<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File No. 333-44467-01
ESSEX PORTFOLIO, L.P.
(Exact name of Registrant as specified in its Charter)
<TABLE>
<S> <C> <C>
Maryland 77-0369575
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
925 E. Meadow Drive, Palo Alto, California 94303
(Address of principal executive offices)
(Zip code)
(650) 494-3700
(Registrant's telephone number, including area code)
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 for such shorter period that the Registrant
was required to file such report, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page Number
- ------- ----------- -----------
<S> <C> <C>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements (Unaudited) 3
Consolidated Balance Sheets
as of June 30, 1998 and December 31, 1997 4
Consolidated Statements of Operations
for the three months ended June 30, 1998 and 1997 5
Consolidated Statements of Operations
for the six months ended June 30, 1998 and 1997 6
Consolidated Statements of Partners' Capital for the
six months ended June 30, 1998 and the year ended
December 31, 1997 7
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 1998 and 1997 8
Notes to Consolidated Financial Statements 9
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II: OTHER INFORMATION
Item 2: Changes in Securities and Use of Proceeds 20
Item 6: Exhibits and Reports on Form 8-K 21
Signatures 22
</TABLE>
Page 2 of 22
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)
Essex Portfolio, L.P., a California limited partnership, (the
"Operating Partnership") effectively holds the assets and liabilities
and conducts the operating activities of Essex Property Trust, Inc.,
("Essex" or "The Company"). Essex Property Trust, Inc., a real estate
investment trust incorporated in the State of Maryland, is the sole
general partner of the Operating Partnership.
The information furnished in the accompanying consolidated unaudited
balance sheets, statements of operations, partners' capital and cash
flows of the Operating Partnership reflects all adjustments which are,
in the opinion of management, necessary for a fair presentation of the
aforementioned financial statements for the interim periods.
The accompanying unaudited financial statements should be read in
conjunction with the notes to such financial statements and
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Page 3 of 22
<PAGE> 4
ESSEX PORTFOLIO, L.P.
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
Assets 1998 1997
------ ---------- ------------
<S> <C> <C>
Real estate:
Rental properties:
Land and land improvements $ 219,004 $ 182,416
Buildings and improvements 652,593 548,571
--------- ---------
871,597 730,987
Less accumulated depreciation (66,866) (58,040)
--------- ---------
804,731 672,947
Investments 9,746 2,347
Real estate under development 30,547 27,422
--------- ---------
845,024 702,716
Cash and cash equivalents-unrestricted 4,973 4,282
Restricted cash 14,979 6,093
Notes and other related party receivables 10,813 9,264
Notes and other receivables 9,927 8,602
Prepaid expenses and other assets 12,518 3,838
Deferred charges, net 5,581 4,040
--------- ---------
$ 903,815 $ 738,835
========= =========
Liabilities and Partners' Capital
Mortgage notes payable $ 298,867 $ 248,997
Lines of credit 43,672 27,600
Accounts payable and accrued liabilities 36,038 21,337
Distributions payable 11,799 9,189
Deferred gain 5,002 --
Other liabilities 5,171 4,208
--------- ---------
Total liabilities 400,549 311,331
Minority interests 3,027 3,102
Partners' capital:
General Partner:
Common equity 359,507 361,410
Preferred equity 37,505 37,505
--------- ---------
397,012 398,915
Limited Partners:
Common equity 25,452 25,487
Preferred equity 77,775 --
--------- ---------
Total partners' capital 500,239 424,402
--------- ---------
Total liabilities and partners' capital $ 903,815 $ 738,835
========= =========
</TABLE>
See accompanying notes to the consolidated unaudited financial statements.
Page 4 of 22
<PAGE> 5
ESSEX PORTFOLIO, L.P.
Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per unit amounts)
<TABLE>
<CAPTION>
Three months ended
-------------------------------
June 30, June 30,
1998 1997
------------ ------------
<S> <C> <C>
Revenues:
Rental $ 30,273 $ 18,353
Interest and other income 1,411 1,227
------------ ------------
31,684 19,580
------------ ------------
Expenses:
Property operating expenses:
Maintenance and repairs 2,460 1,593
Real estate taxes 2,231 1,480
Utilities 1,891 1,142
Administrative 2,230 1,200
Advertising 470 282
Insurance 335 226
Depreciation and amortization 5,632 3,220
------------ ------------
15,249 9,143
------------ ------------
Interest 5,217 2,867
Amortization of deferred financing costs 197 128
General and administrative 1,016 535
------------ ------------
Total expenses 21,679 12,673
------------ ------------
Income before gain on sale of real estate,
minority interests and extraordinary item 10,005 6,907
Gain on sales of real estate -- 414
------------ ------------
Income before minority interests and
extraordinary item 10,005 7,321
Minority interests (121) (103)
------------ ------------
Income before extraordinary item 9,884 7,218
Extraordinary item:
Loss on early extinguishment of debt -- (104)
------------ ------------
Net income 9,884 7,114
Distributions on preferred units (2,367) (491)
------------ ------------
Net income available to common units $ 7,517 $ 6,623
============ ============
Per Operating Partnership Unit data:
Basic:
Income before extraordinary item $ 0.41 $ 0.44
Extraordinary item - debt extinguishment 0.00 (0.01)
------------ ------------
Net income $ 0.41 $ 0.43
============ ============
Weighted average number of partnership
units outstanding during the period 18,506,034 15,393,186
============ ============
Diluted:
Income before extraordinary item $ 0.40 $ 0.43
Extraordinary item - debt extinguishment 0.00 (0.01)
------------ ------------
Net income $ 0.40 $ 0.42
============ ============
Weighted average number of partnership
units outstanding during the period 18,721,303 15,583,794
============ ============
Distributions per Operating Partnership Unit: $ 0.500 $ 0.435
============ ============
</TABLE>
See accompanying notes to the consolidated unaudited financial statements.
Page 5 of 22
<PAGE> 6
ESSEX PORTFOLIO, L.P.
Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per unit amounts)
<TABLE>
<CAPTION>
Six months ended
---------------------------------
June 30, June 30,
1998 1997
------------ -------------
<S> <C> <C>
Revenues:
Rental $ 56,803 $ 35,709
Interest and other income 2,717 2,422
------------ ------------
59,520 38,131
------------ ------------
Expenses:
Property operating expenses
Maintenance and repairs 4,728 3,087
Real estate taxes 4,418 2,902
Utilities 3,608 2,280
Administrative 4,133 2,352
Advertising 848 552
Insurance 635 464
Depreciation and amortization 10,301 6,308
------------ ------------
28,671 17,945
------------ ------------
Interest 9,014 6,230
Amortization of deferred financing costs 341 255
General and administrative 1,834 1,051
------------ ------------
Total expenses 39,860 25,481
------------ ------------
Income before gain on sales of real estate,
minority interests and extraordinary item 19,660 12,650
Gain on sales of real estate -- 414
------------ ------------
Income before minority interests and
extraordinary item 19,660 13,064
Minority interests (230) (198)
------------ ------------
Income before extraordinary item 19,430 12,866
Extraordinary item:
Loss on early extinguishment of debt -- (104)
------------ ------------
Net income 19,430 12,762
Distributions on preferred units (3,964) (929)
------------ ------------
Net income available to common units $ 15,466 $ 11,833
============ ============
Per Operating Partnership Unit data:
Basic:
Income before extraordinary item $ 0.84 $ 0.83
Extraordinary item - debt extinguishment 0.00 (0.01)
------------ ------------
Net income $ 0.84 $ 0.82
============ ============
Weighted average number of partnership
units outstanding during the period 18,498,886 14,426,765
============ ============
Diluted:
Income before extraordinary item $ 0.83 $ 0.82
Extraordinary item - debt extinguishment 0.00 (0.01)
------------ ------------
Net income $ 0.83 $ 0.81
============ ============
Weighted average number of partnership
units outstanding during the period 18,726,460 14,619,918
============ ============
Distributions per Operating Partnership Unit: $ 0.950 $ 0.870
============ ============
</TABLE>
See accompanying notes to the consolidated unaudited financial statements.
Page 6 of 22
<PAGE> 7
ESSEX PORTFOLIO, L.P.
Consolidated Statements of Partners' Capital
For the six months ended June 30, 1998 and the
year ended December 31, 1997
(Unaudited)
(Dollars and units in thousands)
<TABLE>
<CAPTION>
General Partner Limited Partners
---------------------------------- ---------------------------------
Preferred Preferred
Common Equity Equity Common Equity Equity
--------------------- --------- --------------------- --------
Units Amount Amount Units Amount Amount Total
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 11,592 $ 205,302 $ 17,505 1,855 $ 24,239 $ -- $ 247,046
Contribution-net proceeds
from preferred stock -- -- 20,000 -- -- -- 20,000
Contribution-net proceeds
from common stock 4,995 154,012 -- -- -- -- 154,012
Contribution-net proceeds
from options exercised 28 686 -- -- -- -- 686
Contributions-net proceeds
from partners -- -- -- 18 543 -- 543
Net income -- 26,636 2,681 -- 4,005 -- 33,322
Partners' distributions -- (25,226) (2,681) -- (3,300) -- (31,207)
--------- --------- --------- --------- --------- --------- ---------
Balances at December 31, 1997 16,615 361,410 37,505 1,873 25,487 -- 424,402
Contribution-net proceeds
from perpetual preferred
units -- -- -- -- -- 77,775 77,775
Contribution-net proceeds
from options exercised 17 339 -- -- -- -- 339
Contribution-net proceeds
from dividend reinvest-
ment plan 2 -- -- -- -- -- --
Net income -- 13,722 875 -- 1,744 3,089 19,430
Partners' distributions -- (15,964) (875) -- (1,779) (3,089) (21,707)
--------- --------- --------- --------- --------- --------- ---------
Balances at June 30, 1998 16,634 $ 359,507 $ 37,505 1,873 $ 25,452 $ 77,775 $ 500,239
========= ========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to the consolidated unaudited financial statements
Page 7 of 22
<PAGE> 8
ESSEX PORTFOLIO, L.P.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six months ended
--------------------------
June 30, June 30,
1998 1997
--------- -----------
<S> <C> <C>
Net cash provided by operating activities $ 28,223 $ 22,853
--------- ---------
Cash flows from investing activities:
Additions to rental properties (126,632) (93,267)
Additions to restricted cash (8,886) --
Dispositions of rental properties 15,842 3,339
Additions to notes receivable (593) (785)
Additions to real estate under development (10,987) --
Investments in corporations and limited partnerships 461 (30)
--------- ---------
Net cash used in investing activities (130,795) (90,743)
--------- ---------
Cash flows from financing activities:
Proceeds from mortgage and other notes payable
and lines of credit 150,347 34,420
Repayment of mortgage and other notes payable
and lines of credit (102,848) (48,050)
Additions to deferred charges (1,882) (368)
Additions to related party notes and other receivables (2,696) (23,527)
Repayment of related party notes and other receivables 1,147 14,360
Decrease in offering related accounts payable (110) (887)
Net proceeds from convertible preferred stock sale -- 20,000
Net proceeds from follow-on offerings -- 58,039
Net proceeds from perpetual preferred units sale 77,775 --
Contributions from stock options exercised - general partner 339 338
Distributions to limited partners and minority interest (2,213) (1,614)
Distributions to general partners (16,596) (11,893)
--------- ---------
Net cash provided by financing activities 103,263 40,818
--------- ---------
Net (decrease) increase in cash and cash equivalents 691 (27,072)
Cash and cash equivalents at beginning of period 4,282 46,899
--------- ---------
Cash and cash equivalents at end of period $ 4,973 $ 19,827
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amount capitalized $ 8,236 $ 6,148
========= =========
Supplemental disclosure of non-cash investing and financing activities:
Mortgage notes payable assumed in connection
with purchase of real estate $ 18,443 $ 40,222
========= =========
Distributions payable $ 11,799 $ 7,220
========= =========
</TABLE>
See accompanying notes to the consolidated unaudited financial statements.
Page 8 of 22
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
Essex Portfolio, L.P. (the "Operating Partnership") was formed in March
1994 and commenced operations on June 13, 1994, when Essex Property Trust,
Inc. (the "Company"), the general partner of the Operating Partnership
(the "General Partner"), completed its initial public offering (the
"Offering") in which it issued 6,275,000 shares of common stock at $19.50
per share. The net proceeds from the Offering of $112,071 were used by the
General Partner to acquire a 77.2% interest in the Operating Partnership.
The Company has elected to be treated as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986 (the "Code"), as amended.
The unaudited consolidated financial statements of the Operating
Partnership are prepared in accordance with generally accepted accounting
principles for interim financial information and in accordance with the
instructions to Form 10-Q. In the opinion of management, all adjustments
necessary for a fair presentation of the financial position, results of
operations and cash flows for the periods presented have been included and
are normal and recurring in nature.
The Company is the sole general partner in the Operating Partnership,
owning an 89.9%, 89.9% and 87.9% general partnership interest as of June
30, 1998, December 31, 1997 and June 30, 1997, respectively.
All significant intercompany balances and transactions have been
eliminated in the consolidated financial statements.
(2) SIGNIFICANT TRANSACTIONS
(A) Equity Transactions
On April 20, 1998 the Operating Partnership sold 400,000 units of its
7.875% Series B Cumulative Redeemable Preferred Units ("Perpetual
Preferred Units") to an institutional investor in a private placement, at
a price of $50.00 per unit. The net proceeds from this offering were
$19,500.
(B) Acquisitions
(i) On April 1, 1998, the Operating Partnership acquired Bunker Hill
Towers, a 456-unit apartment high-rise community located in Los Angeles,
California, for a contract price of approximately $36.5 million. In
connection with this acquisition, the Operating Partnership assumed an
approximate $18.4 million, 7.39% fixed rate loan. The loan matures in
November 2007. The community features a swimming pool, tennis courts, an
exercise facility, and spa.
(ii) On April 3, 1998, the Operating Partnership acquired Cochran
Apartments, a 58-unit apartment community located in Los Angeles,
California, for a contract price of $5.4 million. The community features a
swimming pool, an exercise facility, and spa.
These second quarter 1998 acquisitions were funded with proceeds from the
Operating Partnership's April 1998 Perpetual Preferred Units offering, the
assumed loan as indicated above, and the Operating Partnership's lines of
credit.
(C) Development Activities
In May 1998, the Operating Partnership broke ground on the Canyon Point
development, located in San Ramon, California. The development involves
the construction of a 114 unit multifamily community. This development is
adjacent to The Shores, a 348 unit apartment community which
Page 9 of 22
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS)
the Operating Partnership currently owns. The total estimated
capitalized costs for the community is $15,700. This community will
feature outstanding views, with individual access garages, nine-foot
ceilings, and ground floor entry.
In May 1998, the Operating Partnership entered into a contract to purchase
a 132 unit multifamily community currently under construction in San Jose,
California. The estimated total capitalized cost for the community is
$18,500. The Operating Partnership's acquisition is scheduled to close
upon completion of the project in March 1999. The community features a
swimming pool, spa, exercise facility, clubhouse, and a business center.
(D) Debt Related Transactions
On May 11, 1998, the Operating Partnership executed an agreement to
replace multiple secured and unsecured credit facilities with an unsecured
revolving line of credit for an aggregate amount of $100,000, which
expires on May 11, 2000, and bears interest at LIBOR + 1.15% on
outstanding balances.
(E) Other - Earthquake Insurance
On June 13, 1998, the Operating Partnership increased the per location and
aggregate limits, the deductible, and the self-insured retention amount of
its earthquake insurance policy. The insurance coverage now provides for
an aggregate limit of $40,000, payable upon a covered loss in excess of a
$7,500 self-insured retention amount. The insurance also provides for a
per building deductible of 5% in California and 2% in Oregon and
Washington.
(3) RELATED PARTY TRANSACTIONS
All general and administrative expenses of the Company, the Operating
Partnership, and Essex Management Corporation ("EMC") are initially borne
by the Operating Partnership, with a portion subsequently allocated to
EMC. Expenses allocated to EMC for the three and six months ended June 30,
1998 totaled $61 and $137, respectively, and are reflected as a reduction
in general and administrative expenses in the accompanying consolidated
statements of operations.
Rental income in the accompanying consolidated statements of operations
includes related party rents earned from space leased to The Marcus &
Millichap Company ("M&M"), including operating expense reimbursement, of
$229 and $430 for the three and six months ended June 30, 1998,
respectively, and $172 and $343 for the three and six months ended June
30, 1997, respectively.
Other income for the three and six months ended June 30, 1998 includes
interest income of $330 and $535, respectively, earned principally under
notes receivable from the partnerships which collectively own Highridge
Apartments, a 255 unit multifamily property located in Rancho Palos Verde,
California ("Highridge"), the partnerships which collectively own an
approximate 30.7% minority interest in Pathways Apartments, a 296 unit
multifamily property located in Long Beach, California ("Pathways") and
from the note receivable from Essex Fidelity I Corporation. For the three
and six months ended June 30, 1998, the Operating Partnership earned $0
and $196, respectively, of dividend income from Essex Sacramento
Corporation and Essex Fidelity I Corporation combined. In addition, the
Operating Partnership earned management fee income of $100 and $205 for
the three and six months ended June 30, 1998, respectively, from Anchor
Village, Highridge, Pathways, and the partnerships which collectively own
the three retail shopping centers located in the Portland, Oregon
metropolitan area.
Page 10 of 22
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS)
Notes and other related party receivables as of June 30, 1998 and December
31, 1997 consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
Notes and other related party receivables:
Note receivable from Highridge Apartments
secured, bearing interest at 9%, due March, 2008 $ 2,750 $2,750
Notes receivable from Fidelity I, secured,
bearing interest at 12%, due December 1998 1,580 1,580
Note receivable from Fidelity I and JSV, secured,
bearing interest at 9.5%-10%, due 2015 1,026 726
Notes receivable from Highridge Apartments,
non-interest bearing, due on demand 2,604 1,699
Loans to officers, bearing interest at 8%, due April
2006 375 375
Other related party receivables, substantially
due on demand 2,478 2,134
------- -------
$10,813 $ 9,264
======= =======
</TABLE>
Other related party receivables consist primarily of accrued interest
income on related party notes receivables and loans to officers, advances
and accrued management fees from joint venture partnerships, and
unreimbursed expenses due from EMC.
(4) NEW ACCOUNTING PRONOUNCEMENTS:
In June 1997, the FASB issued Financial Accounting Standard No. 130
(SFAS130), Reporting Comprehensive Income. SFAS 130 is effective with the
year-end 1998 financial statements; however, the total comprehensive
income is required in the financial statements for interim periods
beginning in 1998. In June 1997, the FASB issued Financial Accounting
Standard No. 131, Disclosure About Segments of An Enterprise and Related
Information. SFAS 131 is effective with the year-end 1998 financial
statements. In February 1998, the FASB issued Financial Accounting
Standards No. 132, Employees' Disclosures about Pensions and Other
Postretirement Benefits. SFAS 132 is effective with the year-end 1998
Financial Statements. Management believes that the adoption of these
statements will not have a material impact on the Operating Partnership's
financial statements.
(5) NET INCOME PER UNIT:
Net income per unit in the accompanying consolidated statements of
operations is calculated for the three months ended June 30, 1998 and
1997, respectively, by dividing net income applicable to the Operating
Partnership units of $7,517 and $6,623 by the weighted average units
outstanding during the period. Net income applicable to the Operating
Partnership units is calculated by deducting preferred distributions of
$2,367 and $491 for the three months ended June 30, 1998 and 1997,
respectively, from net income.
Page 11 of 22
<PAGE> 12
Net income per unit in the accompanying consolidated statements of operations is
calculated for the six months ended June 30, 1998 and 1997, respectively, by
dividing net income applicable to the Operating Partnership units of $15,466 and
$11,833 by the weighted average units outstanding during the period. Net income
applicable to the Operating Partnership units is calculated by deducting
preferred distributions of $3,964 and $929 for the six months ended June 30,
1998 and 1997, respectively, from net income.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following discussion is based primarily on the consolidated financial
statements of the Operating Partnership as of June 30, 1998 and 1997 and for the
three and six months ended June 30, 1998 and 1997.
This information should be read in conjunction with the accompanying
consolidated financial statements and notes thereto. These financial statements
include all adjustments which are, in the opinion of management, necessary to
reflect a fair statement of the results and all such adjustments are of a normal
recurring nature.
The Operating Partnership holds, directly or indirectly, all of the Company's
interests in the Company's properties and all of the Company's operations
relating to the Company's properties are conducted through the Operating
Partnership. The Company is the sole general partner of the Operating
Partnership and, as of June 30, 1998 and 1997, owned an 89.9% and 87.9% general
partnership interest in the Operating Partnership, respectively.
Certain statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and elsewhere in the quarterly report on
Form 10-Q which are not historical facts may be considered forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities and Exchange Act of 1934, as amended,
including statements regarding the Operating Partnership's expectations, hopes,
intentions, beliefs and strategies regarding the future. Forward looking
statements include statements regarding potential acquisitions, the anticipated
performance of future acquisitions, recently completed acquisitions and existing
properties, and statements regarding the Operating Partnership's financing
activities. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors including, but not limited to, those risks,
special considerations, and other factors discussed under the caption "Other
Matters" in Item 1 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1997, and those other risk factors and special considerations
set forth in Essex's and the Operating Partnership's other filings with the
Securities and Exchange Commission (the "SEC") which may cause the actual
results, performance or achievements of the Operating Partnership to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements.
GENERAL BACKGROUND
The Operating Partnership's revenues are generated primarily from multifamily
residential and commercial property operations, which accounted for 97% and 96%
of its revenues for the six months ended June 30, 1998 and 1997, respectively.
The Operating Partnership's properties (the "Properties") are located in
California, Washington and Oregon. Occupancy levels of the multifamily
residential Properties in these markets have generally remained high (averaging
over 95% for the last five years).
Since the Operating Partnership began operations in June 1994, the Operating
Partnership has acquired ownership interests in forty-eight multifamily
residential properties, of which thirty-one are located in California, sixteen
are located in Washington and one is located in Oregon. In aggregate, these
acquisitions consist of a total of 9,382 units and had a total capitalized cost
of approximately $696.8 million. As part of its active portfolio management
strategy, the Operating Partnership has sold, since it began operations, five
multifamily residential properties in Northern California consisting of a total
of 579 units and six retail shopping centers in the Portland, Oregon
metropolitan area at an aggregate gross sales price of approximately $59.0
million resulting in net aggregate gain recognition of approximately $13.6
million.
Page 12 of 22
<PAGE> 13
Average financial occupancy rates (the percentage resulting from dividing
actual rents by total possible rents as determined by valuing occupied units at
contractual rates and vacant units at market rents) of the Operating
Partnership's multifamily properties on a same-property basis decreased to 95.7%
for the three months ended June 30, 1998 from 96.1% for the three months ended
June 30, 1997. The regional breakdown of such financial occupancy for the three
months ended June 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
-------- --------
<S> <C> <C>
Northern California 97.2% 97.3%
Pacific Northwest 94.1% 96.6%
Southern California 94.3% 92.3%
</TABLE>
The Operating Partnership's commercial properties were 100% occupied (based on
square footage) as of June 30, 1998.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended June 30, 1998 to the Three Months Ended
June 30, 1997.
Total Revenues increased by $12,104,000 or 61.8% to $31,684,000 in the second
quarter of 1998 from $19,580,000 in the second quarter of 1997. The following
table sets forth a breakdown of these revenue amounts, including the revenues
attributable to properties that the Operating Partnership owned for both of the
quarters ended June 30, 1998 and 1997 ("Quarterly Same Store Properties").
<TABLE>
<CAPTION>
Three Months Ended
June 30,
Number of ------------------ Dollar Percentage
Properties 1998 1997 Change Change
---------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Rental income
Same Store Properties
Northern California 13 $ 8,802 $ 8,019 $ 783 9.8%
Pacific Northwest 12 5,450 5,231 219 4.2
Southern California 5 2,783 2,634 149 5.7
Commercial 1 554 430 124 28.8
-- ------- ------- ------- ----
Total Same Store Properties 31 17,589 16,314 1,275 7.8%
==
Properties acquired/disposed of
subsequent to January 1, 1997 12,684 2,039 10,645 522.1%
------- ------- ------- -----
Total rental income 30,273 18,353 11,920 64.9
Interest and other income 1,411 1,227 184 15.0
------- ------- ------- -----
Total revenues $31,684 $19,580 $12,104 61.8%
======= ======= ======= =====
</TABLE>
As set forth in the above table, $10,645,000 of the $12,104,000 increase in
total revenues is attributable to properties acquired or disposed of subsequent
to January 1, 1997. During this period, the Operating Partnership acquired
interests in thirty-four multifamily properties (the "Acquisition Properties"),
and disposed of one multifamily property and six retail shopping centers (the
"Disposition Properties").
Of the increase in total revenues, $1,275,000 is attributable to increases in
rental income from the Quarterly Same Store Properties. Rental income from the
Quarterly Same Store Properties increased by $1,275,000 or 7.8% to $17,589,000
in the second quarter of 1998 from $16,314,000 in the second quarter of 1997.
The majority of this increase was attributable to the thirteen multifamily
Quarterly Same Store Properties located in Northern California, the rental
income of which increased by $783,000 or 9.8% to $8,802,000 in
Page 13 of 22
<PAGE> 14
the second quarter of 1998 from $8,019,000 in the second quarter of 1997. This
$783,000 increase is primarily attributable to rental rate increases as offset
by a decrease in financial occupancy to 97.2% in the second quarter of 1998 from
97.3% in the second quarter of 1997. The twelve multifamily Quarterly Same Store
Properties located in the Pacific Northwest accounted for the next largest
regional component of the Quarterly Same Store Properties rental income
increase. The rental income of these properties increased by $219,000 or 4.2% to
$5,450,000 in the second quarter of 1998 from $5,231,000 in the second quarter
of 1997. This $219,000 increase is primarily attributable to rental rate
increases as reduced by the effect of the decrease in financial occupancy to
94.1% in the second quarter of 1998 from 96.6% in the second quarter of 1997.
The five multifamily Quarterly Same Store Properties located in Southern
California also contributed towards the Quarterly Same Store Properties rental
income increase. The rental income of these properties increased by $149,000 or
5.7% to $2,783,000 in the second quarter of 1998 from $2,634,000 in the second
quarter of 1997. The $149,000 increase is attributable to rental rate increases
and an increase in financial occupancy to 94.3% in the second quarter of 1998
from 92.3% in the second quarter of 1997.
The increase in total revenue also reflected an increase of $184,000
attributable to interest and other income, the most significant component of
which relates to other property income from the Acquisition Properties.
Total Expenses increased by $9,006,000 or approximately 71.1% to $21,679,000 in
the second quarter of 1998 from $12,673,000 in the second quarter of 1997.
Interest expense increased by $2,350,000 or 82.0% to $5,217,000 in the second
quarter of 1998 from $2,867,000 in the second quarter of 1997. Such increase was
primarily due to the net addition of outstanding mortgage debt in connection
with property and investment acquisitions. Property operating expenses,
exclusive of depreciation and amortization, increased by $3,694,000 or 62.4% to
$9,617,000 in the second quarter of 1998 from $5,923,000 in the second quarter
of 1997. Of such increase, $3,889,000 was attributable to the Acquisition
Properties and the Disposition Properties. General and administrative expenses
represents the costs of the Operating Partnership's various acquisition and
administrative departments as well as partnership administration and
non-operating expenses. Such expenses increased by $481,000 in the second
quarter of 1998 from the amount for the second quarter of 1997. This increase is
largely due to additional staffing requirements resulting from the growth of the
Operating Partnership.
Net income increased by $2,770,000 to $9,884,000 in the second quarter of 1998
from $7,114,000 in the second quarter of 1997. The increase in net income was
primarily a result of the net contribution of the Acquisition Properties and the
increase in net operating income from the Quarterly Same Store Properties, as
offset by a decrease in operating income attributable to the Disposition
Properties.
RESULTS OF OPERATIONS
Comparison Of The Six Months Ended June 30, 1998 To Six Months Ended June 30,
1997.
Total Revenues increased by $21,389,000 or 56.1% to $59,520,000 in the first six
months of 1998 from $38,131,000 in the first six months of 1997. The following
table sets forth a breakdown of these revenue amounts, including the revenues
attributable to properties that the Operating Partnership owned for both of the
six months ended June 30, 1998 and 1997 ("Same Store Properties").
Page 14 of 22
<PAGE> 15
<TABLE>
<CAPTION>
Three Months Ended
June 30,
Number of ------------------ Dollar Percentage
Properties 1998 1997 Change Change
---------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Rental income
Same Store Properties
Northern California 11 $16,212 $14,649 $ 1,563 10.7%
Pacific Northwest 12 10,778 10,373 405 3.9
Southern California 3 4,086 3,881 205 5.3
Commercial 1 1,040 852 188 22.1
-- ------- ------- ------- -----
Total Same Store Properties 27 32,116 29,755 2,361 7.9%
==
Properties acquired/disposed of
subsequent to January 1, 1997 24,687 5,954 18,733 314.6%
------- ------- ------- -----
Total rental income 56,803 35,709 21,094 59.1
Interest and other income 2,717 2,422 295 12.2
------- ------- ------- -----
Total revenues $59,520 $38,131 $21,389 56.1%
======= ======= ======= =====
</TABLE>
As set forth in the above table, $18,733,000 of the $21,389,000 increase in
total revenues is attributable to the Acquisition Properties and the Disposition
Properties.
Of the increase in total revenues, $2,361,000 is attributable to increases in
rental income from the Same Store Properties. Rental income from the Same Store
Properties increased by $2,361,000 or 7.9% to $32,116,000 in the first six
months of 1998 from $29,755,000 in the first six months of 1997. The majority of
this increase was attributable to the eleven multifamily Same Store Properties
located in Northern California, the rental income of which increased by
$1,563,000 or 10.7% to $16,212,000 in the first six months of 1998 from
$14,649,000 in the first six months of 1997. This $1,563,000 increase is
primarily attributable to rental rate increases as offset by a decrease in
financial occupancy to 97.2% in the first six months of 1998 from 97.3% in the
first six months of 1997. The twelve multifamily Same Store Properties located
in the Pacific Northwest accounted for the next largest regional component of
the Same Store Properties rental income increase. The rental income of these
properties increased by $405,000 or 3.9% to $10,778,000 in the first six months
of 1998 from $10,373,000 in the first six months of 1997. This $405,000 increase
is attributable to rental rate increases as offset by a decrease in financial
occupancy to 94.1% in the first six months of 1998 from 96.6% in the first six
months of 1997. The three multifamily Same Store Properties located in Southern
California also contributed towards the Same Store Properties rental income
increase. The rental income of these properties increased by $205,000 or 5.3% to
$4,086,000 in the first six months of 1998 from $3,881,000 in the first six
months of 1997. The $205,000 increase is attributable to rental rate increases
and an increase in financial occupancy to 94.3% in the first six months of 1998
from 93.7% in the first six months of 1997.
The increases in total revenue also reflected an increase of $295,000
attributable to interest and other income, the most significant component
relates to other property income from the Acquisition Properties.
Total Expenses increased by $14,379,000 or approximately 56.4% to $39,860,000 in
the first six months of 1998 from $25,481,000 in the first six months of 1997.
Interest expense increased by $2,784,000 or 44.7% to $9,014,000 in the first six
months of 1998 from $6,230,000 in the first six months of 1997. Such interest
expense increase was primarily due to the net addition of outstanding mortgage
debt in connection with property and investment acquisitions. Property operating
expenses, exclusive of depreciation and amortization, increased by $6,733,000 or
57.9% to $18,370,000 in the first six months of 1998 from $11,637,000 in the
first six months of 1997. Of such increase, $6,791,000 was attributable to the
Acquisition Properties and the Disposition Properties. General and
administrative expenses represents the costs of the Operating Partnership's
various acquisition and administrative departments as well as partnership
administration and non-operating expenses. Such expenses increased by $783,000
in the first
Page 15 of 22
<PAGE> 16
six months of 1998 from the amount for the first six months of 1997. This
increase is largely due to additional staffing requirements resulting from the
growth of the Operating Partnership.
Net income increased by $6,668,000 to $19,430,000 in the first six months of
1998 from $12,762,000 in the first six months of 1997. The increase in net
income was primarily a result of the net contribution of the Acquisition
Properties and an increase in net operating income from the Same Store
Properties, as offset by a decrease in operating income attributable to the
Disposition Properties.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Operating Partnership had $4,973,000 of unrestricted cash
and cash equivalents. The Operating Partnership expects to meet its short-term
liquidity requirements by using its working capital, cash generated from
operations, amounts available under lines of credit and the proceeds from the
sale of properties that may be sold from time to time. The Operating Partnership
believes that its future net cash flows will be adequate to meet operating
requirements and to provide for payment of dividends by the Company in
accordance with REIT requirements. The Operating Partnership has credit
facilities in the committed amount of approximately $110,000,000. At June 30,
1998 the Operating Partnership had $43,672,000 outstanding on its lines of
credit, with interest rates during the second quarter of 1998 ranging from 6.9%
to 7.3%. The Operating Partnership expects to meet its long-term liquidity
requirements relating to property acquisition and development (beyond the next
12 months) by using working capital, amounts available on lines of credit, net
proceeds from public and private debt and equity issuances, and proceeds from
the disposition of properties that may be sold from time to time. There can,
however, be no assurance that the Operating Partnership will have access to the
debt and equity markets in a timely fashion to meet long-term liquidity
requirements or that future working capital, and borrowings under the lines of
credit will be available, or if available, will be sufficient to meet the
Operating Partnership's requirements or that the Operating Partnership will be
able to dispose of properties in a timely manner and under terms and conditions
that the Operating Partnership deems acceptable.
The Operating Partnership's unrestricted cash balance increased by $691,000 from
$4,282,000 as of December 31, 1997 to $4,973,000 as of June 30, 1998. This
increase was primarily a result of $103,263,000 of cash provided by financing
activities and $28,223,000 of cash provided by operating activities, which were
reduced by $130,795,000 of cash used in investing activities. Of the
$130,795,000 net cash used in investing activities, $126,632,000 was used to
purchase and upgrade rental properties, $3,125,000 was used to fund real estate
under development, and $8,886,000 was used to fund an increase in the Operating
Partnership's restricted cash; these expenditures were offset by $15,842,000 of
proceeds received from the disposition of three retail properties. The
$103,263,000 net cash provided by financing activities was a result of
$150,347,000 of proceeds from mortgage and other notes payable and lines of
credit and $77,775,000 net proceeds from the Perpetual Preferred Units sales (as
discussed below) as offset by $102,848,000 of repayments of mortgages and other
notes payable and lines of credit, and $18,809,000 of dividends/distributions
paid.
As of June 30, 1998, the total amount of the Operating Partnership's outstanding
debt was $342,539,000. Such indebtedness consisted of $215,136,000 in fixed rate
debt, $68,583,000 of variable rate debt and $58,820,000 of debt represented by
tax exempt variable rate demand bonds, of which $29,220,000 is capped at a
maximum interest rate of 7.2%.
As of June 30, 1998, 35 of the Operating Partnership's Properties were
encumbered by debt. The agreements underlying these encumbrances contain
customary restrictive covenants which the Operating Partnership believes do not
have a material adverse effect on the Operating Partnership's operations. As of
June 30, 1998, the Operating Partnership was in compliance with such covenants.
Also, of the Operating Partnership's 35 Properties encumbered by debt, 18 were
secured by deeds of trust relating solely to those Properties. With respect to
the remaining 17 Properties, three cross collaterized mortgages were secured by
8 Properties, 3 Properties and 3 Properties, respectively, and a separate line
of credit was secured by 3 Properties.
Page 16 of 22
<PAGE> 17
The Operating Partnership expects to incur approximately $300 per weighted
average occupancy unit in non-revenue generating capital expenditures for the
year ended December 31, 1998. These expenditures do not include the improvements
required in connection with the origination of mortgage loans, expenditures for
Acquisition Properties renovations and improvements, which are expected to
generate additional revenue, and renovation expenditures required pursuant to
tax-exempt bond financings. The Operating Partnership expects that cash from
operations and/or its lines of credit will fund such expenditures. However,
there can be no assurance that the actual expenditures incurred or funded during
1998 will not be significantly different than the Operating Partnership's
current expectations.
The Operating Partnership is developing eight multifamily residential projects,
which are anticipated to have an aggregate of approximately 1,578 multifamily
units. Essex expects that such projects will be completed during the next two
years (1998 and 1999). Such projects involve certain risks inherent in real
estate development. See "Other Matters - Development Activities; Risks That
Developments Will Be Delayed or Not Completed" in Item 1 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1997. The estimated
projected aggregate cost for these projects is $186.0 million of which
approximately $29.5 million has been incurred as of June 30, 1998. The Operating
Partnership expects to fund such commitments with some combination of its
working capital, amounts available on its lines of credit, net proceeds from
public and private equity and debt issuances, and proceeds from the disposition
of properties, which may be sold from time to time.
The Operating Partnership pays quarterly distributions from cash available for
distribution. Until it is distributed, cash available for distribution is
invested by the Operating Partnership primarily in short-term investment grade
securities or is used by the Operating Partnership to reduce balances
outstanding under its lines of credit.
On March 31, 1997, the Company completed the sale of 2,000,000 shares of its
Common Stock to Cohen & Steers at a price of $29.125 per share.
On June 20, 1997, the Company completed the sale of an additional $20,000,000 of
its convertible preferred stock to Tiger/Westbrook.
On September 10, 1997, the Company completed a public offering of 1,495,000
shares of its Common Stock at a net price of $31.00 per share.
On December 8, 1997, the Company completed a public offering of 1,500,000 shares
of its Common Stock at a net price of $35.50 per share.
On February 6, 1998, the Operating Partnership sold 1,200,000 units of its
7.875% Series B Cumulative Redeemable Preferred Units ("Perpetual Preferred
Units") to an institutional investor at a price of $50.00 per unit.
On April 20, 1998, The Operating Partnership sold 400,000 units of its Perpetual
Preferred Units at a $50.00 per unit price to the same institutional investor
who purchased the 1,200,000 units in February 1998.
The proceeds from these offerings and sales were used primarily to reduce
balances under the Operating Partnership's lines of credit and to fund
acquisitions and development of multifamily properties.
In the second quarter of 1998, the Operating Partnership and Essex filed a
registration statement (the "1998 Shelf Registration Statement") with the
Securities and Exchange Commission (the "SEC") to register $300,000,000 of
equity securities of the Company and $250,000,000 of debt securities of the
Operating Partnership. The 1998 Shelf Registration Statement was declared
effective by the SEC in May 1998. Prior to the filing of the 1998 Shelf
Registration Statement, the Company had approximately $42,000,000 of capacity
remaining on a previously filed registration statement which registered equity
securities of the Company. Thus, with the prior shelf registration statement and
the 1998 Shelf Registration Statement, the Company has the capacity to issue up
to $342,000,000 of equity securities and the Operating Partnership has the
capacity to issue up to $250,000,000 of debt securities.
Page 17 of 22
<PAGE> 18
YEAR 2000 COMPLIANCE
The Operating Partnership has evaluated appropriate courses of action regarding
"Year 2000" compliance. The Operating Partnership has contacted its primary
software vendor and has determined that an upgraded package will be available
for implementation. The total cost of bringing all software, hardware and
operations to Year 2000 compliance has not been fully quantified. Management
estimates that the total costs will not have a material impact on its business
or results of operations. With respect to the preparation for the Year 2000
compliance by third-party service providers and vendors, no estimates have been
made by the Company as to any potential adverse impact on the Operating
Partnership's operations due to any noncompliance. The Operating Partnership is
attempting to identify those risks relating to third party service providers and
vendors, however, no assurance can be given regarding the cost of any failure to
comply.
FUNDS FROM OPERATIONS
Industry analysts generally consider funds from operations, ("Funds From
Operations"), an appropriate measure of performance of an equity REIT. The
Company, the sole general partner in the Operating Partnership, has elected to
be treated as a REIT under the Code. Generally, Funds From Operations adjusts
the net income of equity REITs for non-cash charges such as depreciation and
amortization of rental properties and non-recurring gains or losses. Management
generally considers Funds from Operations to be a useful financial performance
measurement of an equity REIT because, together with net income and cash flows,
Funds from Operations provides investors with an additional basis to evaluate
the ability of a REIT to incur and service debt and to fund acquisitions and
other capital expenditures. Funds From Operations does not represent net income
or cash flows from operations as defined by GAAP and is not intended to indicate
whether cash flows will be sufficient to fund cash needs. It should not be
considered as an alternative to net income as an indicator of the REIT's
operating performance or to cash flows as a measure of liquidity. Funds From
Operations does not measure whether cash flow is sufficient to fund all cash
needs including principal amortization, capital improvements and distributions
to shareholders. Funds From Operations also does not represent cash flows
generated from operating, investing or financing activities as defined under
GAAP. Further, Funds from Operations as disclosed by other REITs may not be
comparable to the Operating Partnership's calculation of Funds From Operations.
The following table sets forth the Operating Partnership's calculation of Funds
from Operations for the quarters ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
Three months ended
-------------------------------
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Income before minority interests $10,005,000 $ 7,321,000
Adjustments:
Depreciation & amortization 5,632,000 3,220,000
Adjustment for unconsolidated
joint ventures 366,000 448,000
Non-recurring items, including
gain on sale of real estate and
loss from termination __ (414,000)
Minority interests (1) (1,692,000) (142,000)
----------- -----------
Funds from Operations $14,311,000 $10,433,000
=========== ===========
Weighted average number
shares outstanding diluted (1) 20,549,875 16,598,551
=========== ===========
</TABLE>
(1) Includes all outstanding shares of the Company's common stock and assumes
conversion of all outstanding operating partnership interests in the Operating
Partnership and Convertible Preferred Stock
Page 18 of 22
<PAGE> 19
into shares of the Company's Common Stock. Also includes common stock
equivalents. Minority interests have been adjusted to reflect such conversion.
The National Association of Real Estate Investment Trust ("NAREIT"), a leading
industry trade group, has approved a revised interpretation of Funds from
Operations, which provides, in part, that the amortization of deferred financing
costs is no longer to be added back to net income in the calculation of Funds
from Operations. Consistent with the NAREIT recommendation, Essex has adopted
this new definition beginning in 1996.
Page 19 of 22
<PAGE> 20
PART II OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Recent Sales of Unregistered Securities
On April 20, 1998, the Operating Partnership completed the private
placement of 400,000 7.875% Series B Preferred Limited Partnership
Units (the "Perpetual Preferred Units"), representing a limited
partnership interest in the Operating Partnership, to an
institutional investor in return for a contribution to the Operating
Partnership of $20,000,000. Previously, on February 6, 1998, the
Operating Partnership had completed a prior private placement of
1,200,000 Perpetual Preferred Units to this same institutional
investor.
The Perpetual Preferred Units will become exchangeable, on a one for
one basis, in whole or in part at any time on or after the tenth
anniversary of the date of this private placement (or earlier under
certain circumstances) for shares of the Company's 7.875% Series B
Cumulative Redeemable Preferred Stock, par value $.0001 per share
(the "Series B Preferred Stock"). The holders of the Perpetual
Preferred Units have certain rights to cause the Company to register
the Series B Preferred Stock pursuant to the terms of a registration
rights agreement. The registration rights agreement was entered into
in connection with this private placement. On February 10, 1998, the
Company filed Articles Supplementary reclassifying 2,000,000 shares
of its Common Stock par value $.0001 per share, as 2,000,000 shares
of Series B Preferred Stock and setting forth the rights,
preferences and privileges of the Series B Preferred Stock. The
Perpetual Preferred Units have identical rights, preferences and
privileges as the Series B Preferred Stock. Neither the Perpetual
Preferred Units, nor the Series B Preferred Stock may at any time be
convertible into the Company's Common Stock.
The net proceeds from the above private placements were used
primarily to fund acquisition and development activities and for
general purposes.
The April 20, 1998 private placement was completed pursuant to the
exemption from registration contained in Section 4(2) the Securities
Act of 1933, as amended.
Page 20 of 22
<PAGE> 21
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
10.1 Revolving Loan Agreement between Essex Portfolio, L.P., a
California limited partnership, and Bank of America National
Trust and Savings Association dated as of May 11, 1998
11.1 Statement regarding Computation of Earnings per Unit
12.1 Schedule of Computation of Ratio of Earnings to Fixed Charges
and Preferred Unit Distribution
27.1 Article 5 Financial Data Schedule (EDGAR Filing Only)
B. REPORTS ON FORM 8-K
On April 23, 1998, the Company filed a current report on Form 8-K,
regarding its private placement of 400,000 units of its 7.875%
Series B Cumulative Redeemable Preferred Units to the same
institutional investor who previously purchased 1,200,000 of such
units.
On May 14, 1998, the Company filed a current report on Form 8-K,
regarding its purchase of Wimbledon Woods and Bunker Hill Towers.
On June 24, 1998, the Company filed a current report on Form 8-K/A
to amend the current report on Form 8-K filed on March 30, 1998 in
order to provide additional information relating to certain pro
forma adjustments.
On June 24, 1998, the Company filed a current report on Form 8-K/A
to amend the current report on Form 8-K filed on May 14, 1998 in
order to provide additional information relating to certain pro
forma adjustments.
Page 21 of 22
<PAGE> 22
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.
ESSEX PORTFOLIO, L.P.
a California Limited Partnership
By: Essex Property Trust, Inc.
Its: General Partner
/s/ Mark J. Mikl
------------------------------
Mark J. Mikl, Controller
(Authorized Officer and
Principal Accounting Officer)
August 14, 1998
------------------------------
Date
Page 22 of 22
<PAGE> 23
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
10.1 Revolving Loan Agreement between Essex Portfolio L.P., a
California limited partnership, and Bank of America National
Trust and Savings Association dated as of May 11, 1998
11.1 Statement regarding Computation of Earnings per Unit
12.1 Schedule of Compensation of Ratio of Earnings to Fixed Charges
and Preferred Unit Distributions
27.1 Article 5 Financial Data Schedule (EDGAR Filing Only)
<PAGE> 1
EXHIBIT 10.1
REVOLVING LOAN AGREEMENT
BETWEEN
ESSEX PORTFOLIO, L.P.,
a California limited partnership
and
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
Dated as of May 11, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page(s)
<S> <C> <C>
1. DEFINITIONS.......................................................................1
2. LINE OF CREDIT AMOUNT AND TERMS...................................................4
2.1 Line of Credit.............................................................4
2.2 Availability Period; Extension of Availability Period; Term-Out
Option.....................................................................5
2.3 Interest Rate..............................................................6
2.4 Letters of Credit..........................................................6
2.5 Survival...................................................................9
3. FEES..............................................................................9
3.1 Unused Fee.................................................................9
3.2 Letter of Credit Fees......................................................9
4. DISBURSEMENTS, PAYMENTS AND COSTS.................................................9
4.1 Requests for Credit........................................................9
4.2 Disbursements and Payments................................................10
4.3 Telephone and Telefax Authorization.......................................11
4.4 Taxes. ..................................................................11
4.5 Additional Costs..........................................................11
5. UNENCUMBERED ASSET POOL..........................................................12
5.1 Unencumbered Asset Pool and Unencumbered Asset Pool
Property Defined..........................................................12
5.2 Additions of Property to the Unencumbered Asset Pool......................12
5.3 Removal of Property from the Unencumbered Asset Pool......................15
5.4 Current Value of the Unencumbered Asset Pool..............................16
5.5 Mortgage Value of Unencumbered Asset Pool Property........................17
5.6 Use of the Unencumbered Asset Pool Property...............................17
5.7 Income from Unencumbered Asset Pool Property..............................18
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
6. CONDITIONS.......................................................................18
6.1 Authorizations............................................................18
6.2 Governing Documents.......................................................18
6.3 Documents.................................................................18
6.4 Insurance.................................................................18
6.5 Legal Opinions............................................................19
6.6 Good Standing.............................................................19
6.7 Payment of Certain Outstanding Obligations................................19
6.8 Payment of Fees...........................................................20
6.9 Solvency Certificate......................................................20
6.10 Other Items...............................................................20
6.11 Conditions of Each Advance, Extension of Credit, or Issuance of
Letter of Credit..........................................................20
7. COVENANTS OF BORROWER............................................................21
7.1 Covenants Relating to Unencumbered Asset Pool.............................21
7.2 Payment of Expenses.......................................................23
7.3 Total Amount Outstanding..................................................23
7.4 Financial and Other Information; Certification............................23
7.5 Notices...................................................................25
7.6 Indemnity.................................................................26
7.7 Negative Covenants........................................................26
7.8 Development Covenants.....................................................28
7.9 Performance of Acts.......................................................29
7.10 Keeping Guarantor Informed................................................29
7.11 Maximum Total Liabilities to Gross Asset Value of 50%.....................29
7.12 Fixed Charge Coverage Ratio...............................................29
7.13 Maximum Quarterly Dividends...............................................30
7.14 Minimum Tangible Net Worth................................................30
7.15 Negative Pledge...........................................................30
7.16 Total Unencumbered Assets to Unsecured Debt...............................31
7.17 Change in Ownership of Borrower or Management of the
Unencumbered Asset Pool Property..........................................31
7.18 Books and Records.........................................................31
7.19 Audits....................................................................31
7.20 Cooperation...............................................................32
7.21 ERISA Plans...............................................................32
7.22 Use of Proceeds...........................................................32
7.23 Use of Proceeds - Ineligible Securities...................................32
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
8. REPRESENTATIONS AND WARRANTIES...................................................33
8.1 Organization of Borrower..................................................33
8.2 Authorization.............................................................33
8.3 Enforceable Agreement.....................................................33
8.4 Good Standing.............................................................33
8.5 No Conflicts..............................................................33
8.6 Financial Information.....................................................34
8.7 Borrower Not a "Foreign Person"...........................................34
8.8 Lawsuits..................................................................34
8.9 Year 2000 Precautions.....................................................34
8.10 Permits, Franchises.......................................................34
8.11 Other Obligations.........................................................34
8.12 Income Tax Returns........................................................35
8.13 No Event of Default.......................................................35
8.14 ERISA Plans...............................................................35
8.15 Location of Borrower......................................................36
9. DEFAULT AND REMEDIES.............................................................36
9.1 Events of Default.........................................................36
9.2 Remedies..................................................................37
10. REFERENCE AND ARBITRATION........................................................38
11. MISCELLANEOUS PROVISIONS.........................................................39
11.1 No Waiver; Consents.......................................................39
11.2 No Third Parties Benefitted...............................................39
11.3 Notices. ............................................................39
11.4 Attorneys' Fees...........................................................39
11.5 Participations and Syndications...........................................40
11.6 Heirs, Successors and Assigns.............................................40
11.7 Payments Set Aside........................................................40
11.8 Interpretation............................................................41
11.9 Miscellaneous.............................................................41
11.10 Integration and Relation to Loan Commitment...............................41
11.11 Actions...................................................................41
11.12 Relationships with Other Bank Customers...................................42
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
Exhibits:
<S> <C>
Exhibit A...............................Existing Letters of Credit
Exhibit B-1.............................Form of Letter of Credit
Exhibit B-2.............................Letter of Credit Agreement
Exhibit C...............................Request for Extension of Credit
Exhibit D...............................Unencumbered Asset Pool
Exhibit E...............................Compliance Certificate
</TABLE>
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<PAGE> 6
REVOLVING LOAN AGREEMENT
$100,000,000 Unsecured Revolving Line of Credit
THIS UNSECURED REVOLVING LOAN AGREEMENT, dated as of May 11, 1998
(the "Agreement"), is between ESSEX PORTFOLIO, L.P., a California limited
partnership ("Borrower"), ESSEX PROPERTY TRUST, INC., a Maryland corporation
operating as a real estate investment trust ("Guarantor"), and BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION ("Bank").
RECITALS
To provide funds for the acquisition of residential apartment
property, for general working capital needs, for operating expenses, and for
other needs, Bank would like to make a loan of funds (the "Loan") to Borrower on
a revolving basis and Borrower would like to borrow funds from Bank on that
basis, all on the terms and conditions stated herein.
The Loan will be evidenced by a promissory note (the "Note") of
even date herewith.
Guarantor is the general partner of Borrower. Bank is only
willing to make the Loan if Guarantor will guaranty repayment of the obligations
of Borrower under the terms of this Agreement.
Guarantor is willing to make such a guaranty (the "Guaranty") to
Bank as provided in this Agreement.
This Agreement, the Note, the Guaranty and any modifications
thereto, and all other documents evidencing, securing or otherwise pertaining to
the Loan are referred to herein as the "Loan Documents."
AGREEMENT
1. DEFINITIONS.
The following terms shall have the following definitions:
"Availability Period" has the meaning given to it in Section
2.2(a).
"Available Amount" has the meaning given to it in Section
2.1(b).
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"Capitalization Rate" means the then current Korpacz Real Estate
Investor Survey, Overall Cap Rate (OAR), Average, subject to quarterly
adjustment; the Capitalization Rate as of the date of this Agreement is 8.88%.
"Commitment" shall have the meaning given to it in Section
2.1(b).
"Consolidated Borrower" means Essex Property Trust, Inc., Essex
Portfolio, L.P., and each of their affiliates, aggregated and consolidated
according to GAAP.
"Current Value of the Unencumbered Asset Pool" shall mean the
sum of the "Current Value" of each Unencumbered Asset Pool Property.
"Current Value" shall have the meaning given to it in Section
5.4(b).
"Debt Service" means the sum of (x) the aggregate interest
payments, Letter of Credit fees and other fees paid or payable in respect of or
relating to debt on a property, plus (y) the aggregate principal installments
paid and payable (but not payments due at maturity) in respect of or relating
thereto.
"Existing Letters of Credit" shall have the meaning given to it
in Section 2.4(h).
"GAAP" means generally accepted accounting principles (including
principles of consolidation), in effect from time to time.
"Gross Asset Value" means the sum of (i) Consolidated Borrower's
most recent one quarter annualized earnings before interest, taxes, depreciation
and amortization all according to GAAP ("EBITDA") divided by the Capitalization
Rate, (ii) cash and marketable securities of Consolidated Borrower, (iii) 75% of
the acquisition costs of properties acquired by Consolidated Borrower during the
quarter, and (iv) 50% of the book value of all development in progress as
reported on Guarantor's 10K and 10Q.. For the calculation of Gross Asset Value,
EBITDA does not include gains on sale of assets, extraordinary gains and
charges, minority interest and income attributable to properties sold or
acquired during the quarter.
"Letter of Credit" and "Letters of Credit" have the meanings
given to them in Section 2.1(a).
"Letter of Credit Cap" has the meaning given to it in Section
2.4(a).
"Line of Credit" has the meaning given to it in Section 2.1(a).
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<PAGE> 8
"Mortgage Value" of an Unencumbered Asset Pool Property has the
meaning given to it in Section 5.5.
"Net Operating Income" for a property means, for the relevant
period, the aggregate total cash revenues actually collected, from the normal
operation of a property (excluding all security deposits until such time as the
tenant or other user making such deposits is no longer entitled to return
thereof), plus amounts payable to unrelated third parties on behalf of the owner
of the property, if actually paid, plus the proceeds of any rental or business
interruption insurance actually received by the owner of the property with
respect to such property, from which there shall be deducted all costs and
expenses paid or payable by the owner and relating to such property (other than
Debt Service which is paid and payments made at maturity), including, without
limitation, (a) any charges paid in connection with the use, ownership or
operation of such property, (b) any cost of repairs and maintenance, (c) any
cost associated with the management of such property, (d) any payroll cost and
other expenses for general administration and overhead paid in connection with
the use, ownership or operation of such property, (e) current real estate taxes,
(f) any sums paid or subject to payment in the nature of a rebate, refund or
other adjustment to revenue previously collected, (g) all assessment bond
indebtedness (whether principal or interest) in respect of such property paid or
payable for the interval in question, and (h) any and all costs or expenses, or
whatever nature or kind, incurred in connection with the use, ownership or
operation of the property; provided, however, that such costs and expenses paid
or payable by Borrower and relating to such property shall not include tenant
improvement costs, leasing commissions or the costs and expenses of capital
improvements and capital repairs, other than the costs and expenses of capital
improvements and repairs that recur on an annual basis, or depreciation,
amortization or other non-cash expenses.
"Permitted Owner" has the meaning given to it in Section
5.2(b)(i).
"Total Amount Outstanding" has the meaning given to it in
Section 2.1(b).
"Unencumbered Asset Pool" shall have the meaning given to it in
Section 5.1.
"Unencumbered Asset Pool Property" shall have the meaning given
to it in Section 5.1.
Terms capitalized in this Agreement and not defined in this Section 1 have the
meanings given to them elsewhere in this Agreement.
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<PAGE> 9
2. LINE OF CREDIT AMOUNT AND TERMS.
2.1 Line of Credit.
(a) During the Availability Period (as hereinafter defined), Bank
will provide a revolving line of credit (the "Line of Credit") to Borrower to
(i) make advances, and (ii) issue standby letters of credit (singly, a "Letter
of Credit" and, together with the Existing Letters of Credit referred to in
Section 2.4(h) below, the "Letters of Credit") for Borrower's account.
(b) The maximum amount of the Line of Credit committed by Bank
(the "Commitment") is One Hundred Million and No/100ths Dollars
($100,000,000.00). Bank shall disburse funds under the Line of Credit in such
amounts as Borrower may request from time to time hereunder, but in no case
shall the sum of the total principal amount outstanding under the terms of this
Agreement (including the aggregate amount owing to Bank in connection with drawn
and unreimbursed Letters of Credit), plus the aggregate amount of outstanding
and undrawn Letters of Credit (the "Total Amount Outstanding"), exceed an
aggregate principal amount (the "Available Amount") equal to the smallest of the
following, tested at the beginning of each calendar quarter and at the time of
each draw hereunder:
(x) an amount equal to fifty percent (50%) of the Current Value (as that
term is defined in Section 5.4(b) below) of the Unencumbered Asset Pool
Property (as that term is defined in Section 5.1 below); or
(y) an amount equal to one hundred percent (100%) of the Mortgage Value
(as that term is defined in Section 5.5 below) of the Unencumbered Asset
Pool Property; or
(z) $100,000,000.
(c) If Bank at any time should determine that the Total Amount
Outstanding exceeds the Available Amount, Bank may make written demand on
Borrower at Bank's option, to post cash or other collateral satisfactory to Bank
in its sole discretion, or to repay principal hereunder, or both, in an amount
sufficient in Bank's reasonable judgment to cause the Total Amount Outstanding
to be equal to or less than the Available Amount. Borrower shall make any such
payment of principal or post any such collateral within thirty (30) days after
Bank's demand and direction to Borrower.
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<PAGE> 10
(d) This is a revolving line of credit. During the Availability
Period, Borrower may repay and reborrow principal amounts.
(e) Each advance must be for at least Five Hundred Thousand
Dollars ($500,000), or for the amount of the remaining Available Amount, if
less.
(f) The issuance of a Letter of Credit pursuant to Section 2.4
hereof shall be considered an advance for all purposes hereunder, except that,
absent an express written agreement to the contrary, any drawn Letter of Credit
shall be repaid by Borrower to Bank on demand.
2.2 Availability Period; Extension of Availability Period;
Term-Out Option.
(a) The Line of Credit is available between the date of this
Agreement (the "Effective Date") through the end of the business day two years
from the Effective Date (the "Expiration Date"), or on the first business day
thereafter if that day falls on a day that is a week-end or a day on which the
Bank is not open for business in San Francisco, California. The period from the
Effective Date to the Expiration Date shall be the "Availability Period." If
there is an Event of Default (as defined in Section 9.1 below) then in addition
to Bank's other remedies, Bank may terminate the Availability Period and require
Borrower to immediately (i) repay amounts outstanding under the Loan, and (ii)
provide cash collateral for repayment of any outstanding Letter of Credit. If
Borrower has violated any covenant or agreement hereunder and the applicable
cure period has not yet expired, then it is within Bank's sole and absolute
discretion whether to continue to provide extensions of credit to Borrower
hereunder.
(b) Borrower may request that Bank extend the Availability Period
for one year by giving written notice to Bank of such request no more than one
hundred twenty (120) and no less that ninety (90) days prior to the second
anniversary of the Effective Date, requesting a one year extension of the
Availability Period. Upon such request, Bank shall decide in its sole and
absolute discretion whether to extend the Availability Period, and shall give
notice to Borrower of its decision within sixty (60) days of the receipt of
Borrower's request. If, upon such request by Borrower, Bank decides to extend
the Availability Period, the Expiration Date shall then be extended by one year,
the new date of expiration shall be the "Extended Expiration Date", and the
Availability Period as so extended shall become the "Extended Availability
Period". If Bank decides not to extend the Availability Period, the Line of
Credit shall expire on the original Expiration Date.
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<PAGE> 11
(c) Borrower may at its option convert the Line of Credit to an
amortizing term loan (the "Term Loan"). Borrower may exercise its option to
convert the Line of Credit to the Term Loan by giving Bank written notice of
Borrower's election not more than 120 days and not less than 45 days before the
Expiration Date (or the Extended Expiration Date, if the Availability Period has
been extended under Section 2.2(b)), and complying with all other terms of the
Loan Documents. If the Line of Credit is so converted to a Term Loan, then the
Expiration Date (or the Extended Expiration Date as the case may be) shall be
the "Conversion Date" for purposes of this Agreement and the first anniversary
of the Conversion Date shall be the "Term Loan Expiration Date." All terms and
conditions of the Loan Documents, including the application of the Available
Amount but excluding any provision giving Borrower the right to draw any amounts
under the Line of Credit or to arrange for the issuance of a Letter of Credit,
shall remain applicable to the Term Loan. If Borrower converts the Line of
Credit to the Term Loan, Borrower shall amortize a portion of the balance
outstanding hereunder by paying twenty percent (20%) of an amount that is the
sum of the following two amounts: (i) such balance, plus (ii) the total dollar
amount of all Letters of Credit then outstanding. The payment of that twenty
percent amount shall be made in eleven (11) equal monthly installments beginning
on the first day of the first month following the Conversion Date and ending
with the last payment due before the Term Loan Expiration Date. The balance of
the amount outstanding shall be paid in full on the Term Loan Expiration Date.
(d) Borrower may cancel all or any portion of the Commitment by
the delivery to Bank of a notice of cancellation within the applicable time
periods and minimum amounts set forth in the Loan Documents for the repayment of
any amounts that are outstanding or, if there are no amounts outstanding at such
time, upon at least five (5) business days notice to Bank, whereupon, in either
event, such part of the Commitment so designated by Borrower shall terminate on
the date set forth in such notice of cancellation, and, if there are any Loans
then outstanding in excess of the Commitment after giving effect to such
termination, Borrower shall prepay such Loans outstanding on such date in
accordance with the requirements of the Loan Documents.
2.3 Interest Rate.
Borrower is executing a promissory note (the "Note") in the
amount of the Commitment evidencing the Loan and payable to Bank. The Note sets
forth the interest rate and certain other terms and conditions applicable to the
Loan.
2.4 Letters of Credit.
(a) From time to time during the Availability Period, but not
after the Expiration Date (or the Extended Expiration Date as the case may be)
or the
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<PAGE> 12
Conversion Date, Bank shall at the request of Borrower, issue Letters of Credit
in the form of Exhibit "B-1" under the terms of a Letter of Credit Agreement in
the form of Exhibit "B-2", for the account of Borrower, a Permitted Owner or an
entity controlled by a Permitted Owner, for any purpose directly relating to
Borrower's continuing operations, upon at least five (5) business days' prior
written notice from Borrower; provided, however, that at no time shall the
undrawn and the drawn and unreimbursed amount of all Letters of Credit exceed
Eleven Million Dollars ($11,000,000) (the "Letter of Credit Cap"). The Available
Amount shall be reduced by the amount of the outstanding Letters of Credit
undrawn and by the amount of the drawn and unreimbursed Letters of Credit. As
provided above, a Letter of Credit may be issued for the benefit of a Permitted
Owner, as that term is defined in Section 5.2(b)(i), or an entity controlled by
a Permitted Owner, but any such Letter of Credit shall be the responsibility of
and shall create obligations of the Borrower and any guarantor, including but
not limited to Guarantor.
(b) Each Letter of Credit issued hereunder (including any
supplement, modification, amendment, renewal or extension thereof) shall be
issued pursuant to the terms and conditions of a Bank standard form Application
and Agreement for Letter(s) of Credit ("Letter of Credit Agreement") in a form
substantially the same as that attached hereto as Exhibit "B-2" executed by
Borrower; and each Letter of Credit shall be in form and substance and for the
purposes provided in this Agreement. Pursuant to the terms and conditions of
Bank's standard form of Letter of Credit Agreement, any drawings under a Letter
of Credit shall be repaid by Borrower to Bank on demand; and the Letter of
Credit Agreement will set forth all of the terms and conditions regarding the
issuance of a Letter of Credit and any draws thereunder.
(c) The Letter of Credit Agreement shall set forth the rate of
interest on any draws thereunder. Any amount drawn shall be payable by Borrower
no later than the next business day after the date on which the amount is drawn.
(d) Unless specifically approved by Bank in writing, each Letter
of Credit issued pursuant to this Agreement shall expire on or before the
Expiration Date (or the Extended Expiration Date as the case may be), provided,
however, that Letters of Credit in a total aggregate amount not to exceed Seven
Million Dollars ($7,000,000) may expire on or before a date that is twelve (12)
months after the Expiration Date (or the Extended Expiration Date as the case
may be), provided further that, at the Expiration Date (or the Extended
Expiration Date) Borrower will provide the cash collateral in the amount and
manner provided in Subsection 2.4(e) below in an amount equal to the face amount
of any such unexpired Letters of Credit.
(e) If at any time there are Letters of Credit outstanding and
the Loan is canceled or expires by its terms and an extended term is not made
available to
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<PAGE> 13
Borrower by Bank, or an Event of Default (as hereinafter defined) occurs,
Borrower shall provide Bank with cash collateral in an amount at least equal to
the aggregate amount of all Letters of Credit outstanding, or another form of
collateral acceptable to Bank in its sole and absolute discretion. Borrower
agrees to execute or cause the execution of all documents reasonably required by
Bank at Borrower's sole cost and expense in connection with the Borrower's
delivery of collateral hereunder. Bank shall retain a security interest in such
collateral until the earlier occurrence of (a) a date fifteen (15) days after
the expiration of any outstanding Letter of Credit, provided that no further
extensions shall be granted, or (b) the cancellation of any outstanding Letter
of Credit by the respective beneficiaries, provided that written notice of such
cancellation has been received by Bank or the original Letter of Credit is
returned to Bank. In such an event, the amount of collateral retained by Bank
shall be adjusted as appropriate to reflect such expiration or cancellation, as
the case may be.
(f) Borrower shall pay to Bank an annual fee for each Letter of
Credit in an amount equal to the greater of one and one-half percent (1.5%) per
annum of the face amount of such letter of credit or Two Hundred Fifty Dollars
($250) plus any fees or costs related to the issuance thereof (which fee shall
be paid 1.35% to Bank as agent for itself and any other person to whom Bank may
sell an interest in the Loan or the Loan Documents under the terms of Section
11.5, and .15% to Bank as the issuing bank). The fee shall be paid in advance
quarterly in installments on the issuance date and every quarter during which
the Letter of Credit remains outstanding or has been drawn and remains
unreimbursed. Such fees shall be calculated on the basis of a three hundred
sixty (360) day year and actual days elapsed, which results in higher fees than
if a three hundred sixty-five (365) day year were used.
(g) The Letters of Credit described in Exhibit "A" (the "Existing
Letters of Credit") remain outstanding as of the Effective Date and shall be
considered as Letters of Credit for all purposes under the terms of this
Agreement. Any reference to a Letter of Credit in this Agreement shall include
the Existing Letters of Credit. The Existing Letters of Credit will not be
canceled but shall remain outstanding and shall be considered as issued under
the terms of this Agreement. Any reference to a Letter of Credit Agreement made
in this Agreement shall be deemed to include a reference to the letter of credit
agreements under the terms of which the Existing Letters of Credit were issued.
The face amounts of the Existing Letters of Credit shall be deducted from the
Letter of Credit Cap and the Available Amount as if the Existing Letters of
Credit had been originally issued under the terms of this Agreement. Borrower
shall not be required to pay an issuance fee on account of the Existing Letters
of Credit but shall be required to pay an annual fee under the terms of Section
2.4(f) on account of each of the Existing Letters of Credit, due and payable on
each anniversary of the date of issuance thereof.
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2.5 Survival.
The agreements and obligations of Borrower in this Article 2
shall survive the payment and performance of all other obligations.
3. FEES
3.1 Unused Fee.
Borrower shall pay Bank a fee (the "Unused Fee") based on the
Unused Amount of the Commitment. The Unused Amount of the Commitment shall be
the amount of the Commitment minus the sum of (i) any amounts disbursed and
unpaid and (ii) the total amount of any Letters of Credit outstanding and
undrawn. The Unused Fee shall be calculated quarterly and shall be paid in
arrears within 10 days of the date that Bank gives Borrower written notification
of the amount of the Unused Fee in the following amounts:
(a) The Unused Fee shall be equal to twenty five one-
hundredths of one percent (.25%) per annum of the Unused Amount of the
Commitment if such Unused Amount is an average of fifty percent (50%) or less of
the Commitment for the quarter (such average to be based on the sum of the total
Unused Amount of the Commitment each day of the quarter, divided by the actual
number of days in the quarter); and
(b) The Unused Fee shall be equal to one hundred and
twenty five one-thousandths of one percent (.125%) of the Unused Amount of the
Commitment if such Unused Amount is an average of more than fifty percent (50%)
of the Commitment for the quarter (such average to be based on the sum of the
total Unused Amount of the Commitment each day of the quarter, divided by the
actual number of days in the quarter).
3.2 Letter of Credit Fees.
Borrower shall pay Bank the fees relating to the Letters of
Credit referred to in Section 2.4(f) above.
4. DISBURSEMENTS, PAYMENTS AND COSTS
4.1 Requests for Credit. Each request for an extension of credit
will be made in writing in the form of Exhibit "C" attached hereto and made a
part hereof, or by another means acceptable to Bank. Borrower authorizes John D.
Eudy, Keith R. Guericke, Michael J. Schall, Mark J. Mikl or Jordan E. Ritter to
sign all Borrowing
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<PAGE> 15
Notices and other documents in connection with the administration of the Loan.
Borrower represents and warrants to Bank that the following signatures are
specimen signatures of the persons named in the preceding sentence:
- ---------------------------------
John D. Eudy
- ---------------------------------
Keith R. Guericke
- ---------------------------------
Michael J. Schall
- ---------------------------------
Mark J. Mikl
- ---------------------------------
Jordan E. Ritter
4.2 Disbursements and Payments.
Each disbursement by Bank and each payment by Borrower will be:
(a) made at Bank's branch (or other location) selected by
Bank in its reasonable discretion from time to time;
(b) made for the account of Bank's branch selected by Bank
in its reasonable discretion from time to time;
(c) made in immediately available funds, or such other
type of funds selected by Bank;
(d) evidenced by records kept by Bank. In addition, Bank
may, at its discretion, require Borrower to sign one or more promissory notes.
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<PAGE> 16
4.3 Telephone and Telefax Authorization.
(a) Bank may honor telephone instructions or telefax instructions
from John D. Eudy, Keith Guericke, Michael J. Schall, Mark J. Mikl or Jordan E.
Ritter for advances or repayments or for the designation of optional interest
rates described in the Note given by any one of the individuals authorized to
sign loan agreements on behalf of Borrower, or any other individual designated
by any one of such authorized signers.
(b) Advances and repayments will be either (i) deposited in and
repayments will be withdrawn from Borrower's account number 1422300648, or such
other of Borrower's accounts with Bank as designated in writing by Borrower, or
(ii) by wire transfer at Borrower's written direction, which written direction
may be telefaxed as set forth herein.
(c) Borrower will provide written confirmation to Bank of any
telephone or telefax instructions within five (5) days. If there is a
discrepancy and Bank has already acted on the instructions, the telephone or
telefax instructions will prevail over the written confirmation.
(d) Borrower indemnifies and excuses Bank (including its
officers, employees, and agents) from all liability, loss, and costs in
connection with any act resulting from telephone or telefax instructions it
reasonably believes are made by any individual authorized by Borrower to give
such instructions, except to the extent such liability, loss, or cost results
directly from Bank's gross negligence or willful misconduct. This indemnity and
excuse will survive this Agreement's termination.
4.4 Taxes. If any payments to Bank under this Agreement are made
from outside the United States, Borrower will not deduct any foreign taxes from
any payments it makes to Bank. If any such taxes are imposed on any payments
made by Borrower (including payments under this Subsection), Borrower will pay
the taxes and will also pay to Bank, at the time interest is paid, any
additional amount which Bank specifies as necessary to preserve the after-tax
yield Bank would have received if such taxes had not been imposed. Borrower will
confirm that it has paid the taxes by giving Bank official tax receipts (or
notarized copies) within 30 days after the due date.
4.5 Additional Costs. Upon sixty days' notice, Borrower will pay
Bank, for Bank's costs or losses related to this Agreement arising from any
statute or regulation, or any request or requirement of a regulatory agency
which is applicable to all national banks or a class of all national banks. The
costs and losses will be allocated to the loan in a manner determined by Bank,
using any reasonable method.
The costs include the following:
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<PAGE> 17
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to Bank's assets and
commitments for credit.
5. UNENCUMBERED ASSET POOL
5.1 Unencumbered Asset Pool and Unencumbered Asset Pool
Property Defined.
The "Unencumbered Asset Pool" shall mean the property listed on
Exhibit "D", plus any and all of the real and personal property added to the
Unencumbered Asset Pool under the terms of Section 5.2 below, minus any and all
of the real and personal property removed from the Unencumbered Asset Pool under
the terms of Section 5.3 below. "Unencumbered Asset Pool Property" shall mean
the real and personal property that makes up the Unencumbered Asset Pool at any
time.
5.2 Additions of Property to the Unencumbered Asset Pool.
(a) Borrower may from time to time request Bank to add a new
property ("the Nominated Property") to the Unencumbered Asset Pool. At the time
of any such request, Borrower shall deliver to Bank any documents that Bank
reasonably requests relating to the Nominated Property, including but not
limited to a Phase I Environmental Report, representations and warranties of
Borrower, a preliminary title report or other evidence of title, current
operating statements, rent rolls, and any items deemed necessary or proper for
Bank to determine that the Nominated Property meets the qualifications (the
"Unencumbered Asset Pool Tests") set forth in Subsection 5.2(b) below. At any
time that Borrower does not have a debt rating of at least BBB-/Baa3 from that
one of Moody's or Standard & Poor's that gives Borrower the lower rating, the
addition of any Nominated Property to the Unencumbered Asset Pool will be at
Bank' s sole and absolute discretion, even though the Nominated Property meets
all of the Unencumbered Asset Pool Tests. At any time that Borrower does have a
debt rating of at least BBB-/Baa3 from that one of Moody's or Standard & Poor's
that gives Borrower the lower rating, the addition of any Nominated Property to
the Unencumbered Asset Pool will be automatic if the Nominated Property meets
all of the Unencumbered Asset Pool Tests. As a condition to the addition of any
Nominated Property to the Unencumbered Asset Pool, Borrower shall have paid Bank
all reasonable attorneys' fees of Bank (including fees for in-house counsel) and
any other fees incurred by Bank in connection with approving the Nominated
Property.
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<PAGE> 18
(b) Before Bank will consider adding a Nominated Property to the
Unencumbered Asset Pool, the Nominated Property must meet each of the following
Unencumbered Asset Pool Tests:
(i) The property must be owned in fee simple by Borrower,
or by a partnership wholly owned by Borrower and Essex Management Corporation
("EMC" and together with Borrower or any such partnership, a "Permitted Owner"),
provided that EMC and any such partnership shall provide to Bank its formation
documents and a guaranty in substantially the same form as the Payment Guaranty
(Revolving Loan) executed by Guarantor in favor of Bank of even date with this
Agreement.
(ii) The property must be an operating residential
apartment property (provided that a maximum of fifteen percent (15%) of the
property's revenue may be generated from retail activities, and a maximum of
five percent (5%) of the revenues of the property, when aggregated with the
revenue from all Unencumbered Asset Pool Property, may be generated from retail
activities);
(iii) A minimum of eighty percent (80%) of the property
must be leased and occupied according to GAAP on an individual basis, and
minimum of ninety percent (90%) of the property, when aggregated with all of the
Unencumbered Asset Pool Property, must be leased and occupied according to GAAP;
(iv) The property must have a Phase I environmental report
and any other environmental information required by Bank prepared by a qualified
firm reasonably acceptable to Bank in form reasonably acceptable to Bank and in
content acceptable to Bank, dated no earlier than December 1, 1993 if the
Nominated Property was owned by a Permitted Owner on the Effective Date, and
dated no earlier than one year prior to the date that the Nominated Property is
accepted into the UAP if the Nominated Property was not owned by a Permitted
Owner on the Effective Date.
(v) The property shall have no construction in progress or
proposed (excluding renovations that do not cause the property to breach the
minimum leasing and occupancy requirement set out above) except for properties
built in phases with separate legal lots with adequate parking provided;
(vi) At any time that Borrower does not have the debt
rating specified in Section 5.2(a) Bank shall, at its discretion, which right
may be waived, have inspected and approved the site (provided that, this
provision notwithstanding, the Bank shall have the right to visit and inspect
the site at any time that Borrower does have the debt rating specified in
Section 5.2(a), although such inspection and any approval of the site shall not
be an Unencumbered Asset Pool Test); and
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<PAGE> 19
(vii) The property shall be subject to no negative pledge
agreement in favor of any other person. There shall be no lien of any nature
upon or with respect to any such property, except the following permissible
liens:
(a) Liens for taxes, assessments or governmental
charges or levies to the extent that the Permitted Owner is not
yet required to pay the amount secured thereby; and
(b) Liens imposed by law, such as carrier's,
warehouse man's, mechanic's, materialman's and other similar
liens, arising in the ordinary course of business in respect of
obligations that are not overdue or are being actively contested
in good faith by appropriate proceedings, as long as the
Permitted Owner has established and maintained adequate reserves
for the payment of the same and, by reason of nonpayment, no
property of the Permitted Owner is in danger of being lost or
forfeited and easements; covenants, conditions and restrictions;
reciprocal easement and access agreements and similar agreements
relating to ownership and operation.
Notwithstanding these requirements, two properties shall be
included as part of the Unencumbered Asset Pool, even though they do not meet
the Unencumbered Asset Pool Tests, with the following qualifications. That
property commonly known as Marina Cove shall be included in the Unencumbered
Asset Pool even though a portion of the property has been acquired by ground
lease and not by fee simple; that property must meet all of the other
Unencumbered Asset Pool Tests. That property commonly known as Windsor Terrace
shall be included in the Unencumbered Asset Pool even though twelve or fewer of
the units in that property are owned by a third party; that property must meet
all of the other Unencumbered Asset Pool Tests but the Net Operating Income for
the units owned by third parties shall not be used in the calculations for
determining Current Value, the Debt Service Coverage Ratio or any other amounts
referred to in this Agreement. As a further qualification, that property
commonly known as Wimbledon Woods, which is owned by Borrower but which is
leased to an affiliate of Borrower (and therefore does not meet the requirement
set out in Section 5.2(b)(iii)), shall be included as part of the Unencumbered
Asset Pool, if and only if it meets each of the other Unencumbered Asset Pool
Tests, and at least ninety eight percent (98%) of the Net Operating Income from
that property is distributed to Borrower on a periodic basis not less often than
annually.
At any time that Borrower does not have the debt rating specified
in Section 5.2(a), if Bank does not accept a property meeting the Unencumbered
Asset Pool Tests as an Unencumbered Asset Pool Property, Bank shall indicate to
Borrower
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the reason(s) for not accepting the property. Borrower may respond to the Bank's
concerns regarding a property and is not prohibited from resubmitting the
property for acceptance as an Unencumbered Asset Pool Property, provided,
however, that at any time that Borrower does not have the debt rating specified
in Section 5.2(a), Bank may still refuse to accept the property as an
Unencumbered Asset Pool Property in its sole discretion.
5.3 Removal of Property from the Unencumbered Asset Pool.
(a) Borrower may from time to time elect to remove an
Unencumbered Asset Pool Property from the Unencumbered Asset Pool. Borrower
shall make such an election by giving Bank notice in writing, setting forth the
identity of the Unencumbered Asset Pool Property and the requested date of
removal no less than thirty (30) days before the requested date of removal. With
such notice, Borrower shall also deliver a compliance certificate of Borrower
substantially similar to the form of Exhibit "E" signed and certified by an
authorized financial officer of Borrower (i) setting forth the information and
computations (in sufficient detail) to determine the Gross Asset Value (as that
term is defined in Section 1) after such removal and to establish that Borrower
will be in compliance with all financial covenants set forth in this Agreement
following such removal, (ii) stating specifically that the Total Amount
Outstanding after such removal will be less than or equal to the Available
Amount, and (iii) setting forth whether there exists or to the best of
Borrower's knowledge as of the date of such removal there will exist, any
default under this Agreement and, if any such default exists, specifying the
nature thereof and the action Borrower is taking and proposes to take with
respect thereto. At the time of any such removal, Borrower shall pay Bank all
reasonable attorneys' fees (including fees for in-house counsel) incurred by
Bank in connection with removing the property from the Unencumbered Asset Pool
and shall make any payments to continue compliance with the terms of this
Agreement, including but not limited to those relating to the requirement that
the Total Amount Outstanding not exceed the Available Amount, necessary as a
result of the requested removal. Borrower may not remove the Unencumbered Asset
Pool Property until it has complied with the terms of this Subsection.
(b) Bank may, at its option, remove any property from the
Unencumbered Asset Pool if it determines in its sole discretion that the
property no longer meets the Unencumbered Asset Pool Tests, provided that Bank
first gives Borrower written notice that the property no longer meets the
Unencumbered Asset Pool Tests, together with the reason or reasons why it does
not, and gives Borrower thirty (30) days after receipt of such notice to cure
the defect. At the time of any such removal, Borrower shall pay Bank all
reasonable attorneys' fees (including fees for in-house counsel) incurred by
Bank in connection with removing the property from the Unencumbered Asset Pool,
and shall make any payments to continue compliance with
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the terms of this Agreement, including but not limited to those relating to the
requirement that the Total Amount Outstanding not exceed the Available Amount,
necessary as a result of the requested removal. If the Unencumbered Asset Pool
as a whole fails to meet one of the aggregate tests set out in Subsection
5.2(b)(ii) or (iii) above, and any one of two or more properties might be
removed to maintain compliance of the Unencumbered Asset Pool as a whole with
the Unencumbered Asset Pool Tests, then Borrower shall select the property or
properties to be removed, provided that if it does not do so within ten days of
written request to do so from Bank, then Bank may in its sole discretion select
the property or properties to remove and so remove them.
5.4 Current Value of the Unencumbered Asset Pool.
(a) "Current Value of the Unencumbered Asset Pool" shall mean the
sum of the "Current Value" of each Unencumbered Asset Pool Property.
(b) The "Current Value" of a property shall mean the following:
(1) For Unencumbered Asset Pool Property owned for
one year or more by a Permitted Owner and that has more than four quarters of
operating data (such data to be in the form that Borrower has provided to Bank
heretofore, which form shall be deemed to be acceptable to Bank, or in such
other form as may be acceptable to Bank), the Current Value shall be its Net
Operating Income for the most recent rolling four consecutive quarters of
operation (less reserves of $250 per unit for apartments), divided by the
Capitalization Rate as that term is defined in Section 1 of this Agreement.
(2) For Unencumbered Asset Pool Property that is
owned for one or more but less than four quarters by a Permitted Owner and that
has one or more but less than three quarters of operating data (such data to be
in the form that Borrower has provided to Bank heretofore, which form shall be
deemed to be acceptable to Bank, or in such other form as may be acceptable to
Bank), the Current Value shall be its Net Operating Income for the most recent
rolling consecutive quarters of operation (less reserves of $250 per unit for
apartments) annualized on a retroactive basis for four consecutive quarters of
operation, divided by the Capitalization Rate.
(3) For Unencumbered Asset Pool Property that is
owned for less than one quarter by a Permitted Owner and is operational and that
has less than one quarter of operating data (such data to be in the form that
Borrower has provided to Bank heretofore, which form shall be deemed to be
acceptable to Bank, or in such other form as may be acceptable to Bank), the
Current Value during the first
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three month period of operations shall be seventy five percent (75%) of its
acquisition cost, determined according to GAAP. For Unencumbered Asset Pool
Property not developed by a Permitted Owner, the acquisition cost shall be the
purchase price of the Unencumbered Asset Pool Property set out in the agreement
for purchase and sale of the property. For Unencumbered Asset Pool Property
developed by a Permitted Owner, the Unencumbered Asset Pool Property shall be
valued at an amount equal to the development costs actually expended by the
Permitted Owner. For purposes hereof, development costs shall include the
acquisition cost and the hard and soft construction costs actually expended by
the Permitted Owner or its affiliates in connection with the development of the
Unencumbered Asset Pool Property, which hard and soft construction costs are
subject to review and approval by Bank in its sole discretion for purposes of
determining the value of the Unencumbered Asset Pool Property determined
according to GAAP.
5.5 Mortgage Value of Unencumbered Asset Pool Property.
The "Mortgage Value" of an Unencumbered Asset Pool Property held
for less than one calendar quarter is 37.5% of the purchase price of the
Property. The "Mortgage Value" of an Unencumbered Asset Pool Property held for
more than one calendar quarter is the maximum amount that could be advanced by
Bank hereunder in connection with such a property in order for Borrower to
maintain a debt service coverage ratio (the "Debt Service Coverage Ratio") of
1.75:1. The Debt Service Coverage Ratio shall be calculated using the Net
Operating Income for the Unencumbered Asset Pool Property for the four most
recent consecutive full calendar quarters (or on an annualized basis if the
Property has been held for less than four calendar quarters), less an amount to
reflect an annual capital expenditure reserve of $250 per apartment unit,
divided by a calculated debt service (the "Calculated Debt Service"). Calculated
Debt Service shall mean the sum of the interest and principal payments which
would be due over a period of twelve months calculated by using a
twenty-five-year amortization period, and an interest rate equal to the then
current seven-year U.S. Treasury rate plus 175 basis points (provided, however,
that in no event shall the interest rate used for such computation be less than
eight and one-quarter percent (8.25%) per annum).
5.6 Use of the Unencumbered Asset Pool Property.
Borrower shall hold the Unencumbered Asset Pool Property as
income property for lease to unaffiliated third parties provided that certain
units in an Unencumbered Asset Pool Property may be used by on-site managers and
other agents, provided that such use is reasonable and does not materially
impair the value of any Unencumbered Asset Pool Property.
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5.7 Income from Unencumbered Asset Pool Property.
Borrower shall first apply all revenues derived from the
Unencumbered Asset Pool Property, including all income from leases, to pay costs
and expenses associated with the ownership, maintenance, operation and leasing
of the Unencumbered Asset Pool Property before using or applying such income for
any other purpose. No such income shall be distributed or paid to any partner,
shareholder or to any beneficiary or trustee, unless all such costs and expenses
which are then due have been paid when due.
6. CONDITIONS TO DISBURSEMENTS
Bank must receive the following items, in form and content
acceptable to Bank, before it is required to extend the initial credit or any
other credit to Borrower or to make any disbursements under this Agreement:
6.1 Authorizations.
Evidence that the execution, delivery and performance by Borrower
or Guarantor, as the case may be, of this Agreement, and the other Loan
Documents, have been duly authorized.
6.2 Governing Documents.
A copy of Borrower's current partnership agreement and
certificate of limited partnership and any amendments and modifications thereto
and of Guarantor's articles of incorporation and any amendments and
modifications thereto.
6.3 Documents.
The following documents, executed and acknowledged as
appropriate, all in form and substance satisfactory to Bank: (a) this Agreement;
(b) the Note; (c) the Guaranty; and (d) as to any disbursements after the first
disbursement such other documents, information regarding the Unencumbered Asset
Pool Property and other assurances as Bank may require.
6.4 Insurance.
If required by Bank, evidence of insurance coverage, as required
in Section 7.1(c) of this Agreement.
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6.5 Legal Opinions.
If required by Bank, a written opinion from Borrower's legal
counsel and a written opinion from Guarantor's legal counsel, each covering such
matters as Bank may reasonably require. The legal counsel and the terms of the
opinion must be reasonably acceptable to Bank.
6.6 Good Standing.
If required by Bank, Certificates of Good Standing for Borrower
and Guarantor from their respective states of organization and from any other
state in which Borrower or Guarantor, as the case may be, is required to qualify
to conduct its business.
6.7 Payment of Certain Outstanding Obligations.
Payment in full and satisfaction of all of the following
obligations of Borrower and Guarantor:
(1) All obligations above Ten Million Dollars
($10,000,000) arising from, and all conditions relating to the
modification of, that Amended and Restated Secured Revolving Loan
Agreement between Bank and Borrower dated February 12, 1996, and the
cancellation or other satisfaction of all outstanding letters of credit
relating thereto (at the time of such payment and satisfaction, Bank
shall release all liens and encumbrances securing that Amended and
Restated Secured Revolving Loan Agreement, except for the 777 California
Deed of Trust and the Apple Deed of Trust, as those terms are defined in
that Amended and Restated Secured Revolving Loan Agreement);
(2) All obligations arising from, and all conditions
relating to the termination of, that Unsecured Line of Credit Agreement
between Bank and Borrower dated February 11, 1997, and the cancellation
or other satisfaction of all outstanding letters of credit relating
thereto; and
(3) That certain unsecured bridge line of credit to Union
Bank of California, N.A. in the amount of Twenty-Five Million Dollars
($25,000,000) (to be demonstrated by documentation satisfactory to
Bank).
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6.8 Payment of Fees.
Payment of the fees and expenses of preparation of this Agreement
including but not limited to attorneys' fees and costs, the review of the Phase
I reports, and any and all other fees due from Borrower to Bank.
6.9 Solvency Certificate.
If required by Bank, a solvency certificate from Borrower in form
and substance reasonably satisfactory to Bank.
6.10 Other Items.
Any other items that Bank reasonably requires.
6.11 Conditions of Each Advance, Extension of Credit, or Issuance
of Letter of Credit.
Before each extension of credit (including but not limited to the
issuance of each Letter of Credit), including the first:
(a) Bank shall have received a request for extension of credit in
the form of Exhibit "C";
(b) The requested extension of credit shall not cause the Total
Amount Outstanding to exceed the Available Amount;
(c) Bank shall have received a certificate from Borrower in the
form of Exhibit "E" and described in Section 7.4(e), representing, among other
things, that the requested extension of credit shall not cause the Total Amount
Outstanding to exceed the Available Amount and that Borrower is in compliance
with all other material covenants that it has made in this Agreement;
(d) The representations and warranties of Borrower set forth in
Article 9 of this Agreement shall be true and correct in all material respects
on and as of such borrowing with the same force and effect and if made on and as
of such borrowing; and
(e) No Event of Default or event that after notice and the
passage of time would constitute and Event of Default shall exist or result from
such borrowing.
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7. COVENANTS OF BORROWER.
Borrower promises to keep each of the following covenants:
7.1 Covenants Relating to Unencumbered Asset Pool.
(a) Compliance with Law and Improvements to
Unencumbered Asset Pool Property.
Borrower shall comply with all existing and future laws
(including Environmental Laws, as hereafter defined), regulations, orders,
building restrictions and requirements of, and all agreements with and
commitments to, all governmental, judicial or legal authorities having
jurisdiction over Borrower or Borrower's business, including those pertaining to
the construction, sale, leasing or financing of the Unencumbered Asset Pool
Property, the environmental condition of the Unencumbered Asset Pool Property
and with all recorded covenants and restrictions affecting the Unencumbered
Asset Pool Property (all collectively, the "Requirements"). "Environmental Laws"
means all federal, state, and local laws, ordinances and regulations relating to
any Hazardous Substance (as defined in Section 7.1(b) below) applicable to the
Unencumbered Asset Pool Property, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. Section 9601 et seq., the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1802, et seq., the Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901 et seq., the Toxic Substance Control Act of 1976, as
amended, 15 U.S.C. Section 2601 et seq., the Clean Water Act, 33 U.S.C. 466 et
seq., as amended, and the Clean Air Act, 42 U.S.C. Section 7401 et seq.
Notwithstanding any provision in this Subsection to the contrary (i) Borrower
shall have a right to contest all existing and future Requirements (other than
those relating to Environmental Laws) before complying therewith, and (ii)
Borrower shall have a right to contest all existing and future Requirements
relating to Environmental Laws for one year, before complying therewith.
(b) Site Visits.
Borrower and Guarantor shall allow Bank access to the
Unencumbered Asset Pool Property at any reasonable time upon reasonable written
notice by Bank to Borrower for the purposes of inspecting the Unencumbered Asset
Pool Property, and, upon reasonable belief by Bank of the existence of a matter
that should be investigated, taking soil or groundwater samples, and conducting
tests, among other things, to investigate for the presence of Hazardous
Substances, as defined herein. Borrower and Guarantor shall also allow Bank to
examine, copy and audit its and their books and records. Bank is under no duty
to visit or observe the
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Unencumbered Asset Pool Property, or to examine any books or records. Any site
visit, observation or examination by Bank shall be solely for the purpose of
protecting Bank's interests and preserving Bank's rights under the Loan
Documents. Bank owes no duty of care to protect Borrower or any other party
against, or to inform Borrower, Guarantor, or any other party of, any adverse
condition affecting the Unencumbered Asset Pool Property, including any defects
in the design or construction of any improvements on the Unencumbered Asset Pool
Property or the presence of any Hazardous Substances on the Unencumbered Asset
Pool Property. For purposes of this Agreement, a "Hazardous Substance" is
defined to mean any substance, material or waste, including asbestos and
petroleum (including crude oil or any fraction thereof), which is or becomes
designated, classified or regulated as "toxic," "hazardous," a "pollutant" or
similar designation under any federal, state or local law, regulation or
ordinance.
(c) Insurance.
Borrower shall maintain the following insurance:
(1) Special Form property damage insurance in
non-reporting form on the Unencumbered Asset Pool Property, with a policy limit
in an amount not less than the full insurable value of each Property on a
replacement cost basis, including tenant improvements, if any. The policy shall
include a business interruption (or rent loss, if more appropriate) endorsement
in the amount of six months' principal and interest payments, taxes and
insurance premiums, a lender's loss payable endorsement (438 BFU) in favor of
Bank, and any other endorsements reasonably required by Bank.
(2) Comprehensive General Liability coverage with
such limits as Bank may reasonably require. This policy shall name Bank as an
additional insured. Coverage shall be written on an occurrence basis, not claims
made.
All policies of insurance required by Bank must be
issued by companies reasonably approved by Bank and otherwise be reasonably
acceptable to Bank as to amounts, forms, risk coverages and deductibles. In
addition, each policy (except workers' compensation) must provide Bank at least
thirty (30) days' prior notice of cancellation, non-renewal or modification. If
Borrower fails to keep any such coverage in effect while the Loan is
outstanding, Bank may procure the coverage at Borrower's expense. Borrower shall
reimburse Bank, on demand, for all premiums advanced by Bank, which advances
shall be considered to be additional loans to Borrower hereunder at the Default
Rate provided in the Note.
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(d) Preservation of Rights.
Borrower shall obtain and preserve all rights, privileges
and franchises necessary or desirable for the operation of the Unencumbered
Asset Pool Property and the conduct of Borrower's business. Borrower shall
maintain all of the Unencumbered Asset Pool Property in good condition. Borrower
shall, at Borrower's sole cost and expense, follow all recommendations in any
asbestos survey conducted with respect to any Unencumbered Asset Pool Property
regarding safety conditions for and maintenance of any asbestos containing
materials ("ACM"), including, without limitation, any recommendation to
institute an operations and maintenance plan (the "O&M Plan").
7.2 Payment of Expenses.
Borrower shall pay all reasonable costs and expenses incurred by Bank in
connection with the making, disbursement and administration of the Loan
(including the cost of any documentation fees, but excluding other costs and
expenses of ordinary collection and servicing administration while the Loan is
not in default), as well as any revisions, extensions, renewals or "workouts" of
the Loan, and in the exercise of any of Bank's rights or remedies under this
Agreement. Such costs and expenses include fees for environmental services
(including only those services performed by Bank employees and the cost of those
services that the Bank incurs because it believes that such services are
required), legal fees and expenses of Bank's counsel and any other reasonable
fees and costs for services, regardless of whether such services are furnished
by Bank's employees or by independent contractors. Borrower acknowledges that
none of the fees described in Section 3 include amounts payable by Borrower
under this Section 7.2. All such sums incurred by Bank and not immediately
reimbursed by Borrower within fifteen (15) days of written notice by Bank shall
be considered an additional loan to Borrower hereunder at the Default Rate
provided in the Note.
7.3 Total Amount Outstanding.
Borrower shall not permit the Total Amount Outstanding as defined
in Section 2.1(b) to exceed the Available Amount as defined in Section 2.1(b).
7.4 Financial and Other Information; Certification.
Consolidated Borrower shall provide to Bank the following
financial information and statements prepared on a consolidated basis:
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(a) Within one hundred twenty (120) days of Borrower's fiscal
year end, Borrower's annual report.
(b) If requested by Bank, copies of Borrower's and Guarantor's
federal income tax return (with all schedule K-1's attached), within 15 days of
filing, and, if requested by Bank, copies of any extensions of the filing date.
(c) Within 60 days after the end of each calendar quarter, an
operating statement and rent roll for each Unencumbered Asset Pool Property and
Permitted Owner in form and substance reasonably satisfactory to Bank.
(d) Copies of Guarantor's Form 10-K Annual Report within 95 days
of fiscal year end , the financial statements contained therein to be prepared
on a consolidated basis according to GAAP, to include Borrower and Guarantor, to
be certified by the chief financial officer of Borrower, and to be audited (with
an unqualified opinion) by KPMG Peat Marwick, or another Certified Public
Accountant ("CPA") acceptable to Bank.
(e) Copies of Guarantor's Form 10-Q Quarterly Report within 60
days after the end of each calendar quarter except fiscal year end, copies of
any and all Form 8-K filings immediately upon filing with the Securities and
Exchange Commission, and copies of all statements, reports and notices sent or
made available generally by Borrower or Guarantor to their respective security
holders at the time they are so sent or made available, any financial statements
contained therein to be certified by the chief financial officer of Borrower,
and (to the extent appropriate) to be prepared on a consolidated basis according
to GAAP and to include Borrower and Guarantor.
(f) At the time of each advance, each extension of credit, and
each issuance of a letter of credit hereunder and within 60 days of the end of
each quarter and in addition within 120 days of the end of each year, a
compliance certificate of Borrower in the form of Exhibit "E"signed and
certified by an authorized financial officer of Borrower (i) setting forth the
information and computations (in sufficient detail) to determine the Gross Asset
Value (as that term is defined in Section 1) and to establish that Borrower is
in compliance with all financial covenants set forth in this Agreement at the
end of the period covered by the financial statements then being furnished, (ii)
stating specifically that the Total Amount Outstanding is less than or equal to
the Available Amount, and (iii) setting forth whether there existed as of the
date of such financial statements and whether there exists as of the date of the
certificate, any default under this Agreement and, if any such default exists,
specifying the nature thereof and the action Borrower is taking and proposes to
take with respect thereto.
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(g) Borrower's and Guarantor's one-year calendar budget (showing
month-by-month projections) within 30 days of Borrower's fiscal year end.
(h) General information on the status of projects under
development directly or indirectly by Borrower or by Guarantor prepared on a
quarterly basis.
(i) General information on projected acquisitions of property by
Borrower and Guarantor over the next twelve (12) months, delivered to Bank on a
quarterly basis.
(j) Any other financial or other information concerning
Borrower's and Guarantor's affairs and properties as Bank may reasonably
request, to be furnished promptly upon such request.
7.5 Notices.
Borrower shall promptly notify Bank in writing of any knowledge
it has of:
(a) any litigation affecting Borrower, Guarantor or the
Unencumbered Asset Pool Property, and/or any entity directly owning any
development property where the aggregate amount at risk or at issue (including
litigation costs and attorneys fees and expenses, but excluding claims which, in
Bank's reasonable judgment, are expected to be covered by insurance) exceeds
five million dollars ($5,000,000);
(b) any notice that any property or Borrower's or Guarantor's
business fails in any material respect to comply with any applicable law,
regulation or court order, where the failure to comply could have a material
adverse effect on Borrower or Guarantor;
(c) any material adverse change in the physical condition of the
Unencumbered Asset Pool Property or Borrower's or Guarantor's financial
condition or operations or other circumstance that materially adversely affects
Borrower's intended use of the Unencumbered Asset Pool Property or Borrower's
ability to repay the Loan;
(d) any failure to comply with this Agreement; and
(e) any change in Borrower's or Guarantor's name, legal
structure, place of business to a state other than the State of California, or
chief executive office to a state other than the State of California if Borrower
or Guarantor has more than one place of business.
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7.6 Indemnity.
Borrower agrees to indemnify, defend with counsel reasonably
acceptable to Bank, and hold Bank harmless from and against all liabilities,
claims, actions, damages, costs and expenses (including all reasonable legal
fees and expenses of Bank's counsel) except to the extent of those resulting
from Bank's gross negligence or willful misconduct, arising out of or resulting
from the ownership, operation, or use of the Unencumbered Asset Pool Property,
whether such claims are based on theories of derivative liability, comparative
negligence or otherwise. Notwithstanding anything to the contrary in any other
Loan Document, the provisions of this Section 7.6 shall survive the termination
of this Agreement, and repayment of the Loan.
7.7 Negative Covenants.
(a) Without Bank's prior written consent, which consent shall not
be unreasonably withheld or delayed, neither Borrower nor Guarantor shall:
(1) engage in any business activities that would result in
less than seventy percent (70%) of the Gross Asset Value being
derived from multifamily residential apartments;
(2) other than in the ordinary course of Borrower's or
Guarantor's business, lease all or a substantial part of
Borrower's or Guarantor's business or Borrower's or Guarantor's
assets;
(3) enter into or invest in any consolidation, merger,
pool, syndicate or other combination unless Borrower is the
surviving entity and control of Borrower has not changed.
(4) change the legal structure of Borrower from a limited
partnership that is an operating partnership whose sole general
partner is Guarantor, change the legal structure of Guarantor
from a publicly traded real estate investment trust under the
provisions of Internal Revenue Code Sections 856 and 857, or
change the legal structure of Borrower and Guarantor as a
so-called UpREIT, or without notifying Bank thirty days ahead of
time change Borrower's place of business or chief executive
office if Borrower or Guarantor has more than one place of
business;
(5) change Borrower's general partner from Guarantor or
allow Guarantor to suffer a change in its executive management
such that Keith Guericke is no longer Chief Executive Officer,
George M. Marcus is no
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<PAGE> 32
longer Chairman of the Board of Directors or Michael J. Schall is
no longer Chief Financial Officer, unless such executive
management is replaced by parties reasonably acceptable to Bank
within sixty (60) days; or
(6) dispose of a substantial part of Borrower's or
Guarantor's business or Borrower's or Guarantor's assets.
(b) Borrower and Guarantor shall not in any case:
(1) form additional unconsolidated down-REITs for property
acquisition unless they comply on an on-going basis with each of
the following conditions:
(i) EMC or any wholly owned subsidiary of Guarantor
or Borrower shall be the sole general partner of and have
the controlling interest in any such partnership;
(ii) Guarantor and/or Borrower and/or EMC shall
have sole control of each property and entity;
(iii) limited partners shall receive only units
and/or cash for value contributed;
(iv) all assets, liabilities and income shall be
fully consolidated into the financial statements of
Guarantor for purposes of the conditions and covenants set
out in this Agreement; and
(v) the total of all down-REIT properties shall not
exceed fifteen percent (15%) of the Gross Asset Value.
(2) liquidate or dissolve Borrower's or Guarantor's
business; or
(3) dispose of all of Borrower's or Guarantor's business
or Borrower's or Guarantor's assets.
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7.8 Development Covenants.
Borrower and Guarantor shall not in any case:
(1) on a consolidated basis at any time, have properties
under development or entitled or unentitled land, in combination
(at projected total cost), that exceed 35% of Gross Asset Value,
as that term is defined in Section 1;
(2) on a consolidated basis at the end of any quarter have
any single property under development that exceeds five percent
(5%) of Gross Asset Value (at projected total cost); or
(3) on a consolidated basis at any time have entitled and
unentitled land that exceeds seven and one-half percent (7.5%) of
Gross Asset Value or unentitled land that exceeds three percent
(3%) of Gross Asset Value.
For the purpose of calculating the development limits contained
in subsections (1), (2), and (3) above (the "Development
Limits"), costs of projects developed in partnership with a third
party in which Borrower or the Guarantor holds a limited
partnership interest are to be included as follows:
Projects: (i) that are to be owned 100% in fee simple by
Borrower, Guarantor, or a wholly owned subsidiary thereof,
or by EMC prior to attainment of stabilized occupancy of
not less than ninety percent (90%); or (ii) for which the
Borrower or Guarantor will possess contingent or direct
liability for the completion or leasing of said project
are to be included at one hundred percent (100%) of the
projected total cost of the Project; and
Projects: (i) that are not to be owned 100% in fee simple
by Borrower prior to attainment of stabilized occupancy of
not less than ninety percent (90%); and (ii) for which
Borrower or Guarantor possesses no direct or contingent
liability for the completion and leasing of said project
are to be included at the amount of (A) non-refundable
deposits; (B) capital contributions; (C) loans to
partners; and (D any other direct obligations and indirect
obligations of Guarantor or Borrower.
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7.9 Performance of Acts.
Upon request by Bank, Borrower shall perform all acts which may
be necessary or advisable to carry out the intent of the Loan Documents.
7.10 Keeping Guarantor Informed.
Borrower shall keep Guarantor (and any other person giving a
guaranty to Bank with regard to the Loan), in its capacity as guarantor,
informed of Borrower's financial condition and business operations and all other
circumstances which may affect Borrower's ability to pay or perform its
obligations under the Loan Documents. In addition, Borrower shall deliver to
Guarantor all of the financial information required to be furnished to Bank
hereunder.
7.11 Maximum Total Liabilities to Gross Asset Value of 50%.
The Total Liabilities of Guarantor and Borrower on a consolidated
basis at the end of each quarter shall not exceed 50% of the Gross Asset Value
of Guarantor and Borrower on a consolidated basis. "Total Liabilities" means all
current, long term and contingent liabilities including, but not limited to,
recourse and nonrecourse mortgage debt, capitalized leases, letters of credit,
unsecured debt, guaranties, purchase obligations (defined as nonrefundable
deposits and non-contingent obligations), subordinated debt and unfunded
obligations of Borrower reported in accordance with GAAP, Borrower's pro rata
share of non-recourse liabilities held in partnerships and joint ventures and
l00% of all liabilities of uncombined affiliates which are recourse to Borrower
or Guarantor, excluding nonrecourse debt on properties held by partnerships
which Borrower has a minority interest other than down-REITs. The term "Total
Liabilities" does not include that portion of minority interests attributable to
ownership in Borrower by persons other than Borrower.
7.12 Fixed Charge Coverage Ratio.
Quarterly EBITDA (excluding gains on sale of assets,
extraordinary gains and losses, and minority interest) divided by Fixed Charges
shall not be less than 1.60:1.0. "Fixed Charges" means interest expense,
capitalized interest expense, preferred stock dividends, scheduled principal
payments excluding balloon payments, and recurring capital expenditures of
$62.50 per quarter per unit (computed on an average units owned basis).
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<PAGE> 35
7.13 Maximum Quarterly Dividends.
Guarantor shall not declare or pay any distributions or dividends
except from cash flow available for distributions or dividends and earned during
the immediately preceding fiscal year, and in any event, not in excess of
ninety-five percent (95%) of Funds From Operations (as generally defined by the
National Association of Real Estate Investment Trusts) ("FFO") on a rolling
four-quarter basis. The total of common and preferred stock dividends in any
quarter may exceed FFO for the quarter only to the extent necessary for
Guarantor to retain its status as a real estate investment trust under the
provisions of Internal Revenue Code Sections 856 and 857.
7.14 Minimum Tangible Net Worth.
Guarantor shall maintain minimum quarterly Tangible Net Worth of
$300,000,000 plus seventy five percent (75%) of the gross proceeds of any
additional equity offered or sold after June 30, 1997. Tangible Net Worth shall
be calculated according to GAAP.
7.15 Negative Pledge.
(a) (i) Borrower shall not create, assume, or allow any security
interest or lien (including judicial liens) on any Unencumbered Asset Pool
Property, except:
(1) Liens for taxes, assessments or governmental
charges or levies to the extent that the Permitted Owner is not yet required to
pay the amount secured thereby and easements; covenants, conditions and
restrictions; reciprocal easement and access agreements and similar agreements
relating to ownership and operation; and
(2) Liens imposed by law, such as carrier's,
warehouse man's, mechanic's, materialman's and other similar liens, arising in
the ordinary course of business in respect of obligations that are not overdue
or are being actively contested in good faith by appropriate proceedings, as
long as the Permitted Owner has established and maintained adequate reserves for
the payment of the same and, by reason of nonpayment, no property of the
Permitted Owner is in danger of being lost or forfeited; and
(ii) Borrower shall not create, assume, or allow any
negative pledge agreement in favor of any other person affecting or relating to
any Unencumbered Asset Pool Property.
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(b) Borrower shall have the right to contest in good faith by
appropriate legal or administrative proceeding the validity of any prohibited
lien, encumbrance or charge affecting its properties so long as (i) no Event of
Default exists, (ii) Borrower first deposits with Bank a bond or other security
satisfactory to Bank in the amount reasonably required by Bank; (iii) Borrower
immediately commences its contest of such lien, encumbrance or charge, and
continuously pursues the contest in good faith and with due diligence; (iv)
foreclosure of the lien, encumbrance or charge is stayed; and (v) Borrower pays
any judgment rendered for the lien claimant or other third party, unless such
judgment has been stayed as the result of an appeal, within thirty (30) days
after the entry of the judgment. Borrower will discharge or elect to contest and
post an appropriate bond or other security within thirty (30) days of written
demand by Bank.
7.16 Total Unencumbered Assets to Unsecured Debt.
The amount of the total unsecured debt of the Borrower and the
Guarantor on a consolidated basis shall not be more than fifty percent (50%) of
the total Current Value of the unencumbered real estate assets of the Borrower
and the Guarantor.
7.17 Change in Ownership of Borrower or Management of the
Unencumbered Asset Pool Property.
Borrower shall not cause, permit or suffer (a) any change of the
general partner of Borrower, (b) any change of the party acting as guarantor of
the Loan, or (c) any person or entity other than Guarantor or an affiliate of
Guarantor to manage the Unencumbered Asset Pool Property.
7.18 Books and Records.
Borrower shall maintain adequate books and records.
7.19 Audits.
Borrower shall allow Bank and its agents to inspect Borrower's
properties and examine, audit and make copies of books and records at any
reasonable time upon reasonable notice to Borrower. If any of Borrower's
properties, books or records are in the possession of a third party, Borrower
authorizes that third party to permit Bank or its agents to have access to
perform inspections or audits and to respond to Bank's requests for information
concerning such properties, books and records.
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7.20 Cooperation.
Borrower shall take any action reasonably requested by Bank to
carry out the intent of this Agreement.
7.21 ERISA Plans.
Borrower shall give prompt written notice to Bank of:
(a) The occurrence of any reportable event under Section 4043(b)
of ERISA which requires 30 days' notice.
(b) Any action by Borrower to terminate or withdraw from a Plan
or the filing of any notice of intent to terminate under Section 4041 of ERISA.
(c) Any notice of noncompliance made with respect to a Plan under
Section 4041(b) of ERISA.
(d) The commencement of any proceeding with respect to a Plan
under Section 4042 of ERISA.
7.22 Use of Proceeds.
Borrower shall use the proceeds of the Loan only (i) for
repayment at the time of the initial funding of all obligations above
$10,000,000 to Bank arising from that Secured Revolving Line of Credit Agreement
dated February 12, 1996, and obligations to Union Bank of California, N.A.
arising from that certain Unsecured Line of Credit Agreement, dated February 11,
1997, (ii) for acquisition of real and personal property, (iii) for working
capital in Borrower's business, and (iv) for repayment of other debt of
Borrower.
7.23 Use of Proceeds - Ineligible Securities.
Borrower shall not use any proceeds of the Loan, directly or
indirectly, to purchase or carry, or reduce or retire any loan incurred to
purchase or carry any "Margin Stock" (within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System) or to extend credit to others
for the purpose of purchasing or carrying any Margin Stock.
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<PAGE> 38
8. REPRESENTATIONS AND WARRANTIES.
When Borrower and Guarantor sign this Agreement, and until Bank
is repaid in full, Borrower and Guarantor make the following representations and
warranties. Each request for an extension of credit constitutes a renewed
representation and warranty.
8.1 Organization of Borrower.
Borrower is a limited partnership duly formed and existing under
the laws of California.
8.2 Authorization.
The execution and compliance with this Agreement and each Loan
Document to which Borrower is a party are within Borrower's powers, have been
duly authorized, and do not conflict with any of Borrower's organizational
papers.
8.3 Enforceable Agreement.
This Agreement is a legal, valid and binding agreement of
Borrower, enforceable against Borrower in accordance with its terms, and it and
any other Loan Document to which it is a party, when executed and delivered,
will be similarly legal, valid, binding and enforceable, except as the same may
be limited by insolvency, bankruptcy, reorganization, or other laws relating to
or affecting the enforcement of creditors' rights or by general equitable
principles.
8.4 Good Standing.
In each state in which Borrower does business, it is properly
licensed, in good standing, and, where required, in compliance with fictitious
name statutes.
8.5 No Conflicts.
Neither Borrower nor the Unencumbered Asset Pool Property are in
violation of, nor do the terms of this Agreement or any other Loan Document
conflict with, any regulation or ordinance, any order of any court or
governmental entity, or any covenant or agreement affecting Borrower or the
Unencumbered Asset Pool Property. There are no claims, actions, proceedings or
investigations pending or, to the best knowledge of Borrower, threatened against
Borrower or affecting the Unencumbered Asset Pool Property except for those
previously disclosed by Borrower to Bank in writing.
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8.6 Financial Information.
All financial information which has been and will be delivered to
Bank, including all information relating to the financial condition of Borrower,
Guarantor and the Unencumbered Asset Pool Property, did as of its date fairly
and accurately represent the financial condition being reported on. All such
information was and will be prepared in accordance with generally accepted
accounting principles consistently applied, unless otherwise noted. Since
December 31, 1997, there has been no material adverse change in the financial
condition of Borrower, Guarantor or the Unencumbered Asset Pool Property.
8.7 Borrower Not a "Foreign Person".
Borrower is not a "foreign person" within the meaning of Section
1445(f)(3) of the Internal Revenue Code of 1986, as amended from time to time.
8.8 Lawsuits.
There is no lawsuit, tax claim or other dispute pending or to the
best of Borrower's knowledge threatened against Borrower which, if lost, would
materially impair Borrower's financial condition or ability to repay the Loan.
8.9 Year 2000 Precautions.
Borrower reasonably anticipates that all of its computer
applications that are material to its business and operations will on a timely
basis be able to perform properly date-sensitive functions for all dates before
and after January 1, 2000.
8.10 Permits, Franchises.
Borrower possesses all permits, memberships, franchises,
contracts and licenses required and all trademark rights, trade name rights,
patent rights and fictitious name rights necessary to enable it to conduct the
business in which it is now engaged.
8.11 Other Obligations.
Borrower is not in material default (taking into account all
applicable cure periods, if any) on any material obligation for borrowed money,
any purchase money obligation or any other material lease, commitment, contract,
instrument or obligation.
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8.12 Income Tax Returns.
Borrower has no knowledge of any pending assessments or
adjustments of its income tax for any year.
8.13 No Event of Default.
There is no event which is, or with notice or lapse of time or
both would be, a default under this Agreement.
8.14 ERISA Plans.
(a) Borrower has fulfilled its obligations, if any, under the
minimum funding standards of ERISA and the Code with respect to each Plan and is
in compliance in all material respects with the presently applicable provisions
of ERISA and the Code, and has not incurred any liability with respect to any
Plan under Title IV of ERISA.
(b) No reportable event has occurred under Section 4043(b) of
ERISA for which the applicable authorities require 30 days' notice.
(c) No action by Borrower to terminate or withdraw from any Plan
has been taken and no notice of intent to terminate a Plan has been filed under
Section 4041 of ERISA.
(d) No proceeding has been commenced with respect to a Plan under
Section 4042 of ERISA, and no event has occurred or condition exists which might
constitute grounds for the commencement of such a proceeding.
(e) The following terms have the meanings indicated for purposes
of this Agreement:
(1) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(2) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time.
(3) "PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA.
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(4) "Plan" means any employee pension benefit plan
maintained or contributed to by Borrower and insured by the
Pension Benefit Guaranty Corporation under Title IV of ERISA.
8.15 Location of Borrower.
Borrower's place of business (or, if Borrower has more than one
place of business, its chief executive office) is located at the address listed
under Borrower's signature on this Agreement or at such other place as to which
Borrower has notified Bank in writing.
9. DEFAULT AND REMEDIES.
9.1 Events of Default.
Borrower will be in default under this Agreement upon the
occurrence of any one or more of the following events ("Event of Default"):
(a) Borrower fails to make any payment due hereunder, or fails to
make any payment demanded by Bank under any Loan Document, within fifteen (15)
days after the date due or demanded; or
(b) Borrower fails to comply with any covenant contained in this
Agreement other than those referred to in clause (a), and does not either cure
that failure within thirty (30) days after written notice from Bank, or, if the
default cannot be cured in thirty (30) days, within a reasonable time; or
(c) Borrower or Guarantor becomes insolvent or the subject of any
bankruptcy or other voluntary proceeding, in or out of court, for the adjustment
of debtor-creditor relationships; or the subject of any involuntary proceeding,
in court, for the adjustment of debtor-creditor relationships, where such
proceeding is not dismissed within sixty (60) days of commencement; or
(d) Borrower or Guarantor dissolves or liquidates; or
(e) Any representation or warranty made or given in any of the
Loan Documents proves to be false or misleading in any material respect; or
(f) Guarantor breaches or fails to comply with any covenant
contained in this Agreement and does not cure that failure within thirty (30)
days after written notice from Bank, or, if the default cannot be cured in
thirty (30) days, within a reasonable time; or
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(g) An Event of Default occurs under any of the Loan Documents;
or
(h) A final non-appealable judgment or order is entered against
Borrower or Guarantor that materially adversely affects Borrower's intended use
of the Unencumbered Asset Pool Property or Borrower's or Guarantor's ability to
repay the Loan.
(i) Borrower or Guarantor fails to meet the conditions of, or
fails after the expiration of applicable cure periods, if any, to perform any
obligation under, any other agreement Borrower has with Bank or any affiliate of
Bank, including the obligations of Borrower or Guarantor, as the case may be,
under or with respect to Borrower's obligations under the Existing Letters of
Credit. For the purposes of this section, "affiliated with" means in control of,
controlled by or under common control with; or
(j) Borrower or Guarantor defaults (taking into account
applicable cure periods, if any) in connection with any credit such person has
with any lender, if the default consists of the failure to make a payment when
due or gives the other lender the right to accelerate any obligation that is
with recourse to Borrower or Guarantor in excess of $5,000,000; or
(k) There is a material adverse change in Borrower's or
Guarantor's financial condition, or event or condition that materially impairs
Borrower's intended use of the Unencumbered Asset Pool Property which materially
impairs Borrower's or Guarantor's ability to repay the Loan; or
(l) The Guarantor shall no longer qualify as a real estate
investment trust under the provisions of Code Sections 856 and 857; or
(m) Borrower or Guarantor is in default under (i) the
Reimbursement Agreement between Borrower, Guarantor, and Bank dated as of
November 1, 1995, or the terms of any letter of credit issued thereunder, or
(ii) the Reimbursement Agreement between Borrower, Guarantor, and Bank dated as
of May 1, 1995, or the terms of any letter of credit issued thereunder.
9.2 Remedies.
If an Event of Default occurs under this Agreement, Bank may
exercise any right or remedy which it has under any of the Loan Documents, or
which is otherwise available at law or in equity or by statute, and all of
Bank's rights and remedies shall be cumulative. All of Borrower's obligations
under the Loan Documents shall become immediately due and payable without notice
of default,
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presentment or demand for payment, protest or notice of nonpayment or dishonor,
or other notices or demands of any kind or character, all at Bank's option,
exercisable in its sole discretion.
10. REFERENCE AND ARBITRATION.
10.1 Mandatory Arbitration. Except as provided below, any
controversy or claim between or among the parties, including those arising out
of or relating to this Agreement or the other Loan Documents and any claim based
on or arising from an alleged tort, shall at the request of any party be
determined by arbitration. The arbitration shall be conducted in accordance with
the United States Arbitration Act (Title 9, U.S. Code), notwithstanding any
choice of law provision in this Agreement, and under the Commercial Rules of the
American Arbitration Association ("AAA"). The arbitrator(s) shall give effect to
statutes of limitation in determining any claim. Any controversy concerning
whether an issue is arbitrable shall be determined by the arbitrator(s).
Judgment upon the arbitration award may be entered into any court having
jurisdiction. The institution and maintenance of an action for judicial relief
or pursuit of a provisional or ancillary remedy shall not constitute a waiver of
the right of any party, including the plaintiff, to submit the controversy or
claim to arbitration if any other party contests such action for judicial
relief.
10.2 Judicial Reference. Subject to subsection 10.1 above, in any
judicial action between or among the parties, including but not limited to any
action or cause of action arising out of or relating to this Agreement or the
other Loan Documents or based on or arising from an alleged tort, all decisions
of fact and law shall at the request of any party be referred to a referee in
accordance with California Code of Civil Procedure Sections 638 et seq. The
parties shall designate to the court a referee or referees selected under the
auspices of the AAA in the same manner as arbitrators are selected in
AAA-sponsored proceedings. The presiding referee of the panel, or the referee if
there is a single referee, shall be an active attorney or retired judge.
Judgment upon the award rendered by such referee(s) shall be entered in the
court in which such proceeding was commenced in accordance with California Code
of Civil Procedure Sections 644 and 645.
10.3 Provisional Remedies, Self-Help. No provision of this
Agreement shall limit the right of any party to this Agreement to exercise
self-help remedies such as setoff, or obtaining provisional or ancillary
remedies from a court of competent jurisdiction before, after, or during the
pendency of any arbitration or other proceeding. The exercise of a remedy does
not waive the right of either party to resort to arbitration or reference.
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11. MISCELLANEOUS PROVISIONS.
11.1 No Waiver; Consents.
No alleged waiver by Bank shall be effective unless in writing, and no
waiver shall be construed as a continuing waiver. No waiver shall be implied
from any delay or failure by Bank to take action on account of any default of
Borrower. Consent by Bank to any act or omission by Borrower shall not be
construed as a consent to any other or subsequent act or omission.
11.2 No Third Parties Benefitted.
This Agreement is made and entered into for the sole protection
and benefit of Bank and Borrower and their successors and assigns. No trust fund
is created by this Agreement and no other persons or entities shall have any
right of action under this Agreement or any right to the Loan funds.
11.3 Notices.
All notices given under this Agreement shall be in writing and
shall be effectively served upon delivery; or if mailed, upon the first to occur
of receipt or the expiration of forty-eight (48) hours after deposit in
certified United States mail, postage prepaid; or twenty-four (24) hours after
deposit with overnight courier, prepaid, sent to the party at its address
appearing below its signature; or upon confirmation of receipt, if sent by
facsimile transmission to the party at the number appearing below its signature
and followed by delivery of a hard copy of such notice by United States mail as
above. Those addresses or numbers may be changed by either party by written
notice to the other party.
11.4 Attorneys' Fees.
If any lawsuit, reference or arbitration is commenced which
arises out of, or which relates to this Agreement, the Loan Documents or the
Loan, including any alleged tort action, regardless of which party commences the
action, the prevailing party shall be entitled to recover from each other party
such sums as the court, referee or arbitrator may adjudge to be reasonable
attorneys' fees in the action or proceeding, in addition to costs and expenses
otherwise allowed by law. Any such attorneys' fees incurred by either party in
enforcing a judgment in its favor under this Agreement shall be recoverable
separately from and in addition to any other amount included in such judgment,
and such attorneys fees obligation is intended to be severable from the other
provisions of this Agreement and to survive and not be merged into any such
judgment. In all other situations, including any bankruptcy or other voluntary
or
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involuntary proceeding, in or out of court, for the adjustment of
debtor-creditor relationships, Borrower agrees to pay all of Bank's costs and
expenses, including attorneys' fees, which may be incurred in any effort to
collect or enforce the Loan or any part of it or any term of any Loan Document.
Attorneys fees shall include the allocated costs for services of in-house
counsel.
11.5 Participations and Syndications.
Bank may at any time syndicate the Loan or sell to one or more
persons or entities participating interests in the Loan and/or any interest of
Bank under any of the Loan Documents and may provide financial information about
the Borrower to actual or potential participants or assignees, without notice to
or consent of Borrower.
11.6 Heirs, Successors and Assigns.
The terms of this Agreement shall bind and benefit the heirs,
legal representatives, successors and assigns of the parties; provided, however,
that Borrower may not assign this Agreement without the prior written consent of
Bank. Bank shall have the right to transfer the Loan to any other persons or
entities without the consent of or notice to Borrower. Without the consent of or
notice to Borrower, Bank may disclose to any prospective purchaser of any
securities issued by Bank, and to any prospective or actual purchaser of any
interest in the Loan or any other loans made by Bank to Borrower (in the case of
a prospective purchase of an interest in the Loan or any other loan, upon Bank's
receiving its standard confidentiality letter from the prospective purchaser of
the interest in the Loan or any other loan), any financial or other information
relating to Borrower, the Loan or the Unencumbered Asset Pool Property.
11.7 Payments Set Aside.
To the extent that Borrower makes a payment or payments or
transfers any assets to Bank, and such payment or payments or transfer or any
part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, receiver or any
other party in connection with any insolvency proceeding, or otherwise, then:
(i) any and all obligations owed to Bank and any and all remedies available to
Bank under the terms of the Loan Documents or in law or equity against Borrower
shall be automatically revived and reinstated to the extent (and only to the
extent) of any recovery permitted under clause (ii) below; and (ii) Bank shall
be entitled to recover (and shall be entitled to file a proof of claim to obtain
such recovery in any applicable bankruptcy, insolvency, receivership or
fraudulent conveyance or fraudulent transfer proceeding) either: (x) the amount
of the payments or the value of the transfer or (y) if the transfer has been
undone and the assets returned
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<PAGE> 46
in whole or in part, the value of the consideration paid to or received by
Borrower for the initial asset transfer, plus in each case any deferred interest
from the date of the disgorgement to the date of distribution to Bank in any
bankruptcy, insolvency, receivership or fraudulent conveyance or fraudulent
transfer proceeding, and any costs and expenses due and owing, including,
without limitation, any reasonable attorneys' fees incurred by Bank in
connection with the exercise by Bank of its rights under this Section 11.7.
11.8 Interpretation.
The language of this Agreement shall be construed as a whole
according to its fair meaning, and not strictly for or against any party. The
word "include(s)" means "include(s), without limitation," and the word
"including" means "including, but not limited to."
11.9 Miscellaneous.
This Agreement may not be modified or amended except by a written
agreement signed by the parties. The invalidity or unenforceability of any one
or more provisions of this Agreement shall in no way affect any other provision.
If Borrower consists of more than one person or entity, each shall be jointly
and severally liable to Bank for the faithful performance of this Agreement and
the other Loan Documents. Time is of the essence in the performance of this
Agreement and the other Loan Documents. This Agreement shall be governed by
California law. This Agreement may be executed in one or more counterparts, each
of which shall, for all purposes be deemed an original and all such counterparts
taken together, shall constitute one and the same instrument.
11.10 Integration and Relation to Loan Commitment.
The Loan Documents fully state all of the terms and conditions of
the parties' agreement regarding the matters mentioned in or incidental to this
Agreement. The Loan Documents supersede all oral negotiations and prior writings
concerning the subject matter of the Loan Documents, including any loan
commitment issued to Borrower.
11.11 Actions.
Bank shall have the right, but not the obligation, to commence,
appear in, and defend any action or proceeding which might affect its rights,
duties or liabilities relating to the Loan, the Unencumbered Asset Pool
Property, or any of the Loan Documents. Borrower shall pay promptly on demand
all of Bank's reasonable
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out-of-pocket costs, expenses, and legal fees and expenses of Bank's counsel
incurred in those actions or proceedings.
11.12 Relationships with Other Bank Customers.
From time to time, Bank may have business relationships with
Borrower's customers, suppliers, contractors, tenants, partners, shareholders,
officers or directors, with businesses offering products or services similar to
those of Borrower, or with persons seeking to invest in, borrow from or lend to
Borrower. Borrower agrees that in no event shall Bank be obligated to disclose
to Borrower any information concerning any other Bank customer. Borrower further
agrees that Bank may extend credit to those parties and may take any action it
may deem necessary to collect any such credit, regardless of any effect the
extension or collection of such credit may have on Borrower's financial
condition or operations.
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<PAGE> 48
IN WITNESS WHEREOF, Borrower and Bank have executed this
Agreement as of the date first above written.
ESSEX PORTFOLIO, L.P., a California limited partnership
By ESSEX PROPERTY TRUST, INC.,
a Maryland corporation, General Partner
By ______________________________
Name ____________________________
Title ____________________________
925 East Meadow Drive
Palo Alto, CA 94303
Attn: John F. Burkart, Michael J. Schall and Jordan E. Ritter
Facsimile: (650) 494-8743
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
By ______________________________
Name ____________________________
Title ____________________________
By ______________________________
Name ____________________________
Title ____________________________
Address:
Bank of America N.T. & S.A.
San Francisco CRESG c/o Unit 8940
50 California Street, 11th Floor
San Francisco, CA 94111
Facsimile: (415) 445-4096
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<PAGE> 49
IN WITNESS WHEREOF, Borrower and Bank have executed this
Agreement as of the date first above written.
ESSEX PORTFOLIO, L.P., a California limited partnership
By ESSEX PROPERTY TRUST, INC.,
a Maryland corporation, General Partner
By ______________________________
Name ____________________________
Title ____________________________
925 East Meadow Drive
Palo Alto, CA 94303
Attn: John F. Burkart, Michael J. Schall and Jordan E. Ritter
Facsimile: (650) 494-8743
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
By ______________________________
Name ____________________________
Title ____________________________
By ______________________________
Name ____________________________
Title ____________________________
Address:
Bank of America N.T. & S.A.
San Francisco CRESG c/o Unit 8940
50 California Street, 11th Floor
San Francisco, CA 94111
Facsimile: (415) 445-4096
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<PAGE> 1
EXHIBIT 11.1
ESSEX PORTFOLIO, L.P.
STATEMENT OF COMPUTATION OF EARNINGS PER UNIT
(Dollars in thousands except per unit amounts)
<TABLE>
<CAPTION>
Quarter ended June 30, Six months ended June 30,
-------------------------- ---------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
BASIC:
Net income $ 9,884 $ 7,114 $ 19,430 $ 12,762
Less:
Distributions on Preferred Interest for 8.75% Series 1996A
Convertible Preferred Stock (875) (491) (1,750) (929)
Distributions on 7.875% Series B Cumulative Redeemable
Preferred Units (1,492) 0 (2,214) 0
------------ ------------ ------------ ------------
Net income applicable to general and limited partners $ 7,517 $ 6,623 $ 15,466 $ 11,833
============ ============ ============ ============
Weighted average number of units outstanding
during the period 18,506,034 15,393,186 18,498,886 14,426,765
============ ============ ============ ============
Net income per partnership unit $ 0.41 $ 0.43 $ 0.84 $ 0.82
============ ============ ============ ============
DILUTED:
Adjusted units - basic, from above 18,506,034 15,393,186 18,498,886 14,426,765
Additional weighted average units of dilutive stock options
using the average stock price under the treasury stock
method 215,269 190,608 227,574 193,153
------------ ------------ ------------ ------------
Weighted average number of units outstanding
during the period 18,721,303 15,583,794 18,726,460 14,619,918
============ ============ ============ ============
Net income per partnership unit $ 0.40 $ 0.42 $ 0.83 $ 0.81
============ ============ ============ ============
</TABLE>
(1) In accordance with Statement of Accounting Standards Board No. 128,
the additional weighted average units issuable upon conversion of the
8.75% Convertible Preferred Stock, Series 1996A is not included as
the effect would be anti-dilutive.
<PAGE> 1
EXHIBIT 12.1
ESSEX PORTFOLIO, L.P.
SCHEDULE OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
PREFERRED UNIT DISTRIBUTIONS
(in thousands, except ratios)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
---------------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
EARNINGS:
Income before minority interests $19,660 $34,146 $14,970 $14,244
Interest expense 9,014 12,659 11,442 10,928
Amortization of deferred financing costs 341 509 639 1,355
------- ------- ------- -------
TOTAL EARNINGS $29,015 $47,314 $27,051 $26,527
------- ------- ------- -------
FIXED CHARGES:
Interest expense $ 9,014 $12,659 $11,442 $10,928
Convertible preferred unit distributions 875 2,681 635 --
Perpetual preferred unit distributions 2,214 -- -- --
Amortization of deferred financing costs 341 509 639 1,355
Capitalized interest 1,775 1,276 115 92
------- ------- ------- -------
TOTAL FIXED CHARGES AND PREFERRED
UNIT DISTRIBUTIONS $14,219 $17,125 $12,831 $12,375
RATIO OF EARNINGS TO FIXED CHARGES
(EXCLUDING PREFERRED UNIT DISTRIBUTIONS) 2.61X 3.28X 2.22X 2.14X
======= ======= ======= =======
RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED DISTRIBUTIONS 2.04X 2.76X 2.11X 2.14X
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ESSEX
PROPERTY TRUST, INC. YEAR ENDED REPORT FOR THE SIX MONTHS ENDED JUNE 30, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 19,952
<SECURITIES> 0
<RECEIVABLES> 20,740
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 53,210
<PP&E> 902,144
<DEPRECIATION> 66,866
<TOTAL-ASSETS> 903,815
<CURRENT-LIABILITIES> 53,008
<BONDS> 342,539
0
1
<COMMON> 2
<OTHER-SE> 397,013
<TOTAL-LIABILITY-AND-EQUITY> 903,815
<SALES> 0
<TOTAL-REVENUES> 59,520
<CGS> 0
<TOTAL-COSTS> 28,671
<OTHER-EXPENSES> 2,405
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,014
<INCOME-PRETAX> 19,430
<INCOME-TAX> 0
<INCOME-CONTINUING> 19,430
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,430
<EPS-PRIMARY> 0.84<F1>
<EPS-DILUTED> 0.83
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
