<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
September 1, 1998
ARCHSTONE COMMUNITIES TRUST
(Exact name of registrant as specified in its charter)
Maryland 1-10272 74-6056896
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification no.)
7670 South Chester Street
Englewood, Colorado 80112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 708-5959
(Former name or former address, if changed since last report)
===============================================================================
<PAGE>
ITEM 5. OTHER EVENTS
This Current Report on Form 8-K is being filed to provide updated
historical and pro forma financial information for Security Capital Atlantic
Incorporated ("Atlantic") and pro forma financial information for Archstone
Communities Trust. A summary of the financial information provided is contained
in Item 7 of this report.
As previously reported, on June 29, 1998, the shareholders of both Security
Capital Pacific Trust ("PTR") and Atlantic, approved a merger transaction which
was consummated in July 1998, whereby Atlantic, a multifamily real estate
investment trust which operated primarily in the mid-Atlantic and southeastern
United States, was merged with and into PTR. The combined company has continued
its existence under the name Archstone and is traded on the New York Stock
Exchange under the symbol "ASN".
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Page
Number
------
a. Atlantic Historical Condensed Financial Statements:............... 4
b. Pro Forma Financial Information:
Atlantic Pro Forma Condensed Financial Statements.............. 18
Archstone Pro Forma Condensed Financial Statements............. 28
c. Exhibits.......................................................... 40
3
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
INDEX TO HISTORICAL CONDENSED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Condensed Balance Sheets--June 30, 1998 (unaudited) and December 31, 1997............ 5
Condensed Statements of Earnings--Three and six months ended June 30, 1998 and 1997
(unaudited).......................................................................... 6
Condensed Statement of Shareholders' Equity--Six months ended June 30, 1998
(unaudited).......................................................................... 7
Condensed Statements of Cash Flows--Six months ended June 30, 1998 and 1997
(unaudited).......................................................................... 8
Notes to Condensed Financial Statements.............................................. 9
</TABLE>
4
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
CONDENSED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------- -------------
ASSETS (Unaudited)
------
<S> <C> <C>
Real estate.............................................................. $ 1,600,609 $ 1,364,572
Less accumulated depreciation............................................ 79,745 65,626
-------------- -------------
1,520,864 1,298,946
Homestead convertible mortgage notes receivable.......................... 119,424 122,482
-------------- -------------
Net investments......................................................... 1,640,288 1,421,428
Cash and cash equivalents................................................ 2,448 1,273
Other assets............................................................. 24,739 18,710
-------------- -------------
Total assets........................................................ $ 1,667,475 $ 1,441,411
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Credit facilities...................................................... $ 389,772 $ 164,743
Long-term debt......................................................... 150,000 150,000
Mortgages payable...................................................... 157,479 170,525
Distributions payable.................................................. -- 19,104
Accounts payable....................................................... 23,940 22,774
Accrued expenses and other liabilities................................. 39,242 23,284
-------------- -------------
Total liabilities................................................... 760,433 550,430
-------------- -------------
Minority interest...................................................... 19,026 --
-------------- -------------
Shareholders' equity (250,000,000 total shares authorized):
Series A Preferred Shares (2,000,000 shares issued and outstanding at
June 30, 1998 and December 31,1997; stated liquidation preference
of $25 per share).................................................... 50,000 50,000
Common Shares (47,752,052 issued and outstanding at June 30,
1998 and 47,760,580 issued and outstanding at December 31, 1997)...... 478 478
Additional paid-in capital............................................. 904,440 904,668
Employee stock purchase notes.......................................... (12,053) (12,347)
Unrealized holding gain on Homestead convertible mortgage notes
receivable........................................................... 8,750 16,707
Distributions in excess of net earnings................................ (63,599) (68,525)
-------------- -------------
Total shareholders' equity.......................................... 888,016 890,981
-------------- -------------
Total liabilities and shareholders' equity.......................... $ 1,667,475 $ 1,441,411
============== =============
</TABLE>
See accompanying notes to the condensed financial statements.
5
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Rental revenues.............................................................. $ 50,681 $ 41,107 $ 96,829 $80,822
Interest income on Homestead convertible mortgage notes...................... 2,202 744 4,311 929
Other income................................................................. 224 104 392 161
-------- -------- -------- --------
53,107 41,955 101,532 81,912
-------- -------- -------- --------
Expenses:
Rental expenses:
Paid to affiliate.......................................................... 392 1,416 796 2,696
Paid to third parties...................................................... 13,542 10,431 25,522 20,637
Real estate taxes............................................................ 4,965 4,017 9,565 7,866
Depreciation on real estate investments...................................... 8,652 6,451 16,450 12,583
Interest..................................................................... 7,765 4,624 13,674 9,385
General and administrative:
Paid to affiliate.......................................................... 251 3,200 465 6,229
Paid to third parties...................................................... 1,197 237 2,407 502
Provision for possible loss on investments................................... -- -- -- 200
Termination of interest rate lock............................................ 5,965 -- 5,965 --
Other........................................................................ 274 8 290 65
-------- -------- -------- --------
43,003 30,384 75,134 60,163
-------- -------- -------- --------
Earnings from operations....................................................... 10,104 11,571 26,398 21,749
Gain on disposition of real estate........................................... -- 259 -- 259
-------- -------- -------- --------
Earnings before extraordinary item............................................. 10,104 11,830 26,398 22,008
Extraordinary item-costs related to early extinguishment of debt............. 104 -- 223 --
-------- -------- -------- --------
Net earnings................................................................... 10,000 11,830 26,175 22,008
Less preferred share dividends............................................... 1,078 -- 2,156 --
-------- -------- -------- --------
Net earnings attributable to Common Shares..................................... $ 8,922 $ 11,830 $ 24,019 $ 22,008
======== ======== ======== ========
Per Common Share amounts:
Basic and diluted earnings before extraordinary item......................... $ 0.19 $ 0.29 $ 0.51 $ 0.56
======== ======== ======== ========
Basic and diluted net earnings attributable to Common Shares................. $ 0.19 $ 0.29 $ 0.50 $ 0.56
======== ======== ======== ========
Basic weighted average Common Shares outstanding............................. 47,752 41,228 47,752 39,569
======== ======== ======== ========
Diluted weighted average Common Shares outstanding........................... 47,755 41,228 47,753 39,569
======== ======== ======== ========
Distributions paid........................................................... $ 0.40 $ 0.39 $ 0.80 $ 0.78
======== ======== ======== ========
</TABLE>
See accompanying notes to the condensed financial statements.
6
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Series A Unrealized
Preferred gains on
Shares Employee Homestead Distributions
at aggregate Common Additional stock convertible in excess
liquidation Shares at paid-in purchase mortgage notes of net
preference par value capital notes receivable earnings Total
----------- --------- ---------- -------- -------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1997................. $50,000 $478 $904,668 $(12,347) $16,707 $(68,525) $890,981
--------
Net earnings................................ -- -- -- -- -- 26,175 26,175
Preferred share dividends paid.............. -- -- -- -- -- (2,156) (2,156)
Other comprehensive income -- change in
unrealized holding gain on Homestead
convertible mortgage notes receivable..... -- -- -- -- (7,957) -- (7,957)
--------
Comprehensive income attributable to Common
Shares.................................... 16,062
--------
Common Shares repurchased under employee
stock purchase plan, net of issuances..... -- -- (218) 200 -- -- (18)
Principal payments on employee stock
purchase notes............................ -- -- -- 94 -- -- 94
Common Share distributions paid............. (19,093) (19,093)
Other....................................... -- -- (10) -- -- -- (10)
------- ---- -------- -------- ------- -------- --------
Balances at June 30, 1998..................... $50,000 $478 $904,440 $(12,053) $ 8,750 $(63,599) $888,016
======= ==== ======== ======== ======= ======== ========
</TABLE>
See accompanying notes to the condensed financial statements.
7
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1998 1997
----------- ---------
<S> <C> <C>
Operating activities:
Net earnings......................................................... $ 26,175 $ 22,008
Minority interest.................................................... 228 --
Adjustments to reconcile net earnings to net cash flow
provided by operating activities:
Depreciation and amortization..................................... 16,709 12,728
Early extinguishment of debt...................................... 223 --
Provision for possible loss on investments........................ -- 200
Decrease in accounts payable...................................... (1,580) (2,259)
Increase in accrued expenses and other liabilities................ 10,827 7,182
Increase in other assets.......................................... (6,561) (3,976)
Gain on disposition of real estate................................ -- (259)
----------- ---------
Net cash flow provided by operating activities................... 46,021 35,624
----------- ---------
Investing activities:
Real estate investments.............................................. (238,741) (96,066)
Proceeds from disposition of real estate............................. 27,559 11,873
Tax-deferred exchange proceeds held in escrow........................ -- (2,154)
Funding of Homestead convertible mortgage notes...................... (5,119) (52,000)
----------- ---------
Net cash flow used by investing activities....................... (216,301) (138,347)
----------- ---------
Financing activities:
Proceeds from sales of shares........................................ 20 82,473
Proceeds from short-term borrowings.................................. 1,236,375 154,750
Repayments of short-term borrowings.................................. (1,011,346) (104,000)
Distributions paid on Common Shares.................................. (38,197) (31,115)
Dividends paid on preferred shares................................... (2,156) --
Distributions paid to minority interests............................. (228) --
Transaction costs incurred........................................... (23) --
Regularly scheduled mortgage principal payments...................... (943) (753)
Early extinguishment of mortgage debt................................ (12,103) --
Debt issuance costs incurred......................................... -- (110)
Principal payments and retirements on employee stock purchase
notes............................................................... 94 --
Common Shares repurchased under employee stock purchase plan,
net of issuances.................................................... (38) --
----------- ---------
Net cash flow provided by financing activities................... 171,455 101,245
----------- ---------
Net increase (decrease) in cash and cash equivalents................... 1,175 (1,478)
Cash and cash equivalents, beginning of period......................... 1,273 4,339
----------- ---------
Cash and cash equivalents, end of period............................... $ 2,448 $ 2,861
=========== =========
Non-cash investing and financing activities:
Change in the unrealized gains on Homestead convertible
mortgage notes receivable........................................... $ (7,957) $ 19,351
Notes retired under employee stock purchase plan..................... 580 --
Notes issued to employees under employee stock purchase plan......... $ 380 $ --
</TABLE>
See accompanying notes to the condensed financial statements.
8
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
NOTE 1 General
The financial statements of Security Capital Atlantic Incorporated
("Atlantic") as of June 30, 1998 and for the three and six months ended June 30,
1998 and 1997 are unaudited and certain information and footnote disclosures
normally included in financial statements have been omitted. While management of
Atlantic believes that the disclosures presented are adequate, these interim
financial statements should be read in conjunction with the financial statements
and notes included in Atlantic's 1997 Annual Report on Form 10-K.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of Atlantic's financial
statements for the interim periods presented. The results of operations for the
three and six months ended June 30, 1998 and 1997 are not indicative of the
results to be expected for the entire year. All financial information contained
in these financial statements and the related footnotes represent the historical
financial position, results of operations and cash flows of Atlantic and do not
give effect to the Atlantic Merger described in Note 2.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Atlantic reports comprehensive income in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income.
For the three months ended June 30, 1998 Atlantic had comprehensive income
attributable to common shares of $0.4 million. For the three and six months
ended June 30, 1997, Atlantic had comprehensive income attributable to common
shares of $25.3 million and $41.4 million.
Certain 1997 amounts have been reclassified to conform to the 1998
presentation.
Per Share Data
The following is a reconciliation of the denominator used to compute basic
net earnings per Atlantic common share ("Common Share"), to the denominator used
to compute diluted net earnings per Common Share, for the periods indicated (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ---------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average number of Common Shares
outstanding--Basic............................................. 47,752 41, 228 47,752 39,569
Incremental options outstanding................................ 3 -- 1 --
--------- --------- --------- ---------
Weighted average number of Common Shares
outstanding--Diluted........................................... 47,755 41,228 47,753 39,569
========= ========= ========= =========
</TABLE>
9
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
NOTE 2 Merger Transaction
On June 29, 1998, the shareholders of both Atlantic and Security Capital
Pacific Trust ("PTR"), approved a merger transaction which was consummated in
July 1998, whereby Atlantic, which operated primarily in the mid-Atlantic and
southeastern United States, was merged with and into PTR ("the Atlantic
Merger"). The combined company has continued its existence under the name
Archstone and is traded on the New York Stock Exchange under the symbol "ASN".
In accordance with the terms of the Atlantic Merger, each outstanding Atlantic
common share was converted into the right to receive one Archstone common share
and each outstanding Atlantic Series A preferred share was converted into the
right to receive one comparable share of a new class of Archstone Series C
preferred shares. In addition, Archstone assumed Atlantic's debt and other
liabilities upon consummation of the Atlantic Merger. The Atlantic Merger was
structured as a tax-free merger and was accounted for under the purchase method.
Subsequent to June 30, 1998 Atlantic expensed $0.8 million in merger related
costs.
NOTE 3 Real Estate
Investment in Real Estate
Atlantic's real estate, which consists entirely of multifamily communities,
at cost, was as follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
-------------------------- ---------------------------
Investment Units Investment Units
------------- --------- -------------- ---------
<S> <C> <C> <C> <C>
Operating communities...................... $1,285,450 23,916 $1,132,511 21,693
Communities under construction............. 295,041(1) 6,548(1) 217,065 5,847
Communities in planning(2):
Owned................................. 20,118(3) 1,338(4) 10,709(3) 928(4)
Under control......................... --(5) 1,472(4) --(5) 1,864(4)
------------- --------- -------------- ---------
20,118 2,810 10,709 2,792
Land held for future development(6)........ -- -- 4,287 --
------------- --------- -------------- ---------
Total.............................. $1,600,609(7) 33,274 $1,364,572(7) 30,332
============= ========= ============== =========
</TABLE>
________
(1) At June 30, 1998 includes communities which were leasing completed units of
$187.0 million (3,042 units) and communities with no completed units of
$108.0 million (3,506 units). Unfunded commitments for all communities
under construction were $138.2 million at June 30, 1998 which will result
in a total completed construction cost of $433.2 million.
(2) The term "in planning" means that construction is anticipated to commence
within 12 months. The term "under control" means that Atlantic has an
exclusive right (through a contingent contract or letter of intent) during
a contractually agreed-upon time period to acquire land for future
development of multifamily communities, but does not currently own the
land. There can be no assurance that such land will be acquired.
(3) Costs for owned communities in planning are primarily for land
acquisitions.
(4) Unit information is based on management's estimates and is unreviewed and
unaudited.
(5) Atlantic's investment at June 30, 1998 and December 31, 1997 in communities
in planning and under control for future development was $1.3 million and
$1.8 million, respectively. These amounts are classified as other assets.
(6) Construction is not anticipated to commence within 12 months.
(7) Communities located in Atlanta, Georgia aggregated 25.9% and 28.5% at June
30, 1998 and December 31, 1997, respectively, of Atlantic's real estate, at
cost.
10
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
Capital Expenditures
As part of its operating strategy, Atlantic conducts regular reviews of its
assets which involves an evaluation of each community's physical condition
relative to management's business objectives as well as the community's
competitive position in its market. In conducting these evaluations, management
considers Atlantic's return on investment in relation to its long-term cost of
capital as well as research and analysis of competitive market factors.
In conjunction with the acquisition and related underwriting of a
multifamily operating community, Atlantic prepares acquisition budgets that
encompass the incremental capital needed to meet Atlantic's investment
objectives. These expenditures, combined with the initial acquisition costs, are
capitalized and classified as "acquisition-related" capital expenditures, as
incurred.
Other capital expenditures on operating communities are classified as either
"redevelopment" or "recurring". The redevelopment category includes
redevelopment, revenue-enhancing and expense-reducing capital expenditures.
Redevelopment initiatives are intended to reposition the community in the
marketplace and include items such as significant upgrades to the interiors,
exteriors, landscaping and amenities. Revenue-enhancing expenditures include
investments which are expected to produce incremental community revenues, such
as building garages/carports, adding storage facilities or gating a community.
Expense-reducing expenditures include items such as water submetering systems
and xeriscaping which reduce future operating costs. Recurring capital
expenditures consist of significant expenditures for items having a useful life
in excess of one year which are incurred to maintain a community's long-term
physical condition at a level commensurate with Atlantic's stringent operating
standards. Examples of recurring capital expenditures include roof replacements,
parking lot resurfacing and exterior painting.
11
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
Repairs and maintenance and make-ready expenditures, including carpet and
appliance replacements, are expensed as incurred, to the extent they are not
acquisition-related costs identified during Atlantic's pre-acquisition due
diligence. Make-ready expenditures are costs incurred in preparing a vacant
multifamily unit for the next resident. The change in investments in real
estate, at cost, consisted of the following (in thousands):
<TABLE>
<S> <C>
Balance at January 1, 1998........................................ $ 1,364,572
Multifamily:
Acquisitions-related expenditures.............................. 136,629
Redevelopment expenditures..................................... 5,299
Recurring capital expenditures................................. 2,140
Development expenditures, excluding land acquisitions.......... 103,245
Acquisition and improvement of land for development............ 13,200
Dispositions................................................... (24,476)
------------
Balance at June 30, 1998....................................... $ 1,600,609
============
</TABLE>
At June 30, 1998, Atlantic had unfunded multifamily construction and
redevelopment commitments aggregating approximately $138.2 million.
Partnership Agreement
On May 1, 1998, Atlantic acquired a controlling general partnership
interest in Atlantic Multifamily Limited Partnership-I ("Partnership-I") which
simultaneously acquired six operating communities aggregating 1,494 units. On
July 1, 1998, Partnership-I acquired two additional operating communities,
aggregating 498 units. One additional community which has 392 units will be
acquired in January 1999.
Upon completion of the final acquisition, Partnership-I will own nine
communities with a total investment of approximately $161.1 million. Atlantic
will have an 87% general partnership interest in Partnership-I based upon its
anticipated total cash investment of approximately $141.0 million. The
communities acquired by Partnership-I are not encumbered by debt.
Atlantic is the sole general partner of Partnership-I, which is organized
as a Delaware limited partnership. Under the terms of the partnership agreement,
Atlantic has sole management power over the partnership. Should a community
owned by Partnership-I be sold, Atlantic has agreed to utilize tax-deferred
exchanges in order to mitigate the tax consequences to the limited partners. At
any time after one year from the contribution date, the limited partners in
Partnership-I are entitled to exchange their partnership units for Common Shares
on the basis of one partnership unit for one Common Share. Limited partners are
entitled to receive preferential, cumulative quarterly distributions equal to
the quarterly distribution in respect of Common Shares. Atlantic is entitled to
all cash flow in excess of the preferential return.
NOTE 4 Mortgage Notes Receivable
General
Atlantic entered into a funding commitment agreement (the "Funding
Agreement") to provide secured financing to Homestead Village Incorporated
("Homestead") for purposes of completing the development and construction of the
Homestead Village(R) properties sold by Atlantic to Homestead in October 1996.
As of April 30, 1998, Atlantic had received $98.0 million of convertible
mortgage notes from Homestead ("Homestead Convertible Mortgages") in exchange
for full funding of $111.1 million under the Funding Agreement. The individual
Homestead Village(R) properties serve as collateral individually and in the
aggregate under cross-collateral provisions.
12
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
On July 6, 1998, the mortgages were sold for $119.4 million plus accrued
interest of $1.0 million. Atlantic recognized a gain of $14.3 million ($8.9
million taxable capital gain) as a result of this transaction.
The Homestead Convertible Mortgages:
(i) bore interest at 9.0% per annum which was due in interest only
payments on a semi-annual basis,
(ii) were convertible at Atlantic's option into one share of Homestead
common stock for every $11.50 of principal outstanding
(approximately 8.5 million shares),
(iii) were not callable until 2001, and
(iv) were scheduled to mature in October 2006.
Carrying Value
At June 30, 1998, Atlantic held Homestead Convertible Mortgages with a face
amount of $98.0 million, as a result of funding $111.1 million of its commitment
to Homestead. The difference between the face amount and the amount funded was
recorded as an original issue premium that was being amortized over the term of
the Homestead Convertible Mortgages. The value attributed to the conversion
feature of the Homestead Convertible Mortgages issued, approximately $6.9
million, was recognized along with an offsetting discount (deferred credit) in
the Homestead Convertible Mortgages' balance. This deferred credit was being
amortized over the term of the Homestead Convertible Mortgages. Furthermore, the
carrying value of the Homestead Convertible Mortgages was adjusted to fair value
(a total adjustment of $8.7 million at June 30, 1998). For the three months
ended June 30, 1998 and 1997, an adjustment to the fair value of $(8.6) million
and $13.5 million, respectively, was recognized. The adjustment is reflected as
an unrealized gain and a component of comprehensive income in the statement of
shareholders' equity.
At June 30, 1998, the carrying value of the Homestead Convertible Mortgages
consisted of the following components (in thousands):
<TABLE>
<S> <C>
Face amount................................................ $ 98,028
Original issue premium..................................... 13,090
--------------
Amount funded.............................................. 111,118
Amortization of original issue premium..................... (936)
Initial value of conversion feature........................ 6,905
Unamortized discount on conversion feature................. (6,413)
Fair value adjustment (based on sales price)............... 8,750
--------------
Carrying value (fair value)................................ $ 119,424
==============
</TABLE>
NOTE 5 Borrowings
Credit Facilities
At June 30, 1998, Atlantic had a $350 million unsecured line of credit with
Morgan Guaranty Trust Company of New York ("MGT"), as agent for a group of
lenders. Borrowings on this unsecured line of credit bear interest at prime or,
at Atlantic's option, LIBOR plus 0.75%. Under a competitive bid option contained
in the line of credit agreement, Atlantic may be able to borrow at a lower
interest rate spread over LIBOR, depending on market conditions. This option is
available on up to $175 million of borrowings. Atlantic pays an annual facility
fee of 0.15% on the total line of credit available of $350 million. The line of
credit matures November 1999 and may be extended for one year with the approval
of MGT and the other participating lenders. At June 30, 1998, there were $323.5
million of borrowings outstanding under this line of credit.
13
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
In May 1998, Atlantic entered into a $150 million unsecured line of credit
to provide bridge financing until the Atlantic Merger. Borrowings on this
unsecured line of credit bear interest at prime or, at Atlantic's option, LIBOR
plus 0.90%. Atlantic pays a facility fee of 0.15% (annual) on the unused
commitment. The line of credit matures in September 1998. At June 30, 1998,
there were $55 million of borrowings outstanding under this line of credit.
Atlantic was in compliance with all covenants pertaining to its credit
facilities at June 30, 1998.
In January 1998, Atlantic entered into a $50 million unsecured borrowing
agreement with Chase Bank of Texas, N.A. (which replaced a $25 million agreement
that was entered into in June 1997). This loan, which allows for same day
borrowings and more efficient cash management, matures in January 1999 and bears
interest at an overnight rate that depends on the availability of funds at the
time the borrowing is made. The weighted average daily interest rate on these
borrowings during the six months ended June 30, 1998 was 6.43%. At June 30,
1998, there were $11.3 million of borrowings outstanding under this agreement.
A summary of Atlantic's short-term borrowings is as follows (dollar amounts
in thousands):
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Total borrowing capacity......................................... $ 550,000 $ 375,000
Borrowings at end of period...................................... $ 389,772 $ 164,743
Weighted average daily borrowings................................ $ 259,354 $ 207,672
Maximum borrowings outstanding at any month-end.................. $ 389,772 $ 295,250
Weighted average daily interest rate............................. 6.61% 7.20%
Weighted average interest rate at end of period.................. 6.72% 7.41%
</TABLE>
Notes Payable
Atlantic had notes payable outstanding at June 30, 1998 as follows (in
thousands):
<TABLE>
<S> <C>
7.25% Senior Unsecured Notes, issued August 20, 1997 in an original
principal amount of $100,000. Interest is payable on February 15
and August 15 of each year. The notes are payable in eight
consecutive annual installments ranging from $10,000 to $15,000
commencing August 15, 2002 and mature on August 15, 2009............. $100,000
7.86% Senior Unsecured Notes, issued August 20, 1997 in an original
principal amount of $50,000. Interest is payable on February 15
and August 15 of each year. The notes are payable in five
consecutive annual installments of $10,000 commencing August 15,
2013 and mature on August 15, 2017................................... 50,000
--------
Total.......................................................... $150,000
========
</TABLE>
14
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
Atlantic's notes payable have an average effective interest rate, including
issuance costs, of 7.66%. The foregoing notes are governed by the terms and
provisions of an indenture (the "Indenture") between Atlantic and State Street
Bank and Trust Company, as trustee. All of the foregoing notes are redeemable
at any time at the option of Atlantic. Additionally, the Indenture places
limitations on the amount of additional debt that Atlantic may incur and
contains certain covenants. Atlantic was in compliance with all such covenants
contained in the Indenture at June 30, 1998.
Mortgages Payable
Mortgages payable consisted of the following at June 30, 1998 (dollar
amounts in thousands):
<TABLE>
<CAPTION>
Stated Periodic
Interest Maturity Payment Principal
Community Rate Date Date Balance
- ----------------------------------------------- -------- -------- ---------------- ---------
<S> <C> <C> <C> <C>
Conventional fixed rate:
Cameron Ridge................................ 7.000% 09/10/98 (1) Fully amortizing $ 5,579
Country Place Village I...................... 7.750% 11/01/00 (2) 1,949
Cameron Hidden Harbor........................ 7.930% 05/12/01 (3) 5,422
Cameron at Hickory Grove..................... 8.000% 07/10/03 (4) 5,900
Shadowbluff.................................. 8.050% 12/01/05 (5) 5,477
Cameron Palm Harbor.......................... 8.040% 11/01/06 (6) 5,229
Cameron on the Cahaba II..................... 7.125% 03/01/29 Fully amortizing 7,920
--------
37,476
--------
Tax exempt fixed rate or variable rate subject
to swap agreements (7):
Cameron Station.............................. 6.000% 05/01/07 Interest only 14,500
Azalea Park.................................. (8) 06/01/25 Interest only 15,500
Cameron Brook................................ (8) 06/01/25 Interest only 19,500
Cameron Cove................................. (8) 06/01/25 Interest only 8,500
Clairmont Crest.............................. (8) 06/01/25 Interest only 11,600
Forestwood................................... (8) 06/01/25 Interest only 11,485
Foxbridge on the Bay......................... (8) 06/01/25 Interest only 10,400
The Greens................................... (8) 06/01/25 Interest only 10,400
Parrot's Landing I........................... (8) 06/01/25 Interest only 15,835
WintersCreek................................. (8) 06/01/25 Interest only 5,000
Less amounts held in principal
reserve fund (9)............................ (2,717)
--------
120,003
--------
$157,479
Total annual weighted average interest ========
rate (10)................................... 6.90%
========
</TABLE>
_______
(1) This loan is callable at the option of the mortgage lender on September 10,
1998 and at subsequent five-year intervals through September 10, 2013.
(2) Interest and principal payments due monthly; balloon payment of $1,849,000
due at maturity.
(3) Interest and principal payments due monthly; balloon payment of $4,869,000
due at maturity.
(4) Interest and principal payments due monthly; balloon payment of $5,556,000
due at maturity.
(5) Interest and principal payments due monthly; balloon payment of $4,926,000
due at maturity.
(6) Interest and principal payments due monthly; balloon payment of $4,661,000
due at maturity.
(7) These communities, in addition to others, are held by Security Capital
Atlantic Multifamily Incorporated, a wholly owned subsidiary of Atlantic.
Security Capital Atlantic Multifamily Incorporated is a legal entity that
is separate and distinct from Atlantic with separate assets and liabilities
and business operations.
15
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
(8) Interest rate is fixed through swap agreements executed in conjunction with
the credit enhancement agreement with the Federal National Mortgage
Association ("FNMA"). The swap agreements are discussed in Note 7.
(9) Atlantic has a 30-year credit enhancement agreement with FNMA related to
the underlying tax-exempt bond issues. This credit enhancement agreement
requires Atlantic to make monthly payments into a principal reserve account
based on a 30-year amortization.
(10) This rate includes annual fees associated with the mortgage agreements,
swap agreements and the credit enhancement agreement and amortization of
capitalized costs associated with the mortgage agreements and the credit
enhancement agreement. See Note 7.
Real estate with an aggregate undepreciated cost at June 30, 1998 of $62.5
million and $207.0 million serves as collateral for the conventional mortgages
payable and the tax-exempt mortgages payable, respectively. Additionally,
Atlantic has a letter of credit in the amount of $2.5 million that serves as
additional collateral for the tax-exempt mortgages payable.
The change in mortgages payable for the six months ended June 30, 1998
consisted of the following (in thousands):
<TABLE>
<S> <C>
Balance at January 1, 1998...................... $170,525
Regularly scheduled principal payments.......... (943)
Early extinguishment of mortgage debt........... (12,103)
--------
Balance at June 30, 1998........................ $157,479
========
</TABLE>
Atlantic was in compliance with all covenants contained in the mortgage
agreements at June 30, 1998.
Interest Expense
For the six months ended June 30, 1998 and 1997, the total interest paid in
cash on all outstanding debt was $19.4 million and $15.3 million, respectively.
For the six months ended June 30, 1998 and 1997, interest capitalized as part of
the cost of real estate projects under development was $6.6 million and $5.3
million, respectively.
Amortization of loan costs, which is included in interest expense, was $0.3
million and $0.1 for the six months ended June 30, 1998 and 1997.
NOTE 6 Distributions and Dividends
Atlantic paid quarterly cash distributions of $0.40 per Common Share on
February 26, 1998 and May 27, 1998 to holders of record of Common Shares.
Atlantic paid a dividend of $0.539 per share on its Series A Preferred
Shares on March 31, 1998 and June 30, 1998. Pursuant to the terms of the
preferred shares, Atlantic is restricted from declaring or paying any
distribution with respect to Common Shares unless all cumulative dividends with
respect to the Series A Preferred Shares have been paid and sufficient funds
have been set aside for Series A Preferred Share dividends that have been
declared.
NOTE 7 Financial Instruments
Atlantic occasionally utilizes derivative financial instruments as hedges
to manage interest rate risk on anticipated future transactions. Atlantic does
not use derivative financial instruments for trading purposes.
16
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
The following table summarizes the activity in interest rate contracts and
interest rate swap agreements for the six months ended June 30, 1998 (in
millions):
<TABLE>
<CAPTION>
Interest Rate Swap Agreements
---------------------------------
Interest
Rate Future Tax-Exempt Short-term
Contracts (1) Bond Issues (2) Borrowings (3)
------------- --------------- --------------
<S> <C> <C> <C>
Notional amounts at January 1, 1998....... $ 100.0 $106.3 $ 100.0
New contracts............................. -- -- --
Matured contracts......................... (100.0) -- (100.0)
Contractual reductions.................... -- (0.5) --
------- ------ -------
Notional amounts at June 30, 1998......... $ -- (1) $105.8 $ --
======= ====== =======
</TABLE>
________
(1) Includes a contract entered into in anticipation of a 1998 long-term debt
offering that provided for an interest rate of 6.309%. Atlantic realized a
loss of approximately $6.0 million on this contract when it expired on
April 17, 1998. Atlantic did not complete the long-term debt offering in
light of the Atlantic Merger. Accordingly, this loss was expensed.
(2) Atlantic pays interest on the notional amount at an all-in, fixed rate of
6.64%. Atlantic paid $0.9 million more in interest than it received under
these swap agreements in each of the six month periods ended June 30, 1998
and 1997. On July 1, 1998, these swap agreements were cancelled.
(3) This one-year agreement expired on February 5, 1998. A similar swap
agreement on $100 million of borrowings was in effect for the period
February 5, 1996 to February 4, 1997. Atlantic paid $19,000 and $148,000
more in interest than it received under these swap agreements during the six
months ended June 30, 1998 and 1997, respectively.
17
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
INDEX TO ATLANTIC PRO FORMA
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Pro Forma Condensed Balance Sheet as of June 30, 1998 (unaudited)..................... 20
Pro Forma Condensed Statement of Earnings for the six months ended June 30, 1998
(unaudited).......................................................................... 21
Pro Forma Condensed Statement of Earnings for the year ended December 31, 1997
(unaudited).......................................................................... 22
Notes to Pro Forma Condensed Financial Statements..................................... 23
</TABLE>
18
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
PRO FORMA CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The accompanying pro forma condensed financial statements for Security
Capital Atlantic Incorporated ("Atlantic") have been prepared based on certain
pro forma adjustments to Atlantic's historical financial statements. The pro
forma condensed financial statements reflect (i) certain previously reported
multifamily community acquisitions and dispositions, (ii) the transaction
whereby Atlantic became an internally managed real estate investment trust
("REIT") (the "Internalization Transaction"), and (iii) the sale of Atlantic's
Homestead convertible mortgage notes receivable (the "Homestead Note Sale").
The accompanying pro forma condensed balance sheet as of June 30, 1998 has
been prepared as if three communities acquired or to be acquired by Atlantic
subsequent to June 30, 1998 had been acquired, and the Homestead Note Sale
transaction had been consummated as of that date.
The accompanying pro forma condensed statements of earnings for the six
months ended June 30, 1998 and the year ended December 31, 1997 have been
prepared as if:
(i) the acquisition and disposition by Atlantic of all previously
reported operating communities acquired or disposed of subsequent to
December 31, 1996 as if these communities had been acquired or
disposed of as of January 1, 1997;
(ii) the assumption of certain mortgage debt associated with the
acquisition of the previously reported operating communities
subsequent to December 31, 1996 as if this mortgage debt had been
assumed on January 1, 1997;
(iii) the acquisition of six operating communities and the probable
acquisition of three communities through the formation of a
partnership entity as if the acquisitions and the formation of the
partnership entity had occurred as of January 1, 1997;
(iv) the sale of Common Shares, preferred stock and senior unsecured notes
subsequent to December 31, 1996, necessary to fund pro forma
acquisitions for the year ended December 31, 1997 as if the
securities had been sold as of January 1, 1997;
(v) additional short-term borrowings necessary to fund pro forma
acquisitions for the six months ended June 30, 1998 as if the
borrowings had been outstanding for the entire period;
(vi) the Internalization Transaction, which was consummated on September
9, 1997, pursuant to which Atlantic acquired the operations and
business of Security Capital (Atlantic) Incorporated (the "REIT
Manager") and SCG Realty Services Atlantic Incorporated (the
"Property Manager") in exchange for Common Shares had occurred as of
January 1, 1997; and
(vii) the Homestead Note Sale had been consummated as of January 1, 1997.
The pro forma condensed financial statements do not purport to be
indicative of the financial position or results of operations which would
actually have been obtained had the transactions described above been completed
on the dates indicated or which may be obtained in the future. The pro forma
condensed financial statements should be read in conjunction with the Historical
Summaries of Gross Income and Direct Operating Expenses contained in the
previously filed Atlantic Form 8-K/A No. 1 dated April 24, 1998 (the "Atlantic
8-K") and the historical financial statements included herein (see page 4) and
in Atlantic's 1997 Annual Report on Form 10-K. In management's opinion all
material adjustments necessary to reflect the effects of these transactions have
been made to the pro forma financial statements.
See page 28 of this Current Report for the Archstone pro forma financial
statements and related footnotes, which give effect to the Atlantic Merger.
19
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
PRO FORMA CONDENSED BALANCE SHEET
June 30, 1998
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments
--------------------------
Homestead Atlantic
Note Pre-Merger
Historical Acquisitions Sale (d) Pro Forma
---------- ------------ --------- ----------
<S> <C> <C> <C> <C>
ASSETS
- --------------------------------------------------------------
Real estate................................................... $1,600,609 $64,800(a) $ -- $1,665,409
Less accumulated depreciation................................. 79,745 -- -- 79,745
---------- ------- --------- ----------
1,520,864 64,800 -- 1,585,664
Homestead convertible mortgage notes receivable............... 119,424 -- (119,424) --
---------- ------- --------- ----------
Net investments........................................... 1,640,288 64,800 (119,424) 1,585,664
Cash and cash equivalents..................................... 2,448 -- -- 2,448
Other assets.................................................. 24,739 -- (1,211) 23,528
---------- ------- --------- ----------
Total assets.............................................. $1,667,475 $64,800 $(120,635) $1,611,640
========== ======= ========= ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
- --------------------------------------------------------------
Liabilities:
Credit facilities........................................... $ 389,772 $63,589(b) $(120,380) $ 332,981
Long-term debt.............................................. 150,000 -- -- 150,000
Mortgages payable........................................... 157,479 -- -- 157,479
Accrued expenses and other liabilities..................... 63,182 -- (5,847) 57,335
---------- ------- --------- ----------
Total liabilities......................................... 760,433 63,589 (126,227) 697,795
---------- ------- --------- ----------
Minority interest............................................. 19,026 1,211(c) -- 20,237
---------- ------- --------- ----------
Shareholders' Equity (250,000,000 total shares authorized):
Series A Preferred Shares (2,000,000 shares issued and
outstanding; stated liquidation preference of $25 per share) 50,000 -- -- 50,000
Common Shares (47,752,052 historical and pro forma)......... 478 -- -- 478
Additional paid-in capital.................................... 904,440 -- -- 904,440
Employee share purchase notes................................. (12,053) -- -- (12,053)
Unrealized holding gain on Homestead convertible mortgage
notes receivable............................................. 8,750 -- (8,750) --
Distributions in excess of net earnings...................... (63,599) -- 14,342 (49,257)
---------- ------- --------- ----------
Total shareholders' equity................................ 888,016 -- 5,592 893,608
---------- ------- --------- ----------
Total liabilities and
shareholders' equity..................................... $1,667,475 $64,800 $(120,635) $1,611,640
========== ======= ========= ==========
</TABLE>
See accompanying notes to pro forma condensed balance sheet.
20
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
PRO FORMA CONDENSED STATEMENT OF EARNINGS FROM OPERATIONS
Six months ended June 30, 1998
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Acquisition/Dispositions, Net Adjustments
----------------------------- -----------
Atlantic
Pro Forma Homestead Pre-Merger
Historical Historical (e) Adjustments Note Sale (l) Pro Forma
---------- -------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental revenues.................................... $ 96,829 $ 7,887 $ -- -- $ 104,716
Interest income on Homestead convertible mortgages. 4,311 -- -- (4,311) --
Other income....................................... 392 -- -- -- 392
---------- -------------- ----------- ------------- ----------
101,532 7,887 -- (4,311) 105,108
---------- -------------- ----------- ------------- ----------
Expenses:
Rental expenses:
Paid to affiliate............................... 796 -- -- -- 796
Paid to third parties........................... 25,522 2,356 (105) (f) -- 27,773
Real estate taxes.................................. 9,565 541 -- -- 10,106
Depreciation on real estate investments............ 16,450 -- 1,665 (g) -- 18,115
Interest........................................... 13,674 -- 4,398 (h) (3,373) 14,699
General and administrative:
Paid to affiliate............................... 465 -- -- -- 465
Paid to third parties........................... 2,407 -- 120 (i) -- 2,527
Termination of interest rate lock.................. 5,965 -- -- -- 5,965
Other.............................................. 62 -- -- -- 62
---------- -------------- ----------- ------------- ----------
Total expenses.................................. 74,906 2,897 6,078 (3,373) 80,508
---------- -------------- ----------- ------------- ----------
Earnings from operations before minority interest.... 26,626 4,990 (6,078) (938) 24,600
Less minority interest............................... 228 -- 499 (j) -- 727
---------- -------------- ----------- ------------- ----------
Earnings from operations............................. 26,398 4,990 (6,577) (938) 23,873
Less preferred share dividends....................... 2,156 -- -- -- 2,156
---------- -------------- ----------- ------------- ----------
Earnings from operations attributable to
Common Shares - basic.............................. $ 24,242 $ 4,990 $ (6,577) $ (938) $ 21,717
========== ============== =========== ============= ==========
Weighted average Common Shares outstanding - basic... 47,752 47,752
---------- ----------
Weighted average Common Shares outstanding -
diluted (k)........................................ 47,753 47,753
---------- ----------
Earnings from operations attributable to
Common Shares per Common Share - basic.............. $ 0.51 $ 0.45
========== ==========
Earnings from operations attributable to
Common Shares per Common Share - diluted............ $ 0.51 $ 0.45
========== ==========
Reconciliation of earnings from operations
attributable to Common Shares to funds from
operations attributable to Common Shares:
Earnings from operations attributable to
Common Shares - basic............................... $ 24,242 $ 4,990 $ (6,577) $ (938) $ 21,717
Add (deduct):
Depreciation on real estate investments............ 16,396 -- 1,665 18,061
Amortization related to Homestead
convertible mortgages............................. (470) 470 --
Termination of interest rate lock.................. 5,965 -- -- -- 5,965
Minority interest.................................. 228 -- 499 -- 727
---------- -------------- ----------- ------------- ----------
Funds from operations attributable to Common
Shares - basic and diluted (m)...................... $ 46,361 $ 4,990 $ (4,413) $ (468) $ 46,470
========== ============== =========== ============= ==========
Weighted average Common Shares outstanding -
basic (n)........................................... 48,035 626 48,661
---------- ----------- ----------
Weighted average Common Shares outstanding -
diluted (n)......................................... 48,036 626 48,662
---------- ----------- ----------
Cash Flow Summary:
Net cash provided (used in) by operating
activities........................................ $ 46,021 $ 4,990 $ (4,413) $ (468) $ 46,130
Net cash used in investing activities.............. (216,301) -- -- -- (216,301)
Net cash provided by financing activities $ 171,455 $ -- $ -- $ -- $ 171,455
</TABLE>
See accompanying notes to pro forma condensed statements of earnings
from operations.
21
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
PRO FORMA CONDENSED STATEMENT OF EARNINGS FROM OPERATIONS
Year ended December 31, 1997
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Acquisition/Dispositions, Pro Forma Adjustments
Net -----------------------------------
---------------------------- Atlantic
Pro Forma Internalization Homestead Pre-Merger
Historical Historical(e) Adjustments Transaction(u) Note Sale(l) Pro Forma
---------- ------------- ----------- --------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Rental revenues..................... $ 168,459 $ 19,437 $ -- $ -- $ $ 187,896
Interest income on Homestead
convertible mortgages.............. 4,453 -- -- -- (4,453) --
Other income........................ 637 -- -- -- -- 637
----------- ------------- ----------- --------------- ------------ ----------
173,549 19,437 -- -- (4,453) 188,533
----------- ------------- ----------- --------------- ------------ ----------
Expenses:
Rental expenses:
Paid to affiliate................ 4,122 988 (203) (f) (4,633) (u)(ii) -- 1,948
1,674 (u)(i)
Paid to third parties............ 45,117 5,038 (86) (f) 3,778 (u)(i) -- 53,847
Real estate taxes................... 14,693 1,157 -- -- -- 15,850
Depreciation on real estate
investments........................ 26,994 (582) (o) 4,211 (o) 247 (u)(iii) -- 30,870
Interest............................ 20,292 1,039 (p) 15 (p) -- (3,795) 25,614
8,063 (q)
General and administrative:
Paid to affiliate................ 8,864 -- 304 (r) 1,059 (u)(iv) -- 1,375
(8,852) (u)(ii)
Paid to third parties............ 2,046 -- -- 2,820 (u)(iv) -- 4,866
Other............................... 306 -- -- -- -- 306
----------- ------------- ----------- --------------- ------------ ----------
Total expenses................... 122,434 7,640 12,304 (3,907) (3,795) 134,676
----------- ------------- ----------- --------------- ------------ ----------
Earnings from operations
before minority interest............. 51,115 $ 11,797 $ (12,304) $ 3,907 (658) 53,857
Less minority interest................ -- -- 945 (j) -- -- 945
----------- ------------- ----------- --------------- ------------ ----------
Earnings from operations.............. 51,115 11,797 (13,249) 3,907 (658) 52,912
Less preferred share dividends........ 1,569 -- 316 (s) -- -- 1,885
----------- ------------- ----------- --------------- ------------ ----------
Earnings from operations
attributable to Common
Shares -- basic...................... $ 49,546 11,797 (13,565) $ 3,907 $ (658) $ 51,027
=========== ============= =========== =============== ============ ==========
Weighted average Common Shares
outstanding -- basic................. 42,449 404 (t) 1,586 (u)(v) 44,439
----------- ----------- --------------- ----------
Weighted average Common Shares
outstanding -- diluted (k)........... 42,450 404 (t) 1,586 (u)(v) 44,440
----------- ----------- --------------- ----------
Earnings from operations
attributable to Common Shares
per Common Share -- basic............ $ 1.17 $ 1.15
=========== ==========
Earnings from operations
attributable to Common Shares
per Common Share -- diluted.......... $ 1.17 $ 1.15
========== ==========
Reconciliation of earnings from operations attributable to Common Shares to funds from operations attributable to Common Shares:
Earnings from operations
attributable to Common
Shares -- basic...................... $ 49,546 $ 11,797 $ (13,565) $ 3,907 $ (658) $ 51,027
Add (deduct):
Depreciation on real estate
investments........................ 26,963 (582) 4,211 -- -- 30,592
Provision for possible loss
on real estate investments......... 200 -- -- -- -- 200
Amortization related to
Homestead convertible mortgages.... (486) -- -- -- 486 --
Minority interest................... -- -- 945 -- -- 945
----------- ------------- ----------- --------------- ------------ ----------
Funds from operations attributable
to Common Shares -- basic and
diluted (m).......................... $ 76,223 $ 11,215 (8,409) $ 3,907 $ (172) $ 82,764
========== ============= =========== =============== ============ ==========
Weighted average Common Shares
outstanding -- basic (n)............. 42,449 1,010 (n)(t) 1,586 (u)(v) 45,045
---------- ----------- --------------- ----------
Weighted average Common Shares
outstanding -- diluted (n)........... 42,450 1,010 (n)(t) 1,586 (u)(v) 45,046
---------- ----------- --------------- ----------
Cash Flow Summary:
Net cash provided (used in) by
operating activities............... $ 83,122 $ 11,215 $ (8,093) 4,453 $ (172) $ 90,525
Net cash used in investing
activities......................... (295,606) -- -- (2,379) (u)(iv) -- (297,985)
Net cash provided by financing
activities......................... $ 209,418 $ -- $ (316) $ -- $ -- $ 209,102
</TABLE>
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
(Amounts in thousands, except per share amounts)
(a) Represents the acquisition of two communities on July 1,1998 and the
probable acquisition of one additional community. These acquisitions were
previously reported in Item 5 of the Atlantic 8-K.
(b) Reflects the use of line of credit borrowings to fund the cash portion of
the acquisitions discussed in note (a).
(c) Represents the incremental minority interest that results from the
acquisitions described in note (a). These acquisitions are part of a larger
transaction involving Atlantic's acquisition of a controlling general
partnership interest in Atlantic Multifamily Limited Partnership-I
("Partnership-I") on May 1, 1998. In exchange for contributing $141.0
million in cash, Atlantic will own approximately 87.0% of Partnership-I
which will own nine communities. The minority interest will be exchangeable
for Common Shares beginning on the first anniversary date of its issuance.
(d) Represents the pro forma impact of the Homestead Note Sale whereby Atlantic
sold its Homestead convertible mortgage notes receivable for $120.4 million
with the proceeds being used to partially repay credit facilities. This
transaction resulted in the recognition of a gain of $14.3 million and the
elimination of all balance sheet amounts related to the notes, which had
been carried at their estimated fair value.
(e) All of Atlantic's reported acquisitions and probable acquisitions
subsequent to December 31, 1996 were or will be acquired from unaffiliated
third parties. These acquisitions are described in Item 5 of the previously
filed Atlantic 8-K. These amounts reflect historical gross income and
certain expenses for all communities acquired subsequent to December 31,
1996 for the period from January 1, 1997 to the earlier of the respective
dates of acquisition, December 31, 1997, or June 30, 1998, as applicable
(results of operations after the date of acquisition are included in
Atlantic's historical operating results). The adjustments also reflect the
elimination of historical operating revenues and expenses related to
community dispositions whose proceeds were used to fund community
acquisitions, as applicable. The historical gross income and expenses
relating to the period prior to Atlantic's acquisition of the communities
exclude amounts which would not be comparable to the proposed future
operations of the communities.
23
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(Continued)
The following tables summarize the historical rental revenues, rental expenses
and real estate taxes shown on the pro forma condensed statement of earnings for
the six months ended June 30, 1998 and for the year ended December 31, 1997:
<TABLE>
<CAPTION>
Real
Rental Rental Estate
Income Expenses Taxes
------ -------- ------
<S> <C> <C> <C>
For the six months ended June 30, 1998:
Arbor Green Community............................. $ 358 $ 134 $ 33
Community acquisitions and probable
community acquisitions of
Partnership-I................................... 6,804 2,012 464
Other community acquired in 1998.............. 725 210 44
------- ------- ------
Net adjustment to Atlantic's
historical balances......................... $ 7,887 $ 2,356 $ 541
======= ======= ======
For the year ended December 31, 1997:
Group F Communities (see
reconciliation to audited results below)........ $ 7,748 $ 2,702 $ 720
Arbor Green Community (audited results)........... 1,495 548 135
Other community acquired in 1997.................. 1,340 418 74
Community acquisitions and probable
community acquisitions of Partnership-I......... 13,476 4,202 751
Other community acquired in 1998.................. 2,137 568 126
------- ------- ------
Totals for the year............................. 26,196 8,438 1,806
Less: Post acquisition amounts already
included in Atlantic's historical balances. (1,733) (455) (141)
Less: Dispositions............................... (5,026) (1,957) (508)
------- ------- ------
Net adjustment to Atlantic's historical balances.. $19,437 $ 6,026 $1,157
======= ======= ======
</TABLE>
The following analysis reconciles the audited information for the Group F
Communities to the amounts contained in the pro forma condensed statement of
earnings (in thousands):
<TABLE>
<CAPTION>
Real
Rental Rental Estate
Income Expenses Taxes
------ -------- ------
<S> <C> <C> <C>
Group F Communities: Audited results of
operations for the year ended December 31, 1996... $7,572 $3,095 $674
Incremental income and expense amounts
amounts necessary to reconcile the 1996
audited results with the 1997 actual results.... 176 (393) 46
------ ------ ----
Total 1997 Group F............................ $7,748 $2,702 $720
====== ====== ====
</TABLE>
24
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(Continued)
(f) Represents the adjustment to historical operating expenses to reflect these
expenses at the level they would have been had Atlantic owned these
communities as of the beginning of the period indicated.
(g) Reflects the recognition of depreciation expense for the six months ended
June 30, 1998 related to the communities acquired after January 1, 1998 and
the probable acquisitions. This depreciation adjustment is based on
Atlantic's purchase cost assuming asset lives of 10 to 40 years.
Depreciation is computed using a straight-line method.
(h) Represents interest expense for the six months ended June 30, 1998 on pro
forma line of credit borrowings necessary to fund pro forma acquisitions
and probable acquisitions. The adjustment is based on a weighted average
effective interest rate of 6.61%.
(i) Represents the pro forma reduction of internal costs capitalized in
connection with Atlantic's operating community acquisitions for the three
months ended March 31, 1998. The pro forma reduction results from a March
1998 accounting rule requiring that internal acquisition costs be expensed
as incurred. The rule was adopted and is reflected in the historical
information beginning April 1, 1998.
(j) Represents the limited partners' approximately 13.0% interest in the net
earnings of Partnership-I for the period indicated. See note (c).
(k) Diluted earnings per share ("EPS") has not been calculated assuming
conversion of the limited partners' interest in the Partnership-I because
the effect on EPS would be anti-dilutive. The diluted EPS calculation does
include the effect of dilutive stock options.
(l) Represents the pro forma adjustments reflecting the elimination of all
interest income and amortization on Homestead convertible mortgages as a
result of the Homestead Note Sale and the elimination of the related amount
of interest expense incurred by Atlantic to fund these notes.
(m) Funds from operations represents Atlantic's net earnings computed in
accordance with generally accepted accounting principles ("GAAP"), before
minority interest, excluding real estate depreciation, gains (or losses)
from depreciated real estate, provision for possible losses, extraordinary
items, non-cash interest income and significant non-recurring items. Funds
from operations should not be considered as an alternative to net earnings
or any other GAAP measurement of performance as an indicator of Atlantic's
operating performance or as an alternative to cash flows from operating,
investing or financing activities as a measure of liquidity. Atlantic
believes that funds from operations is helpful to a reader as a measure of
the performance of an equity REIT because, along with cash flow from
operating activities, investing activities and financing activities, it
provides a reader with an indication of the ability of Atlantic to incur
and service debt, to make capital expenditures and to fund other cash
needs. The funds from operations measure presented by Atlantic, while
consistent with the National Association of Real Estate Investment Trusts'
definition, may not be comparable to similarly titled measures of other
REITs which do not compute funds from operations in a manner consistent
with Atlantic. Funds from operations is not intended to represent cash made
available to shareholders. Furthermore, management believes that an
understanding of funds from operations will enhance the reader's
comprehension of the impact of the Internalization Transaction to Atlantic
which was a specific consideration of Atlantic's Board of Directors in
approving the Internalization Transaction.
(n) The exchange of the limited partners' interest in Partnership-I for Common
Shares is assumed for purposes of presenting basic and diluted weighted
average Common Shares outstanding with respect to funds from operations.
25
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(Continued)
(o) Reflects (i) the removal of $582 of depreciation expense recognized on
communities disposed of subsequent to December 31, 1996 which is included
in Atlantic's 1997 historical balances and (ii) the recognition of $4,211
of depreciation expense for the period from January 1, 1997 through the
respective acquisition dates related to the communities acquired subsequent
to December 31, 1996. Depreciation expense after the date of acquisition is
included in Atlantic's historical operating results. This depreciation
adjustment is based on Atlantic's purchase cost assuming asset lives of 10
to 40 years. Depreciation is computed using a straight-line method.
(p) Reflects historical interest expense of $1,039 for the period from January
1, 1997 through the date the three mortgage notes related to 1997
acquisitions were assumed by Atlantic. Additionally, a pro forma adjustment
of $15 has been recognized to reflect interest expense on the three
mortgage notes at Atlantic's effective interest rate. The interest rates on
the mortgage notes vary from 7.93% to 8.05%.
(q) Represents the increase in interest expense on the portion of Atlantic's
senior unsecured notes issued on August 20, 1997 (the "Notes") that is
assumed to have been issued as of January 1, 1997 to the extent necessary
to fund pro forma acquisitions. The pro forma adjustment assumes that the
community acquisitions and probable acquisitions by Partnership-I as
described in note (c) and (e) are funded entirely with proceeds from the
Notes. The remaining pro forma acquisitions as described in note (e) are
assumed to be funded with proceeds from the sale of Common Shares,
preferred stock and the Notes on a pro rata basis. See notes (s) and (t).
The weighted average effective interest rate on the Notes of 7.66% was used
to calculate the pro forma adjustment.
(r) Reflects the additional REIT management fee for the year ended December 31,
1997 that would have been incurred had the pro forma acquisitions and
dispositions occurred as of January 1, 1997.
(s) Reflects an increase in preferred share dividends on the portion of
Atlantic's Series A Cumulative Redeemable Preferred Stock issued on August
20, 1997 that is assumed to have been issued as of January 1, 1997 to the
extent necessary to fund pro forma acquisitions. See note (q).
(t) The number of Common Shares used in the calculation of pro forma net
earnings per Common Share was based on the weighted average number of
Common Shares outstanding during the period, adjusted to give effect to the
Common Shares assumed to have been issued as of January 1, 1997 to the
extent necessary to fund the pro forma acquisitions. See note (q).
26
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(Continued)
(u) On September 9, 1997, Atlantic acquired the operations and business of the
REIT Manager and the Property Manager, in exchange for Common Shares. As a
result of the Internalization Transaction, Atlantic became an internally
managed REIT. The adjustments discussed below reflect Atlantic's operating
results for 1997 as if the Internalization Transaction had been consummated
as of January 1, 1997.
(i) Reflects the historical operating expenses of the Property Manager
which were directly related to providing services to Atlantic for
the period from January 1, 1997 to September 9, 1997 and certain pro
forma adjustments. The amounts designated as being "paid to
affiliate" represent administrative services provided by Security
Capital Group Incorporated ("Security Capital"), the owner of the
REIT Manager and Property Manager and Atlantic's principal
shareholder. Security Capital has been providing these services to
Atlantic since September 9, 1997 under an administrative services
agreement;
(ii) Reflects the elimination of Atlantic's historical expenses,
including pro forma adjustments, related to REIT management and
property management fees;
(iii) Reflects the historical depreciation expense of $184 for the period
from January 1, 1997 to September 9, 1997 directly related to fixed
assets acquired from the REIT Manager and the Property Manager
(primarily computer equipment and software), as adjusted by $63 for
the estimated increase in depreciation expense that would result
from the capitalization of development-related costs for the period
from January 1, 1997 to September 9, 1997 as discussed below. These
capitalized costs will be depreciated utilizing the same lives and
methods currently utilized by Atlantic;
(iv) Reflects the historical general and administrative costs of the REIT
Manager of $5,051 which were associated with providing services to
Atlantic for the period from January 1, 1997 to September 9, 1997,
reduced for the pro forma adjustment to capitalize qualifying direct
and incremental costs relating primarily to the development of real
estate investments of $2,379 that would have been capitalized by
Atlantic under GAAP, had the Internalization Transaction occurred as
of January 1, 1997. This amount is net of a $148 adjustment related
to the pro forma reduction of internal costs capitalized in
connection with Atlantic's operating community acquisitions for the
period from September 9, 1997 to December 31, 1997. The pro forma
reduction results from a March 1998 accounting rule requiring that
internal acquisition costs be expensed as incurred. Prior to
consummation of the Internalization Transaction on September 9,
1997, Atlantic was not able, under GAAP, to capitalize internal
development-related costs because the REIT management fee paid was
not a direct reimbursement of these costs.
(v) Reflects the increase in weighted average Common Shares outstanding
that would result if the 2,307 Common Shares issued to Security
Capital as consideration for the purchase of the net tangible assets
of the REIT Manager and the Property Manager had been issued as of
January 1, 1997. The number of shares shown is based on the 2,307
Common Shares actually issued to Security Capital on September 9,
1997, calculated as: 2,307 x 251 days / 365 days = 1,586 weighted
average incremental Common Shares.
27
<PAGE>
ARCHSTONE COMMUNITIES TRUST
INDEX TO ARCHSTONE PRO FORMA CONDENSED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Pro Forma Condensed Balance Sheet as of June 30, 1998 (Unaudited).................................. 30
Notes to Pro Forma Condensed Balance Sheet as of June 30, 1998 (Unaudited)......................... 31
Pro Forma Condensed Statement of Earnings From Operations for the six months ended
June 30, 1998 (Unaudited)........................................................................ 33
Pro Forma Condensed Statement of Earnings From Operations for the year ended
December 31, 1997 (Unaudited).................................................................... 34
Notes to Pro Forma Condensed Statements of Earnings From Operations for the six months ended
June 30, 1998 and the year ended December 31, 1997 (Unaudited)................................... 35
</TABLE>
28
<PAGE>
ARCHSTONE COMMUNITIES TRUST
PRO FORMA CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The accompanying pro forma condensed financial statements reflect the
merger ("the Atlantic Merger") of Security Capital Atlantic Incorporated
("Atlantic") with and into Security Capital Pacific Trust ("PTR"). Upon
consummation of the Atlantic Merger, PTR changed its name to Archstone
Communities Trust ("Archstone"). In accordance with the terms of the Atlantic
Merger, each share of Atlantic common stock ("Atlantic Common Shares") was
converted into the right to receive one share of Archstone common stock ("Common
Shares"). Atlantic's preferred shareholders also received comparable preferred
shares of Archstone as a result of the Atlantic Merger. In addition, Archstone
assumed Atlantic's debt and other liabilities. The Atlantic Merger was accounted
for using the purchase method of accounting in accordance with Accounting
Principles Board Opinion No. 16.
The accompanying pro forma condensed financial statements have been
prepared based on pro forma adjustments to the separate historical or certain
pro forma financial statements of PTR and Atlantic. Those certain pro forma
financial statements are included in this Current Report for Atlantic (see page
18) and were previously filed via a Current Report on Form 8-K for PTR, as
referenced in the accompanying notes and give effect, where appropriate, to the
following transactions:
(i) certain acquisitions and dispositions of multifamily operating
communities by PTR and Atlantic;
(ii) the internalization of management transactions whereby on September
9, 1997, PTR and Atlantic acquired their respective management
companies (the "REIT Manager and Property Manager") from Security
Capital Group Incorporated ("Security Capital") in exchange for
shares of their respective common stock; and
(iii) Atlantic's sale of its Homestead convertible mortgage notes
receivable.
The accompanying pro forma condensed balance sheet has been prepared as if
the Atlantic Merger had occurred on June 30, 1998. The accompanying pro forma
condensed statements of earnings from operations for the six months ended June
30, 1998 and the year ended December 31, 1997 have been prepared as if the
Atlantic Merger had occurred on January 1, 1997.
The pro forma condensed financial statements do not purport to be
indicative of the financial position or results of operations which would
actually have been obtained had the Atlantic Merger been completed on the dates
indicated or which may be obtained in the future. The pro forma condensed
financial statements should be read in conjunction with the historical and pro
forma financial statements of PTR and Atlantic, as set forth in: (i) Archstone's
quarterly report on Form 10-Q as of and for the six months ended June 30, 1998,
incorporated by reference; (ii) Atlantic's historical financial statements as of
and for the six months ended June 30, 1998 included on page 4 of this Current
Report; (iii) the respective 1997 annual reports on Form 10-K for PTR and
Atlantic, incorporated by reference; (iv) the Atlantic condensed pro forma
financial statements included on page 18 of this Current Report; and (v) the PTR
condensed pro forma financial statements included in the Current Report on Form
8-K filed April 23, 1998, incorporated by reference. The relative impact of the
Atlantic Merger-related increases in pro forma earnings from operations, cash
provided by operating activities and funds from operations reflected in the
accompanying pro forma condensed statement of earnings from operations should
not be extrapolated to future periods due to larger bases of earnings from
operations, funds from operations and weighted average shares outstanding in
future periods resulting from actual and expected ongoing growth in the combined
company's operations. In management's opinion, all material adjustments
necessary to reflect the effects of these transactions have been made.
29
<PAGE>
ARCHSTONE COMMUNITIES TRUST
PRO FORMA CONDENSED BALANCE SHEET
June 30, 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Atlantic
----------------------------------------------
Pro Forma
----------------------------------------------
Pro Forma
PTR Pre-Merger Purchase Price Purchase Merger Archstone
Historical (a) Pro Forma (b) Adjustments (c) Value (c) Adjustments Pro Forma
-------------- ------------- --------------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
- --------------------------------
Real estate..................... $ 2,785,753 $ 1,665,409 $ 171,595 $1,837,004 $ 5,464 (h) $4,628,221
Less accumulated depreciation... 156,033 79,745 (79,745) -- -- 156,033
-------------- ------------- --------------- ---------- ----------- ----------
2,629,720 1,585,664 251,340 (d) 1,837,004 5,464 4,472,188
Homestead convertible mortgage
notes receivable............... 228,551 -- -- 228,551
Other mortgage notes receivable. 9,196 -- -- -- -- 9,196
-------------- ------------- --------------- ---------- ----------- ----------
Net investments............. 2,867,467 1,585,664 251,340 1,837,004 5,464 4,709,935
Cash and cash equivalents....... 2,650 2,448 -- 2,448 -- 5,098
Restricted cash in tax-
deferred exchange escrow....... 2,362 -- -- -- -- 2,362
Other assets.................... 47,592 23,528 (8,383)(e) 15,145 62,737
-------------- ------------- --------------- ---------- ----------- ----------
Total assets................ $ 2,920,071 $ 1,611,640 $ 242,957 $1,854,597 $ 5,464 $4,780,132
============== ============= =============== ========== =========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
- --------------------------------
Liabilities:
Credit facilities............. $ 237,100 $ 332,981 $ -- $ 332,981 $ 3,211 (i) $ 573,292
Long-term debt................ 755,000 150,000 4,122 (f) 154,122 -- 909,122
Mortgages payable............. 260,282 157,479 2,850 (f) 160,329 420,611
Accounts payable.............. 34,590 23,940 -- 23,940 -- 58,530
Accrued expenses and other
liabilities.................. 74,423 33,395 (4,861)(e) 28,534 102,957
-------------- ------------- --------------- ---------- ----------- ----------
Total liabilities........... 1,361,395 697,795 2,111 699,906 3,211 2,064,512
-------------- ------------- --------------- ---------- ----------- ----------
Minority interest............... -- 20,237 -- 20,237 -- 20,237
-------------- ------------- --------------- ---------- ----------- ----------
Shareholders' Equity:
Series A Preferred Shares..... 127,230 50,000 -- 50,000 (50,000)(j) 127,230
Series B Preferred Shares..... 105,000 -- -- -- -- 105,000
Series C Preferred Shares..... -- -- -- -- 50,000 (j) 50,000
Common Shares (95,090
historical, 142,815
Archstone pro forma)......... 95,090 478 -- 478 47,274 (j) 142,815
(27)(k)
Additional paid-in capital...... 1,317,837 904,440 240,846 (g) 1,145,286 3,064 (h) 2,366,233
(675)(i)
(2,748)(k)
(96,531)(l)
Employee share purchase notes... (16,505) (12,053) -- (12,053) 2,639 (k) (25,919)
Unrealized holding gain on
Homestead convertible
mortgage notes receivable...... 26,770 -- -- 26,770
Distributions in excess of net
earnings....................... (96,746) (49,257) (49,257) 49,257 (l) (96,746)
-------------- ------------- --------------- ---------- ----------- ----------
Total shareholders' equity.. 1,558,676 893,608 240,846 1,134,454 2,253 2,695,383
-------------- ------------- --------------- ---------- ----------- ----------
Total liabilities and
shareholders' equity....... $ 2,920,071 $ 1,611,640 $ 242,957 $1,854,597 $ 5,464 $4,780,132
============== ============= =============== ========== =========== ==========
</TABLE>
See accompanying notes to pro forma condensed balance sheet.
30
<PAGE>
ARCHSTONE COMMUNITIES TRUST
NOTES TO PRO FORMA CONDENSED BALANCE SHEET
June 30, 1998
(In thousands)
(Unaudited)
(a) Reflects PTR's historical balance sheet as of June 30, 1998.
(b) Reflects Atlantic's pre-merger pro forma balance sheet as of June 30, 1998,
which is included on page 20 of this Current Report and gives effect to the
various pre-Atlantic Merger transactions consummated by Atlantic as
described on page 19.
(c) Represents adjustments to record Atlantic's pro forma assets and
liabilities at their respective purchase values based on the purchase
method of accounting. The assumed purchase price was computed as follows:
<TABLE>
<S> <C>
Issuance of Archstone Common Shares (see note (g))......... $ 1,095,907
Issuance of Archstone Series C Preferred Shares
(see note (g))............................................ 50,600
Assumption of Atlantic liabilities and minority interest at
estimated fair value (see note (e) and (f))............... 720,143
-----------
Assumed purchase price..................................... 1,866,650
Less employee share purchase notes received................ (12,053)
-----------
Total liabilities and shareholders' equity................. $ 1,854,597
===========
</TABLE>
(d) Represents the step-up in basis of Atlantic's real estate assets in
accordance with the purchase method of accounting based on the assumed
purchase price (see note (c)). The stepped-up basis indicated is less than
the estimated fair value of Atlantic's real estate assets. Management's
fair value estimates were based on the application of estimated current
capitalization rates to each community's expected net operating income.
(e) Primarily represents the elimination of Atlantic's deferred charges (loan
costs, etc.) and deferred revenue items which have no ongoing value and
will not be realized by Archstone.
(f) The increases to Atlantic's long-term debt and mortgages payable reflect
the premium to adjust these financial instruments to their estimated fair
value based on the present value of amounts to be paid, using effective
interest rates currently available for debt obligations with similar terms
and features.
(g) Represents adjustment of Atlantic's shareholders' equity based on the
assumed fair value of the shares to be received from PTR as calculated
below:
<TABLE>
<S> <C>
47,752 Atlantic Common Shares at $22.95 per share (the
assumed per share value of the Archstone Common Shares to be
issued to Atlantic holders on a one for one basis)............ $ 1,095,907
2,000 Atlantic Series A preferred shares at $25.30 per share
(the assumed per share value of the Archstone Series C
Preferred Shares to be issued to Atlantic holders on a one
for one basis)................................................ 50,600
Less: Atlantic's pre-Atlantic Merger pro forma shareholders'
equity, excluding $12,053 employee share purchase notes....... (905,661)
-----------
Adjustment...................................................... $ 240,846
===========
</TABLE>
(h) Represents the net adjustment to real estate associated with the $2,400 in
Atlantic Merger costs referenced in note (i) and $3,064 associated with the
estimated fair value of unvested PTR stock options to be issued to Atlantic
employees in exchange for unvested Atlantic stock options.
31
<PAGE>
ARCHSTONE COMMUNITIES TRUST
NOTES TO PRO FORMA CONDENSED BALANCE SHEET - (Continued)
(i) Represents the expected incremental borrowings needed to fund the following
cash payments:
<TABLE>
<CAPTION>
<S> <C>
Atlantic Merger transaction costs:
Professional fees............................................. $ 1,950
Employee termination and severance costs...................... 250
Other, including printing, filing, title
and transfer costs.......................................... 200
-------
2,400
Atlantic Merger registration costs............................ 675
Cash payment to displaced employees related to the
repurchase of common stock issued under the PTR
and Atlantic incentive plans (see note (k))................. 136
-------
Total incremental borrowings on credit facilities............. $ 3,211
=======
</TABLE>
(j) Represents the one for one exchange of 47,752 Atlantic Common Shares ($.01
par value) for PTR Common Shares ($1.00 par value) and the one for one
exchange of 2,000 Atlantic Series A Preferred Shares ($25 per share stated
liquidation preference) for comparable PTR Series C Preferred Shares.
(k) Represents adjustments to eliminate the common stock ($27 aggregate par
value and $2,748 additional paid-in capital) and related stock purchase
notes of $2,639 associated with the repurchase of 124 shares of common
stock from displaced employees (see note (i) for the $136 cash portion of
repurchase).
(l) Represents the following adjustments resulting from the application of
purchase accounting: (i) a $47,274 adjustment for the difference between
the $.01 par value of Atlantic's Common Shares as compared to the $1.00 par
value of PTR's Common Shares related to the shares referenced in note (j),
and (ii) the reclassification of $49,257 of distributions in excess of net
earnings to additional paid-in capital.
32
<PAGE>
ARCHSTONE COMMUNITIES TRUST
PRO FORMA CONDENSED STATEMENT OF EARNINGS FROM OPERATIONS
Six months ended June 30, 1998
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Atlantic Pro Forma
PTR Pre-Merger Merger Archstone
Historical (m) Pro Forma (n) Adjustments (o) Pro Forma
-------------- ------------- --------------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rental revenues............................................... $ 180,105 $ 104,716 $ -- $ 284,821
Interest income on Homestead convertible mortgages............ 11,240 -- -- 11,240
Other income.................................................. 2,442 392 -- 2,834
-------------- ------------- --------------- ---------
193,787 105,108 -- 298,895
-------------- ------------- --------------- ---------
Expenses:
Rental expenses:
Paid to affiliate........................................... -- 796 -- 796
Paid to third parties....................................... 47,523 27,773 -- 75,296
Real estate taxes............................................. 15,652 10,106 -- 25,758
Depreciation on real estate investments....................... 32,373 18,115 2,628 (q) 53,116
Interest...................................................... 31,629 14,699 (632)(r) 45,696
General and administrative:
Paid to affiliate........................................... 1,739 465 (272)(s) 1,932
Paid to third parties....................................... 4,124 2,527 (1,463)(s) 5,188
Provision for possible loss on investments.................... 3,000 -- -- 3,000
Termination of interest rate lock............................. -- 5,965 -- 5,965
Other......................................................... 400 62 -- 462
-------------- ------------- --------------- ---------
Total expenses............................................ 136,440 80,508 261 217,209
-------------- ------------- --------------- ---------
Earnings from operations before minority interest............... 57,347 24,600 (261) 81,686
Less minority interest.......................................... -- 727 -- 727
-------------- ------------- --------------- ---------
Earnings from operations........................................ 57,347 23,873 (261) 80,959
Less preferred share dividends.................................. 9,469 2,156 -- 11,625
-------------- ------------- --------------- ---------
Earnings from operations attributable to Common Shares - basic.. $ 47,878 $ 21,717 $ (261) $ 69,334
============== ============= =============== =========
Weighted average Common Shares outstanding - basic (t).......... 93,617 47,752 141,369
-------------- ------------- ---------
Weighted average Common Shares outstanding - diluted (t)........ 93,701 47,753 141,454
-------------- ------------- ---------
Earnings from operations attributable to Common Shares per
Common Share - basic........................................... $ 0.51 $ 0.45 $ 0.49
============== ============= =========
Earnings from operations attributable to Common Shares per
Common Share - diluted......................................... $ 0.51 $ 0.45 $ 0.49
============== ============= =========
Reconciliation of earnings from operations attributable to
Common Shares to funds from operations attributable to
Common Shares:
Earnings from operations attributable to Common Shares - basic.. $ 47,878 $ 21,717 $ (261) $ 69,334
Add (deduct):
Depreciation on real estate investments....................... 32,373 18,061 2,628 (q) 53,062
Amortization related to Homestead convertible mortgages....... (887) -- -- (887)
Provision for possible loss on investments.................... 3,000 -- -- 3,000
Termination of interest rate lock............................. -- 5,965 -- 5,965
Other......................................................... 148 727 -- 875
-------------- ------------- --------------- ---------
Funds from operations attributable to Common Shares - basic (u). 82,512 46,470 2,367 131,349
Add Series A Preferred Share dividends.......................... 4,784 -- -- 4,784
-------------- ------------- --------------- ---------
Funds from operations attributable to
Common Shares - diluted (u).................................... $ 87,296 $ 46,470 $ 2,367 $ 136,133
============== ============= =============== =========
Weighted average Common Shares outstanding - basic (u).......... 93,617 48,661 -- 142,278
-------------- ------------- --------------- ---------
Weighted average Common Shares outstanding - diluted (u)........ 100,834 48,662 -- 149,496
-------------- ------------- --------------- ---------
Cash Flow Summary:
Net cash provided by operating activities..................... $ 91,461 $ 46,130 $ 2,628 $ 140,219
Net cash provided by (used in) investing activities........... (160,304) (216,301) 320 (376,285)
Net cash provided by financing activities..................... $ 66,566 $ 171,455 $ -- $ 238,021
</TABLE>
See accompanying notes to pro forma condensed statements of earnings from
operations.
33
<PAGE>
ARCHSTONE COMMUNITIES TRUST
PRO FORMA CONDENSED STATEMENT OF EARNINGS FROM OPERATIONS
Year ended December 31, 1997
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
PTR Atlantic Pro Forma
Pre-Merger Pre-Merger Merger Archstone
Pro Forma (p) Pro Forma (n) Adjustments (o) Pro Forma
------------- ------------- --------------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rental revenues............................................... $ 336,933 $ 187,896 $ -- $ 524,829
Interest income on Homestead convertible mortgages............ 16,687 -- -- 16,687
Other income.................................................. 3,915 637 -- 4,552
-------------- ------------- --------------- ---------
357,535 188,533 546,068
-------------- ------------- --------------- ---------
Expenses:
Rental expenses:
Paid to affiliate........................................... 803 1,948 -- 2,751
Paid to third parties....................................... 94,561 53,847 -- 148,408
Real estate taxes............................................. 27,387 15,850 -- 43,237
Depreciation on real estate investments....................... 54,020 30,870 4,657 (q) 89,547
Interest...................................................... 62,704 25,614 (1,109)(r) 87,209
General and administrative:
Paid to affiliate........................................... 4,377 1,375 (603)(s) 5,149
Paid to third parties....................................... 10,395 4,866 (3,563)(s) 11,698
Costs incurred in acquiring management companies from an
affiliate.................................................... 71,707 -- -- 71,707
Other......................................................... 4,415 306 -- 4,721
-------------- ------------- --------------- ---------
Total expenses............................................ 330,369 134,676 (618) 464,427
-------------- ------------- --------------- ---------
Earnings from operations before minority interest............... 27,166 53,857 618 81,641
Less minority interest.......................................... -- 945 -- 945
-------------- ------------- --------------- ---------
Earnings from operations........................................ 27,166 52,912 618 80,696
Less preferred share dividends.................................. 19,384 1,885 -- 21,269
-------------- ------------- --------------- ---------
Earnings from operations attributable to Common Shares - basic.. $ 7,782 $ 51,027 $ 618 $ 59,427
============== ============= =============== =========
Weighted average Common Shares outstanding - basic (t).......... 84,136 44,439 128,575
-------------- ------------- ---------
Weighted average Common Shares outstanding - diluted (t)........ 84,174 44,440 128,614
-------------- ------------- ---------
Earnings from operations attributable to Common Shares per
Common Share - basic........................................... $ 0.09 $ 1.15 $ 0.46
============== ============= =========
Earnings from operations attributable to Common Shares per
Common Share diluted.......................................... $ 0.09 $ 1.15 $ 0.46
============== ============= =========
Reconciliation of earnings from operations attributable to
Common Shares to funds from operations attributable to
Common Shares:
Earnings from operations attributable to Common Shares - basic.. $ 7,782 $ 51,027 $ 618 $ 59,427
Add (deduct):
Depreciation on real estate investments....................... 54,020 30,592 4,657 (q) 89,269
Costs incurred in acquiring management companies from an
affiliate.................................................... 71,707 -- -- 71,707
Provision for possible loss on real estate investments........ 3,000 200 -- 3,200
Amortization related to Homestead convertible mortgages....... (1,281) -- -- (1,281)
Minority interest............................................. -- 945 -- 945
-------------- ------------- --------------- ---------
Funds from operations attributable to Common Shares - basic (u). 135,228 82,764 5,275 223,267
Add Series A Preferred Share dividends.......................... 9,934 -- -- 9,934
-------------- ------------- --------------- ---------
Funds from operations attributable to
Common Shares - diluted (u).................................... $ 145,162 $ 82,764 $ 5,275 $ 233,201
============== ============= =============== =========
Weighted average Common Shares outstanding - basic (u).......... 84,136 45,045 -- 129,181
-------------- ------------- --------------- ---------
Weighted average Common Shares outstanding - diluted (u)........ 92,496 45,046 -- 137,542
-------------- ------------- --------------- ---------
Cash Flow Summary:
Net cash provided by operating activities..................... $ 163,924 $ 90,525 $ 5,628 $ 260,077
Net cash used in investing activities......................... (408,556) (297,985) (654) (707,195)
Net cash provided by financing activities..................... $ 242,672 $ 209,102 $ -- $ 451,774
</TABLE>
See accompanying notes to pro forma condensed statements of earnings from
operations
34
<PAGE>
ARCHSTONE COMMUNITIES TRUST
NOTES TO PRO FORMA CONDENSED
STATEMENTS OF EARNINGS FROM OPERATIONS
Six months ended June 30, 1998 and Year ended December 31, 1997
(In thousands)
(Unaudited)
(m) Reflects PTR's historical statement of earnings from operations for the six
months ended June 30, 1998.
(n) Reflects Atlantic's pre-Atlantic Merger pro forma statements of earnings
from operations for the six months ended June 30, 1998 and the year ended
December 31, 1997, as applicable, which are included on page 21 and page
22, respectively of this Current Report. The referenced pre-Atlantic Merger
pro forma financial information gives effect to various pre-Atlantic Merger
transactions consummated by Atlantic, as described on page 19.
(o) The relative impact of the Atlantic Merger-related increases in pro forma
earnings from operations, cash provided by operating activities and funds
from operations reflected in the accompanying pro forma condensed statement
of earnings from operations should not be extrapolated to future periods
due to larger bases of earnings from operations, funds from operations and
weighted average shares outstanding in future periods resulting from actual
and expected ongoing growth in the combined company's operations.
(p) Reference is made to PTR's Form 8-K filed on April 23, 1998 with the
Securities and Exchange Commission, which is incorporated by reference, for
the source of PTR's pro forma statement of earnings from operations for the
year ended December 31, 1997, which gives pro forma effect to the following
transactions as if the transactions had occurred on January 1, 1997:
(i) the September 9, 1997 acquisition of PTR's REIT Manager and Property
Manager, previously owned by Security Capital Group Incorporated
("Security Capital"), in exchange for PTR Common Shares. This
transaction resulted in PTR becoming an internally managed real estate
investment trust ("REIT"); and
(ii) the 1997 acquisitions and dispositions of the multifamily communities
reported in PTR's Form 8-K dated April 23, 1998.
The pro forma financial statements incorporated by reference give
effect, where appropriate, to a March 1998 accounting rule requiring
that internal costs related to the acquisition of operating
communities be expensed as incurred.
(q) Represents the net increase in depreciation of real estate as a result of
the step-up in basis to record Atlantic's real estate at estimated fair
value for the periods indicated:
<TABLE>
<CAPTION>
Six Months Twelve Months
Ended Ended
June 30, December 31,
1998 1997
---------- -------------
<S> <C> <C>
Step-up in real estate basis (see notes (d) and (h))................. $ 256,804 $ 265,289
Less: amount of step-up allocated to land and developments........... (72,851) (102,284)
---------- -------------
Depreciable portion of step-up in basis.............................. 183,953 163,005
---------- -------------
Estimated annual incremental depreciation expense based on an
assumed weighted average life of 35 years.......................... 5,256 4,657
Proration factor..................................................... .50 1
---------- -------------
Estimated incremental depreciation................................... $ 2,628 $ 4,657
========== =============
</TABLE>
35
<PAGE>
ARCHSTONE COMMUNITIES TRUST
NOTES TO PRO FORMA CONDENSED
STATEMENTS OF EARNINGS FROM OPERATIONS -- (Continued)
(r) The net decrease in interest expense results from the following for the
periods indicated:
<TABLE>
<CAPTION>
Six Months Twelve Months
Ended Ended
June 30, December 31,
1998 1997
---------- -------------
<S> <C> <C>
Decrease in Atlantic loan cost amortization related to elimination of
loan costs (See note (e)).................................................. $ 261 $ 353
Increase related to borrowings on credit facilities to fund the Atlantic
Merger-related costs identified in note (i)................................. (112) (227)
Decrease based on the pro forma effective interest rates resulting from
the adjustments made to record Atlantic's debt at its estimated fair
value (See note (f))....................................................... 483 983
---------- -------------
Net decrease in interest expense............................................. $ 632 $ 1,109
========== =============
</TABLE>
(s) Represents estimated cost savings resulting from operating efficiencies and
economies of scale expected to occur as a result of the Atlantic Merger
consisting of the following for the periods indicated:
<TABLE>
<CAPTION>
Six Months Twelve Months
Ended Ended
June 30, December 31,
1998 1997
---------- -------------
<S> <C> <C>
Salaries and benefits...................................................... $ 1,372 $ 2,903
Professional fees.......................................................... 145 294
Other...................................................................... 241 366
---------- -------------
Total.................................................................. 1,758 3,563
Less internal acquisition-related costs (1)............................ (295) --
---------- -------------
Net general and administrative expense adjustment.................. 1,463 3,563
---------- -------------
Reduction in administrative services paid to affiliate..................... 302 603
Less internal acquisition-related costs (1)............................ (30) --
---------- -------------
Net general and administrative expense adjustment.................. 272 603
---------- -------------
Total savings................................................. $ 1,735 $ 4,166
========== =============
</TABLE>
(1) Represents the impact of a March 1998 accounting rule requiring that
internal costs related to the acquisition of operating communities be
expensed as incurred.
Management believes that the cost savings in future periods will be greater
than the amount summarized above as a result of incremental operating
efficiencies and economies of scale which are expected to be realized in the
future. Furthermore, management believes that there will be sufficient depth of
management and personnel such that additional operating assets can be acquired,
developed and managed without a direct proportional increase in personnel and
other costs.
36
<PAGE>
ARCHSTONE COMMUNITIES TRUST
NOTES TO PRO FORMA CONDENSED
STATEMENTS OF EARNINGS FROM OPERATIONS -- (Continued)
(t) A reconciliation of the denominator used to compute basic earnings per
share ("EPS") to the denominator used to compute diluted EPS is as
follows for the periods indicated:
<TABLE>
<CAPTION>
Atlantic
PTR Pre-Merger Archstone
Six months ended June 30, 1998 Historical Pro Forma Pro Forma
- ------------------------------ ---------- ---------- ---------
<S> <C> <C> <C>
Weighted average number of Common
Shares outstanding - basic.......................... 93,617 47,752 141,369
Incremental options outstanding..................... 84 1 85
------ ------ -------
Weighted average number of
Common Shares outstanding - diluted (1)............. 93,701 47,753 141,454
====== ====== =======
Atlantic
PTR Pre-Merger Archstone
Twelve months ended December 31, 1997 Pro Forma Pro Forma Pro Forma
- ------------------------------------- --------- ---------- ---------
<S> <C> <C> <C>
Weighted average number of Common Shares
outstanding - basic................................. 84,136 44,439 128,575
Incremental options outstanding..................... 38 1 39
------ ------ -------
Weighted average number of Common Shares
outstanding - diluted (1)........................... 84,174 44,440 128,614
====== ====== =======
</TABLE>
(1) Weighted average Common Shares on a diluted basis excludes the impact
of anti-dilutive convertible securities.
(u) Funds from operations represents net earnings computed in accordance with
GAAP, before minority interest, excluding real estate depreciation, gains
(or losses) from depreciated real estate, provisions for possible losses,
non-cash interest income, extraordinary items, and significant non-
recurring items. Funds from operations should not be considered as an
alternative to net earnings or any other GAAP measurement of performance as
an indicator of operating performance or as an alternative to cash flows
from operating, investing or financing activities as a measure of
liquidity. Management believes that funds from operations is helpful to a
reader as a measure of the performance of an equity REIT because, along
with cash flow from operating, financing and investing activities, it
provides a reader with an indication of the ability of Archstone to incur
and service debt, to make capital expenditures and to fund other cash
needs. The funds from operations measure presented by Archstone, while
consistent with the National Association of Real Estate Investment Trusts'
definition, will not be comparable to similarly titled measures of other
REITs which do not compute funds from operations in a manner consistent
with Archstone. Funds from operations is not intended to represent cash
available to shareholders. Furthermore, management believes that an
understanding of funds from operations will enhance the reader's
comprehension of the impact of the Atlantic Merger, which was a
consideration of PTR's Board of Trustees and Atlantic's Board of Directors
in approving the Atlantic Merger.
37
<PAGE>
ARCHSTONE COMMUNITIES TRUST
NOTES TO PRO FORMA CONDENSED
STATEMENTS OF EARNINGS FROM OPERATIONS -- (Concluded)
A reconciliation of the denominator used to compute basic funds from
operations per common share to the denominator used to compute diluted funds
from operations per common share is as follows:
<TABLE>
<CAPTION>
Atlantic
PTR Pre-Merger Archstone
Six months ended June 30, 1998 Historical Pro Forma Pro Forma
------------------------------ ------------ --------------- -------------
<S> <C> <C> <C>
Funds from operations - weighted average number
of Common Shares outstanding - basic....................... 93,617 48,661(1) 142,278
Assumed conversion of Series A Preferred
Shares into Common Shares.................................. 7,133 -- 7,133
Incremental options outstanding............................. 84 1 85
------------ -------------- -------------
Funds from operations - weighted average number
of Common Shares outstanding - diluted..................... 100,834 48,662 149,496
============ ============== =============
</TABLE>
<TABLE>
<CAPTION>
Atlantic
PTR Pre-Merger Archstone
Twelve months ended December 31, 1997 Pro Forma Pro Forma Pro Forma
------------------------------------- ------------ --------------- -------------
<S> <C> <C> <C>
Funds from operations - weighted average number
of Common Shares outstanding - basic....................... 84,136 45,045(1) 129,181
Assumed conversion of Series A Preferred Shares into
Common Shares.............................................. 8,322 -- 8,322
Incremental options outstanding............................. 38 1 39
------------- ---------------- --------------
Funds from operations - weighted average number
of Common Shares outstanding - diluted..................... 92,496 45,046 137,542
============= ================ ==============
</TABLE>
(1) With respect to funds from operations, weighted average Atlantic Common
Shares outstanding assumes the exchange of a minority partner's interest
for Atlantic Common Shares.
38
<PAGE>
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.
ARCHSTONE COMMUNITIES TRUST
By: /s/ William Kell
----------------
William Kell
Senior Vice President
(Principal Financial Officer)
BY: /s/ Ash K. Atwood
-----------------
Ash K. Atwood
Vice President
(Principal Accounting Officer)
Date: September 1, 1998
39
<PAGE>
INDEX TO EXHIBITS
Certain of the documents are filed herewith. Certain other of the following
documents have been previously filed with the Securities and Exchange Commission
and, pursuant to rule 12b-32, are incorporated herein by reference.
Number Description
- ------ -----------
4.1 Indenture, dated as of August 14, 1997, between Atlantic and State Street
Bank and Trust Company, as Trustee (incorporated by reference to Exhibit
4.8 to Atlantic's Form S-11 Registration Statement (File No. 333-30747))
12.1 Computation of Ratio of Earnings to Fixed Charges
12.2 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends
99.1 Summary of Security Capital Atlantic Incorporated development communities
under construction as of June 30, 1998
40
<PAGE>
EXHIBIT 12.1
ARCHSTONE COMMUNITIES TRUST
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Six Months Six Months Pro Forma
Ended Ended Year Ended
June 30, June 30, December 31, Twelve Months Ended December 31,
---------- ---------- ------------ ----------------------------------------------------------
1998 1998 1997 (1) 1997 (1) 1996 1995 1994 1993
---- ---- -------- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings from operations........ $ 80,959 $57,347 $ 80,696 $24,686 $ 94,089 $ 81,696 $46,719 $23,191
Add:
Interest expense.............. 45,696 31,629 87,209 61,153 35,288 19,584 19,442 3,923
-------- ------- -------- ------- -------- -------- ------- -------
Earnings as adjusted............ $126,655 $88,976 $167,905 $85,839 $129,377 $101,280 $66,161 $27,114
======== ======= ======== ======= ======== ======== ======= =======
Fixed charges:
Interest expense.............. $ 45,696 $31,629 $ 87,209 $61,153 $ 35,288 $ 19,584 $19,442 $ 3,923
Capitalized interest.......... 11,078 11,078 17,606 17,606 16,941 11,741 6,029 2,818
======== ======= ======== ======= ======== ======== ======= =======
Total fixed charges......... $ 56,774 $42,707 $104,815 $78,759 $ 52,229 $ 31,325 $25,471 $ 6,741
======== ======= ======== ======= ======== ======== ======= =======
Ratio of earnings to fixed
charges....................... 2.2 2.1 1.6 1.1 2.5 3.2 2.6 4.0
======== ======= ======== ======= ======== ======== ======= =======
</TABLE>
(1) Earnings from operations for 1997 includes a one-time, non-cash charge of
$71.7 million associated with costs incurred in acquiring the management
companies from an affiliate. Excluding this charge, the ratio of earnings
to fixed charges for the year ended December 31, 1997 on a historical basis
would be 2.0 and 2.3 on a pro forma basis.
<PAGE>
EXHIBIT 12.2
ARCHSTONE COMMUNITIES TRUST
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Six Months Six Months Pro Forma
Ended Ended Year Ended
June 30, June 30, December 31, Twelve Months Ended December 31,
---------- ---------- ------------ -----------------------------------------------------
1998 1998 1997 (1) 1997 (1) 1996 1995 1994 1993
---------- ---------- ------------ -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings from operations.... $ 80,959 $ 57,347 $ 80,696 $ 24,686 $ 94,089 $ 81,696 $46,719 $23,191
Add:
Interest expense.......... 45,696 31,629 87,209 61,153 35,288 19,584 19,442 3,923
---------- ---------- ------------ -------- -------- -------- ------- -------
Earnings as adjusted........ $ 126,655 $ 88,976 $ 167,905 $ 85,839 $129,377 $101,280 $66,161 $27,114
========== ========== ============ ======== ======== ======== ======= =======
Combined fixed charges and
Preferred Share dividends:
Interest expense.......... $ 45,696 $ 31,629 $ 87,209 $ 61,153 $ 35,288 $ 19,584 $19,442 $ 3,923
Capitalized interest...... 11,078 11,078 17,606 17,606 16,941 11,741 6,029 2,818
---------- ---------- ------------ -------- -------- -------- ------- -------
Total fixed charges..... $ 56,774 $ 42,707 $ 104,815 $ 78,759 $ 52,229 $ 31,325 $25,471 $ 6,741
---------- ---------- ------------ -------- -------- -------- ------- -------
Preferred Share dividends. 11,625 9,469 21,269 19,384 24,167 21,823 16,100 1,341
---------- ---------- ------------ -------- -------- -------- ------- -------
Combined fixed charges and
Preferred Share dividends.. $ 68,399 $ 52,176 $ 126,084 $ 98,143 $ 76,396 $ 53,148 $41,571 $ 8,082
========== ========== ============ ======== ======== ======== ======= =======
Ratio of earnings to
combined fixed charges and
Preferred Share dividends.. 1.9 1.7 1.3 0.9 1.7 1.9 1.6 3.4
========== ========== ============ ======== ======== ======== ======= =======
</TABLE>
- -------
(1) Earnings from operations for 1997 includes a one-time, non-cash charge of
$71.7 million associated with costs incurred in acquiring the management
companies from an affiliate. Accordingly, earnings from operations were
insufficient to cover combined fixed charges and Preferred Share dividends
by $12.3 million. Excluding this charge, the ratio of earnings to combined
fixed charges and Preferred Share dividends for the year ended December 31,
1997 on a historical basis would be 1.6 and 1.9 on a pro forma basis.
<PAGE>
Current Development Activity
Atlantic's 24 communities under construction at June 30, 1998 are located in
nine metropolitan areas. The communities are at various stages of completion as
presented below (dollar amounts in thousands):
<TABLE>
<CAPTION>
NUMBER INVESTMENT TOTAL START DATE
OF COST TO EXPECTED (QUARTER/
UNITS DATE INVESTMENT (1) YEAR)
---------- ----------- ---------------- -------------
Atlanta, Georgia:
<S> <C> <C> <C> <C>
Cameron at Barrett Creek...... 332 $ 10,150 $ 23,299 4Q/97
Cameron at North Point........ 264 12,262 20,410 4Q/97
Cameron Bridge................ 224 11,789 16,563 4Q/97
Cameron Landing............... 368 20,371 22,691 1Q/97
Birmingham, Alabama:
Cameron at the Summit I....... 372 22,084 22,219 2Q/96
Cameron at the Summit II...... 268 3,299 16,304 2Q/98
Charlotte, North Carolina:
Cameron Matthews.............. 212 12,012 12,321 2Q/97
Waterford Square II........... 286 16,247 16,928 2Q/96
Indianapolis, Indiana:
Cameron at River Ridge........ 202 2,042 12,810 2Q/98
Nashville, Tennessee:
Cameron Overlook.............. 452 24,736 24,737 2Q/96
Orlando, Florida:
Cameron Promenade............. 212 12,903 14,112 3Q/97
Cameron Wellington II......... 120 9,030 9,650 3Q/97
Raleigh, North Carolina:
Cameron at Southpoint......... 288 9,421 17,923 3Q/97
Cameron Chase................. 388 3,473 26,223 2Q/98
Cameron Woods................. 328 11,809 19,957 3Q/97
Richmond, Virginia:
Cameron at Virginia Center.... 264 16,687 17,556 2Q/97
Cameron at Virginia Center II. 88 672 6,126 2Q/98
Cameron at Wyndham............ 312 21,440 21,750 3Q/96
Cameron Crossing II........... 144 9,573 9,931 2Q/97
Cameron Valley................ 288 2,525 18,535 2Q/98
Southeast Florida:
Cameron Gardens............... 300 15,980 21,435 4Q/97
Cameron Palms................. 340 12,066 24,883 4Q/97
Cameron Park I................ 196 12,462 14,590 4Q/97
Cameron Waterways............. 300 22,009 22,278 1Q/97
------- -------- --------
TOTAL DEVELOPMENTS
UNDER CONSTRUCTION............ 6,548 $295,042 $433,231
======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
ACTUAL OR
EXPECTED
DATE OF EXPECTED
FIRST UNITS STABILIZATION
QUARTER/ DATE (QUARTER/ %
YEAR) (2) YEAR) LEASED (3)
------------- ---------------- ----------
Atlanta, Georgia:
<S> <C> <C> <C>
Cameron at Barrett Creek...... 1Q/99 3Q/00 n/a
Cameron at North Point........ 4Q/98 1Q/00 n/a
Cameron Bridge................ 4Q/98 4Q/99 n/a
Cameron Landing............... 4Q/97 3Q/98 79.9%
Birmingham, Alabama:
Cameron at the Summit I....... 2Q/97 3Q/98 91.7%
Cameron at the Summit II...... 3Q/99 3Q/00 n/a
Charlotte, North Carolina:
Cameron Matthews.............. 1Q/98 4Q/98 78.3%
Waterford Square II........... 2Q/97 4Q/98 68.2%
Indianapolis, Indiana:
Cameron at River Ridge........ 3Q/99 3Q/00 n/a
Nashville, Tennessee:
Cameron Overlook.............. 2Q/97 4Q/98 93.4%
Orlando, Florida:
Cameron Promenade............. 2Q/98 2Q/99 46.7%
Cameron Wellington II......... 2Q/98 4Q/98 25.0%
Raleigh, North Carolina:
Cameron at Southpoint......... 4Q/98 4Q/99 n/a
Cameron Chase................. 3Q/99 3Q/01 n/a
Cameron Woods................. 4Q/98 1Q/00 n/a
Richmond, Virginia:
Cameron at Virginia Center.... 2Q/98 1Q/99 31.1%
Cameron at Virginia Center II. 3Q/99 1Q/00 n/a
Cameron at Wyndham............ 4Q/97 1Q/99 46.2%
Cameron Crossing II........... 2Q/98 1Q/99 47.9%
Cameron Valley................ 3Q/99 1Q/01 n/a
Southeast Florida:
Cameron Gardens............... 3Q/98 3Q/99 n/a
Cameron Palms................. 4Q/98 1Q/00 n/a
Cameron Park I................ 3Q/98 2Q/99 n/a
Cameron Waterways............. 1Q/98 1Q/99 60.3%
TOTAL DEVELOPMENTS
UNDER CONSTRUCTION............
</TABLE>
(1) Represents total budgeted land and development costs.
(2) Represents the quarter that the first completed units were made available
for leasing (or are expected to be made available). Atlantic begins
leasing completed units prior to completion of the entire community.
(3) The percentage leased is based on leased units divided by total number of
units in the community (completed and under construction) as of June 30,
1998. A "n/a" indicates the communities where lease-up has not yet
commenced.
