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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ------- to ------- .
Commission File Number 0-22411
SUMMIT PROPERTIES PARTNERSHIP, L.P.
(Exact name of registrant as specified in its charter)
---------------
<TABLE>
<CAPTION>
DELAWARE 56-1857809
<S> <C>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
212 SOUTH TRYON STREET
SUITE 500
CHARLOTTE, NORTH CAROLINA 28281
(Address of principal executive offices) (zip code)
</TABLE>
(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>
SUMMIT PROPERTIES PARTNERSHIP, L.P.
INDEX
<TABLE>
<S> <C> <C>
PAGE
--
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998 (Unaudited) ........ 3
Consolidated Statements of Earnings for the three months ended March 31, 1999 and 1998
(Unaudited) ............................................................................... 4
Consolidated Statement of Partners' Equity for the three months ended March 31, 1999
(Unaudited) ............................................................................... 5
Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and 1998
(Unaudited) ............................................................................... 6
Notes to Consolidated Financial Statements ................................................ 7
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations ..... 13
Item 3 Quantitative and Qualitative Disclosure about Market Risk ................................. 26
PART II OTHER INFORMATION
Item 2 Changes in Securities ..................................................................... 27
Item 6 Exhibits and Reports on Form 8-K .......................................................... 27
Signatures ................................................................................ 28
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUMMIT PROPERTIES PARTNERSHIP, L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Real estate assets:
Land and land improvements ........................................... $ 177,712 $ 169,374
Buildings and improvements ........................................... 876,589 836,054
Furniture, fixtures and equipment .................................... 67,485 63,963
---------- ----------
1,121,786 1,069,391
Less: accumulated depreciation ....................................... (123,354) (115,128)
---------- ----------
Operating real estate assets ....................................... 998,432 954,263
Construction in progress ............................................. 120,778 137,145
---------- ----------
Net real estate assets ............................................. 1,119,210 1,091,408
Cash and cash equivalents ............................................. 3,473 2,837
Restricted cash ....................................................... 68,898 91,981
Deferred financing costs, net ......................................... 7,494 7,538
Other assets .......................................................... 4,378 5,303
---------- ----------
Total assets .......................................................... $1,203,453 $1,199,067
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Notes payable ........................................................ $ 741,966 $ 726,103
Accrued interest payable ............................................. 4,943 6,806
Accounts payable and accrued expenses ................................ 18,886 32,745
Distributions payable ................................................ 13,728 12,713
Security deposits and prepaid rents .................................. 4,467 4,188
---------- ----------
Total liabilities .................................................. 783,990 782,555
---------- ----------
Commitments
Partners' equity:
Partnership units issued and outstanding 32,881,933 and 32,242,074
General partner -- outstanding 328,819 and 322,421 ................... 5,814 4,895
Limited partners -- outstanding 32,553,114 and 31,919,653 ............ 413,649 411,617
---------- ----------
419,463 416,512
---------- ----------
Total liabilities and partners' equity ................................ $1,203,453 $1,199,067
========== ==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
SUMMIT PROPERTIES PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Revenues:
Rental ............................................... $ 39,813 $ 31,450
Other property income ................................ 2,242 1,616
Interest ............................................. 1,035 98
Other income ......................................... 59 73
----------- ----------
Total revenues .................................... 43,149 33,237
----------- ----------
Expenses:
Property operating and maintenance:
Personnel .......................................... 3,074 2,429
Advertising and promotion .......................... 607 511
Utilities .......................................... 2,066 1,722
Building repairs and maintenance ................... 1,964 2,073
Real estate taxes and insurance .................... 4,478 3,469
Depreciation ....................................... 8,253 6,540
Property supervision ............................... 988 799
Other operating expenses ........................... 819 631
----------- ----------
22,249 18,174
Interest ............................................. 10,497 7,298
General and administrative ........................... 1,080 801
Loss in equity investments:
Summit Management Company .......................... 316 72
Real estate joint venture .......................... 8 --
----------- ----------
Total expenses .................................... 34,150 26,345
----------- ----------
Income before extraordinary items ..................... 8,999 6,892
Extraordinary items ................................... -- (185)
----------- ----------
Net income ............................................ 8,999 6,707
Net income allocated to general partner ............... (90) (67)
=========== ==========
Net income allocated to limited partners .............. $ 8,909 $ 6,640
=========== ==========
Per unit data:
Income before extraordinary items -- basic ........... $ 0.27 $ 0.25
=========== ==========
Income before extraordinary items -- diluted ......... $ 0.27 $ 0.24
=========== ==========
Extraordinary items -- basic and diluted ............. -- $ 0.01)
=========== ==========
Net income -- basic and diluted ...................... $ 0.27 $ 0.24
=========== ==========
Distributions declared ............................... $ 0.42 $ 0.41
=========== ==========
Weighted average units -- basic ...................... 32,763,936 28,118,113
=========== ==========
Weighted average units -- diluted .................... 32,769,514 28,147,380
=========== ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
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 ........................... $4,895 $ 411,617 $ 416,512
Distributions ....................................... (139) (13,776) (13,915)
Contributions from Summit Properties related to:
Proceeds from dividend and stock purchase plans ... 989 8,899 9,888
Exercise of stock options ......................... -- 1 1
Amortization of restricted stock grants ........... 1 135 136
Issuance of employee notes .......................... (22) (2,136) (2,158)
Net income .......................................... 90 8,909 8,999
------ --------- ---------
Balance, March 31, 1999 .............................. $5,814 $ 413,649 $ 419,463
====== ========= =========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
SUMMIT PROPERTIES PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................................................... $ 8,999 $ 6,707
Adjustments to reconcile net income to net cash provided by operating activities:
Extraordinary items ............................................................... -- 185
Loss on equity method investments ................................................. 324 72
Depreciation and amortization ..................................................... 8,720 6,930
Decrease (increase) in restricted cash ............................................ 625 (127)
Decrease in other assets .......................................................... 534 137
Decrease in accrued interest payable .............................................. (1,863) (1,912)
Increase (decrease) in accounts payable and accrued expenses ...................... (3,217) 1,732
Increase in security deposits and prepaid rents ................................... 279 436
--------- ---------
Net cash provided by operating activities ........................................ 14,401 14,160
--------- ---------
Cash flows from investing activities:
Construction of real estate assets, net of payables ................................. (33,483) (26,595)
Proceeds from disposal of Communities ............................................... 22,458 --
Purchase of Communities ............................................................. -- (24,494)
Capitalized interest ................................................................ (1,768) (1,134)
Recurring capital expenditures ...................................................... (1,039) (843)
Non-recurring capital expenditures, net of payables ................................. (891) (1,245)
--------- ---------
Net cash used in investing activities ............................................ (14,723) (54,311)
--------- ---------
Cash flows from financing activities:
Net borrowings (repayments) on line of credit ....................................... (7,500) 51,359
Net borrowings on unsecured bonds ................................................... 24,749 --
Repayment of mortgage debt .......................................................... (1,277) (12,941)
Repayments of tax exempt bonds ...................................................... (360) (305)
Distributions to unitholders ........................................................ (12,911) (11,097)
Increase in employee notes .......................................................... (2,158) (902)
Contributions from Summit Properties related to:
Proceeds from dividend and stock purchase plans ................................... 9,888 15,808
Decrease in advance proceeds from direct stock purchase plan ...................... (9,474) (1,500)
Exercise of stock options ......................................................... 1 499
--------- ---------
Net cash provided by financing activities ........................................ 958 40,921
--------- ---------
Net increase in cash and cash equivalents ............................................ 636 770
Cash and cash equivalents, beginning of period ....................................... 2,837 3,563
--------- ---------
Cash and cash equivalents, end of period ............................................. $ 3,473 $ 4,333
========= =========
Supplemental disclosure of cash flow information -- Cash paid for interest, net of
capitalized interest ................................................................ $ 12,117 $ 8,900
========= =========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
SUMMIT PROPERTIES PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 three months ended March 31, 1999 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,
1998 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").
COMPREHENSIVE INCOME -- Statement of Financial Accounting Standard No. 130
"Reporting Comprehensive Income" (FAS 130), presents standards for the
reporting and display of comprehensive income and its components. Besides net
income, FAS 130 requires the reporting of other comprehensive income, defined
as revenues, expenses, gains and losses that are not included in net income
under generally accepted accounting principles. The Operating Partnership has
no items of other comprehensive income in the periods presented.
DERIVATIVE INSTRUMENT AND HEDGING ACTIVITIES -- Statement of Financial
Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (FAS 133), presents standards for accounting for derivative
instruments. FAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Operating Partnership currently holds no
derivative instruments and, accordingly, does not expect FAS 133 to have an
effect on the Operating Partnership's financial position and results of
operations.
CHANGE IN ACCOUNTING POLICY -- Effective January 1, 1999, the Operating
Partnership's implemented prospectively a new accounting policy whereby
expenditures for carpet are capitalized and depreciated over their estimated
useful lives. Previously, carpets had been expensed. The Operating Partnership
believes that the newly adopted accounting policy is preferable as it is
consistent with the standards and practices utilized by the majority of the
Operating Partnership's peers and provides a better matching of expenses with
the related benefit of the expenditure. The change in accounting policy is
being treated as a change in accounting estimate. The effect of the change in
the accounting policy for carpet for the three months ended March 31, 1999 was
an increase to net income by $339,000 or $0.01 per basic and diluted unit.
RECLASSIFICATIONS -- Certain reclassifications have been made to the 1998
financial statements to conform to the 1999 presentation.
2. REAL ESTATE JOINT VENTURES
The Operating Partnership obtained a 25% interest in a joint venture named
Station Hill, LLC, a North Carolina limited liability company ("Station Hill"),
in exchange for the contribution of two communities in December, 1998. Station
Hill also owns five apartment communities previously owned by the Operating
Partnership which were sold to Hollow Creek, LLC on December 16, 1998 and were
concurrently contributed to Station Hill for a 75% joint venture interest. The
Operating Partnership's initial investment in Station Hill was reduced to zero
when the Operating Partnership eliminated the portion of the gain on disposal
related to the percentage of joint venture ownership interest retained. Station
Hill is accounted for on the equity method of accounting.
The Operating Partnership owns a 49% interest in each of two joint
ventures ("Construction Projects"). Each joint venture is developing an
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 March 31, 1999. The construction costs are being funded primarily through
separate loans to each joint venture from unrelated third parties equal to 100%
of the construction costs. During the construction period, in lieu of equity
contribution to each of the respective joint ventures, the Operating
Partnership has
7
<PAGE>
2. REAL ESTATE JOINT VENTURES -- (Continued)
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 its joint venture partner's interest after the
projects are complete.
The following is a condensed balance sheet for each of the real estate
joint ventures at March 31, 1999 and an income statement for the three months
ended March 31, 1999 for the Station Hill joint venture only as the
Construction Projects had no operations during the period (in thousands):
<TABLE>
<CAPTION>
STATION CONSTRUCTION
HILL PROJECTS
----------- -------------
<S> <C> <C>
Cash and cash equivalents ........................... $2,172 $ 18
Real estate assets other than construction in progress 90,914 --
Construction in progress ............................ -- 18,686
Other assets ........................................ 406 --
------ -------
Total assets ...................................... $93,492 $18,704
======= =======
Mortgage payable .................................... $70,028 $ --
Construction loan payable ........................... -- 15,146
Construction liabilities payable .................... -- 3,543
Other liabilities ................................... 1,060 --
Partners' capital ................................... 22,404 15
------- -------
Total liabilities and partners' capital ........... $93,492 $18,704
======= =======
Revenues ............................................ $2,915
Expenses:
Property operating ................................ 1,009
Depreciation and amortization ..................... 744
Interest .......................................... 1,174
-------
Total expenses ................................... 2,927
-------
Net loss ............................................ ($ 12)
=======
</TABLE>
3. NOTES PAYABLE
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 March 18, 1999, the
Operating Partnership sold $25 million of notes under the MTN Program. Such
notes are due on March 16, 2009 and bear interest at 7.59% per year. Proceeds
from the notes issued were used to reduce the Operating Partnership's unsecured
line of credit. The Operating Partnership has issued $80 million aggregate
principal amount of Medium-Term Notes ($55 million of which was issued during
1998) of the $95 million aggregate principal amount of Medium-Term Notes
registered in connection with the MTN Program.
4. RESTRICTED STOCK
During the three months ended March 31, 1999 and 1998, Summit Properties
granted 14,181 and 4,842 shares, respectively, of restricted stock to employees
of the Operating Partnership and its subsidiaries under Summit Properties' 1994
Stock Option and Incentive Plan. The market value of the restricted stock
grants awarded in 1999 and 1998 totaled $239,000 and $101,000, respectively.
Unearned compensation is being amortized to expense over the vesting period
which ranges from three to five years.
8
<PAGE>
5. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the three months ended
March 31, 1999 and 1998 are as follows:
A. The Operating Partnership purchased Summit St. Clair on March 6, 1998
by issuing 119,000 common units of limited partnership interest in the
Operating Partnership ("Units"), assuming certain liabilities and paying cash.
The recording of the purchase is summarized as follows (in thousands):
<TABLE>
<S> <C>
Fixed assets ........................ $ 27,002
Current liabilities assumed ......... (94)
Value of Units issued ............... (2,414)
--------
Cash invested ....................... $ 24,494
========
</TABLE>
B. The Operating Partnership accrued a distribution payable in the amounts
of $13.7 million and $11.7 million at March 31, 1999 and 1998, respectively.
C. Summit Properties issued 14,181 and 4,842 shares of restricted stock
valued at $239,000 and $101,000 during the three months ended March 31, 1999
and 1998, respectively, to employees of the Operating Partnership and its
subsidiaries.
6. EXTRAORDINARY ITEMS
The extraordinary items in the three months ended March 31, 1998 resulted
from the write-off of deferred financing costs in conjunction with the
replacement by the Operating Partnership of its prior credit facility with a
new credit facility as well as prepayment penalties on four mortgage notes
which were repaid during the period.
7. EARNINGS PER UNIT
The only difference between "basic" and "diluted" weighted average units
is the dilutive effect of Summit Properties' stock options outstanding (5,578
and 29,267 units added to weighted units outstanding for the three months ended
March 31, 1999 and 1998, respectively).
8. COMMITMENTS
The Operating Partnership has ten development projects currently under
construction representing a total estimated cost of $193.5 million. The
estimated cost to complete the projects is $104.4 million at March 31, 1999.
9. BUSINESS SEGMENTS
Effective December 31, 1998, the Operating Partnership adopted Financial
Accounting Standards Board (FASB) Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (FAS 131). FAS 131
establishes standards for the manner in which public enterprises report
information about operating segments in financial statements. FAS 131 also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The adoption of FAS 131 did not affect
the Operating Partnership's results of operations or financial position.
The Operating Partnership reports as a single business segment with
activities related to the ownership, development, acquisition and management of
"Class A" luxury garden apartments primarily in the southeastern, southwestern
and mid-atlantic United States. The Operating Partnership uses Funds from
Operations ("FFO") as a performance measure. The Operating Partnership computes
FFO in accordance with the definition approved by the National Association of
Real Estate Investment Trusts.
9
<PAGE>
9. BUSINESS SEGMENTS -- (Continued)
Information for the apartment communities for the three months ended March 31,
1999 and 1998 is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
------------------------------------------ -------------------------------------
APARTMENT CORPORATE/ APARTMENT CORPORATE/
OPERATIONS OTHER TOTAL OPERATIONS OTHER TOTAL
-------------- ------------ -------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Rental and other property income ..... $ 42,055 $ -- $ 42,055 $ 33,066 $ -- $ 33,066
Interest and other income ............ -- 1,094 1,094 -- 171 171
---------- -------- ---------- -------- ------- --------
Total income ......................... 42,055 1,094 43,149 33,066 171 33,237
Operating expenses:
Property operating expenses .......... 13,996 -- 13,996 11,634 -- 11,634
Interest ............................. -- 10,497 10,497 7,298 7,298
General and administrative ........... -- 1,080 1,080 -- 801 801
Depreciation -- other ................ -- 27 27 -- 19 19
Loss on equity investment ............ 8 316 324 -- 72 72
---------- -------- ---------- -------- ------- --------
Total operating expenses ............. 14,004 11,920 25,924 11,634 8,190 19,824
Depreciation -- joint ventu ........... 183 -- 183 -- -- --
---------- -------- ---------- -------- ------- --------
Funds from Operations ................. 28,234 (10,826) 17,408 21,432 (8,019) 13,413
Depreciation -- apartments ............ (8,226) -- (8,226) (6,521) -- (6,521)
Depreciation -- joint venture ......... (183) -- (183) -- -- --
Extraordinary items ................... -- -- -- -- (185) (185)
---------- -------- ---------- -------- ------- --------
Net income ............................ $ 19,825 ($ 10,826) $ 8,999 $ 14,911 ($ 8,204) $ 6,707
========== ======== ========== ======== ======= ========
Capital investments (1) ............... $ 36,003 $ 25 $ 36,028 $ 55,861 $ 13 $ 55,874
========== ======== ========== ======== ======= ========
Assets ................................ $1,200,301 $ 3,152 $1,203,453 $871,865 $ 4,039 $875,904
========== ======== ========== ======== ======= ========
</TABLE>
(1) Capital investments includes cost during the year of the Operating
Partnership's developments and acquisitions as well as capital
expenditures on existing properties.
10. SUBSEQUENT EVENTS
PRIVATE PLACEMENT OF PREFERRED UNITS -- On April 29, 1999, the Operating
Partnership completed a private placement of 3,400,000 of its 8.95% Series B
Cumulative Redeemable Perpetual Preferred Units (the "Series B Preferred
Units") to two institutional investors at a price of $25.00 per unit. The net
proceeds of approximately $83 million were used to repay amounts outstanding
under the Operating Partnership's unsecured line of credit. In connection with
such placement, the partnership agreement of the Operating Partnership was
amended to provide for and to describe the rights of the holders of the Series
B Preferred Units.
Distributions on the Series B Preferred Units will be cumulative from the
date of original issuance and payable quarterly on the last business day of
each of March, June, September and December of each year commencing June 30,
1999, at an annual rate of 8.95% on the $25.00 original capital contribution
per unit. Upon any voluntary or involuntary liquidation, dissolution or winding
up of the Operating Partnership, the Series B Preferred Units will be entitled
to a preferential distribution equal to the capital account attributable to
such unit (initially $25.00 per unit), plus an amount equal to all accumulated,
accrued and unpaid distributions. With respect to payment of distributions and
amounts upon liquidation, the Series B Preferred Units will rank senior to any
junior units, including the Operating Partnership's common units of limited
partnership interest.
10
<PAGE>
10. SUBSEQUENT EVENTS -- (Continued)
On and after April 29, 2004, the Operating Partnership may redeem the
Series B Preferred Units at its option, for cash at a redemption price equal to
the redeemed holder's capital account (initially $25.00 per unit), plus an
amount equal to all accumulated, accrued and unpaid distributions thereon to
the date of redemption which such redemption may be in whole, at any time, or
in part, at any time that all accumulated and unpaid distributions have been
paid on all Series B Preferred Units for all periods up to and including such
date of redemption. In lieu of cash, the Operating Partnership may elect to
deliver, for any Series B Preferred Unit being redeemed, one share of 8.95%
Series B Cumulative Redeemable Perpetual Preferred Share of Summit Properties
(a "Series B Preferred Share"), which share shall have, as of the date of its
issuance, a preference in an amount equal to all accumulated, accrued and
unpaid distributions on the redeemed unit to the date of its redemption. The
Series B Preferred Units are not subject to any mandatory redemption
provisions. No sinking fund will be established for the retirement or
redemption of the Series B Preferred Units.
Holders of the Series B Preferred Units have the right to exchange Series
B Preferred Units, in whole or in part (subject to certain exceptions and
limitations), for shares of Series B Preferred Shares on a one-for-one basis.
The exchange right is exercisable, in minimum amounts of 850,000 units, at the
option of the holders of the Series B Preferred Units (i) at any time on or
after April 29, 2009, (ii) at any time if full quarterly distributions shall
not have been timely made for six quarters, whether or not consecutive, or
(iii) upon the occurrence of certain specified events related to the federal
income tax treatment of the Operating Partnership or the Series B Preferred
Units for federal income tax purposes.
On April 29, 1999, Summit Properties filed Articles Supplementary to its
charter classifying and establishing the class of 3,400,000 Series B Preferred
Shares and describing such Series B Preferred Shares and the rights of the
holders thereof. Summit Properties' Board of Directors has reserved such Series
B Preferred Shares for issuance upon exchange of Series B Preferred Units. In
general, the distribution and liquidation preferences and other rights of
holders of Series B Preferred Shares and Summit Properties' right to redeem
Series B Preferred Shares are substantially similar to the related distribution
and liquidation preferences and other rights of holders of Series B Preferred
Units and the Operating Partnership's right to redeem Series B Preferred Units,
except as set forth below.
Neither the Series B Preferred Units nor the Series B Preferred Shares are
convertible into or exchangeable for any other securities, except that (i)
Series B Preferred Units may be exchanged for Series B Preferred Shares as
described above and (ii) Series B Preferred Shares may be converted
automatically into shares of Excess Stock (a separate class of stock into which
shares in excess of Summit Properties' stock ownership limit are automatically
convertible) in order to ensure that Summit Properties remains a qualified REIT
for federal income tax purposes.
Except as otherwise required by law, holders of the Series B Preferred
Units have only the following voting rights: so long as any Series B Preferred
Units remain outstanding, the Operating Partnership may not, without the
affirmative vote of the holders of at least two-thirds of the Series B
Preferred Units outstanding, (i) authorize or create, or increase the
authorized or issued amount of, any class or series of Operating Partnership
units ranking senior to the Series B Preferred Units, (ii) issue any class or
series of Operating Partnership units ranking on parity with the Series B
Preferred Units to an affiliate of the Operating Partnership ("Partnership
Affiliate"), reclassify any Operating Partnership unit held by a Partnership
Affiliate into any such parity unit, or issue any security or obligation with
the right to purchase any such parity unit to a Partnership Affiliate unless
such units are issued either (x) under terms no more favorable to such
Partnership Affiliate than those that would be offered in an arm's length
transaction to an unrelated party in the good faith determination of the Board
of Directors of Summit Properties, or (y) in connection with the issuance of a
corresponding class or series of preferred stock by Summit Properties to
parties who are not Partnership Affiliates or (iii) either (a) consolidate,
merge with or into, or transfer all or substantially all of its assets to
another party, or (b) amend, alter or repeal provisions of the Operating
Partnership's partnership agreement, in each case in a transaction or manner
that would materially and adversely affect any power, special right,
preference, privilege or voting power of the Series B Preferred Units or
holders thereof.
Holders of the Series B Preferred Shares will have substantially similar
voting rights with respect to Series B Preferred Shares and the Company as
holders of Series B Preferred Units have with respect to Series B Preferred
Units and the Operating Partnership, as well as the following voting right:
whenever (i) quarterly dividends in arrears (whether or not consecutive) on any
Series B Preferred Shares and (ii) unpaid quarterly distributions attributable
to Series B Preferred Units for which such Series B Preferred Shares were
exchanged equals or exceeds six, the holders of the Series B Preferred Shares
(voting separately as a class with all other series of stock which rank on a
parity with the Series B Preferred Shares as to distributions and rights and
upon which like voting rights have been conferred and are exercisable) will be
entitled to vote for the election of a total of two additional directors of
Summit Properties until all dividends accumulated on such Series B Shares have
been fully paid or declared and a sum sufficient for the payment thereof set
aside for payment.
11
<PAGE>
10. SUBSEQUENT EVENTS -- (Continued)
Summit Properties has entered into a registration rights agreement for the
benefit of any holders of the Series B Preferred Shares pursuant to which such
holders will have certain registration rights (the "Registration Rights
Agreement"). Under the Registration Rights Agreement, following the earlier of
April 29, 2009 or such date as all Series B Preferred Units are exchanged for
Series B Preferred Shares (the "Registration Date"), upon request of a
majority-in-interest of the holders of Series B Preferred Shares, Summit
Properties agreed (i) to file with the Securities and Exchange Commission (the
"SEC") a Registration Statement (the "Two-year Shelf Registration Statement")
providing for the resale of all of the Series B Preferred Shares (the
"Registrable Securities") held by such holders, (ii) to use all commercially
reasonable efforts to have such Two-year Shelf Registration Statement declared
effective by the SEC as soon as practical thereafter and (iii) to use all
commercially reasonable efforts to keep the Two-year Shelf Registration
Statement continuously effective for a period of two years or such shorter
period expiring when such Registrable Securities have been sold pursuant to
such registration statement or are to be sold in compliance with Rule 144 (as
promulgated by the SEC) without volume limitations. If, at any time, a shelf
registration statement is not effective, upon receipt of a written request
("Registration Request") from holders holding Registrable Securities having an
aggregate expected offering price of at least $10 million (or holders holding
all remaining Registrable Securities), Summit Properties agreed to use all
commercially reasonable efforts to file with the SEC, within 45 days after
receipt of such Registration Request, a registration statement ("Demand
Registration Statement") for the sale of all Registrable Securities held by the
requesting holders and keep such Demand Registration Statement continuously
effective for one year following the date such Demand Registration Statement is
declared effective or such shorter period expiring when such Registrable
Securities have been sold pursuant to such registration statement or are to be
sold in compliance with Rule 144 (as promulgated by the SEC) without volume
limitations. Summit Properties is required to file up to three Demand
Registration Statements unless, under certain circumstances it delivers Series
B Preferred Shares in lieu of cash in redemption of Series B Preferred Units,
in which case it may be required to file additional Demand Registration
Statements. Anytime Summit Properties proposes to file a registration statement
with respect to an offering solely for cash for the account of any of its
security holders of any class of equity security and a Two-year Shelf
Registration Statement has been requested but is not otherwise effective, then
Summit Properties may be required, under certain circumstances, to offer the
holders of the Registrable Securities the opportunity to include such number of
shares of Registrable Securities as each such holder may have otherwise
required in connection with a Two-year Shelf Resale Registration Statement.
Pursuant to the Registration Rights Agreement, Summit Properties has
agreed to pay all expenses of effecting the registration of the Series B
Preferred Shares (other than brokerage and underwriting commissions and taxes
of any kind, certain legal fees and other expenses incurred by the holders of
the Registrable Securities). Summit Properties also has agreed to indemnify
each holder of Registrable Securities and its officers, directors and any
person who controls any holder of Registrable Securities against certain
losses, claims, damages, liabilities and expenses arising under the securities
laws in connection with any registration statement, effected pursuant to the
Registration Rights Agreement (a "Registration Statement") subject to certain
limitations. In addition, each holder of Registrable Securities has agreed to
indemnify Summit Properties, its directors and its officers who sign the
Registration Statement, any underwriter and any person who controls Summit
Properties or such underwriter against all losses, claims, damages, liabilities
and expenses, subject to certain limitations, arising under the securities laws
insofar as such loss, claim, damage, liability or expense relates to written
information furnished to Summit Properties by such holder for use in the
Registration Statement or prospectus or an amendment or supplement thereto.
COMMON STOCK REPURCHASE PROGRAM -- On May 11, 1999 the Board of Directors
of Summit Properties authorized a common stock repurchase program pursuant to
which Summit Properties would be authorized to purchase up to $50 million of
its currently issued and outstanding common stock, par value $0.01 per share
("Common Stock"). Any repurchases will be made on the open market at prevailing
prices. This authority may be exercised from time to time and in such amounts
as market conditions warrant. The Operating Partnership will repurchase one
Unit from Summit Properties for each share of Common Stock Summit Properties
repurchases. Summit Properties currently has approximately 28.5 million shares
of Common Stock outstanding. Any purchases are intended to make appropriate
adjustments to Summit Properties' capital structure.
12
<PAGE>
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 development activities of the Operating Partnership and 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 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 and such as local and regional electricity,
natural gas and telecommunications providers) 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 section entitled "Development
Activity -- Certain Factors Affecting the Performance of Development
Communities" and in the section entitled "Year 2000" on page 22 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 which the Operating Partnership has acquired is deemed fully
stabilized when owned by the Operating Partnership for one year or more as of
the beginning of the year. A Community which the Operating Partnership has
developed 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. All Communities information presented
is before real estate depreciation and amortization expense. Communities'
average physical occupancy presented 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. Average monthly rental revenue presented represents
the average monthly net rental revenue per occupied apartment home. The
Operating Partnership's methodology for calculating average physical occupancy
and average monthly rental revenue may differ from the methodology used by
other equity REITs and, accordingly, may not be comparable to such other REITs.
Effective January 1, 1999, the Operating Partnership implemented
prospectively a new accounting policy whereby expenditures for carpet are
capitalized and depreciated over their estimated useful lives. Previously,
carpets had been expensed. The Operating Partnership believes that the newly
adopted accounting policy is preferable as it is consistent with standards
13
<PAGE>
and practices utilized by the majority of the Operating Partnership's peers and
provides a better matching of expenses with the related benefit of the
expenditure. The change in accounting policy is being treated as a change in
accounting estimate. The effect of the change in the accounting policy for
carpet for the three months ended March 31, 1999 was an increase to net income
by $339,000. Comparative property operating information for the three months
ended March 31, 1998 has been adjusted to reflect the 1999 change in accounting
policy.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
For the three months ended March 31, 1999, income before extraordinary
items increased $2.1 million to approximately $9.0 million from the three
months ended March 31, 1998.
OPERATING PERFORMANCE OF THE OPERATING PARTNERSHIP'S PORTFOLIO OF COMMUNITIES
The operating performance of the Communities for the three months ended
March 31, 1999 and 1998 is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------------
1999 1998 % CHANGE
---------- ---------- ------------
<S> <C> <C> <C>
Property revenues:
Fully stabilized communities ....................... $23,958 $22,877 4.7%
Acquisition communities ............................ 9,031 335 2,595.8%
Stabilized development communities ................. 5,981 4,872 22.8%
Communities in lease-up ............................ 3,085 303 918.2%
Communities sold ................................... -- 4,679 -100.0%
------- ------- --------
Total property revenues .............................. 42,055 33,066 27.2%
======= ======= ========
Property operating and maintenance expense:
Fully stabilized communities ....................... 8,105 7,859 3.1%
Acquisition communities ............................ 3,075 90 3,316.7%
Stabilized development communities ................. 1,894 1,531 23.7%
Communities in lease-up ............................ 922 114 708.8%
Communities sold ................................... -- 1,702 -100.0%
Effect of change in accounting policy .............. -- 338 -100.0%
------- ------- --------
Total property operating and maintenance expense ..... 13,996 11,634 20.3%
======= ======= ========
Property operating income ............................ $28,059 $21,432 30.9%
======= ======= ========
Apartment homes, end of period ....................... 18,281 15,316 19.4%
======= ======= ========
</TABLE>
A summary of the Operating Partnership's apartment homes for the three
months ended March 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
Apartment homes at January 1 ................................ 18,001 14,980
Developments which began rental operations during the period 280 --
Acquisitions ................................................ -- 336
====== ======
Apartment homes at March 31 ................................. 18,281 15,316
====== ======
</TABLE>
14
<PAGE>
OPERATING PERFORMANCE OF THE OPERATING PARTNERSHIP'S FULLY STABILIZED
COMMUNITIES
The operating performance of the 43 Communities stabilized since January
1, 1997 in each of the three months ended March 31, 1999 and 1998,
respectively, are summarized below (dollars in thousands except average monthly
rental revenue):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
1999 1998 % CHANGE
------------ ------------ ---------
<S> <C> <C> <C>
Property revenues:
Rental ............................................... $ 22,609 $ 21,761 3.9%
Other ................................................ 1,349 1,116 20.9%
-------- --------
Total property revenues ............................... 23,958 22,877 4.7%
======== ========
Property operating and maintenance expense:
Personnel ............................................ 1,701 1,647 3.3%
Advertising and promotion ............................ 316 313 1.0%
Utilities ............................................ 1,194 1,181 1.1%
Building repairs and maintnenace (1) ................. 1,394 1,283 8.7%
Real estate taxes and insurance ...................... 2,413 2,411 0.1%
Property supervision ................................. 591 567 4.2%
Other operating expense .............................. 496 457 8.5%
-------- --------
Total property operating and maintenance expense ...... 8,105 7,859 3.1%
-------- --------
Property operating income ............................. $ 15,853 $ 15,018 5.6%
======== ========
Average physical occupancy ............................ 93.9% 92.4% 1.5%
======== ========
Average monthly rental revenue ........................ $ 798 $ 779 2.5%
======== ========
Number of apartment homes ............................. 10,272 10,272
======== ========
</TABLE>
- ---------
(1) Effective January 1, 1999, the Operating Partnership implemented
prospectively a new accounting policy whereby expenditures for carpets are
capitalized. Previously, carpets had been expensed. The change in
accounting policy has been treated as a change in accounting estimate and,
accordingly, 1998 has not been restated to reflect the change. However,
for comparative purposes only, building repairs and maintenance cost for
the three months ended March 31, 1998 has been adjusted in the table to
reflect the new policy. Carpet replacement costs were $300,000 and
$257,000 for the three months ended March 31, 1999 and 1998, respectively.
The increase in rental revenue from fully stabilized Communities was
primarily the result of increases in average rental rates and increased
occupancy. The higher revenues were primarily in the Operating Partnership's
Sarasota, Florida, Washington, DC and Midwest markets. The increase in property
operating and maintenance was due primarily to an increase in building repairs
and maintenance costs. As a percentage of total property revenue, property
operating and maintenance expenses decreased for the three months March 31,
1998 and 1999 from 34.4% to 33.8%, respectively.
OPERATING PERFORMANCE OF THE OPERATING PARTNERSHIP'S ACQUISITION COMMUNITIES
Acquisition Communities consist of Summit St. Clair (acquired effective
March 1, 1998), Summit Club at Dunwoody (acquired May 22, 1998), Summit Lenox
(acquired July 8, 1998) and a portfolio of seven Communities acquired from
Ewing Industries, Inc. and its affiliates (acquired November 3, 1998).
15
<PAGE>
The operations of these Communities for the three months ended March 31, 1999
and 1998 are summarized as follows (dollars in thousands except average monthly
rental revenue):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
----------- ----------
<S> <C> <C>
Property revenues:
Rental revenues ................................... $ 8,660 $ 322
Other property revenue ............................ 371 13
------- -------
Total property revenues ............................ 9,031 335
------- -------
Property operating and maintenance expense ......... 3,075 90
------- -------
Property operating income .......................... $ 5,956 $ 245
======= =======
Average physical occupancy ......................... 93.0% 97.1%
======= =======
Average monthly rental revenue (1) ................. $ 876 $ 946
======= =======
Number of apartment homes .......................... 3,557 336
======= =======
</TABLE>
- ---------
(1) Average 1999 monthly rental revenue for Summit St. Clair (the only
Community owned as of March 31, 1998) was $985, representing a 4.1%
increase from 1998.
The unleveraged yield on investment for the acquisition Communities,
defined as property operating income for the three months ended March 31, 1999
on an annualized basis over total acquisition cost, was 8.97%.
OPERATING PERFORMANCE OF THE OPERATING PARTNERSHIP'S STABILIZED DEVELOPMENT
COMMUNITIES
The Operating Partnership had nine development Communities (Summit
Ballantyne I, Summit Sedgebrook I, Summit on the River, Summit Lake I, Summit
Norcroft II, Summit Stonefield, Summit Russett, Summit Fairways and Summit
Plantation II) which were stabilized during the entire three months ended March
31, 1999 but were stabilized subsequent to January 1, 1997. The operating
performance of these nine Communities for the three months ended March 31, 1999
and 1998 is summarized below (dollars in thousands except average monthly
rental revenue):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
----------- -----------
<S> <C> <C>
Property revenues:
Rental revenues .................................. $ 5,639 $ 4,593
Other property revenue ........................... 342 279
------- -------
Total property revenues ............................ 5,981 4,872
------- -------
Property operating and maintenance expense ......... 1,894 1,531
------- -------
Property operating income .......................... $ 4,087 $ 3,341
======= =======
Average physical occupancy ......................... 94.1% 79.4%
------- -------
Average monthly rental revenue ..................... $ 919 $ 889
------- -------
Number of apartment homes .......................... 2,212 2,212
======= =======
</TABLE>
The unleveraged yield on investment for the stabilized development
Communities, defined as property operating income for the three months ended
March 31, 1999 on an annualized basis over total development cost, was 10.16%.
OPERATING PERFORMANCE OF THE OPERATING PARTNERSHIP'S COMMUNITIES IN LEASE-UP
The Operating Partnership had nine Communities in lease-up during the
three months ended March 31, 1999. 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.
16
<PAGE>
A summary of the nine Communities in lease-up as of March 31, 1999 is as
follows (dollars in thousands):
<TABLE>
<CAPTION>
TOTAL ACTUAL/ % LEASED
NUMBER OF ACTUAL/ ANTICIPATED ACTUAL/ Q1 1999 AS OF
APARTMENT ESTIMATED CONSTRUCTION ANTICIPATED AVERAGE MARCH 31,
COMMUNITY HOMES COST COMPLETION STABILIZATION OCCUPANCY 1999
- -------------------------------------------------- ----------- ----------- -------------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Summit Ballantyne II -- Charlotte, NC ............ 154 $ 10,200 Q4 1998 Q1 1999 89.98% 94.50%
Summit New Albany I -- Fairfax, VA ............... 301 23,900 Q4 1998 Q3 1999 62.60% 68.40%
Summit Fair Lakes I -- Fairfax, VA ............... 370 33,200 Q1 1999 Q2 1999 70.49% 83.80%
Summit Governor's Village -- Chapel Hill, NC ..... 242 16,800 Q1 1999 Q2 1999 64.53% 71.50%
Summit Lake II -- Raleigh, NC (1) ................ 144 10,200 Q2 1999 Q3 1999 14.08% 26.40%
Summit Doral -- Miami, FL (1) .................... 260 22,800 Q2 1999 Q3 1999 36.12% 50.40%
Summit Westwood -- Raleigh, NC (1) ............... 354 24,400 Q3 1999 Q4 1999 31.36% 39.00%
Summit Sedgebrook II -- Charlotte, NC (1) ........ 120 7,800 Q3 1999 Q1 2000 3.39% 9.20%
Summit Fair Lakes II -- Fairfax, VA (1) (2) ...... 160 14,200 Q3 1999 Q1 2000 N/A N/A
--- --------
2,105 $163,500
===== ========
</TABLE>
- ---------
(1) The related assets of such properties are included in the Construction in
Progress category at March 31, 1999.
(2) Summit Fair Lakes II had begun leasing apartments for April, 1999 move-ins
as of March 31, 1999.
Summit Fairview (135 apartment homes) is an existing property, which is
undergoing a major renovation. The renovation includes upgrades of the interior
of the apartment units (new cabinets, fixtures and other interior upgrades) as
well as exterior painting and upgrades to the parking lots and landscaping. The
renovation will require certain apartment homes to be unavailable for rent over
the course of the renovation. The operations of Summit Fairview are included in
lease-up Communities results due to the renovation work.
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 months ended March 31, 1999 and 1998 is
summarized below (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
--------- ---------
<S> <C> <C>
Revenue .............................. $1,832 $1,458
Expenses
Operating ........................... 1,927 1,324
Depreciation ........................ 73 59
Amortization ........................ 73 72
Interest ............................ 75 75
------ ------
Total expenses ...................... 2,148 1,530
------ ------
Net loss of Summit Management Company $ (316) $ (72)
====== ======
</TABLE>
The increase in revenue for the three month period was primarily a result
of higher revenues from managing the Operating Partnership's Communities and
higher revenues from construction activity. The increase in operating expenses
was a result of increased construction activities and increased cost at the
Management Company. The increase in Management Company costs were primarily due
to increased personnel in order to better support the Operating Partnership's
growth objectives including improving the operating performance of its
stabilized Communities. In addition, personnel dedicated to information systems
increased.
Property management fees include $324,000 and $300,000 of fees from third
parties for the three months ended March 31, 1999 and 1998, respectively.
Property management fees from third parties as a percentage of total property
management revenues were 22.2% and 26.2% for the three months ended March 31,
1999 and 1998, 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.
17
<PAGE>
OTHER INCOME AND EXPENSES
Interest income increased by $937,000 to $1.0 million in 1999 compared to
1998, primarily due to interest earned on proceeds from property sales placed
in escrow in accordance with like-kind exchange income tax regulations.
Interest expense, including amortization of deferred financing costs,
increased by $3.2 million for the three months ended March 31, 1999 compared
with the similar period in 1998. This increase was primarily the result of an
increase of $255.7 million in the Operating Partnership's average indebtedness
outstanding. Effective interest cost decreased by .25% (6.75% to 6.50%) for the
three months ended March 31, 1999.
Depreciation expense increased $1.7 million or 26.2% for the three months
ended March 31, 1999 compared with the similar period in 1998, primarily due to
depreciation on recently acquired or developed Communities, offset by reduction
in depreciation related to Communities sold.
General and administrative expenses increased $279,000 or 34.8% for the
three months ended March 31, 1999, primarily due to increased compensation
costs and expenses related to the Operating Partnership's overall growth. As a
percentage of revenues, general and administrative expenses were 2.5% and 2.4%
for the three months ended March 31, 1999 and 1998.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
The Operating Partnership's net cash provided by operating activities
increased from $14.2 million for the three months ended March 31, 1998 to $14.4
million for the same period in 1999, primarily due to a $6.6 million increase
in property operating income and a $937,000 increase in interest income offset
by a $3.2 million increase in interest paid and a decrease in the change in
accounts payable and accrued expenses. The increase in interest income was due
to interest earned on property sales placed in escrow in accordance with
like-kind exchange income tax regulations. The increase in interest paid was
primarily due to an increase in the average indebtedness outstanding. The
decrease in accounts payable and accrued expenses was primarily due to timing
of property tax payments and the payment of certain liabilities assumed in
conjunction with the Operating Partnership's Community acquisitions during the
fourth quarter of 1998.
Net cash used in investing activities decreased from $54.3 million for the
three months ended March 31, 1998 to $14.7 million for the same period in 1999
due to a decrease in the acquisition of Communities and higher proceeds from
sale of Communities, partially offset by an increase in the construction of
Communities. Property sale proceeds in 1998 were placed in escrow in accordance
with like-kind exchange income tax regulations. Proceeds from the sale of
Communities in 1999 represents funds expended from these like-kind exchange
escrows. In the event the proceeds from these property sales are not fully
invested in qualified like-kind property during the required time period, a
special distribution may be made or company level tax may be incurred.
Net cash provided by financing activities decreased from $40.9 million for
the three months ended March 31, 1998 to $1.0 million for the same period in
1999, primarily due to a decrease in borrowings from the Operating
Partnership's credit facility, a decrease in repayment of mortgage debt, higher
distributions to unitholders, a decrease in equity proceeds from the Summit
Properties' dividend reinvestment and stock purchase plan, which are
contributed to the Operating Partnership in exchange for Units, and an increase
in issuances of notes receivable from employees offset by higher borrowings
from unsecured bonds. Financing activities during 1999 included $7.5 million in
net repayment on Operating Partnership's Unsecured Credit Facility (as
hereinafter defined) and $24.8 million in net proceeds from the borrowings on
unsecured bonds.
The ratio of earnings to fixed charges was 1.58 for the three months ended
March 31, 1999 compared to 1.68 for the three months ended March 31, 1998. The
decrease is primarily due to increased interest charges as discussed in
"Historical Results of Operations -- Other Income and Expenses" above.
The Operating Partnership's outstanding indebtedness at March 31, 1999
totaled $742.0 million. This amount includes approximately $269.5 million in
fixed rate conventional mortgages, $51.4 million of variable rate tax-exempt
bonds, $266.0 million of unsecured notes, $9.1 million of tax-exempt fixed rate
loans, and $146.0 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.
18
<PAGE>
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 payments of Summit Properties' REIT dividend
requirements in both the short-term and the long-term. 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, from undistributed Funds
from Operations (see page 25), 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.
LINE OF CREDIT
The Operating Partnership has a syndicated unsecured line of credit (the
"Unsecured Credit Facility") in the amount of $200 million. 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 ($100.0 million). This sub-facility
provides the Operating Partnership with the option to place borrowings in a
fixed LIBOR contract up to 180 days.
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 March 18, 1999, the
Operating Partnership sold $25 million of notes under the MTN Program. Such
notes are due on March 16, 2009 and bear interest at 7.59% per year. Proceeds
from the notes issued were used to reduce the Unsecured Credit Facility. The
Operating Partnership has issued $80 million aggregate principal amount of
Medium-Term Notes ($55 million of which was issued during 1998) of the $95
million aggregate principal amount of Medium-Term Notes registered in
connection with the MTN Program.
PRIVATE PLACEMENT OF PREFERRED UNITS
On April 29, 1999, the Operating Partnership completed a private placement
of 3,400,000 of its 8.95% Series B Cumulative Redeemable Perpetual Preferred
Units (the "Series B Preferred Units") to two institutional investors at a
price of $25.00 per unit. The net proceeds of approximately $83 million were
used to repay amounts outstanding under the Unsecured Credit Facility. In
connection with such placement, the partnership agreement of the Operating
Partnership was amended to provide for and to describe the rights of the
holders of the Series B Preferred Units.
Distributions on the Series B Preferred Units will be cumulative from the
date of original issuance and payable quarterly on the last business day of
each of March, June, September and December of each year commencing June 30,
1999, at an annual rate of 8.95% on the $25.00 original capital contribution
per unit. Upon any voluntary or involuntary liquidation, dissolution or winding
up of the Operating Partnership, the Series B Preferred Units will be entitled
to a preferential distribution equal to the capital account attributable to
such unit (initially $25.00 per unit), plus an amount equal to all accumulated,
accrued and unpaid distributions. With respect to payment of distributions and
amounts upon liquidation, the Series B Preferred Units will rank senior to any
junior units, including the Operating Partnership's common units of limited
partnership interest.
On and after April 29, 2004, the Operating Partnership may redeem the
Series B Preferred Units at its option, for cash at a redemption price equal to
the redeemed holder's capital account (initially $25.00 per unit), plus an
amount equal to all accumulated, accrued and unpaid distributions thereon to
the date of redemption which such redemption may be in whole, at any time, or
in part, at any time that all accumulated and unpaid distributions have been
paid on all Series B Preferred Units for all periods up to and including such
date of redemption. In lieu of cash, the Operating Partnership may elect to
deliver, for any Series B Preferred Unit being redeemed, one share of 8.95%
Series B Cumulative Redeemable Perpetual Preferred Shares of Summit Properties
(a "Series B Preferred Share"), which share shall have, as of the date of its
issuance, a preference in an amount equal to all accumulated, accrued and
unpaid distributions on the redeemed unit to the date of its redemption. The
Series B Preferred Units are not subject to any mandatory redemption
provisions. No sinking fund will be established for the retirement or
redemption of the Series B Preferred Units.
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<PAGE>
Holders of the Series B Preferred Units have the right to exchange Series
B Preferred Units, in whole or in part (subject to certain exceptions and
limitations), for shares of Series B Preferred Shares on a one-for-one basis.
The exchange right is exercisable, in minimum amounts of 850,000 units, at the
option of the holders of the Series B Preferred Units (i) at any time on or
after April 29, 2009, (ii) at any time if full quarterly distributions shall
not have been timely made for six quarters, whether or not consecutive, or
(iii) upon the occurrence of certain specified events related to the federal
income tax treatment of the Operating Partnership or the Series B Preferred
Units for federal income tax purposes.
On April 29, 1999, Summit Properties filed Articles Supplementary to its
charter classifying and establishing the class of 3,400,000 Series B Preferred
Shares and describing such Series B Preferred Shares and the rights of the
holders thereof. Summit Properties' Board of Directors has reserved such Series
B Preferred Shares for issuance upon exchange of Series B Preferred Units. In
general, the distribution and liquidation preferences and other rights of
holders of Series B Preferred Shares and Summit Properties' right to redeem
Series B Preferred Shares are substantially similar to the related distribution
and liquidation preferences and other rights of holders of Series B Preferred
Units and the Operating Partnership's right to redeem Series B Preferred Units,
except as set forth below.
Neither the Series B Preferred Units nor the Series B Preferred Shares are
convertible into or exchangeable for any other securities, except that (i)
Series B Preferred Units may be exchanged for Series B Preferred Shares as
described above and (ii) Series B Preferred Shares may be converted
automatically into shares of Excess Stock (a separate class of stock into which
shares in excess of Summit Properties' stock ownership limit are automatically
convertible) in order to ensure that Summit Properties remains a qualified REIT
for federal income tax purposes.
Except as otherwise required by law, holders of the Series B Preferred
Units have only the following voting rights: so long as any Series B Preferred
Units remain outstanding, the Operating Partnership may not, without the
affirmative vote of the holders of at least two-thirds of the Series B
Preferred Units outstanding, (i) authorize or create, or increase the
authorized or issued amount of, any class or series of Operating Partnership
units ranking senior to the Series B Preferred Units, (ii) issue any class or
series of Operating Partnership units ranking on parity with the Series B
Preferred Units to an affiliate of the Operating Partnership ("Partnership
Affiliate"), reclassify any Operating Partnership unit held by a Partnership
Affiliate into any such parity unit, or issue any security or obligation with
the right to purchase any such parity unit to a Partnership Affiliate unless
such units are issued either (x) under terms no more favorable to such
Partnership Affiliate than those that would be offered in an arm's length
transaction to an unrelated party in the good faith determination of the Board
of Directors of Summit Properties, or (y) in connection with the issuance of a
corresponding class or series of preferred stock by Summit Properties to
parties who are not Partnership Affiliates or (iii) either (a) consolidate,
merge with or into, or transfer all or substantially all of its assets to
another party, or (b) amend, alter or repeal provisions of the Operating
Partnership's partnership agreement, in each case in a transaction or manner
that would materially and adversely affect any power, special right,
preference, privilege or voting power of the Series B Preferred Units or
holders thereof.
Holders of the Series B Preferred Shares will have substantially similar
voting rights with respect to Series B Preferred Shares and the Company as
holders of Series B Preferred Units have with respect to Series B Preferred
Units and the Operating Partnership, as well as the following voting right:
whenever (i) quarterly dividends in arrears (whether or not consecutive) on any
Series B Preferred Shares and (ii) unpaid quarterly distributions attributable
to Series B Preferred Units for which such Series B Preferred Shares were
exchanged equals or exceeds six, the holders of the Series B Preferred Shares
(voting separately as a class with all other series of stock which rank on a
parity with the Series B Preferred Shares as to distributions and rights and
upon which like voting rights have been conferred and are exercisable) will be
entitled to vote for the election of a total of two additional directors of
Summit Properties until all dividends accumulated on such Series B Shares have
been fully paid or declared and a sum sufficient for the payment thereof set
aside for payment.
Summit Properties has entered into a registration rights agreement for the
benefit of any holders of the Series B Preferred Shares pursuant to which such
holders will have certain registration rights (the "Registration Rights
Agreement"). Under the Registration Rights Agreement, following the earlier of
April 29, 2009 or such date as all Series B Preferred Units are exchanged for
Series B Preferred Shares (the "Registration Date"), upon request of a
majority-in-interest of the holders of Series B Preferred Shares, Summit
Properties agreed (i) to file with the Securities and Exchange Commission (the
"SEC") a Registration Statement (the "Two-year Shelf Registration Statement")
providing for the resale of all of the Series B Preferred Shares (the
"Registrable Securities") held by such holders, (ii) to use all commercially
reasonable efforts to have such Two-year Shelf Registration Statement declared
effective by the SEC as soon as practical thereafter and (iii) to use all
commercially reasonable efforts to keep the Two-year Shelf Registration
Statement continuously effective for a period of two years or such shorter
period expiring when such Registrable Securities have been sold pursuant to
such registration statement or are to be sold in compliance with Rule 144 (as
promulgated by the SEC) without volume limitations. If, at any time, a shelf
registration statement is not effective, upon receipt of a written request
("Registration Request") from holders
20
<PAGE>
holding Registrable Securities having an aggregate expected offering price of
at least $10 million (or holders holding all remaining Registrable Securities),
Summit Properties agreed to use all commercially reasonable efforts to file
with the SEC, within 45 days after receipt of such Registration Request, a
registration statement ("Demand Registration Statement") for the sale of all
Registrable Securities held by the requesting holders and keep such Demand
Registration Statement continuously effective for one year following the date
such Demand Registration Statement is declared effective or such shorter period
expiring when such Registrable Securities have been sold pursuant to such
registration statement or are to be sold in compliance with Rule 144 (as
promulgated by the SEC) without volume limitations. Summit Properties is
required to file up to three Demand Registration Statements unless, under
certain circumstances it delivers Series B Preferred Shares in lieu of cash in
redemption of Series B Preferred Units, in which case it may be required to
file additional Demand Registration Statements. Anytime Summit Properties
proposes to file a registration statement with respect to an offering solely
for cash for the account of any of its security holders of any class of equity
security and a Two-year Shelf Registration Statement has been requested but is
not otherwise effective, then Summit Properties may be required, under certain
circumstances, to offer the holders of the Registrable Securities the
opportunity to include such number of shares of Registrable Securities as each
such holder may have otherwise required in connection with a Two-year Shelf
Resale Registration Statement.
Pursuant to the Registration Rights Agreement, Summit Properties has
agreed to pay all expenses of effecting the registration of the Series B
Preferred Shares (other than brokerage and underwriting commissions and taxes
of any kind, certain legal fees and other expenses incurred by the holders of
the Registrable Securities). Summit Properties also has agreed to indemnify
each holder of Registrable Securities and its officers, directors and any
person who controls any holder of Registrable Securities against certain
losses, claims, damages, liabilities and expenses arising under the securities
laws in connection with any registration statement, effected pursuant to the
Registration Rights Agreement (a "Registration Statement") subject to certain
limitations. In addition, each holder of Registrable Securities has agreed to
indemnify Summit Properties, its directors and its officers who sign the
Registration Statement, any underwriter and any person who controls Summit
Properties or such underwriter against all losses, claims, damages, liabilities
and expenses, subject to certain limitations, arising under the securities laws
insofar as such loss, claim, damage, liability or expense relates to written
information furnished to Summit Properties by such holder for use in the
Registration Statement or prospectus or an amendment or supplement thereto.
COMMON STOCK REPURCHASE PROGRAM
On May 11, 1999, the Board of Directors of Summit Properties authorized a
common stock repurchase program pursuant to which Summit Properties would be
authorized to purchase up to $50 million of its currently issued and
outstanding common stock, par value $0.01 per share ("Common Stock"). Any
repurchases will be made on the open market at prevailing prices. This
authority may be exercised from time to time and in such amounts as market
conditions warrant. The Operating Partnership will repurchase one Unit from
Summit Properties for each share of Common Stock Summit Properties repurchases.
Summit Properties currently has approximately 28.5 million shares of Common
Stock outstanding. Any purchases are intended to make appropriate adjustments
to Summit Properties' capital structure.
PROPERTIES BEING MARKETED FOR SALE
At March 31, 1999, the Operating Partnership had six apartment Communities
for sale with a net book value of approximately $52.2 million. The Operating
Partnership does not anticipate incurring a loss on any individual apartment
Community sale. Proceeds from the sale of the Communities will be used to fund
future development. The six apartment Communities held for sale represented
approximately 5.7% of property operating income for the Operating Partnership
for the three ended March 31, 1999.
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<PAGE>
DEVELOPMENT ACTIVITY
The Operating Partnership's construction in progress at March 31, 1999 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 Lake II -- Raleigh, NC (1) ................ 144 $ 10,200 $ 9,006 $ 1,194 Q2 1999
Summit Doral -- Miami, FL (1) .................... 260 22,800 18,894 3,906 Q2 1999
Summit Westwood -- Raleigh, NC (1) ............... 354 24,400 22,089 2,311 Q3 1999
Summit Fair Lakes II -- Fairfax, VA (1) .......... 160 14,200 9,649 4,551 Q3 1999
Summit Sedgebrook II -- Charlotte, NC (1) ........ 120 7,800 5,861 1,939 Q3 1999
Summit New Albany II -- Columbus, Ohio ........... 127 9,800 1,923 7,877 Q4 1999
Summit Largo -- Largo, MD ........................ 217 18,000 6,598 11,402 Q1 2000
Summit Hunter's Creek -- Orlando, FL ............. 270 18,600 4,257 14,343 Q1 2000
Summit Grandview -- Charlotte, NC ................ 266 45,500 6,059 39,441 Q2 2000
Summit Devin -- Atlanta, GA ...................... 292 22,200 4,804 17,396 Q2 2000
--- -------- -------- --------
2,210 193,500 89,140 104,360
Other development and construction costs (2) ..... -- -- 31,638 --
----- -------- -------- --------
2,210 $193,500 $120,778 $104,360
===== ======== ======== ========
</TABLE>
- ---------
(1) These communities were in lease-up at March 31, 1999.
(2) Consists primarily of land held for development and other predevelopment
costs.
Estimated costs to complete the development Communities represent
substantially 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
costs or liabilities 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
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
YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT
The Operating Partnership supports the exchange of information relating to
the Year 2000 issue and designates the following 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
22
<PAGE>
verified the contents of these republications and takes no responsibility for
the accuracy or completeness of information contained in such republications.
INTRODUCTION
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 (the "Year 2000 Plan"). The four phases are (i) Awareness,
(ii) Assessment, (iii) Remediation and Implementation 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 the Year 2000 Plan. In addition, the Year 2000
Plan has been 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 and Implementation" below. As of April 30, 1999, the Operating
Partnership is 80% complete with its assessment of the Year 2000 compliance in
regard to the Operating Partnership's other (i.e., non-core) standard computer
information systems. Year 2000 analysis software is being used to perform this
assessment and to determine the steps needed for remediation. See "Remediation
and Implementation" below. The Operating Partnership expects this process to be
completed by June 30, 1999.
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. As of April 30,
1999, the assessment is 60% complete with no major deficiencies noted. 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.
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, except utilities (e.g. electricity, natural gas and
telecommunications services), 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 is in the process
of attempting to obtain written verification from utility providers that they
will be Year 2000 complaint. 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. The Operating Partnership implemented the payroll
processor Year 2000 upgrade in the fourth quarter of 1998. For the foregoing
reasons,
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<PAGE>
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 AND IMPLEMENTATION
The Operating Partnership's primary uses of software systems are its
corporate accounting and property management 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 management 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 property management 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 management 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.
The remediation of non-core standard computer information systems will be
accomplished through a series of minor hardware upgrades and software patches.
The Operating Partnership expects that the implementation of these upgrades
will be completed on or before July 31, 1999.
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 began
testing during the fourth quarter of 1998 and expects that its testing of
accounting and property management systems will be complete by June 30, 1999.
These tests will be supplemented with additional written representations from
these key vendors.
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. 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 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
there is no risk of Year-2000 related disruption. Moreover, due to the unique
and pervasive nature
24
<PAGE>
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. Risks involved with not solving the Year 2000 issue include, but
are not limited to, the following: loss of local or regional electric power,
loss of telecommunications services, delays or cancellations of shipping or
transportation, general deterioration of economic conditions resulting from
Year 2000 issues, and inability of banks, vendors and other third parties with
whom the Operating Partnership does business to resolve their own Year 2000
problems.
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.
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 GAAP), excluding gains (or losses) from
debt restructuring and sale 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, dividends and distributions or
other commitments and uncertainties. Funds from Operations and Funds 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
dividends/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.
25
<PAGE>
Funds from Operations and Funds Available for Distribution for the three
months ended March 31, 1999 and 1998 are calculated as follows (dollars in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Net income ............................................ $ 8,999 $ 6,707
Extraordinary items ................................... -- 185
----------- -----------
Adjusted net income ................................ 8,999 6,892
Depreciation:
Real estate assets ................................... 8,226 6,521
Real estate joint venture ............................ 183 --
----------- -----------
Funds from Operations ................................. 17,408 13,413
Recurring capital expenditures (1) ................... (1,039) (843)
----------- -----------
Funds Available for Distribution ...................... $ 16,369 $ 12,570
=========== ===========
Non-recurring capital expenditures (1) (2) ............ $ 891 $ 763
=========== ===========
Cash Flow Provided By (Used In):
Operating Activities ............................... $ 14,401 $ 14,160
Investing Activities ............................... (14,723) (54,311)
Financing Activities ............................... 958 40,921
Weighted average units outstanding -- diluted ......... 32,769,514 28,147,380
=========== ===========
</TABLE>
- ---------
(1) Recurring capital expenditures are expected to be funded from operations
and consist primarily of exterior painting, carpets, 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 three months ended
March 31, 1999 compared to 1998 was primarily due to the Operating
Partnership's change in accounting policy to capitalize carpets starting
January 1, 1999. Without carpet expenditures, recurring capital
expenditures for the three months ended March 31, 1999 would have been
$700,000.
(2) Non-recurring capital expenditures include renovations in the amount of
$422,000 in 1999 and $261,000 in 1998; $166,000 and $51,000 for access
gates and security fences in 1999 and 1998, respectively; $140,000 and
$265,000 for other revenue enhancement expenditures in 1999 and 1998,
respectively and $186,000 for improvements at Summit Norcroft I completed
in conjunction with the development of Summit Norcroft II in 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There has been no material change in the Operating Partnership's market
risk since the filing of the Operating Partnership's Annual Report Form 10-K
for the year ended December 31, 1998.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
During the three months ended March 31, 1999, 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
559,154 shares of Common Stock pursuant to its Dividend Reinvestment and
Stock Purchase Plan. Summit Properties has contributed the proceeds of
these sales (approximately $9.4 million) to the Operating Partnership in
consideration of an aggregate of 559,154 Units.
B. Summit Properties has issued an aggregate of 25 shares of Common Stock
pursuant to the exercise of stock options. Summit Properties has
contributed the proceeds (approximately $413) of these options to the
Operating Partnership in consideration of an aggregate 25 Units.
C. Summit Properties has issued an aggregate of 65,729 shares of Common
Stock pursuant to its Employee Stock Purchase Plan. Summit Properties has
contributed the proceeds (approximately $1.1 million) of these sales to
the Operating Partnership in consideration of an aggregate of 65,729
Units.
D. Summit Properties has issued an aggregate of 14,181 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, 14,181 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
3.1 Amendment No. 14 to the Limited Partnership Agreement of the Operating Partnership (filed
herewith).
3.2 Amendment No. 15 to the Limited Partnership Agreement of the Operating Partnership (filed
herewith).
3.3 Amendment No. 16 to the Limited Partnership Agreement of the Operating Partnership (filed
herewith).
4.1 7.59% Medium-Term Note due on March 16, 2009 in principal amount of $25,000,000 issued by
Summit Properties Partnership, L.P. on March 18, 1999 (filed herewith).
10.1 Articles Supplementary to the Articles of Amendment and Restatement of Summit Properties Inc.
designating 8.95% Series B Cumulative Redeemable Perpetual Preferred Stock of Summit Properties,
dated April 29, 1999 (Incorporated by reference to Exhibit 3.1 of Summit Properties Inc. Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1999, File No. 001-12792).
12.1 Statement Regarding Calculation of Ratio of Earnings to Fixed Charges for the Three Months ended
March 31, 1999 (filed herewith).
27.1 Financial Data Schedule-Three Months ended March 31, 1999 (for SEC use only) (filed herewith).
</TABLE>
(b) Reports on Form 8-K
None
27
<PAGE>
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.
SUMMIT PROPERTIES PARTNERSHIP, L.P.
<TABLE>
<S> <C>
MAY 17, 1999 /S/ WILLIAM F. PAULSEN
---------------------------- ------------------------------------------
(DATE) WILLIAM F. PAULSEN,
CHIEF EXECUTIVE OFFICER
MAY 17, 1999 /S/ MICHAEL L. SCHWARZ
---------------------------- ------------------------------------------
(DATE) MICHAEL L. SCHWARZ, EXECUTIVE
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
</TABLE>
28
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
3.1 Amendment No. 14 to the Limited Partnership Agreement of the Operating Partnership (filed
herewith).
3.2 Amendment No. 15 to the Limited Partnership Agreement of the Operating Partnership (filed
herewith).
3.3 Amendment No. 16 to the Limited Partnership Agreement of the Operating Partnership (filed
herewith).
4.1 7.59% Medium-Term Note due on March 16, 2009 in principal amount of $25,000,000 issued by
Summit Properties Partnership, L.P. on March 18, 1999 (filed herewith).
10.1 Articles Supplementary to the Articles of Amendment and Restatement of Summit Properties Inc.
designating 8.95% Series B Cumulative Redeemable Perpetual Preferred Stock of Summit Properties,
dated April 29, 1999 (Incorporated by reference to Exhibit 3.1 of Summit Properties Inc. Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1999, File No. 001-12792).
12.1 Statement Regarding Calculation of Ratio of Earnings to Fixed Charges for the Three Months ended
March 31, 1999 (filed herewith).
27.1 Financial Data Schedule - Three Months ended March 31, 1999 (for SEC use only) (filed herewith).
</TABLE>
29
FOURTEENTH AMENDMENT TO AGREEMENT OF LIMITED PARTNERSHIP
OF SUMMIT PROPERTIES PARTNERSHIP, L.P.
This FOURTEENTH AMENDMENT TO AGREEMENT OF LIMITED PARTNERSHIP OF SUMMIT
PROPERTIES PARTNERSHIP, L.P. (this "Amendment"), dated as of October 31, 1998,
is entered into by and among Summit Properties Inc. (the "General Partner") and
those Persons whose names are set forth on Exhibit A or Exhibit B attached
hereto and incorporated herein. All capitalized terms contained herein and not
otherwise defined herein shall have the meaning attributed to them in the
Agreement (as hereinafter defined).
WHEREAS, (i) the General Partner, (ii) the Persons whose names are set
forth on Exhibit B (each, a "Ewing Partner" and, collectively, the "Ewing
Partners"), and (iii) the Persons whose names are set forth on Exhibit A other
than the Ewing Partners (collectively, the "Pre-Ewing Partners") are partners of
Summit Properties Partnership, L.P. (the "Partnership") pursuant to an Agreement
of Limited Partnership dated as of January 29, 1994, as previously amended (as
amended, the "Agreement"); and
WHEREAS, the General Partner, the Pre-Ewing Partners and the Ewing
Partners executed that certain Thirteenth Amendment to the Agreement (the
"Thirteenth Amendment"), dated as of October 31, 1998, pursuant to which the
Partnership received a contribution of partnership interests in certain limited
partnerships in exchange for (i) the admission of the Ewing Partners as limited
partners in the Partnership and (ii) the allocation of Partnership Units to the
Ewing Partners; and
WHEREAS, the General Partner, the Pre-Ewing Partners and the Ewing
Partners acknowledge that the Thirteenth Amendment incorrectly set forth the
number of Partnership Units allocated to each Ewing Partner; and
WHEREAS, the General Partner, the Pre-Ewing Partners and the Ewing
Partners desire to cause the Agreement and the Thirteenth Amendment to be
amended to reflect the correct number of Partnership Units allocated to each
Ewing Partner; and
WHEREAS, the General Partner, the Partnership, the Ewing Partners, and
the shareholders of Ewing Industries, Inc., an Ohio corporation entered into
that certain Registration Rights and Lock-Up Agreement, dated of even date
herewith (the "Lock-Up Agreement"), certain provisions of which relate to the
prohibition, without the prior written consent of the General Partner, during
the Lock-Up Period (as defined in the Lock-Up Agreement), of any offer, sale,
contract for sale, hypothecation, pledge, attempt to redeem, grant of an option,
right or warrant to purchase or otherwise dispose of, directly or indirectly,
any Partnership Units (collectively, the "Lock-Up Provisions"); and
WHEREAS, the General Partner, the Pre-Ewing Partners and the Ewing
Partners desire to cause the Agreement to be amended to include the Lock-Up
Provisions.
<PAGE>
NOW, THEREFORE, in accordance with the provisions of Section 12.3 of the
Agreement (Amendment of Agreement and Certificate of Limited Partnership), the
Agreement is hereby amended to (i) substitute Exhibit A attached hereto for
Exhibit A attached to the Agreement, (ii) substitute Exhibit B attached hereto
for Exhibit B attached to the Thirteenth Amendment, and (iii) incorporate by
this reference the Lock-Up Provisions into the Agreement. Except as expressly
amended by the provisions hereof or as may be necessary to effect the intent of
the parties as evidenced by this Amendment, all other terms and provisions of
the Agreement are hereby ratified and confirmed and remain in full force and
effect.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEROF, the parties hereto have executed this Amendment as of
the date first above written.
GENERAL PARTNER:
SUMMIT PROPERTIES INC.
By: /s/ Douglas E. Brout
------------------------------------
Name: Douglas E. Brout
Title: Vice President
PRE-EWING PARTNERS:
Those persons listed on Exhibit A attached
hereto other than the Ewing Partners
By: Summit Properties Inc.,
their attorney-in-fact
By: /s/ Douglas E. Brout
-------------------------------
Name: Douglas E. Brout
Title: Vice President
EWING PARTNERS:
Those persons listed on Exhibit B attached
hereto
By: SUMMIT PROPERTIES INC.,
their attorney-in-fact
By: /s/ Douglas E. Brout
-------------------------------
Name: Douglas E. Brout
Title: Vice President
<PAGE>
EXHIBIT A
PARTNERS AND OWNERSHIP PERCENTAGES
<PAGE>
EXHIBIT B
EWING PARTNERS
Name Number of Units
---- ---------------
KW Partnership
LAD Partnership
Michael L. Pacillio
Milan Investment Trust
S. Joseph Barrett
FIFTEENTH AMENDMENT TO AGREEMENT OF LIMITED PARTNERSHIP
OF SUMMIT PROPERTIES PARTNERSHIP, L.P.
This FIFTEENTH AMENDMENT TO AGREEMENT OF LIMITED PARTNERSHIP OF SUMMIT
PROPERTIES PARTNERSHIP, L.P. (this "Amendment"), dated as of January 1, 1999, is
entered into by and among Summit Properties Inc. (the "General Partner") and
those Persons whose names are set forth on Exhibit A or Exhibit B attached
hereto and incorporated herein. All capitalized terms contained herein and not
otherwise defined herein shall have the meaning attributed to them in the
Agreement (as hereinafter defined).
WHEREAS, (i) the General Partner, (ii) the Persons whose names are set
forth on Exhibit B (each, a "Ewing Partner" and, collectively, the "Ewing
Partners"), and (iii) the Persons whose names are set forth on Exhibit A other
than the Ewing Partners (collectively, the "Pre-Ewing Partners") are partners of
Summit Properties Partnership, L.P. (the "Partnership") pursuant to an Agreement
of Limited Partnership dated as of January 29, 1994, as previously amended (as
amended, the "Agreement"); and
WHEREAS, in exchange for their contribution to the Partnership of
certain partnership interests, the Ewing Partners other than Milan Investment
Trust are to receive additional Partnership Units as set forth opposite their
names on Exhibit B attached hereto; and
WHEREAS, the General Partner, the Pre-Ewing Partners and the Ewing
Partners desire to cause the Agreement to be amended to reflect the increase in
the number of Partnership Units issued to each Ewing Partner other than Milan
Investment Trust.
NOW, THEREFORE, in accordance with the provisions of Section 4.2
(Issuances of Additional Partnership Interests) and Section 12.3 (Amendment of
Agreement and Certificate Of Limited Partnership) of the Agreement, the
Agreement is hereby amended to substitute Exhibit A attached hereto for Exhibit
A attached to the Agreement. Except as expressly amended by the provisions
hereof or as may be necessary to effect the intent of the parties as evidenced
by this Amendment, all other terms and provisions of the Agreement are hereby
ratified and confirmed and remain in full force and effect.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEROF, the parties hereto have executed this Amendment as of
the date first above written.
GENERAL PARTNER:
SUMMIT PROPERTIES INC.
By: /s/ Douglas E. Brout
----------------------------------
Name: Douglas E. Brout
Title: Vice President
PRE-EWING PARTNERS:
Those persons listed on Exhibit A attached
hereto other than the Ewing Partners
By: SUMMIT PROPERTIES INC.,
their attorney-in-fact
By: /s/ Douglas E. Brout
-----------------------------
Name: Douglas E. Brout
Title: Vice President
EWING PARTNERS:
Those persons listed on Exhibit B attached
hereto
By: SUMMIT PROPERTIES INC.,
their attorney-in-fact
By: /s/ Douglas E. Brout
------------------------
Name: Douglas E. Brout
Title: Vice President
<PAGE>
EXHIBIT A
---------
PARTNERS AND OWNERSHIP PERCENTAGES
<PAGE>
EXHIBIT B
---------
EWING PARTNERS
Number of Units issued as a result
----------------------------------
Name of the Rancho Las Palmas II contribution
---- ----------------------------------------
KW Partnership
LAD Partnership
Michael L. Pacillio
S. Joseph Barrett
SIXTEENTH AMENDMENT
TO AGREEMENT OF LIMITED PARTNERSHIP OF
SUMMIT PROPERTIES PARTNERSHIP, L.P.
THIS SIXTEENTH AMENDMENT TO AGREEMENT OF LIMITED PARTNERSHIP OF SUMMIT
PROPERTIES PARTNERSHIP, L.P. (the "Amendment") is dated as of April 29, 1999,
and entered into by and among Summit Properties Inc., a Maryland corporation
(the "Company"), and the persons whose names are set forth on Exhibit A attached
hereto (the "Limited Partners").
WHEREAS, the Company and the Limited Partners (other than the New
Partners (as hereinafter defined)) are partners of Summit Properties
Partnership, L.P., a Delaware limited partnership (the "Partnership"), pursuant
to an Agreement of Limited Partnership dated as of January 29, 1994, as
previously amended (the "Agreement"); and
WHEREAS, the General Partner desires to cause the Partnership to issue
additional Partnership Units of a new class and series, with the designations,
preferences and relative, participating, optional or other special rights,
powers and duties provided for in this Amendment in accordance with Section 4.2A
of the Agreement; and
WHEREAS, the General Partner may amend the Agreement by executing a
written instrument setting forth the terms of such amendment without the consent
of the Limited Partners pursuant to Section 14.1B of the Agreement; and
WHEREAS, the General Partner desires by this Amendment to so amend the
Agreement as of the date first set forth above to provide for the designation
and issuance of such new class and series of Partnership Units designated 8.95%
Series B Cumulative Redeemable Perpetual Preferred Units ("Series B Preferred
Units"); and
WHEREAS, Belair Real Estate Corporation and Belcrest Realty Corporation
(the "New Partners") desire to contribute $85 million in cash to the Partnership
in exchange for the issuance to them of 3.4 million Series B Preferred Units in
the respective amounts set forth on Exhibit A, attached hereto, and their
admission to the Partnership pursuant to Section 12.2 of the Agreement;
WHEREAS, the Company and the Limited Partners desire to amend the
Agreement to reflect the issuance of the Series B Preferred Units to the New
Partners and their admission as Limited Partners.
NOW, THEREFORE, in accordance with the provisions of Sections 4.2, 12.2
and 12.3 of the Agreement and for other good and valuable consideration, the
receipt and sufficiency of
<PAGE>
which are hereby acknowledged, the Limited Partners and the Company hereby amend
the Agreement as follows:
SECTION 1 DEFINED TERMS.
-------------
1.1 The following terms shall, for all purposes, unless otherwise
clearly indicated to the contrary and notwithstanding any contrary definitions
heretofore set forth therefor in the Agreement have the meanings hereinbelow
ascribed to them.
"Certificate of Designations" means an amendment to this Agreement that
sets forth the designations, rights, powers, duties and preferences of Partners
holding any Partnership Interests issued pursuant to Section 4.2A, which
amendment is in the form of a certificate signed by the General Partner and
appended to this agreement. A Certificate of Designations is not the exclusive
manner in which such an amendment may be effected. The General partner may adopt
a Certificate of Designations without the consent of the Limited Partners to the
extent permitted pursuant to Section 14.1B hereof.
"Common Unit" means a Partnership Unit which is designated as a Common
Unit and which has the rights, preferences and other privileges designated
herein in respect of Common Unitholders. The allocation of Common Units among
the Partners shall be set forth on Exhibit A, as may be amended from time to
time.
"Common Unitholder" means a Partner that holds Common Units.
"Partnership Unit" or "Unit" means a fractional, undivided share of the
Partnership Interests of all Partners issued pursuant to Sections 4.1, 4.2 and
4.3 (and includes any series or class of Preferred Units). The number of
Partnership Units outstanding and (in the case of Common Units) the Percentage
Interest in the Partnership represented by such Units are set forth in Exhibit A
attached hereto, as such Exhibit may be amended from time to time. The ownership
of Partnership Units shall be evidenced by such form of certificate for units as
the General Partner adopts from time to time unless the General Partner
determines that the Partnership Units shall be uncertificated securities.
"Percentage Interest" means, as to a Partner, its percentage interest as
a Common Unitholder determined by dividing the Common Units owned by such
Partner by the total number of Common Units then outstanding and as specified in
Exhibit A attached hereto, as such Exhibit may be amended from time to time.
"Preferred Unit" means a limited partnership interest (of any series),
other than a Common Unit, represented by a fractional, undivided share of the
Partnership Interests of all Partners issued hereunder and which is designated
as a "Preferred Unit" (or as a particular class or series of Preferred Units)
herein and which has the rights, preferences and other privileges designated
herein (including by way of a Certificate of Designations) in respect of a
2
<PAGE>
Preferred Unitholder. The allocation of Preferred Units among the Partners shall
be set forth on Exhibit A, as may be amended from time to time.
"Preferred Unitholder" means a Partner that holds Preferred Units (of
any class or series).
"REIT Shares Amount" shall mean a number of REIT Shares equal to the
product of the number of Common Units offered for redemption by a Redeeming
Partner, multiplied by the Conversion Factor, provided that in the event the
Company issues to all holders of REIT Shares rights, options, warrants or
convertible or exchangeable securities entitling the shareholders to subscribe
for or purchase REIT Shares, or any other securities or property (collectively,
the "rights"), then the REIT Shares Amount shall also include such rights that a
holder of that number of REIT Shares would be entitled to receive.
"Series B Certificate of Designations" means the Certificate of
Designations attached hereto as Exhibit F setting forth the designations,
rights, powers, duties and preferences of Partners holding Series B Preferred
Units.
"Series B Preferred Unit" means a limited partnership interest
represented by a fractional, undivided share of the Partnership Interests of all
Partners issued hereunder which is designated as an 8.95% Series B Cumulative
Redeemable Perpetual Preferred Unit and which has the rights, preferences and
other privileges designated herein in respect of Series B Preferred Unitholders
and designated in the Certificate of Designations for Series B Preferred Units
attached hereto. The allocation of Series B Preferred Units among the Partners
shall be set forth on Exhibit A, as may be amended from time to time.
"Series B Preferred Unitholder" means a Partner that holds Series B
Preferred Units.
SECTION 2 AMENDMENTS TO CERTAIN SECTIONS OF THE AGREEMENT.
The following sections of the Agreement shall be amended as set forth
below.
2.1 Amendment to Section 4.1. The penultimate sentence of Section 4.1 of
the Agreement shall be amended to read in its entirety as follows:
The number of Common Units held by the General Partner, in its capacity
as general partner, (equal to one percent (1%) of all outstanding Common
Units from time to time) shall be deemed to be the General Partner
Interest.
2.2 Amendment to Section 5.1. The first sentence of Section 5.1 of the
Agreement shall be amended to read in its entirety as follows:
3
<PAGE>
Subject to the rights and preferences of any outstanding class or
series of Preferred Units as set forth in the Certificate of
Designations therefor attached hereto or as otherwise provided herein
with respect to Partnership Interests other than Common Units, the
General Partner shall distribute at least quarterly an amount equal to
one hundred percent (100%) of Available Cash generated by the
Partnership during such quarter or shorter period to the Common
Unitholders who are Partners on the Partnership Record Date with respect
to such quarter or shorter period in accordance with their respective
Percentage Interests on such Partnership Record Date; provided that in
no event may a Partner receive a distribution of Available Cash with
respect to a Common Unit if such Partner is entitled to receive a
distribution out of such Available Cash with respect to a REIT Share for
which such Common Unit has been redeemed or exchanged.
2.3 Amendment to Section 6.1. The text of Sections 6.1A and 6.1B of the
Agreement shall be amended to read in its entirety as follows:
A. Net Income. Net Income shall be allocated:
(i) first, to the General Partner to the extent of Net Losses
previously allocated to the General Partner pursuant to
Section 6.1B(iii) below for all prior taxable years exceed
Net Income previously allocated to the General Partner
pursuant to this Section 6.1A(i) for all prior taxable
years,
(ii) second, to Partners holding Preferred Units to the extent
that Net Losses previously allocated to such Partners
pursuant to Section 6.1B(ii) below for all prior taxable
years exceed Net Income previously allocated to such
Partners pursuant to this Section 6.1A(ii) for all prior
taxable years,
(iii) third, to Partners holding Common Units to the extent that
Net Losses previously allocated to such Partners pursuant
to Section 6.1B(i) below for all prior taxable years
exceed Net Income previously allocated to such Partners
pursuant to this Section 6.1A(iii) for all prior taxable
years,
(iv) fourth, to Partners holding Preferred Units in accordance
with the rights of any such class of Partnership Interests
until each such Preferred Unit has been allocated Net
Income equal to the excess of (x) the cumulative amount of
preferred distributions such Partners are entitled to
receive to the last day of the current taxable year or to
the date of redemption to the extent such Partnership
Interests are redeemed during such taxable year over (y)
the cumulative Net Income allocated to such Partners,
pursuant to this Section 6.1A(iv) for all prior taxable
years (and, within each such
4
<PAGE>
class, pro rata in proportion to the respective share of
such Units each Partner holds as of the last day of the
period for which such allocation is being made), and
(v) fifth, with respect to Common Units, pro rata to each such
class in accordance with the terms of such class (and,
within each such class, pro rata in proportion to each
Partner's respective share of such Units as of the last
day of the period for which such allocation is being
made).
B. Net Losses. After giving effect to the special allocations set
forth in Section 1 of Exhibit C attached hereto, Net Losses shall
be allocated:
(i) first, with respect to Common Units, pro rata in
proportion to each Partner's respective share of such
Common Units as of the last day of the period for which
such allocation is being made until the Adjusted Capital
Account (ignoring for this purpose any amounts a Partner
is obligated to contribute to the capital of the
Partnership or is deemed obligated to contribute pursuant
to Regulations Section 1.704-1(b)(2)(ii)(c)(2)) of each
Partner with respect to such Common Units is reduced to
zero,
(ii) second, to the Partners holding Preferred Units in
accordance with the rights of such class of Preferred
Units (and, if there is more than one class of such
Preferred Units, then in the reverse order of their
preferences in distributions), until the Adjusted Capital
Account (modified in the same manner as in the
parenthetical in the immediately preceding clause (i)) of
each such Partner with respect to such Preferred Units is
reduced to zero, and
(iii) third, to the General Partner.
To the extent permitted under Section 704 of the Code, solely for
purposes of allocating Net Income or Net Losses in any taxable year (or a
portion thereof) to Partners holding Series B Preferred Units pursuant to
Section 6.1 hereof, items of Net Income or Net Losses, as the case may be, shall
not include Depreciation with respect to properties that are "ceiling limited"
in respect of Partners holding Series B Preferred Units. For purposes of the
preceding sentence, Partnership property shall be considered "ceiling limited"
in respect of a Partner holding Series B Preferred Units if Depreciation
attributable to such Partnership property which would otherwise be allocable to
such Partner, without regard to this paragraph, exceeds depreciation determined
for federal income tax purposes attributable to such Partnership property which
would otherwise be allocable to such Partner by more than 5%."
5
<PAGE>
2.4 Amendment to Section 8.6. The text of Section 8.6 of the Agreement
shall be amended such that every instance of the terms "Partnership Unit" and
"Partnership Units" shall be replaced, respectively, by "Common Unit" and
"Common Units".
2.5 Amendment to Article 11.
(a) Section 11.1A of the Agreement is amended by inserting the
words "or an exchange pursuant to Section 9 of the Series B Certificate of
Designations" after the words "Section 8.6" in the last line thereof.
(b) Section 11.6A of the Agreement is amended by inserting the
words "or or under Section 9 of the Series B Certificate of Designations" after
the words "Section 8.6" in the last line thereof.
(c) Section 11.6B of the Agreement is amended by inserting the
words "or or under Section 9 of the Series B Certificate of Designations" after
the words "Section 8.6" in the last line thereof.
(d) The following language is inserted at the end of Section
11.6C of the Agreement: "; provided, however, that a Series B Preferred
Unitholder may make a transfer to an Affiliate of such Series B Preferred
Unitholder in accordance with the provisions of Section 11.3A hereof without
regard to such limitation."
(e) Section 11.6D of the Agreement is amended: (i) by inserting
the words "or or under Section 9 of the Series B Certificate of Designations"
after the words "Section 8.6" in the third line thereof; and (ii) by inserting
the words "or Series B Preferred Unit Partnership Record Date (as defined in the
Series B Certificate of Designations), as the case may be" after the words
"Partnership Record Date" in the last sentence thereof.
2.6 Amendment to Article 16. The text of Article 16 of the Agreement
shall be amended such that every instance of the terms "Partnership Unit" and
"Partnership Units" shall be replaced, respectively, by "Common Unit" and
"Common Units".
SECTION 3 AMENDMENT TO EXHIBIT E.
The Form of Notice of Redemption set forth as Exhibit E to the Agreement
shall be amended such that every instance of the term "Limited Partnership
Units" shall be replaced by "Common Units."
SECTION 4 SERIES B CERTIFICATE OF DESIGNATIONS.
The Agreement shall be amended by the adoption of the Series B
Certificate of Designations attached hereto as Attachment 1 and to be attached
to the Agreement as Exhibit
6
<PAGE>
F, in accordance with Section 4.2A of the Agreement, setting forth the
designations, rights, powers, duties and preferences of Partners holding Series
B Preferred Units.
SECTION 5 ADMISSION OF NEW PARTNERS.
(a) The Agreement is hereby amended by substituting that Exhibit A
attached hereto for the Exhibit A heretofore attached to the
Agreement.
(b) Pursuant to and in accordance with Section 12.2 of the Agreement,
the General Partner hereby consents to the admission of each of
the New Partners as Additional Limited Partners of the
Partnership and each New Partner hereby adopts, accepts,
ratifies, confirms and agrees to be bound by all of the terms of
the Agreement, as hereby amended, applicable to it as a Limited
Partner, including, without limitation, the provisions of Section
2.4 and any other provision of the Agreement appointing the
General Partner or the Liquidator as attorney-in-fact for such
New Partner.
SECTION 6 MISCELLANEOUS.
(a) Except as amended by the provisions hereof, the Agreement, as
previously amended, shall remain in full force and effect in
accordance with its terms and is hereby ratified, confirmed and
reaffirmed by the undersigned for all purposes and in all
respects.
(b) This Amendment shall be binding upon and shall inure to the
benefit of the parties hereto, their respective legal
representatives, successors and assigns.
(c) This Amendment may be executed in counterparts, all of which
together shall constitute one agreement binding on all the
parties hereto, notwithstanding that all such parties are not
signatories to the original or the same counterpart.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
GENERAL PARTNER:
SUMMIT PROPERTIES INC.
By: /s/ Michael G. Malone
--------------------------------------------
Michael G. Malone
Senior Vice President
LIMITED PARTNERS:
Those Persons listed on Exhibit A attached
hereto
By: Summit Properties Inc., their attorney-in-
fact
By: /s/ Michael G. Malone
--------------------------------------------
Michael G. Malone
Senior Vice President
NEW PARTNERS
BELCREST REALTY CORPORATION
By: /s/ Thomas E. Faust, Jr.
--------------------------------------------
Name: Thomas E. Faust, Jr.
Title: Executive Vice President
BELAIR REAL ESTATE CORPORATION
By: /s/ Thomas E. Faust, Jr.
--------------------------------------------
Name: Thomas E. Faust, Jr.
Title: Executive Vice President
<PAGE>
Exhibit A
---------
I. Holders of Common Units
Summit Properties Inc.
Bruce R. Keene
Charles W. Brown III
Daniel P. McCabe
David R. Tufaro
Edward D. Trevillian
Street Enterprises, LP.
James C. Smith
John C. Moore
John T. Gray
K. Reid Hotaling
Keith Downey
Keith H. Kuhlman
Mark L. Messerly
Mary Beth Marshall
Michael A. Underwood
Michael G. Malone
Raymond V. Jones
Stephen C. Wylie
Stephen F. Smoak
Thomas Mannausa
William B. McGuire, Jr.
William F. Paulsen
10
<PAGE>
P K Partners L.P.
JMJ Associates
The Crosland Group Inc.
Crosland-Erwin & Associates No. VI
John & Patricia Ackerman
Westbury Place Associates
Westbury Woods Associates
Westbury Park Associates
Crosland Investors, Inc.
Roger M. Lewis
Justin F. Little
Charles E. Teal
John Crosland, Jr.
Patrick Bailey, Jr.
Kenneth M. Barnes, Revocable Trust
James H. Barnhardt-3/31/87 Trust
Sadler H. Barnhardt
Thomas M. Barnhardt
James H. & Sybil Blumenberg
Charles C. Bollinger
Douglas R. Boone
David R. Boozer
Timothy A. Braswell
Eugene E. Brucker
11
<PAGE>
Andrew P. Collins
Carl T. Dedmon
Robert W. Donaldson, Jr.
James H. Donnewald
Raymond Donnewald - Estate
B. D. Framer, III
James S. Forrester
W. A. & C. D. Frank Living Trust 8/18/82
Harvey & Cynthia P. Frohlichstein
Robert H. Gaither
John C. Golding
Rebecca H. Gordon
Charles H. Griffin
David E. Harrold
William M. Herndon
Frances J. Intagliata
Donald H. Jones
Ruthanne (Wise) Jones
Duncan A. Killen
Richard E. Killough
Jack Krause
Jean H. Lamb
Paul R. Leonard, Jr.
Susan H. McDowell
12
<PAGE>
Roy H. Michaux, Jr.
Jack R. Miller
Kenneth M. Murphy
J. Frank Newton
L. Gordon Pfefferkorn
Eugene V. Rankin
Leroy Robinson
Sam J. Rosenbloom
Robert W. Sauer - Grantor Trust
John Crosland, Jr. & FUNB co-trustees
of the John Crosland, Sr., Trust 10/25/74
Albert F. Sloan
Brant R. Snavely, Jr.
Eloise Y. Spangler
Emil A. Stange
John B. Summers
Roberta K. Symonds
Nick Tacony
Owen H. Whitfield
Gerald S. Workman
Bernard A. Zimmer
Franz J. Zimmer
Bissell Ballantyne, LLC
J Ronald Terwilliger
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J. Ronald Terwilliger Grantor Trust
Susan A. Hoeksema
Randy J. Pace
Clifford A. Breining
St. Clair Associates, L.P.
Harlan R. Crow
Leonard W. Wood
David J. Elwell
Randy J Pace
J. Ronald Terwilliger
Leonard W Wood Family L/P
CFP Residential LP.
TCR Legacy Square L/P
KW Partnership
LAD Partnership
Michael L. Pacillio
Milan Investment Trust-1/1/93
S. Joseph Barrett
11. Holders of Series B Preferred Units
1. Belcrest Realty Corporation
2. Belair Real Estate Corporation
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ATTACHMENT 1 TO SIXTEENTH AMENDMENT
-----------------------------------
AND
EXHIBIT F TO PARTNERSHIP AGREEMENT
----------------------------------
SUMMIT PROPERTIES PARTNERSHIP, L.P.
CERTIFICATE OF DESIGNATIONS AMENDING THE
AGREEMENT OF LIMITED PARTNERSHIP
(EFFECTIVE AS OF APRIL 29, 1999)
SERIES B CUMULATIVE REDEEMABLE PERPETUAL PREFERRED UNITS
SECTION 1. Definitions. The following terms shall have the
meanings herein below ascribed thereto for purposes of this Certificate of
Designations, and all other capitalized terms used herein shall have the
meanings thereto ascribed in the Agreement (as hereinafter defined):
"Affiliate Parity Placement" shall have the meaning set forth
therefor in Section 7(b) hereof.
"Agreement" shall mean that Agreement of Limited Partnership of
Summit Properties Partnership, L.P., a Delaware limited partnership (the
"Partnership"), dated as of January 29, 1994, as amended.
"Charter" shall have the meaning set forth therefor in Section
3(d) hereof.
"Contribution Agreement" shall mean that certain Contribution
Agreement, dated as of April 29, 1999, by and among the Company, the
Partnership, Belcrest Realty Corporation and Belair Real Estate Corporation.
"control" shall mean the power to direct the actions of a Person,
regardless of whether the same shall involve an ownership interest in such
Person.
"Excess Units" shall have the meaning set forth therefor in
Section 9(a)(iii) hereof.
"Exchange Notice" shall have the meaning set forth therefor in
Section 9(b) hereof.
"Exempt Affiliate Parity Placement" shall have the meaning set
forth therefor in Section 7(b) hereof.
"Junior Units" shall have the meaning set forth therefor in
Section 3(d) hereof.
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"New Partner Affiliate" shall mean a Person controlling, under
common control with or controlled by a New Partner.
"Parent" shall mean the direct or indirect parent of a New
Partner.
"Parity Units" shall mean any class or series of Partnership
Interests of the Partnership now or hereafter authorized, issued or outstanding
expressly designated by the Partnership to rank on a parity with Series B
Preferred Units with respect to distributions and rights upon voluntary or
involuntary liquidation, winding-up or dissolution of the Partnership.
"Partnership Affiliate" shall mean any Person controlled by,
controlling or under common control with the Partnership.
"Priority Return"shall mean, an amount equal to 8.95% per annum,
determined on the basis of a 360-day year of twelve (12) 30-day months (or
actual days for any month which is shorter than a full monthly period),
cumulative to the extent not distributed for any given distribution period
pursuant to Section 3 hereof, of the stated value of $25.00 per Series B
Preferred Unit, commencing on the date of issuance of such Series B Preferred
Unit.
"PTP" shall mean a "publicly traded partnership" within the
meaning of Section 7704 of the Code.
"Series B Exchange Price" shall have the meaning set forth
therefor in Section 9(a)(i) hereof.
"Series B Redemption Price" shall have the meaning set forth
therefor in Section 6(a) hereof.
"Series B Preferred Articles Supplementary" shall have the
meaning set forth therefor in Section 9(a)(i) hereof.
"Series B Preferred Stock" shall have the meaning set forth
therefor in Section 9(a)(i) hereof.
"Series B Preferred Unit Distribution Payment Date" shall have
the meaning set forth therefor in Section 3(a) hereof.
"Series B Preferred Unit Partnership Record Date" shall have the
meaning set forth therefor in Section 3(a) hereof.
"Series B Preferred Units" shall have the meaning set forth
therefor in Section 2 hereof.
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SECTION 2. Designation and Number. Pursuant to Section 4.2A of
the Agreement, a series of Partnership Units in the Partnership designated as
the "8.95% Series B Cumulative Redeemable Perpetual Preferred Units" (the
"Series B Preferred Units") is hereby established. The number of Series B
Preferred Units shall be 3,400,000.
SECTION 3. Distributions. (a) Payment of Distributions. Subject
to the rights of holders of Parity Units and holders of Units ranking senior to
the Series B Preferred Units as to the payment of distributions, holders of
Series B Preferred Units shall be entitled to receive, when, as and if declared
by the Partnership acting through the General Partner, out of Available Cash,
pursuant to Article 5 of the Agreement, cumulative preferential cash
distributions at the rate per annum of 8.95% of the original Capital
Contribution per Series B Preferred Unit. Such distributions shall be
cumulative, shall accrue from the original date of issuance and will be payable:
(i) quarterly in arrears, on the last day (or, if not a Business Day, the next
succeeding Business Day) of each of March, June, September and December of each
year commencing on June 30, 1999 (each, a "Series B Preferred Unit Distribution
Payment Date"), and (ii) in the event of (A) an exchange of Series B Preferred
Units into Series B Preferred Stock, or (B) a redemption of Series B Preferred
Units, on the exchange date or redemption date, as applicable. The amount of the
distribution payable for any period will be computed on the basis of a 360-day
year of twelve 30-day months and for any period shorter than a full quarterly
period for which distributions are computed, the amount of the distribution
payable will be computed on the basis of the actual number of days elapsed in
such period. If any date on which distributions are to be made on the Series B
Preferred Units is not a Business Day, then payment of the distribution to be
made on such date will be made on the next succeeding day that is a Business Day
(and without any interest or other payment in respect of any such delay) except
that, if such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case with the
same force and effect as if made on such date. Distributions on the Series B
Preferred Units will be made to the holders of record of the Series B Preferred
Units on the relevant record dates to be fixed by the Partnership acting through
the General Partner, which record dates shall be the twentieth (20th) day of the
calendar month in which the applicable Series B Preferred Unit Distribution
Payment Date falls or on such earlier date designated on at least ten (10) days'
notice by the Board of Directors of the General Partner as the record date for
such distribution that is not more than thirty (30) nor less than ten (10) days
prior to such Series B Preferred Unit Distribution Payment Date (the "Series B
Preferred Unit Partnership Record Date").
(b) Prohibition on Distribution. No distributions on Series B Preferred
Units shall be authorized by the General Partner or paid or set apart for
payment by the Partnership at any such time as the terms and provisions of any
agreement of the Partnership or the Company, including any agreement relating to
their indebtedness, prohibits such authorization, payment or setting apart for
payment or provides that such authorization, payment or setting apart for
payment would constitute a breach thereof or a default thereunder, or to the
extent that such authorization or payment shall be restricted or prohibited by
law.
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(c) Distributions Cumulative. Notwithstanding the provisions of Section
3(b) hereof, distributions on the Series B Preferred Units will accrue whether
or not the terms and provisions of any agreement of the Partnership, including
any agreement relating to its indebtedness at any time prohibit the current
payment of distributions, whether or not the Partnership has earnings, whether
or not there are funds legally available for the payment of such of such
distributions and whether or not such distributions are authorized. Accrued but
unpaid distributions on the Series B Preferred Units will accumulate as of the
date on which they first become payable pursuant to Section 3(a) (without
reference to Section 3(b)). Distributions on account of arrears for any past
distribution periods may be declared and paid at any time, without reference to
a regular Series B Preferred Unit Distribution Payment Date to holders of record
of the Series B Preferred Units on the record date fixed by the Partnership
acting through the General Partner, which date shall not exceed thirty (30) days
prior to the payment date. Accumulated and unpaid distributions will not bear
interest.
(d) Priority as to Distributions. (i) So long as any Series B Preferred
Units are outstanding, no distribution of cash or other property shall be
authorized, declared, paid or set apart for payment on or with respect to any
class or series of Partnership Interest ranking junior as to the payment of
distributions or rights upon a voluntary or involuntary liquidation, dissolution
or winding-up of the Partnership to the Series B Preferred Units (collectively,
"Junior Units"), nor shall any cash or other property be set aside for or
applied to the purchase, redemption or other acquisition for consideration of
any Series B Preferred Units, any Parity Units or any Junior Units, unless, in
each case, all distributions accumulated on all Series B Preferred Units and all
classes and series of outstanding Parity Units have been paid in full. The
foregoing sentence will not prohibit (A) distributions payable solely in Junior
Units, (B) the conversion of Junior Units or Parity Units into Junior Units, or
(C) the redemption of Partnership Interests corresponding to any Series B
Preferred Stock, Parity Preferred Stock or Junior Stock to be purchased by the
Company pursuant to Section 4.5 of the Amended and Restated Articles of
Incorporation of the Company (the "Charter") to preserve the Company's status as
a real estate investment trust, provided that such redemption shall be upon the
same terms as the corresponding purchase pursuant to Article IV of the Charter.
(ii) So long as distributions have not been paid in full (or a
sum sufficient for such full payment has not been irrevocably deposited in trust
for payment) upon the Series B Preferred Units, all distributions authorized and
declared on the Series B Preferred Units and all classes or series of
outstanding Parity Units shall be authorized and declared so that the amount of
distributions authorized and declared per Series B Preferred Unit and such other
classes or series of Parity Units shall in all cases bear to each other the same
ratio that accrued and unpaid distributions per Series B Preferred Unit and such
other classes or series of Parity Units (which shall not include any
accumulation in respect of unpaid distributions for prior distribution periods
if such class or series of Parity Units do not have cumulative distribution
rights) bear to each other. Any distribution payment made on the Series B
Preferred Units shall first be credited against the earliest accrued but unpaid
distribution due with respect to such Series B Preferred Units which remains
payable.
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(e) No Further Rights. Holders of Series B Preferred Units shall not be
entitled to any distributions with respect to such Series B Preferred Units,
whether payable in cash, other property or otherwise, in excess of the full
cumulative distributions described herein (it being understood that such holder
may have additional rights or claims to the remaining assets of the Partnership
as a result of its ownership of Partnership Units of other classes or series or
its status as General Partner).
SECTION 4. Allocations. The Series B Preferred Units shall be
subject to all of the provisions of Article 6 of the Agreement.
SECTION 5. Liquidation Proceeds. (a) Upon voluntary or
involuntary liquidation, dissolution or winding-up of the Partnership,
distributions on the Series B Preferred Units shall be made in accordance with
Section 13.2 of the Agreement.
(b) Notice. Written notice of any such voluntary or involuntary
liquidation, dissolution or winding-up of the Partnership, stating the payment
date or dates when, and the place or places where, the amounts distributable in
such circumstances shall be payable, shall be given by (i) fax and (ii) by first
class mail, postage pre-paid, not less than thirty (30) and not more than sixty
(60) days prior to the payment date stated therein, to each holder of record of
the Series B Preferred Units at the respective addresses of such holders as the
same shall appear on the transfer records of the Partnership.
(c) No Further Rights. After payment of the full amount of the
liquidating distributions to which they are entitled, the holders of Series B
Preferred Units will have no right or claim to any of the remaining assets of
the Partnership with respect to such Series B Preferred Units (it being
understood that such holder may have additional rights or claims to the
remaining assets of the Partnership as a result of its ownership of Partnership
Units of other classes or series or its status as General Partner).
(d) Consolidation, Merger or Certain Other Transactions. The voluntary
sale, conveyance, lease, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the property
or assets of the Company or the Partnership to, or the consolidation or merger
or other business combination of the Partnership or the Company with or into,
any corporation, partnership, limited liability company, trust or other entity
(or of any corporation, partnership, limited liability company, trust or other
entity with or into the Partnership) or a statutory share exchange of the
Company shall not be deemed to constitute a liquidation, dissolution or
winding-up of the Partnership.
SECTION 6. Optional Redemption. (a) Right of Optional Redemption.
(i) Except as otherwise expressly provided in this Section 6, the Series B
Preferred Units may not be redeemed prior to the fifth (5th) anniversary of the
issuance date. On or after such date, the Partnership shall have the right to
redeem the Series B Preferred Units, in whole or in part, at any time or from
time to time, upon not less than thirty (30) nor more than sixty (60) days'
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written notice, at a redemption price (the "Series B Redemption Price"), payable
in cash (or cash and such number of shares of Series B Preferred Stock to which
a Partner holding such Series B Preferred Units being redeemed for other than
cash would be entitled if redeemed at the Series B Exchange Price then in effect
pursuant to Section 9 hereof), equal to the Capital Account balance of such
holder of Series B Preferred Units attributable to such redeemed Units;
provided, however, that no redemption pursuant to this Section 6 will be
permitted if the Series B Redemption Price does not equal or exceed the original
Capital Contribution with respect to such Units plus the cumulative Priority
Return thereon, whether or not declared, to the redemption date to the extent
not previously distributed. If fewer than all of the outstanding Series B
Preferred Units are to be redeemed, the Series B Preferred Units to be redeemed
shall be selected pro rata (as nearly as practicable without creating fractional
Partnership Units).
(ii) In the event that (1) any Series B Preferred Units shall, at
any time, be transferred to any Substituted Limited Partner (other than a New
Partner Affiliate) and (2) the General Partner shall determine in good faith
that such transfer to such Person has caused, would cause, or would likely
cause, the Partnership to be a PTP (taking into account the admission of any
Partners or the transfer of any Units to any other Person under any agreements
of which the General Partner is then aware or contemplating), such transferred
Units shall be subject to the right of the Partnership to redeem such Units, in
whole but not in part, at any time and from time to time, including without
limitation, as of the end of the day immediately preceding the day of the
effectiveness of such transfer, for the Series B Redemption Price of such Units
payable in (y) such number of shares of Series B Preferred Stock to which the
Partner holding such Units being redeemed (excluding Excess Units) would be
entitled if redeemed at the Series B Exchange Price then in effect pursuant to
Section 9 hereof and (z) cash, with respect to any such Units that would be
Excess Units.
(b) Limitation on Redemption. (i) The Redemption Price of the Series B
Preferred Units (other than the portion thereof attributable to accumulated but
unpaid distributions) will be payable solely out of the sale proceeds of capital
stock of the Company that are contributed by the Company to the Partnership as
additional capital contributions, or out of the sale of Partnership Interests,
and from no other source. For purposes of the preceding sentence, "capital
stock" means any equity securities (including Common Stock and Preferred Stock
(as such terms are defined in the Charter)), shares, depository receipts,
participation or other ownership interests (however designated) and any rights
(other than debt securities convertible into or exchangeable for equity
securities) or options to purchase any of the foregoing.
(ii) The Partnership may not redeem fewer than all of the
outstanding Series B Preferred Units unless all accumulated and unpaid
distributions have been paid on all Series B Preferred Units for all quarterly
distribution periods terminating on or prior to the date of redemption.
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(c) Procedures for Redemption. (i) Notice of redemption will be
(A) faxed, and (B) mailed by the Partnership, by certified mail, postage
prepaid, not less than thirty (30) nor more than sixty (60) days prior to the
redemption date, addressed to the respective holders of record holding the
Series B Preferred Units at their respective addresses as they appear on the
records of the Partnership. No failure to give or defect in such notice shall
affect the validity of the proceedings for the redemption of any Series B
Preferred Units except as to any holder to whom such notice was defective or not
given. In addition to any information required by law, each such notice shall
state: (m) the redemption date, (n) the Redemption Price, (o) the aggregate
number of Series B Preferred Units to be redeemed and, if fewer than all of the
outstanding Series B Preferred Units are to be redeemed, the number of Series B
Preferred Units to be redeemed held by such holder, which number shall equal
such holder's pro rata share (based on the percentage of the aggregate number of
outstanding Series B Preferred Units the total number of Series B Preferred
Units held by such holder represents) of the aggregate number of Series B
Preferred Units to be redeemed, (p) the place or places where such Series B
Preferred Units are to be surrendered for payment of the Redemption Price, (q)
that distributions on the Series B Preferred Units to be redeemed will cease to
accumulate on such redemption date and (r) that payment of the Redemption Price
will be made upon presentation and surrender of such Series B Preferred Units.
(ii) If the Partnership gives a notice of redemption in respect
of Series B Preferred Units (which notice will be irrevocable) then, by 12:00
noon, New York City time, on the redemption date, the Partnership will deposit
irrevocably in trust for the benefit of the Series B Preferred Units being
redeemed funds sufficient to pay the applicable Redemption Price and will give
irrevocable instructions and authority to pay such Redemption Price to the
holders of the Series B Preferred Units upon surrender of the Series B Preferred
Units by such holders at the place designated in the notice of redemption. If
the Series B Preferred Units are evidenced by a certificate and if fewer than
all Series B Preferred Units evidenced by any certificate are being redeemed, a
new certificate shall be issued upon surrender of the certificate evidencing all
such Series B Preferred Units, evidencing the unredeemed Series B Preferred
Units, without cost to the holder thereof. On and after the date of redemption,
distributions will cease to accumulate on the Series B Preferred Units or
portions thereof called for redemption, unless the Partnership defaults in the
payment or deposit, in accordance with the foregoing, of the Redemption Price.
If any date fixed for redemption of Series B Preferred Units is not a Business
Day, then payment of the Redemption Price payable on such date will be made on
the next succeeding day that is a Business Bay (and without any interest or
other payment in respect of any such delay) except that, if such Business Day
falls in the next calendar year, such payment will be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date fixed for redemption. If payment of the Redemption Price is
improperly withheld or refused and not paid by the Partnership, distributions on
such Series B Preferred Units will continue to accumulate from the original
redemption date to the date of payment, in which case the actual payment date
will be considered the date fixed for redemption for purposes of calculating the
applicable Redemption Price.
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SECTION 7. Voting Rights. (a) General. Partners holding the
Series B Preferred Units will not have any voting rights or right to consent to
any matter requiring the consent or approval of the Limited Partners, except as
set forth in this Section 7. In connection with the foregoing, the references in
Sections 14.1A and 14.2A of the Agreement to Partnership Interests shall exclude
the Series B Preferred Units.
(b) Certain Voting Rights. So long as any Series B Preferred Units
remain outstanding, the Partnership shall not, without the affirmative vote of
the Partners holding at least two-thirds of the Series B Preferred Units
outstanding at the time: (i) authorize, create, or increase the authorized or
issued amount of any class or series of Partnership Interests ranking prior to
the Series B Preferred Units with respect to payment of distributions or rights
upon liquidation, dissolution or winding-up or reclassify any Partnership
Interests into any such Partnership Interest, or create, authorize or issue any
obligations or security convertible into or evidencing the right to purchase any
such Partnership Interests; (ii) issue any Parity Units to a Partnership
Affiliate, reclassify any Partnership Interest held by a Partnership Affiliate
into any such Parity Unit or issue any obligation or security convertible into
or evidencing the right to purchase any such Parity Unit to a Partnership
Affiliate (any such issuance or reclassification, referred to as an "Affiliate
Parity Placement"); provided, however, that notwithstanding the foregoing
provisions of this clause (ii) the Partnership may effect any Affiliate Parity
Placement to the extent such placement is either (A) in connection with the
issuance by the Company of corresponding preferred stock to persons who are not
Partnership Affiliates or (B) upon terms no more favorable to such Partnership
Affiliates than those that the General Partner, in the good faith determination
of its Board of Directors, would be willing to offer to an unrelated party in an
arm's length transaction (such placement, an "Exempt Affiliate Parity
Placement"); or (iii) either (A) consolidate, merge into or with, or convey,
transfer or lease its assets substantially as an entirety to, any corporation or
other entity or (B) amend, alter or repeal the provisions of the Agreement,
whether by merger, consolidation or otherwise, in each case in a transaction or
manner that would materially and adversely affect the powers, special rights,
preferences, privileges or voting powers of the Series B Preferred Units or the
Partners holding such Units as set forth in the Agreement and this Certificate
of Designations; provided, however, that with respect to the occurrence of a
merger, consolidation or a sale or lease of all of the Partnership's assets as
an entirety, so long as (l) the Partnership is the surviving entity and the
Series B Preferred Units remain outstanding with the terms thereof unchanged, or
(2) the resulting, surviving or transferee entity is a partnership, limited
liability company or other pass-through entity organized under the laws of any
state and substitutes the Series B Preferred Units for other interests in such
entity having substantially the same terms and rights as the Series B Preferred
Units, including with respect to distributions, voting rights and rights upon
liquidation, dissolution or winding-up, then the occurrence of any such event
shall be deemed not to materially and adversely affect such powers, special
rights, preferences, privileges or voting powers of the Series B Preferred Units
or the Partners holding such Units; and provided further that any increase in
the amount of Partnership Interests or the creation or issuance of any other
class or series of Partnership Interests or obligation or security convertible
into or evidencing the right
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to purchase any such Partnership Interests, in each case ranking (y) junior to
the Series B Preferred Units with respect to payment of distributions and the
distribution of assets upon liquidation, dissolution or winding-up, or (z) on a
parity to the Series B Preferred Units with respect to payment of distributions
and the distribution of assets upon liquidation, dissolution or winding-up
(other than for Affiliate Parity Placements that are not Exempt Affiliate Parity
Placements) shall be deemed not to materially and adversely affect such powers,
special rights, preferences, privileges or voting powers of the Series B
Preferred Units or the Partners holding such Units. In the event of any conflict
between the provisions of Article 14 of the Agreement and the provisions of this
Section 7, the provisions of this Section 7 shall control.
SECTION 8. Transfer Restrictions. Notwithstanding anything to the
contrary set forth in Article 11 of the Agreement, in the event any Partner
should desire to effect a transfer of any Series B Preferred Unit and such
proposed transfer of all or any portion of the Series B Preferred Units (A)
would not violate the provisions of Section 11.3D of the Agreement, (B) would
effect a transfer to an entity that is an accredited investor within the meaning
of Regulation D under the Securities Act, (C) (i) in the event that the
Partnership shall satisfy the private placement safe harbor of Treasury
Regulation Section 1.7704-1(h) (taking into account any person treated as a
partner under Treasury Regulation Section 1.7704-1(h) (3)), would not cause the
total number of such persons holding Series B Preferred Units to exceed five (5)
and (ii) for so long as the Partnership is satisfying the safe harbor provisions
of Notice 88-75 (1988-2 C.B. 386), would not cause the aggregate number of
partners holding Series B Preferred Units, determined on a look-through basis
(as provided in such notice) ("Look-Through Partners"), to exceed 20 and (D)
with respect to such proposed transfer, the transferor and transferee, as
applicable, represent to the General Partner in an ownership certificate (the
"Ownership Certificate") in such form as is reasonably acceptable to the General
Partner
(i) in the event that the Partnership is complying with the
safe harbor of Notice 88-75 (1988-2 C.B. 386) at the time
of such proposed transfer, the maximum number of
Look-Through Partners (as hereinafter defined) in the
transferee;
(ii) that such transferee would not cause the Company to fail
to satisfy the requirements of Section 856(a)(6) and
856(h) of the Code assuming that (A) all Series B
Preferred Units, including those to be transferred to such
transferee, were exchanged for Series B Preferred Stock
(as defined below), (B) there were no outstanding stock of
any other class of the Company and (C) such determination
was made during the last half of the Company's taxable
year;
(iii) in the event that the Partnership is complying with the
safe harbor of Notice 88-75 (1988-2 C.B. 386) at the time
of such proposed transfer, such purported transferee's
undertaking not to allow the number of
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Look-Through Partners certified in clause (i) to increase
without the General Partner's prior written consent;
(iv) such purported transferee's undertaking not to permit the
fact stated in clause (ii) to become untrue; and
(v) such purported transferee's undertaking to become a
Substituted Limited Partner and to be bound by the terms
of the Partnership Agreement,
the General Partner shall consent to the transfer of such Units to such
transferee and (a) such transferee shall be considered a Substituted Limited
Partner upon receipt by the General Partner of a written agreement of such
transferee to become a Substituted Limited Partner and to be bound by the terms
of the Agreement and (b) the Partnership and the General Partner shall treat
such Substituted Limited Partner as the absolute owner of the Series B Preferred
Units transferred in all respects. Notwithstanding the foregoing, in the event a
proposed transfer to a transferee which is not a New Partner Affiliate would not
effect a transfer to an entity which would satisfy the provisions of Section
542(a)(2) of the Code (as modified by Section 856(h) of the Code), if such
provisions were made applicable to such transferee, then such transferee would
not have the benefits set forth in Section 9(a)(iii) hereof with respect to
"Excess Units;" and further provided such proposed transferee, in order to have
such rights as are set forth in Section 9(a)(iii) with respect to "Excess Units"
shall represent to the General Partner in the aforesaid Ownership Certificate
that such transferee would satisfy the provisions of Section 542(a)(2) of the
Code as so modified, and covenant that it will continue to satisfy such
provisions. For purposes of this Section 8 "transfer" shall have the meaning
thereto attributed in Section 11.1A of the Agreement; provided, however, that
nothing contained in this provision shall prevent the right to pledge any Series
B Preferred Units as such right is set forth in the Contribution Agreement.
SECTION 9. Exchange Rights. (a) Right to Exchange.(i) Series B
Preferred Units will be exchangeable, subject to Section 9(a)(v) hereof (A) in
whole or in part at any time on or after the tenth (10th) anniversary of the
date of issuance, at the option of the holders thereof, for authorized but
previously unissued shares of 8.95% Series B Cumulative Redeemable Perpetual
Preferred Stock of the Company ("Series B Preferred Stock") at an exchange rate
of one share of Series B Preferred Stock for one Series B Preferred Unit,
subject to adjustment as described below (the "Series B Exchange Price"), (B) at
any time, in whole or in part, at the option of the holders of Series B
Preferred Units for Series B Preferred Stock if (y) at any time full
distributions shall not have been timely made on any Series B Preferred Unit
with respect to six (6) prior quarterly distribution periods, whether or not
consecutive (provided that a distribution in respect of Series B Preferred Units
shall be considered timely made if made within two (2) Business Days after the
applicable Series B Preferred Unit Distribution Payment Date if at the time of
such late payment there shall not be any prior quarterly distribution periods in
respect of which full distributions were not timely made or), or (z) upon
receipt by a holder of or holders of Series B Preferred Units of (1) notice from
the
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General Partner that the General Partner has taken the position that the
Partnership is, or upon the occurrence of a defined event in the immediate
future will be, a PTP and (2) an opinion rendered by an outside nationally
recognized independent counsel familiar with such matters addressed to a holder
of or holders of Series B Preferred Units, that the Partnership is or likely is,
or upon the occurrence of a defined event in the immediate future will be or
likely will be, a PTP, (C) in whole or in part, at the option of any holder of
Series B Preferred Units prior to the tenth (10th) anniversary of the issuance
date and after the third anniversary thereof if such holder of Series B
Preferred Units shall deliver to the General Partner either (1) a private ruling
letter addressed to such Partner or (2) an opinion of independent counsel
reasonably acceptable to the General Partner and based on the enactment of
temporary or final Treasury Regulations or the publication of a Revenue Ruling,
in either case to the effect that an exchange of the Series B Preferred Units at
such earlier time would not cause the Series B Preferred Units to be considered
"stock and securities" within the meaning of Section 351(e) of the Code for
purposes of determining whether the holder of such Series B Preferred Units is
an "investment company" under Section 721(b) of the Code if an exchange were
permitted at such earlier date, and (D) in whole but not in part (regardless of
whether held by the New Partners) for Series B Preferred Stock (but only if the
exchange in whole may be accomplished consistently with the ownership
limitations set forth under Article IV of the Charter as supplemented by Section
7 of those certain Articles Supplementary designating the Series B Preferred
Stock, executed by the Company as of April 29, 1999 (the "Series B Preferred
Articles Supplementary"), taking into account exceptions thereto and the
provisions of Section 9(a)(v) hereof) if at any time, (i) the Partnership
reasonably determines that the assets and income of the Partnership for a
taxable year after 1999 would not satisfy the income and assets tests of Section
856 of the Code for such taxable year if the Partnership were a real estate
investment trust within the meaning of the Code or (ii) any holder of Series B
Preferred Units shall deliver to the Partnership and the General Partner an
opinion of independent counsel based upon information referred to in paragraph
4(f)(iii) of the Contribution Agreement or information contained in the General
Partner's publicly filed documents and which opinion is acceptable to the
General Partner in its reasonable discretion to the effect that, based on the
assets and income of the Partnership for a taxable year after 1999, the
Partnership would not satisfy the income and assets tests of Section 856 of the
Code for such taxable year if the Partnership were a real estate investment
trust within the meaning of the Code and that such failure would create a
meaningful risk that a holder of the Series B Preferred Units would fail to
maintain qualification as a real estate investment trust.
(ii) Notwithstanding anything to the contrary set forth in
Section 9(a)(i) hereof, if an Exchange Notice has been delivered to the General
Partner, then the General Partner may, at its option, elect to redeem or cause
the Partnership to redeem all or a portion of the outstanding Series B Preferred
Units for cash in an amount equal to the original Capital Contribution per
Series B Preferred Units to be redeemed and all accrued and unpaid distributions
thereon to the date of redemption. The General Partner may exercise its option
to redeem the Series B Preferred Units for cash pursuant to this Section
9(a)(ii) by giving each holder of record of Series B Preferred Units notice of
its election to redeem for cash, within
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ten (10) Business Days after receipt of the Exchange Notice, by (m) fax, and (n)
registered mail, postage paid, at the address of each such holder as it may
appear on the records of the Partnership stating (A) the redemption date, which
shall be no later than sixty (60) days following the receipt of the Exchange
Notice, (B) the redemption price, (C) the place or places where the Series B
Preferred Units are to be surrendered for payment of the redemption price, (D)
that distributions on the Series B Preferred Units will cease to accrue on such
redemption date; (E) that payment of the redemption price will be made upon
presentation and surrender of the Series B Preferred Units and (F) the aggregate
number of Series B Preferred Units to be redeemed, and if fewer than all of the
outstanding Series B Preferred Units are to be redeemed, the number of Series B
Preferred Units to be redeemed held by such holder, which number shall equal
such holder's pro-rata share (based on the percentage of the aggregate number of
outstanding Series B Preferred Units the total number of Series B Preferred
Units held by such holder represents) of the aggregate number of Series B
Preferred Units being redeemed.
(iii) In the event an exchange of all or a portion of Series B
Preferred Units pursuant to Section 9(a)(i) hereof would violate the provisions
on ownership limitation of the Company set forth in Article IV of the Charter as
supplemented by Section 7 of the Series B Preferred Articles Supplementary, the
General Partner shall give written notice thereof to each holder of record of
Series B Preferred Units that delivers an Exchange Notice, within ten (10)
Business Days following receipt of the Exchange Notice, by (m) fax, and (n)
registered mail, postage prepaid, at the address of each such holder set forth
in the records of the Partnership. In such event, each such holder of Series B
Preferred Units shall be entitled to exchange, pursuant to the provisions of
Section 9(b) hereof a number of Series B Preferred Units which would comply with
the provisions on the ownership limitation of the Company set forth in such
Article IV of the Charter as supplemented by Section 7 of the Series B Preferred
Articles Supplementary (taking into account any waiver granted pursuant to the
provisions of subsection (v) below) and any Series B Preferred Units held by a
Partner that are not so exchangeable (the "Excess Units") shall, if the same are
not the result of an exchange permitted solely by virtue of the exchange rights
set forth in Sections 9(a)(i)(A), 9(a)(i)(B)(z) (but only to the extent the
Partnership has become a PTP and (i) the obligations of the holders of Series B
Preferred Units pursuant to Section 8 hereof have been breached or (ii) the
representations of the New Partners in the Contribution Agreement that they are
qualified to be taxable as REITs have been breached and such breach has caused
the number of Look-Through Partners who hold Series B Preferred Units to exceed
20) or 9(a)(i)(C) hereof, be redeemed by the Partnership for cash in an amount
equal to the original Capital Contribution per Excess Unit, plus any accrued and
unpaid distributions thereon, whether or not declared, to the date of
redemption. The written notice of the General Partner shall state (A) the number
of Excess Units held by such holder, (B) the redemption price of the Excess
Units, (C) the date on which such Excess Units shall be redeemed, which date
shall be no later than sixty (60) days following the receipt of the Exchange
Notice, (D) the place or places where such Excess Units are to be surrendered
for payment of the Redemption Price, (E) that distributions on the Excess Units
will cease to accrue on such redemption date, and (F) that payment of the
redemption price will be made upon presentation and surrender of such Excess
Units.
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(iv) The redemption of Series B Preferred Units described in
Sections 9(a)(ii) and 9(a)(iii) hereof shall be subject to the provisions of
Sections 6(b)(i) and Section 6(c)(ii) hereof; provided, however, that the term
"redemption price" in such Section shall be read to mean the original Capital
Contribution per Series B Preferred Unit being redeemed plus all accrued and
unpaid distributions to the redemption date.
(v) Notwithstanding anything to the contrary set forth
hereinabove, (A) no amount of Series B Preferred Units held by any holder and
tendered for exchange at any time will be exchangeable hereunder for Series B
Preferred Stock to the extent the exchange of such amount of Series B Preferred
Units would cause such holder of such Series B Preferred Units, after giving
effect to such exchange, to violate the limitations set forth in Section 4.2 of
the Charter, as supplemented by Section 7 of the Series B Preferred Articles
Supplementary; provided, however, that the Company will waive such limitation
and the limitations set forth in Section 4.2 of the Charter, as supplemented by
Section 7 of the Series B Preferred Articles Supplementary with respect to any
Partner, if (1) such Partner demonstrates to the Company's reasonable
satisfaction that the exchange of such Series B Preferred Units would not cause
the Company to fail to satisfy the requirements of Section 856(a)(6) and 856(h)
of the Code assuming [a] that there were no outstanding stock of any other class
of the Company and [b] such determination were made during the last half of the
Company's taxable year and (2) such waiver and exchange would not jeopardize the
REIT status of the Company (including, but not limited to, by taking into
account all beneficial and constructive ownership in the Company of such
Partner) or cause it to incur income which would fail to qualify as rents from
real property pursuant to 856(d)(2)(B) of the Code, and (3) such waiver and
exchange is not inconsistent with its fiduciary duties to all of its
shareholders and the Limited Partners, including the holders of the Series B
Preferred Units and the holders of Series B Preferred Stock; provided, however,
that notwithstanding anything to the contrary set forth in the foregoing, and
without limiting the foregoing, if the criteria set forth in the preceding
clauses (1) and (2) are satisfied with respect to a proposed exchange by a New
Partner or New Partner Affiliate, such waiver and exchange shall be deemed to be
not inconsistent with the fiduciary duties set forth above; and (B) at no time
may exchange rights be exercised for fewer than 850,000 Series B Preferred
Units, unless the total number of outstanding Series B Preferred Units not
previously surrendered shall be less than 850,000 at such time, in which case
exchange rights may be exercised for no fewer than all such outstanding Series B
Preferred Units, subject, in any event, to the provisions in the foregoing
clause (A).
(b) Procedure for Exchange. (i) Any exchange shall be exercised pursuant
to a notice of exchange (the "Exchange Notice") delivered to the General Partner
by the holder who is exercising such exchange right, by (y) fax and (z) by
certified mail postage prepaid. Except as otherwise provided in Sections
9(a)(ii) and 9(a)(iii) hereof, the General Partner and the Partnership shall
effect any exchange of Series B Preferred Units by delivering to each holder of
record of Series B Preferred Units, within ten (10) Business Days following
receipt of the Exchange Notice, (A) certificates representing the Series B
Preferred Stock being issued in exchange for the Series B Preferred Units of
such holder being exchanged and (B) a written
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notice stating (1) the exchange date, which may be the date of such written
notice or any other date which is not later than fifteen (15) Business Days
following the receipt of the Exchange Notice, (2) the Series B Exchange Price,
and (3) that distributions on the Series B Preferred Units will cease to accrue
on such exchange date. As a condition to the exchange, the General Partner may
require the holders of Series B Preferred Units to make such representations as
may be reasonably necessary for the General Partner to establish that the
issuance of Series B Preferred Stock pursuant to the exchange shall not be
required to be registered under the Securities Act of 1933, as amended, or any
state securities laws. Any shares of Series B Preferred Stock issued pursuant to
this Section 9 shall be duly authorized, validly issued, fully paid and
nonassessable, and shall be delivered free of any pledge, lien, encumbrance or
restriction other than those provided in the Charter, the Bylaws of the Company,
the Securities Act of 1933, as amended and relevant state securities or blue sky
laws or created by the exchanging holder of Series B Preferred Units. Each
Series B Preferred Unit exchanged hereunder for a share of Series B Preferred
Stock shall be transferred to and acquired by the General Partner and shall not
be canceled or redeemed while such share of Series B Preferred Stock is
outstanding.
The certificates representing the Series B Preferred Shares
issued upon exchange of the Series B Preferred Units shall contain the following
legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT (A) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT") OR (B) IF THE CORPORATION HAS BEEN
FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE
HOLDER OF THE SHARES REPRESENTED HEREBY, OR OTHER EVIDENCE
SATISFACTORY TO THE CORPORATION, THAT SUCH TRANSFER, SALE,
ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS
EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE
RULES AND REGULATIONS THEREUNDER.
(ii) In the event of an exchange of Series B Preferred Units for
shares of Series B Preferred Stock, an amount equal to the accrued and unpaid
distributions, whether or not declared, to the date of exchange on any Series B
Preferred Units tendered for exchange shall continue to accrue on such Series B
Preferred Units, which shall remain outstanding following such exchange, with
the General Partner as the holder of such Series B Preferred Units.
Notwithstanding anything to the contrary set forth herein, in no event shall a
holder of a Series B Preferred Unit that was validly exchanged into Series B
Preferred Stock pursuant to
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<PAGE>
this section (other than the General Partner now holding such Series B Preferred
Unit), be entitled to receive a distribution out of Available Cash with respect
to such exchanged Unit, if such holder, after such exchange, is entitled to
receive a distribution from the Company with respect to the share of Series B
Preferred Stock for which such Series B Preferred Unit was exchanged or
redeemed.
(iii) Fractional shares of Series B Preferred Stock shall not to
be issued upon any exchange hereunder but, in lieu thereof, the General Partner
will pay a cash adjustment based upon the fair market value of the Series B
Preferred Stock on the day prior to the exchange date as determined in good
faith by the Board of Directors of the General Partner.
(c) Adjustment of Exchange Price. (i) The Series B Exchange Price is
subject to adjustment upon certain events, including, (a) subdivisions,
combinations and reclassifications of the Series B Preferred Stock, and (b)
distributions to all holders of Series B Preferred Stock of evidences of
indebtedness of the Company or assets (including securities, but excluding
dividends and distributions paid in cash out of equity applicable to Series B
Preferred Stock).
(ii) In case the General Partner shall be a party to any
transaction (including, without limitation, a merger, consolidation, statutory
share exchange, tender offer for all or substantially all of the General
Partner's capital stock or sale of all or substantially all of the General
Partner's assets), in each case as a result of which the Series B Preferred
Stock will be converted into the right to receive shares of capital stock, other
securities or other property (including cash or any combination thereof), each
Series B Preferred Unit will thereafter be exchangeable into the kind and amount
of shares of capital stock and other securities and property receivable
(including cash or any combination thereof) upon the consummation of such
transaction by a Partner holding that number of shares of Series B Preferred
Stock or fraction thereof into which one Series B Preferred Unit was
exchangeable immediately prior to such transaction. The General Partner may not
become a party to any such transaction unless the terms thereof are consistent
with the foregoing. In the event of any conflict between the provisions of this
Section 9(c)(ii) and Sections 7.3 or 14.1 or Article 16 of the Agreement, the
provisions of this Section 9(c)(ii) shall control.
SECTION 10. No Conversion Rights. The holders of the Series B
Preferred Units shall not have any rights to convert such shares into shares of
any other class or series of stock or into any other securities of, or interest
in, the Partnership.
SECTION 11. No Sinking Fund. No sinking fund shall be established
for the retirement or redemption of Series B Preferred Units.
SECTION 12. No Preemptive or Other Rights. The holders of Series
B Preferred Units shall have no preemptive rights, including preemptive rights
with respect to any Units or other Partnership Interest of the Partnership
convertible into or carrying rights or
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<PAGE>
options to purchase any such Series B Preferred Units and including the
provisions of Section 4.4 of the Agreement.
[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-03
CUSIP: 86623XAC7
SUMMIT PROPERTIES PARTNERSHIP, L.P.
MEDIUM-TERM NOTE
(Fixed Rate)
ORIGINAL ISSUE DATE: 3/23/99 INTEREST RATE: 7.59% STATED MATURITY
INTEREST PAYMENT DATE(S): DEFAULT RATE: N/A DATE: 3/16/2009
9/16 and 3/16
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: %
REPAYMENT PRICE: N/A
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<PAGE>
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, 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
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<PAGE>
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 pro- visions) 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 payment was due, and no interest shall
accrue with respect to such payment for the period from
3
<PAGE>
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>
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
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<PAGE>
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>
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: March 23, 1999 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: March 23, 1999 FIRST UNION NATIONAL BANK,
as Trustee
By:/s/ Shannon Schwartz
-------------------------
Authorized Signatory
7
<PAGE>
[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>
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>
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>
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>
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>
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>
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
EXHIBIT 12.1
SUMMIT PROPERTIES PARTNERSHIP, L.P.
CALCULATION OF RATIOS OF EARNINGS TO FIXED CHARGES
THREE MONTHS ENDED MARCH 31, 1999
(Dollars In Thousands)
Funds from operations before fixed charges:
Income (loss) $8,999
Interest:
Expense incurred 10,254
Amortization of deferred financing costs 243
------------
Total $19,496
============
Fixed charges:
Interest expense $10,254
Interest capitalized 1,768
Rental fixed charges 41
Amortization of deferred financing costs 243
------------
Total $12,306
============
Ratio of earnings to fixed charges $1.58
============
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1.00
<CASH> 3,473
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,242,564
<DEPRECIATION> 123,354
<TOTAL-ASSETS> 1,203,453
<CURRENT-LIABILITIES> 0
<BONDS> 741,966
0
0
<COMMON> 0
<OTHER-SE> 419,463
<TOTAL-LIABILITY-AND-EQUITY> 1,203,453
<SALES> 42,055
<TOTAL-REVENUES> 43,149
<CGS> 0
<TOTAL-COSTS> 14,320
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,497
<INCOME-PRETAX> 8,999
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,999
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,999
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
