a duly completed repayment
election form) is presented and surrendered at the aforementioned office or
agency maintained by the Partnership in time for the Trustee or the Designated
Agent to make such payment in such funds in accordance with its normal
procedures. Payment of interest due on any Interest Payment Date other than the
Maturity Date will be made at the aforementioned office or agency maintained by
the Partnership or, at the option of the Partnership, by check mailed to the
address of the person entitled thereto as such address shall appear in the
Security Register maintained by the Trustee or the Designated Agent; provided,
however, that a holder of U.S. $10,000,000 (or, if the Specified Currency is
other than United States dollars, the equivalent thereof in the Specified
Currency) or more in aggregate principal amount of Notes (whether having
identical or different terms and provisions) will be entitled to receive
interest payments on any Interest Payment Date other than the Maturity Date by
wire transfer of immediately available funds if appropriate wire transfer
instructions have been received in writing by the Trustee or Designated Agent
not less than 15 calendar days prior to such Interest Payment Date. Any such
wire transfer instructions received by the Trustee or the Designated Agent shall
remain in effect until revoked by such holder.
If any Interest Payment Date or the Maturity Date falls on a day that
is not a Business Day, the required payment of principal, premium, if any,
and/or interest shall be made on the next succeeding Business Day with the same
force and effect as if made on the date such
3
<PAGE> 4
payment was due, and no interest shall accrue with respect to such payment for
the period from and after such Interest Payment Date or the Maturity Date, as
the case may be, to the date of such payment on the next succeeding Business
Day.
As used herein, "Business Day" means any day, other than a Saturday or
Sunday, that is neither a legal holiday nor a day on which banking institutions
are authorized or required by law, regulation or executive order to close in The
City of New York, Chicago, or Charlotte, North Carolina; provided, however, that
if the Specified Currency is other than United States dollars, such day is also
not a day on which banking institutions are authorized or required by law,
regulation or executive order to close in the Principal Financial Center (as
defined below) of the country issuing the Specified Currency (or, if the
Specified Currency is European Currency Units ("ECU"), such day is not a day
that appears as an ECU no-settlement day on the display designated as "ISDE" on
the Reuter Monitor Money Rates Service (or a day so designated by the ECU
Banking Association), or, if ECU non-settlement days do not appear on that page
(and are not so designated), is not a day on which payments in ECU cannot be
settled in the international interbank market). Principal Financial Center means
the capital city of the country issuing the Specified Currency, except that with
respect to United States dollars, Australian dollars, Deutsche marks, Dutch
guilders, Italian lire, Swiss francs and ECU, the Principal Financial Center
shall be The City of New York, Sydney, Frankfurt, Amsterdam, Milan, Zurich and
Luxembourg, respectively.
The Partnership is obligated to make payments of principal, premium, if
any, and interest in respect of this Note in the Specified Currency (or, if the
Specified Currency is not at the time of such payment legal tender for the
payment of public and private debts, in such other coin or currency of the
country which issued the Specified Currency as at the time of such payment is
legal tender for the payment of such debts). If the Specified Currency is other
than United States dollars, except as provided below, any such amounts so
payable by the Partnership will be converted by the Exchange Rate Agent
specified above into United States dollars for payment to the holder of this
Note.
If the Specified Currency is other than United States dollars, the
holder of this Note may elect to receive such amounts in such Specified
Currency. If the holder of this Note shall not have duly made an election to
receive all or a specified portion of any payment of principal, premium, if any,
and/or interest in respect of this Note in the Specified Currency, any United
States dollar amount to be received by the holder of this Note will be based on
the highest bid quotation in The City of New York received by the Exchange Rate
Agent at approximately 11:00 A.M., New York City time, on the second Business
Day preceding the applicable payment date from three recognized foreign exchange
dealers (one of whom may be the Exchange Rate Agent) selected by the Exchange
Rate Agent and approved by the Partnership for the purchase by the quoting
dealer of the Specified Currency for United States dollars for settlement on
such payment date in the aggregate amount of such Specified Currency payable to
all holders of Foreign Currency Notes scheduled to receive United States dollar
payments and at which the applicable dealer commits to execute a contract. All
currency exchange costs will be borne by the holder of this Note by deductions
from such payments. If
4
<PAGE> 5
three such bid quotations are not available, payments on this Note will be made
in the Specified Currency.
If the Specified Currency is other than United States dollars, the
holder of this Note may elect to receive all or a specified portion of any
payment of principal, premium, if any, and/or interest in respect of this Note
in the Specified Currency by submitting a written request for such payment to
the Trustee or the Designated Agent at its corporate trust Office in The City of
New York on or prior to the applicable Record Date or at least 15 calendar days
prior to the Maturity Date, as the case may be. Such written request may be
mailed or hand delivered or sent by cable, telex or other form of facsimile
transmission. The holder of this Note may elect to receive all or a specified
portion of all future payments in the Specified Currency in respect of such
principal, premium, if any, and/or interest and need not file a separate
election for each payment. Such election will remain in effect until revoked by
written notice to the Trustee or the Designated Agent, but written notice of any
such revocation must be received by the Trustee or the Designated Agent on or
prior to the applicable Record Date or at least 15 calendar days prior to the
Maturity Date, as the case may be.
If the Specified Currency is other than United States dollars or a
composite currency and the holder of this Note shall have duly made an election
to receive all or a specified portion of any payment of principal, premium, if
any, and/or interest in respect of this Note in the Specified Currency and if
the Specified Currency is not available due to the imposition of exchange
controls or other circumstances beyond the reasonable control of the
Partnership, the Partnership will be entitled to satisfy its obligations to the
holder of this Note by making such payment in United States dollars on the basis
of the Market Exchange Rate (as defined below) on the second Business Day prior
to such payment date or, if such Market Exchange Rate is not then available, on
the basis of the most recently available Market Exchange Rate or as otherwise
specified on the face hereof. The "Market Exchange Rate" for the Specified
Currency means the noon dollar buying rate in The City of New York for cable
transfers for such Specified Currency as certified for customs purposes by (or
if not so certified, as otherwise determined by) the Federal Reserve Bank of New
York. Any payment made under such circumstances in United States dollars will
not constitute an Event of Default (as defined in the Indenture) with respect to
this Note.
If the Specified Currency is a composite currency and the holder of
this Note shall have duly made an election to receive all or a specified portion
of any payment of principal, premium, if any, and/or interest in respect of this
Note in the Specified Currency and if such composite currency is unavailable due
to the imposition of exchange controls or other circumstances beyond the
reasonable control of the Partnership, then the Partnership will be entitled to
satisfy its obligations to the holder of this Note by making such payment in
United States dollars. The amount of each payment in United States dollars shall
be computed by the Exchange Rate Agent on the basis of the equivalent of the
composite currency in United States dollars. The component currencies of the
composite currency for this purpose (collectively, the "Component Currencies"
and each, a "Component Currency") shall be the currency amounts that were
components of the composite currency as of the last day on which the composite
5
<PAGE> 6
currency was used. The equivalent of the composite currency in United States
dollars shall be calculated by aggregating the United States dollar equivalents
of the Component Currencies. The United States dollar equivalent of each of the
Component Currencies shall be determined by the Exchange Rate Agent on the basis
of the most recently available Market Exchange Rate for each such Component
Currency, or as otherwise specified on the face hereof.
If the official unit of any Component Currency is altered by way of
combination or subdivision, the number of units of the currency as a Component
Currency shall be divided or multiplied in the same proportion. If two or more
Component Currencies are consolidated into a single currency, the amounts of
those currencies as Component Currencies shall be replaced by an amount in such
single currency equal to the sum of the amounts of the consolidated Component
Currencies expressed in such single currency. If any Component Currency is
divided into two or more currencies, the amount of the original Component
Currency shall be replaced by the amounts of such two or more currencies, the
sum of which shall be equal to the amount of the original Component Currency.
All determinations referred to above made by the Exchange Rate Agent
shall be at its sole discretion and shall, in the absence of manifest error, be
conclusive for all purposes and binding on the holder of this Note.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof and, if so specified above on the face hereof, in
the Addendum hereto, which further provisions shall have the same force and
effect as if set forth on the face hereof.
Notwithstanding any provisions to the contrary contained herein, if the
face of this Note specifies that an Addendum is attached hereto or that
"Other/Additional Provisions" apply to this Note, this Note shall be subject to
the terms set forth in such Addendum or such "Other/Additional Provisions."
Unless the Certificate of Authentication hereon has been executed by
the Trustee or its Authenticating Agent by manual signature, this Note shall not
be entitled to any benefit under the Indenture or be valid or obligatory for any
purpose.
6
<PAGE> 7
IN WITNESS WHEREOF, Summit Properties Partnership, L.P. has caused this
Note to be duly executed under the facsimile corporate seal of its general
partner.
Dated: October 5, 1998 SUMMIT PROPERTIES PARTNERSHIP, L.P.
By: Summit Properties Inc.,
its General Partner
By: /s/ Michael L. Schwarz
----------------------------------
Michael L. Schwarz
Executive Vice President and
Chief Financial Officer
(SEAL)
Attest:
/s/ Michael G. Malone
- ----------------------------
Michael G. Malone
Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION:
This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.
Dated: October 5, 1998 FIRST UNION NATIONAL BANK,
as Trustee
By: /s/ Shannon Schwartz
-------------------------------
Authorized Signatory
7
<PAGE> 8
[REVERSE OF NOTE]
SUMMIT PROPERTIES PARTNERSHIP, L.P.
MEDIUM-TERM NOTE
(Fixed Rate)
This Note is one of a duly authorized series of Securities (the
"Securities") of the Partnership issued and to be issued under an Indenture,
dated as of August 7, 1997 as supplemented by the Third Supplemental Indenture
dated as of May 29, 1998, as further amended, modified or supplemented from time
to time (the "Indenture"), between the Partnership and First Union National
Bank, as Trustee (the "Trustee," which term includes any successor trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Partnership, the Trustee and
the holders of the Securities, and of the terms upon which the Securities are,
and are to be, authenticated and delivered. This Note is one of the series of
Securities designated as "Medium-Term Notes Due Nine Months or More from Date of
Issue" (the "Notes"). All terms used but not defined in this Note or in an
Addendum hereto shall have the meanings assigned to such terms in the Indenture
or on the face hereof, as the case may be.
This Note is issuable only in registered form without coupons in
minimum denominations of U.S. $1,000 and integral multiples thereof or the
minimum Authorized Denomination specified on the face hereof.
This Note will not be subject to any sinking fund and, unless
otherwise specified on the face hereof in accordance with the provisions of the
following two paragraphs, will not be redeemable or repayable prior to the
Stated Maturity Date.
This Note will be subject to redemption at the option of the
Partnership on any date on and after the Initial Redemption Date, if any,
specified on the face hereof, in whole or from time to time in part in
increments of U.S. $1,000 or the minimum Authorized Denomination (provided that
any remaining principal amount hereof shall be at least U.S. $1,000 or such
minimum Authorized Denomination), at the Redemption Price (as defined below),
together with unpaid interest accrued thereon to the date fixed for redemption
(each, a "Redemption Date"), on notice given not more than 60 nor less than 30
calendar days prior to the Redemption Date and in accordance with the provisions
of the Indenture. The "Redemption Price" shall initially be the Initial
Redemption Percentage specified on the face hereof multiplied by the unpaid
principal amount of this Note to be redeemed. The Initial Redemption Percentage
shall decline at each anniversary of the Initial Redemption Date by the Annual
Redemption Percentage Reduction, if any, specified on the face hereof until the
Redemption Price is 100% of the unpaid principal amount to be redeemed. In the
event of redemption of this Note in part only, a new Note of like tenor for the
unredeemed portion hereof and otherwise having the same terms as this Note shall
be issued in the name of the holder hereof upon the presentation and surrender
hereof.
8
<PAGE> 9
This Note will be subject to repayment by the Partnership at the
option of the holder hereof on the Optional Repayment Date(s), if any, specified
on the face hereof, in whole or in part in increments of U.S. $1,000 or the
minimum Authorized Denomination (provided that any remaining principal amount
hereof shall be at least U.S. $1,000 or such minimum Authorized Denomination),
at a repayment price equal to 100% of the unpaid principal amount to be repaid,
together with unpaid interest accrued thereon to the date fixed for repayment
(each, a "Repayment Date"). For this Note to be repaid, the Trustee or the
Designated Agent must receive at its office in the Borough of Manhattan, The
City of New York, referred to on the face hereof, at least 30 days but not more
than 60 days prior to the Repayment Date (i) this Note and the form hereon
entitled "Option to Elect Repayment" duly completed or (ii) a telegram, telex,
facsimile transmission, or a letter from a member of a national securities
exchange or the National Association of Securities Dealers, Inc. or a commercial
bank or trust company in the United States setting forth the name of the holder
hereof, the principal amount of this Note, the principal amount of this Note to
be repaid, the certificate number or a description of the tenor and terms of
this Note, a statement that the option to elect repayment is being exercised
thereby, and a guarantee that this Note, together with the form hereon entitled
"Option to Elect Repayment" duly completed, will be received by the Trustee or
the Designated Agent not later than the fifth Business Day after the date of
such telegram, telex, facsimile transmission or letter, provided that such
telegram, telex, facsimile transmission or letter shall only be effective if
this Note and duly completed form are received by the Trustee or the Designated
Agent by such fifth Business Day. Exercise of such repayment option by the
holder hereof will be irrevocable. In the event of repayment of this Note in
part only, a new Note of like tenor for the unrepaid portion hereof and
otherwise having the same terms as this Note shall be issued in the name of the
holder hereof upon the presentation and surrender hereof.
If this Note is an Original Issue Discount Note as specified on
the face hereof, the amount payable to the holder of this Note in the event of
redemption, repayment or acceleration of maturity of this Note will be equal to
the sum of (i) the Issue Price specified on the face hereof (increased by any
accruals of the Discount, as defined below) and, in the event of any redemption
of this Note (if applicable), multiplied by the Initial Redemption Percentage
(as adjusted by the Annual Redemption Percentage Reduction, if applicable) and
(ii) any unpaid interest on this Note accrued from the Original Issue Date to
the Redemption Date, Repayment Date or date of acceleration of maturity, as the
case may be. The difference between the Issue Price and 100% of the principal
amount of this Note is referred to herein as the "Discount."
For purposes of determining the amount of Discount that has
accrued as of any Redemption Date, Repayment Date or date of acceleration of
maturity of this Note, such Discount will be accrued using a constant yield
method. The constant yield will be calculated using a 30-day month, 360-day year
convention, a compounding period that, except for the Initial Period (as defined
below), corresponds to the shortest period between Interest Payment Dates (with
ratable accruals within a compounding period), a coupon rate equal to the
initial coupon rate applicable to this Note and an assumption that the maturity
of this Note will not be
9
<PAGE> 10
accelerated. If the period from the Original Issue Date to the initial Interest
Payment Date (the "Initial Period") is shorter than the compounding period for
this Note, a proportionate amount of the yield for an entire compounding-period
will be accrued. If the Initial Period is longer than the compounding period,
then such period will be divided into a regular compounding period and a short
period, with the short period being treated as provided in the preceding
sentence.
If an Event of Default, as defined in the Indenture, shall occur
and be continuing, the principal of the Notes may be declared due and payable in
the manner and with the effect provided in the Indenture.
The Indenture contains provisions for defeasance of (i) the
entire indebtedness of the Notes or (ii) certain covenants and Events of Default
with respect to the Notes, in each case upon compliance with certain conditions
set forth therein, which provisions apply to the Notes.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Partnership and the rights of the holders of the Securities
at any time by the Partnership and the Trustee with the consent of the holders
of not less than a majority of the aggregate principal amount of all Securities
at the time outstanding and affected thereby. The Indenture also contains
provisions permitting the holders of not less than a majority of the aggregate
principal amount of the outstanding Securities of any series, on behalf of the
holders of all such Securities, to waive compliance by the Partnership with
certain provisions of the Indenture. Furthermore, provisions in the Indenture
permit the holders of not less than a majority of the aggregate principal amount
of the outstanding Securities of any series, in certain instances, to waive, on
behalf of all of the holders of Securities of such series, certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
holder of this Note shall be conclusive and binding upon such holder and upon
all future holders of this Note and other Notes issued upon the registration of
transfer hereof or in exchange heretofore or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the
Partnership, which is absolute and unconditional, to pay principal, premium, if
any, and interest in respect of this Note at the times, places and rate or
formula, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein and herein set forth, the transfer of this Note is registrable in the
Security Register of the Partnership upon surrender of this Note for
registration of transfer at the office or agency of the Partnership in any place
where the principal hereof and any premium or interest hereon are payable, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Partnership and the Security Registrar, duly executed by,
the holder hereof or by his attorney duly authorized in writing, and thereupon
one or more new Notes, of authorized denominations
10
<PAGE> 11
and for the same aggregate principal amount, will be issued to the designated
transferee or transferees.
As provided in the Indenture and subject to certain limitations
therein and herein set forth, this Note is exchangeable for a like aggregate
principal amount of Notes of different authorized denominations but otherwise
having the same terms and conditions, as requested by the holder hereof
surrendering the same.
No service charge shall be made for any such registration of
transfer or exchange, but the Partnership may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
Prior to due presentment of this Note for registration of
transfer, the Partnership, the Trustee and any agent of the Partnership or the
Trustee may treat the holder in whose name this Note is registered as the owner
thereof for all purposes, whether or not this Note be overdue, and neither the
Partnership, the Trustee nor any such agent shall be affected by notice to the
contrary.
This Note and all documents, agreements, understandings and
arrangements relating to any transaction contemplated hereby or thereby have
been executed or entered into by the undersigned in his/her capacity as an
officer of the sole general partner of the Partnership which has been formed as
a Delaware limited partnership, and not individually, and neither the general
partner, officers, employees or limited partners of the Partnership shall be
bound or have any personal liability hereunder or thereunder. The holder of this
Note by accepting this Note waives and releases all such liability. This waiver
and release are part of the consideration for the issue of this Note. Each party
hereto shall look solely to the assets of the Partnership for satisfaction of
any liability of the Partnership in respect of this Note and all documents,
agreements, understandings and arrangements relating to any transaction
contemplated hereby or thereby and will not seek recourse or commence any action
against any of the trustees, officers or shareholders of the Partnership or any
of their personal assets for the performance or payment of any obligation
hereunder or thereunder. The foregoing shall also apply to any future documents,
agreements, understandings, arrangements and transactions between the parties
hereto.
The Indenture and this Note shall be governed by and construed in
accordance with the laws of the State of New York without regard to its
principles of conflicts of laws.
11
<PAGE> 12
ABBREVIATIONS
The following abbreviations, when used in the inscription on the
face of this Note, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as
tenants in common
UNIF GIFT MIN ACT - __________ Custodian __________
(Cust) (Minor)
Under Uniform Gifts to Minors Act _____________________
(State)
Additional abbreviations may also be used though not in the above
list.
12
<PAGE> 13
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please print or typewrite name and address including postal zip code of
assignee) this Note and all rights thereunder hereby irrevocably constituting
and appointing Attorney to transfer this Note on the books of the Trustee, with
full power of substitution in the premises.
Dated:_____________________
NOTICE: The signature(s) on this Assignment must correspond with the
name(s) as written upon the face of this Note in every particular, without
alteration or enlargement or any change whatsoever.
13
<PAGE> 14
OPTION TO ELECT REPAYMENT
The undersigned hereby irrevocably request(s) and instruct(s) the
Partnership to repay this Note (or portion hereof specified below) pursuant to
its terms at a price equal to 100% of the principal amount to be repaid,
together with unpaid interest accrued hereon to the Repayment Date, to the
undersigned, at
- --------------------------------------------------------------------------------
(Please print or typewrite name and address of the undersigned)
For this Note to be repaid, the Trustee or the Designated Agent
must receive at its corporate trust office in the Borough of Manhattan, The City
of New York, this Note with this "Option to Elect Repayment" form duly
completed.
If less than the entire principal amount of this Note is to be
repaid, specify the portion hereof (which shall be increments of U.S. $1,000
(or, if the Specified Currency is other than United States dollars, the minimum
Authorized Denomination specified on the face hereof)) which the holder elects
to have repaid and specify the denomination or denominations (which shall be an
Authorized Denomination) of the Notes to be issued to the holder for the portion
of this Note not being repaid (in the absence of any such specification, one
such Note will be issued for the portion not being repaid).
Principal Amount
to be Repaid: $
------------------
Date:
----------------------------- ----------------------------------
Notice: The signature(s) on this
Option to Elect Repayment must
correspond with the name(s) as
written upon the face of this Note
in every particular, without
alteration or enlargement or any
change whatsoever.
14
<PAGE> 1
EXHIBIT 12.1
SUMMIT PROPERTIES PARTNERSHIP, L.P.
CALCULATION OF RATIOS OF EARNINGS TO FIXED CHARGES
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
(Dollars In Thousands)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30 September 30
------------ ------------
<S> <C> <C>
Funds from operations before fixed charges:
Income (loss) before extraordinary items $ 7,892 $30,652
Interest:
Expense incurred 8,181 22,627
Amortization of deferred financing costs 211 724
------- -------
Total $16,284 $54,003
======= =======
Fixed charges:
Interest expense $ 8,181 $22,627
Interest capitalized 1,723 4,352
Rental fixed charges 32 105
Amortization of deferred financing costs 211 724
------- -------
Total $10,147 $27,808
======= =======
Ratio of earnings to fixed charges 1.60 1.94
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SUMMIT PROPERTIES FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,823
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,086,107
<DEPRECIATION> 121,631
<TOTAL-ASSETS> 990,000
<CURRENT-LIABILITIES> 0
<BONDS> 601,872
0
0
<COMMON> 0
<OTHER-SE> 347,123
<TOTAL-LIABILITY-AND-EQUITY> 990,000
<SALES> 104,780
<TOTAL-REVENUES> 106,066
<CGS> 0
<TOTAL-COSTS> 37,294
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,351
<INCOME-PRETAX> 30,652
<INCOME-TAX> 0
<INCOME-CONTINUING> 30,652
<DISCONTINUED> 0
<EXTRAORDINARY> (185)
<CHANGES> 0
<NET-INCOME> 30,467
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.06
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SUMMIT PROPERTIES FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,930
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 865,256
<DEPRECIATION> 99,789
<TOTAL-ASSETS> 786,210
<CURRENT-LIABILITIES> 0
<BONDS> 438,094
0
0
<COMMON> 0
<OTHER-SE> 313,825
<TOTAL-LIABILITY-AND-EQUITY> 786,629
<SALES> 84,906
<TOTAL-REVENUES> 85,420
<CGS> 0
<TOTAL-COSTS> 30,744
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,382
<INCOME-PRETAX> 25,098
<INCOME-TAX> 0
<INCOME-CONTINUING> 25,098
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,098
<EPS-PRIMARY> .92
<EPS-DILUTED> .92
</TABLE>
