<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Period Ended MARCH 31, 1997.
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to .
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Commission File Number: 0-22569
IRVINE APARTMENT COMMUNITIES, L.P.
----------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 33-0587829
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(State of incorporation) (I.R.S. Employer Identification Number)
550 Newport Center Drive, Suite 300, Newport Beach, California, 92660
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(Address of principal executive offices)
(714) 720-5500
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter time as required), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of units outstanding of each of the issuer's classes of
partnership interest, as of the latest practical date. Units of Partnership
Interest - 43,863,612 units as of April 25, 1997.
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<PAGE> 2
IRVINE APARTMENT COMMUNITIES, L.P.
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1997
and December 31, 1996 1
Consolidated Statements of Operations for the three months
ended March 31, 1997 and 1996 2
Consolidated Statements of Changes in Partners' Capital
for the three months ended March 31, 1997 and 1996 3
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Unitholders 17
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1.
Irvine Apartment Communities, L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
(in thousands, except per share amounts) 1997 1996
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (unaudited)
Real estate assets, at cost
Land $ 178,808 $ 176,070
Buildings and improvements 868,352 849,924
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1,047,160 1,025,994
Accumulated depreciation (225,890) (219,193)
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821,270 806,801
Under development, including land 74,925 58,241
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896,195 865,042
Cash and cash equivalents 30,283 3,205
Restricted cash 1,459 1,376
Deferred financing costs, net 19,537 20,187
Other assets 13,287 11,188
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$ 960,761 $ 900,998
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LIABILITIES
Mortgages and notes payable
Line of credit $ 16,000
Tax-exempt mortgage bond financings $ 328,372 329,248
Conventional mortgage financings 134,150 134,761
Mortgage notes payable to The Irvine Company 51,023 51,227
Tax-exempt assessment district debt 21,793 21,828
- - ---------------------------------------------------------------------------------------------------------------------------------
535,338 553,064
Accounts payable and accrued liabilities 22,355 21,496
Security deposits 6,412 6,094
- - ---------------------------------------------------------------------------------------------------------------------------------
564,105 580,654
PARTNERS' CAPITAL
43,864 partnership units outstanding at March 31, 1997 and 40,848 at December
31, 1996
General partner, 19,783 partnership units at March 31, 1997 and 18,556 at December 31, 1996 210,294 180,017
Limited partners, 24,081 partnership units at March 31, 1997 and 22,292 at December 31, 1996 186,362 140,327
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396,656 320,344
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$ 960,761 $ 900,998
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</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
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Irvine Apartment Communities, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
(unaudited, in thousands, except per share amounts) 1997 1996
- - ----------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Rental income $42,092 $36,418
Other income 940 568
Interest income 248 103
- - ----------------------------------------------------------------------------------------
43,280 37,089
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EXPENSES
Property expenses 9,186 7,805
Real estate taxes 3,465 3,369
Property management fees 1,215 1,063
Interest expense, net 6,861 7,302
Amortization of deferred financing costs 649 662
Depreciation and amortization 6,751 6,618
General and administrative 1,634 1,582
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29,761 28,401
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NET INCOME $13,519 $ 8,688
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ALLOCATION OF NET INCOME:
General Partner $ 6,111 $ 3,947
Limited Partners $ 7,408 $ 4,741
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PARTNERSHIP UNIT DATA:
Weighted average number of partnership units outstanding 42,230 37,383
Net income per unit $ 0.32 $ 0.23
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</TABLE>
See accompanying notes.
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Irvine Apartment Communities, L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Irvine Apartment
(unaudited, in thousands) Communities, Inc. Limited Partners Total
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PARTNERS' CAPITAL
Balance at January 1, 1996 $ 155,433 $ 109,133 $ 264,566
Net income 3,947 4,741 8,688
Contributions 200 572 772
Distributions (6,026) (7,241) (13,267)
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Balance at March 31, 1996 $ 153,554 $ 107,205 $ 260,759
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Balance at January 1, 1997 $ 180,017 $ 140,327 $ 320,344
Net income 6,111 7,408 13,519
Contributions 30,944 46,906 77,850
Distributions (6,778) (8,279) (15,057)
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Balance at March 31, 1997 $ 210,294 $ 186,362 $ 396,656
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PARTNERSHIP UNITS OUTSTANDING
Balance at January 1, 1996 16,975 20,397 37,372
Additional partnership units issued 10 28 38
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Balance at March 31, 1996 16,985 20,425 37,410
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Balance at January 1, 1997 18,556 22,292 40,848
Additional partnership units issued 1,227 1,789 3,016
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Balance at March 31, 1997 19,783 24,081 43,864
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</TABLE>
See accompanying notes.
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<PAGE> 6
Irvine Apartment Communities, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
(unaudited, in thousands) 1997 1996
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 13,519 $ 8,688
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred financing costs 649 662
Depreciation and amortization 6,751 6,618
Increase (decrease) in cash attributable to changes in assets and
liabilities:
Restricted cash (83) (4)
Other assets (2,178) (131)
Accounts payable and accrued liabilities 2,225 3,268
Security deposits 318 281
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Net Cash Provided by Operating Activities 21,201 19,382
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital improvements to operating real estate assets (473) (634)
Investment in real estate assets, net of construction payables (28,493) (13,193)
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Net Cash Used in Investing Activities (28,966) (13,827)
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CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under lines of credit 5,000 26,100
Payments on lines of credit (21,000) (18,100)
Payments on tax-exempt mortgage bond financings (876) (816)
Principal payments (848) (784)
Contributions from partners 67,624
Distributions to partners (15,057) (13,267)
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Net Cash Provided by (Used in) Financing Activities 34,843 (6,867)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 27,078 (1,312)
Cash and Cash Equivalents at Beginning of Period 3,205 4,392
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 30,283 $ 3,080
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Supplemental Disclosure of Cash Flow Information
Interest paid, net of amounts capitalized $ 6,974 $ 7,399
Tax-exempt assessment district debt assumed $ 0 $ 2,771
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</TABLE>
See accompanying notes.
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IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, IN THOUSANDS EXCEPT FOR PER UNIT AMOUNTS)
NOTE 1 - ORGANIZATION
Irvine Apartment Communities, L.P., a Delaware limited partnership (the
"Partnership"), was formed on November 15, 1993. In connection with an initial
public offering of common shares on December 8, 1993, Irvine Apartment
Communities, Inc. (the "General Partner") obtained a general partnership
interest in and became the sole managing general partner of the Partnership. The
Irvine Company transferred 42 apartment communities and a 99% interest in a
limited partnership which owns one apartment community to the Partnership. At
March 31, 1997, Irvine Apartment Communities, Inc. had a 45.1% general
partnership interest and The Irvine Company had a 54.7% limited partnership
interest in the Partnership. On February 4, 1997, the Partnership acquired the
assets of Thompson Residential Company, Inc. (see Note 4). The purchase price
was paid by the issuance of 74,523 partnership units in the Partnership. At
March 31, 1997, Thompson Residential Company, Inc. had a 0.2% limited
partnership interest in the Partnership. The Partnership's management and
operating decisions are under the unilateral control of the General Partner.
The Partnership owns, operates and develops apartment communities in Orange
County, California and beginning in 1997, other locations in California. The
Partnership utilizes independent third party property management and
construction management firms. As of March 31, 1997 the Partnership owned 53
apartment communities on the Irvine Ranch representing 13,843 operating
apartment units and 993 units under construction (collectively, the
"Properties"). The Partnership broke ground on its first "off-Ranch" apartment
community, located in Northern California's Silicon Valley, in May 1997. Until
July 31, 2020, the Partnership has the exclusive right, but not the obligation,
to acquire land from The Irvine Company for development of additional apartment
communities on the Irvine Ranch.
NOTE 2 - BASIS OF PRESENTATION
Profits and losses are generally allocated to the General Partner and to the
limited partners based upon their respective ownership interests in the
Partnership. Under the terms of the partnership agreement, all costs incurred by
the General Partner relating to the ownership of interest in and operation of
the Partnership, including the compensation of its officers and employees, stock
incentive plans, director fees and the costs and expenses of being a public
company, are paid by the Partnership. In addition, The Irvine Company has the
right, but not the obligation, to match on the same terms and conditions any
capital contributions made by the General Partner based on the pro rata
ownership interest at the time of such contribution.
The accompanying financial statements include the consolidated accounts of the
Partnership and its financially controlled subsidiary. All intercompany accounts
and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. 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 considered
necessary for a fair presentation have been included. Operating results for the
three months ended March 31, 1997 are not necessarily indicative of the results
that may be expected for the year ending
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<PAGE> 8
December 31, 1997. These financial statements should be read in conjunction with
the Consolidated Financial Statements and Notes thereto included in the
Partnership's Registration Statement on Form 10 filed on May 14, 1997.
NOTE 3 - PARTNERS' CAPITAL
On February 20, 1997 the General Partner sold, pursuant to its shelf
registration statement filed on May 8, 1995, 1.15 million shares of common stock
at $27.50 per share. Concurrently, The Irvine Company (see Note 5), pursuant to
its rights under the partnership agreement, purchased 1.39 million additional
partnership units at $26.06 per unit (which is equal to the public offering
price of the General Partner's common stock less an amount equivalent to the
underwriting discount) which are exchangeable for the General Partner's common
stock on a one for one basis, subject to adjustment and certain limitations. The
proceeds from the two transactions totaled $66 million and were used to repay
all indebtedness outstanding under the revolving line of credit, and will be
used for general corporate purposes, including ongoing development activities on
and off the Irvine Ranch. Availability under the General Partner's shelf
registration statement filed on May 8, 1995 was approximately $99 million at
March 31, 1997.
On May 14, 1997 the General Partner filed a shelf registration statement with
the Securities and Exchange Commission providing for the issuance from time to
time of up to $350 million of common stock, preferred stock, debt securities,
and warrants to purchase common stock, preferred stock and debt securities. This
registration statement replaced the General Partner's previous registration
statement. The General Partner plans to use the proceeds raised from any
securities issued under the shelf registration for general corporate purposes,
including the development of new apartment communities, acquisitions and the
repayment of existing debt. Concurrently, the Partnership filed a shelf
registration statement with the Securities and Exchange Commission providing for
the issuance from time to time of up to $350 million of debt securities. The
Partnership plans to use the proceeds raised from any securities issued under
the shelf registration for general corporate purposes, including the development
of new apartment communities, acquisitions and the repayment of existing debt.
The Partnership paid cash distributions of $0.365 per partnership unit on
February 28, 1997. On April 25, 1997 the Partnership declared a cash
distribution of $0.365 per partnership unit that is payable on May 30, 1997.
During the first quarter of 1996, the Partnership paid a cash distribution of
$0.355 per partnership unit.
RECONCILIATION OF PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
( in thousands) Three Months Ended March 31, 1997 Three Months Ended March 31, 1996
- - ----------------------------------------------------------------------------------------------------------------------
Irvine Irvine
Apartment Apartment The
Communities, The Irvine Communities, Irvine
Inc. Company Other Total Inc. Company Total
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period 18,556 22,292 40,848 16,975 20,397 37,372
Stock awards issued and options exercised 72 72 10 10
Dividend reinvestment plan 5 7 12
Common stock offering and related cash
contribution from The Irvine Company 1,150 1,394 2,544
Acquisition of Thompson Residential
assets 75 75
Contributions of property by The Irvine
Company 313 313 28 28
- - ----------------------------------------------------------------------------------------------------------------------
Balance at end of period 19,783 24,006 75 43,864 16,985 20,425 37,410
- - ----------------------------------------------------------------------------------------------------------------------
Ownership interest at end of period 45.1% 54.7% 0.2% 100% 45.4% 54.6% 100%
- - ----------------------------------------------------------------------------------------------------------------------
</TABLE>
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NET INCOME ALLOCATION
<TABLE>
<CAPTION>
Three Months Ended March 31,
(in thousands) 1997 1996
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income allocated to The Irvine Company based on its $ 7,392 $4,741
ownership interest
Income allocated to Thompson Residential Company, Inc.
based on its ownership interest 16
Income allocated to Irvine Apartment Communities, Inc.
based on its ownership interest 6,111 3,947
- - ---------------------------------------------------------------------------------------------------------------------
Net Income $13,519 $8,688
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 4 - ACQUISITION OF THOMPSON RESIDENTIAL ASSETS
On February 4, 1997, the Partnership acquired for $2 million the assets of
Thompson Residential Company, Inc. ("TRC"), a privately held, Northern
California-based multi-family development company. Included in the purchase were
options to purchase three development sites located in Northern California's
Silicon Valley. The purchase price was paid by the issuance of 74,523
partnership units in the Partnership, exchangeable for common stock of the
General Partner, with the price per unit based on the average closing price of
the General Partner's common stock for the 10 trading days preceding the
acquisition's closing date. In addition, TRC may be paid up to an additional $2
million in cash or limited partnership units if the apartment community achieves
certain performance targets. The three senior real estate executives at TRC have
also joined the General Partner with primary responsibility for the
Partnership's California operations outside of the Irvine Ranch.
NOTE 5 - CERTAIN TRANSACTIONS WITH RELATED PARTIES
Substantially all costs incurred by the General Partner are borne by the
Partnership. Included in general and administrative expenses are charges from
The Irvine Company pursuant to an administrative service agreement covering
services for risk management, income taxes and other services of $29 for the
three months ended March 31, 1997 and $28 for the three months ended March 31,
1996. The Irvine Company and the Partnership jointly purchase employee health
care insurance and property and casualty insurance. In addition, the Partnership
incurred rent totaling $120 and $85 for the three months ended March 31, 1997
and 1996, respectively, related to leases with The Irvine Company that expire in
1997 and 1998. For the three months ended March 31, 1997 The Irvine Company
contributed $164, or the maximum allowable in connection with stock issuances
under the dividend reinvestment and additional cash investment plan.
On February 10, 1997, the Partnership acquired a land site for $8.4 million from
The Irvine Company for the development of 316 rental units pursuant to the Land
Rights Agreement between the Partnership and The Irvine Company. The General
Partner's board committee of independent directors approved the purchase in
accordance with the Land Rights Agreement. The purchase price was paid through
the issuance of 313,439 additional limited partnership units in the Partnership
to The Irvine Company. Pursuant to the terms of the acquisition, a portion of
the limited partnership units in the Partnership are subject to forfeiture if
the apartment community to be constructed on the site does not achieve a 10%
unleveraged return on costs for the first twelve months following stabilized
occupancy.
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<PAGE> 10
Concurrent with the General Partner's common stock offering on February 20, 1997
(see Note 3), The Irvine Company, pursuant to its rights under the partnership
agreement, purchased 1.39 million partnership units at a price equal to the
public offering price of $26.06 per unit (which is equal to the public offering
price of the General Partner's common stock less an amount equivalent to the
underwriting discount) which are exchangeable for the General Partner's common
stock on a one for one basis, subject to adjustment and certain limitations.
One of the General Partner's directors is chairman of a bank which participates
in the Partnership's line of credit. Based on the bank's percentage
participation in the credit facility, the Partnership estimates that the amount
of interest and fees paid to the bank totaled $46 and $57 in the first quarter
of 1997 and 1996, respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with all the financial
statements appearing elsewhere in this report, as well as the information
presented in the General Partner's Annual Report on Form 10-K for the year ended
December 31, 1996 and the Partnership's Registration Statement on Form 10.
Certain information set forth below is forward looking and involves various
risks and uncertainties. Such information is based upon a number of estimates
and assumptions that inherently are subject to business, economic and
competitive uncertainties and contingencies, many of which are beyond the
Partnership's control.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996.
The Partnership's net income was $13.5 million for the three months ended March
31, 1997, up from $8.7 million for the same period of 1996. The improvement was
due to the contribution of newly delivered rental units from its development
program, as well as an increase in revenues within its stabilized portfolio
achieved through higher occupancy and higher rental rates (see Selected
Operating Data on page 16).
REVENUE AND EXPENSE DATA
<TABLE>
<CAPTION>
Three Months Ended March 31,
(dollars in thousands) 1997 1996
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMUNITIES STABILIZED MORE THAN TWO YEARS
Number of communities 43 43
Number of units at end of period 11,334 11,334
Operating revenues $34,502 $32,495
Property expenses $ 7,823 $ 7,071
Real estate taxes $ 2,732 $ 2,823
Property management fees $ 995 $ 940
Depreciation and amortization of real estate assets $ 5,146 $ 5,163
COMMUNITIES STABILIZED LESS THAN TWO YEARS *
Number of communities 5 5
Number of units at end of period 2,207 1,850
Operating revenues $ 7,666 $4,491
Property expenses $ 1,174 $ 734
Real estate taxes $ 688 $ 546
Property management fees $ 200 $ 123
Depreciation and amortization of real estate assets $ 1,434 $1,439
LEASE-UP COMMUNITIES
Number of communities 2
Number of units at end of period 302
Operating revenues $ 864
Property expenses $ 189
Real estate taxes $ 45
Property management fees $ 20
Depreciation and amortization of real estate assets $ 117
- - -----------------------------------------------------------------------------------------------------------------
</TABLE>
*Represents five communities that began leasing in 1995 and reached stabilized
occupancy (95%) at various dates in 1996.
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OPERATING REVENUES (rental and other income) increased to $43.0 million in the
first quarter of 1997, up from $37.0 million in the same period of 1996.
Operating revenues rose as a result of higher occupancy and rental rates, and
the contribution of newly delivered rental units from five properties which
achieved stabilization during 1996 and two new lease up communities. In total,
these new units added $8.5 million to operating revenues in the first quarter of
1997 compared to $4.5 million in the first quarter of 1996. Within communities
stabilized more than two years, operating revenues increased 6.2% from the first
quarter of 1996, as a result of improvement in average monthly rental rates,
higher non-rental income, and a rise in physical occupancy to 95.1% from 94.3%.
Average monthly rental rates increased to $1,050 in the first quarter of 1997
from $1,000 in the year-earlier quarter. Healthy job growth in the Partnership's
marketplace has been a key factor in the upward trend in rental rates.
PROPERTY EXPENSES increased to $9.2 million in the first quarter of 1997 from
$7.8 million in the first quarter of 1996. This increase reflects the added
expenses of newly delivered rental units from five properties which achieved
stabilization during 1996 and two new lease up communities. Property expenses
within communities stabilized more than two years increased by $0.7 million to
$7.8 million in the first quarter of 1997 from $7.1 million a year ago. In the
first quarter of 1997, average monthly property expenses, increased to $230 per
unit from $208 in the first quarter of 1996. This increase is primarily
attributed to unusually low unit property expenses in the first quarter of 1996
and higher insurance costs in the first quarter of 1997. Properties stabilized
less than two years added $1.2 million to property expenses in the first quarter
of 1997 and $0.7 million a year ago. Lease-up properties added $0.2 million to
1997 first quarter property expenses.
REAL ESTATE TAXES totaled $3.5 million in the first quarter of 1997 compared to
$3.4 million in the first quarter of 1996. Taxes increased in the first quarter
of 1996 due to the addition of rental units from lease-up properties, partially
offset by a small reduction in assessed values.
PROPERTY MANAGEMENT FEES increased to $1.2 million in the first quarter of 1997
from $1.1 million a year ago. Management fees increased in the first quarter of
1997 due to the addition of rental units and an increase in revenue from
communities stabilized more than two years.
NET INTEREST EXPENSE decreased to $6.9 million in the first quarter of 1997 from
$7.3 million in the first quarter of 1996. The decrease was largely due to a
lower level of borrowings from the revolver line of credit. The Partnership
capitalizes interest on projects actively under development using average
qualifying asset balances and applicable weighted average interest rates. The
average monthly qualifying asset balances for projects under development in the
first quarter of 1997 and 1996 were approximately $54.1 million and $52.4
million, respectively. Interest capitalized totaled $1.1 million in the first
quarter of 1997 compared to $1.0 million in the first quarter of 1996. Interest
incurred was $8.0 million in the first quarter of 1997 compared to $8.3 million
in the first quarter of 1996.
AMORTIZATION OF DEFERRED FINANCING COSTS was comparable in the first quarters of
1997 and 1996.
DEPRECIATION AND AMORTIZATION EXPENSE increased to $6.8 million in the first
quarter of 1997, up from $6.6 million in the first quarter of 1996. This
increase reflects the completion and delivery of newly developed rental units
from the Partnership's lease-up properties.
GENERAL AND ADMINISTRATIVE EXPENSE was comparable in the first quarters of 1997
and 1996.
Page 10
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
The Partnership believes that cash provided by operations will be adequate to
meet both operating requirements and payment of distributions by the General
Partner in accordance with REIT requirements in both the short and long term.
LIQUIDITY: The Partnership expects to meet its long-term liquidity requirements,
such as construction, scheduled debt maturities and potential future property
acquisitions, through the issuance or refinancing of long-term debt, borrowings
from financial institutions, or the issuance of additional equity securities of
the General Partner and/or partnership units. On February 20, 1997, the
Partnership increased its unsecured credit facility to $250 million. The
facility bears interest at Eurodollar plus 1.5% and is used primarily to finance
an ongoing rental property development program. Availability under the credit
facility was $250 million on March 31, 1997.
ADDITIONAL EQUITY: On February 20, 1997 the General Partner sold, pursuant to
its shelf registration statement filed on May 8, 1995, 1.15 million shares of
common stock at $27.50 per share. Concurrently, The Irvine Company, pursuant to
its rights under the partnership agreement, purchased 1.39 million additional
partnership units at $26.06 per unit (which is equal to the public offering
price of the common stock less an amount equivalent to the underwriting
discount) which are exchangeable for common stock on a one for one basis,
subject to adjustment and certain limitations. The proceeds from the two
transactions totaled $66 million and were used to repay all indebtedness
outstanding under the revolving line of credit, and will be used for general
corporate purposes, including development of new apartment communities.
Availability under the shelf registration statement filed on May 8, 1995 was
approximately $99 million as of March 31, 1997.
NEW SHELF REGISTRATION STATEMENTS: On May 14, 1997 the General Partner filed a
shelf registration statement with the Securities and Exchange Commission
providing for the issuance from time to time of up to $350 million of common
stock, preferred stock, debt securities, and warrants to purchase common stock,
preferred stock and debt securities. This registration statement replaced the
General Partner's previous registration statement. The General Partner plans to
use the proceeds raised from any securities issued under the shelf registration
for general corporate purposes, including the development of new apartment
communities, acquisitions and the repayment of existing debt. Concurrently, the
Partnership filed a shelf registration statement with the Securities and
Exchange Commission providing for the issuance from time to time of up to $350
million of debt securities. The Partnership plans to use the proceeds raised
from any securities issued under the shelf registration for general corporate
purposes, including the development of new apartment communities, acquisitions
and the repayment of existing debt.
DEBT: The Partnership's conventional and tax-exempt mortgage debt bears interest
at fixed interest rates, or variable rates that have been effectively fixed
through interest rate swap agreements. Interest rates on conventional mortgage
debt were reduced to then-current market rates at the time of the General
Partner's December 1993 initial public offering through interest rate buy-down
agreements that are scheduled to expire at various dates prior to loan maturity.
The weighted average effective interest rate on the Partnership's debt,
including the non-cash charges of amortization of deferred financing costs, was
6.41% at March 31, 1997. The Partnership uses interest rate swap agreements to
effectively convert its floating rate tax-exempt mortgage bond financings to a
fixed-rate basis, thus reducing the impact of fluctuations in interest rates on
future income. A buy-down agreement relating to $36.2 million of conventional
debt will expire in September 1997. Upon expiration, the interest rate on the
loan will increase from 5.82% to 8.3%. At March 31, 1997, the average fixed
interest rate on the tax-exempt mortgage bond financings, after giving effect to
the swap agreements and including all fees, was 5.86% in the first quarter of
1997.
Page 11
<PAGE> 14
DEBT STRUCTURE AT MARCH 31, 1997
<TABLE>
<CAPTION>
Debt Weighted Average
(dollars in millions) Balance Interest Rate
- - -------------------------------------------------------------------------------------
<S> <C> <C>
Fixed rate debt
Conventional mortgage financings $134.1 6.45%
Mortgage notes payable to The Irvine Company 51.0 5.75%
Tax-exempt mortgage bond financings 328.4 5.86%
Tax-exempt assessment district debt 5.6 6.27%
- - -------------------------------------------------------------------------------------
Total fixed rate debt 519.1 6.01%
- - -------------------------------------------------------------------------------------
Variable rate debt
Tax-exempt assessment district debt 16.2 3.41%
- - -------------------------------------------------------------------------------------
Total variable rate debt 16.2 3.41%
- - -------------------------------------------------------------------------------------
Total debt $535.3 5.93%
- - -------------------------------------------------------------------------------------
</TABLE>
OPERATING ACTIVITIES: Cash flow provided by operating activities was $21.2
million for the first quarter of 1997 and $19.4 million for the first quarter of
1996. Cash provided by operating activities increased in 1997 primarily due to
higher revenues from newly developed apartment units, as well as an increase in
revenues within the Partnership's stabilized portfolio achieved through higher
occupancy and higher rental rates.
INVESTING ACTIVITIES: Cash flow used in investing activities was $29.0 million
and $13.8 million in the first quarters of 1997 and 1996, respectively. This
increase resulted from increased development activity in the first quarter of
1997 (see Capital Expenditures below).
FINANCING ACTIVITIES: Cash flow provided by (used in) financing activities was
$34.8 million and ($6.9) million in the first quarters of 1997 and 1996,
respectively. The Partnership received $66 million from the sale of the General
Partner's common stock and the Partnership's partnership units in the first
quarter of 1997. These proceeds were used to pay down borrowings from the lines
of credit. Additionally, the Partnership paid $15.1 million in distributions in
the first quarter of 1997 compared to $13.3 million in the same period of 1996.
DEFERRED FINANCING COSTS
<TABLE>
<CAPTION>
Balance at Weighted Average
(dollars in millions) March 31, 1997 Remaining Term
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest rate buy-downs on
conventional mortgage financings $ 9.5 9.1 yrs
Loan origination costs and other 10.0 25.8 yrs
- - ----------------------------------------------------------------------------------------------------------------
Total $19.5 17.6 yrs
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
CAPITAL EXPENDITURES
CAPITAL EXPENDITURES ON NEW DEVELOPMENT: The Partnership's major cash
requirements in the next twelve months are expected to be for the construction
of new apartment communities and possibly for acquisitions of apartment
communities. Currently, the Partnership has six apartment communities under
development (Baypointe, Santa Maria, The Colony, Santa Rosa II, Santa Fe and The
Hamptons at Cupertino) that will require total expenditures of approximately
$218.1 million, of which $108.0 million had been incurred at March 31, 1997. The
Partnership
Page 12
<PAGE> 15
broke ground on its first "off-Ranch" apartment community, located in Northern
California's Silicon Valley, in May 1997. Initial funding for these developments
is expected to come from the Partnership's unused $250 million unsecured
revolving credit facility. In addition, the Partnership may issue other debt or
equity securities as discussed in the Liquidity section.
LEASE-UP INFORMATION
Status at March 31, 1997
<TABLE>
<CAPTION>
Units
Leased as
Percentage a Percentage
Total Units Percentage Units of Delivered Units of Units
Apartment Community Units Delivered Delivered Occupied Units Occupied Leased Delivered
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Baypointe 300 182 61% 177 97% 218 120%
Santa Maria 227 120 53% 114 95% 135 113%
- - -------------------------------------------------------------------------------------------------------------------
Total 527 302 57% 291 96% 353 117%
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
CONSTRUCTION INFORMATION
<TABLE>
<CAPTION>
Estimated Total
Commencement Initial Estimated
Commencement of Leasing Stabilized Costs
Apartment Community Village, City Units of Construction Activity Occupancy (in millions)
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Baypointe Newport North, Newport Beach 300 11/95 10/96 3Q '97 $ 33.4
Santa Maria Westpark II, Irvine 227 3/96 11/96 3Q '97 24.6
The Colony Newport Center, Newport Beach 245 7/96 4Q '97 1Q '99 42.0
Santa Rosa II Westpark II, Irvine 207 12/96 4Q '97 3Q '98 27.2
Rancho Santa Fe Tustin Ranch, Tustin 316 2/97 4Q '97 1Q '99 39.0
The Hamptons at
Cupertino Cupertino 342 5/97 1Q '98 1Q '99 51.9
- - ------------------------------------------------------------------------------------------------------------------------------
Total 1,637 $218.1
- - ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The timing of future commencement of construction and initial stabilized
occupancy and estimated costs of apartment communities that are in development
are only estimates. Actual results will depend on numerous factors, many of
which are beyond the control of the Partnership. These include the extent and
timing of economic growth in the Partnership's rental markets; future trends in
the pricing of construction materials and labor; entitlement decisions by local
government authorities; changes in interest rate levels; and other changes in
capital markets. No assurance can be given that the timing, or estimates set
forth in the foregoing table will not vary substantially from actual results.
CAPITAL REPLACEMENTS ON STABILIZED PROPERTIES: Expenditures for capital
replacements totaled $0.5 million and $0.6 million in the first quarters of 1997
and 1996, respectively. Average capital replacements per unit for communities
stabilized more than two years decreased to $40 from $54 in the first quarters
of 1997 and 1996, respectively, due to the nature and timing of scheduled
capital programs. Expenditures for capital replacements in 1997 are expected to
be similar to 1996 levels. The Partnership has a policy of capitalizing
expenditures related to asset acquisitions, costs which the value of an existing
asset, or costs which substantially extend in existing asset's useful life.
Capital replacements were as follows:
Page 13
<PAGE> 16
<TABLE>
<CAPTION>
Three Months Ended March 31, 1997
(in thousands, except per unit amounts) Total Per unit
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Carpet replacements $283 $25
Exterior painting, siding and stucco 17 1
Upgrades, renovations and major building items 75 7
Appliances, water heaters and air conditioning 37 3
Roofing, concrete and pavement 4 0
Equipment and other 42 4
- - ----------------------------------------------------------------------------------------------------------------
Total $458 $40
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
The Partnership also plans to incur approximately $5.0 million in capital
expenditures over the next two years at one of its existing apartment
communities, Promontory Point. Management believes that these capital
expenditures will generate additional revenue by enhancing the community's
appeal in the luxury segment of the marketplace.
IRVINE RANCH MASTER PLAN
The Irvine Company is a real estate investment and community development firm
engaged in the long-term development of the Irvine Ranch. The urbanization of
the Irvine Ranch began in the 1960s with the adoption of a comprehensive Master
Plan for future community development which originally constituted a large map
of the Irvine Ranch and a series of supporting maps detailing land uses.
Subsequently, The Irvine Company worked closely with the various local
jurisdictions which govern the Irvine Ranch to adopt general plans for the
future development of their jurisdictions. The Irvine Company's overall Master
Plan was refined to accord with the approved general plans and the residential,
commercial, industrial, environmental and aesthetic balance desired by each
jurisdiction. As a result, today the Master Plan is a compilation of the various
interlocking general plans described above. The Irvine Company continuously
engages in planning activities and the Master Plan refinement process is
ongoing. The Irvine Company works closely with local government representatives,
community residents, the Partnership and other civic and environmental groups to
obtain the necessary local support and entitlement for its developments. The
goal of the Master Plan was and remains to create innovative urban and suburban
environments through the well-planned, coordinated development of residential
communities and employment centers (which include major business and retail
centers, and research and development and industrial parks) as well as civil,
cultural, recreational, educational and other supportive facilities, all with an
emphasis on improving the quality of life and achieving long-term balanced
regional economic growth.
The Irvine Company's land use planning emphasizes market segmentation in order
to ensure adequate and appropriate allocation of land uses which support
sustained growth for the long term. Through careful planning, design and
marketing, The Irvine Company also promotes compatibility and synergy among
properties of the same type in order to maximize the likelihood of success of
new projects, to preserve and build value for existing projects and to build
sustainable long-term market value for homeowners, local merchants and
employers. In accordance with the Master Plan, The Irvine Company has created
numerous villages which are used as micro-planning areas in an effort to
facilitate the desired segmentation of products.
Each village on the Irvine Ranch has a thematic identity which characterizes the
primary features and attributes of the village and helps to identify the target
market for the village's residential product lines. For example, Tustin Ranch,
in the City of Tustin, is a family-oriented village featuring an 18-hole
championship golf course, athletic fields, jogging, hiking and equestrian
trails. Along the ocean is the village of Newport Coast, an upscale community
featuring ocean views and million-dollar custom built homes. The village of
Westpark, in Irvine, caters to young professionals with growing families and
offers the highly renowned public school system and recreational facilities of
the City of Irvine.
Page 14
<PAGE> 17
IMPACT OF INFLATION
The Partnership's business is affected by general economic conditions, including
the impact of inflation and interest rates. Substantially all of the
Partnership's leases allow, at time of renewal, for adjustments in the rent
payable thereunder, and thus may enable the Partnership to seek increases in
rents. Substantially all leases are for a period of one year or less. The
short-term nature of these leases generally serves to minimize the risk to the
Partnership of the adverse effects of inflation. For construction, the
Partnership has entered into various contracts for the development and
construction of new apartment communities. These are fixed-fee contracts and
thus partially insulate the Partnership from inflationary risk.
SUPPLEMENTAL INFORMATION
The following section provides supplemental operating information. The
information is unaudited and is provided as a supplement to the accompanying
financial statements and management's discussion and analysis. It should be read
in conjunction with the Consolidated Financial Statements and Notes thereto
included herein and in the Partnership's Registration Statement on Form 10.
Operating results for the three months ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997.
Page 15
<PAGE> 18
Irvine Apartment Communities, L.P.
SELECTED OPERATING DATA
<TABLE>
<CAPTION>
Three Months Ended March 31,
(unaudited) 1997 1996 Variance
- - --------------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNIT DATA
- - --------------------------------------------------------------------------------------------------------------------------
Average rentable units during the period 13,769 13,028 741
Rentable units at the end of the period 13,843 13,184 659
- - --------------------------------------------------------------------------------------------------------------------------
COMMUNITIES STABILIZED MORE THAN TWO YEARS (a)
- - --------------------------------------------------------------------------------------------------------------------------
Average physical occupancy 95.1% 94.3% 0.8%
Average economic occupancy (b) 93.6% 93.4% 0.2%
Average monthly gross scheduled rent per unit $ 1,050 $ 1,000 $ 50
Average monthly rental income per occupied unit $ 1,041 $ 998 $ 43
- - --------------------------------------------------------------------------------------------------------------------------
COMMUNITIES STABILIZED LESS THAN TWO YEARS (c)
- - --------------------------------------------------------------------------------------------------------------------------
Average physical occupancy 94.0% 59.0%
Average economic occupancy (b) 92.3% 56.2%
Average monthly gross scheduled rent per unit $ 1,232 $ 1,189
Average monthly rental income per occupied unit $ 1,219 $ 1,139
- - --------------------------------------------------------------------------------------------------------------------------
LEASE-UP COMMUNITIES (d)
- - --------------------------------------------------------------------------------------------------------------------------
Operating revenues (rental income and other income) - in thousands $ 864
Units delivered in the period 187
Cumulative units delivered at the end of the period 302
Units occupied at the end of the period 291
Average units occupied during the period 204
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Footnotes:
(a) Financial results are for 43 properties totaling 11,334 units for comparable
periods of 1997 and 1996.
(b) Rental income divided by rental income plus vacant units at market rent.
(c) Financial results are for five properties totaling 2,207 units that achieved
stabilized occupancy during 1996.
(d) Financial results are for two properties that were in the lease-up phase in
1997.
Page 16
<PAGE> 19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
During the first quarter of 1997 the Partnership sold to
affiliates of The Irvine Company the following units of limited
partnership interest ("L.P. units") in the Partnership pursuant
to Section 4(2) of the Securities Act of 1933:
1. an aggregate of 6,221 L.P. units were sold in February
1997 for $163,985 in cash at prices ranging from $26.34
to $26.88 per L.P. unit, in connection with The Irvine
Company's exercise of its proportional purchase rights
with respect to sales of the General Partner's common
stock pursuant to its Dividend Reinvestment and
Additional Cash Investment Plan.
2. 313,439 L.P. units were issued to The Irvine Company on
February 10, 1997 as payment for a land site acquired
for $8.4 million. The number of L.P. units issued was
equal to the purchase price divided by the average of
the closing prices of the General Partner's common
stock for the 10 trading days immediately preceding the
closing date of the acquisition.
3. 1,394,194 L.P. units were sold in February 1997 for
$36.3 million in cash, $26.06 per L.P. unit, in
connection with The Irvine Company's exercise of its
proportional purchase rights with respect to the
General Partner's February 20, 1997 common stock
offering.
In addition, the Partnership issued 74,523 L.P. units to TRC in
connection with the acquisition of the assets of TRC. The number
of L.P. units issued was equal to the purchase price divided by
the average of the closing prices of the General Partner's
common stock for the 10 trading days immediately preceding the
closing date of the acquisition.
Each of the foregoing L.P. units is exchangeable for common
stock of the General Partner on a one-for-one basis, subject to
adjustment and certain limitations set forth in the Amended and
Restated Agreement of Limited Partnership of the Partnership.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF UNITHOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
Page 17
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit No. 27: Financial Data Schedule (only included in
electronically-filed document)
(b) Reports on Form 8-K:
Not applicable.
Page 18
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IRVINE APARTMENT COMMUNITIES, L.P.
By: Irvine Apartment Communities, Inc.,
its sole general partner
Date: June 26, 1997 By: /s/ James E. Mead
--------------------------------------
James E. Mead
Senior Vice President,
Chief Financial Officer and Secretary
By: /s/ Shawn Howie
--------------------------------------
Shawn Howie
Vice President, Corporate Finance and
Controller
(Principal Accounting Officer)
Page 19
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 30,283
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,047,160
<DEPRECIATION> 225,890
<TOTAL-ASSETS> 960,761
<CURRENT-LIABILITIES> 0
<BONDS> 535,338
0
0
<COMMON> 0
<OTHER-SE> 396,656
<TOTAL-LIABILITY-AND-EQUITY> 960,761
<SALES> 0
<TOTAL-REVENUES> 43,280
<CGS> 0
<TOTAL-COSTS> 20,617
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,861
<INCOME-PRETAX> 13,519
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,519
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,519
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
