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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1998
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to .
Commission File Number 1-10272
ARCHSTONE COMMUNITIES TRUST
(Exact Name of Registrant as Specified in Its Charter)
MARYLAND 74-6056896
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
7670 South Chester Street, Suite 100
Englewood, Colorado 80112
(Address of principal executive offices and zip code)
(303) 708-5959
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- ---------------------
<S> <C>
Common Shares of Beneficial Interest, par value $1.00 per share New York Stock Exchange
Cumulative Convertible Series A Preferred Shares of
Beneficial Interest, par value $1.00 per share New York Stock Exchange
Series B Cumulative Redeemable Preferred Shares of
Beneficial Interest, par value $1.00 per share New York Stock Exchange
Series C Cumulative Redeemable Preferred Shares of
Beneficial Interest, par value $1.00 per share New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based on the closing price of the registrant's common shares on March 5,
1999, the aggregate market value of the voting common equity held by
non-affiliates of the registrant was approximately $1,616,416,000.
At March 5, 1999, there were approximately 139,004,000 of the registrant's
Common Shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for the 1999 annual
meeting of its shareholders are incorporated by reference in Part III of this
report.
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Table of Contents
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<CAPTION>
Item Description Page
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<S> <C> <C>
PART I
Glossary......................................................................................... 1
1. Business......................................................................................... 4
Archstone Communities Trust............................................................... 4
Trustees and Officers of Archstone........................................................ 7
Employees................................................................................. 11
Insurance................................................................................. 11
Risk Factors.............................................................................. 11
2. Properties....................................................................................... 15
Geographic Distribution................................................................... 15
Real Estate Portfolio..................................................................... 16
3. Legal Proceedings................................................................................ 18
4. Submission of Matters to a Vote of Security Holders.............................................. 18
PART II
5. Market for the Registrant's Common Equity and Related Stockholder Matters........................ 18
6. Selected Financial Data.......................................................................... 21
7. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 22
Results of Operations..................................................................... 23
Liquidity and Capital Resources........................................................... 26
7A. Quantitive and Qualitative Disclosures About Market Risk......................................... 31
8. Financial Statements and Supplementary Data...................................................... 32
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............. 33
PART III
10. Trustees and Executive Officers of the Registrant................................................ 33
11. Executive Compensation........................................................................... 33
12. Security Ownership of Certain Beneficial Owners and Management................................... 33
13. Certain Relationships and Related Transactions................................................... 33
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................. 33
</TABLE>
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GLOSSARY
The following abbreviations, acronyms or defined terms used in this document
are defined below:
<TABLE>
<CAPTION>
<S> <C>
Abbreviation, Acronym or Defined Term Definition/Description
- --------------------------------------------------- ------------------------------------------------------------
1999 Proxy Statement............................... Archstone's definitive proxy statement for its 1999 annual
meeting of shareholders.
ADA................................................ Americans with Disabilities Act.
APB................................................ Accounting Principles Board.
Archstone.......................................... Archstone Communities Trust, formerly PTR. Financial
information and references throughout this document are
labeled "Archstone" for periods before and after the
Atlantic Merger (when the name of the company was changed),
unless indicated otherwise.
ASA................................................ Administrative Services Agreement whereby Security Capital
provides services to Archstone for a fee which include but
are not limited to: research, payroll and human resources,
cash management, accounts payable, data processing,
insurance, legal and tax administration.
Atlantic........................................... Security Capital Atlantic Incorporated.
Atlantic Merger.................................... In July 1998, Security Capital Atlantic Incorporated was
merged with and into PTR. The combined company has
continued its existence under the name Archstone Communities
Trust and is traded on the NYSE under the symbol "ASN".
Board.............................................. Archstone's Board of Trustees which is divided into three
classes, each serving staggered three-year terms.
Chase.............................................. Chase Bank of Texas, National Association.
Common Share(s).................................... Archstone common shares of beneficial interest, par value
$1.00 per share.
Company............................................ Archstone Communities Trust.
DEU(s)............................................. Dividend equivalent unit(s).
DRSP............................................... Archstone's 1998 Dividend Reinvestment and Share Purchase
Plan which became effective in February 1998.
EPS................................................ Earnings per share.
Fannie Mae......................................... Federal National Mortgage Association.
Fannie Mae Secured Debt............................ Long-term secured debt agreement for $268.5 million entered
into with Fannie Mae in December 1998, through its
underwriting and servicing lender, Berkshire Mortgage
Finance. This agreement matures in January 2006.
Funds From Operations.............................. Net earnings computed in accordance with GAAP, excluding
real estate depreciation, gains (or losses) on dispositions
of depreciated real estate, provisions for possible losses
on investments, non-cash interest income, extraordinary
items and significant non-recurring items. 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 REIT's which do not compute Funds
From Operations in a manner consistent with Archstone.
</TABLE>
1
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<TABLE>
<CAPTION>
Abbreviation, Acronym or Defined Term Definition/Description
- --------------------------------------------------- ---------------------------------------------------------------
<S> <C>
GAAP............................................... Generally accepted accounting principles.
Homestead.......................................... Homestead Village Incorporated, the company to which
Archstone contributed its 54 extended-stay lodging assets in
October 1996. (see "Item 14(a). Financial Statements and
Schedule, Note 4, Mortgage Notes Receivable.")
Homestead Distribution............................. A special distribution to Archstone's holders of Common
Shares of 0.125694 shares of Homestead common stock and
warrants to purchase 0.084326 shares of Homestead common
stock per Archstone Common Share, which occurred in November
1996.
In Planning........................................ Parcels of land owned or Under Control upon which
construction of apartments is expected to commence within 36
months.
Incentive Plan..................................... Archstone's Long-Term Incentive Plan which was approved by
holders of Common Shares in September 1997, which provides
for purchases, option awards and grants of Common Shares.
IT................................................. Information technology.
Lease-Up........................................... The phase during which newly constructed apartments are
being leased for the first time, but prior to the community
becoming Stabilized.
LIBOR.............................................. London Interbank Offered Rate.
Long-Term Unsecured Debt........................... Collectively, Archstone's long-term unsecured senior notes
payable.
Management Companies............................... Collectively, the Property Manager and the REIT Manager.
Moderate Income.................................... Households earning 65% to 90% of the median income in a
given submarket. Archstone's Moderate Income communities
target this segment of the renter market.
Net Operating Income (NOI)......................... Rental revenues less Property Operating Expenses.
NYSE............................................... New York Stock Exchange.
Outside Trustees................................... Independent members of Archstone's Board of Trustees.
Participating Preferred Shares..................... Junior Participating Preferred Shares, par value $1.00 per
share.
Preferred Shares................................... Collectively, the Archstone Series A Convertible Preferred
Shares, Archstone Series B Preferred Shares and Archstone
Series C Preferred Shares.
Pre-stabilized..................................... The period prior to a community being Stabilized (see
Stabilized definition).
Property Manager................................... SCG Realty Services Incorporated, the entity that managed
most of Archstone's communities prior to September 1997.
Property Operating Expenses........................ The sum of rental expenses and real estate taxes.
PTR................................................ Security Capital Pacific Trust (NYSE: PTR), the name of
Archstone Communities Trust prior to the Atlantic Merger.
</TABLE>
2
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<TABLE>
<CAPTION>
Abbreviation, Acronym or Defined Term Definition/Description
- --------------------------------------------------- ---------------------------------------------------------------
<S> <C>
Purchase Rights.................................... Archstone preferred share purchase rights which entitle the
holder of each right under certain circumstances to purchase
from Archstone one one-hundredth of a share of a series of
Participating Preferred Shares, at a price of $60.00 per
one-hundredth of a Participating Preferred Share, subject to
adjustment.
REIT............................................... Real estate investment trust.
REIT Manager....................................... Security Capital Pacific Incorporated, the external advisor
that managed Archstone prior to September 1997.
SEC................................................ United States Securities and Exchange Commission.
Security Capital................................... Security Capital Group Incorporated, Archstone's largest
shareholder (38% ownership at December 31, 1998) and the
owner of the Property Manager and REIT Manager until
September 1997.
Series A Convertible Preferred Shares.............. Archstone Series A Cumulative Convertible Preferred Shares
of Beneficial Interest, par value $1.00 per share.
Series B Preferred Shares.......................... Archstone Series B Non-Convertible Cumulative Redeemable
Preferred Shares of Beneficial Interest, par value $1.00 per
share.
Series C Preferred Shares.......................... Archstone Series C Non-Convertible Cumulative Redeemable
Preferred Shares of Beneficial Interest, par value $1.00 per
share.
SFAS............................................... Statement of Financial Accounting Standards.
Stabilized......................................... The classification assigned to an apartment community that
has achieved 93% occupancy at market rents, and for which
the redevelopment, new management and new marketing programs
(or development and marketing in the case of a newly
developed community) have been completed. The stabilization
process takes up to 12 months except for major
redevelopments which could take longer.
Total Expected Investment.......................... For development communities, represents the total expected
investment at completion; for operating communities,
represents the total expected investment plus planned
capital expenditures.
Under Control...................................... Land parcels which Archstone does not own, yet has an
exclusive right (through contingent contract or letter of
intent) during a contractually agreed upon time period to
acquire for the future development of apartment communities,
subject to approval of contingencies during the due
diligence process. There can be no assurance that any such
land will be acquired.
</TABLE>
3
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PART I
Item 1. Business
Archstone Communities Trust
Archstone Communities Trust (NYSE: ASN) is a leading real estate operating
company, which was formed in 1963. Archstone's principal focus is the
development, acquisition, redevelopment, operation and ownership of apartment
communities in markets and sub-markets with high barriers to entry across the
United States. As of December 31, 1998, the Company had 305 apartment
communities, representing 88,631 units, including 19,290 units in its
development pipeline under construction and In Planning. Archstone's principal
focus is to generate long-term sustainable growth in Net Operating Income and
cash flow from operations in order to maximize shareholder value. In addition,
the Company expects to create significant value by building a well-known brand
image and reputation for quality around its products and services.
Recent Accomplishments
. In February 1999, Archstone announced that the Board had authorized the
repurchase of up to $100 million of its Common Shares. Through March 5,
1999, Archstone had repurchased 4.3 million Common Shares at a weighted
average price of $19.58 per Common Share, for a total purchase price of
$84.4 million. Disposition proceeds were used to reduce Archstone's
unsecured credit facility balances, providing the capacity to fund the
share purchases. Archstone completed $96.6 million of dispositions year-to-
date, through March 5, 1999.
. In 1998, Net Operating Income for Archstone's same-store communities
increased 5.6% over 1997, with a 12.1% increase in same-store NOI in
California.
. During 1998, Archstone completed $405.5 million of dispositions, producing
aggregate gains of $65.5 million and redeployed the capital into new
investments with excellent long-term growth prospects.
. Archstone has assembled a development pipeline totaling $1.7 billion,
including $1.0 billion of communities under construction and $699.7 million
of communities In Planning, based on Total Expected Investment, as of
December 31, 1998.
. Twenty-one development communities achieved Stabilization during 1998,
adding a total of 5,962 units, representing a Total Expected Investment of
$375.0 million, to Archstone's operating portfolio, including the
Stabilization of $40.5 million by Atlantic during the first six months of
1998.
. PTR completed the Atlantic Merger in July 1998. Upon completion of the
Atlantic Merger, PTR changed its name to Archstone and became a national
apartment company.
. Archstone paid distributions of $1.39 per Common Share during 1998, a 6.9%
increase over Common Share distributions paid in 1997. The Board declared
the first quarter 1999 Common Share distribution of $0.37 per Common Share,
representing an annualized distribution rate of $1.48 and the ninth
increase in Archstone's distribution level during the last eight years.
This distribution also represents Archstone's 92nd consecutive quarterly
Common Share distribution.
Investment Strategy
Archstone uses its extensive commitment to research to identify investment
opportunities that it believes will produce total returns in excess of its long-
term cost of capital. Management believes the Company's cost of equity capital
is 13-14%, which when combined with current long-term debt rates, gives
Archstone a weighted average long-term cost of capital of approximately 10-
10.5%. Archstone only makes an investment when the total return, which includes
the initial yield plus continued growth in Net Operating Income, is expected to
exceed the Company's long-term cost of capital.
4
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The Company focuses its investment activities on those markets
characterized by (i) attractive long-term economic fundamentals, (ii) high
barriers to entry against new supply, and (iii) expensive single-family housing.
Barriers to entry exist when there is a very limited amount of land zoned for
apartment community development, and where local municipalities are reluctant to
zone additional land for apartment communities. Examples of high-barrier markets
include the Washington, D.C. metropolitan area, the San Francisco Bay area, and
San Diego--all markets where Archstone has established a strategic long-term
presence that it plans to increase over time. Archstone believes that the
consistent increases in demand and limited competition typical of its target
markets maximizes the Company's ability to produce sustainable long-term cash
flow growth.
In July 1998, the Company completed the Atlantic Merger, which
significantly expanded Archstone's platform to implement its capital allocation
strategy. The transaction increased Archstone's total assets by $1.9 billion and
added more than 33,000 units to its real estate portfolio in the southeast and
mid-Atlantic markets, including over 9,000 units in its development pipeline. In
addition, the Atlantic Merger provided the national platform for expansion into
several attractive markets in the eastern United States.
Archstone is a fully integrated operating company that executes its
investment strategy through the following four internal capabilities:
1. Development. Archstone places considerable emphasis on the creation of
value through the development of carefully planned apartment
communities. Currently, the Company's development pipeline totals $1.7
billion, including $1.0 billion of communities under construction and
$699.7 million of communities In Planning, based on Total Expected
Investment. In 1998, the Company completed and Stabilized $375.0
million of new development communities, based on Total Expected
Investment, representing 5,962 units, including the Stabilization of
$40.5 million of new development communities by Atlantic during the
first six months of 1998. Management expects Archstone's development
capability to be a key contributor to its growth, as communities are
completed and Stabilized at attractive yields during the next several
years.
Based on its customer research, Archstone's new development communities
are designed to offer customers a high level of amenities at an
attractive price, including computer alcoves, high-speed data access,
extensive sound-proofing, fitness centers, theaters, and business
centers. Additionally, the Company is redeveloping a number of its
existing communities to include these amenities.
2. Dispositions. The Company continues to pursue favorable opportunities
to dispose of assets that no longer meet Archstone's long-term
investment criteria and redeploy the proceeds into new investments with
excellent long-term growth prospects. Through December 31, 1998,
Archstone's experienced disposition team has disposed of more than $1.2
billion of assets since the inception of its asset optimization
strategy in 1995, generating aggregate gains of $162.2 million
(including $161.6 million of Atlantic dispositions producing gains of
$8.3 million prior to the Atlantic Merger).
In 1998, the Company exited a number of secondary markets with limited
barriers to entry that do not meet Archstone's long-term investment
criteria, including Greenville, South Carolina; Sacramento, California;
Sarasota, Florida; and Santa Fe, New Mexico. Over the next 18 to 24
months, Archstone plans to exit a number of other secondary markets
that are not consistent with its long-term investment strategy. The
proceeds from dispositions in these markets will provide a significant
source of incremental capital to fund future investments.
3. Acquisitions. Archstone has proven acquisition capabilities, with more
than $2.4 billion (excluding the 91 apartment communities acquired in
the Atlantic Merger, totaling $1.5 billion) in acquisitions completed
since 1992. However, in mid-1997, the Company determined that pricing
for acquisitions had become relatively unattractive. Since that time,
the Company's dispositions have been approximately equal to its
acquisitions, excluding assets acquired in the Atlantic Merger.
Virtually all of the Company's acquisitions in 1998 were funded from
disposition proceeds through tax-deferred exchanges.
Archstone's network of locally-based acquisition professionals allows
the Company to continue to take advantage of selected opportunities in
markets with strong growth prospects as they become available.
5
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4. Redevelopment. Archstone has significant experience adding value to
existing apartment communities through redevelopment. The Company's
redevelopment strategy is to reposition well-located assets through
major redevelopments including upgrades to interiors, exteriors,
landscaping and amenities. This strategy has been particularly
successful in certain markets where it is generally difficult to
develop new product due to a shortage of land suitable for development
of apartments or onerous zoning restrictions. In addition, the Company
has invested in revenue-enhancing capital expenditures such as building
garages, carports and storage facilities, and also expense-reducing
expenditures by implementing initiatives which include water
submetering systems and xeriscaping. Archstone has completed the
redevelopment of 26 apartment communities representing $609.7 million
in Total Expected Investment, over the past five years, and had 20
communities in redevelopment, representing $405.3 million in Total
Expected Investment as of December 31, 1998.
Archstone's sophisticated investment strategy is designed to maximize the
return on its invested capital. The Company establishes targeted capital
allocations for each of its markets using a proprietary model. The Company's
extensive investment and market research is used to update this model every six
months, providing the foundation for a disciplined approach to investing in real
estate. By executing this investment strategy through the internal investment
capabilities discussed above, Archstone expects to solidify its position over
the next two years as a company with core long-term investments concentrated in
markets and submarkets with strong economic fundamentals and significant supply
constraints.
Customer-Focused Operations
Archstone is dedicated to maximizing its communities' performance by
providing high-quality lifestyle services to its customers in a consistent
manner across its diverse portfolio. The Company actively pursues the ongoing
development of innovative ideas and programs designed to enhance the customer
experience with the Archstone brand, while also increasing cash flow generated
from operations.
Management believes that consistent delivery of customer service provides
the platform for the development of a strong, enduring brand identity. Since
1992, the Company has dedicated significant resources to the recruiting,
training and development of customer-focused associates. The Company believes
that its associates provide the foundation for the delivery of consistent, high
quality customer service across Archstone's portfolio.
In 1998, Archstone launched its Seal of ServiceSM program, which allows the
Company to consistently offer unconditional customer service guarantees at all
of its communities. To management's knowledge, no other apartment company offers
similar service programs on an unconditional basis. The Seal of ServiceSM
program, which emulates successful customer service programs from other highly
competitive industries, is designed to create customer loyalty and trust while
setting a new service standard for the apartment industry. The program is fully
operational at each Archstone community, and its features include:
. 100% Move-In Satisfaction Guarantee allows a customer to live in an
Archstone community for the first 30 days of his/her lease, and move out
for any reason whatsoever without penalty, if not completely satisfied.
. One-day Service Guarantee ensures that an Archstone associate will
respond to service requests within one day of the request.
. The Archstone Relocation Guarantee allows a customer to relocate to
another Archstone community anywhere in the United States without
completing his/her lease term or making a new security deposit. In 1998,
more than 1,500 customers took advantage of this service.
. The Archstone Rewards Program allows customers to benefit from long-term
residency at a single Archstone apartment through receipt of
complimentary services such as carpet cleaning and repainting, based on
tenure.
. The Customer Service Connection consists of a toll-free number and an
e-mail address to provide customers with an avenue to share comments and
suggestions.
Through extensive customer research, Archstone believes it has identified a
distinct opportunity to build an enduring brand identity around its services to
its customers. The Company is committed to being viewed as a service leader and
not solely as a real estate company. This innovative approach to its business is
expected to create significant incremental value for Archstone by increasing
customer preference for Archstone's products and services.
6
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Conservative Balance Sheet Management
Archstone is committed to preserving its strong balance sheet and to
maintaining financial flexibility. One of Archstone's primary objectives is to
structure its balance sheet in order to have access to capital when few other
real estate operating companies do. The Company believes that its conservative
balance sheet management will allow Archstone to take advantage of compelling
investment opportunities that it believes are more likely to emerge in a
capital-constrained environment.
During 1998, Archstone financed its investment activity primarily through
internally generated cash flow from operations, asset dispositions, and the
issuance of long-term debt. To minimize refinancing risk, Archstone's balance
sheet is carefully managed so that the Company does not face liquidity issues in
a given quarter or year. Archstone had a total of $501.0 million of undrawn
capacity on its existing unsecured credit facilities as of March 5, 1999, and
$4.0 billion of unencumbered assets. The Company's long-term debt is structured
to create a relatively level principal maturity schedule, without excessive
repayment obligations in any future year. Archstone has $35.8 million of total
debt maturing during 1999, and $77.2 million maturing during 2000. In addition,
the Company has a significant equity base, with a total equity market
capitalization of approximately $3.0 billion as of March 5, 1999.
Operating Segments
See "Item 14(a). Financial Statements and Schedule, Note 12, Segment Data"
for a discussion of Archstone's operating and reportable segments.
Trustees and Officers of Archstone
Upon consummation of the Atlantic Merger, the name of the Company was
changed to Archstone Communities Trust. References throughout this section are
labeled "Archstone" for the post-merger period as a result of this name change.
Pre-merger periods will be referenced as follows: (i) as "Archstone" for
individuals who were associated with PTR, PTR's REIT Manager or Property Manager
and, (ii) as "Atlantic" for individuals who were associated with Atlantic,
Atlantic's REIT manager or property manager. See "14(a). Financial Statements
and Schedule, Note 2, Atlantic Merger" for a more complete discussion of the
Atlantic Merger.
Trustees of Archstone
James A. Cardwell-67-Trustee of Archstone since May 1980; Chief Executive
Officer of Petro Stopping Centers, L.P. (operation of full-service truck
stopping centers) and its predecessor since 1975; Director of El Paso Electric
Company.
Ned S. Holmes-54-Trustee of Archstone since July 1998; Director of Atlantic
from May 1994 to July 1998; President and Chief Executive Officer of Laing
Properties, Inc. since May 1990; Chairman and President of Parkway
Investments/Texas Inc., a Houston-based real estate investment and development
company which specializes in residential (apartment and townhouse), commercial
(office and warehouse) and subdivision projects since April 1984; Director of
Heritage Bank and Commercial Bancshares, Inc.; Chairman of the Port Commission
of the Port of Houston Authority; Director of the Institute of International
Education and the Houston International Protocol Alliance; Vice Chairman of
Greater Houston Partnership.
John T. Kelley, III-58-Trustee of Archstone since January 1988; founding
officer and Advisory Trustee of ProLogis Trust (ownership and development of
industrial parks in the United States, Mexico and Europe) since January 1993;
Director of Security Capital since 1990; Director of Regency Realty Corporation
(ownership and development of infill retail properties throughout the United
States) since March 1999, prior to which he served as Chairman of the Board of
Pacific Retail Trust.
Calvin K. Kessler-67-Trustee of Archstone since January 1972; President and
principal shareholder, Kessler Industries, Inc., (manufacturer of furniture and
aluminum castings) since 1960.
Constance B. Moore-43-Trustee of Archstone since July 1998; Managing
Director of the Capital Division of Security Capital, since January 1999; Co-
Chairman and Chief Operating Officer of Archstone from July 1998 to December
1998, at which time she left Archstone to become an employee of Security
Capital; Director, Co-Chairman and Chief Operating Officer of Atlantic from
January 1996 to July 1998; Managing Director of Archstone from May 1994 to
December 1995; Senior Vice President of Security Capital from March 1993 to
April 1994.
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James H. Polk, III-56-Trustee of Archstone since January 1976; Managing
Director, SING LTD. Co. (operation and ownership of self-storage facilities),
since January 1998; Managing Director of Security Capital Markets Group
Incorporated from August 1992 to June 1997 and President from March 1997 to June
1997; affiliated with Archstone from January 1976 to June 1997 in various
capacities, including President and Chief Executive Officer; past President and
Trustee of the National Association of Real Estate Investment Trusts, Inc.;
Director, M.D. Anderson Hospital, Houston, Texas; and Director, Mortgage West,
Santa Fe, New Mexico.
John M. Richman-71-Trustee of Archstone since July 1998; Director of
Atlantic from September 1996 to July 1998; Counsel to the law firm of Wachtell,
Lipton, Rosen & Katz from January 1990 to October 1996 and from April 1997 to
present; former Chairman and CEO of Kraft Foods; Director, USX Corporation,
Stream International Inc., Evanston Northwestern Healthcare, Chicago Council on
Foreign Relations and Lyric Opera of Chicago; Trustee of the Chicago Symphony
Orchestra, Northwestern University and The Johnson Foundation; retired Director
of R.R. Donnelley & Sons Company and served as Acting Chairman and Chief
Executive Officer of that company from October 1996 to April 1997; retired
Director of BankAmerica Corporation and Bank of America National Trust and
Savings Association; Member, The Business Council and The Commercial Club of
Chicago.
John C. Schweitzer-54-Trustee of Archstone since April 1976; Director of
Homestead since April 1997; Director of Regency Realty Corporation since March
1999; Trustee of Pacific Retail Trust from June 1997 to February 1999;
President, Westgate Corporation (real estate and investments) since 1976;
Managing Partner, Campbell Capital Ltd. (real estate and investments) since
1976; Trustee of Texas Christian University; Director of Chase Bank of Texas-
Austin and KLRU Public Television, Austin, Texas.
R. Scot Sellers-42-Trustee of Archstone since July 1998; Chairman and Chief
Executive Officer of Archstone since December 1998, where he has overall
responsibility for Archstone's strategic direction, investments and operations;
Co-Chairman and Chief Investment Officer of Archstone from July 1998 to December
1998; President and Chief Executive Officer of Archstone from June 1997 to July
1998; from September 1994 to June 1997, Managing Director of Archstone, where he
had overall responsibility for Archstone's investment strategy and
implementation; Senior Vice President of Archstone from May 1994 to September
1994; from April 1993 to May 1994, Senior Vice President of Security Capital,
where he was responsible for portfolio acquisitions from institutional sources.
Executive Officers of Archstone
The executive officers of Archstone are:
<TABLE>
<CAPTION>
Name Title
- ---- -----
<S> <C>
R. Scot Sellers............... Chairman and Chief Executive Officer
Patrick R. Whelan............. Chief Operating Officer and Managing Director
Charles E. Mueller, Jr........ Chief Financial Officer and Senior Vice President
Richard A. Banks.............. Senior Regional Officer and Managing Director West Region
J. Lindsay Freeman............ Senior Regional Officer and Managing Director East Region
Jay S. Jacobson............... Senior Regional Officer and Managing Director Central Region
</TABLE>
Biographies of Executive and Senior Officers
R. Scot Sellers-42-See "Trustees of Archstone" above.
Patrick R. Whelan-42-Chief Operating Officer of Archstone since December
1998, where he has overall responsibility for operations of the Company;
Managing Director of Archstone since December 1996; previously, President of the
Property Manager, where he had overall responsibility for property management
nationwide; Senior Vice President and Co-Manager of apartment acquisitions for
Security Capital from February 1994 to October 1994; Senior Vice President of
Trammell Crow Company (development, acquisition and management of commercial
properties) from July 1986 to January 1994.
Charles E. Mueller, Jr.-35-Chief Financial Officer and Senior Vice
President of Archstone since December 1998, where he is responsible for
corporate finance, accounting/reporting and investor relations; Vice President
of Archstone from September 1996 to December 1998; prior thereto, he was with
Security Capital Markets Group, where he provided financial services to Security
Capital and its affiliates; from April 1994 to April 1995, he participated in
the management development program of Security Capital.
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Richard A. Banks-51-Managing Director of Archstone since December 1997,
where he is responsible for investments and operations in the West Region;
Senior Vice President of Archstone from August 1997 to December 1997; from
January 1995 to August 1997, President and Chief Executive Officer of Lincoln
Residential Services, where he was responsible for all aspects of leading a full
service property management company of approximately 40,000 apartment units in
the western United States; from July 1993 to January 1995, Vice President of
Lincoln Property Company, Irvine, California, with responsibility for overall
management and revenue growth for the region.
J. Lindsay Freeman-53-Managing Director of Archstone since July 1998, where
he has responsibility for investments and operations in the East Region;
Managing Director of Atlantic from December 1997 to July 1998; Senior Vice
President of Atlantic from May 1994 to November 1997; previously, Senior Vice
President and Operating Partner of Lincoln Property Company in Atlanta, Georgia,
where he was responsible for acquisitions, financing, construction and
management of apartment communities within the Atlantic region and oversaw
operations of 16,000 apartment units.
Jay S. Jacobson-46-Managing Director of Archstone since December 1997,
where he is responsible for investments and operations in the Central Region;
Senior Vice President from June 1996 to December 1997; Vice President from July
1993 to June 1996; from 1988 to July 1993, Vice President of Residential
Development for Michael Swerdlow Companies, Inc. and Hollywood Inc., South
Florida (real estate development/management companies under common control),
where he was responsible for the planning and development of large scale
single-family and apartment developments as well as other development
properties.
Daniel E. Amedro-42-Senior Vice President of Archstone since January 1999,
where he serves as Chief Information Officer; Senior Vice President of Security
Capital from March 1998 to December 1998; from September 1996 to March 1998,
Vice President of Information Services for American Medical Response, the
largest private ambulance operation in the United States; from March 1981 to
September 1996, he was with Hyatt Hotels and Resorts, where his most recent
position was Vice President of Information Services and was responsible for all
strategic information systems including Spirit, Hyatt's worldwide reservation
system, which supported over 50,000 users and was recognized as the leading
reservations system in the hospitality industry.
Neil T. Brown-42-Senior Vice President of Archstone since September 1998,
where he is responsible for directing the development of new apartment
communities in the East Region; Vice President from July 1998 to September 1998;
Vice President of Atlantic from April 1996 to July 1998, where he had comparable
responsibilities; from July 1992 to December 1995, Regional Vice
President/Regional Partner of JPI Development Partners, Inc., where he was
responsible for all development activity in Florida.
Richard O. Campbell-36-Senior Vice President of Archstone since July 1998,
where he is responsible for investment activity in certain target markets in the
Midwest; Senior Vice President and Regional Managing Partner for the Dallas/Fort
Worth area for JPI Partners from March 1997 to May 1998; Vice President in the
Development Group for Atlantic from May 1994 to March 1997; Vice President in
the Development Group for Archstone from May 1991 to May 1994.
Richard W. Dickason-42-Senior Vice President of Archstone since October
1997, where he has overall responsibility for activities in the northeastern
United States; Vice President from December 1993 to October 1997; previously,
President of J.M. Peters Company/Capital Pacific Homes, where he acquired
property for the development of single-family homes and apartment communities.
Joseph J. Dominguez-39-Senior Vice President of Archstone since December
1998, where he is responsible for construction and planning of development
communities in the East Region; Vice President from July 1998 to December 1998;
Vice President of Atlantic from April 1996 to July 1998; prior thereto, he was a
member of the development group of Atlantic; from November 1984 to August 1995,
Vice President of Operations for the Casden Company, where he had overall
responsibility for the start-up and operations of a general contracting
subsidiary.
Dana K. Hamilton-30-Senior Vice President of Archstone since December 1998
where she is responsible for the development of the Archstone brand and
corporate marketing and communications; Vice President from December 1996 to
December 1998, responsible for new product development and revenue enhancement
through portfolio-wide initiatives; from April 1996 to December 1996, she
focused on national operations; from August 1994 to April 1995, she participated
in the management development program of Security Capital.
9
<PAGE>
Nelson L. Henry-63-Senior Vice President of Archstone since September 1998,
where he has overall responsibility for construction, planning and
rehabilitation activity in the West Region; Vice President from August 1994 to
September 1998; from January 1983 to August 1994, Construction Vice President
for Lincoln Property Company N.C. Inc., where he was responsible for the
construction of over 8,000 units in Colorado and California; prior thereto, he
was President of Royal Investment Corporation, a regional apartment and single
family home developer.
John Jordano, III-42-Senior Vice President of Archstone since October 1997,
where he has overall responsibility for investment activity in the West Region;
Vice President from August 1994 to October 1997; from January 1992 to July 1994,
Senior Vice President of Prospect Partners, where he was responsible for
identifying and advising individual and corporate clients on financial
institution and Resolution Trust Corporation apartment acquisition and
investment opportunities in the western United States.
William Kell-42-Senior Vice President and Controller of Archstone since
July 1998, where he is responsible for financial reporting, accounting,
budgeting and forecasting; Senior Vice President of Atlantic from December 1997
to July 1998; Vice President of Atlantic from January 1996 to December 1997,
during which time he held comparable responsibilities; from June 1991 to
December 1995, Vice President and Controller of Archstone, where he had overall
responsibility for accounting and financial reporting.
Jeffrey A. Klopf-50-Senior Vice President and Secretary of Archstone and
Security Capital since January 1996, where he provides securities offerings,
corporate acquisition and other legal and corporate governance services; from
January 1988 to December 1995, partner of Mayer, Brown & Platt, where he
practiced corporate and securities law.
Mary Caperton Lester-44-Senior Vice President of Archstone since September
1998 and Vice President from July 1998 to September 1998, where she has overall
responsibility for community operations in Mid-Atlantic markets; Vice President
of Atlantic from July 1995 to July 1998 and with Atlantic since June 1994,
during which time she held comparable responsibilities; from May 1993 to May
1994, Ms. Lester was with Summit Management Company, where she specialized in
new business development.
Toni L. Lopez-41-Senior Vice President of Archstone since September 1998
and Vice President from August 1996 to September 1998, where she has overall
responsibility for community operations in Denver, Colorado and Dallas, Austin
and San Antonio, Texas, and with Archstone since July 1993, where she was
responsible for community operations in San Antonio and Austin, Texas.
Scott V. Monroe-39-Senior Vice President of Archstone since December 1998,
where he has overall responsibility for community operations in California; Vice
President from August 1996 to December 1998, during which time he held
comparable responsibilities; from March 1987 to July 1996, Vice President of
Maxim Property Management, where he had direct management responsibility for a
residential portfolio consisting of over 11,000 units located throughout
California and Arizona.
Christopher T. Nolan-35-Senior Vice President of Archstone since September
1998 and Vice President from July 1998 to September 1998, where he has overall
responsibility for acquisitions and dispositions in the East Region; Vice
President of Atlantic from February 1998 to July 1998; from January 1997 to
February 1998, Managing Director of R&B Realty Group, where he managed their
apartment community expansion effort; from December 1995 to January 1997, Vice
President of Atlantic, where he had responsibility for acquisitions; from May
1994 to December 1995, he was a member of Atlantic's asset management group and
from February 1989 to May 1994, he was a member of USF&G Corporation's real
estate division.
Daniel W. Ogden-38-Senior Vice President of Archstone since September 1998,
where he is responsible for community operations in New Mexico, Arizona, and
Nevada; Vice President from March 1995 to September 1998, during which time he
held comparable responsibilities; from June 1994 to February 1995, Executive
Vice President of Mutual Real Estate Corporation in Dallas, Texas, where he was
responsible for the management of a portfolio containing properties in seven
states; from September 1990 to May 1994, Regional Vice President of Lincoln
Property Company, where he was responsible for the management of over 16,000
apartment units located in 12 Mid-Atlantic/Midwest states.
10
<PAGE>
Glenn T. Rand-38-Senior Vice President of Archstone since September 1998
and Vice President from July 1998 to September 1998, where he is responsible for
community operations in Florida and Georgia; Vice President of Atlantic from
June 1996 to July 1998 and with Atlantic since May 1995, where he had comparable
responsibilities; from August 1987 to April 1995, Vice President of Trammell
Crow Residential and Avalon Properties, where he was responsible for operations
and third party management solicitation in southern Florida and the northeastern
United States.
Gary L. Truitt-48-Senior Vice President of Archstone since December 1998,
where he is responsible for Archstone's national redevelopment and purchasing
activities and construction in the northeastern United States; Vice President
from December 1995 to December 1998 and with Archstone since January 1995;
Project Manager with C.F. Jordan, Inc. from July 1994 to January 1995; from
January 1991 to July 1994, Superintendent of Benchmark Contractors, where he was
responsible for supervision and code and specification compliance.
Employees
Archstone currently employs approximately 2,100 individuals, of which
approximately 1,700 are focused on the site-level management of Archstone's
apartment communities. The balance are professionals who manage corporate and
regional operations, including Archstone's investment program, property
operations and financial activities. Prior to the acquisition of the Management
Companies in September 1997, Archstone had no employees. In connection with the
internalization of the management functions, all individuals previously employed
by the REIT Manager and the Property Manager became employees of Archstone.
Archstone's management considers its relationship with its employees to be good.
Archstone's employees are not represented by a collective bargaining agreement.
See "--Trustees and Officers of Archstone." Archstone's management team
emphasizes active training and organizational development initiatives for
associates at all levels of the Company to build long-term management depth and
succession planning.
Insurance
Archstone carries comprehensive general liability coverage on its owned
communities, with limits of liability customary within the industry, to insure
against liability claims and related defense costs. Similarly, Archstone is
insured against the risk of direct physical damage in amounts necessary to
reimburse Archstone on a replacement cost basis for costs incurred to repair or
rebuild each property, including loss of rental income during the reconstruction
period, plus a 12 month extended period indemnification. Archstone's blanket
property policy for all operating and development communities includes coverage
for the perils of flood and earthquake. Archstone's earthquake coverage is
subject to a deductible equal to 5% of the aggregate insurance value of
communities affected by any such occurrence, subject to a maximum deductible of
$5 million. The maximum aggregate flood or earthquake recovery per occurrence is
$300 million.
Risk Factors
The following factors could affect Archstone's future financial
performance.
Dependence on Key Personnel
Archstone's success depends on its ability to attract and retain the
services of executive officers, senior officers and company managers. Archstone
believes that management should have several senior executives with the
leadership, operational, investment and financial skills and experience to
oversee the entire operations of the Company. Archstone believes that several of
its senior officers could serve as the principal executive officer and continue
the Company's strong performance. However, there is substantial competition for
qualified personnel in the real estate industry and the loss of several of its
key personnel could have an adverse effect on Archstone.
11
<PAGE>
Debt Financing Risks
To the extent Archstone incurs debt, Archstone will be subject to the risks
associated with debt financing. These risks include the risks that Archstone
will not have sufficient cash flow from operations to meet required payments of
principal and interest, that Archstone will be unable to refinance current or
future indebtedness, that the terms of any refinancing will not be as favorable
as the terms of existing indebtedness, and that Archstone will be unable to make
necessary investments in new business initiatives due to lack of available
funds. If Archstone is unable to make its required payments on indebtedness
that is secured by a mortgage on Archstone's property, the asset may be
transferred to the mortgagee with a consequent loss of income and value to
Archstone. Nevertheless, Archstone has an available capacity of $501.0 million
on its unsecured credit facilities as of March 5, 1999 and $4.0 billion of
unencumbered assets, which provide significant liquidity to meet its
obligations.
Variable Interest Rate Risk
Increases in interest rates could increase Archstone's interest expense,
which would adversely affect Archstone's net earnings and cash available for
payment of obligations. With the exception of Archstone's unsecured credit
facilities and tax except floating rate mortgage debt, Archstone's exposure to
interest rates on debt is substantially limited through the use of fixed rate
loans, together with interest rate swaps and caps on variable rate loans.
Availability of Capital
During the latter half of 1998 and continuing into 1999, the real estate
industry experienced a reduced supply of favorably priced equity and debt
capital, which generally decreased the level of new investment activity by real
estate companies. Archstone believes these capital constraints will positively
affect supply and demand situations in many markets and may provide attractive
acquisition opportunities for those companies with strong balance sheets, which
Archstone has. However, a prolonged period in which real estate operating
companies cannot effectively access the public equity markets may result in
heavier reliance on alternative financing sources to undertake new investment
activities.
Interests of Certain Trustees in Archstone's Affiliates
Several of Archstone's Trustees are directors of Security Capital or
Homestead. In the event there is a transaction between Archstone and Security
Capital or Homestead, the interests of these persons may differ from the
interests of Archstone's shareholders as a result of their positions in Security
Capital or Homestead. For this reason, any transactions with an affiliate must
be approved by a majority of the Outside Trustees and Trustees with a potential
conflict are not allowed to vote on such transactions.
Significant Influence of Principal Shareholder
As of December 31, 1998, Security Capital beneficially owned approximately
38% of the issued and outstanding Common Shares and therefore controls
approximately 38% of the vote on matters submitted to Archstone's shareholders
for action. In addition, Security Capital is entitled to representation on the
Board of Trustees in proportion to its ownership interest and has rights of
prior approval and consultation regarding certain matters.
General Real Estate Investment Risks
The return which Archstone achieves is dependent on the performance of the
real property investments held by Archstone, which are subject to varying
degrees of risk. Real estate cash flows and values are affected by a number of
factors, including changes in the general economic climate, local, regional or
national conditions (such as an oversupply of properties or a reduction in
rental demand in a specific area), the quality and philosophy of management,
competition from other available properties and the ability to provide adequate
maintenance and insurance and to control operating costs. Although Archstone
seeks to minimize these risks through its market research and asset and property
management capabilities, it cannot eliminate these risks. Real estate cash
flows and values are also affected by such factors as government regulations,
including zoning, usage and tax laws, interest rate levels, the availability of
financing, potential liability under environmental and other laws, and changes
in environmental and other laws. Archstone's income and distributable cash flow
would be adversely affected if it was unable to lease apartments on economically
favorable terms.
12
<PAGE>
Risks of Real Estate Development
Archstone has developed or commenced development on a substantial number of
apartment communities and expects to develop additional apartment communities in
the future. Real estate development involves significant risks in addition to
those involved in the ownership and operation of established communities,
including the risks that financing, if needed, may not be available on favorable
terms for development projects, that construction may not be completed on
schedule (resulting in increased debt service expense and construction costs),
that estimates of the costs of apartment communities may prove to be inaccurate
and that communities may not be leased or rented on profitable terms. These
risks may cause the development to fail to perform as Archstone expected. Timely
construction may be affected by local weather conditions, local or national
strikes and by local or national shortages in materials, insulation, building
supplies or energy and fuel for equipment.
Illiquidity of Real Estate Investments
Equity real estate investments are relatively illiquid and therefore may
tend to limit the ability of Archstone to react promptly to changes in economic
or other conditions. However, Archstone has been able to dispose of more than
$1.2 billion of assets since the inception of its asset optimization strategy in
1995. Archstone's ability to dispose of assets in the future will depend on
prevailing market conditions.
Regulation
Archstone's communities must comply with Title III of the ADA to the extent
that such communities are "public accommodations" and/or "commercial facilities"
as defined by the ADA. The ADA does not consider apartment communities to be
public accommodations or commercial facilities, except portions of such
facilities open to the public, such as the leasing office. Noncompliance could
result in imposition of fines or an award of damages to private litigants.
Archstone believes that the mandated portions of its communities comply with all
present requirements under the ADA and applicable state laws.
Changes in Laws
Archstone may not be able to pass increased costs resulting from increases
in real estate, income or transfer taxes or other governmental requirements
directly to tenants. Substantial increases in rents, as a result of those
increased costs, may affect the ability of a tenant to pay rent, causing
increased vacancy. Changes in laws increasing potential liability for
environmental conditions or increasing the restrictions on discharges or other
conditions may result in significant unanticipated expenditures. Archstone can
give no assurance that new legislation, regulations, administrative
interpretations or court decisions will not significantly change the laws with
respect to Archstone's qualification as a REIT, or the federal income tax
consequences of that qualification to Archstone.
Uninsured Losses
There are certain types of losses (such as from wars) which may be
uninsurable or not economically insurable. If an uninsured loss or a loss in
excess of insured limits occurs, Archstone could lose both its capital invested
in, and anticipated profits from, one or more communities.
Competition
There are numerous commercial developers, real estate companies and other
owners of real estate that compete with Archstone in seeking land for
development, communities for acquisition and disposition, and residents for
communities. All of Archstone's apartment communities are located in developed
areas that include other apartment communities. The number of competitive
apartment communities in a particular area could have a material adverse effect
on Archstone's ability to lease units and on the rents charged. In addition,
other forms of single family and apartment communities provide housing
alternatives to residents and potential residents of Archstone's apartment
communities.
As reported in "Item 2. Properties--Geographic Distribution", Archstone has
approximately 14% of its apartment communities which are operating, under
construction or In Planning located in Southern California, which is a
geographic area comprised of Los Angeles, the Inland Empire, Orange County, San
Diego and Ventura County. None of these target markets represent over 10% of
Archstone's apartment communities. Archstone is subject to increased exposure
(positive or negative) to the economic and other competitive factors specific to
target markets in this geographic area.
13
<PAGE>
The majority of Archstone's development efforts emphasize the development
of apartment communities targeted at Moderate Income households. Management
believes that Moderate Income households represent one of the largest and most
underserved segments of the renter population. These households exhibit a number
of very important characteristics that make them particularly desirable. For
example, Moderate Income households typically consist of longer term residents,
which results in lower resident turnover and, therefore, lower overall costs to
refurbish units for re-leasing. In addition, there is relatively limited
competition for this segment of the market because most developers target the
upper income segment of the market. Archstone believes that focusing on the
Moderate Income segment will allow it to achieve more consistent rental
increases and higher occupancies over the long term and, thereby, realize
sustainable cash flow growth and appreciation in value.
Impact of Environmental Regulations
Archstone is subject to environmental and health and safety laws and
regulations related to the ownership, operation, development and acquisition of
its apartments. Under those laws and regulations, Archstone may be liable for,
among other things, the costs of removal or remediation of certain hazardous
substances, including asbestos-related liability. Those laws and regulations
often impose liability without regard to fault.
As part of Archstone's due diligence procedures, Archstone has conducted
Phase I environmental assessments on each of its properties prior to
acquisition; however, Archstone can give no assurance that those assessments
have revealed all potential liabilities. Archstone is not aware of any
environmental condition on any of the properties of the companies in which it
has an investment which is likely to have a material adverse effect on its
financial position or results of operations; however, Archstone can give no
assurance that any such condition does not exist or may not arise in the future.
14
<PAGE>
Item 2. Properties
Geographic Distribution
To effectively manage its apartment communities, Archstone has organized its
operations into three regions: Central, East and West. Within these regions,
Archstone's apartment communities are located in markets that include 30 of the
nation's 50 largest metropolitan markets. The following table summarizes the
geographic distribution of Archstone's apartment communities which are
operating, under construction or In Planning, based on Total Expected
Investment.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Central Region
Austin, Texas...................................... 2.19% 3.43% 5.31%
Dallas, Texas...................................... 1.94 2.11 3.22
Denver, Colorado................................... 2.96 5.23 5.29
El Paso, Texas..................................... 1.13 2.36 3.34
Houston, Texas..................................... 2.71 4.53 7.35
Salt Lake City, Utah............................... 3.84 5.33 5.30
San Antonio, Texas................................. 2.25 3.74 4.94
Other.............................................. 1.32 0.78 1.80
-------------- ------------- -------------
Central Region Total............................ 18.34 27.51 36.55
-------------- ------------- -------------
East Region
Atlanta, Georgia................................... 8.35 -- --
Birmingham, Alabama................................ 1.02 -- --
Charlotte, North Carolina.......................... 3.86 -- --
Nashville, Tennessee............................... 1.75 -- --
Orlando, Florida................................... 1.31 -- --
Raleigh, North Carolina............................ 5.21 -- --
Richmond, Virginia................................. 2.69 -- --
Southeast Florida.................................. 5.23 -- --
Washington, D.C.................................... 5.41 -- --
West Coast Florida................................. 1.85 -- --
Other.............................................. 2.10 -- --
-------------- ------------- -------------
East Region Total............................... 38.78 -- --
-------------- ------------- -------------
West Region
Albuquerque, New Mexico............................ 2.31 4.04 5.24
Las Vegas, Nevada.................................. 1.43 2.81 4.01
Phoenix, Arizona................................... 5.84 10.42 11.99
Portland, Oregon................................... 2.10 5.01 7.82
San Francisco Bay Area, California................. 9.76 15.94 8.79
Seattle, Washington................................ 6.44 11.63 7.32
Southern California................................ 13.83 20.15 14.66
Tucson, Arizona.................................... 0.26 1.12 2.05
Other.............................................. 0.91 1.37 1.57
-------------- ------------- -------------
West Region Total............................... 42.88 72.49 63.45
-------------- ------------- -------------
Total All Markets............................. 100.00% 100.00% 100.00%
============== ============= =============
</TABLE>
15
<PAGE>
Real Estate Portfolio
The information in the following table is as of December 31, 1998 (dollar
amounts in thousands). Additional information on Archstone's real estate
portfolio is contained in "Schedule III, Real Estate and Accumulated
Depreciation," and in Archstone's financial statements incorporated by reference
in "Item 14(a). Financial Statements and Schedule."
<TABLE>
<CAPTION>
Total
Number of Number Archstone Expected Percentage
Communities of Units Investment Investment Leased (1)
-------------- ----------- -------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING APARTMENT COMMUNITIES:
Central Region:
Austin, Texas................................ 5 1,732 $ 73,061 $ 73,916 97.8%
Dallas, Texas................................ 8 1,984 107,695 113,489 97.2
Denver, Colorado............................. 7 2,234 110,654 116,000 99.0
El Paso, Texas............................... 7 2,306 64,692 66,117 94.5
Houston, Texas............................... 6 2,358 111,977 113,360 97.9
Salt Lake City, Utah......................... 14 2,933 152,404 156,472 94.5
San Antonio, Texas........................... 14 3,453 127,571 131,695 97.7
Other........................................ 1 196 13,154 13,587 98.5
-------------- ----------- -------------- --------------- ---------
Central Region Subtotal/Average........... 62 17,196 $ 761,208 $ 784,636 96.9%
-------------- ----------- -------------- --------------- ---------
East Region:
Atlanta, Georgia............................. 21 6,481 $ 415,120 $ 416,879 96.2%
Birmingham, Alabama.......................... 3 772 40,801 40,894 99.2
Charlotte, North Carolina.................... 11 3,062 193,716 196,085 96.9
Nashville, Tennessee......................... 5 1,637 85,920 86,908 96.3
Orlando, Florida............................. 5 886 47,114 48,032 97.7
Raleigh, North Carolina...................... 14 3,646 226,783 229,413 96.5
Richmond, Virginia........................... 4 984 69,084 69,717 96.0
Southeast Florida............................ 11 2,880 170,423 173,138 97.6
Washington, D.C . 7 1,978 155,470 157,304 99.2
West Coast Florida........................... 8 1,896 87,988 88,750 97.8
Other........................................ 7 1,907 106,712 108,375 96.2
-------------- ----------- -------------- --------------- ---------
East Region Subtotal/Average.............. 96 26,129 $1,599,131 $1,615,495 97.0%
-------------- ----------- -------------- --------------- ---------
West Region:
Albuquerque, New Mexico...................... 10 2,776 $ 133,005 $ 135,537 94.4%
Las Vegas, Nevada............................ 3 1,748 82,679 83,786 94.5
Phoenix, Arizona............................. 12 4,990 233,031 242,670 95.3
Portland, Oregon............................. 7 1,664 94,226 95,323 94.5
San Francisco Bay Area, California........... 8 3,515 328,197 340,978 93.7
Seattle, Washington.......................... 15 4,038 274,265 279,705 95.7
Southern California.......................... 21 6,318 469,365 480,581 98.2
Tucson, Arizona.............................. 2 415 14,885 15,473 94.5
Other........................................ 2 552 37,052 37,272 96.0
-------------- ----------- -------------- --------------- ---------
West Region Subtotal/Average.............. 80 26,016 $1,666,705 $1,711,325 95.7%
-------------- ----------- -------------- --------------- ---------
Operating Apartment
Communities Subtotal/Average......... 238 69,341 $4,027,044 $4,111,456 96.5%
-------------- ----------- -------------- --------------- ---------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Total
Number of Number Archstone Expected Percentage
Communities of Units Investment Investment Leased (1)
----------- -------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
APARTMENT COMMUNITIES UNDER
CONSTRUCTION:
Central Region:
Austin, Texas................................ 2 616 $ 12,443 $ 44,525 N/A%
Denver, Colorado............................. 2 592 26,370 44,836 N/A
Houston, Texas............................... 2 354 20,545 24,408 56.5
Salt Lake City, Utah......................... 1 448 19,047 37,483 N/A
Other ....................................... 1 220 10,415 16,384 N/A
------- ------- ---------- ------------ -------
Central Region Subtotal/Average........... 8 2,230 $ 88,820 $ 167,636 9.0%
------- ------- ---------- ------------ -------
East Region:
Atlanta, Georgia............................. 3 820 $ 64,844 $ 72,115 47.4%
Birmingham, Alabama.......................... 1 268 8,979 18,939 N/A
Nashville, Tennessee......................... 1 216 8,325 15,361 N/A
Orlando, Florida............................. 2 332 26,965 28,743 91.1
Raleigh, North Carolina...................... 3 1,004 52,293 76,196 30.0
Richmond, Virginia........................... 4 952 59,108 78,759 55.5
Southeast Florida............................ 3 836 67,064 72,367 44.1
Washington, D.C.............................. 1 338 15,621 36,446 N/A
West Coast Florida........................... 1 264 4,955 19,750 N/A
Other........................................ 1 202 7,058 14,846 N/A
------- ------- ---------- ------------ -------
East Region Subtotal/Average.............. 20 5,232 $ 315,212 $ 433,522 36.1%
------- ------- ---------- ------------ -------
West Region:
Phoenix, Arizona............................. 4 1,104 $ 60,899 $ 75,045 36.2%
Portland, Oregon............................. 1 408 27,423 27,720 62.5
San Francisco, California.................... 3 1,088 77,673 146,282 N/A
Searle, Washington.......................... 3 1,034 55,173 86,968 21.6
Southern California.......................... 2 844 71,644 96,083 44.4
Other ....................................... 1 180 5,053 16,203 N/A
------- ------- ---------- ------------ -------
West Region Subtotal/Average.............. 14 4,658 $ 297,865 $ 448,301 26.9%
------- ------- ---------- ------------ -------
Apartment Communities Under
Construction Subtotal/Average....... 42 12,120 $ 701,897 $1,049,459 27.8%
------- ------- ---------- ------------ -------
APARTMENT COMMUNITIES IN
PLANNING AND OWNED:
Central Region............................... 2 494 $ 5,825 $ 31,102
East Region.................................. 3 940 14,059 79,432
West Region.................................. 5 1,964 49,826 212,691
------- ------- ---------- ------------
Apartment Communities In
Planning and Owned
Subtotal/Average.................... 10 3,398 $ 69,710 $ 323,225
------- ------- ---------- ------------
Total Apartment Communities
Owned at December 31,
1998.............................. 290 84,859 $4,798,651 $5,484,140
------- ------- ---------- ------------
OTHER LAND HELD................................ -- $ 48,280 --
------- ---------- ------------
OTHER REAL ESTATE ASSETS....................... -- $ 22,870 $ 22,870
------- ---------- ------------
Total Real Estate
Owned at
December 31, 1998............ 84,859 $4,869,801 $5,507,010
======= ========== ============
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
APARTMENT COMMUNITIES IN PLANNING AND UNDER CONTROL(2): Expected Total
Number Expected
of Units Investment
----------- ---------------
<S> <C> <C>
Central Region.............................................. 908 $ 91,305
East Region................................................. 1,630 144,266
West Region................................................. 1,234 140,914
----------- ---------------
Total Apartment Communities In Planning and Under
Control 3,772 $ 376,485
=========== ===============
</TABLE>
(1) Represents percentage leased as of December 31, 1998. For communities in
Lease-Up, the percentage leased is based on leased units divided by total
number of units in the community (completed and under construction) as of
December 31, 1998. An "N/A" indicates markets with communities under
construction where Lease-Up has not yet commenced.
(2) As of December 31, 1998, Archstone's actual investment in communities In
Planning and Under Control was $4.8 million, which is reflected in the
"Other assets" caption of Archstone's Balance Sheet.
Item 3. Legal Proceedings
Archstone is a party to various claims and routine litigation arising in the
ordinary course of business. Archstone does not believe that the results of any
such claims and litigation, individually or in the aggregate, will have a
material adverse effect on its business, financial position or results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Common Shares are listed on the NYSE under the symbol "ASN". The
following table sets forth the high and low sales prices of the Common Shares as
reported in the NYSE Composite Tape and cash distributions per Common Share for
the periods indicated.
<TABLE>
<CAPTION>
Cash
High Low Distributions
----------------- --------------- -----------------
<S> <C> <C> <C>
1997:
First Quarter....................................... $25 1/8 $21 $0.325
Second Quarter...................................... 24 1/4 21 1/2 0.325
Third Quarter....................................... 24 3/8 21 5/8 0.325
Fourth Quarter...................................... 25 1/8 21 7/8 0.325
1998:
First Quarter....................................... $24 1/2 $22 1/8 $0.340
Second Quarter...................................... 24 1/16 21 1/4 0.340
Third Quarter....................................... 23 11/16 18 0.355
Fourth Quarter...................................... 21 1/2 17 7/8 0.355
1999:
First Quarter (through March 5, 1999) $21 1/16 $19 3/16 $0.370
</TABLE>
18
<PAGE>
In addition to the quarterly cash distributions shown above, the following
distributions were made to Archstone's shareholders:
(i) Archstone made the Homestead Distribution to holders of Archstone's Common
Shares in November 1996. The securities distributed in the Homestead
Distribution had a market value of $3.032 per Common Share based on the
closing prices of the Homestead common stock and Homestead warrants on the
American Stock Exchange on the day prior to the distribution date. The
Homestead Distribution resulted in an adjustment of $3.125 per Common Share
($21.875 before and $18.750 after) on the NYSE in November 1996.
(ii) After the closing of the acquisition of the Management Companies, Security
Capital issued pro rata directly to holders of Archstone's Common Shares
and Series A Convertible Preferred Shares (other than to Security Capital)
$102.0 million of warrants to acquire 3,644,430 shares of Class B common
stock of Security Capital. Archstone Common Shareholders received 0.052646
warrants for each Common Share held and Series A Convertible Preferred
Shareholders received 0.070909 warrants for each Series A Convertible
Preferred Share held. Each warrant could be exercised for one share of
Security Capital Class B common stock at an exercise price of $28 per share
through September 1998.
As of March 5, 1999, Archstone had approximately 139,004,000 Common Shares
outstanding, approximately 3,100 record holders of Common Shares and
approximately 22,100 beneficial holders of Common Shares.
Archstone, in order to qualify as a REIT, is required to make distributions
(other than capital gain distributions) to its shareholders in amounts at least
equal to (i) the sum of (A) 95% of its REIT taxable income (computed without
regard to the dividends-paid deduction and its net capital gain) and (B) 95% of
the net income (after tax), if any, from foreclosure property, minus (ii) the
sum of certain items of non-cash income. Including the February 1999
distribution of $0.37 per Common Share, Archstone has paid 92 consecutive
quarterly cash distributions on the Common Shares. The payment of distributions
is subject to the discretion of the Board and is dependent upon the strategy,
financial condition and operating results of Archstone. Archstone's long-term
objective is to reduce its dividend payout ratio to 65-70% of Funds from
Operations while increasing annual dividends per Common Share each year.
Reducing the dividend payout ratio allows Archstone to retain more of its
internally generated cash flow from operations to fund future investment
opportunities while maintaining compliance with the REIT rules requiring payout
of at least 95% of taxable income.
Archstone announces the following year's projected annual distribution
level after the Board's annual budget review and approval in December of each
year. At its December 1998 Board meeting, the Board announced an anticipated
increase in the annual distribution level from $1.42 to $1.48 per Common Share
and declared the first quarter 1999 distribution of $0.37 per Common Share. The
first quarter distribution was paid on February 26, 1999 to shareholders of
record on February 12, 1999.
Pursuant to the terms of the Preferred Shares, Archstone is restricted from
declaring or paying any distribution with respect to its Common Shares unless
all cumulative distributions with respect to the Preferred Shares have been paid
and sufficient funds have been set aside for Preferred Share distributions that
have been declared.
For federal income tax purposes, distributions may consist of ordinary
income, capital gains, non-taxable return of capital or a combination thereof.
Distributions that exceed Archstone's current and accumulated earnings and
profits (calculated for tax purposes) constitute a return of capital rather than
a dividend and reduce the shareholder's basis in the Common Shares. To the
extent that a distribution exceeds both current and accumulated earnings and
profits and the shareholder's basis in the Common Shares, it will generally be
treated as a gain from the sale or exchange of that shareholder's Common Shares.
Archstone annually notifies shareholders of the taxability of distributions paid
during the preceding year. For federal income tax purposes, the following
summarizes the taxability of cash distributions paid on the Common Shares in
1997 and 1996 and the estimated taxability for 1998:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Per Common Share:
Ordinary income................................... $1.29 $1.08 $0.61
Capital gains..................................... 0.10 -- 0.11
Return of capital................................. -- 0.22 0.52
----- ----- -----
Total.......................................... $1.39 $1.30 $1.24
===== ===== =====
</TABLE>
19
<PAGE>
The securities distributed by Archstone to each holder of Common Shares in the
Homestead Distribution in November 1996 were valued at $2.16 per Common Share
for federal income tax purposes, of which $1.06 was taxable as ordinary income,
$0.19 was taxable as a capital gain and $0.91 was treated as a return of
capital.
The warrants distributed to holders of Archstone's Common Shares and Series A
Convertible Preferred Shares by Security Capital in September 1997 after the
closing of the acquisition of the Management Companies transaction were valued
at $6.88 per warrant for federal income tax purposes, all of which was taxable
as ordinary income.
Under federal income tax rules, Archstone's earnings and profits are first
allocated to its Series A, Series B and Series C Preferred Shares, which
increases the portion of the Common Shares distribution classified as return of
capital.
For federal income tax purposes, the following summaries reflect the estimated
taxability of dividends paid on the Series A, Series B and Series C Preferred
Shares, respectively.
<TABLE>
<CAPTION>
1998 1997 1996
------------------- -------------------- --------------------
<S> <C> <C> <C>
Per Series A Convertible Preferred Share:
Ordinary income............................. $ 1.72 $ 1.75 $ 1.47
Capital gains............................... 0.15 0.28
------------------- -------------------- --------------------
Total.................................... $ 1.87 $ 1.75 $ 1.75
=================== ==================== ====================
Per Series B Preferred Share:
Ordinary income............................. $ 2.07 $ 2.25 $ 1.89
Capital gains............................... 0.18 0.36
------------------- -------------------- --------------------
Total.................................... $ 2.25 $ 2.25 $ 2.25
=================== ==================== ====================
1998(1)
-------------------
Per Series C Preferred Share:
Ordinary income............................. $ 0.99
Capital gains............................... 0.09
-------------------
Total.................................... $ 1.08
===================
</TABLE>
(1) Represents dividends paid in 1998 subsequent to the Atlantic Merger.
Due to the increase in the conversion ratio resulting from the Homestead
Distribution to holders of Common Shares, holders of Series A Convertible
Preferred Shares were deemed to have received a distribution of $2.43 in
November 1996 for federal income tax purposes. Of this amount, $1.19 was
taxable as ordinary income, $0.22 was taxable as a capital gain and $1.02 was
treated as a return of capital.
Archstone's tax return for the year ended December 31, 1998 has not been
filed, and the taxability information for 1998 is based upon the best available
data. Archstone's tax returns for prior years have not been examined by the
Internal Revenue Service and, therefore, the taxability of the dividends is
subject to change.
20
<PAGE>
Item 6. Selected Financial Data
The following table sets forth selected financial data relating to the
historical financial condition and results of operations of Archstone for 1998,
1997, 1996, 1995 and 1994. Such selected financial data is qualified in its
entirety by, and should be read in conjunction with, "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operation" and the
financial statements and notes thereto incorporated by reference herein (amounts
in thousands, except per share data).
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Operations Summary
Total revenues................................. $ 513,645 $ 355,662 $ 326,246 $ 264,873 $ 186,105
Property Operating Expenses.................... 173,760 123,051 128,122 104,046 79,013
Interest expense............................... 83,350 61,153 35,288 19,584 19,442
General and administrative expense............. 16,092 18,350 23,268 21,306 13,966
Nonrecurring expenses(1)....................... 2,193 71,707 -- -- --
Earnings from operations (1)................... 133,926 24,686 94,089 81,696 46,719
Gains on dispositions of depreciated real
estate, net................................... 65,531 48,232 37,492 2,623 --
Preferred Share cash dividends paid............ 20,938 19,384 24,167 21,823 16,100
Net earnings attributable to Common Shares
Basic...................................... 177,022 53,534 106,544 62,496 30,619
Common Share cash distributions paid........... $ 165,190 $ 105,547 $ 90,728 $ 76,804 $ 46,121
Per Share Data:
Net earnings attributable to Common Shares:
Basic EPS (1)............................. $ 1.49 $ 0.65 $ 1.46 $ 0.93 $ 0.66
Diluted EPS (1)........................... 1.49 0.65 1.44 0.93 0.65
Common Share cash distributions paid........... 1.39 1.30 1.24 1.15 1.00
Series A Convertible Preferred Share cash
dividends paid................................ 1.87 1.75 1.75 1.75 1.75
Series B Preferred Share cash dividends paid... 2.25 2.25 2.25 1.36 --
Series C Preferred Share cash dividends paid... $ 1.08 $ -- $ -- $ -- $ --
Weighted average Common Shares outstanding
Basic...................................... 118,592 81,870 73,057 67,052 46,734
Weighted average Common Shares outstanding
Diluted.................................... 125,825 81,908 84,340 78,315 57,987
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Financial Position:
Real estate owned, at cost..................... $4,869,801 $2,604,919 $2,153,363 $1,855,866 $1,296,288
Mortgage notes receivable...................... 211,967 285,238 189,829 15,844 22,597
Total assets................................... 5,059,898 2,805,686 2,282,432 1,840,999 1,295,778
Unsecured credit facilities.................... 264,651 231,500 110,200 129,000 102,000
Long-Term Unsecured Debt....................... 1,231,167 630,000 580,000 200,000 200,000
Mortgages payable.............................. 676,613 265,652 217,188 158,054 93,624
Total liabilities.............................. 2,410,114 1,265,250 1,014,924 565,331 455,136
Redeemable preferred stock..................... 272,515 240,210 267,374 335,000 230,000
Shareholders' equity........................... $2,628,325 $1,540,436 $1,267,508 $1,275,668 $ 840,642
Number of Common Shares outstanding............ 143,313 92,634 75,511 72,211 50,456
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Other Data:
Net earnings attributable to Common Shares -
Basic......................................... $ 177,022 $ 53,534 $ 106,544 $ 62,496 $ 30,619
Add (Deduct):
Depreciation on real estate investments......... 96,337 52,893 44,887 36,685 24,614
Provision for possible loss on investments...... 4,700 3,000 -- 420 1,600
Gains on dispositions of depreciated real
estate, net.................................... (65,531) (48,232) (37,492) (2,623) --
Nonrecurring expenses and extraordinary items, net 3,690 71,707 739 -- --
Other........................................... (662) (1,281) (141) -- --
--------- --------- --------- --------- ---------
Funds From Operations attributable to Common
Shares (2) - Basic........................... 215,556 131,621 114,537 96,978 56,833
Series A Convertible Preferred Share dividends.. 9,332 9,934 14,717 16,100 16,100
--------- --------- --------- --------- ---------
Funds From Operations attributable to Common
Shares(2) Diluted........................... $ 224,888 $ 141,555 $ 129,254 $ 113,078 $ 72,933
========= ========= ========= ========= =========
Weighted average Common Shares Outstanding -
Diluted...................................... 125,825 90,230 84,340 78,315 57,987
========= ========= ========= ========= =========
Net cash provided by operating activities....... $ 221,534 $ 159,724 $ 143,939 $ 121,795 $ 94,625
Net cash used in investing activities........... $(309,145) $(403,112) $(360,935) $(294,488) $(368,515)
Net cash provided by financing activities....... $ 92,803 $ 242,672 $ 195,720 $ 191,520 $ 276,457
</TABLE>
(1) Nonrecurring expenses in 1998 include $1.1 million in transaction
integration costs associated with the Atlantic Merger and $1.1 million
associated with the introduction of Archstone's national branding strategy.
In 1997, the non-recurring expense represents the impact of a one-time non-
cash charge of $71.7 million associated with the costs incurred in
acquiring the Management Companies from an affiliate. These one-time
charges were not deducted for purposes of calculating Funds From
Operations, due to the non-recurring and non-cash nature of the expense in
1998 and 1997.
(2) Archstone believes that Funds From Operations is helpful to the reader as a
measure of the performance of an equity REIT because, along with cash flow
from operating, investing and financing activities, it provides the reader
with an indication of the ability of Archstone to incur and service debt,
to make capital expenditures, to make Common Share and Preferred Share
distributions and to fund other cash needs. Funds From Operations should
not be considered as an alternative to net earnings or any other GAAP
measurement of performance as an indicator of Archstone's operating
performance or as an alternative to cash flow from operating, investing or
financing activities as a measure of liquidity. 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 REIT's that do not compute
Funds From Operations in a manner consistent with Archstone. Funds From
Operations is not intended to represent cash available to shareholders.
Cash distributions paid to shareholders are summarized above.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following information should be read in conjunction with Archstone's
financial statements and notes thereto included in Item 14 of this report.
Forward Looking Statements
The statements contained in this discussion and elsewhere in this report that
are not historical facts are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1993 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are based on current
expectations, estimates and projections about the industry and markets in which
Archstone operates, management's beliefs and assumptions made by management.
Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates" and variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees
of future performance and involve certain risks, uncertainties and assumptions
which are difficult to predict. Therefore, actual outcomes and results may
differ materially from what is expressed or forecasted in such forward-looking
statements. Archstone undertakes no obligation to update publicly any forward-
looking statements, whether as a result of new information, future events or
otherwise. See "Item 1. Business" for a discussion of risk factors that could
impact Archstone's future financial performance.
22
<PAGE>
Results of Operations
During the last three years, Archstone's financial results have been impacted
by three notable transactions:
(i) In July 1998, Atlantic, an apartment REIT which operated primarily in the
southeast and mid-Atlantic markets of the United States, was merged with
and into PTR. The combined company continued its existence under the name
Archstone and is traded on the NYSE 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 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 Share. As a result, 47,752,052 Common Shares and 2,000,000
Series C Preferred Shares were issued to Atlantic's shareholders in
exchange for all of the outstanding Atlantic common shares and Atlantic
Series A Preferred Shares. In addition, Archstone assumed Atlantic's debt
and other liabilities. The total purchase price paid for Atlantic
aggregated approximately $1.9 billion. The transaction was structured as
a tax-free merger and was accounted for under the purchase method. At
December 31, 1998, Security Capital, which voted its shares in favor of
the Atlantic Merger, owned approximately 38% of the outstanding Common
Shares and is Archstone's largest shareholder. See "--Liquidity and
Capital Resources--Shareholder Dividend/Distribution Requirements" for a
discussion of Archstone's dividend and distribution levels, which were
adjusted subsequent to the Atlantic Merger.
(ii) In September 1997, Archstone became an internally managed REIT as a
result of the acquisition of the Management Companies from Security
Capital in exchange for 3,295,533 Common Shares. Since the transaction,
Archstone no longer incurs fees for REIT and property management
services, but instead incurs the actual personnel and other operating
costs associated with these management functions. In September 1997,
Archstone also established the Incentive Plan, which created a better
alignment of management and employee interests with those of Archstone's
shareholders. Archstone also entered into the ASA with Security Capital
for the provision of certain administrative services.
(iii) In October 1996, Archstone contributed 54 extended-stay lodging assets to
Homestead, a newly formed company, in exchange for 9,485,727 shares of
Homestead common stock and approximately $84.5 million (face amount) of
convertible mortgage notes receivable. Archstone also received 6,363,789
warrants to acquire additional Homestead common stock in exchange for
entering into a funding agreement. The Homestead common stock and
warrants had a market value of $3.032 per Common Share when they were
distributed to Archstone's Common Shareholders. Under the funding
agreement, Archstone committed to lend up to $198.8 million in secured
financing (the final $11.9 million of which was funded in 1998) to
complete the development of the contributed properties in exchange for
$221.3 million in convertible mortgage notes receivable (including the
convertible mortgage notes receivable received at the transaction date).
Apartment Community Operations
At December 31, 1998, investments in apartment communities comprised over 99%
of Archstone's total real estate portfolio, based on Total Expected Investment.
The following table summarizes the Net Operating Income generated from
Archstone's apartment communities during 1998, 1997 and 1996 (in thousands,
except for percentages):
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------ -------------------
<S> <C> <C> <C>
Rental revenues................................ $478,144 $331,346 $293,284
Property Operating Expenses:
Rental expenses.............................. 132,359 95,956 91,061
Real estate taxes............................ 40,476 26,967 24,914
------------------- ------------------ -------------------
Total Property Operating Expenses.......... 172,835 122,923 115,975
------------------- ------------------ -------------------
Net Operating Income........................... $305,309 $208,423 $177,309
=================== ================== ===================
Operating margin (Net Operating
Income/rental revenues)...................... 63.9% 62.9% 60.5%
=================== ================== ===================
</TABLE>
23
<PAGE>
The increases in rental revenues, Property Operating Expenses and Net
Operating Income in each period are primarily a result of net increases in the
number of operating apartment units and growth in Net Operating Income from
operating communities. Increased operating efficiencies and lower real estate
taxes combined with Archstone's commitment to customer focused operations have
all contributed to the year over year improvements in operating margins. This
higher profitability is also attributable to Archstone's acquisition of its
property management company in September 1997. Archstone now directly incurs
personnel and other costs related to property management overhead in lieu of
paying property management fees to Security Capital, which resulted in a net
reduction of property management expenses during the last four months of 1997
and throughout 1998.
Archstone categorizes operating communities (which include all completed
revenue-generating communities) as either Stabilized or Pre-stabilized.
Approximately 85.1%, 74.0% and 74.4% of Archstone's operating portfolio was
classified as Stabilized as of December 31, 1998, 1997 and 1996, respectively,
based on Total Expected Investment. The percentage of Archstone's portfolio
that is classified as Stabilized fluctuates from period to period due to
Archstone's active investment program, which involves the development,
redevelopment, acquisition and disposition of apartment communities.
The full impact on Net Operating Income from Archstone's development
activities and, to a lesser extent, acquisition activities, is not reflected
until after the communities are Stabilized. As buildings are completed and
leased, Net Operating Income increases until the overall community is producing
a Stabilized yield, which is generally achieved 18 to 24 months after
construction commences. Despite the short-term dilutive impact, Archstone's
operating results demonstrate that its development activities have contributed
positively to long-term operating performance.
Management expects rental revenues and Property Operating Expenses to
continue to increase in 1999 as units under development become operational and
as the full impact of 1998 development completions and acquisitions become fully
reflected in Archstone's operating results. Management also believes that future
property operating results will be positively impacted by Archstone's customer-
focused operating initiatives. Over the long-term, Archstone expects its
recently implemented national branding strategy, which was designed to increase
customer loyalty and reduce resident turnover rates through quality service
guarantees and other similar initiatives, will enhance operating performance.
See--"Nonrecurring Expenses Related to Archstone's Branding Strategy and
Atlantic Merger Integration."
Other Income
Other income is primarily influenced by interest income on convertible
mortgage notes receivable. During 1998, 1997 and 1996, Archstone recorded $22.9
million, $16.7 million and $2.0 million in interest income, respectively ($21.0
million, $15.4 million and $1.9 million, respectively for purposes of
calculating Funds From Operations), from these notes. The increase in each
subsequent period is a direct result of higher average outstanding note
balances. See--"Liquidity and Capital Resources--Funding Sources" for a
discussion of the future monetization of these notes.
Depreciation Expense
The increases in depreciation expense during each successive year resulted
primarily from the increase in the number and cost basis of operating
communities, including those acquired in the Atlantic Merger, partially offset
by dispositions and the spin-off of Archstone's Homestead properties to
Homestead in 1996.
Interest Expense
The increases in interest expense during each successive year are primarily
attributable to higher outstanding debt balances associated with the financing
of Archstone's investment activities. These higher borrowing costs were
partially offset by the capitalization of interest on apartment development
activities which increased in each successive year. Interest expense is
expected to increase in 1999 primarily due to the full year impact of interest
expense on debt assumed in the Atlantic Merger and the debt issued in 1998 to
fund Archstone's investment activities.
24
<PAGE>
General and Administrative Expenses
The overall decrease in general and administrative expenses in each
successive year is primarily attributable to the fact that Archstone did not pay
an external management fee during 1998 and the four month period ended December
31, 1997, due to the termination of the external management agreement upon
acquisition of its Management Companies in September 1997. In lieu of paying an
external management fee, Archstone is now internally managed and directly
incurs: (i) actual personnel and other operating costs, and (ii) amounts paid to
Security Capital under the ASA, which was entered into in September 1997. The
portion of these costs related to successful development activities are
capitalized, whereas none of the prior external management fee was capitalized.
The ASA, which expires on December 31, 1999, provides for annual renewals for
consecutive one-year terms, subject to approval by a majority of Archstone's
Outside Trustees. The agreement can be modified or terminated by Archstone at
any time with 90 days notice (30 days notice for minor modifications). Archstone
periodically evaluates the fees paid to Security Capital under the ASA against
prevailing third-party market rates. As part of this rate evaluation process,
Archstone will consider outsourcing any of the services purchased under the ASA
to third parties, to the extent that more favorable rates with comparable
service levels can be obtained.
Nonrecurring Expenses Related to Archstone's Branding Strategy and Atlantic
Merger Integration
As a result of the Atlantic Merger, Archstone incurred approximately $1.1
million in merger integration costs. Additionally, in conjunction with the
Atlantic Merger, Archstone introduced a national branding strategy with the
objective of achieving long-term brand loyalty, lower resident turnover and
greater market share. Archstone incurred approximately $1.1 million of costs
for the implementation of its branding strategy. The $1.1 million related to
the implementation of the branding strategy and the $1.1 million of costs
associated with the integration of the Atlantic Merger were both recorded as
non-recurring operating expenses during 1998, but were added back to net
earnings for purposes of calculating Funds From Operations, due to the non-
recurring nature of the expenses.
Costs Incurred in Acquiring Management Companies from an Affiliate
In September 1997, Archstone acquired the operations and businesses of the
Management Companies valued at approximately $75.8 million from Security Capital
in exchange for 3,295,533 Common Shares. The market value of the shares issued
to Security Capital on the date of the transaction was approximately $73.3
million, of which approximately $1.6 million was allocated to the estimated fair
value of the tangible net assets acquired. The $71.7 million difference was
accounted for as costs incurred in acquiring the Management Companies from an
affiliate. This one-time adjustment was recorded as a non-recurring non-cash
operating expense during 1997, but was added back to net earnings for purposes
of calculating Funds From Operations, due to the non-recurring and non-cash
nature of this expense.
Provision for Possible Loss on Investments
During 1998, management concluded that the full recovery of certain
investments was doubtful. As a result, a provision for possible loss of $4.7
million ($2.3 million of which related to certain mortgage notes receivable
secured by other real estate assets) was recorded to reduce these assets to
their estimated net realizable value. A similar provision of $3.0 million
relating to certain investments held for disposition, all of which have been
sold, was recorded during 1997.
Gains on Dispositions of Depreciated Real Estate
Through December 31, 1998, Archstone has redeployed gross proceeds from
dispositions aggregating over $1.2 billion (including Atlantic's gross proceeds
of $161.6 million) from markets which management believed had less attractive
long-term growth prospects to well-located communities in Archstone's target
markets. For federal income tax purposes, the majority of the dispositions were
structured as tax-deferred exchanges which deferred gain recognition. However,
for financial reporting purposes, the transactions qualified for profit
recognition. Aggregate net gains on these dispositions totaled $65.5 million,
$48.2 million and $37.5 million in 1998, 1997 and 1996, respectively.
25
<PAGE>
As part of this ongoing asset optimization strategy, Archstone was
committed to the sale of 14 apartment communities and certain other real estate
assets having an aggregate carrying value of $162.7 million as of December 31,
1998. Subject to normal closing risks, Archstone expects to complete these and
other dispositions during 1999 and use the proceeds to fund future investment
opportunities. As part of management's long-term strategy of proactively
managing its investments, Archstone will continue to pursue favorable
opportunities to dispose of assets that do not meet its long-term investment
criteria, and use such proceeds for incremental investments in its specifically
targeted markets, including California and the Washington, D.C. area.
Extraordinary Items
Upon consummation of the Atlantic Merger, Archstone replaced its $350
million unsecured revolving credit facility with a $750 million unsecured
revolving credit facility provided by a group of financial institutions led by
Chase. Accordingly, Archstone expensed the remaining $1.5 million of unamortized
loan costs associated with the previous $350 million credit facility as an
extraordinary item during 1998.
In 1996, Archstone incurred approximately $0.9 million of prepayment
penalties associated with the early extinguishment of certain mortgage payable
balances aggregating $25.8 million, which was recorded as an extraordinary item
during this period.
Preferred Share Dividends
The higher level of Preferred Share dividends in 1998 over 1997 is
attributable to the assumption of the Series C Preferred Share dividends in the
Atlantic Merger, partially offset by conversions of Series A Convertible
Preferred Shares into Common Shares. The decrease in 1997 from 1996 levels is
due to conversions of Series A Convertible Preferred Shares into Common Shares.
Liquidity and Capital Resources
Financial Flexibility
During the latter half of 1998 and continuing into 1999, the real estate
industry experienced a reduced supply of favorably-priced equity and debt
capital, which generally decreased the level of new investment activity by real
estate companies. While Archstone has been subject to the same capital market
conditions as other real estate companies, management believes the Company's
financial and liquidity position are relatively strong. Over the years,
Archstone has carefully managed its balance sheet in an effort to avoid
liquidity issues in any given quarter or year. In management's view, this
should provide a competitive advantage in the current capital-constrained market
to take advantage of unique investment opportunities which may not be available
to many of its competitors. Following are four key indicators that demonstrate
the overall strength of Archstone's financial position. First, Archstone
believes its strong balance sheet and expected disposition proceeds will provide
the Company with sufficient capital to fund its investment activities during
1999 and 2000 without the need to raise additional common equity. Second,
excluding its unsecured credit facilities, Archstone has only $35.8 million and
$77.2 million of debt with final maturities in 1999 and 2000, respectively.
Third, as of March 5, 1999, Archstone has a total of $501.0 million of undrawn
capacity on its existing unsecured credit facilities to meet its short-term
obligations. Fourth, Archstone has a conservative ratio of long-term debt to
long-term undepreciated book capitalization (the sum of long-term debt and
shareholders' equity after adding back accumulated depreciation) of 40.23% and
$4.0 billion of unencumbered assets as of December 31, 1998. Although it is not
clear how long the current market conditions will prevail, management believes
that these key factors will provide Archstone with substantial financial
flexibility to capitalize on investment opportunities which may not be available
to other real estate companies with more limited financial resources. Even
though Archstone's long-term debt strategy is focused primarily on the use of
unsecured debt, the Company issued $268.5 million of secured debt during the
fourth quarter of 1998 as a result of a substantial increase in the spreads
between rates on secured and unsecured debt which existed at the date of
issuance. After giving effect to this issuance, Archstone still had
approximately 80% of its assets that were unencumbered by mortgages, as of
December 31, 1998.
Archstone considers its liquidity and ability to generate cash from
operations, dispositions and financings to be adequate and expects it to
continue to be sufficient to meet all of its cash flow requirements for the
foreseeable future.
26
<PAGE>
Operating Activities
Net cash flow provided by operating activities increased by $61.8 million
(38.7%) in 1998 as compared to 1997 and $15.8 million (11.0%) for 1997 as
compared to 1996. These increases are due primarily to the Atlantic Merger in
July 1998, the development of new apartment communities and cash flow growth
from existing apartment communities.
Investing and Financing Activities
During 1998, 1997 and 1996, Archstone invested cash of $688.2 million,
$616.1 million and $628.6 million, respectively, in real estate investments. The
$688.2 million invested in real estate during 1998 was financed primarily from
$310.2 million in net proceeds from property dispositions (excluding $90.9
million held in escrow pending tax-deferred exchanges), $79.4 million of cash
acquired in the Atlantic Merger and borrowings under Archstone's unsecured
credit facilities. These unsecured credit facilities were partially repaid with
proceeds from Archstone's issuance of $447.2 million of Long-Term Unsecured
Debt, $268.5 million in proceeds from the issuance of Fannie Mae Secured Debt
and $44.0 million in net proceeds from the sale of Common Shares in 1998. The
$616.1 million invested in real estate during 1997 was financed primarily from
$297.9 million in net proceeds from property dispositions and borrowings under
Archstone's unsecured credit facilities. These unsecured credit facilities were
partially repaid during 1997 with proceeds from the issuance of $50 million of
Long-Term Unsecured Debt, $54.3 million in net proceeds from the sale of 2.5
million Common Shares and the $194.1 million in net proceeds from rights and
oversubscription offerings of approximately 8.9 million Common Shares. The
$628.6 million invested in real estate during 1996 was financed primarily from
$291.1 million in net proceeds from property dispositions and proceeds from the
issuance of $380 million of Long-Term Unsecured Debt.
Other significant financing activity included the payment of $186.1
million, $124.9 million and $114.9 million in Common and Preferred Share
distributions in 1998, 1997 and 1996, respectively. The increases are primarily
attributable to (i) an increase in the overall number of Common Shares and
Series C Preferred Shares outstanding resulting primarily from the Atlantic
Merger in 1998; and (ii) annual increases in the cash distributions paid per
Common Share. Archstone prepaid mortgages due to community dispositions of $76.3
million, $49.8 million and $43.0 million in 1998, 1997 and 1996, respectively,
and funded convertible mortgage notes of $11.9 million, $85.8 million and $25.2
million in 1998, 1997 and 1996, respectively.
Archstone's most significant non-cash investing and financing activities
during the three-year period ended December 31, 1998 included the following:
(i) the Atlantic Merger in July 1998,
(ii) the acquisition of the Management Companies in September 1997 and,
(iii) the spin-off of 54 extended-stay lodging assets to Homestead in
October 1996.
Scheduled Debt Maturities and Interest Payment Requirements
In order to reduce refinancing risk, Archstone's long-term debt obligations
are carefully structured to create a relatively level principal maturity
schedule in an attempt to minimize the requirement for large payments due in any
single year. As of December 31, 1998, Archstone has only $248.4 million of
long-term debt payments with final maturities due during the next four years
($311.1 million including regularly scheduled principal amortization payments).
See "Item 14(a). Financial Statements and Schedule, Note 5, Borrowings" for
additional information on Archstone's scheduled debt maturities.
Archstone currently has $850 million in total borrowing capacity under its
unsecured credit facilities, with $349.0 million outstanding and an available
balance of $501.0 million at March 5, 1999. Archstone's unsecured credit
facilities, Long-Term Unsecured Debt and mortgages payable had all-in effective
interest rates of 6.77%, 7.51% and 5.91%, respectively, as of December 31, 1998.
27
<PAGE>
Shareholder Dividend/Distribution Requirements
Based on expected 1999 distribution levels and the number of Archstone
shares outstanding as of March 5, 1999, Archstone anticipates that it will pay
the following annual dividends/distributions in 1999 (in thousands):
<TABLE>
<S> <C>
Common Share distributions.................................. $ 205,700
Series A Convertible Preferred Share dividends.............. 9,200
Series B Preferred Share dividends.......................... 9,450
Series C Preferred Share dividends.......................... 4,350
---------------------
Total anticipated dividends/distributions................... $ 228,700
=====================
</TABLE>
Management anticipates that all interest and distribution/dividend
requirements can be funded from operating cash flow. See "Item 14(a).
Financial Statements and Schedule, Note 5 Borrowings and Note 7 Shareholders'
Equity" for further details of anticipated payments.
In February 1999, Archstone announced that the Board had authorized the
repurchase of up to $100 million of its Common Shares. Based on the closing
price of the Common Shares on the date of the announcement, this represents
approximately 3.6% of the Common Shares outstanding. Through March 5, 1999,
Archstone had repurchased 4.3 million Common Shares at a weighted average price
of $19.58 per Common Share, for a total purchase price of $84.4 million.
Disposition proceeds were used to reduce Archstone's unsecured credit facility
balances, providing the capacity to fund the share purchases.
Planned Investments
Following is a summary of unfunded planned investments as of December 31,
1998 (dollar amounts in thousands). The amounts labeled "Discretionary"
represent future investments that Archstone plans to make, although there is not
a contractual commitment to do so. The amounts labeled "Committed" represent the
approximate amount that Archstone is contractually committed to fund.
<TABLE>
<CAPTION>
Planned Investments
--------------- ------------------------------------------------
Units Discretionary Committed
--------------- ---------------------- -----------------------
<S> <C> <C> <C>
Planned operating community improvements............. -- $ 74,474 $ 9,999
Communities under construction....................... 12,120 -- 347,562
Communities In Planning and owned.................... 3,398 253,515 --
Communities In Planning and Under Control............ 3,772 371,683 --
Operating community acquisitions under contract or
letter of intent.................................. 1,409 137,033 --
--------------- ---------------------- -----------------------
Total...................................... 20,699 $ 836,705 $ 357,561
=============== ====================== =======================
</TABLE>
Archstone anticipates completion of most of the communities that are
currently under construction and the planned operating community improvements in
1999 and 2000 and expects to start construction on approximately $200-250
million, based on Total Expected Investment, of communities that are currently
In Planning, during 1999. Acquisitions of operating communities that are
currently under contract or letter of intent are expected to be funded with
disposition proceeds through tax-deferred exchanges during 1999. No assurances
can be given that communities Archstone does not currently own will be acquired
or that planned developments will actually occur. In addition, actual costs
incurred could be greater or less than Archstone's current estimates.
Funding Sources
Archstone expects to finance its investment and operating needs, including
those outlined above, primarily with cash flow from operating activities,
borrowings under its unsecured credit facilities and disposition proceeds
derived from its asset optimization strategy prior to arranging long-term
financing. Archstone routinely uses its unsecured credit facilities to
facilitate an efficient response to market opportunities while minimizing the
amount of cash invested in short-term investments at lower yields. The
unsecured credit facilities had $501.0 million in available undrawn capacity as
of March 5, 1999.
28
<PAGE>
Other sources of future liquidity and financial flexibility include:
(i) Archstone currently has $827.2 million in shelf registered securities
which can be issued in the form of Long-Term Unsecured Debt, preferred
shares or Common Shares on an as-needed basis, subject to its ability
to effect offerings on satisfactory terms.
(ii) Archstone continues to explore the potential monetization of its
$221.3 million (face amount at December 31, 1998) investment in its
convertible mortgage notes receivable. Management views the future
sale or other monetization of these assets as a potential source of
funds, although there is presently no established market for these
securities.
Archstone's debt instruments generally contain covenants common to the type
of facility or borrowing, including financial covenants establishing minimum
debt service coverage ratios and maximum leverage ratios. Archstone was in
compliance with all covenants pertaining to its debt instruments at December 31,
1998.
Other Contingencies and Hedging Activities
Archstone is a party to various claims and routine litigation arising in
the ordinary course of business. Archstone does not believe that the results of
any such claims and litigation, individually or in aggregate, will have a
material adverse effect on its business, financial position or results of
operations.
Archstone has only limited involvement with derivative financial
instruments and does not use them for trading purposes. Archstone occasionally
utilizes derivative financial instruments as hedges in anticipation of future
debt issuances to manage well-defined interest rate risk or to minimize exposure
to variable rate debt.
In January 1999, Archstone entered into two interest rate swap agreements
with notional amounts aggregating $55.0 million (with a weighted average life to
maturity of 3.7 years), related to Long-Term Unsecured Debt issued through its
medium term note program during 1998. The $55.0 million of notes, which were
originally issued at a floating weighted average effective interest rate of
7.34%, were effectively converted to a fixed weighted average interest rate of
7.12% through maturity.
In connection with the closing of the $268.5 million Fannie Mae Secured
Debt agreement in December 1998, Archstone entered into an interest rate cap
agreement on December 30, 1998 with a notional amount aggregating $118.5
million, which capped this portion of the debt at an effective interest rate of
6.9% through December 2002. The actual floating effective interest rate on the
$118.5 million was 5.9% at December 31, 1998. There was no unrealized gain or
loss relating to the fair value of this interest rate contract at December 31,
1998. Additionally, Archstone entered into an interest rate swap agreement in
January 1999 for the remaining $150.0 million, which effectively provides for a
fixed interest rate of 6.3% until maturity in 2006.
In anticipation of a Long-Term Unsecured Debt offering that closed in March
1998, Archstone entered into four separate interest rate contracts in 1997 with
notional amounts aggregating $120 million. Upon completion of the offering,
Archstone terminated the interest rate contracts, realizing a loss of
approximately $5.5 million. Similarly in 1996, Archstone entered into interest
rate contracts with notional amounts aggregating $50 million in anticipation of
a Long-Term Unsecured Debt offering that closed March 31, 1997. Upon completion
of the offering, Archstone terminated the interest rate contracts, realizing a
gain of approximately $819,000. The resulting gains and losses were deferred
and are being amortized into interest expense over the term of the respective
debt agreements.
Year 2000 Issue
Archstone uses a significant number of IT and non-IT computer systems in
its operations. The IT systems include accounting and property management
systems, its desktop and communications systems and its other corporate systems.
The non-IT systems include embedded microprocessors that control building
systems such as lighting, security, fire, elevators, heating, ventilating and
air conditioning systems.
29
<PAGE>
In 1997, Archstone began to address the year 2000 issue (that is, the fact
that some systems might fail or produce inaccurate results using dates in or
around the year 2000). Most of Archstone's key IT systems, including its
property management software, have recently been replaced or upgraded and
management plans to replace or upgrade the remaining key IT systems during 1999.
Management believes, based on statements by vendors and on its own testing, that
all of the replacements and upgrades for mission-critical IT systems are year
2000 ready. Management is also continuing to replace or upgrade other non-
critical IT systems with year 2000 ready systems to the extent that it is
cost-effective to do so.
Archstone is working with its vendors to confirm that the non-IT systems at
its communities are year 2000 compliant and is continuing to replace critical
non-IT systems that it believes are not year 2000 compliant. Archstone expects
that its communities will be year 2000 compliant by the end of the third quarter
of 1999.
Archstone relies on a variety of outside suppliers to provide critical
services to its communities. Of particular concern are the local utilities.
Electric utilities, for example, use numerous embedded systems in producing,
measuring, controlling and dispensing electricity. Without electricity, almost
none of the systems at any community will function. Archstone does not control
these outside suppliers and for some suppliers there may be no feasible
alternative supplier available. In management's view, the most significant
foreseeable external risk associated with the year 2000 issue is the potential
for a sustained failure of a utility or other supplier which could have a
material adverse effect on the operations of the affected community. A
widespread sustained failure of utilities or other suppliers in areas that
Archstone has a substantial presence could have a material adverse effect on
Archstone.
Archstone has developed and will continue to refine contingency plans to
address the risk created by the year 2000 issue. These plans generally include
having community management representation on-site at the communities during the
century change to handle year 2000 issues as they arise and using the methods
that Archstone's community managers customarily use to address failures by
systems and suppliers.
Archstone's historical costs for addressing the year 2000 issue are not
material and management does not anticipate that its future costs associated
with the year 2000 issue will be material. Archstone does not separately track
the internal costs incurred for year 2000 compliance issues. Such costs are
principally the related payroll of its information technology group. Although
the cost of replacing Archstone's key IT systems is substantial, the
replacements have been and are being made to improve operational efficiency and
were not accelerated due to the year 2000 issue. In the event that the
implementation of these systems is unexpectedly delayed, Archstone would be
required to make modifications and upgrades to its existing accounting systems
for financial reporting purposes. Management believes that the costs of these
modifications and upgrades would not have a material adverse impact on the
Company's financial position or results of operations. Funds expended to date
to address year 2000 issues have come from operating cash flow. Archstone has
not delayed any material projects as a result of the year 2000 issue.
There can be no assurance that year 2000 remediation by Archstone or third
parties will be properly and timely completed and failure to do so could have a
material adverse effect on Archstone, its business and financial condition.
Archstone cannot predict the actual effects of the year 2000 issue which depends
on numerous uncertainties, many of which are outside its control, such as
whether significant third parties such as banks and utilities address year 2000
issues properly and timely and whether broad-based or systemic economic failures
may occur. Archstone will continue to monitor these issues through its year
2000 compliance program.
Funds From Operations
Archstone believes that Funds From Operations is helpful to the reader as a
measure of the performance of an equity REIT because, along with cash flow from
operating, investing and financing activities, it provides the reader with an
indication of the ability of Archstone to incur and service debt, to make
capital expenditures, to make Common Share and Preferred Share distributions and
to fund other cash needs. Funds From Operations should not be considered as an
alternative to net earnings or any other GAAP measurement of performance as an
indicator of Archstone's operating performance or as an alternative to cash flow
from operating, investing or financing activities as a measure of liquidity.
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 REIT's that do not compute
Funds From Operations in a manner consistent with Archstone. Funds From
Operations is not intended to represent cash available to shareholders. Cash
distributions paid to shareholders are summarized above in "Item 6. Selected
Financial Data".
30
<PAGE>
In 1996, Archstone contributed 54 extended-stay lodging assets to
Homestead. Management believes that Funds From Operations for 1996 should be
adjusted to reflect the effects of the Homestead transaction to provide a more
meaningful comparison to the historical 1997 results. Accordingly, pro forma
Funds From Operations for 1996 has been calculated as if the Homestead
transaction had occurred on January 1, 1996. The Funds From Operations
information is unaudited and the pro forma Funds From Operations is not
necessarily indicative of what actual Funds From Operations would have been if
the Homestead transaction had occurred on January 1, 1996.
Funds From Operations and pro forma Funds From Operations were as follows
(amounts in thousands):
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------------
1998 1997 1996
---------------- ------------------ -----------------
<S> <C> <C> <C>
Net earnings attributable to Common Shares - Basic.............. $ 177,022 $ 53,534 $ 106,544
Add (Deduct):
Depreciation on real estate investments....................... 96,337 52,893 44,887
Provision for possible loss on investments.................... 4,700 3,000 --
Gain on disposition of investments, net....................... (65,531) (48,232) (37,492)
Nonrecurring expenses and extraordinary items................. 3,690 71,707 739
Other, net.................................................... (662) (1,281) (141)
---------------- ------------------ -----------------
Historical Funds From Operations attributable to Common Shares.. $ 215,556 $ 131,621 $ 114,537
---------------- ------------------ -----------------
Add (deduct) pro forma adjustments relating to the contribution
of
Homestead assets:
Reduction in revenues and operating expenses (1).............. $ -- $ -- $ (13,294)
Increase in interest income (2)............................... -- -- 4,093
Increase in interest expense (3).............................. -- -- (460)
Reduction in capitalized interest (4)......................... -- -- (2,246)
REIT management fee effect (5)................................ -- -- 2,757
Other......................................................... -- -- 35
---------------- ------------------ -----------------
Total pro forma adjustments................................ $ -- $ -- $ (9,115)
---------------- ------------------ -----------------
Funds From Operations attributable to Common Shares Basic
(pro forma for 1996)......................................... $ 215,556 $ 131,621 $ 105,422
Series A Convertible Preferred Share dividends................ 9,332 9,934 14,717
---------------- ------------------ -----------------
Funds From Operations attributable to Common Shares Diluted
(pro forma for 1996)......................................... $ 224,888 $ 141,555 $ 120,139
================ ================== =================
Weighted average Common Shares outstanding Diluted............. 125,825 90,230 84,340
================ ================== =================
</TABLE>
(1) Represents the elimination of Homestead's historical revenues and operating
expenses.
(2) Represents interest income which would have been recognized on the
convertible mortgage notes receivable, assuming that Archstone received
Homestead common stock in exchange for its contribution first, and then
convertible mortgage notes receivable in exchange for the balance of its
contribution over the respective time periods.
(3) Represents the assumed amount of incremental interest expense which would
have been incurred as a result of higher unsecured credit facility balances
due to reduced cash flow.
(4) Represents the reclassification of historical interest costs capitalized on
Homestead developments to interest expense.
(5) Represents the decrease in REIT management fee that would have resulted
from the pro forma adjustments.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Archstone is exposed to interest rate changes primarily as a result of its
unsecured credit facilities and other variable rate debt used to finance its
investment activity and maintain financial liquidity. Archstone's interest rate
risk management objective is to limit the impact of interest rate changes on
earnings and cash flows and to lower its overall borrowing costs. To achieve
its objectives, Archstone borrows primarily at fixed rates. Archstone has only
limited involvement with derivative financial instruments and does not use them
for trading purposes. Archstone occasionally utilizes derivative financial
instruments as hedges in anticipation of future debt transactions to manage
well-defined interest rate risk or to minimize exposure to variable rate debt.
31
<PAGE>
The table below provides information about Archstone's financial
instruments that are sensitive to changes in interest rates, including the
estimated fair values for each interest rate sensitive asset or liability, as of
December 31, 1998. As the table incorporates only those exposures that exist as
of December 31, 1998, it does not consider those exposures or positions which
could arise after that date. Moreover, because there were no firm commitments to
actually sell these instruments at fair value as of December 31, 1998, the
information presented therein is merely an estimate and has limited predictive
value. As a result, Archstone's ultimate realized gain or loss with respect to
interest rate fluctuations will depend on the exposures that arise during a
future period, hedging strategies and prevailing interest rates at the time.
<TABLE>
<CAPTION>
Expected Maturity/Principal Repayment Schedule at
December 31,
--------------------------------------------------------- Estimated
Total Fair
1999 2000 2001 2002 2003 Thereafter Balance Value (1)
------- ------ ------- ------ ------ ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest rate sensitive assets:
Convertible mortgage notes receivable
(face amount)(2)..................... $ -- $ -- $ -- $ -- $ -- $ 221,334 $ 221,334 $ 221,300
Average nominal interest rate (3)... 9.00% 9.00% 9.00% 9.00% 9.00% 9.00% -- --
Interest rate sensitive liabilities:
Unsecured credit facilities............. $30,651 $ -- $ -- $ -- $234,000(4) $ -- $ 264,651 $ 265,000
Average nominal interest rate (3)... 6.31% 6.31% 6.31% 6.31% 6.31% -- -- --
Long-Term Unsecured Debt:
Fixed rate(5)........................ $30,310 $75,310 $70,010 $97,810 $171,560 $ 786,167 $1,231,167 $1,178,000
Average nominal interest rate (3)... 7.35% 7.39% 7.43% 7.47% 7.53% 7.56% -- --
Mortgages payable:
Fixed rate(6)........................ $ 9,219 $ 5,791 $11,582 $ 3,839 $ 24,280 $ 412,586 $ 467,297 $ 474,000
Average nominal interest rate (3)... 5.98% 5.96% 5.94% 5.92% 5.87% 5.82% -- --
Variable rate......................... $ 1,614 $ 1,733 $ 1,864 $ 2,005 $ 2,158 $ 199,942 $ 209,316 $ 210,000
Average nominal interest rate (3)... 3.22% 3.22% 3.22% 3.22% 3.22% 3.22% -- --
</TABLE>
(1) The estimated fair value for the convertible mortgage notes receivable and
each of the liabilities listed was calculated by discounting the actual
principal payment stream at prevailing interest rates (obtained from third
party financial institutions) currently available on debt instruments with
similar terms and features.
(2) See "Item 14(a). Financial Statements and Schedule, Note 4, Mortgage Notes
Receivable".
(3) Reflects the weighted average nominal interest rate on the assets or
liabilities outstanding during each period, giving affect to principal
payments and final maturities during each period, if any. The nominal
interest rates for variable rate mortgages payable have been held constant
during each period presented based on the actual variable rates at December
31, 1998. The weighted average effective interest rate at December 31, 1998
for the convertible mortgage notes receivable was 13.39%. The weighted
average effective interest rate on the unsecured credit facilities, Long-
Term Unsecured Debt and mortgages payable was 6.77%, 7.51% and 5.91%,
respectively.
(4) Archstone's $750 million unsecured credit facility matures in July 2001, at
which time it may be converted into a two-year term loan, at Archstone's
option.
(5) In January 1999, Archstone entered into two interest rate swap agreements
with notional amounts aggregating $55.0 million. The notes, which were
originally issued at a floating weighted average effective interest rate of
7.34% were converted to a fixed weighted average effective interest rate of
7.12% through maturity.
(6) The fixed rate mortgages payable balance includes $268.5 million of Fannie
Mae Secured Debt issued in December 1998, which matures in January 2006. In
connection with the closing of the agreement, Archstone entered into an
interest rate cap agreement on December 30, 1998 with a notional amount
aggregating $118.5 million, which is capped at an effective interest rate of
6.9% through December 2002. The actual floating effective interest rate on
the $118.5 million was 5.9% at December 31, 1998. Additionally, Archstone
entered into an interest swap agreement in January 1999 for the remaining
$150.0 million, which effectively provides for a fixed interest rate of 6.3%
until maturity in 2006.
Item 8. Financial Statements and Supplementary Data
Archstone's Balance Sheets as of December 31, 1998 and 1997, and its
Statements of Earnings, Shareholders' Equity and Cash Flows for each of the
years in the three-year period ended December 31, 1998 and Schedule III Real
Estate and Accumulated Depreciation, together with the reports of KPMG LLP,
independent auditors, are included under Item 14 of this report and are
incorporated herein by reference. Selected quarterly financial data is
presented in "Item 14(a). Financial Statements and Schedule, Note 11, Selected
Quarterly Financial Data (Unaudited)".
32
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Trustees and Executive Officers of the Registrant
For information regarding Archstone's Trustees and executive officers, see
"Item 1. Business Trustees and Officers of Archstone." The other information
required by this Item 10 is incorporated herein by reference to the description
under the captions "Election of Trustees" and "Section 16 Beneficial Ownership
Reporting Compliance" in Archstone's 1999 Proxy Statement.
Item 11. Executive Compensation
Incorporated herein by reference to the description under the captions
"Election of Trustees" and "Executive Compensation" in the 1999 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference to the description under the captions
"Principal Shareholders" and "Election of Trustees" in the 1999 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference to the description under the caption
"Certain Relationships and Transactions" in the 1999 Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
The following documents are filed as a part of this report:
(a) Financial Statements and Schedule:
1. Financial Statements
See Index to Financial Statements and Schedule on page 34 of
this report, which is incorporated herein by reference.
2. Financial Statement Schedule:
See Schedule III on page 63 of this report, which is
incorporated herein by reference.
All other schedules have been omitted since the required
information is presented in the financial statements and the
related notes or is not applicable.
3. Exhibits.
See Index to Exhibits on page 74 of this report, which is
incorporated herein by reference.
(b) Reports on Form 8-K: The following reports on Form 8-K were filed
during the last quarter of the period covered by this report.
None filed in last quarter of period covered by this report.
(c) Exhibits:
The Exhibits required by Item 601 of Regulation S-K are listed in
the Index to Exhibits on page 74 of this report, which is incorporated
herein by reference.
33
<PAGE>
Index to Financial Statements and Schedule
<TABLE>
<CAPTION>
Page
----
<S> <C>
Archstone Communities Trust
Independent Auditors' Report................................................................. 35
Balance Sheets as of December 31, 1998 and 1997.............................................. 36
Statements of Earnings for the years ended December 31, 1998, 1997 and 1996.................. 37
Statements of Shareholders' Equity for the years ended December 31, 1998, 1997 and 1996...... 38
Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996................ 39
Notes to Financial Statements................................................................ 40
Independent Auditors' Report on Financial Statement Schedule................................. 62
Schedule III Real Estate and Accumulated Depreciation as of December 31, 1998............... 63
Index to Exhibits............................................................................ 74
</TABLE>
34
<PAGE>
Independent Auditors' Report
The Board of Trustees and Shareholders
Archstone Communities Trust:
We have audited the accompanying balance sheets of Archstone Communities Trust
as of December 31, 1998 and 1997, and the related statements of earnings,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Archstone Communities Trust as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1998, in
conformity with generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
January 22, 1999, except as to Note 15,
which is as of March 5, 1999
35
<PAGE>
Archstone Communities Trust
Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31,
-------------------------------
Assets 1998 1997
------ ---------------- ------------
<S> <C> <C>
Real estate................................................................................ $4,869,801 $2,604,919
Less accumulated depreciation.............................................................. 205,795 129,718
---------------- ------------
4,664,006 2,475,201
Mortgage notes receivable, net............................................................. 211,967 285,238
---------------- ------------
Net investments..................................................................... 4,875,973 2,760,439
Cash and cash equivalents.................................................................. 10,119 4,927
Restricted cash in tax-deferred exchange escrow............................................ 90,874 --
Other assets............................................................................... 82,932 40,320
---------------- ------------
Total assets........................................................................ $5,059,898 $2,805,686
================ ============
Liabilities and Shareholders' Equity
------------------------------------
Liabilities:
Unsecured credit facilities............................................................. $ 264,651 $ 231,500
Long-Term Unsecured Debt................................................................ 1,231,167 630,000
Mortgages payable....................................................................... 676,613 265,652
Distributions payable................................................................... 53,364 31,495
Accounts payable........................................................................ 55,649 35,352
Accrued expenses........................................................................ 83,114 39,623
Other liabilities....................................................................... 45,556 31,628
---------------- ------------
Total liabilities................................................................... 2,410,114 1,265,250
Minority interest.......................................................................... 21,459 --
---------------- ------------
Shareholders' equity:
Series A Convertible Preferred Shares (4,700,615 shares in 1998 and 5,408,393 in 1997; 117,515 135,210
stated liquidation preference of $25 per share)......................................
Series B Preferred Shares(4,200,000 shares; stated liquidation preference of $25 per 105,000 105,000
share)...............................................................................
Series C Preferred Shares (2,000,000 shares; stated liquidation preference of $25 per 50,000 --
share)...............................................................................
Common Shares (143,313,015 in 1998 and 92,633,724 in 1997).............................. 143,313 92,634
Additional paid-in capital.............................................................. 2,350,239 1,251,503
Unrealized holding gain on convertible mortgage notes receivable........................ -- 83,794
Distributions in excess of net earnings................................................. (137,742) (127,705)
---------------- ------------
Total shareholders' equity.......................................................... 2,628,325 1,540,436
---------------- ------------
Total liabilities and shareholders' equity.......................................... $5,059,898 $2,805,686
================ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
36
<PAGE>
Archstone Communities Trust
Statements of Earnings
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
Revenues: 1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Rental revenues..................................................... $484,539 $335,060 $322,046
Other income........................................................ 29,106 20,602 4,200
--------- --------- ---------
513,645 355,662 326,246
--------- --------- ---------
Expenses:
Rental expenses (including $7,642 and $11,610 paid to affiliates for
the years ended December 31, 1997 and 1996)...................... 133,079 95,665 101,160
Real estate taxes................................................... 40,681 27,386 26,962
Depreciation on real estate investments............................. 96,337 52,893 44,887
Interest............................................................ 83,350 61,153 35,288
General and administrative:
Paid to affiliate............................................... 4,635 14,314 22,191
Other........................................................... 11,457 4,036 1,077
Nonrecurring expenses:
Branding strategy and Atlantic Merger integration............... 2,193 -- --
Costs incurred in acquiring Management Companies from an
affiliate.................................................... -- 71,707 --
Provision for possible loss on investments.......................... 4,700 3,000 --
Other............................................................... 3,287 822 592
--------- --------- ---------
379,719 330,976 232,157
--------- --------- ---------
Earnings from operations............................................... 133,926 24,686 94,089
Gains on dispositions of depreciated real estate, net............... 65,531 48,232 37,492
--------- --------- ---------
Earnings before extraordinary items.................................... 199,457 72,918 131,581
Less extraordinary items............................................ 1,497 -- 870
--------- --------- ---------
Net earnings........................................................... 197,960 72,918 130,711
Less Preferred Share dividends...................................... 20,938 19,384 24,167
--------- --------- ---------
Net earnings attributable to Common Shares - Basic..................... $177,022 $ 53,534 $106,544
========= ========= =========
Weighted average Common Shares outstanding - Basic..................... 118,592 81,870 73,057
--------- --------- ---------
Weighted average Common Shares outstanding - Diluted................... 125,825 81,908 84,340
--------- --------- ---------
Earnings before extraordinary item per Common Share:
Basic............................................................... $ 1.51 $ 0.65 $ 1.47
========= ========= =========
Diluted............................................................. $ 1.50 $ 0.65 $ 1.45
========= ========= =========
Net earnings per Common Share:
Basic............................................................... $ 1.49 $ 0.65 $ 1.46
========= ========= =========
Diluted............................................................. $ 1.49 $ 0.65 $ 1.44
========= ========= =========
Distributions paid per Common Share.................................... $ 1.39 $ 1.30 $ 1.24
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
37
<PAGE>
Archstone Communities Trust
Statements of Shareholders' Equity
Years ended December 31, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
Series A Unrealized
Convertible Series B Series C holding gain
Preferred Preferred Preferred (loss) on
Shares at Shares at Shares at convertible
aggregate aggregate aggregate Common Additional mortgage Distributions
liquidation liquidation liquidation Shares at paid-in notes in excess
preference preference preference par value Capital receivables net earnings Total
----------- ----------- ---------- --------- ---------- ---------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995......... $230,000 $105,000 $ -- $ 72,376 $ 950,742 $ -- $ (82,450) $1,275,668
Comprehensive income:
Net earnings........................ -- -- -- -- -- -- 130,711 130,711
Preferred Share dividends paid...... -- -- -- -- -- -- (24,167) (24,167)
Other comprehensive income -
unrealized holding gain on
convertible mortgage notes
receivable......................... -- -- -- -- -- 74,923 -- 74,923
----------
Comprehensive income attributable to
Common Shares..................... -- -- -- -- -- -- -- 181,467
----------
Common Share distributions........... -- -- -- -- -- -- (92,828) (92,828)
Distribution of Homestead common
stock and warrants at book value,
net of transaction expenses......... -- -- -- -- (96,914) -- -- (96,914)
Other, net........................... (67,626) -- -- 3,135 64,606 -- -- 115
--------- -------- ------- -------- ---------- -------- ------- ----------
Balances at December 31, 1996......... 162,374 105,000 75,511 918,434 74,923 (68,734) 1,267,508
Comprehensive income:
Net earnings........................ -- -- -- -- -- -- 72,918 72,918
Preferred Share dividends paid...... -- -- -- -- -- -- (19,384) (19,384)
Other comprehensive income - change
in unrealized holding gain on
convertible mortgage notes
receivable.......................... -- -- -- -- -- 8,871 -- 8,871
----------
Comprehensive income attributable to
Common Shares..................... -- -- -- -- -- -- -- 62,405
----------
Common Share distributions........... -- -- -- -- -- -- (112,505) (112,505)
Issuance of shares to affiliate...... -- -- -- 3,296 68,780 -- -- 72,076
Sale of shares, net of expenses...... -- -- -- 11,420 236,956 -- -- 248,376
Other, net........................... (27,164) -- -- 2,407 27,333 -- -- 2,576
--------- -------- ------- -------- ---------- -------- ---------- ----------
Balances at December 31, 1997......... 135,210 105,000 92,634 1,251,503 83,794 (127,705) 1,540,436
Comprehensive income:
Net earnings........................ -- -- -- -- -- -- 197,960 197,960
Preferred Share dividends paid...... -- -- -- -- -- -- (20,938) (20,938)
Other comprehensive income -
change in unrealized holding
gain on convertible mortgage
notes receivable.................... -- -- -- -- -- (83,794) -- (83,794)
----------
Comprehensive income attributable
to Common Shares.................. -- -- -- -- -- -- -- 93,228
----------
Common Share distributions........... -- -- -- -- -- -- (187,059) (187,059)
Atlantic Merger...................... 50,000 47,752 1,038,390 -- -- 1,136,142
Sale of shares, net of expenses...... -- -- -- 2,050 41,959 -- -- 44,009
Other, net........................... (17,695) 877 18,387 -- -- 1,569
--------- -------- ------- -------- ---------- -------- --------- ----------
Balances at December 31, 1998......... $117,515 $105,000 $50,000 $143,313 $2,350,239 $ -- $(137,742) $2,628,325
========= ======== ======= ======== ========== ======== ========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
Archstone Communities Trust
Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1998 1997 1996
---------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net earnings............................................................. $ 197,960 $ 72,918 $ 130,711
Adjustments to reconcile net earnings to net cash flow provided by
operating activities:
Depreciation and amortization........................................ 96,908 54,541 46,911
Gains on dispositions of depreciated real estate, net................ (65,531) (48,232) (37,492)
Provision for possible loss on investments........................... 4,700 3,000 --
Costs incurred in acquiring Management Companies from an affiliate... -- 71,707 --
Non-cash extraordinary item.......................................... 1,497 -- --
Change in accounts payable............................................... (9,714) 4,000 565
Change in accrued expenses and other liabilities......................... 16,886 11,034 11,286
Change in other assets................................................... (21,172) (9,244) (8,042)
----------- ----------- ----------
Net cash flow provided by operating activities....................... 221,534 159,724 143,939
----------- ----------- ----------
Investing activities:
Real estate investments.................................................. (688,151) (616,100) (628,640)
Proceeds from dispositions, net of closing costs......................... 401,031 297,895 291,056
Cash acquired in Atlantic Merger......................................... 79,359 -- --
Change in tax-deferred exchange escrow................................... (90,874) -- --
Funding of convertible mortgage notes receivable......................... (11,895) (85,750) (25,242)
Other, net............................................................... 1,385 843 1,891
----------- ----------- ----------
Net cash flow used in investing activities........................... (309,145) (403,112) (360,935)
----------- ----------- ----------
Financing activities:
Proceeds from Long-Term Unsecured Debt................................... 447,200 50,000 380,000
Proceeds from Fannie Mae Secured Debt.................................... 268,450 -- --
Debt issuance costs incurred............................................. (14,281) (1,518) (5,659)
Principal prepayment of mortgages payable................................ (76,261) (49,847) (43,005)
Regularly scheduled principal payments on mortgages payable.............. (35,064) (3,284) (2,037)
Proceeds from unsecured credit facilities................................ 1,184,419 1,175,609 510,985
Principal payments on unsecured credit facilities........................ (1,541,040) (1,054,309) (529,785)
Proceeds from sale of Common Shares, net................................. 44,009 249,199 --
Cash distributions paid on Common Shares................................. (165,190) (105,547) (90,728)
Cash dividends paid on Preferred Shares.................................. (20,938) (19,384) (24,167)
Other, net............................................................... 1,499 1,753 116
----------- ----------- ----------
Net cash flow provided by financing activities....................... 92,803 242,672 195,720
----------- ----------- ----------
Net change in cash and cash equivalents..................................... 5,192 (716) (21,276)
Cash and cash equivalents at beginning of year.............................. 4,927 5,643 26,919
----------- ----------- ----------
Cash and cash equivalents at end of year.................................... $ 10,119 $ 4,927 $ 5,643
=========== =========== ==========
</TABLE>
See Note 14 for supplemental information on significant non-cash investing and
financing activities.
The accompanying notes are an integral part of the financial statements.
39
<PAGE>
Archstone Communities Trust
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(1) Description of Business and Summary of Significant Accounting Policies
In July 1998, Atlantic was merged with and into PTR. This transaction is
hereafter referred to as the "Atlantic Merger". Upon consummation of the
Atlantic Merger, the name of the Company was changed to Archstone Communities
Trust. Financial information and references throughout this document are
labeled "Archstone" for both pre- and post- transaction periods as a result of
this name change. Archstone's financial statements and related footnotes as of
and for the period from the merger date (July 1998) to December 31, 1998 give
effect to the Atlantic Merger which was accounted for under the purchase method.
See Note 2 for a more complete discussion of the Atlantic Merger.
Business
Archstone is an equity REIT organized in 1963 under the laws of the state of
Maryland, which primarily owns, develops, acquires, redevelops and operates
income-producing apartment communities in its strategically located target
markets throughout the United States.
Principles of Financial Presentation
The accounts of Archstone and its controlled subsidiaries are consolidated in
the accompanying financial statements. All significant intercompany accounts
and transactions have been eliminated in consolidation. Archstone uses the
equity method to account for its investments when it does not control but has
the ability to exercise significant influence over the operating and financial
policies of the investee. For an investee accounted for under the equity
method, Archstone's share of net earnings or losses of the investee is reflected
in income as earned and dividends are credited against the investment as
received.
The preparation of these financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual amounts realized or paid could differ from
those estimates.
Cash and Cash Equivalents
Archstone considers all cash on hand, demand deposits with financial
institutions and short-term, highly liquid investments with original maturities
of three months or less to be cash equivalents.
Real Estate and Depreciation
Real estate, other than land and properties held for sale, is carried at
depreciated cost. Long-lived assets to be disposed of are reported at the lower
of their carrying amount or fair value less cost to sell. Archstone
periodically reviews long-lived assets to be held and used for impairment
whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. This review involves comparing an
investment's current and future operating performance, the most significant of
which is Net Operating Income capitalized at prevailing market rates, to its
carrying value.
Archstone capitalizes direct and certain related indirect costs associated
with the successful acquisition, development or improvement of real estate.
Archstone no longer capitalizes any indirect or internal costs associated with
apartment community acquisitions, in accordance with Emerging Issues Task Force
Issue 97-11, Accounting for Internal Costs Relating to Real Estate Property
Acquisitions, which was effective on April 1, 1998. Capitalized costs
associated with unsuccessful acquisition or development pursuits are expensed at
the time the pursuit is abandoned.
40
<PAGE>
Archstone Communities Trust
Notes to Financial Statements-(Continued)
Depreciation is computed over the expected useful lives of depreciable
property on a straight-line basis as follows:
Buildings and improvements ...... 20-40 years
Furnishings and other............ 2-10 years
Interest
During 1998, 1997 and 1996, the total interest paid in cash on all outstanding
debt, was $96,410,000, $73,111,000 and $40,572,000, respectively.
Archstone capitalizes interest incurred during the construction period as part
of the cost of apartment communities under development. Interest capitalized
during 1998, 1997 and 1996 aggregated $29,942,000, $17,606,000 and $16,941,000,
respectively.
Cost of Raising Capital
Costs incurred in connection with the issuance of equity securities are
deducted from shareholders' equity. Costs incurred in connection with the
issuance or renewal of debt are capitalized as other assets and are amortized
into interest expense over the term of the related loan or the renewal period.
The balance of any unamortized loan costs associated with refinanced debt is
expensed upon replacement with new debt. Amortization of loan costs included in
interest expense for 1998, 1997 and 1996 was $3,318,000, $3,181,000 and
$2,233,000, respectively.
Archstone occasionally utilizes derivative financial instruments as cash flow
hedges in anticipation of future debt transactions to manage well-defined
interest rate risk or to minimize exposure to variable rate debt. The costs
associated with entering into these agreements, as well as the related gains or
losses on such agreements, are deferred and are amortized into interest expense
over the term of the underlying debt.
Revenue and Gain Recognition
Archstone generally leases its apartment units under operating leases with
terms of one year or less. Rental income is recognized according to the terms
of the underlying leases which approximates the revenue which would be
recognized if spread evenly over the lease term.
Gains on sales of real estate are recorded when the recognition criteria set
forth by GAAP have been met.
Rental Expenses
Rental expenses shown on the accompanying Statements of Earnings include costs
associated with on-site and property management personnel, utilities, repairs
and maintenance, make-ready, property insurance, marketing, landscaping, and
other on-site and related administrative costs.
Federal Income Taxes
Archstone has made an election to be taxed as a REIT under the Internal
Revenue Code of 1986, as amended and believes it qualifies as a REIT.
Accordingly, no provision has been made for federal income taxes in the
accompanying financial statements.
Comprehensive Income
Comprehensive income, which is defined as all changes in equity during each
period except those resulting from investments by or distributions to
shareholders, is displayed in the accompanying Statements of Shareholders'
Equity.
41
<PAGE>
Archstone Communities Trust
Notes to Financial Statements - (Continued)
Per Share Data
Following is a reconciliation of basic EPS and diluted EPS calculated in
accordance with SFAS No. 128, Earnings per Share, for the periods indicated (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
--------------- -------------- --------------
<S> <C> <C> <C>
Reconciliation of numerator between basic and diluted net earnings per Common Share (1):
Net earnings attributable to Common Shares - Basic.......................... $177,022 $53,534 $106,544
Dividends on Series A Convertible Preferred Shares...................... 9,332 -- 14,717
Minority interest........................................................ 645 -- --
-------- ------- --------
Net earnings attributable to Common Shares - Diluted........................ $186,999 $53,534 $121,261
======== ======= ========
Reconciliation of denominator between basic and diluted net earnings per Common Share (1):
Weighted average number of Common Shares outstanding - Basic................ 118,592 81,870 73,057
Assumed conversion of Series A Convertible Preferred Shares into
Common Shares......................................................... 6,765 -- 11,197
Minority interest........................................................ 458 -- --
Incremental options outstanding.......................................... 10 38 86
-------- ------- --------
Weighted average number of Common Shares outstanding - Diluted............... 125,825 81,908 84,340
======== ======= ========
</TABLE>
(1) Excludes the impact of potentially dilutive equity securities during the
periods in which they are anti-dilutive.
Expected Impact of New Accounting Rules
In April 1998, Statement of Position 98-5, Reporting on the Costs of Start-Up
Activities, was issued which requires that costs associated with start-up
activities such as the opening of a new business or division be expensed as
incurred. The new rules, which became effective January 1, 1999, will not have
a material impact on Archstone's financial position or results of operations.
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued which established standards for the accounting and
reporting of derivative instruments. The new rules, which become effective
January 1, 2000, are not expected to have a material impact on Archstone's
financial position or results of operations. See Note 5 for a discussion of
certain interest rate swap agreements and interest rate cap agreements that
Archstone entered into as cash flow hedges against rising interest rates in
December 1998 and January 1999.
Reclassifications
Certain of the 1997 and 1996 amounts have been reclassified to conform to the
1998 presentation.
42
<PAGE>
Archstone Communities Trust
Notes to Financial Statements - (Continued)
(2) Atlantic Merger
In July 1998, Atlantic, an apartment REIT which operated primarily in the
southeast and mid-Atlantic markets of the United States, was merged with and
into PTR. The combined company continued its existence under the name Archstone
and is traded on the NYSE 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 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 Series C Preferred Shares. As a result, 47,752,052 Common
Shares and 2,000,000 Series C Preferred Shares were issued to Atlantic's
shareholders in exchange for all of the outstanding Atlantic common shares and
Atlantic series A preferred shares. In addition, Archstone assumed Atlantic's
debt and other liabilities. The total purchase price paid for Atlantic
aggregated approximately $1.9 billion. The transaction was structured as a tax-
free transaction and was accounted for under the purchase method. At December
31, 1998, Security Capital, which voted its shares in favor of the Atlantic
Merger, owned approximately 38% of the outstanding Common Shares and is
Archstone's largest shareholder. See Note 6 for additional information on
Archstone's dividend and distribution levels, which were adjusted subsequent to
the Atlantic Merger.
The following summarized pro forma unaudited information represents the
combined historical operating results of PTR and Atlantic with the appropriate
purchase accounting adjustments, assuming the Atlantic Merger had occurred on
January 1, 1997. The pro forma financial information presented is not
necessarily indicative of what Archstone's actual operating results would have
been had PTR and Atlantic constituted a single entity during such periods (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1998 1997
--------------------- ---------------------
<S> <C> <C>
Total revenues......................................................... $610,866 $550,805
===================== =====================
Net earnings attributable to Common Shares before extraordinary items.. $201,562 $110,680
===================== =====================
Net earnings attributable to Common Shares............................. $199,842 $110,680
===================== =====================
Weighted average Common Shares outstanding:
Basic........................................................... 141,939 128,575
===================== =====================
Diluted......................................................... 148,714 128,614
===================== =====================
Earnings attributable to Common Shares before extraordinary items
per Common Share:
Basic and Diluted............................................... $ 1.42 $ 0.86
===================== =====================
Net earnings attributable to Common Shares per Common Share:
Basic and Diluted............................................... $ 1.41 $ 0.86
===================== =====================
</TABLE>
43
<PAGE>
Archstone Communities Trust
Notes to Financial Statements - (Continued)
(3) Real Estate
Equity investments in real estate, at cost, were as follows (dollar amounts in
thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------
1998 (1) 1997
------------------------------ --------------------------------
Investment Units Investment Units
-------------- ------------ --------------- -------------
<S> <C> <C> <C> <C>
Apartment Communities:
Operating communities................................ $4,027,044 69,341 $2,237,789 43,465
Communities under construction (2)................... 701,897 12,120 232,770 5,545
Development communities In Planning (2)
Owned............................................. 69,710 3,398 80,781 4,468
Under Control (3)................................ -- 3,772 -- 6,090
-------------- ------------ --------------- -------------
Total development communities In Planning........ 69,710 7,170 80,781 10,558
-------------- ------------ --------------- -------------
Total apartment communities....................... 4,798,651 88,631 2,551,340 59,568
-------------- ============ --------------- =============
Other land held........................................ 48,280 27,517
Other real estate assets(4)............................ 22,870 26,062
-------------- ---------------
Total real estate.............................. $4,869,801 $2,604,919
============== ===============
</TABLE>
(1) Includes the real estate assets acquired in the Atlantic Merger (See Note
2).
(2) Unit information is based on management's estimates and has not been
audited or reviewed by Archstone's independent auditors.
(3) Archstone's investment as of December 31, 1998 and 1997 for developments
Under Control was $4.8 million and $3.8 million, respectively, and is
reflected in the "Other assets" caption of Archstone's Balance Sheets.
(4) Represents Archstone's investment in a five-story Holiday Inn hotel located
in the Fisherman's Wharf area of San Francisco, California and an
investment in an industrial building which was sold during 1998.
Capital Expenditures
In conjunction with the underwriting of each acquisition of an operating
community, Archstone prepares acquisition budgets that encompass the incremental
capital needed to achieve Archstone's investment objectives. These expenditures,
combined with the initial purchase price and related closing costs, are
capitalized and classified as "acquisition-related" capital expenditures, as
incurred.
As part of its operating strategy, Archstone conducts regular reviews of its
assets to evaluate each community's physical condition relative to management's
business objectives and the community's competitive position in its market. In
conducting these evaluations, management considers Archstone's return on
investment in relation to its long-term cost of capital as well as its research
and analysis of competitive market factors. Capital expenditures for operating
communities are classified as either "redevelopment" or "recurring".
The redevelopment category includes: (i) redevelopment initiatives, which are
intended to reposition the community in the marketplace and include items such
as significant upgrades to the interiors, exteriors, landscaping and amenities;
(ii) revenue-enhancing expenditures, which include investments that are expected
to produce incremental community revenues, such as building garages, carports,
and storage facilities or gating a community; and (iii) expense-reducing
expenditures, which include items such as water submetering systems and
xeriscaping that 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
Archstone's stringent operating standards. Examples of recurring capital
expenditures include roof replacements, parking lot resurfacing and exterior
painting.
44
<PAGE>
Archstone Communities Trust
Notes to Financial Statements - (Continued)
Repairs, maintenance and make-ready expenditures, including the replacement of
carpet, appliances and HVAC systems, are expensed as incurred, to the extent
they are not acquisition-related costs identified during Archstone's pre-
acquisition due diligence. Make-ready expenditures are costs incurred in
preparing a vacant apartment unit for the next resident.
The change in investments in real estate, at cost, consisted of the following
(in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Balance at January 1..................................... $2,604,919 $2,153,363 $1,855,866
----------------- ----------------- -----------------
Apartment Communities:
Real estate assets acquired in the Atlantic Merger..... 1,823,727 -- --
Acquisition-related expenditures....................... 285,806 391,234 386,852
Redevelopment expenditures............................. 57,171 43,187 21,663
Recurring capital expenditures......................... 9,464 8,762 7,992
Development expenditures, excluding land acquisitions.. 378,161 205,619 187,396
Acquisition and improvement of land for development.... 67,248 75,196 76,301
Dispositions(1)........................................ (344,336) (268,210) (269,693)
Provision for possible loss on investments............. -- (2,800) --
----------------- ----------------- -----------------
Net apartment community activity......................... 2,277,241 452,988 410,511
----------------- ----------------- -----------------
Other:
Homestead development expenditures, including land
acquisitions (See Note 4)........................... -- -- 54,883
Contribution of assets (See Note 4).................... -- -- (161,370)
Dispositions........................................... (9,959) (1,232) (6,527)
Provision for possible loss on investments............. (2,400) (200) --
----------------- ----------------- -----------------
Net other activity....................................... (12,359) (1,432) (113,014)
----------------- ----------------- -----------------
Balance at December 31................................... $4,869,801 $2,604,919 $2,153,363
================= ================= =================
</TABLE>
(1) At December 31, 1998, Archstone held a portion of the 1998 disposition
proceeds aggregating $90.9 million in an interest bearing escrow account,
pending the acquisition of other apartment communities to complete tax-
deferred exchanges or the repayment of borrowings under Archstone's
unsecured credit facilities.
At December 31, 1998, Archstone had unfunded apartment construction and
redevelopment commitments aggregating approximately $357.6 million.
Archstone was committed to the sale of 14 apartment communities and certain
other real estate assets having an aggregate carrying value of $162.7 million as
of December 31, 1998. Each property's carrying value is less than or equal to
its estimated fair market value, net of estimated costs to sell. The property-
level earnings, after mortgage interest and depreciation, from communities held
for disposition at December 31, 1998, which are included in Archstone's earnings
from operations for 1998, 1997 and 1996, were $8.4 million, $8.0 million and
$6.8 million, respectively.
45
<PAGE>
Archstone Communities Trust
Notes to Financial Statements - (Continued)
(4) Mortgage Notes Receivable
Homestead Transaction
In October 1996, Archstone consummated a transaction under which it
contributed its 54 extended-stay lodging assets known as Homestead Village(R)
properties, to Homestead, a newly formed company. In exchange, Archstone
received 9,485,727 shares of Homestead common stock and approximately $84.5
million (face amount) in convertible mortgage notes. In addition, Archstone
entered into a funding commitment agreement to provide up to $198.8 million in
secured financing to Homestead, for purposes of completing the development and
construction of the properties contributed, in exchange for up to $221.3 million
in convertible mortgage notes receivable (including those received at the
transaction date). In exchange for entering into the funding commitment
agreement, Archstone received 6,363,789 warrants to acquire additional shares of
Homestead common stock at a price of $10.00 per share. In November 1996,
Archstone distributed the Homestead common stock and warrants it received in the
transaction to its Common Shareholders, which had a market value on the date of
distribution of $3.032 per Common Share.
Convertible Mortgage Note Terms
The convertible mortgage notes receivable are convertible into Homestead
common stock on the basis of one share of Homestead common stock for every
$11.50 of principal face amount outstanding. The convertible mortgage notes
receivable bear interest at 9.0% of face per annum which is received in
interest-only payments on a semi-annual basis, are callable by Homestead after
October 31, 2001 and mature on October 31, 2006. The extended-stay lodging
assets contributed by Archstone serve as collateral individually and in the
aggregate under cross-collateral provisions.
<TABLE>
<S> <C>
Face amount of convertible mortgage notes receivable............................. $221,334
Original issue discount.......................................................... (22,501)
--------
Amount funded.................................................................... 198,833
Other adjustments(1)............................................................. 4,137
--------
Carrying value at December 31, 1998.............................................. $202,970
========
</TABLE>
(1) Includes the amortization of the original issue discount and the net
unamortized discount on the conversion feature.
(5) Borrowings
Unsecured Credit Facilities
Upon consummation of the Atlantic Merger in July 1998, Archstone replaced its
$350 million unsecured revolving credit facility with a $750 million unsecured
revolving credit facility provided by a group of financial institutions led by
Chase. The new $750 million unsecured credit facility matures in July 2001, at
which time it may be converted into a two-year term loan at Archstone's option.
The new unsecured credit facility bears interest at the greater of prime or the
federal funds rate plus 0.50%, or at Archstone's option, LIBOR (5.62% at
December 31, 1998) plus 0.65%. The spread over LIBOR can vary from LIBOR plus
0.50% to LIBOR plus 1.25% based upon the rating of Archstone's Long-Term
Unsecured Debt. Under a competitive bid option contained in the credit
agreement, Archstone may be able to borrow up to $375 million at a lower
interest rate spread over LIBOR, depending on market conditions. Under the new
agreement, Archstone pays a facility fee, which is equal to 0.15% of the
commitment. Archstone paid commitment fees of $781,000, $358,000 and $396,000
in 1998, 1997 and 1996, respectively.
Upon replacing the $350 million credit facility with the new $750 million
credit facility, Archstone expensed the remaining $1.5 million of unamortized
loan costs associated with the old $350 million credit facility, which was
recorded as an extraordinary item during 1998.
46
<PAGE>
Archstone Communities Trust
Notes to Financial Statements - (Continued)
The following table summarizes Archstone's unsecured credit facility
borrowings:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1998 1997 1996
---------------- ---------------- -----------------
<S> <C> <C> <C>
Total unsecured credit facility.............................. $750,000 $350,000 $350,000
Borrowings outstanding at December 31........................ $234,000 $223,500 $ 99,750
Weighted average daily borrowings............................ $340,658 $121,038 $112,248
Weighted average daily nominal interest rate................. 6.3% 6.7% 7.3%
Weighted average daily effective interest rate............... 6.8% 8.4% 8.8%
Weighted average nominal interest rate at December 31........ 6.2% 6.9% 6.6%
</TABLE>
In September 1996, Archstone entered into a short-term, unsecured borrowing
agreement with Chase in order to enhance cash management flexibility. This
borrowing agreement was renegotiated by Archstone upon consummation of the
Atlantic Merger under terms similar to the previous agreement. In October 1998,
the maximum borrowing capacity under the agreement was increased to $100
million. The agreement matures in July 1999 and bears interest at an overnight
rate that ranged from 5.50% to 7.13% during 1998. At December 31, 1998 and
1997, there were $30.7 million and $8.0 million, respectively of borrowings
outstanding under this agreement.
In May 1998, Atlantic entered into a $150 million unsecured delayed draw term
loan which was assumed by Archstone in the Atlantic Merger. This credit
facility had no borrowings outstanding as of December 31, 1998. See Note 15.
Long-Term Unsecured Debt
As of December 31, 1998, Archstone had $1.2 billion of Long-Term Unsecured
Debt issued and outstanding (including $154.1 million of Long-Term Unsecured
Debt assumed in the Atlantic Merger). Archstone's Long-Term Unsecured Debt
generally features semi-annual interest payments and either amortizing annual
principal payments or balloon payments due at maturity. As of December 31,
1998, the $1.2 billion of aggregate Long-Term Unsecured Debt outstanding had a
weighted average coupon rate of 7.34%, a weighted average effective interest
rate (including offering discounts and issuance costs) of 7.51% and a weighted
average remaining life to maturity of 8.7 years. Included in the $1.2 billion
of Long-Term Unsecured Debt is $322.2 million issued through Archstone's medium
term note program during 1998. The $322.2 million of medium term notes have a
weighted average coupon rate of 6.95%, a weighted average effective interest
rate of 7.12% and a weighted average remaining life to maturity of 3.7 years as
of December 31, 1998.
The $1.2 billion of Long-Term Unsecured Debt, other than $15 million of notes
issued October 21, 1996 and due 2026, are redeemable any time at the option of
Archstone, in whole or in part. The redemption price is equal to the sum of the
principal amount of the Long-Term Unsecured Debt being redeemed plus accrued
interest through the redemption date plus an adjustment, if any, based on the
yield to maturity relating to market yields available at redemption. The $15
million of notes issued October 21, 1996 may be repaid on October 15, 1999 at
the option of the holders at their full principal amount together with accrued
interest. If the holders do not exercise their right to require Archstone to
repay these notes on October 15, 1999, they may be repaid at the option of
Archstone, in whole or in part under the redemption terms described above. The
Long-Term Unsecured Debt is governed by the terms and provisions of an indenture
agreement.
47
<PAGE>
Archstone Communities Trust
Notes to Financial Statements - (Continued)
Mortgages Payable
On December 30, 1998, Archstone closed on a $268.5 million long-term secured
debt agreement with Fannie Mae. The Fannie Mae Secured Debt matures January
2006, although Archstone has the option to extend the term of any portion of the
original $268.5 million for up to an additional thirty-year period at any time,
subject to Fannie Mae's approval. Archstone also has the ability, at its
option, to convert any portion of the $268.5 million from a floating interest
rate to a fixed interest rate under the terms of the agreement, subject to
Fannie Mae's approval. In connection with this transaction, Archstone entered
into an interest rate cap agreement on December 30, 1998 with a notional amount
aggregating $118.5 million, which capped this portion of the debt at an
effective interest rate of 6.9% through December 2002. The actual floating
effective interest rate on the $118.5 million was 5.9% at December 31, 1998.
Additionally, Archstone entered into an interest rate swap agreement in January
1999 for the remaining $150.0 million, which effectively provides for a fixed
interest rate of 6.3% until maturity.
Archstone's mortgages payable generally feature either monthly interest and
principal payments or monthly interest only payments with balloon payments due
at maturity. A summary of all mortgages payable outstanding at December 31,
1998 follows (amounts in thousands):
<TABLE>
<CAPTION>
Effective Interest Principal Balance at December 31,
Type of Mortgage Rate (1) 1998 1997
- ----------------------------------------------- ----------------------- ----------------------- ---------------------
<S> <C> <C> <C>
Fannie Mae Secured Debt........................ 6.12% $268,450 $ --
Conventional fixed rate........................ 7.81 108,588 143,963
Tax-exempt fixed rate (2)...................... 6.41 61,604 40,694
Tax-exempt floating rate (2)................... 4.45 209,316 68,440
Other(3)....................................... 6.29 28,655 12,555
----------------------- ----------------------- ---------------------
Total/average mortgage debt.................. 5.91% $676,613 $265,652
======================= ======================= =====================
</TABLE>
(1) Represents the effective interest rate, including the effect of interest
rate hedges and loan cost amortization as of December 31, 1998.
(2) Tax-exempt effective interest rates include credit enhancement and other
bond-related costs, where applicable.
(3) Primarily represents bonded indebtedness associated with improvements to
public facilities and infrastructure in certain California taxing
jurisdictions known as "Mello-Roos districts".
The changes in mortgages payable during the past three years consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ----------------- -----------------
<S> <C> <C> <C>
Balances at January 1........................... $ 265,652 $217,188 $158,054
Notes assumed in Atlantic Merger.............. 160,329 -- --
Notes originated or assumed................... 362,158 101,595 104,176
Principal payments, including prepayments
and amortization........................... (111,526) (53,131) (45,042)
------------------ ----------------- -----------------
Balances at December 31......................... $ 676,613 $265,652 $217,188
================== ================= =================
</TABLE>
In 1998, 1997 and 1996, Archstone prepaid $76.3 million, $49.8 million and
$43.0 million of mortgage payable balances, respectively. In 1996, Archstone
incurred approximately $0.9 million of prepayment penalties associated with the
early extinguishment of certain mortgage payable balances aggregating $25.8
million, which was recorded as an extraordinary item during this period.
48
<PAGE>
Archstone Communities Trust
Notes to Financial Statements - (Continued)
Scheduled Debt Maturities
Approximate principal payments due during each of the next five calendar years
and thereafter, are as follows (in thousands):
<TABLE>
<CAPTION>
Long-Term Mortgages
Unsecured Debt Payable Total
-------------------- ------------ -------------
<S> <C> <C> <C>
1999......................................... $ 30,310 $ 10,833 $ 41,143
2000......................................... 75,310 7,524 82,834
2001......................................... 70,010 13,446 83,456
2002......................................... 97,810 5,844 103,654
2003......................................... 171,560 26,438 197,998
Thereafter................................... 786,167 612,528 1,398,695
-------------------- ----------- ------------
Total........................................ $1,231,167 $676,613 $1,907,780
==================== =========== ============
</TABLE>
The average annual principal payments due from 2004 to 2018 are $87.7 million
per year.
The $750 million unsecured credit facility matures in July 2001, at which time
it may be converted into a two-year term loan at Archstone's option.
Archstone's short-term $100 million unsecured borrowing agreement with Chase
matures in July 1999.
Covenants
Archstone's debt instruments generally contain certain covenants common to the
type of facility or borrowing, including financial covenants establishing
minimum debt service coverage ratios and maximum leverage ratios. Archstone was
in compliance with all covenants pertaining to its debt instruments at December
31, 1998.
(6) Distributions to Shareholders
To maintain Archstone's status as a REIT, it is required to distribute at
least 95% of its taxable income. The payment of distributions is subject to the
discretion of the Board and is dependent upon the strategy, financial condition
and operating results of Archstone. At its December 1998 Board meeting, the
Board announced an anticipated increase in the annual distribution level from
$1.42 to $1.48 per Common Share. See Note 15 for information on recent Common
Share distributions.
For federal income tax purposes, the following summarizes the taxability of
cash distributions paid on the Common Shares in 1997 and 1996 and the estimated
taxability for 1998:
<TABLE>
<CAPTION>
1998 1997 1996
------------- --------------- ---------------
Per Common Share:
<S> <C> <C> <C>
Ordinary income........................................ $1.29 $1.08 $0.61
Capital gains.......................................... 0.10 -- 0.11
Return of capital...................................... -- 0.22 0.52
------------- --------------- ---------------
Total................................................ $1.39 $1.30 $1.24
============= =============== ===============
</TABLE>
In November 1996, Archstone distributed 0.125694 shares of Homestead common
stock and warrants to Common Shareholders to purchase 0.084326 shares of
Homestead common stock per Common Share in the Homestead Distribution. These
securities were valued at $2.16 per Common Share for federal income tax
purposes, of which $1.06 was taxable as ordinary income, $0.19 was taxable as a
capital gain and $0.91 was treated as a return of capital.
49
<PAGE>
Archstone Communities Trust
Notes to Financial Statements - (Continued)
For federal income tax purposes, the following summarizes the taxability of
dividends paid on Series A, Series B and Series C Preferred Shares,
respectively, for periods prior to 1998 and the estimated taxability for 1998:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ---------------------- ----------------------
Per Series A Convertible Preferred Share:
<S> <C> <C> <C>
Ordinary income............................. $ 1.72 $ 1.75 $ 1.47
Capital gains............................... 0.15 -- 0.28
----------------------- ---------------------- ----------------------
Total.................................... $ 1.87 $ 1.75 $ 1.75
======================= ====================== ======================
Per Series B Preferred Share:
Ordinary income............................. $ 2.07 $ 2.25 $ 1.89
Capital gains............................... 0.18 -- 0.36
----------------------- ---------------------- ----------------------
Total.................................... $ 2.25 $ 2.25 $ 2.25
======================= ====================== ======================
1998(1)
-----------------------
Per Series C Preferred Share:
Ordinary income............................. $ 0.99
Capital gains............................... 0.09
-----------------------
Total $ 1.08
=======================
</TABLE>
(1) Represents dividends paid in 1998 subsequent to the Atlantic Merger.
Due to the increase in the conversion ratio resulting from the Homestead
Distribution to holders of Common Shares (See Note 7), holders of Series A
Convertible Preferred Shares were deemed to have received a distribution of
$2.43 in November 1996 for federal income tax purposes. Of this amount, $1.19
was taxable as ordinary income, $0.22 was taxable as a capital gain and $1.02
was treated as a return of capital.
Archstone's tax return for the year ended December 31, 1998 has not been
filed, and the taxability information for 1998 is based upon the best available
data. Archstone's tax returns for prior years have not been examined by the
Internal Revenue Service and, therefore, the taxability of the dividends is
subject to change.
(7) Shareholders' Equity
Shares of Beneficial Interest
Archstone's Declaration of Trust authorizes Archstone to issue up to
250,000,000 Shares of Beneficial Interest, $1.00 par value per share, consisting
of Common Shares, preferred shares and such other shares of beneficial interest
as the Board may create and authorize from time to time. The Board may classify
or reclassify any unissued shares from time to time by setting or changing the
preferences, conversion rights, voting powers, restrictions, limitations as to
distributions, qualifications of terms or conditions of redemption.
Additionally, the Board may amend the Declaration of Trust, without the consent
of Archstone shareholders, to increase or decrease the aggregate number of
shares or the number of shares of any class which Archstone has authority to
issue.
Series A Convertible Preferred Shares
The Series A Convertible Preferred Shares issued in November 1993 have a
liquidation preference of $25.00 per share for an aggregate liquidation
preference at December 31, 1998 of $117.5 million. Holders of the Series A
Convertible Preferred Shares are entitled only to limited voting rights under
certain conditions. During 1998, 1997 and 1996, approximately 708,000,
1,087,000 and 2,705,000 of Series A Convertible Preferred Shares were converted,
at the option of the holders, into approximately 953,000, 1,463,000 and
3,294,000 Common Shares, respectively. This activity is included in "Other,
net" in the accompanying Statements of Shareholders' Equity.
50
<PAGE>
Archstone Communities Trust
Notes to Financial Statements - (Continued)
As a result of the Homestead Distribution, Archstone adjusted the conversion
price of its Series A Convertible Preferred Shares, effective as of the opening
of business on October 30, 1996, from $20.556 to $18.561 per Common Share (a
conversion ratio of 1.3469 Common Shares for each Series A Convertible Preferred
Share). Distributions on the Series A Convertible Preferred Shares are payable
in an amount per share equal to the greater of $1.75 per annum or the annualized
quarterly Archstone distribution rate on the Common Shares into which the Series
A Convertible Preferred Shares are convertible. The Series A Convertible
Preferred Shares are redeemable at the option of Archstone after November 30,
2003.
Series B and C Preferred Shares
The 4,200,000 Series B Preferred Shares issued in May 1995 have a liquidation
preference of $25.00 per share for an aggregate liquidation preference of $105.0
million plus any accrued unpaid distributions. The net proceeds (after
underwriting commissions and other offering costs) to Archstone from the sale of
the Series B Preferred Shares were $101.3 million. On and after May 24, 2000,
the Series B Preferred Shares may be redeemed for cash at the option of
Archstone, in whole or in part, at a redemption price of $25.00 per share plus
any accrued but unpaid distributions, if any, to the redemption date. The
redemption price (other than the portion thereof consisting of accrued and
unpaid distributions) is payable solely out of the sale proceeds of other
capital shares of Archstone, which may include shares of other series of
preferred shares.
Upon consummation of the Atlantic Merger, each of the 2,000,000 outstanding
Atlantic Series A Preferred Shares were converted into the right to receive one
comparable share of a new class of Archstone Series C Preferred Share. The
Series C Preferred Shares have a liquidation preference of $25.00 per share for
an aggregate liquidation preference of $50.0 million plus any accrued but unpaid
distributions. The Series C Preferred Shares are redeemable on and after August
20, 2002 by Archstone for cash at a stated redemption price, plus all accrued
and unpaid distributions. The redemption price (other than the portion thereof
consisting of accrued and unpaid distributions) is payable solely out of the
sale proceeds of other capital shares of Archstone, which may include shares of
other series of preferred shares.
The holders of Series B and C Preferred Shares have no preemptive rights with
respect to any shares of the capital securities of Archstone or any other
securities of Archstone convertible into or carrying rights or options to
purchase any such shares. The Series B and C Preferred Shares have no stated
maturity and are not subject to any sinking fund or other obligation of
Archstone to redeem or retire the Series B and C Preferred Shares and are not
convertible into any other securities of Archstone. In addition, holders of the
Series B and C Preferred Shares are entitled to receive, when and as declared by
the Board, out of funds legally available for the payment of distributions,
cumulative preferential cash distributions at the rate of 9.0% and 8.625% of the
liquidation preference per annum, respectively (equivalent to $2.25 and $2.156
per share, respectively).
All Preferred Share distributions are cumulative from the date of original
issue and are payable quarterly in arrears on the last day of each March, June,
September and December. All dividends due and payable on Preferred Shares have
been accrued and paid as of the end of each fiscal year. All series of
Preferred Shares rank on a parity as to distributions and liquidation proceeds.
If six quarterly dividends payable (whether or not consecutive) on the Series
A Convertible Preferred Shares, the Series B Preferred Shares, the Series C
Preferred Shares or any series or class of preferred shares that are of equal
rank with respect to dividends and any distribution of assets, shall not be paid
in full, the number of Outside Trustees shall be increased by two and the
holders of all such preferred shares voting as a class regardless of series or
class, shall be entitled to elect the two additional Outside Trustees. Whenever
all arrears in dividends have been paid, the right to elect the two additional
Outside Trustees shall cease and the terms of such Outside Trustees shall
terminate.
51
<PAGE>
Archstone Communities Trust
Notes to Financial Statements - (Continued)
Dividend Reinvestment and Share Purchase Plan
Archstone established the Dividend Reinvestment and Share Purchase Plan in
December 1997. Under the DRSP, Common Shareholders have the ability to
automatically reinvest their cash dividends to purchase additional Common Shares
at a two percent discount from market rates, based on the average of the high
and low sales price of a Common Share on the day of the purchase. Additionally,
existing and prospective investors have the ability to tender cash payments that
will be applied towards the purchase of Common Shares, subject to certain
limitations. In January 1998, Archstone filed a registration statement with the
SEC registering the offering of 2,000,000 Common Shares, which may be issued
pursuant to the terms of the DRSP.
Ownership Restrictions and Significant Shareholder
Archstone's Restated Declaration of Trust and the Articles Supplementary
governing the Preferred Shares restrict beneficial ownership (or ownership
generally attributed to a person under the REIT tax rules) of Archstone's
outstanding shares by a single person, or persons acting as a group, to 9.8% of
the Common Shares and 25% of each series of Preferred Shares. The purpose of
these provisions are to assist in protecting and preserving Archstone's REIT
status and to protect the interests of shareholders in takeover transactions by
preventing the acquisition of a substantial block of shares unless the acquirer
makes a cash tender offer for all outstanding shares. For Archstone to qualify
as a REIT under the Internal Revenue Code of 1986, as amended, not more than 50%
in value of its outstanding capital shares may be owned by five or fewer
individuals at any time during the last half of Archstone's taxable year. The
provision permits five persons to acquire up to a maximum of 9.8% each of the
Common Shares, or an aggregate of 49% of the outstanding Common Shares.
Common Shares owned by a person or group of persons in excess of the 9.8%
limit are subject to redemption by Archstone. The provision does not apply
where a majority of the Board, in its sole and absolute discretion, waives such
limit after determining that the eligibility of Archstone to qualify as a REIT
for federal income tax purposes will not be jeopardized or the disqualification
of Archstone as a REIT is advantageous to the shareholders.
The Board has permitted Security Capital to acquire up to 49% of Archstone's
fully converted Common Shares. Security Capital's ownership of Common Shares is
attributed for tax purposes to its shareholders. Security Capital owned
approximately 38% of Archstone's total outstanding Common Shares at December 31,
1998. Pursuant to an agreement between Security Capital and Archstone, Security
Capital has agreed to acquire no more than 49% of the fully converted Common
Shares, subject to certain limited exceptions.
Purchase Rights
In 1994, the Board authorized the distribution of one Purchase Right for each
Common Share outstanding in July 1994. Holders of additional Common Shares
issued after this date and prior to the expiration of the Purchase Rights in
July 2004 will be entitled to one Purchase Right for each additional Common
Share.
52
<PAGE>
Archstone Communities Trust
Notes to Financial Statements - (Continued)
Each Purchase Right entitles the holder under certain circumstances to
purchase from Archstone one one-hundredth of a share of a Participating
Preferred Share at a price of $60.00 per one one-hundredth of Participating
Preferred Share, subject to adjustment. Purchase Rights are exercisable when a
person or group of persons acquires beneficial ownership of 20% or more of the
fully converted Common Shares (49% in the case of Security Capital and certain
defined affiliates), commences or announces a tender offer or exchange offer
which would result in the beneficial ownership by a person or group of persons
of 25% or more of the outstanding Common Shares (49% in the case of Security
Capital and certain defined affiliates) or files or announces their intention to
file with any regulatory authority an application seeking approval of any
transaction which would result in the beneficial ownership by a person of 25% or
more of the outstanding Common Shares (49% in the case of Security Capital and
certain defined affiliates). Under certain circumstances, each Purchase Right
entitles the holder to purchase, at the Purchase Right's then current exercise
price, a number of Common Shares having a market value of twice the Purchase
Right's exercise price. The acquisition of Archstone pursuant to certain
transactions or other business transactions would entitle each holder to
purchase, at the Purchase Right's then current exercise price, a number of the
acquiring company's common shares having a market value at that time equal to
twice the Purchase Right's exercise price. The Purchase Rights will expire in
July 2004 and are subject to redemption in whole, but not in part, at a price of
$0.01 per Purchase Right payable in cash, shares of Archstone or any other form
of consideration determined by the Board.
Shelf Registration
In December 1998, Archstone filed a $750 million shelf registration with the
SEC to supplement an existing shelf registration with a balance of $77.2
million, resulting in a total of $827.2 million in shelf-registered securities
available for issuance at December 31, 1998. These securities can be issued in
the form of Long-Term Unsecured Debt, Common Shares or preferred shares on an
as-needed basis, subject to Archstone's ability to effect offerings on
satisfactory terms.
(8) Acquisition of REIT Manager and Property Manager
In September 1997, Archstone terminated its REIT management agreement with its
REIT Manager and its property management agreement with its Property Manager,
pursuant to a transaction whereby Archstone acquired the operations and
businesses of the Management Companies valued at approximately $75.8 million
from Security Capital in exchange for 3,295,533 Common Shares. The number of
Common Shares issued to Security Capital was determined using a per Common Share
price of $23.0125 (the average market price of Common Shares over the five-day
period prior to the record date for determining Archstone's shareholders
entitled to vote on the transaction). As a result of the transaction, Archstone
became an internally managed REIT.
The market value of the 3,295,533 Common Shares issued to Security Capital in
September 1997 upon Archstone's acquisition of the REIT and Property Managers
was approximately $73.3 million, based on the $22.25 per share closing price of
the Common Shares on such date. Of this amount, approximately $1.6 million was
allocated to the estimated fair value of the tangible net assets acquired. The
$71.7 million difference between the market value of the Common Shares and the
estimated fair value of the net tangible assets acquired was recorded as "Costs
incurred in acquiring Management Companies from an affiliate" (a non-recurring
and non-cash expense) in Archstone's Statements of Earnings. Since the
Management Companies did not have significant operations other than the
management of Archstone and its assets, the transaction did not qualify as the
acquisition of a "business" for purposes of applying APB Opinion No. 16,
Business Combinations. Consequently, the market value of the Common Shares
issued in excess of the fair value of the net tangible assets acquired was
recorded as an operating expense rather than capitalized as goodwill.
53
<PAGE>
Archstone Communities Trust
Notes to Financial Statements - (Continued)
As a result of this transaction, Archstone no longer pays REIT and property
management fees to Security Capital. The REIT management agreement required
Archstone to pay a fee of 16% of cash flow from operations, as defined in the
agreement, none of which was capitalized. Instead, Archstone now directly
incurs the personnel and other costs related to these functions.
Concurrent with the closing of the transaction, Archstone also entered into an
Administrative Services Agreement with Security Capital for the provision of
certain administrative services. Archstone may purchase these services in
exchange for a fee which, through December 31, 1998, was equal to Security
Capital's direct cost of such services plus 20%. Effective January 1, 1999, the
fee arrangement was revised to provide for the payment of Archstone's specific
usage at fixed rates per unit for each service provided. This new billing
arrangement is designed to provide Archstone with more control over ASA charges.
ASA costs related to successful development activities are capitalized as part
of the related real estate cost. The ASA expires on December 31, 1999 and
provides for annual renewals of consecutive one-year terms, subject to approval
by a majority of the independent members of the Board. The ASA may be modified
or terminated by Archstone at any time with 90 days notice (30 days notice for
minor modifications).
(9) Benefit Plans
In September 1997, Archstone's Common Shareholders approved the Long-Term
Incentive Plan. To date, there have been three types of awards issued under the
plan: (i) an employee stock purchase plan with matching options, (ii) stock
options with a DEU feature, and (iii) restricted Common Share unit awards with a
dividend feature. No more than 8,650,000 Common Shares in the aggregate may be
awarded under the Incentive Plan and no individual may be awarded more than
500,000 Common Shares in any one-year period. The Incentive Plan has a 10-year
term.
Dividend Equivalent Units
As of December 31, 1998, there were a total of 38,534 DEU's outstanding,
awarded to 152 holders of stock options and/or restricted Common Share units. A
DEU is equal to the difference between Archstone's annual Common Share dividend
yield and the S&P 500 average dividend yield times the number of shares under
option or number of restricted Common Shares granted. Options awarded under the
employee stock purchase plan are not eligible for DEU's. DEU's (under the stock
option plan with DEU's and the restricted Common Share unit awards) are awarded
on December 31st of each year and vest under the same terms as the underlying
stock options and restricted Common Share units. The awarded and outstanding
DEU's, none of which are vested, were valued at $708,305 on December 31, 1998
based upon the market price of the Common Shares on that date. Archstone
recognizes the value of the DEU's awarded as compensation expense over the
vesting period, net of any previously recorded DEU expense related to
forfeitures.
54
<PAGE>
Archstone Communities Trust
Notes to Financial Statements - (Continued)
Employee Stock Purchase Plan with Matching Options
As of December 31, 1998, certain officers and other employees of Archstone had
purchased 1,225,329 Common Shares at prices ranging from $21.19 to $24.31 per
Common Share under the employee stock purchase plan (including 458,368 Common
Shares held by employees that were assumed in the Atlantic Merger). Archstone
financed 95% of the total purchase price through 10-year notes from the
participants aggregating $26.3 million at December 31, 1998. The notes, which
have been recorded as a deduction in shareholders' equity and are included in
"Other, net" on the accompanying Statements of Shareholders' Equity, bear
interest at the lower of 6% per annum or the dividend yield of a Common Share,
determined based on the initial share purchase price (approximately 7.0% at
December 31, 1998). The notes are fully recourse to the participant and are also
secured by the Common Shares purchased. For each Common Share purchased,
participants were granted two options, each to purchase one Common Share at the
market price of the underlying stock on the date of grant. The matching stock
options gradually vest over periods ranging from two to ten years, subject to
certain conditions. The matching stock options do not have a DEU feature. A
reconciliation of the notes due from employees during 1998 and 1997 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 Date of Issuance to
12/31/97
--------------------- ----------------------
<S> <C> <C>
Beginning balance...................................... $17,238 $17,100
Notes assumed in Atlantic Merger....................... 11,338 --
Notes issued........................................... 1,164 209
Retirements............................................ (3,254) (71)
Principal payments received............................ (211) --
--------------------- ----------------------
Ending balance.................................... $26,275 $17,238
===================== ======================
</TABLE>
Of the notes outstanding at December 31, 1998, approximately $19.2 million
were due from officers of Archstone.
Stock Options with DEU's and Trustee Options
Archstone has awarded stock options with a DEU feature to purchase one Common
Share for each stock option held to certain officers and other employees. The
exercise price of each stock option granted is equal to the Common Share market
price on the date of grant (See "Proforma Compensation Expense" below). The
stock options awarded generally vest at a rate of 25% per year.
Additionally, Archstone has authorized 300,000 Common Shares for issuance to
Outside Trustees. The exercise price of Outside Trustee options may not be less
than the fair market value on the date of grant. Such options have a term of
five years and are exercisable in whole or in part at any time.
A summary of all stock options outstanding at December 31, 1998 follows:
<TABLE>
<CAPTION>
Weighted-Average
Number of Range of Exercise Remaining
Options Prices (1) Expiration Date Contractual Life
--------------- ---------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Matching options under the employee
stock purchase plan.................. 2,450,658 $21.19 - $24.31 2007 - 2008 8.72 years
Stock options with DEU's.............. 1,657,991 $20.25 - $24.31 2007 - 2008 9.60 years
Outside Trustees(2)................... 48,000 $15.59 - $22.28 1999 - 2003 2.91 years
---------------
Total................................. 4,156,649
===============
</TABLE>
(1) The exercise price was equal to market price on the date of grant. The
weighted average exercise prices for the matching options under the
employee stock purchase plan, stock options with DEU's and Outside Trustee
options were $22.21, $20.74 and $20.08 per Common Share, respectively, as
of December 31, 1998. The weighted average exercise price for all options
outstanding at December 31, 1998 was $21.60 per Common Share.
(2) Options are fully exercisable.
55
<PAGE>
Archstone Communities Trust
Notes to Financial Statements - (Continued)
A summary of the status of Archstone's stock option plans as of December 31,
1998, 1997 and 1996, and changes during the years ended on those dates is
presented below. All grants prior to 1997 relate to Outside Trustees.
<TABLE>
<CAPTION>
Weighted Number of
Number of Average Exercise Options
Options Price Exercisable
------------------ --------------------- ------------------
<S> <C> <C> <C>
Balance at December 31, 1995..................... 28,000 $ 15.61 28,000
------------------ --------------------- ------------------
Granted....................................... 10,000 19.34 10,000
Exercised..................................... (6,000) 17.21 (6,000)
------------------ --------------------- ------------------
Balance at December 31, 1996..................... 32,000 $ 16.48 32,000
------------------ --------------------- ------------------
Granted....................................... 1,857,417 $ 22.06 10,000
Exercised..................................... (2,000) 16.34 (2,000)
Forfeited..................................... (2,000) 8.46 (2,000)
------------------ --------------------- ------------------
Balance at December 31, 1997..................... 1,885,417 $ 21.99 38,000
------------------ --------------------- ------------------
Assumed in the Atlantic Merger................ 1,260,138 $ 22.44 9,000
Granted....................................... 1,582,754 20.67 12,000
Exercised..................................... (8,000) 16.14 (8,000)
Forfeited..................................... (563,660) 22.30 (3,000)
------------------ --------------------- ------------------
Balance at December 31, 1998..................... 4,156,649 $ 21.62 48,000
================== ===================== ==================
</TABLE>
Restricted Common Share Unit Awards
During 1998, Archstone awarded 220,572 restricted Common Share units with a
dividend feature to certain employees under the Incentive Plan. Each restricted
Common Share unit provides the holder with one Common Share, subject to certain
vesting provisions. The Common Share units and related dividend feature vest at
20% per year, over a five-year period. Archstone recognizes the value of the
awards as compensation expense over the vesting period.
Proforma Compensation Expense
Archstone has adopted SFAS No. 123, Accounting for Stock-Based Compensation,
which allows Archstone to continue to account for its various stock option plans
using APB Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"),
and related interpretations. Under APB 25, if the exercise price of the stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized. Accordingly, Archstone did not recognize
compensation expense related to stock options as the exercise price of all
options granted was equal to the market price on the date of grant. Had
compensation cost for these plans been determined using the option valuation
models prescribed by SFAS No. 123, Archstone's net earnings attributable to
Common Shares and earnings per Common Share for 1998 and 1997 would change as
follows (1996 would be the same):
<TABLE>
<CAPTION>
1998 1997
-------------------- ----------------------
<S> <C> <C>
Net earnings attributable to Common Shares (in thousands):
As reported.................................................. $ 177,022 $ 53,534
-------------------- ----------------------
Pro forma.................................................... $ 175,346 $ 53,188
-------------------- ----------------------
Basic earnings per Common Share:
As reported.................................................. $ 1.49 $ 0.65
-------------------- ----------------------
Pro forma.................................................... $ 1.48 $ 0.65
-------------------- ----------------------
Diluted earnings per Common Share:
As reported.................................................. $ 1.49 $ 0.65
-------------------- ----------------------
Pro forma.................................................... $ 1.47 $ 0.65
==================== ======================
</TABLE>
56
<PAGE>
Archstone Communities Trust
Notes to Financial Statements - (Continued)
The pro forma amounts above were calculated using the Black-Scholes model,
using the following assumptions:
<TABLE>
<CAPTION>
1998 1997
--------------------- --------------------
<S> <C> <C>
Weighted average risk-free interest rate................ 4.74% 6.08%
Weighted average dividend yield......................... 6.43% 5.60%
Weighted average volatility............................. 25.44% 18.35%
Weighted average expected option life................... 6.74 years 6.74 years
</TABLE>
The weighted average fair value of all options granted (excluding Trustee
options) was approximately $3.00 per option during 1998 and 1997.
401(k) Plan and Nonqualified Savings Plan
In December 1997, the Board established a 401(k) plan and a nonqualified
savings plan, which both became effective on January 1, 1998. The plans work
together to provide for matching employer contributions of fifty cents for every
dollar contributed by an employee, up to 6% of the employees' annual
compensation. The matching employer contributions are made in Common Shares,
which vest based on years of service at a rate of 20% per year.
(10) Fair Values of Financial Instruments
The following disclosures of estimated fair value of financial instruments
were determined by Archstone based on available market information and valuation
methodologies believed to be appropriate for these purposes. Considerable
judgement and a high degree of subjectivity are involved in developing these
estimates and therefore are not necessarily indicative of the actual amounts
that Archstone could realize upon disposition.
At December 31, 1998 and 1997, the carrying amount of certain financial
instruments employed by Archstone, including cash and cash equivalents,
restricted cash in tax-deferred exchange escrow, accounts receivable, accounts
payable and accrued expenses were representative of their fair values because of
the short-term maturity of these instruments. Similarly, the carrying value of
the unsecured credit facilities approximates fair value as of those dates since
the interest rates on these instruments fluctuate based on published market
rates. At December 31, 1998, the estimated fair value of Archstone's mortgage
notes receivable approximated their face value. At December 31, 1998, the
estimated fair value and the actual carrying value of the Long-Term Unsecured
Debt was approximately $1.2 billion, and the estimated fair value and the
carrying value of mortgages payable was approximately $680.0 million.
Derivative Financial Instruments
From time to time, Archstone utilizes derivative instruments as cash flow
hedges, including interest rate swap agreements and interest rate cap
agreements, in order to manage well-defined interest rate risk associated with
its planned debt issuances or to minimize exposure to variable rate debt.
However, Archstone does not use derivative instruments for trading purposes.
In January 1999, Archstone entered into two interest rate swap agreements with
notional amounts aggregating $55.0 million (with a weighted average life to
maturity of 3.7 years), related to Long-Term Unsecured Debt issued through its
medium term note program during 1998. The $55.0 million of notes, which were
originally issued at a floating weighted average effective interest rate of
7.34%, were effectively converted to a fixed weighted average interest rate of
7.12% through maturity.
57
<PAGE>
Archstone Communities Trust
Notes to Financial Statements - (Continued)
In connection with the closing of the $268.5 million of long-term secured debt
agreement in December 1998 with Fannie Mae, Archstone entered into an interest
rate cap agreement on December 30, 1998 with a notional amount aggregating
$118.5 million, which capped this portion of the debt at an effective interest
rate of 6.9% through December 2002. The actual floating effective interest rate
on the $118.5 million was 5.9% at December 31, 1998. There was no unrealized
gain or loss relating to the fair value of this interest rate contract at
December 31, 1998. Additionally, Archstone entered into an interest rate swap
agreement in January 1999 for the remaining $150.0 million, which effectively
provides for a fixed interest rate of 6.3% until maturity in 2006.
In anticipation of a Long-Term Unsecured Debt offering that closed in March
1998, Archstone entered into four separate interest rate contracts in 1997 with
notional amounts aggregating $120 million. Upon completion of the offering,
Archstone terminated the interest rate contracts, realizing a loss of
approximately $5.5 million. Similarly in 1996, Archstone entered into interest
rate contracts with notional amounts aggregating $50 million in anticipation of
a Long-Term Unsecured Debt offering that closed March 31, 1997. Upon completion
of the offering, Archstone terminated the interest rate contracts, realizing a
gain of approximately $819,000. The resulting gains and losses were deferred
and are being amortized into interest expense over the term of the respective
debt agreements.
(11) Selected Quarterly Financial Data (Unaudited)
Selected quarterly financial data (in thousands except per share amounts) for
1998 and 1997 is summarized below. Net earnings (loss) per Common Share for
each period presented in 1997 have been restated to conform with the
requirements of SFAS No. 128. The sum of the quarterly earnings (loss) per
Common Share amounts may not equal the annual earnings per Common Share amounts
due primarily to the impact of equity issuances.
<TABLE>
<CAPTION>
Three Months Ended Year Ended
3-31 6-30 9-30 (1) 12-31 12-31 (1)
------------- ------------ ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
1998:
Total revenues..................................... $95,611 $98,176 $159,045 $160,813 $513,645
------------- ------------ ------------- ------------ ---------------
Earnings from operations........................... 29,299 28,048 37,961 38,618 133,926
Gains on dispositions of depreciated real estate,
net............................................... 15,484 - 21,204 28,843 65,531
Less extraordinary item............................ - - 1,497 - 1,497
Less Preferred Share dividends..................... 4,712 4,757 5,723 5,746 20,938
------------- ------------ ------------- ------------ ---------------
Net earnings attributable to Common Shares - Basic. $40,071 $23,291 $ 51,945 $ 61,715 $177,022
============= ============ ============= ============ ===============
Net earnings per Common Share:
Basic........................................... $ 0.43 $ 0.25 $ 0.36 $ 0.43 $ 1.49
============= ============ ============= ============ ===============
Diluted......................................... $ 0.42 $ 0.25 $ 0.36 $ 0.43 $ 1.49
============= ============ ============= ============ ===============
1997:
Total revenues..................................... $83,494 $86,180 $ 90,876 $ 95,112 $355,662
------------- ------------ ------------- ------------ ---------------
Earnings (loss) from operations.................... 20,276 23,065 (46,857) 28,202 24,686
Gains on dispositions of depreciated real estate,
net............................................... 25,335 11,872 10,723 302 48,232
Less Preferred Share dividends..................... 5,035 4,805 4,785 4,759 19,384
------------- ------------ ------------- ------------ ---------------
Net earnings (loss) attributable to Common Shares
Basic.......................................... $40,576 $30,132 $(40,919) $ 23,745 $ 53,534
============= ============ ============= ============ ===============
Net earnings (loss) per Common Share:
Basic........................................... $ 0.53 $ 0.39 $ (0.50) $ 0.26 $ 0.65
============= ============ ============= ============ ===============
Diluted......................................... $ 0.51 $ 0.38 $ (0.50) $ 0.26 $ 0.65
============= ============ ============= ============ ===============
</TABLE>
(1) Reflects the impact of a one-time, non-cash charge of $71.7 million in 1997
associated with costs incurred in acquiring the Management Companies from
an affiliate. See Note 8 for additional information regarding the
acquisition of the Management Companies.
58
<PAGE>
Archstone Communities Trust
Notes to Financial Statements - (Continued)
(12) Segment Data
During 1998, Archstone adopted SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information, which established standards for the way
that public business enterprises report information about operating segments in
audited financial statements, as well as related disclosures about products and
services, geographic areas and major customers.
Archstone defines each of its apartment communities as individual operating
segments. Management has determined that all of its apartment communities have
similar economic characteristics and also meet the other criteria which permit
the apartment communities to be aggregated into one reportable segment.
Archstone relies primarily on Net Operating Income generated from its apartment
communities for purposes of making decisions about allocating resources and
assessing segment performance.
Following are reconciliations of the reportable segment's: (i) revenues to
Archstone's consolidated revenues, (ii) Net Operating Income to Archstone's
consolidated earnings from operations, and (iii) assets to Archstone's
consolidated assets, for the periods indicated (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1998 1997 1996
----------------------- --------------------- ---------------------
<S> <C> <C> <C>
Reportable segment revenues...................... $478,144 $331,346 $293,284
Other non-reportable operating segment income (1) 35,501 24,316 32,962
----------------------- --------------------- ---------------------
Total segment and consolidated revenues.......... $513,645 $355,662 $326,246
======================= ===================== =====================
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
1998 1997 1996
------------------------- ------------------------ ------------------------
<S> <C> <C> <C>
Reportable segment Net Operating Income.......... $305,309 $208,423 $177,309
Other non-reportable operating segment Net
Operating Income(1)............................. 34,576 24,188 20,815
------------------------- ------------------------ ------------------------
Total segment Net Operating Income.............. 339,885 232,611 198,124
------------------------- -------------------------- ------------------------
Reconciling items:
Depreciation on real estate investments......... (96,337) (52,893) (44,887)
Interest expense................................ (83,350) (61,153) (35,288)
General and administrative expenses............. (16,092) (18,350) (23,268)
Provision for possible loss on investments...... (4,700) (3,000) -
Nonrecurring expenses........................... (2,193) (71,707) -
Other expenses.................................. (3,287) (822) (592)
------------------------- ------------------------ ------------------------
Consolidated earnings from operations............ $133,926 $ 24,686 $ 94,089
========================= ========================== ========================
</TABLE>
59
<PAGE>
Archstone Communities Trust
Notes to Financial Statements - (Continued)
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1998 1997
----------------------- -----------------------
<S> <C> <C>
Reportable segment assets............................ $4,536,529 $2,422,563
Other non-reportable operating segment assets (2).... 385,587 373,120
----------------------- -----------------------
Total segment assets............................... 4,922,116 2,795,683
----------------------- -----------------------
Reconciling items:
Cash and cash equivalents.......................... 5,429 1,586
Restricted cash in tax-deferred exchange escrow.... 90,874 -
Other assets....................................... 41,479 8,417
----------------------- -----------------------
Consolidated total assets............................ $5,061,968 $5,059,898
======================= =======================
</TABLE>
(1) Includes $22.9 million, $16.7 million and $2.0 million of interest income on
the convertible mortgage notes receivable in 1998, 1997 and 1996,
respectively (see Note 4). Also includes revenues and Net Operating Income
generated from the operation or sale of other real estate assets and other
ancillary income from apartment residents. For 1996, also includes Net
Operating Income generated from the Homestead extended-stay assets, prior to
their spin-off in October 1996 (see Note 4)
(2) Includes $203.0 million and $272.6 million of convertible mortgage notes
receivable during 1998 and 1997, respectively.
Archstone does not derive any of its consolidated revenues from foreign
countries and does not have any major customers that individually account for
10% or more of Archstone's consolidated revenues.
(13) Commitments and Contingencies
Archstone is a party to various claims and routine litigation arising in the
ordinary course of business. Archstone does not believe that the results of any
of such claims and litigation, individually or in the aggregate, will have a
material adverse effect on its business, financial position or results of
operations.
Archstone is subject to environmental regulations related to the ownership,
operation, development and acquisition of real estate. As part of its due
diligence investigation procedures, Archstone conducts Phase I environmental
assessments on each property prior to acquisition. The cost of complying with
environmental regulations was not material to Archstone's results of operations
for any of the years in the three-year period ended December 31, 1998.
Archstone is not aware of any environmental condition on any of its communities
which is likely to have a material effect on Archstone's financial condition or
results of operations.
See Note 3 for apartment construction and redevelopment commitments.
60
<PAGE>
Archstone Communities Trust
Notes to Financial Statements - (Concluded)
(14) Supplemental Cash Flow Information
Significant non-cash investing and financing activities for the years ended
December 31, 1998, 1997 and 1996 are as follows:
(i) Archstone issued 47,752,052 Common Shares valued at approximately $1.1
billion, 2,000,000 Series C Preferred Shares valued at approximately
$50.6 million and assumed debt and other liabilities valued at
approximately $778.9 million in exchange for approximately $1.9 billion
of assets in the Atlantic Merger.
(ii) Archstone recorded an $83.8 million decrease, an $8.9 million increase
and a $74.9 million increase in the unrealized gain on the convertible
mortgage notes receivable during the years ended December 31, 1998, 1997
and 1996, respectively, primarily as a result of changes in the
estimated fair value of these convertible debt securities.
(iii) Holders of Series A Convertible Preferred Shares converted $17.7
million, $27.2 million and $67.6 million of their shares into Common
Shares during the years ended December 31, 1998, 1997 and 1996,
respectively.
(iv) In connection with the acquisition of apartment communities, Archstone
assumed mortgage debt (excluding mortgage debt assumed in the Atlantic
Merger) of $93.7 million, $101.6 million and $104.2 million during the
years ended December 31, 1998, 1997 and 1996, respectively.
(v) In connection with the acquisition of the Management Companies in
September 1997, Archstone issued 3,295,533 Common Shares valued at $73.3
million in exchange for the operations and business of the Management
Companies.
(vi) Archstone had notes receivable outstanding from employees aggregating
$26.3 million (including $11.3 million assumed in the Atlantic Merger)
and $17.2 million for the purchase of Common Shares under the Incentive
Plan in 1998 and 1997, respectively.
(vii) In 1996, Archstone contributed 54 extended-stay lodging assets to
Homestead in exchange for 9,485,727 shares of Homestead common stock and
approximately $84.5 million (face-amount) in convertible mortgage notes
receivable.
(15) Subsequent Events
In February 1999, Archstone announced that the Board had authorized the
repurchase of up to $100 million of its Common Shares. Based on the closing
price of the Common Shares on the date of the announcement, this represents
approximately 3.6% of the Common Shares outstanding. Through March 5, 1999,
Archstone had repurchased 4.3 million Common Shares at a weighted average price
of $19.58 per Common Share for a total purchase price of $84.4 million.
Disposition proceeds were used to reduce Archstone's unsecured credit facility
balances, providing the capacity to fund the share purchases.
Archstone terminated its $150 million unsecured delayed draw term loan on
February 23, 1999. After giving effect to this termination, Archstone has $850
million in total borrowing capacity under its unsecured credit facilities, with
$349.0 million outstanding and an available balance of $501.0 million at March
5, 1999.
On February 26, 1998, Archstone paid the first quarter 1999 Common Share
distribution of $0.37 per Common Share to shareholders of record on February 12,
1999, totaling approximately $53.0 million.
61
<PAGE>
Independent Auditors' Report
The Board of Trustees and Shareholders
Archstone Communities Trust:
Under date of January 22, 1999, except as to Note 15 which is as of March
5, 1999, we reported on the balance sheets of Archstone Communities Trust as of
December 31, 1998 and 1997, and the related statements of earnings,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998. In connection with our audits of the
aforementioned financial statements, we also audited the related financial
statement schedule. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such financial statement schedule as listed in the
accompanying index, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG LLP
Chicago, Illinois
January 22, 1999
62
<PAGE>
SCHEDULE III
Archstone Communities Trust
Real Estate and Accumulated Depreciation
December 31, 1998
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Initial Cost to Archstone
------------------------- Costs
Capitalized
Encum- Buildings & Subsequent
Units brances Land Improvements Acquisition
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Apartment Communities:
Albuquerque, New Mexico:
Commanche Wells..................... 179 $ - $ 719 $ 4,072 $ 733
Entrada Pointe...................... 209 - 1,014 5,744 1,475
La Paloma........................... 424 - 4,135 - 19,724
La Ventana.......................... 232 - 2,210 - 13,441
Pavilions........................... 240 - 2,182 7,624 6,142
Sandia Ridge........................ 272 - 1,339 5,358 1,611
Telegraph Hill...................... 200 - 1,216 6,889 795
Vista Del Sol....................... 168 - 1,105 4,419 915
Vistas at Seven Bar Ranch........... 572 - 3,541 5,351 20,209
Wellington Place.................... 280 - 1,881 7,523 1,638
Atlanta, Georgia:
Azalea Park......................... 447 15,179 4,330 24,536 27
Cameron Ashford..................... 365 - 4,245 24,053 36
Cameron at Barrett Creek............ 332 - 1,963 11,126 10,516
Cameron at Northpoint............... 264 - 2,248 12,740 7,551
Cameron Briarcliff.................. 220 - 2,515 14,250 65
Cameron Bridge...................... 224 - 2,119 12,010 4,571
Cameron Brook....................... 440 18,950 4,050 22,950 59
Cameron Creek....................... 664 30,355 6,791 38,484 128
Cameron Crest....................... 377 - 4,135 23,430 65
Cameron Dunwoody.................... 238 - 2,747 15,566 34
Cameron Forest...................... 152 - 931 5,275 23
Cameron Greens...................... 304 10,107 2,389 13,537 40
Cameron Landing..................... 368 15,340 3,535 20,030 382
Cameron Place....................... 212 - 1,555 8,814 35
Cameron Pointe...................... 214 12,545 2,725 15,440 61
Cameron Station..................... 348 15,352 2,880 16,321 49
Cameron Woodlands................... 644 - 4,901 27,775 87
Clairmont Crest..................... 213 11,273 1,892 10,720 132
Lake Ridge at Dunwoody.............. 268 - 3,126 17,712 19
Morgan's Landing.................... 165 - 1,542 8,737 61
Old Salem........................... 172 - 1,490 8,446 29
Trolley Square...................... 270 - 2,918 16,534 64
Vinings Landing..................... 200 - 1,787 10,126 72
Winters Creek....................... 200 4,880 1,561 8,846 26
Austin, Texas:
Hunters' Run I & II................. 400 14,820 2,197 - 17,732
Monterey Ranch I.................... 168 - 424 - 5,025
Monterey Ranch II................... 456 16,861 1,151 - 23,038
Monterey Ranch III.................. 448 - 1,131 - 5,863
Ridge, The.......................... 326 - 1,669 6,675 2,852
Rock Creek.......................... 314 - 1,311 7,431 1,929
Shadowood........................... 236 - 1,197 4,787 1,092
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which Carried at
December 31, 1998
------------------------------------- Con-
Buildings & Accumulated struction Year
Land Improvements Totals Depreciation Year Acquired
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Apartment Communities:
Albuquerque, New Mexico:
Commanche Wells..................... $ 719 $ 4,805 $ 5,524 $ 604 1985 1994
Entrada Pointe...................... 1,014 7,219 8,233 933 1986 1994
La Paloma........................... 4,135 19,724 23,859 2,578 1996 1993
La Ventana.......................... 2,210 13,441 15,651 1,283 1996 1994
Pavilions........................... 2,182 13,766 15,948 2,658 (a) (a)
Sandia Ridge........................ 1,339 6,969 8,308 1,361 1986 1992
Telegraph Hill...................... 1,216 7,684 8,900 468 1986 1996
Vista Del Sol....................... 1,105 5,334 6,439 770 1987 1993
Vistas at Seven Bar Ranch........... 3,541 25,560 29,101 2,645 (b) (b)
Wellington Place.................... 1,881 9,161 11,042 1,188 1981 1993
Atlanta, Georgia:
Azalea Park......................... 4,330 24,563 28,893 574 1987 1998
Cameron Ashford..................... 4,245 24,089 28,334 513 1990 1998
Cameron at Barrett Creek............ 1,963 21,642 23,605 5 (c) 1998
Cameron at Northpoint............... 2,248 20,291 22,539 41 (c) 1998
Cameron Briarcliff.................. 2,515 14,315 16,830 306 1989 1998
Cameron Bridge...................... 2,119 16,581 18,700 46 (c) 1998
Cameron Brook....................... 4,050 23,009 27,059 483 1988 1998
Cameron Creek....................... 6,791 38,612 45,403 1,184 1988 1998
Cameron Crest....................... 4,135 23,495 27,630 490 1988 1998
Cameron Dunwoody.................... 2,747 15,600 18,347 332 1989 1998
Cameron Forest...................... 931 5,298 6,229 117 1981 1998
Cameron Greens...................... 2,389 13,577 15,966 289 1986 1998
Cameron Landing..................... 3,535 20,412 23,947 348 1998 1998
Cameron Place....................... 1,555 8,849 10,404 195 1979 1998
Cameron Pointe...................... 2,725 15,501 18,226 329 1987 1998
Cameron Station..................... 2,880 16,370 19,250 348 (d) 1998
Cameron Woodlands................... 4,901 27,862 32,763 587 (e) 1998
Clairmont Crest..................... 1,892 10,852 12,744 230 1987 1998
Lake Ridge at Dunwoody.............. 3,126 17,731 20,857 477 1979 1998
Morgan's Landing.................... 1,542 8,798 10,340 192 1983 1998
Old Salem........................... 1,490 8,475 9,965 184 1968 1998
Trolley Square...................... 2,918 16,598 19,516 360 1989 1998
Vinings Landing..................... 1,787 10,198 11,985 215 1978 1998
Winters Creek....................... 1,561 8,872 10,433 190 1984 1998
Austin, Texas:
Hunters' Run I & II................. 2,197 17,732 19,929 1,862 (f) (f)
Monterey Ranch I.................... 424 5,025 5,449 (c) (c) 1993
Monterey Ranch II................... 1,151 23,038 24,189 1,754 1996 1993
Monterey Ranch III.................. 1,131 5,863 6,994 (c) (c) 1993
Ridge, The.......................... 1,669 9,527 11,196 1,375 1978 1993
Rock Creek.......................... 1,311 9,360 10,671 1,283 1979 1993
Shadowood........................... 1,197 5,879 7,076 787 1985 1993
</TABLE>
63
<PAGE>
SCHEDULE III
<TABLE>
<CAPTION>
Initial Cost to Archstone
-------------------------------- Costs
Capitalized
Encum- Buildings & Subsequent to
Units branches Land Improvements Acquisition
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Apartment Communities:
Birmingham, Alabama:
Cameron at the Summit I............. 372 $ - $ 3,458 $ 19,595 $ 194
Cameron at the Summit II............ 268 - 698 3,955 4,326
Cameron on the Cahaba I............. 150 - 1,023 5,799 33
Cameron on the Cahaba II............ 250 8,007 1,601 9,071 26
Charlotte, North Carolina:
Cameron at Hickory Grove............ 202 6,187 1,434 8,127 11
Cameron Matthews.................... 212 9,035 2,034 11,526 131
Cameron Oaks........................ 264 - 2,312 13,104 8
Eastover Glen....................... 128 - 1,431 8,107 108
Forest at Biltmore.................. 392 - 4,008 22,709 9
Pinnacle at North Cross............. 312 - 3,573 20,264 47
Reafield Ridge...................... 324 - 3,009 17,052 388
Springs at Steele Creek............. 264 - 2,475 14,028 59
Waterford Hills..................... 270 - 2,413 13,676 2
Waterford Square I.................. 408 - 3,497 19,814 8
Waterford Square II................. 286 - 2,723 15,429 199
Columbus, Ohio:
Arbors of Dublin.................... 288 - 2,218 12,571 145
Dallas, Texas:
Custer Crossing..................... 244 - 1,532 8,683 2,118
Knoxbridge.......................... 334 15,650 4,668 26,453 13
Meadows at Park Boulevard........... 368 - 1,373 - 15,520
Quail Run........................... 278 - 1,613 9,140 2,306
Summerstone......................... 192 - 1,028 5,824 1,838
Timber Ridge........................ 160 - 997 5,651 1,185
Timber Ridge II..................... 192 - 675 20 8,680
Woodland Park....................... 216 - 1,386 5,543 1,449
Denver, Colorado:
Archstone Dakota Ridge.............. 480 - 2,108 24 17,291
Cambrian............................ 383 - 2,256 9,026 2,575
Cedars, The......................... 408 - 3,128 12,512 4,804
Fox Creek I......................... 175 - 1,167 4,669 704
Fox Creek II........................ 112 - - - 6,947
Legacy Heights...................... 384 16,417 2,049 4 20,457
Reflections I & II.................. 416 - 2,396 6,362 14,034
Silvercliff......................... 312 - 2,410 13,656 837
Sunwood............................. 156 - 1,030 4,596 1,982
El Paso, Texas:
Acacia Park......................... 336 - 1,130 - 13,348
Cielo Vista......................... 378 - 1,111 4,445 3,490
Double Tree......................... 284 - 1,106 4,423 873
Las Flores.......................... 468 5,726 625 6,624 1,397
Patriot, The........................ 320 - 1,027 - 11,550
Phoenix, The........................ 336 - 454 - 10,463
Tigua Village....................... 184 - 161 146 2,319
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which Carried at
December 31, 1998
--------------------------------------- Con-
Buildings & Accumulated struction Year
Land Improvements Totals Depreciation Year Acquired
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Apartment Communities:
Birmingham, Alabama:
Cameron at the Summit I............. $ 3,458 $ 19,789 $ 23,247 $ 429 1998 1998
Cameron at the Summit II............ 698 8,281 8,979 (c) (c) 1998
Cameron on the Cahaba I............. 1,023 5,832 6,855 126 1987 1998
Cameron on the Cahaba II............ 1,601 9,097 10,698 194 1990 1998
Charlotte, North Carolina:
Cameron at Hickory Grove............ 1,434 8,138 9,572 173 1988 1998
Cameron Matthews.................... 2,034 11,657 13,691 227 1998 1998
Cameron Oaks........................ 2,312 13,112 15,424 284 1989 1998
Eastover Glen....................... 1,431 8,215 9,646 171 1987 1998
Forest at Biltmore.................. 4,008 22,718 26,726 51 1996 1998
Pinnacle at North Cross............. 3,573 20,311 23,884 388 1997 1998
Reafield Ridge...................... 3,009 17,440 20,449 362 1987 1998
Springs at Steele Creek............. 2,475 14,087 16,562 292 1997 1998
Waterford Hills..................... 2,413 13,678 16,091 334 1995 1998
Waterford Square I.................. 3,497 19,822 23,319 545 1996 1998
Waterford Square II................. 2,723 15,628 18,351 274 1998 1998
Columbus, Ohio:
Arbors of Dublin.................... 2,218 12,716 14,934 268 1988 1998
Dallas, Texas:
Custer Crossing..................... 1,532 10,801 12,333 1,345 1985 1993
Knoxbridge.......................... 4,668 26,466 31,134 59 1994 1998
Meadows at Park Boulevard........... 1,373 15,520 16,893 845 1997 1996
Quail Run........................... 1,613 11,446 13,059 1,422 1983 1993
Summerstone......................... 1,028 7,662 8,690 916 1983 1993
Timber Ridge........................ 997 6,836 7,833 764 1984 1994
Timber Ridge II..................... 675 8,700 9,375 394 1998 1996
Woodland Park....................... 1,386 6,992 8,378 833 1986 1993
Denver, Colorado:
Archstone Dakota Ridge.............. 2,108 17,315 19,423 (c) (c) 1997
Cambrian............................ 2,256 11,601 13,857 1,506 1983 1993
Cedars, The......................... 3,128 17,316 20,444 2,293 1984 1993
Fox Creek I......................... 1,167 5,373 6,540 718 1984 1993
Fox Creek II........................ 6,947 6,947 (c) (c) 1995
Legacy Heights...................... 2,049 20,461 22,510 443 1998 1997
Reflections I & II.................. 2,396 20,396 22,792 2,224 (g) (g)
Silvercliff......................... 2,410 14,493 16,903 1,834 1991 1994
Sunwood............................. 1,030 6,578 7,608 923 1981 1992
El Paso, Texas:
Acacia Park......................... 1,130 13,348 14,478 1,625 1995 1993
Cielo Vista......................... 1,111 7,935 9,046 1,016 1962 1993
Double Tree......................... 1,106 5,296 6,402 774 1980 1993
Las Flores.......................... 625 8,021 8,646 3,775 (h) (h)
Patriot, The........................ 1,027 11,550 12,577 1,318 1996 1993
Phoenix, The........................ 454 10,463 10,917 1,817 1993 1993
Tigua Village....................... 161 2,465 2,626 1,377 (i) (i)
</TABLE>
64
<PAGE>
SCHEDULE III
<TABLE>
<CAPTION>
Initial Cost to Archstone
------------------------------ Costs Capitalized
Encum- Buildings & Subsequent to
Units brances Land Improvements Acquisition
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Apartment Communities:
Ft. Lauderdale/West Palm Beach:
Cameron at Bayberry Lake............ 308 $ - $2,675 $15,159 $ 72
Cameron at Meadow Lakes............. 189 - 1,712 9,702 38
Cameron at the Villages............. 384 - 3,298 18,686 45
Cameron Cove........................ 221 8,259 1,648 9,338 146
Cameron Gardens..................... 300 - 2,803 15,882 5,205
Cameron Hidden Harbor............... 200 5,475 1,868 10,587 150
Cameron Palms....................... 340 - 2,252 12,763 11,524
Cameron Park I...................... 196 - 2,129 12,063 2,443
Cameron View........................ 176 - 1,487 8,425 52
Cameron Waterways................... 300 - 3,678 20,840 453
Park Place at Turtle Run............ 350 - 2,598 14,721 44
Parrot's Landing I.................. 408 15,386 3,173 17,982 89
Parrot's Landing II................. 152 - 1,345 7,621 42
Pineview Lakes...................... 192 - 1,847 10,464 438
Ft. Myers, Florida:
Forestwood.......................... 397 11,158 2,534 14,361 102
Houston, Texas:
7100 Almeda......................... 348 - 1,713 9,706 947
Braeswood Park...................... 240 - 1,861 10,548 446
Braeswood Park II................... 36 - 1,125 5 984
Brompton Court...................... 794 - 4,058 22,993 5,969
Memorial Heights I.................. 360 14,801 3,169 - 16,006
Memorial Heights II................. 256 12,174 9,164 - 6,607
Oaks at Medical Center I............ 360 - 4,210 - 14,579
Oaks at Medical Center II........... 318 - 3,368 - 15,064
Indianapolis, Indiana:
Arbor Green......................... 208 - 1,597 9,049 347
Archstone at River Ridge............ 202 - 461 2,612 3,985
Inland Empire, California:
Crossing, The....................... 296 - 2,227 12,622 1,662
Miramonte........................... 290 - 2,357 13,364 1,071
Sierra Hills........................ 300 652 2,810 15,921 1,681
Terracina........................... 736 - 5,780 32,757 2,934
Westcourt Village................... 515 - 1,909 10,817 4,648
Woodsong Village.................... 262 - 1,846 10,469 826
Jacksonville, Florida:
Cameron Deerwood.................... 336 - 2,782 15,763 18
Cameron Lakes I..................... 302 - 2,792 15,823 111
Cameron Lakes II.................... 253 - 2,476 14,032 126
Cameron Timberlin................... 320 - 2,759 15,632 85
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which Carried at
December 31, 1998
-------------------------------------
Con-
Buildings & Accumulated struction Year
Land Improvements Totals Depreciation Year Acquired
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Apartment Communities:
Ft. Lauderdale/West Palm Beach:
Cameron at Bayberry Lake............ $2,675 $15,231 $17,906 $ 322 1988 1998
Cameron at Meadow Lakes............. 1,712 9,740 11,452 206 1983 1998
Cameron at the Villages............. 3,298 18,731 22,029 400 1987 1998
Cameron Cove........................ 1,648 9,484 11,132 201 1986 1998
Cameron Gardens..................... 2,803 21,087 23,890 75 (c) 1998
Cameron Hidden Harbor............... 1,868 10,737 12,605 226 1986 1998
Cameron Palms....................... 2,252 24,287 26,539 (c) (c) 1998
Cameron Park I...................... 2,129 14,506 16,635 73 (c) 1998
Cameron View........................ 1,487 8,477 9,964 182 1987 1998
Cameron Waterways................... 3,678 21,293 24,971 254 1998 1998
Park Place at Turtle Run............ 2,598 14,765 17,363 313 1989 1998
Parrot's Landing I.................. 3,173 18,071 21,244 435 1986 1998
Parrot's Landing II................. 1,345 7,663 9,008 261 1997 1998
Pineview Lakes...................... 1,847 10,902 12,749 229 1988 1998
Ft. Myers, Florida:
Forestwood.......................... 2,534 14,463 16,997 307 1986 1998
Houston, Texas:
7100 Almeda......................... 1,713 10,653 12,366 1,325 1984 1994
Braeswood Park...................... 1,861 10,994 12,855 1,525 1984 1993
Braeswood Park II................... 1,125 989 2,114 (c) (c) 1997
Brompton Court...................... 4,058 28,962 33,020 3,646 1972 1994
Memorial Heights I.................. 3,169 16,006 19,175 1,526 1996 1996
Memorial Heights II................. 9,164 6,607 15,771 558 1998 1996
Oaks at Medical Center I............ 4,210 14,579 18,789 1,555 1996 1994
Oaks at Medical Center II........... 3,368 15,064 18,432 24 (c) 1994
Indianapolis, Indiana:
Arbor Green......................... 1,597 9,396 10,993 196 1989 1998
Archstone at River Ridge............ 461 6,597 7,058 (c) (c) 1998
Inland Empire, California:
Crossing, The....................... 2,227 14,284 16,511 1,024 1989 1996
Miramonte........................... 2,357 14,435 16,792 1,210 1989 1995
Sierra Hills........................ 2,810 17,602 20,412 775 1990 1997
Terracina........................... 5,780 35,691 41,471 2,484 1988 1996
Westcourt Village................... 1,909 15,465 17,374 1,223 1986 1996
Woodsong Village.................... 1,846 11,295 13,141 714 1985 1996
Jacksonville, Florida:
Cameron Deerwood.................... 2,782 15,781 18,563 619 1997 1998
Cameron Lakes I..................... 2,792 15,934 18,726 554 1996 1998
Cameron Lakes II.................... 2,476 14,158 16,634 457 1998 1998
Cameron Timberlin................... 2,759 15,717 18,476 620 1997 1998
</TABLE>
65
<PAGE>
SCHEDULE III
<TABLE>
<CAPTION>
Initial Cost to Archstone
---------------------------- Costs Capitalized
Encum- Buildings & Subsequent to
Units brances Land Improvements Acquisition
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Apartment Communities:
Kansas City, Kansas:
Crown Chase......................... 220 $ - $1,540 $ - $ 8,875
Las Vegas, Nevada:
Crossings at Lake Mead.............. 444 - 2,086 11,867 1,530
Horizons at Peccole Ranch........... 408 - 3,173 18,048 1,000
La Tierra at the Lakes.............. 896 - 5,904 33,561 5,510
Los Angeles, California:
Oakridge............................ 178 13,050 3,212 18,200 124
Memphis, Tennessee:
Country Oaks........................ 200 - 1,257 7,122 7
Minneapolis, Minnesota:
Eden Commons........................ 196 6,317 1,973 11,181 -
Nashville, Tennessee:
Amberwood at Bellevue............... 225 5,102 2,235 12,660 70
Arbor Creek......................... 360 - 2,471 14,003 156
Cameron Overlook.................... 452 - 4,031 22,843 (40)
Enclave at Brentwood................ 380 - 2,672 15,143 98
Monthaven Place I................... 216 - 1,210 9 7,106
Shadowbluff......................... 220 5,835 1,422 8,059 97
Orange County, California:
Las Flores Apartment Homes.......... 504 7,424 8,900 264 40,716
Newpointe........................... 160 - 1,403 7,981 508
River Meadows....................... 152 10,000 2,082 11,797 1,334
Sorrento............................ 241 4,822 4,872 - 22,528
Villa Marseilles.................... 192 3,698 1,970 11,162 4,759
Orlando, Florida:
Camden Springs...................... 340 - 2,893 16,391 45
Cameron Promenade................... 212 - 2,236 12,671 1,103
Cameron Villas I.................... 192 - 1,306 7,400 87
Cameron Villas II................... 42 - 287 1,624 35
Kingston Village.................... 120 - 1,039 5,887 77
Wellington I........................ 192 - 1,505 8,526 11
Wellington II....................... 120 - 1,605 9,094 257
Phoenix, Arizona:
Cochise at Arrowhead I (j).......... 272 - 2,019 - 16,067
Cochise at Arrowhead II (j)......... 200 - 1,601 - 7,298
Foxfire............................. 188 - 1,055 5,976 605
Miralago I.......................... 496 18,720 2,743 - 22,331
Moorings at Mesa Cove............... 406 - 3,261 13,045 1,530
Peaks at Papago Park................ 768 - 5,131 23,408 8,741
Pelican Bay Club.................... 472 - 2,797 11,188 2,215
Ridge, The.......................... 380 - 1,852 10,492 965
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which Carried at
December 31, 1998
----------------------------------- Con-
Buildings & Accumulated struction Year
Land Improvements Totals Depreciation Year Acquired
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Apartment Communities:
Kansas City, Kansas:
Crown Chase......................... $1,540 $ 8,875 $10,415 $ (c) (c) 1996
Las Vegas, Nevada:
Crossings at Lake Mead.............. 2,086 13,397 15,483 1,299 1986 1995
Horizons at Peccole Ranch........... 3,173 19,048 22,221 1,889 1990 1995
La Tierra at the Lakes.............. 5,904 39,071 44,975 3,958 1986 1995
Los Angeles, California:
Oakridge............................ 3,212 18,324 21,536 165 1985 1998
Memphis, Tennessee:
Country Oaks........................ 1,257 7,129 8,386 151 1985 1998
Minneapolis, Minnesota:
Eden Commons........................ 1,973 11,181 13,154 - 1987 1998
Nashville, Tennessee:
Amberwood at Bellevue............... 2,235 12,730 14,965 58 1986 1998
Arbor Creek......................... 2,471 14,159 16,630 352 1986 1998
Cameron Overlook.................... 4,031 22,803 26,834 665 1998 1998
Enclave at Brentwood................ 2,672 15,241 17,913 327 1988 1998
Monthaven Place I................... 1,210 7,115 8,325 (c) (c) 1998
Shadowbluff......................... 1,422 8,156 9,578 173 1986 1998
Orange County, California:
Las Flores Apartment Homes.......... 8,900 40,980 49,880 217 (c) 1996
Newpointe........................... 1,403 8,489 9,892 566 1987 1996
River Meadows....................... 2,082 13,131 15,213 619 1986 1997
Sorrento............................ 4,872 22,528 27,400 118 1998 1996
Villa Marseilles.................... 1,970 15,921 17,891 696 1991 1996
Orlando, Florida:
Camden Springs...................... 2,893 16,436 19,329 348 1986 1998
Cameron Promenade................... 2,236 13,774 16,010 119 (c) 1998
Cameron Villas I.................... 1,306 7,487 8,793 161 1982 1998
Cameron Villas II................... 287 1,659 1,946 36 1981 1998
Kingston Village.................... 1,039 5,964 7,003 128 1982 1998
Wellington I........................ 1,505 8,537 10,042 182 1988 1998
Wellington II....................... 1,605 9,351 10,956 84 (c) 1998
Phoenix, Arizona:
Cochise at Arrowhead I (j).......... 2,019 16,067 18,086 149 (c) 1995
Cochise at Arrowhead II (j)......... 1,601 7,298 8,899 (c) (c) 1995
Foxfire............................. 1,055 6,581 7,636 839 1985 1994
Miralago I.......................... 2,743 22,331 25,074 1,651 1997 1995
Moorings at Mesa Cove............... 3,261 14,575 17,836 2,250 1985 1992
Peaks at Papago Park................ 5,131 32,149 37,280 3,936 (k) (k)
Pelican Bay Club.................... 2,797 13,403 16,200 1,756 1985 1993
Ridge, The.......................... 1,852 11,457 13,309 1,561 1987 1993
</TABLE>
66
<PAGE>
SCHEDULE III
<TABLE>
<CAPTION>
Initial Cost to Archstone
------------------------------- Costs
Capitalized
Encum- Buildings & Subsequent to
Units brances Land Improvements Acquisition
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Apartment Communities:
Phoenix, Arizona (continued):
San Marbeya......................... 404 $ - $3,675 $ 93 $17,396
San Marquis North................... 208 - 1,215 - 9,737
San Marquis South................... 264 - 2,312 - 11,336
San Palmera (j)..................... 412 - 3,515 - 21,878
San Valiente I (j).................. 376 - 3,062 - 19,221
San Valiente II (j)................. 228 - 1,647 - 11,103
Scottsdale Greens................... 644 23,465 3,489 19,774 7,008
Superstition Park................... 376 - 2,340 9,362 1,447
Portland, Oregon:
Arbor Heights....................... 348 - 2,669 20,631
Brighton............................ 233 - 1,675 9,532 1,335
Cambridge Crossing.................. 250 - 2,260 - 13,453
Hedges Creek........................ 408 - 3,758 162 23,503
Preston's Crossing.................. 228 - 851 12,209
Riverwood Heights................... 240 - 1,479 8,410 665
Squire's Court...................... 235 - 1,630 9,249 595
Timberline.......................... 130 - 1,058 5,995 530
Raleigh, North Carolina:
52 Magnolia......................... 228 11,765 2,732 15,482 127
Archstone at Preston................ 388 - 882 4,996 6,679
Cameron at Six Forks................ 172 - 1,417 8,027 98
Cameron at Southpoint............... 288 - 1,719 9,741 7,375
Cameron Brooke...................... 228 - 2,031 11,508 179
Cameron Green....................... 320 - 2,532 14,347 4
Cameron Lake I...................... 196 - 1,539 8,722 9
Cameron Lake II..................... 172 - 1,606 9,098 73
Cameron Ridge....................... 228 - 1,694 9,599 50
Cameron Square...................... 268 - 2,575 14,590 32
Cameron Woods....................... 328 - 2,107 11,940 6,854
Conifer Glen........................ 186 - 2,204 12,511 27
Cornerstone......................... 302 - 3,748 21,239 105
Falls at Duraleigh, The............. 396 - 2,614 14,819 59
Poplar Place........................ 230 - 2,189 12,407 556
Waterford Forest.................... 384 - 3,791 21,480 38
Waterford Point..................... 336 14,560 3,136 17,772 17
Reno, Nevada:
Enclave, The........................ 228 - 1,947 - 13,795
Enclave II, The..................... 180 - 1,538 - 3,515
Vista Ridge......................... 324 - 2,002 - 19,308
Richmond, Virginia:
Archstone at Swift Creek I.......... 288 - 812 4,604 3,372
Cameron at Gayton................... 220 - 1,905 10,796 11
Cameron at Virginia Center.......... 264 - 2,907 16,472 1,006
Cameron at Virginia Center II....... 88 - 242 1,372 2,277
Cameron at Wellesley................ 340 - 3,376 19,132 33
Cameron at Wyndham.................. 312 - 3,782 21,433 829
Cameron Crossing I.................. 280 - 3,245 18,391 92
Cameron Crossing II................. 144 - 1,723 9,764 617
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which Carried at
December 31, 1998
------------------------------------------ Con-
Buildings & Accumulated struction Year
Land Improvements Totals Depreciation Year Acquired
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Apartment Communities:
Phoenix, Arizona (continued):
San Marbeya......................... $3,675 $17,489 $21,164 $ 4 (c) 1997
San Marquis North................... 1,215 9,737 10,952 1,156 1994 1993
San Marquis South................... 2,312 11,336 13,648 1,629 1994 1993
San Palmera (j)..................... 3,515 21,878 25,393 1,638 1997 1995
San Valiente I (j).................. 3,062 19,221 22,283 1,420 1997 1995
San Valiente II (j)................. 1,647 11,103 12,750 1 (c) 1995
Scottsdale Greens................... 3,489 26,782 30,271 3,583 1980 1994
Superstition Park................... 2,340 10,809 13,149 1,648 1985 1992
Portland, Oregon:
Arbor Heights....................... 2,669 20,631 23,300 799 1998 1996
Brighton............................ 1,675 10,867 12,542 678 1985 1996
Cambridge Crossing.................. 2,260 13,453 15,713 706 1998 1996
Hedges Creek........................ 3,758 23,665 27,423 100 (c) 1997
Preston's Crossing.................. 851 12,209 13,060 1,034 1996 1995
Riverwood Heights................... 1,479 9,075 10,554 900 1990 1995
Squire's Court...................... 1,630 9,844 11,474 967 1989 1995
Timberline.......................... 1,058 6,525 7,583 482 1990 1996
Raleigh, North Carolina:
52 Magnolia......................... 2,732 15,609 18,341 324 1995 1998
Archstone at Preston................ 882 11,675 12,557 (c) (c) 1998
Cameron at Six Forks................ 1,417 8,125 9,542 172 1985 1998
Cameron at Southpoint............... 1,719 17,116 18,835 24 (c) 1998
Cameron Brooke...................... 2,031 11,687 13,718 372 1997 1998
Cameron Green....................... 2,532 14,351 16,883 302 1986 1998
Cameron Lake I...................... 1,539 8,731 10,270 185 1985 1998
Cameron Lake II..................... 1,606 9,171 10,777 192 1982 1998
Cameron Ridge....................... 1,694 9,649 11,343 203 1985 1998
Cameron Square...................... 2,575 14,622 17,197 307 1987 1998
Cameron Woods....................... 2,107 18,794 20,901 48 (c) 1998
Conifer Glen........................ 2,204 12,538 14,742 168 1997 1998
Cornerstone......................... 3,748 21,344 25,092 443 1997 1998
Falls at Duraleigh, The............. 2,614 14,878 17,492 63 1987 1998
Poplar Place........................ 2,189 12,963 15,152 270 1987 1998
Waterford Forest.................... 3,791 21,518 25,309 539 1997 1998
Waterford Point..................... 3,136 17,789 20,925 497 1996 1998
Reno, Nevada:
Enclave, The........................ 1,947 13,795 15,742 187 1998 1996
Enclave II, The..................... 1,538 3,515 5,053 (c) (c) 1996
Vista Ridge......................... 2,002 19,308 21,310 1,412 1997 1995
Richmond, Virginia:
Archstone at Swift Creek I.......... 812 7,976 8,788 (c) (c) 1998
Cameron at Gayton................... 1,905 10,807 12,712 228 1987 1998
Cameron at Virginia Center.......... 2,907 17,478 20,385 140 (c) 1998
Cameron at Virginia Center II....... 242 3,649 3,891 (c) (c) 1998
Cameron at Wellesley................ 3,376 19,165 22,541 410 1989 1998
Cameron at Wyndham.................. 3,782 22,262 26,044 214 (c) 1998
Cameron Crossing I.................. 3,245 18,483 21,728 518 1998 1998
Cameron Crossing II................. 1,723 10,381 12,104 100 1998 1998
</TABLE>
67
<PAGE>
SCHEDULE III
<TABLE>
<CAPTION>
Initial Cost to Archstone
------------------------------- Costs
Capitalized
Encum- Buildings & Subsequent to
Units brances Land Improvements Acquisition
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Apartment Communities:
Salt Lake City, Utah
Archstone River Oaks................ 448 $ - $ 5,400 $ 213 $13,434
Brighton Place...................... 336 - 2,091 11,892 4,253
Carrington Place.................... 142 3,444 1,072 6,072 634
Cherry Creek........................ 225 3,598 1,290 7,330 707
Cloverland.......................... 186 4,178 1,392 7,886 1,375
Crossroads, The..................... 240 4,435 1,521 8,619 934
Fairstone at Riverview.............. 492 - 4,636 - 26,640
Fox Creek........................... 186 4,240 1,172 6,641 1,245
Greenpointe......................... 224 - 923 5,050 2,614
Mountain Shadow I................... 174 - 832 4,730 1,533
Mountain Shadow II.................. 88 - 95 - 4,218
Raintree............................ 152 - 948 5,373 957
Remington, The...................... 288 10,530 2,324 - 14,905
Riverbend........................... 200 - 1,357 7,692 1,451
San Antonio, Texas:
Applegate........................... 344 - 1,455 8,248 1,160
Austin Point........................ 328 - 1,728 9,725 1,515
Camino Real......................... 176 - 1,084 4,338 1,793
Cobblestone Village................. 184 - 786 3,120 891
Contour Place....................... 126 - 456 1,829 588
Crescent, The....................... 306 - 1,145 - 15,105
Dymaxion............................ 190 - 683 3,740 482
Marbach Park........................ 304 - 1,122 6,361 1,124
Rancho Mirage....................... 254 - 724 2,971 1,697
Stanford Heights.................... 276 - 1,631 - 11,893
Sterling Heights.................... 224 - 1,644 - 10,661
Villas of Castle Hills.............. 163 - 1,037 4,148 1,075
Villas of St. Tropez I.............. 273 - 2,013 8,054 1,851
Waters of Northern Hills............ 305 - 1,251 7,105 1,338
San Diego, California:
Archstone Torrey Hills.............. 340 - 10,400 659 10,705
Camino Pointe Village............... 150 - 1,549 8,780 607
Carmel Del Mar...................... 232 14,685 3,802 21,546 1,719
Club Pacifica....................... 264 - 2,141 12,132 975
El Dorado Hills..................... 448 - 4,418 25,084 3,334
La Jolla Point...................... 328 21,200 4,616 26,160 1,400
Ocean Crest......................... 300 - 2,369 13,427 1,414
Palisades, The...................... 296 - 4,741 26,866 599
Seascape............................ 208 15,115 2,659 15,066 570
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which Carried at
December 31, 1998
--------------------------------- Con-
Buildings & Accumulated struction Year
Land Improvements Totals Depreciation Year Acquired
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Apartment Communities:
Salt Lake City, Utah
Archstone River Oaks................ $ 5,400 $13,647 $19,047 $ (c) (c) 1997
Brighton Place...................... 2,091 16,145 18,236 1,490 1979 1995
Carrington Place.................... 1,072 6,706 7,778 242 1986 1997
Cherry Creek........................ 1,290 8,037 9,327 797 1986 1995
Cloverland.......................... 1,392 9,261 10,653 306 1985 1997
Crossroads, The..................... 1,521 9,553 11,074 557 1986 1996
Fairstone at Riverview.............. 4,636 26,640 31,276 1,026 1998 1996
Fox Creek........................... 1,172 7,886 9,058 427 1985 1996
Greenpointe......................... 923 7,664 8,587 641 (l) (l)
Mountain Shadow I................... 832 6,263 7,095 673 1985 1995
Mountain Shadow II.................. 95 4,218 4,313 45 1996 1996
Raintree............................ 948 6,330 7,278 151 1984 1998
Remington, The...................... 2,324 14,905 17,229 1,326 1997 1995
Riverbend........................... 1,357 9,143 10,500 219 1985 1998
San Antonio, Texas:
Applegate........................... 1,455 9,408 10,863 1,269 1983 1993
Austin Point........................ 1,728 11,240 12,968 1,510 1982 1993
Camino Real......................... 1,084 6,131 7,215 855 1979 1993
Cobblestone Village................. 786 4,011 4,797 935 1984 1992
Contour Place....................... 456 2,417 2,873 609 1984 1992
Crescent, The....................... 1,145 15,105 16,250 2,265 1994 1992
Dymaxion............................ 683 4,222 4,905 473 1984 1994
Marbach Park........................ 1,122 7,485 8,607 1,052 1985 1993
Rancho Mirage....................... 724 4,668 5,392 640 1974 1993
Stanford Heights.................... 1,631 11,893 13,524 1,335 1996 1993
Sterling Heights.................... 1,644 10,661 12,305 1,213 1995 1993
Villas of Castle Hills.............. 1,037 5,223 6,260 717 1971 1993
Villas of St. Tropez I.............. 2,013 9,905 11,918 1,510 1982 1992
Waters of Northern Hills............ 1,251 8,443 9,694 1,080 1982 1994
San Diego, California:
Archstone Torrey Hills.............. 10,400 11,364 21,764 (c) (c) 1997
Camino Pointe Village............... 1,549 9,387 10,936 154 1985 1998
Carmel Del Mar...................... 3,802 23,265 27,067 460 1991 1998
Club Pacifica....................... 2,141 13,107 15,248 943 1987 1996
El Dorado Hills..................... 4,418 28,418 32,836 1,764 1983 1996
La Jolla Point...................... 4,616 27,560 32,176 1,264 1986 1997
Ocean Crest......................... 2,369 14,841 17,210 1,086 1993 1996
Palisades, The...................... 4,741 27,465 32,206 1,538 1991 1996
Seascape............................ 2,659 15,636 18,295 212 1986 1998
</TABLE>
68
<PAGE>
SCHEDULE III
<TABLE>
<CAPTION>
Initial Cost to Archstone
-------------------------- Costs
Capitalized
Encum- Buildings & Subsequent to
Units brances Land Improvements Acquisition
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Apartment Communities:
San Francisco (Bay Area), California:
Archstone Emerald Peak.............. 324 $ - $ 8,950 $ 170 $17,654
Archstone Hacienda.................. 540 5,256 18,696 668 11,091
Archstone Monterey Grove............ 224 - 4,451 13 15,980
Ashton Place........................ 948 46,204 9,782 55,429 17,483
Harborside.......................... 148 - 3,213 18,210 360
Los Padres.......................... 245 - 4,579 25,946 749
Marina Lakes........................ 468 - 5,952 33,728 846
Redwood Shores...................... 304 24,280 5,608 31,778 2,132
Reflections......................... 496 - 7,820 44,311 1,488
Sundance at Vallejo Ranch........... 396 - 2,633 14,923 1,669
Treat Commons....................... 510 - 5,788 32,802 968
Seattle, Washington:
Archstone Inglewood Hill............ 230 - 2,463 68 8,484
Archstone Northcreek................ 524 - 5,750 261 15,709
Cambrian, The....................... 422 - 6,231 35,309 1,194
Canyon Creek........................ 336 17,324 5,250 - 19,656
Canyon Pointe....................... 250 - 3,121 17,684 821
Fairwood Landing.................... 194 5,621 1,223 6,928 959
Forestview.......................... 192 - 1,681 - 13,840
Harbour Pointe...................... 230 - 2,027 - 13,112
Logan's Ridge....................... 258 - 1,950 11,118 1,326
Matanza Creek....................... 152 - 1,016 5,814 371
Millwood Estates.................... 300 - 1,593 9,200 985
Newport Crossing.................... 192 - 1,694 9,602 641
Pebble Cove......................... 288 14,261 1,895 - 15,655
Remington Park...................... 332 - 2,795 15,593 2,073
Stonemeadow Farms................... 280 - 4,370 - 18,068
Victorian Village................... 216 8,020 2,705 15,330 1,151
Walden Pond......................... 316 - 2,033 11,535 686
Waterford Place..................... 360 - 4,131 23,407 930
Tampa/St. Petersburg, Florida:
Archstone Rocky Creek............... 264 - 511 2,896 1,548
Camden Downs........................ 250 - 2,102 11,910 53
Cameron Bayshore.................... 328 - 2,035 11,530 85
Cameron Lakes....................... 207 - 1,570 8,897 56
Cameron Palm Harbor................. 168 5,622 1,293 7,325 116
Country Place Village I............. 88 1,967 777 4,400 31
Country Place Village II............ 100 - 805 4,563 100
Foxbridge on the Bay................ 358 10,109 1,988 11,263 92
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which Carried at
December 31, 1998
--------------------------------- Con-
Buildings & Accumulated struction Year
Land Improvements Totals Depreciation Year Acquired
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Apartment Communities:
San Francisco (Bay Area), California:
Archstone Emerald Peak.............. $ 8,950 $17,824 $26,774 $ (c) (c) 1997
Archstone Hacienda.................. 18,696 11,759 30,455 (c) (c) 1997
Archstone Monterey Grove............ 4,451 15,993 20,444 (c) (c) 1997
Ashton Place........................ 9,782 72,912 82,694 4,011 1970 1996
Harborside.......................... 3,213 18,570 21,783 989 1989 1996
Los Padres.......................... 4,579 26,695 31,274 1,188 1988 1997
Marina Lakes........................ 5,952 34,574 40,526 1,702 1991 1997
Redwood Shores...................... 5,608 33,910 39,518 1,992 1986 1996
Reflections......................... 7,820 45,799 53,619 2,351 1988 1997
Sundance at Vallejo Ranch........... 2,633 16,592 19,225 1,217 1986 1996
Treat Commons....................... 5,788 33,770 39,558 2,694 1988 1995
Seattle, Washington:
Archstone Inglewood Hill............ 2,463 8,552 11,015 (c) (c) 1997
Archstone Northcreek................ 5,750 15,970 21,720 (c) (c) 1998
Cambrian, The....................... 6,231 36,503 42,734 1,556 1991 1997
Canyon Creek........................ 5,250 19,656 24,906 1,169 1997 1997
Canyon Pointe....................... 3,121 18,505 21,626 307 1990 1997
Fairwood Landing.................... 1,223 7,887 9,110 421 1982 1996
Forestview.......................... 1,681 13,840 15,521 171 1998 1996
Harbour Pointe...................... 2,027 13,112 15,139 579 1997 1996
Logan's Ridge....................... 1,950 12,444 14,394 1,187 1987 1995
Matanza Creek....................... 1,016 6,185 7,201 624 1991 1995
Millwood Estates.................... 1,593 10,185 11,778 1,034 1987 1995
Newport Crossing.................... 1,694 10,243 11,937 553 1990 1997
Pebble Cove......................... 1,895 15,655 17,550 1,143 1996 1995
Remington Park...................... 2,795 17,666 20,461 1,645 1990 1995
Stonemeadow Farms................... 4,370 18,068 22,438 90 (c) 1997
Victorian Village................... 2,705 16,481 19,186 402 1989 1998
Walden Pond......................... 2,033 12,221 14,254 1,203 1990 1995
Waterford Place..................... 4,131 24,337 28,468 817 1989 1997
Tampa/St. Petersburg, Florida:
Archstone Rocky Creek............... 511 4,444 4,955 (c) (c) 1998
Camden Downs........................ 2,102 11,963 14,065 254 1988 1998
Cameron Bayshore.................... 2,035 11,615 13,650 244 1984 1998
Cameron Lakes....................... 1,570 8,953 10,523 194 1986 1998
Cameron Palm Harbor................. 1,293 7,441 8,734 158 1988 1998
Country Place Village I............. 777 4,431 5,208 93 1982 1998
Country Place Village II............ 805 4,663 5,468 98 1983 1998
Foxbridge on the Bay................ 1,988 11,355 13,343 245 1986 1998
</TABLE>
69
<PAGE>
SCHEDULE III
<TABLE>
<CAPTION>
Initial Cost to Archstone
-------------------------- Costs
Capitalized
Encum- Buildings & Subsequent to
Units brances Land Improvements Acquisition
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Apartment Communities:
Tucson, Arizona:
Tierra Antigua...................... 147 $ - $ 992 $ 3,967 $ 769
Villa Caprice....................... 268 - 1,279 7,248 630
Ventura County, California:
Le Club............................. 370 21,700 4,958 28,097 1,769
Pelican Point....................... 400 - 4,365 24,735 1,835
Washington, D.C.
Archstone Governor's Green.......... 338 - 1,836 10,402 3,383
Bellemeade Farms.................... 316 - 3,250 18,416 43
Camden at Kendall Ridge............. 184 - 2,089 11,838 43
Cameron at Milestone................ 444 - 5,633 31,920 84
Cameron at Saybrooke................ 252 - 3,210 18,190 12
Oaks at Fair Lakes.................. 282 15,477 3,687 20,893 5
Sheffield Forest.................... 256 - 2,482 14,063 39
West Springfield Terrace............ 244 - 2,918 16,537 117
---------------------------------------------------------------------
Total Apartment Communities
Operating and Under Construction... 81,461 676,613 701,705 2,888,861 1,138,375
---------------------------------------------------------------------
Development Communities in
Planning and Owned................. 3,398 - 52,011 8,312 9,387
---------------------------------------------------------------------
Other Land Held....................... - - 39,054 - 9,226
---------------------------------------------------------------------
Other Real Estate Assets.............. - - 12,861 1,935 8,074
---------------------------------------------------------------------
Total Real Estate Assets.............. 84,859 $676,613 $805,631 $2,899,108 $1,165,062
=====================================================================
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which Carried at
December 31, 1998
--------------------------------- Con-
Buildings & Accumulated struction Year
Land Improvements Totals Depreciation Year Acquired
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Apartment Communities:
Tucson, Arizona:
Tierra Antigua...................... $ 992 $ 4,736 $ 5,728 $ 991 1979 1992
Villa Caprice....................... 1,279 7,878 9,157 1,090 1972 1993
Ventura County, California:
Le Club............................. 4,958 29,866 34,824 1,252 1987 1997
Pelican Point....................... 4,365 26,570 30,935 1,047 1985 1997
Washington, D.C.
Archstone Governor's Green.......... 1,836 13,785 15,621 (c) (c) 1998
Bellemeade Farms.................... 3,250 18,459 21,709 165 1988 1998
Camden at Kendall Ridge............. 2,089 11,881 13,970 256 1990 1998
Cameron at Milestone................ 5,633 32,004 37,637 836 1997 1998
Cameron at Saybrooke................ 3,210 18,202 21,412 387 1990 1998
Oaks at Fair Lakes.................. 3,687 20,898 24,585 - 1988 1998
Sheffield Forest.................... 2,482 14,102 16,584 301 1987 1998
West Springfield Terrace............ 2,918 16,654 19,572 355 1978 1998
------------------------------------------------------
Total Apartment Communities
Operating and Under Construction... 701,705 4,027,236 4,728,941 201,753
------------------------------------------------------
Development Communities in
Planning and Owned................. 52,011 17,699 69,710 -
------------------------------------------------------
Other Land Held....................... 39,054 9,226 48,280 -
------------------------------------------------------
Other Real Estate Assets.............. 12,861 10,009 22,870 4,042
------------------------------------------------------
Total Real Estate Assets.............. $805,631 $4,064,170 $4,869,801 $ 205,795
======================================================
</TABLE>
(a) Phase I (118 units) was acquired in 1991 and Phase II (122 units) was
developed in 1992.
(b) Vistas at Seven Bar Ranch (364 units) was developed in 1996 and Corrales
Pointe (208 units) was acquired in 1993.
(c) As of 12/31/98, community was under construction.
(d) Phase I (108 units) was constructed in 1981 and Phase II (240 units) was
constructed in 1983.
(e) Phase I (332 units) was constructed in 1983 and Phase II (312 units) was
constructed in 1985.
(f) Phase I (240 units) was developed in 1995 and Phase II (160 units) was
developed in 1996.
(g) Phase I (208 units) was acquired in 1993 and Phase II (208) was developed
in 1996.
(h) Phase I (120 units) was developed in 1980, Phase II (60 units) was
developed in 1981 and Phase III (288 units) was developed in 1983.
(i) Phase I (84 units) was developed in 1970 and Phase II (100 units) was
developed in 1978.
(j) Represents properties owned by third party developers that are subject to
presale agreements to Archstone to acquire such properties. Archstone's
investment as of December 31, 1998 represents development loans make by
Archstone to such developers.
(k) Phase I & II (624 units) were acquired in 1994 and Phase III (144 units)
was developed in 1996.
(l) Phase I (192 units) was acquired in 1995 and Phase II (32 units) was
developed in 1997.
70
<PAGE>
The following is a reconciliation of the carrying amount and related
accumulated depreciation of Archstone's investment in real estate, at cost (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
Carrying Amounts 1998 1997 1996
---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Balance at January 1..................................... $2,604,919 $2,153,363 $1,855,866
----------------- ----------------- -----------------
Apartment Communities:
Real estate assets acquired in the Atlantic Merger..... 1,823,727 - -
Acquisition-related expenditures....................... 285,806 391,234 386,852
Redevelopment expenditures............................. 57,171 43,187 21,663
Recurring capital expenditures......................... 9,464 8,762 7,992
Development expenditures, excluding land acquisitions.. 378,161 205,619 187,396
Acquisition and improvement of land for development.... 67,248 75,196 76,301
Dispositions........................................... (344,336) (268,210) (269,693)
Provision for possible loss on investments............. - (2,800) -
----------------- ----------------- -----------------
Net apartment community activity......................... 2,277,241 452,988 410,511
----------------- ----------------- -----------------
Other:
Homestead development expenditures, including land
Acquisitions........................................ - - 54,883
Contribution of assets................................. - - (161,370)
Dispositions........................................... (9,959) (1,232) (6,527)
Provision for possible loss on investments............. (2,400) (200) -
----------------- ----------------- -----------------
Net other activity....................................... (12,359) (1,432) (113,014)
----------------- ----------------- -----------------
Balance at December 31................................... $4,869,801 $2,604,919 $2,153,363
================= ================= =================
<CAPTION>
December 31,
---------------------------------------------------------------
Accumulated Depreciation 1998 1997 1996
------------------------ ----------------- ------------------ ------------------
<S> <C> <C> <C>
Balance at January 1..................................... $129,718 $ 97,574 $ 81,979
Depreciation for the year................................ 96,337 52,893 44,887
Accumulated depreciation on real estate dispositions..... (20,260) (20,749) (22,653)
Contribution of assets................................... - - (6,639)
----------------- ------------------ ------------------
Balance at December 31................................... $205,795 $129,718 $ 97,574
================= ================== ==================
</TABLE>
71
<PAGE>
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that each of Archstone Communities Trust, a
Maryland real estate investment trust, and the undersigned Trustees and officers
of Archstone Communities Trust, hereby constitutes and appoints, R. Scot
Sellers, Patrick R. Whelan, Charles E. Mueller, Jr., William Kell, Ash K.
Atwood, Jeffrey A. Klopf, and Edward J. Schneidman its or his true and lawful
attorneys-in-fact and agents, for it or him and in its or his name, place and
stead, in any and all capacities, with full power to act alone, to sign any and
all amendments to this report, and to file each such amendment to this report,
with all exhibits thereto, and any and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform any and all acts and things requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as it or he might
or could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents, or any of them may lawfully do or cause to be done by virtue
hereof.
72
<PAGE>
Archstone Communities Trust
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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/ R. SCOT SELLERS
-------------------------------------
R. Scot Sellers
Chairman and Chief Executive Officer
Date: March 15, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ R. SCOT SELLERS Chairman, Chief Executive Officer March 15, 1999
- -----------------------------------
R. Scot Sellers
/s/ CHARLES E. MUELLER, JR. Chief Financial Officer and Senior March 15, 1999
- ----------------------------------- Vice President
Charles E. Mueller, Jr.
/s/ WILLIAM KELL Controller and Senior Vice President March 15, 1999
- -----------------------------------
William Kell
/s/ JAMES A. CARDWELL Trustee March 15, 1999
- -----------------------------------
James A. Cardwell
/s/ NED S. HOLMES Trustee March 15, 1999
- -----------------------------------
Ned S. Holmes
/s/ JOHN T. KELLEY III Trustee March 15, 1999
- -----------------------------------
John T. Kelley III
/s/ CALVIN K. KESSLER Trustee March 15, 1999
- -----------------------------------
Calvin K. Kessler
/s/ CONSTANCE B. MOORE Trustee March 15, 1999
- -----------------------------------
Constance B. Moore
/s/ JAMES H. POLK III Trustee March 15, 1999
- -----------------------------------
James H. Polk III
/s/ JOHN M. RICHMAN Trustee March 15, 1999
- -----------------------------------
John M. Richman
/s/ JOHN C. SCHWEITZER Trustee March 15, 1999
- -----------------------------------
John C. Schweitzer
</TABLE>
73
<PAGE>
Index to Exhibits
Certain of the following 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.
<TABLE>
<CAPTION>
Number Description
- --------- -------------
<C> <S>
3.1 Amended and Restated Declaration of Trust of Archstone (incorporated by reference to Exhibit 4.1
to Archstone's Current Report on Form 8-K dated July 7, 1998)
3.2 Amended and Restated Bylaws of Archstone (incorporated by reference to Exhibit 4.2 to Archstone's
Current Report on Form 8-K dated July 7, 1998)
4.1 Indenture, dated as of February 1, 1994, between Archstone and Morgan Guaranty Trust Company of
New York, as Trustee relating to Archstone's unsecured senior debt securities (incorporated by
reference to Exhibit 4.2 to Archstone's Annual Report on Form 10-K for the year ended December
31, 1993)
4.2 First Supplemental Indenture, dated as of February 2, 1994, among Archstone, Morgan Guaranty
Trust Company of New York and State Street Bank and Trust Company, as successor Trustee
(incorporated by reference to Exhibit 4.3 to Archstone's Annual Report on Form 8-K dated July 19,
1994)
4.3 Rights Agreement, dated as of July 21, 1994, between Archstone and Chemical Bank, including Form
of Rights Certificate (incorporated by reference to Exhibit 4.2 to Archstone's Current Report on
Form 8-K dated July 19, 1994)
4.4 First Amendment, dated as of February 8, 1995, to the Rights Agreement (incorporated by reference
to Exhibit 4.13 to Archstone's Annual Report on Form 10-K for the year ended December 31, 1994)
10.1 1987 Share Option Plan for Outside Trustees, as amended (incorporated by reference to Exhibit
10.1 to Annual Report on Form 10-K for the year ended December 31, 1995)
10.2 1996 Share Option Plan for Outside Trustees
10.3 Amendment to the 1996 Share Option Plan for Outside Trustees (incorporated by reference to
Exhibit 4.6 to Archstone's Registration Statement on Form S-8 (File No. 333-60815))
10.4 Archstone 1997 Long-Term Incentive Plan (incorporated by reference to Annex II to Security
Capital Group`s Registration Statement on Form S-11 (File No. 333-26267))
10.5 First Amendment to Archstone 1997 Long-Term Incentive Plan (incorporated by reference to Exhibit
4.6 to Archstone's Registration Statement on Form S-8 (File No. 333-60847))
10.6 Form of Indemnification Agreement entered into between Archstone and each of its officers and
Trustees (incorporated by reference to Exhibit 10.5 to Archstone's Registration Statement No.
333-43201))
10.7 Third Amended and Restated Investor Agreement, dated as of September 9, 1997, between Archstone
and Security Capital Group (incorporated by reference to Exhibit 10.2 to Security Capital Group's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997)
10.8 Amendment No. 1 to Third Amended and Restated Investor Agreement (incorporated by reference to
Exhibit 10.1 to Archstone's Current Report on Form 8-K dated July 7, 1998)
10.9 Amended and Restated Credit Agreement, dated as of July 7, 1998, among Archstone, Chase Bank of
Texas, National Association, Morgan Guaranty Trust company of New York, and Wells Fargo National
Association, as co-agents, and the lenders named therein (incorporated by reference to Exhibit
10.1 to Archstone's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998)
10.10 Master Credit Facility Agreement, dated as of December 1, 1998, by and among Archstone and ASN
Multifamily Limited Partnership and Berkshire Mortgage Finance Limited Partnership
10.11 Amended and Restated Promissory Note, dated as of May 28, 1996, by Homestead Village Incorporated
in favor of Archstone (incorporated by reference to Exhibit 4.3 to Homestead's Registration
Statement on Form S-4 (File No. 333-4455)
</TABLE>
74
<PAGE>
Index to Exhibits (Concluded)
<TABLE>
<CAPTION>
Number Description
- --------- ---------------
<C> <S>
10.12 Amended and Restated Promissory Note, dated as of May 28, 1996, by PTR Homestead Village Limited
Partnership in favor of Archstone (incorporated by reference to Exhibit 4.4 to Homestead's
Registration Statement on Form S-4 (File No. 333-4455)
10.13 Protection of Business Agreement, dated as of October 17, 1996, among Security Capital Atlantic
Incorporated, PTR, Security Capital Group and Homestead (incorporated by Reference to Exhibit
10.12 to Archstone's Annual Report Form 10-K for the year ended December 31, 1996)
10.14 Investor and Registration Rights Agreement, dated as of October 17, 1996, between Homestead and
Archstone (incorporated by reference to Exhibit 10.13 to Archstone's Annual Report on Form 10-K
for the year ended December 31, 1996)
10.15 Administrative Services Agreement, dated as of September 9, 1997, between Archstone and Security
Capital Group (incorporated by reference to Exhibit 10.5 to Security Capital Group's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997)
10.16 Archstone 1998 Dividend Reinvestment and Share Purchase Plan (incorporated by reference to the
prospectus contained in Archstone's Form S-3 Registration Statement No. 333-44639)
12.1 Computation of Ratio of Earnings to Fixed Charges
12.2 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Share Dividends
21 Subsidiaries of Archstone
22 Consent of KPMG LLP
23 Power of Attorney (included at page 72)
27 Financial Data Schedule
99.1 Current Development Activity
99.2 Long-Term Unsecured Debt
99.3 Mortgages Payable
</TABLE>
75
<PAGE>
Exhibit 10.10
MASTER CREDIT FACILITY AGREEMENT
dated as of December 1, 1998
by and among
ARCHSTONE COMMUNITIES TRUST,
a Maryland real estate investment trust,
and
ASN MULTIFAMILY LIMITED PARTNERSHIP,
a Delaware limited partnership,
collectively, as the "Borrower Parties,"
and
BERKSHIRE MORTGAGE FINANCE LIMITED PARTNERSHIP,
a Massachusetts limited partnership,
as the "Lender"
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINITIONS.............................................................................2
ARTICLE II THE REVOLVING FACILITY COMMITMENT......................................................28
SECTION 2.1 Revolving Facility Commitment.................................................28
SECTION 2.2 Requests for Advances.........................................................28
SECTION 2.3 Maturity Date of Revolving Advances...........................................28
SECTION 2.4 Repayment at Maturity; Partial Month Interest; Revolving Facility Fee.........28
SECTION 2.5 Coupon Rates for Revolving Advances...........................................29
SECTION 2.6 Revolving Facility Note.......................................................30
SECTION 2.7 No Amortization...............................................................30
SECTION 2.8 Limit on Number of Outstanding Advances.......................................30
SECTION 2.9 Reduction of Revolving Facility Commitment Upon Rating Downgrade..............30
ARTICLE III THE BASE FACILITY COMMITMENT...........................................................30
SECTION 3.1 Conversion of Revolving Facility Commitment to Base Facility Commitment.......30
SECTION 3.2 Base Facility Commitment......................................................31
SECTION 3.3 Requests for Base Facility Advances...........................................31
SECTION 3.4 Maturity Date of Base Facility Advances; Amortization Period..................31
SECTION 3.5 Interest on Base Facility Advances............................................31
SECTION 3.6 Coupon Rates for Base Facility Advances.......................................32
SECTION 3.7 Base Facility Notes...........................................................32
SECTION 3.8 Limitations on Right to Convert...............................................32
SECTION 3.9 Conditions Precedent to Conversion/Rollover...................................32
SECTION 3.10 Rollover of Maturing Base Facility Advances...................................33
SECTION 3.11 Repayment of Base Facility Advances Upon Rating Downgrade.....................33
ARTICLE IV RATE SETTING FOR THE ADVANCES..........................................................33
SECTION 4.1 Rate Setting for an Advance...................................................33
SECTION 4.2 Advance Confirmation Instrument for Revolving Advances........................35
SECTION 4.3 Breakage and other Costs......................................................35
ARTICLE V MAKING THE ADVANCES....................................................................35
SECTION 5.1 Initial Advance...............................................................35
SECTION 5.2 Future Advances...............................................................36
SECTION 5.3 Conditions Precedent to Future Advances.......................................36
ARTICLE VI ADDITIONS OF COLLATERAL................................................................38
SECTION 6.1 Right to Add Collateral.......................................................38
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 6.2 Procedure for Adding Collateral...............................................38
SECTION 6.3 Conditions Precedent to Addition of an Additional Mortgaged Property to
the Collateral Pool...........................................................39
ARTICLE VII SUBSTITUTION OF COLLATERAL.............................................................40
SECTION 7.1 Right to Substitute Collateral................................................40
SECTION 7.2 Procedure for Substituting Collateral.........................................40
SECTION 7.3 Conditions Precedent to Substitution of a Substituted Mortgaged Property
into the Collateral Pool......................................................42
SECTION 7.4 Restriction on Borrowings.....................................................43
ARTICLE VIII RELEASES OF COLLATERAL.................................................................44
SECTION 8.1 Right to Obtain Releases of Collateral........................................44
SECTION 8.2 Procedure for Obtaining Releases of Collateral................................44
SECTION 8.3 Conditions Precedent to Release of Collateral Release Property from the
Collateral....................................................................46
ARTICLE IX INCREASE OF REVOLVING FACILITY COMMITMENT..............................................47
SECTION 9.1 Request to Increase Revolving Facility Commitment.............................47
SECTION 9.2 Right to Increase Revolving Facility Commitment Based on "Oaks in
Fairlakes"....................................................................48
SECTION 9.3 Additional Limited Right to Increase Revolving Facility Commitment............48
ARTICLE X COMPLETE OR PARTIAL TERMINATION OF REVOLVING FACILITY..................................50
SECTION 10.1 Right to Complete or Partial Termination of Revolving Facility................50
SECTION 10.2 Procedure for Complete or Partial Termination of Revolving Facility...........50
SECTION 10.3 Conditions Precedent to Partial Termination of Revolving Facility.............50
ARTICLE XI TERMINATION OF CREDIT FACILITY.........................................................51
SECTION 11.1 Right to Terminate Credit Facility............................................51
SECTION 11.2 Procedure for Terminating Credit Facility.....................................51
SECTION 11.3 Conditions Precedent to Termination of Credit Facility........................52
ARTICLE XII GENERAL CONDITIONS PRECEDENT TO ALL REQUESTS...........................................52
SECTION 12.1 Conditions Applicable to All Requests.........................................52
SECTION 12.2 Delivery of Closing Documents Relating to Initial Advance Request,
Collateral Addition Request, Collateral Substitution Request, Oaks in
Fairlakes Commitment Increase or Additional Commitment Increase...............53
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SECTION 12.3 Delivery of Property-Related Documents........................................54
ARTICLE XIII REPRESENTATIONS AND WARRANTIES.........................................................55
SECTION 13.1 Representations and Warranties of the Borrower Parties........................55
SECTION 13.2 Representations and Warranties of the Borrower................................57
ARTICLE XIV AFFIRMATIVE COVENANTS..................................................................62
SECTION 14.1 Covenants of the Borrower Parties.............................................62
SECTION 14.2 Covenants of the Borrower.....................................................66
ARTICLE XV NEGATIVE COVENANTS OF THE BORROWER.....................................................76
SECTION 15.1 Other Activities..............................................................76
SECTION 15.2 Value of Security.............................................................76
SECTION 15.3 Zoning........................................................................76
SECTION 15.4 Liens.........................................................................77
SECTION 15.6 Indebtedness..................................................................77
SECTION 15.7 Principal Place of Business...................................................77
SECTION 15.8 Frequency of Requests.........................................................77
SECTION 15.9 Change in Property Management.................................................77
SECTION 15.10 Shelf Condominiums............................................................77
SECTION 15.11 Restrictions on Partnership Distributions.....................................77
SECTION 15.12 Lines of Business.............................................................77
ARTICLE XVI FINANCIAL COVENANTS OF THE BORROWER PARTIES............................................78
SECTION 16.1 Financial Definitions.........................................................78
SECTION 16.2 Compliance with REIT's Consolidated Debt to Total Assets Ratio................79
SECTION 16.3 Compliance with REIT's Consolidated Income Available for Debt Service to
Annual Service Charge Ratio...................................................79
SECTION 16.4 Cure by REIT of Financial Covenants...........................................79
SECTION 16.5 Additional Collateral.........................................................80
ARTICLE XVII REPRESENTATIONS AND WARRANTIES AND COVENANTS BY LENDER.................................85
SECTION 17.1 Representations and Warranties of the Lender..................................85
SECTION 17.2 Determination of Allocable Credit Facility Amount and Valuations..............85
ARTICLE XVIII FEES...................................................................................87
SECTION 18.1 Standby Fee...................................................................87
SECTION 18.2 Origination Fees..............................................................87
SECTION 18.3 Due Diligence Fees............................................................88
SECTION 18.4 Legal Fees and Expenses.......................................................89
SECTION 18.5 MBS-Related Rollover Costs....................................................89
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SECTION 18.6 Failure to Close any Request..................................................89
SECTION 18.7 Other Fees....................................................................90
ARTICLE XIX EVENTS OF DEFAULT......................................................................90
SECTION 19.1 Events of Default.............................................................90
ARTICLE XX REMEDIES...............................................................................93
SECTION 20.1 Remedies; Waivers.............................................................93
SECTION 20.2 Waivers; Rescission of Declaration............................................93
SECTION 20.3 The Lender's Right to Protect Collateral and Perform Covenants and Other
Obligations...................................................................93
SECTION 20.4 No Remedy Exclusive...........................................................94
SECTION 20.5 No Waiver.....................................................................94
SECTION 20.6 No Notice.....................................................................94
SECTION 20.7 Application of Payments.......................................................94
ARTICLE XXI RIGHTS OF FANNIE MAE...................................................................94
SECTION 21.1 Special Pool Purchase Contract................................................94
SECTION 21.2 Assignment of Rights..........................................................95
SECTION 21.3 Release of Collateral.........................................................95
SECTION 21.4 Replacement of Lender.........................................................95
SECTION 21.5 Fannie Mae and Lender Fees and Expenses.......................................95
SECTION 21.6 Third-Party Beneficiary.......................................................95
ARTICLE XXII INSURANCE, REAL ESTATE TAXES AND REPLACEMENT RESERVES..................................96
SECTION 22.1 Insurance and Real Estate Taxes...............................................96
SECTION 22.2 Replacement Reserves.........................................................100
ARTICLE XXIII HEDGES................................................................................101
SECTION 23.1 Interest Rate Protection.....................................................101
SECTION 23.2 Terms and Conditions.........................................................102
SECTION 23.3 Hedge Assignment; Delivery of Hedge Payments.................................102
SECTION 23.4 Termination..................................................................102
SECTION 23.5 Performance Under Hedge Documents............................................102
SECTION 23.6 Escrow Provisions............................................................103
ARTICLE XXIV LIMITS ON PERSONAL LIABILITY..........................................................107
SECTION 24.1 Limits on Personal Liability.................................................107
ARTICLE XXV MISCELLANEOUS PROVISIONS..............................................................108
SECTION 25.1 Counterparts.................................................................108
SECTION 25.2 Amendments, Changes and Modifications........................................109
SECTION 25.3 Payment of Costs, Fees and Expenses..........................................109
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SECTION 25.4 Payment Procedure............................................................110
SECTION 25.5 Payments on Business Days....................................................110
SECTION 25.6 Choice of Law; Consent to Jurisdiction; Waiver of Jury Trial.................110
SECTION 25.7 Severability.................................................................111
SECTION 25.8 Notices......................................................................111
SECTION 25.9 Further Assurances and Corrective Instruments................................114
SECTION 25.10 Term of this Agreement.......................................................114
SECTION 25.11 Assignments; Third-Party Rights..............................................114
SECTION 25.12 Headings.....................................................................114
SECTION 25.13 General Interpretive Principles..............................................114
SECTION 25.14 Interpretation...............................................................115
SECTION 25.15 Decisions in Writing.........................................................115
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Page
LIST OF EXHIBITS
Exhibit A - List of Multifamily Residential Properties
Exhibit B - Base Facility Note
Exhibit C - Cap Security Agreement
Exhibit D - Cash Management Agreement
Exhibit E - Compliance Certificate
Exhibit F-1 - Facility Debt Service (Actual)
Exhibit F-2 - Facility Debt Service (Floor)
Exhibit G - Organizational Certificate (REIT and Borrower)
Exhibit H - Replacement Reserve Agreement
Exhibit I - Revolving Credit Endorsement
Exhibit J - Revolving Facility Note
Exhibit K - Form of Multifamily Mortgage, Deed of Trust or Deed
to Secure Debt, Assignment of Leases and Rents and
Security Agreement
Exhibit L - Tie-In Endorsement
Exhibit M - Conversion Request
Exhibit N - Master Credit Facility Agreement Conversion Amendment
Exhibit O - Rate Setting Form
Exhibit P - Rate Confirmation Form
Exhibit Q - Advance Confirmation Instrument
Exhibit R - Future Advance Request
Exhibit S - Collateral Addition Request
Exhibit T - Collateral Addition Description Package
Exhibit U - Collateral Addition Request - Supporting Documents
Exhibit V - Collateral Substitution Request
Exhibit W - Collateral Substitution Description Package
Exhibit X - Collateral Substitution Request - Supporting
Documents
Exhibit Y - Collateral Release Request
Exhibit Z - Borrower Parties' Confirmation of Obligations
Exhibit AA - Revolving Facility Termination Request
Exhibit BB - Revolving Facility Termination Notice
Exhibit CC - Credit Facility Termination Request
Exhibit DD - Schedule of Approved Property Management Agreements
Exhibit EE - REIT Guaranty
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MASTER CREDIT FACILITY AGREEMENT
THIS MASTER CREDIT FACILITY AGREEMENT is made as of the 1st day of
December, 1998 and among (i) (a) ARCHSTONE COMMUNITIES TRUST, a Maryland real
estate investment trust ("REIT"), and (b) ASN MULTIFAMILY LIMITED PARTNERSHIP, a
Delaware limited partnership ("Borrower") (the REIT and the Borrower being
collectively referred to as the "Borrower Parties"), and (ii) BERKSHIRE MORTGAGE
FINANCE LIMITED PARTNERSHIP, a Massachusetts limited partnership ("Lender").
RECITALS
--------
A. The REIT owns 100% of the outstanding stock of SCA - North
Carolina (1) Incorporated, a Maryland corporation, the sole general partner of
the Borrower, and 100% of the outstanding stock of SCA - North Carolina (2)
Incorporated, a Maryland corporation, the sole limited partner of the Borrower.
B. The Borrower owns the Multifamily Residential Properties
(capitalized terms used but not defined shall have the meanings ascribed to such
terms in Article I of this Agreement) as more particularly described in Exhibit
A to this Agreement.
C. The Borrower has requested that the Lender establish a
$300,000,000 Credit Facility in favor of the Borrower, comprised initially of a
$300,000,000 Revolving Facility, all or part of which can be converted to a Base
Facility in accordance with, and subject to, the terms and conditions of this
Agreement.
D. To secure the obligations of the Borrower Parties under this
Agreement and the other Loan Documents issued in connection with the Credit
Facility, the Borrower shall create a Collateral Pool in favor of the Lender.
The Collateral Pool shall be comprised of (i) Security Instruments on all of the
Multifamily Residential Properties owned by the Borrower and (ii) any other
Security Documents executed by any other Borrower Party pursuant to this
Agreement or any other Loan Documents.
E. Each of the Security Documents shall be cross-defaulted (i.e.,
a default under any Security Document, or under this Agreement, shall constitute
a default under each Security Document, and this Agreement) and
cross-collateralized (i.e., each Security Instrument shall secure all of the
Borrower Parties' obligations under this Agreement and the other Loan Documents
issued in connection with the Credit Facility).
F. Subject to the terms, conditions and limitations of this
Agreement, the Lender has agreed to establish the Credit Facility.
NOW, THEREFORE, the Borrower Parties and the Lender, in consideration
of the mutual promises and agreements contained in this Agreement, hereby agree
as follows:
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ARTICLE I
DEFINITIONS
For all purposes of this Agreement, the following terms shall have the
respective meanings set forth below:
"Additional Collateral" means (a) one or more Additional
Collateral Letters of Credit, as defined in, and delivered to Lender in
accordance with the provisions of, Section 16.5; (b) Permitted
Investments acceptable to Lender and pledged to Lender in accordance
with the provisions of Section 16.5; and (c) any Cash Collateral (as
defined in Section 8.2(d)) held by the Lender pursuant to Section
8.2(d) or 16.4.
"Additional Mortgaged Property" means each Multifamily
Residential Property owned by the Borrower and added to the Collateral
Pool after the Initial Closing Date pursuant to Article VI.
"Advance" means a Revolving Advance or a Base Facility
Advance.
"Advance Confirmation Instrument" shall have the meaning set
forth in Section 4.2.
"Affiliate" or "affiliated" means, when used with reference to
a specified Person, (a) any Person that, directly or indirectly,
through one or more intermediaries, controls or is controlled by, or is
under common control with, the specified Person, (b) any Person that is
an officer of, partner in or trustee of, or serves in a similar
capacity with respect to, the specified Person or of which the
specified Person is an officer, partner or trustee, or with respect to
which the specified Person serves in a similar capacity, (c) any Person
that, directly or indirectly, is the beneficial owner of 10% or more of
any class of equity securities of, or otherwise has a substantial
beneficial interest in, the specified Person or of which the specified
Person is, directly or indirectly, the owner of 10% or more of any
class of equity securities or in which the specified Person has a
substantial beneficial interest, and (d) for the specified Person, any
of the individual's spouse, issue, parents, siblings and a trust for
the benefit of the individual's spouse or issue, or both.
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"Aggregate Debt Service Coverage Ratio for a 12 Month Period
(Actual)" means, for any specified date, the ratio (expressed as a
percentage) of --
(a) the sum of --
(i) the aggregate of the Net Operating Income
for the Trailing 12 Month Period for the Mortgaged Properties,
plus
(ii) the product of: (A) the aggregate principal
sum of Additional Collateral (exclusive of Additional
Collateral Letters of Credit) then held by the Lender, times
(B) the weighted average of the annual rates of interest then
being earned on the Additional Collateral described in the
immediately preceding clause (ii)(A),
to
(b) the Facility Debt Service (Actual) on such
date.
"Aggregate Debt Service Coverage Ratio for a 12 Month Period
(Floor)" means, for any specified date, the ratio (expressed as a
percentage) of --
(a) the sum of --
(i) the aggregate of the Net Operating Income
for the Trailing 12 Month Period for the Mortgaged Properties,
plus
(ii) the product of: (A) the aggregate principal
sum of Additional Collateral (exclusive of Additional
Collateral Letters of Credit) then held by the Lender, times
(B) the weighted average of the annual rates of interest then
being earned on the Additional Collateral described in the
immediately preceding clause (ii)(A), to
(b) the Facility Debt Service (Floor) on such date.
"Aggregate Debt Service Coverage Ratio for a Three Month
Period (Actual)" means, for any specified date, the ratio (expressed as
a percentage) of--
(a) the sum of --
(i) the product of: (A) the aggregate of
the Net Operating Income for the Trailing Three Month
Period for the Mortgaged Properties, times (B) four, plus
(ii) the product of: (A) the aggregate principal
sum of Additional Collateral (exclusive of Additional
Collateral Letters of Credit) then held by the Lender, times
(B) the weighted average of the annual rates of interest then
being
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earned on the Additional Collateral described in the
immediately preceding clause (ii)(A),
to
(b) the Facility Debt Service (Actual) on such date.
"Aggregate Debt Service Coverage Ratio for a Three Month
Period (Floor)" means, for any specified date, the ratio (expressed as
a percentage) of --
(a) the sum of --
(i) the product of: (A) the aggregate of the
Net Operating Income for the Trailing Three Month Period for
the Mortgaged Properties, times (B) four, plus
(ii) the product of: (A) the aggregate principal
sum of Additional Collateral (exclusive of Additional
Collateral Letters of Credit) then held by the Lender, times
(B) the weighted average of the annual rates of interest then
being earned on the Additional Collateral described in the
immediately preceding clause (ii)(A),
to
(b) the Facility Debt Service (Floor) on such date.
"Aggregate Debt Service Coverage Ratios" means, collectively,
the Aggregate Debt Service Coverage Ratio for a 12 Month Period
(Actual), the Aggregate Debt Service Coverage Ratio for a 12 Month
Period (Floor), the Aggregate Debt Service Coverage Ratio for a Three
Month Period (Actual) and the Aggregate Debt Service Coverage Ratio for
a Three Month Period (Floor).
"Aggregate Loan to Value Ratio" means, for any specified date,
the ratio (expressed as a percentage) of--
(a) the result of --
(i) the Advances Outstanding on the specified
date, minus
(ii) the aggregate principal sum of all Additional
Collateral then held by the Lender,
to
(b) the aggregate of the Valuations most recently
obtained prior to the specified date for all of the Mortgaged
Properties.
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"Agreement" means this Master Credit Facility Agreement, as it
may be amended, supplemented or otherwise modified from time to time,
including all Recitals and Exhibits to this Agreement, each of which is
hereby incorporated into this Agreement by this reference.
"Allocable Credit Facility Amount" means, as of the date of
determination, with respect to each Mortgaged Property, an amount equal
to the product obtained by multiplying --
(a) the ratio (expressed as a percentage) of --
(i) the most recent Valuation of the Mortgaged
Property to
(ii) the aggregate of the most recent Valuations
of all of the Mortgaged Properties; by
(b) the Maximum Credit Facility Commitment.
The Allocable Credit Facility Amount shall be redetermined on an annual
basis and at other specified times, all in accordance with Section
17.2.
"Amortization Period" means, with respect to each Base
Facility Advance, the period of 30 years, or such lesser period of time
as Borrower shall request and Lender shall approve pursuant to Section
3.4.
"Applicable Law" means (a) all applicable provisions of all
constitutions, statutes, rules, regulations and orders of all
governmental bodies, all Governmental Approvals and all orders,
judgments and decrees of all courts and arbitrators, (b) all zoning,
building, environmental and other laws, ordinances, rules, regulations
and restrictions of any Governmental Authority affecting the ownership,
management, use, operation, maintenance or repair of any Mortgaged
Property, including the Americans with Disabilities Act (if
applicable), the Fair Housing Amendment Act of 1988 and Hazardous
Materials Laws, (c) any building permits or any conditions, easements,
rights-of-way, covenants, restrictions of record or any recorded or
unrecorded agreement affecting or concerning any Mortgaged Property
including planned development permits, condominium declarations, and
reciprocal easement and regulatory agreements with any Governmental
Authority, (d) all laws, ordinances, rules and regulations, whether in
the form of rent control, rent stabilization or otherwise, that limit
or impose conditions on the amount of rent that may be collected from
the units of any Mortgaged Property, and (e) requirements of insurance
companies or similar organizations, affecting the operation or use of
any Mortgaged Property or the consummation of the transactions to be
effected by this Agreement or any of the other Loan Documents.
"Appraisal" means an appraisal of a Multifamily Residential
Property or Multifamily Residential Properties conforming to the
requirements of Chapter 5 of Part III of the DUS Guide, and accepted by
the Lender.
"Appraised Value" means the value set forth in an Appraisal.
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"Base Facility" means the agreement of the Lender to make Base
Facility Advances to the Borrower pursuant to Article III.
"Base Facility Availability Period" means the period beginning
on the Initial Closing Date and ending on the 90th day before the
Revolving Facility Termination Date.
"Base Facility Advance" means a loan made by the Lender to the
Borrower under the Base Facility Commitment.
"Base Facility Commitment" means an amount equal to the
aggregate amount of Revolving Facility Commitment which is converted to
Base Facility Commitment in accordance with, and subject to, the
provisions of Article III.
"Base Facility Fee" means (a) for any Base Facility Advance
converted from the Revolving Facility Commitment available under this
Agreement which (i) has a maturity date which does not extend beyond
the Revolving Facility Termination Date and (ii) is, in all material
respects (as determined by the Lender), consistent with the terms of
the Revolving Facility hereunder (i.e. as to lock-out period, etc.), 58
basis points; and (b) for any Base Facility Advance converted from any
portion of the Revolving Facility Commitment available under this
Agreement which (i) has a maturity date which does extend beyond the
Revolving Credit Facility Termination Date and/or (ii) is not, in all
material respects (as determined by the Lender), consistent with the
terms of the Revolving Facility hereunder, the number of basis points
determined at the time of such conversion by the Lender as the Base
Facility Fee for such Base Facility Advance.
"Base Facility Fee Yield Maintenance Amount," for a specified
Base Facility Note, shall have the meaning set forth in the Base
Facility Note.
"Base Facility Note" means a promissory note, in the form
attached as Exhibit B to this Agreement, which will be issued by the
Borrower to the Lender, concurrently with the funding of each Base
Facility Advance, to evidence the Borrower's obligation to repay the
Base Facility Advance.
"Base Facility Termination Fee" means, with respect to any
Credit Facility Termination Request, the aggregate of the Base Facility
Fee Yield Maintenance Amounts calculated under the Base Facility Notes.
"Borrower" means ASN Multifamily Limited Partnership, a
Delaware limited partnership.
"Borrower Parties" means the REIT and the Borrower.
"Business Day" means a day on which Fannie Mae is open for
business.
"Cap" means an interest rate cap.
"Cap Documents" means the documents evidencing and governing a
Cap, including a Cap Security Agreement.
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"Capitalization Rate" means, for each Mortgaged Property, a
capitalization rate selected by the Lender in accordance with Section
17.2 for use in determining the Valuations.
"Cap Security Agreement" means, with respect to a Cap, the
Interest Rate Hedge Security, Pledge and Assignment Agreement by and
among the Borrower, the Lender and the Servicer, for the benefit of the
Lender, in the form attached as Exhibit C to this Agreement, as such
agreement may be amended, modified, supplemented or restated from time
to time.
"Cash Management Agreement" means that certain Cash Management
Security, Pledge and Assignment Agreement between the Borrower and the
Lender in the form attached as Exhibit D to this Agreement.
"Change of Control" means, with respect to any Person and
during any period of twelve consecutive months, the failure of
individuals who are members of the board of directors of such Person at
the beginning of such period (together with any new or replacement
directors whose initial nomination for election was approved by a
majority of such members and other members previously so approved) to
constitute a majority of such board of directors at the end of such
period.
"Closing Date" means the Initial Closing Date and each date
after the Initial Closing Date on which the funding or other
transaction requested in a Request is required to take place.
"Collateral" means, the Mortgaged Properties and other
collateral from time to time or at any time encumbered by the Security
Instruments, or any other property securing any of the Borrower
Parties' obligations under the Loan Documents.
"Collateral Addition Fee" means, with respect to a Multifamily
Residential Property added to the Collateral Pool in accordance with
Article VI, a fee equal to the lesser of --
(a) the product obtained by multiplying --
(i) 30 basis points, by
(ii) the Allocable Credit Facility Amount to be
attributed to the Additional Mortgaged Property upon its
addition to the Collateral Pool; or
(b) $60,000.
"Collateral Addition Loan Documents" means the Security
Instrument covering an Additional Mortgaged Property and any other
documents, instruments or certificates required by the Lender in
connection with the addition of the Additional Mortgaged Property to
the Collateral Pool pursuant to Article VI.
"Collateral Addition Request" shall have the meaning set forth
in Section 6.2(a).
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"Collateral Pool" means the aggregate total of the Collateral.
"Collateral Release Documents" shall have the meaning set
forth in Section 8.2(b).
"Collateral Release Property" shall have the meaning set forth
in Section 8.2(a).
"Collateral Release Request" shall have the meaning set forth
in Section 8.2(a).
"Collateral Substitution Fee" means, with respect to a
Multifamily Residential Property substituted into the Collateral Pool
in accordance with Article VII, a fee equal to the lesser of --
(a) the product obtained by multiplying --
(i) 30 basis points, by
(ii) the Allocable Credit Facility Amount to be
attributed to the Substituted Mortgaged Property after its
substitution into the Collateral Pool; or
(b) $60,000.
"Collateral Substitution Loan Documents" means the Security
Instrument covering a Substituted Mortgaged Property and any other
documents, instruments or certificates required by the Lender in
connection with the addition of the Substituted Mortgaged Property to
the Collateral Pool pursuant to Article VII.
"Collateral Substitution Request" shall have the meaning set
forth in Section 7.2(a).
"Complete Revolving Facility Termination" shall have the
meaning set forth in Section 10.2(a).
"Compliance Certificate" means a certificate of the Borrower
Parties in the form attached as Exhibit E to this Agreement.
"Conversion Request" shall have the meaning set forth in
Section 3.1(a).
"Coupon Rate" means, with respect a Revolving Advance, the
imputed interest rate determined by the Lender pursuant to Section 2.5
for the Revolving Advance and, with respect to a Base Facility Advance,
the interest rate determined by the Lender pursuant to Section 3.5 for
the Base Facility Advance.
"Coverage and LTV Tests" mean, for any specified date, each of
the following financial tests:
(a) The Aggregate Debt Service Coverage Ratio for the
Trailing 12 Month Period (Actual) is not less than 145%.
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(b) The Aggregate Debt Coverage Ratio for the Trailing 12
Month Period (Floor) is not less than 135%.
(c) The Aggregate Debt Service Coverage Ratio for the
Trailing Three Month Period (Actual) is not less than 140%.
(d) The Aggregate Debt Coverage Ratio for the Trailing
Three Month Period (Floor) is not less than 130%.
(e) The Aggregate Loan to Value Ratio does not exceed
65%.
"Credit Facility" means, collectively, the Base Facility and
the Revolving Facility.
"Credit Facility Expansion Loan Documents" means an amendment
to the Revolving Facility Note, increasing the amount of the Maximum
Credit Facility Commitment, as expanded in accordance with Article IX,
and amendments to the Security Instruments, increasing the amount
secured to the increased amount of the Maximum Credit Facility
Commitment.
"Credit Facility Termination Date" means, (a) at any time
during which Base Facility Advances are Outstanding, the latest of: (i)
the last maturity date for any Base Facility Advance Outstanding and
(ii) the Revolving Facility Termination Date, and (b) at any time
during which Base Facility Advances are not Outstanding, the Revolving
Facility Termination Date, but, in either case, on any earlier date on
which this Agreement is terminated.
"Credit Facility Termination Fee" means an amount equal to the
sum of--
(a) the Base Facility Termination Fee, if any;
and
(b) the Revolving Facility Termination Fee, if
any.
"Credit Facility Termination Request" shall have the meaning
set forth in Section 11.2(a).
"Discount" means, with respect to any Revolving Advance, an
amount equal to the excess of --
(a) the face amount of the MBS backed by the
Revolving Advance, over
(b) the Price of the MBS backed by the Revolving
Advance.
"Duff & Phelps" means Duff & Phelps Credit Rating Company, a
Delaware corporation, and its successors and assigns.
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"DUS Guide" means the Fannie Mae Multifamily Delegated
Underwriting and Servicing (DUS) Guide, as such Guide may be amended
from time to time, including exhibits to the DUS Guide and amendments
in the form of Lender Memos, Guide Updates and Guide Announcements
(and, if such Guide is no longer used by Fannie Mae, the term "DUS
Guide" as used in this Agreement means the Fannie Mae Multifamily
Negotiated Transactions Guide, as such Guide may be amended from time
to time, including amendments in the form of Lender Memos, Guide
Updates and Guide Announcements). All references to specific articles
and sections of, and exhibits to, the DUS Guide shall be deemed
references to such articles, sections and exhibits as they may be
amended, modified, updated, superseded, supplemented or replaced from
time to time.
"DUS Underwriting Requirements" means the overall underwriting
requirements for Multifamily Residential Properties as set forth in the
DUS Guide.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"Event of Default" means any event defined to be an "Event of
Default" under Article XIX.
"Facility Debt Service (Actual)" means, as of any specified
date, the sum of--
(a) the amount of interest and principal amortization, during
the twelve month period following the specified date, with respect to
the Advances Outstanding on the specified date, except that, for these
purposes:
(i) each Revolving Advance shall be deemed to require
level monthly payments of principal and interest (at an
interest rate equal to the weighted average (based on Hedges
then in effect) of the lesser of: (A) the Coupon Rate or (B)
the capped interest rate for all or that allocable portion of
Revolving Advances which are covered by a Cap, and at the
swapped fixed interest rate for all or that allocable portion
of Revolving Advances which are covered by a Swap; for
purposes of such allocation, Revolving Advances with the
higher Coupon Rates shall be allocated first to those
Revolving Advances covered by a Swap) in an amount necessary
to fully amortize the original principal amount of the
Revolving Advance over a 30-year period, with such
amortization deemed to commence on the first day of the twelve
month period, and
(ii) each Base Facility Advance shall be deemed to
require level monthly payments of principal and interest (at
the Coupon Rate for the Base Facility Advance) in an amount
necessary to fully amortize the original principal amount of
the Base Facility Advance over the Amortization Period for the
Base Facility Advance; and
(b) the amount of the Standby Fees payable to the Lender
pursuant to Section 18.1 during such twelve month period (assuming, for
these purposes, that the Advances Outstanding throughout the twelve
month period are always equal to the amount of Advances Outstanding on
the specified date).
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Exhibit F-1 to this Agreement contains an example of the determination
of the Facility Debt Service (Actual).
"Facility Debt Service (Floor)" means, as of any specified
date, the sum of --
(a) the amount of interest and principal amortization, during
the twelve month period following the specified date, with respect to
the Advances Outstanding on the specified date, except that, for these
purposes:
(i) each Revolving Advance shall be deemed to require
level monthly payments of principal and interest (at the rate
of 7.5% per annum for the Revolving Advance) in an amount
necessary to fully amortize the original principal amount of
the Revolving Advance over a 30-year period, with such
amortization deemed to commence on the first day of the twelve
month period; and
(ii) each Base Facility Advance shall be deemed to
require level monthly payments of principal and interest (at
the lesser of the actual rate or the rate of 7.5% per annum
for the Base Facility Advance) in an amount necessary to fully
amortize the original principal amount of the Base Facility
Advance over the Amortization Period for the Base Facility
Advance; and
(b) the amount of the Standby Fees payable to the Lender
pursuant to Section 18.1 during such twelve month period (assuming, for
these purposes, that the Advances Outstanding throughout the twelve
month period are always equal to the amount of Advances Outstanding on
the specified date).
Exhibit F-2 to this Agreement contains an example of the determination
of the Facility Debt Service (Floor).
"Fannie Mae" means the federally-chartered and
stockholder-owned corporation organized and existing under the Federal
National Mortgage Association Charter Act, 12 U.S.C. Section 1716 et
seq.
"Financial Covenants" means the covenants set forth in Article
XVI.
"Fitch" means Fitch IBCA, Inc., a Delaware corporation, and
its successors and assigns.
"Future Advance" means an Advance made after the Initial
Closing Date.
"Future Advance Request" shall have the meaning set forth in
Section 5.2.
"GAAP" means generally accepted accounting principles in the
United States in effect from time to time, consistently applied.
"General Conditions" shall have the meaning set forth in
Article XII.
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"Geographical Diversification Requirements" means, (a) prior
to the occurrence of an increase in the Maximum Credit Facility
Commitment pursuant to Article IX, a requirement that the Collateral
Pool consist of at least seven Mortgaged Properties located in at least
four states with the following additional limitations: (i) the
Mortgaged Properties in the Collateral Pool shall be located in at
least five SMSAs (for purposes of this limitation, any two or more
Mortgaged Properties that are located within one mile of each other
shall be deemed to be located in a single SMSA); (ii) the Mortgaged
Properties in the Collateral Pool that are located in a single SMSA
shall not comprise in the aggregate more than 30% of the Allocable
Credit Facility Amounts of all Mortgaged Properties then in the
Collateral Pool; and (iii) no Mortgaged Property in the Collateral Pool
shall comprise more than 20% of the Allocable Credit Facility Amounts
of all Mortgaged Properties then in the Collateral Pool (for purposes
of this limitation, any two or more Mortgaged Properties that are
located within one mile of each other shall be deemed to be a single
Mortgaged Property); and (b) upon the occurrence of any increase in the
Maximum Credit Facility Commitment pursuant to Article IX, such
requirements as to the geographical diversity of the Collateral Pool as
the Lender may determine and notify the Borrower of at the time of the
increase.
"Governmental Approval" means an authorization, permit,
consent, approval, license, registration or exemption from registration
or filing with, or report to, any Governmental Authority.
"Governmental Authority" means any court, board, agency,
commission, office or authority of any nature whatsoever for any
governmental unit (federal, state, county, district, municipal, city or
otherwise) whether now or hereafter in existence.
"Gross Revenues" means, for any specified period, with respect
to any Multifamily Residential Property, all gross rents collected from
or on behalf of tenants at such Multifamily Residential Property (other
than unforfeited tenant security deposits), any other income, receipts
or reserves (but only to the extent such reserves were included as
Operating Expenses at the times they were set aside) derived from such
Multifamily Residential Property (including from the use or operation
thereof) without regard to its source, including tenant reimbursements
for utilities, services and supplies (to the extent such tenant
reimbursement revenues were not "netted" from the corresponding
Operating Expenses), security deposit forfeitures, parking rents or
fees, concessions and vending fees and laundry income and proceeds from
rental interruption insurance, but excluding insurance proceeds (other
than proceeds from rental interruption insurance), condemnation
proceeds, unearned portion of prepaid rent, other refundable items,
interest on any account into which refundable items are deposited, and
proceeds from the sale or other disposition of all or any portion of a
Multifamily Residential Property.
"Hazardous Materials", with respect to any Mortgaged Property,
shall have the meaning given that term in the Security Instrument
encumbering the Mortgaged Property.
"Hazardous Materials Law", with respect to any Mortgaged
Property, shall have the meaning given that term in the Security
Instrument encumbering the Mortgaged Property.
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"Hazardous Substance Activity" means any storage, holding,
existence, release, spill, leaking, pumping, pouring, injection,
escaping, deposit, disposal, dispersal, leaching, migration, use,
treatment, emission, discharge, generation, processing, abatement,
removal, disposition, handling or transportation of any Hazardous
Materials from, under, into or on any Mortgaged Property in violation
of Hazardous Materials Laws, including the discharge of any Hazardous
Materials emanating from any Mortgaged Property in violation of
Hazardous Materials Laws through the air, soil, surface water,
groundwater or property and also including the abandonment or disposal
of any barrels, containers and other receptacles containing any
Hazardous Materials from or on any Mortgaged Property in violation of
Hazardous Materials Laws, in each case whether sudden or nonsudden,
accidental or nonaccidental.
"Hedge" means either a Cap or a Swap.
"Hedge Documents" means, collectively, the documents
evidencing and governing a Hedge.
"Impositions" means, with respect to any Mortgaged Property,
all (a) water and sewer charges which, if not paid, may result in a
lien on all or any part of the Mortgaged Property, (b) premiums for
fire and other hazard insurance, rent loss insurance and such other
insurance as Lender may require under Section 19 of the Security
Instrument encumbering the Mortgaged Property, (c) Taxes, and (d)
amounts for other charges and expenses which Lender at any time
reasonably deems necessary to protect the Mortgaged Property, to
prevent the imposition of liens on the Mortgaged Property, or otherwise
to protect Lender's interests.
"Indebtedness" means, with respect to any Person, as of any
specified date, without duplication, all:
(a) indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services (other than (i) current
trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices and (ii) amounts to be
paid by such Person, in performance stages or upon completion, pursuant
to a written contract for the making of capital improvements to a
Mortgaged Property permitted by this Agreement or the other Loan
Documents);
(b) other indebtedness of such Person which is evidenced by a
note, bond, debenture or similar instrument;
(c) obligations of such Person under any lease of property,
real or personal, the obligations of the lessee in respect of which are
required by GAAP to be capitalized on a balance sheet of the lessee;
(d) obligations of such Person in respect of acceptances (as
defined in Article 3 of the Uniform Commercial Code of the State of New
York) issued or created for the account of such Person;
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(e) liabilities secured by any Lien on any property owned by
such Person even though such Person has not assumed or otherwise become
liable for the payment of such liabilities; and
(f) as to any Person ("guaranteeing person"), any obligation
of (a) the guaranteeing person or (b) another Person (including any
bank under any letter of credit) to induce the creation of a primary
obligation (as defined below) with respect to which the guaranteeing
person has issued a reimbursement, counterindemnity or similar
obligation, in either case guaranteeing, or in effect guaranteeing, any
indebtedness, lease, dividend or other obligation ("primary
obligations") of any third person ("primary obligor") in any manner,
whether directly or indirectly, including any obligation of the
guaranteeing person, whether or not contingent, to (1) purchase any
such primary obligation or any property constituting direct or indirect
security therefor, (2) advance or supply funds for the purchase or
payment of any such primary obligation or to maintain working capital
or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (3) purchase property,
securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor to
make payment of such primary obligation, or (4) otherwise assure or
hold harmless the owner of any such primary obligation against loss in
respect of the primary obligation, provided, however, that this clause
(f) shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. The amount of any
Indebtedness included under this clause (f) with respect to any
guaranteeing person shall be deemed to be the lesser of (i) an amount
equal to the stated or determinable amount of the primary obligation in
respect of which such Indebtedness is made and (ii) the maximum amount
for which such guaranteeing person may be liable pursuant to the terms
of the instrument embodying such Indebtedness, unless such primary
obligation and the maximum amount for which such guaranteeing person
may be liable are not stated or determinable, in which case the amount
of such Indebtedness shall be such guaranteeing person's maximum
reasonably anticipated liability in respect thereof as determined by
Owner in good faith;
provided, however, that the term Indebtedness shall not include any
liability of the Borrower under any Hedge Documents.
"Initial Advance" means the Revolving Advance made on the
Initial Closing Date in the amount of $268,450,000.
"Initial Advance Request" shall have the meaning set forth in
Section 5.1.
"Initial Closing Date" means the date of the Initial Advance.
"Initial Mortgaged Properties" means the Multifamily
Residential Properties described on Exhibit A to this Agreement and
which represent the Multifamily Residential Properties which are made
part of the Collateral Pool on the Initial Closing Date.
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"Initial Security Instruments" means the Security Instruments
covering the Initial Mortgaged Properties.
"Initial Valuation" means, when used with reference to
specified Collateral, the Valuation initially performed for the
Collateral as of the date on which the Collateral was added to the
Collateral Pool. The Initial Valuation for each of the Initial
Mortgaged Properties is as set forth in Exhibit A to this Agreement.
Notwithstanding the foregoing, in no event shall (a) the aggregate sum
of Initial Valuations for all Mortgaged Properties for which a Title
Insurance Policy was issued with a Tie-In Endorsement (exclusive of the
Mortgaged Properties situated in the State of Texas) exceed an amount
equal to the product obtained by multiplying (i) the limit of liability
of the Tie-In Endorsement (as such limit of liability may be increased
by the Borrower from time to time) by (ii) 1.54, (b) the aggregate sum
of Initial Valuations for all Mortgaged Properties situated in the
State of Texas, all of which Mortgaged Properties shall be insured
under a single Title Insurance Policy, exceed an amount equal to the
product obtained by multiplying the (i) limit of liability under such
Title Insurance Policy (as such limit of liability may be increased by
the Borrower from time to time) by (ii) 1.54.
"Insurance Policy" means, with respect to a Mortgaged
Property, the insurance coverage and insurance certificates evidencing
such insurance required to be maintained pursuant to the Security
Instrument encumbering the Mortgaged Property.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended. Each reference to the Internal Revenue Code shall be
deemed to include (a) any successor internal revenue law and (b) the
applicable regulations whether final or temporary.
"Lease" means any lease, any sublease or subsublease, license,
concession or other agreement (whether written or oral and whether now
or hereafter in effect) pursuant to which any Person is granted a
possessory interest in, or right to use or occupy all or any portion of
any space in any Mortgaged Property, and every modification, amendment
or other agreement relating to such lease, sublease, subsublease or
other agreement entered into in connection with such lease, sublease,
subsublease or other agreement, and every guarantee of the performance
and observance of the covenants, conditions and agreements to be
performed and observed by the other party thereto.
"Lender" shall have the meaning set forth in the first
paragraph of this Agreement, but shall refer to any replacement Lender
if the initial Lender is replaced pursuant to the terms of Section
21.4.
"Lien" means any mortgage, deed of trust, deed to secure debt,
security interest or other lien or encumbrance (including both
consensual and non-consensual liens and encumbrances).
"Loan Documents" means this Agreement, the Notes, the Advance
Confirmation Instruments for the Revolving Advances, the Security
Documents, the REIT Guaranty, all documents executed by the Borrower
Parties pursuant to the General Conditions set forth
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<PAGE>
in Article XII of this Agreement and any other documents executed by a
Borrower Party from time to time in connection with this Agreement or
the transactions contemplated by this Agreement.
"Loan Year" means, (a) with respect to the first Loan Year,
the period from the Initial Closing Date through December 31, 1999, and
(b) with respect to each Loan Year thereafter, the 12-month period from
January 1 through December 31 of such Loan Year.
"Material Adverse Effect" means, with respect to any
circumstance, act, condition or event of whatever nature (including any
adverse determination in any litigation, arbitration, or governmental
investigation or proceeding), whether singly or in conjunction with any
other event or events, act or acts, condition or conditions, or
circumstance or circumstances, whether or not related, a material
adverse change in or a materially adverse effect upon any of (a) the
business, operations, property or condition (financial or otherwise) of
any Borrower Party, (b) the present or future ability of any Borrower
Party to perform the Obligations for which it is liable, (c) the
validity, priority, perfection or enforceability of this Agreement or
any other Loan Document or the rights or remedies of the Lender under
any Loan Document, or (d) the value of, or the Lender's ability to have
recourse against, any Mortgaged Property.
"Maximum Credit Facility Commitment" means, at any time, the
sum of the Base Facility Commitment and the Revolving Facility
Commitment.
"MBS" means mortgage-backed securities. A MBS which is
"backed" by an Advance means that it is backed by an interest in the
Notes and the Collateral Pool securing the Notes, which interest
permits the holder of the MBS to participate in the Notes and the
Collateral Pool to the extent of the Advance.
"MBS Delivery Date" means the date on which a Fannie Mae MBS
is delivered by Fannie Mae.
"MBS Imputed Interest Rate" shall have the meaning set forth
in Section 2.5(a).
"MBS Issue Date" means the date on which a Fannie Mae MBS is
issued by Fannie Mae.
"MBS Pass-Through Rate" for a Base Facility Advance means the
interest rate as determined by the Lender (rounded to three places)
payable for the Fannie Mae MBS pursuant to the MBS Commitment backed by
the Base Facility Advance as determined in accordance with Section 4.1.
"Moody's" means Moody's Investors Service, Inc., a Delaware
corporation, and its successors and assigns.
"Mortgaged Properties" means, collectively, the Additional
Mortgaged Properties, the Substituted Mortgaged Properties and the
Initial Mortgaged Properties, but excluding each Collateral Release
Property from and after the date of the release of the Collateral
Release Property from the Collateral Pool.
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"Multifamily Residential Property" means a residential
property, located in the United States, containing five or more
dwelling units in which not more than twenty percent (20%) of the net
rentable area is or will be rented to non-residential tenants, and
conforming to the requirements of Sections 201 and 203 of Part III of
the DUS Guide.
"Net Operating Income" means, for any specified period, with
respect to any Multifamily Residential Property, the aggregate net
income during such period equal to Gross Revenues during such period
less the aggregate Operating Expenses during such period. If a
Mortgaged Property is not owned by the Borrower or an Affiliate of the
Borrower for the entire specified period, the Net Operating Income for
the Mortgaged Property for the time within the specified period during
which the Mortgaged Property was owned by the Borrower or an Affiliate
of the Borrower shall be the Mortgaged Property's pro forma net
operating income determined by the Lender in accordance with the
underwriting procedures set forth in Part III of the DUS Guide.
"Note" means any Base Facility Note or the Revolving Facility
Note.
"Obligations" means the aggregate of the obligations of each
of the Borrower Parties under this Agreement and the other Loan
Documents.
"Operating Expenses" means, for any period, with respect to
any Multifamily Residential Property, the aggregate of all direct,
ordinary, normal, recurring and necessary expenses thereof (to the
extent such expenses were not "netted" from tenant reimbursement
revenue received by the Borrower) including, without duplication, (a)
Impositions, (b) property and liability insurance premiums, (c) wages,
salaries and benefits of personnel employed on site to manage, lease,
maintain and operate such Multifamily Residential Property, (d) costs
or expenses of utility services to such Multifamily Residential
Property and tenant spaces to the extent payable by the Borrower, (e)
costs or expenses of providing security services to such Multifamily
Residential Property, if any, (f) costs or expenses of in-house or
outside service arrangements for landscaping, janitorial, window
washing and cleaning, trash, debris, make ready units, cable and
satellite television and other services, (g) expenses of maintaining,
repairing and cleaning the grounds, parking, amenities, exterior and
interior spaces of such Multifamily Residential Property, (h) expenses
of repairing and maintaining in good operable condition the mechanical,
structural, electrical, elevator, heating, ventilating, air
conditioning and plumbing expenses, (i) property management fees
payable to parties other than the Borrower (but specifically including
management fees paid to any Affiliate of the Borrower), (j)
administrative expenses including advertising incurred at the site of
such Multifamily Residential Property , (k) legal fees associated with
lease documentation and tenant matters and legal, accounting and other
professional fees relating to the operation of the Multifamily
Residential Property, (l) (for all purposes hereunder other than the
calculation of Valuation) the replacement and repair amount with
respect to such Multifamily Residential Property, and (m) any other
items that are treated as noncapital expenses under GAAP. All of the
foregoing (including Impositions) shall be computed on an accrual basis
and in accordance with GAAP consistently applied. During any period
such Multifamily Residential Property is not managed by a third party
professional management company unaffiliated with the
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Borrower, Operating Expenses shall also include an amount equal to the
difference, if any, by which management fees paid by owners of similar
properties in the same geographic location exceed management fees then
payable by the Borrower. For purposes of the calculation of Valuation,
Operating Expenses shall exclude any amount not actually spent. In
addition, for all purposes Operating Expenses shall exclude (u)
payments on the Obligations and any other interest payments or
principal payments on any indebtedness, (v) depreciation and
amortization, (w) all legal, accounting and professional fees not
included in clause (k) above, and (x) items that would be treated as
capital expenses under GAAP consistently applied and calculated in
accordance with DUS Guide Form 4254.
"Organizational Certificate" means a certificate of the
Borrower Parties in the form attached as Exhibit G to this Agreement.
"Organizational Documents" means all certificates, instruments
and other documents pursuant to which an organization is organized or
operates, including, (i) with respect to a corporation, its articles of
incorporation and bylaws, (ii) with respect to a limited partnership,
its limited partnership certificate and partnership agreement, (iii)
with respect to a general partnership or joint venture, its partnership
or joint venture agreement and (iv) with respect to a limited liability
company, its articles of organization and operating agreement.
"Outstanding" means, when used in connection with promissory
notes, other debt instruments or Advances, for a specified date,
promissory notes or other debt instruments which have been issued, or
Advances which have been made, but have not been repaid in full as of
the specified date.
"Ownership Interests" means, with respect to any entity, any
ownership interests in the entity and any economic rights (such as a
right to distributions, net cash flow or net income) to which the owner
of such ownership interests is entitled.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Permits" means all permits, or similar licenses or approvals
issued and/or required by an applicable Governmental Authority or any
Applicable Law in connection with the ownership, use, occupancy,
leasing, management, operation, repair, maintenance or rehabilitation
of any Mortgaged Property or any Borrower Party's business.
"Permitted Investments" means
(a) direct obligations of, and obligations on which the full
and timely payment of principal and interest is unconditionally
guaranteed by, the full faith and credit of the United States of
America;
(b) direct obligations of, and obligations on which the full
and timely payment of principal and interest is unconditionally
guaranteed by, any agency or instrumentality of the United States of
America (other than the Federal Home Loan
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<PAGE>
Mortgage Corporation) or direct obligations of the World Bank, provided
that such obligations are assigned a credit rating by S&P and Moody's
in the highest rating category of S&P and Moody's;
(c) obligations of any state or territory of the United States
of America, or obligations of any agency, instrumentality, authority or
political subdivision of such state or territory, or obligations of any
public benefit or municipal corporation the principal of and interest
on which are guaranteed by such state or political subdivision and the
interest on which is payable on a current basis, and which obligations
are rated in the highest long-term rating category of S&P and Moody's;
(d) any written repurchase agreement entered into with a
Qualified Financial Institution whose unsecured short-term obligations
are rated in the highest short-term rating category of S&P and Moody's;
(e) commercial paper rated in the highest rating category
of S&P and Moody's;
(f) (i) interest-bearing negotiable certificates of deposit,
interest-bearing time deposits, interest-bearing savings accounts or
bankers' acceptances, issued by a Qualified Financial Institution whose
unsecured short-term obligations are rated in the highest rating
category of S&P and Moody's, or (ii) interest-bearing negotiable
certificates of deposit, interest-bearing time deposits or
interest-bearing savings accounts, issued by a Qualified Financial
Institution, if such deposits or accounts are fully insured by the
Federal Deposit Insurance Corporation; and
(g) money market mutual funds registered under the Investment
Company Act of 1940 that have been rated "AAAm-G" or "AAAm" by S&P and
"Aaa" by Moody's, provided that the portfolio of such money market
mutual fund is limited to obligations described in (i) clause (a) above
and to agreements to repurchase such obligations or (ii) clauses (b) or
(c) above and approved in writing by the Lender;
provided that Permitted Investments shall not include the following:
(1) any investments with a final maturity or any agreements with a term
greater than 365 days from the date of the investment (except (A)
obligations that provide for the optional or mandatory tender, at par,
by the holder of such obligations at least once within 365 days of the
date of purchase and (B) agreements or investments listed in clauses
(g) and (h) above), (2) any obligation (other than obligations
described in clauses (a), (b) and (c) above) with a purchase price
greater or less than the par value of such obligation, (3)
mortgage-backed securities, real estate mortgage investment conduits or
collateralized mortgage obligations, (4) interest-only or
principal-only stripped securities, (5) obligations bearing interest at
inverse floating rates, (6) any investment which may be prepaid or
called at a price less than their purchase price prior to stated
maturity, (7) any investment described in clause (d) above with a
Qualified Financial Institution (as defined in clause (d) of the
definition of "Qualified Financial Institution") if the Qualified
Financial Institution does not agree to submit to jurisdiction, venue
and service of process in the United States of America in the
repurchase agreement and (8) any investment the interest rate on which
is
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variable, and is established other than by reference to a single
interest rate on which is variable, and is established other than by
reference to a single interest rate index plus a single fixed spread,
if any, and which interest rate moves proportionately with that index;
provided further that if any such investment described in clauses (a)
through (h) above is required to be rated, such rating requirement will
not be satisfied if an "r" highlighter or a "t" highlighter is affixed
to its rating or is otherwise applicable. Notwithstanding the
foregoing, if any of the investments described in clauses (b), (c),
(d), (e), (f)(i) or (g) above is rated by only one of S&P or Moody's,
then such investment shall still be included as a Permitted Investment
herein; however, if such investment is rated by Duff & Phelps and/or
Fitch, it must be rated in the appropriate highest rating category of
such agency, consistent with the minimum rating category required by
S&P or Moody's, as the case may be, above.
"Permitted Liens" means, with respect to a Mortgaged Property:
(a) the exceptions to title to the Mortgaged Property set
forth in the Title Insurance Policy for the Mortgaged Property and
approved by the Lender;
(b) Liens securing Obligations to the Lender, including the
Lien of the Security Instrument encumbering the Mortgaged Property;
(c) Liens for taxes not yet delinquent;
(d) Liens in respect of property imposed by law arising in the
ordinary course of business such as materialmen's, mechanics',
warehousemen's, carriers', landlords' and other nonconsensual statutory
Liens which (i) are not yet due and payable or (ii) are released of
record or otherwise remedied to the Lender's satisfaction within 60
days of the date of commencement of enforcement of any such Lien or
before such earlier date on which the Borrower's interest in the
applicable property is subject to forfeiture by enforcement of any such
Lien;
(e) easements, rights-of-way, restrictions (including zoning
restrictions), matters of plat, minor defects or irregularities in
title, license or lease agreements for laundry, cable tv, telephone and
other similar Liens which, in the aggregate, do not materially reduce
the value of the Mortgaged Property or materially interfere with the
operation and use of, or the ordinary conduct of the business on, the
Mortgaged Property (provided that any laundry or cable tv licenses or
leases shall not be a Permitted Lien if it does not comply with Section
108 of Part III of the DUS Guide);
(f) any other Liens expressly permitted by the Loan Documents
(including any delinquent tax Liens being contested in accordance with
the terms of the Security Instrument); and
(g) any other Liens approved by the Lender.
"Person" means an individual, an estate, a trust, a
corporation, a partnership, a limited liability company or any other
organization or entity (whether governmental or private).
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"Potential Event of Default" means any event which, with the
giving of notice or the passage of time, or both, would constitute an
Event of Default.
"Price" means, with respect to a Revolving Advance or to an
MBS backed by a Revolving Advance, the proceeds of the sale of the MBS
backed by the Revolving Advance.
"Property" means any estate or interest in any kind of
property or asset, whether real, personal or mixed, and whether
tangible or intangible.
"Qualified Financial Institution" means any (a) bank or trust
company organized under the laws of any state of the United States of
America, (b) national banking association, (c) savings bank, a savings
and loan association, or an insurance company or association chartered
or organized under the laws of any state of the United States of
America, (d) a federal branch or agency pursuant to the International
Banking Act of 1978 or any successor provisions of law, a domestic
branch or agency of a foreign bank which branch or agency is duly
licensed or authorized to do business under the laws of any state or
territory of the United States of America, (e) government bond dealer
reporting to, trading with, and recognized as a primary dealer by the
Federal Reserve Bank of New York, and (f) securities dealer approved in
writing by the Lender the liquidation of which is subject to the
Securities Investors Protection Corporation or other similar
corporation.
"Rate Confirmation Form" shall have the meaning set forth in
Section 3.1(c).
"Rate Setting Form" shall have the meaning set forth in
Section 3.1(b).
"REIT" means Archstone Communities Trust, a Maryland real
estate investment trust.
"REIT Guaranty" means the Exceptions to Non-Recourse Guaranty
executed by the REIT in the form attached as Exhibit EE to this
Agreement.
"Release Price" shall have the meaning set forth in Section
8.2(c).
"Rent Roll" means, with respect to any Multifamily Residential
Property, a rent roll prepared and certified by the owner of the
Multifamily Residential Property, on Fannie Mae Form 4243, as set forth
in Exhibit III-3 of the DUS Guide, or on another form approved by the
Lender and containing substantially the same information as Form 4243
requires.
"Replacement Reserve Agreement" means a Replacement Reserve
and Security Agreement, in the form attached as Exhibit H to this
Agreement, and completed in accordance with the requirements of the DUS
Guide.
"Request" means a Collateral Addition Request, a Collateral
Substitution Request, a Collateral Release Request, a Conversion
Request, a Credit Facility Expansion
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Request, a Credit Facility Termination Request, a Future Advance
Request, an Initial Advance Request or a Revolving Facility Termination
Request.
"Revolving Advance" means a loan made by the Lender to the
Borrower under the Revolving Facility Commitment.
"Revolving Credit Endorsement" means an endorsement to a Title
Insurance Policy which contains substantially the same coverages, and
is subject to substantially the same or fewer exceptions (or such other
exceptions as the Lender may approve), as the form attached as Exhibit
I to this Agreement.
"Revolving Facility" means the agreement of the Lender to make
Revolving Advances to the Borrower pursuant to Article II.
"Revolving Facility Availability Period" means the period
beginning on the Initial Closing Date and ending on the 90th day before
the Revolving Facility Termination Date.
"Revolving Facility Commitment" means $300,000,000, less such
amount by which the Borrower may elect to permanently reduce the
Revolving Facility Commitment in accordance with Article X, less such
amount by which the Revolving Facility Commitment is reduced in
accordance with Section 8.2(e) in connection with a release of a
Mortgaged Property pursuant to Article VIII, less such amount as the
Borrower may elect to convert from the Revolving Facility Commitment to
the Base Facility Commitment in accordance with Article III, and plus
such amount by which the Revolving Facility Commitment is increased in
accordance with Article IX; provided however, that the Maximum Credit
Facility Commitment shall in no event exceed $300,000,000 or such
greater amount to which the Maximum Credit Facility Commitment has been
increased in accordance with Article IX.
"Revolving Facility Fee" means (a) 58 basis points per annum
for a Revolving Advance drawn from the Revolving Facility Commitment
initially available under this Agreement, and (b) for any Revolving
Advance drawn from any portion of the Revolving Facility Commitment
increased under Article IX, the number of basis points per annum
determined at the time of such increase by the Lender as the Revolving
Facility Fee for such Revolving Advance.
"Revolving Facility Note" means the promissory note, in the
form attached as Exhibit J to this Agreement, which has been issued by
the Borrower to the Lender to evidence the Borrower's obligation to
repay Revolving Advances.
"Revolving Facility Termination Date" means January 1, 2006.
"Revolving Facility Termination Fee" means, with respect to a
reduction in the Revolving Facility Commitment pursuant to Article
VIII, Article X or Article XI, as applicable, which occurs during the
first five Loan Years, an amount equal to the product obtained by
multiplying--
(a) the reduction in the Revolving Facility Commitment, by
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(b) 28 basis points, by
(c) the present value factor calculated using the following
formula:
1 - (1 + r)-n
-------------
r
[r = Yield Rate
n = the number of years, and any fraction thereof,
remaining between the Closing Date for the reduction
in the Revolving Facility Commitment and the end of
the fifth Loan Year.]
The "Yield Rate" means the three month London Interbank Offered Rate of
interest as published in the Wall Street Journal on the second Business
Day preceding, as applicable, (i) the date of the reduction in the
Revolving Facility Commitment, (y) the date of the Complete Revolving
Facility Termination or (z) the date of Lender's acceleration of the
unpaid principal balance of the Notes. In the event that the Wall
Street Journal ceases to publish a three month London Interbank Offered
Rate, the Lender shall select and substitute the three month London
Interbank Offered Rate published by another financial newspaper.
"Revolving Facility Termination Request" shall have the
meaning set forth in Section 10.2(a).
"S&P" means Standard & Poor's Rating Services, a division of
McGraw Hills, Inc., a New York corporation, and its successors and
assigns.
"Sale" or "Sold" means the conveyance of a Multifamily
Residential Property to a Party that is unaffiliated to any of the
Borrower Parties pursuant to an arms-length sales transaction.
"Security Documents" means the Security Instruments, the Cash
Management Agreement, the Replacement Reserve Agreements, any Cap
Security Agreement, any Swap Security Agreement and any other documents
executed by a Borrower Party from time to time to secure any of the
Borrower Parties' obligations under the Loan Documents.
"Security Instrument" means, for each Mortgaged Property, a
separate Multifamily Mortgage, Deed of Trust or Deed to Secure Debt,
Assignment of Leases and Rents and Security Agreement given by the
Borrower to or for the benefit of the Lender to secure the obligations
of the Borrower Parties under the Loan Documents. The Security
Instrument shall be in the form attached as Exhibit K to this Agreement
with changes, to the extent applicable, to conform the Exhibit to the
form Security Instrument prescribed by Fannie Mae from time to time for
use in the State in which the Mortgaged Property is located. The amount
secured by the Security Instrument shall be equal to the Maximum Credit
Facility Commitment in effect from time to time.
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"Senior Management" means (a) the Chief Executive Officer,
Co-Chairman of the Board, President, Chief Financial Officer and Chief
Operating Officer of the REIT, and (b) any other individuals with
responsibility for any of the functions typically performed in a
corporation by the officers described in clause (a).
"Single-Purpose" means, with respect to a Person which is any
form of partnership or corporation or limited liability company, that
such Person at all times since its formation:
(a) has been a duly formed and existing
partnership, corporation or limited
liability company, as the case may be;
(b) has been duly qualified in each jurisdiction
in which such qualification was at such time
necessary for the conduct of its business;
(c) has complied with the provisions of its
organizational documents and the laws of its
jurisdiction of formation in all respects;
(d) has observed all customary formalities
regarding its partnership or corporate
existence, as the case may be;
(e) has accurately maintained correct and
complete books and records and financial
statements separate from those of any other
Person;
(f) has not commingled its assets with those of
any other Person;
(g) has accurately maintained its own bank
accounts separate from those of any other
Person;
(h) has paid its own liabilities out of its own
funds except as contemplated under or in
connection with the Loan Documents;
(i) has identified itself under its own name and
as a separate entity;
(j) has not guaranteed or become obligated for
the liabilities of any other Person (except
in connection with the Credit Facility or
the endorsement of negotiable instruments in
the ordinary course of business) or held out
its credit as being available to satisfy the
obligations of any other Person;
(k) has not entered into and was not a party to
any transaction with any Affiliate of such
Person, except in the ordinary course of
business and on terms which are no less
favorable to such Person than would be
obtained in a comparable arm's-length
transaction with an unrelated third party;
(l) has conducted its own business in its own
name;
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(m) has paid the salaries of its own employees;
(n) has allocated fairly and reasonably any
overhead for shared office space;
(o) has used separate stationery, invoices (or
indicate that such correspondence or
invoices are on behalf or account of such
Person) and checks;
(p) has not pledged its assets for the benefit
of any other entity or made any loans or
advances to any person or entity;
(q) with respect to any consolidated financial
statements with any other Person or
Affiliate, has caused such Person or
Affiliate to include notes in such
consolidated financial statements indicating
its ownership of its own assets and its
obligations with respect to its own
liabilities; and
(r) has corrected any known misunderstanding
regarding its separate identity.
"Subsidiary" means, when used with reference to a specified
Person, (a) any Person that, directly or indirectly, through one or
more intermediaries, is controlled by the specified Person, (b) any
Person of which the specified Person is, directly or indirectly, the
owner of more than 50% of any voting class of Ownership Interests or
(c) any Person (i) which is a partnership and (ii) of which the
specified Person is a general partner and owns more than 50% of the
partnership interests.
"Substituted Mortgaged Property" means a Multifamily
Residential Property owned by the Borrower and added to the Collateral
Pool after the Initial Closing Date in substitution of a Mortgaged
Property then in the Collateral Pool, all pursuant to Article VII.
"Surveys" means the as-built surveys of the Mortgaged
Properties prepared in accordance with the requirements of Section 113
of the DUS Guide, or otherwise approved by the Lender.
"Swap" means an interest rate swap.
"Swap Documents" means the documents evidencing and governing
a Swap, including a Swap Security Agreement.
"Swap Security Agreement" means, with respect to a Swap, the
Interest Rate Hedge Security, Pledge and Assignment Agreement by and
among the Borrower, the Lender and the Servicer, for the benefit of the
Lender, in the form attached as Exhibit C to this Agreement, as such
agreement may be amended, modified, supplemented or restated from time
to time.
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"Taxes" means all taxes, assessments, vault rentals and other
charges, if any, general, special or otherwise, including all
assessments for schools, public betterments and general or local
improvements, which are levied, assessed or imposed by any public
authority or quasi-public authority, and which, if not paid, will
become a lien, on the Land or the Improvements.
"Term of this Agreement" shall be determined as provided in
Section 25.10 to this Agreement.
"Tie-In Endorsement" means an endorsement to a Title Insurance
Policy which contains substantially the same coverages, and is subject
to substantially the same or fewer exceptions (or such other exceptions
as the Lender may approve), as the form attached as Exhibit L to this
Agreement.
"Title Company" means Chicago Title Insurance Company, 700
South Flower Street, Suite 3305, Los Angeles, California 90017.
"Title Insurance Policies" means the mortgagee's policies of
title insurance issued by the Title Company from time to time relating
to each of the Security Instruments, conforming to the requirements of
Section 111 of the DUS Guide, together with such endorsements,
coinsurance, reinsurance and direct access agreements with respect to
such policies as the Lender may, from time to time, consider necessary
or appropriate, whether or not required by the DUS Guide, including
Revolving Credit Endorsements, if available, and Tie-In Endorsements,
if available, and with a limit of liability under the policy (subject
to the limitations contained in Sections 6(a)(i) and 6(a)(iii) of the
Stipulations and Conditions of the policy) equal to the following:
(a) for all Mortgaged Properties, exclusive of the Mortgaged
Properties situated in the State of Texas, an amount not less than the
aggregate Allocable Credit Facility Amounts of all such Mortgaged
Properties; and
(b) for all Mortgaged Properties situated in the State of
Texas, an amount not less than the aggregate Allocable Credit Facility
Amounts of all such Mortgaged Properties.
"Trailing 12 Month Period" means, for any specified date, the
12 month period ending with the last day of the most recent calendar
quarter for which financial statements have been delivered by the
Borrower to the Lender pursuant to Section 14.2(a)(i).
"Trailing Three Month Period" means, for any specified date,
the three month period ending with the last day of the most recent
calendar quarter for which financial statements have been delivered by
the Borrower to the Lender pursuant to Section 14.2(a)(i).
"Transfer" means (a) a sale, assignment, pledge, transfer or
other disposition (whether voluntary or by operation of law); (b) the
granting or creating of a Lien, other than a Permitted Lien; (c) the
issuance or other creation of an Ownership Interest in a legal entity,
including a partnership interest, interest in a limited liability
company or
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corporate stock; (d) the withdrawal, retirement, removal or involuntary
resignation of a partner in a partnership or a member or manager in a
limited liability company; or (e) the merger, dissolution, liquidation,
or consolidation of a legal entity. "Transfer" does not include (i) a
conveyance of the Mortgaged Property at a judicial or non-judicial
foreclosure sale under a Security Instrument or (ii) the Mortgaged
Property becoming part of a bankruptcy estate by operation of law under
the United States Bankruptcy Code. For purposes of defining the term
"Transfer," the term "partnership" shall mean a general partnership, a
limited partnership, a joint venture and a limited liability
partnership, and the term "partner" shall mean a general partner, a
limited partner and a joint venturer.
"Unused Capacity" shall have the meaning set forth in Section
18.1.
"Valuation" means, for any specified date, with respect to a
Multifamily Residential Property:
(a) if an Appraisal of the Multifamily Residential Property
was more recently obtained than a Capitalization Rate for the
Multifamily Residential Property, the Appraised Value of such
Multifamily Residential Property; or
(b) if a Capitalization Rate for the Multifamily Residential
Property was more recently obtained than an Appraisal of the
Multifamily Residential Property, the value derived by dividing--
(i) the Net Operating Income of such Multifamily
Residential Property for the Trailing 12
Month Period, by
(ii) the most recent Capitalization Rate
determined pursuant to Section 17.2.
Notwithstanding the foregoing, (x) any Valuation for a Multifamily
Residential Property calculated for a date occurring before the first
anniversary of the date on which the Multifamily Residential Property
becomes a part of the Collateral Pool shall equal the Appraised Value
of such Multifamily Residential Property, unless the Lender determines
that changed market or property conditions warrant that the value be
determined as set forth in the preceding sentence; and (y) in no event
shall (A) the aggregate sum of Valuations for all Mortgaged Properties
for which a Title Insurance Policy was issued with a Tie-In Endorsement
(exclusive of the Mortgaged Properties situated in the State of Texas)
exceed an amount equal to the product obtained by multiplying (I) the
limit of liability of the Tie-In Endorsement (as such limit of
liability may be increased by the Borrower from time to time) by (II)
1.54, and (B) the aggregate sum of Valuations for all Mortgaged
Properties situated in the State of Texas, all of which Mortgaged
Properties shall be insured under a single Title Insurance Policy,
exceed an amount equal to the product obtained by multiplying (I) the
limit of liability under such Title Insurance Policy (as such limit of
liability may be increased by the Borrower from time to time) by (II)
1.54.
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ARTICLE II
THE REVOLVING FACILITY COMMITMENT
SECTION 2.1 Revolving Facility Commitment. Subject to the terms, conditions and
limitations of this Agreement, the Lender agrees to make Revolving Advances to
the Borrower from time to time during the Revolving Facility Availability
Period. The aggregate unpaid principal balance of the Revolving Advances
Outstanding at any time shall not exceed the Revolving Facility Commitment (as
such Revolving Facility Commitment may be permanently reduced pursuant to
Article III (in connection with a conversion), Section 8.2(e) (in connection
with a release) or Article X (in connection with a reduction) or temporarily
reduced pursuant to Section 7.4 (in connection with a substitution)). Subject to
the terms, conditions and limitations of this Agreement, the Borrower may
re-borrow any amounts under the Revolving Facility which it has previously
borrowed and repaid under the Revolving Facility.
SECTION 2.2 Requests for Advances. The Borrower shall request a Revolving
Advance by giving the Lender an Initial Advance Request in accordance with
Section 5.1 or a Future Advance Request in accordance with Section 5.2, as
applicable.
SECTION 2.3 Maturity Date of Revolving Advances. Regardless of the date on which
a Revolving Advance is made, the maturity date of each Revolving Advance shall
be a date selected by the Borrower in its Request for the Revolving Advance,
which date shall be the first day of a calendar month occurring:
(a) no earlier than the date which completes three full months after
the Closing Date for the Revolving Advance; and
(b) no later than the date which completes nine full months after the
Closing Date for the Revolving Advance or such longer time period as requested
by Borrower and approved by the Lender in the Lender's sole and absolute
discretion;
provided, however, that in no event shall the maturity date of any Revolving
Advance extend beyond the Revolving Facility Termination Date.
For these purposes, the year shall be deemed to consist of 12 30-day months. For
example, the date which completes three full months after September 1 shall be
December 1; and the date which completes three full months after December 1
shall be March 1.
SECTION 2.4 Repayment at Maturity; Partial Month Interest; Revolving Facility
Fee.
(a) Repayment at Maturity. Each Revolving Advance shall be a discount
loan. The original stated principal amount of a Revolving Advance shall be the
sum of the Price of the Revolving Advance and the Discount of the Revolving
Advance. The Price and Discount of each Revolving Advance shall be determined in
accordance with the procedures set out in Section 4.1. The proceeds of the
Revolving Advance made available by the Lender to the Borrower will equal the
Price of the Revolving Advance. The entire unpaid principal of each Revolving
Advance shall be due and payable by the Borrower to the Lender on the maturity
date of the Revolving Advance. However, if the Borrower has requested that the
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maturing Revolving Advance (in whole or in part) be renewed with a new revolving
Advance or converted to a Base Facility Advance to take effect on the maturity
date of the maturing Revolving Advance, then the amount the Borrower is required
to pay on account of the maturing Revolving Advance will be reduced by, as the
case may be, that amount of the Price of the new Revolving Advance allocable to
the principal of the maturing Revolving Advance being renewed, or that amount of
the net proceeds of the MBS related to the Base Facility Advance then converted
from the maturing Revolving Advance.
(b) Partial Month Interest. Notwithstanding anything to the contrary
in this Section 2.4, if a Revolving Advance is not made on the first day of a
calendar month, and the MBS Issue Date for the MBS backed by the Revolving
Advance is the first day of the month following the month in which the Revolving
Advance is made, the Borrower shall pay interest on the original stated
principal amount of the Revolving Advance for the partial month period
commencing on the Closing Date for the Revolving Advance and ending on the last
day of the calendar month in which the Closing Date occurs, at a rate per annum
equal to the Coupon Rate for the Revolving Advance as determined in accordance
with Section 2.5(b).
(c) Revolving Facility Fee. In addition to paying the Discount and the
partial month interest, if any, the Borrower shall pay monthly installments of
the Revolving Facility Fee, in arrears, to the Lender on account of each
Revolving Advance over the whole number of calendar months the MBS backed by the
Revolving Advance is to run from the MBS Issue Date to the maturity date of the
MBS. The first installment shall be payable on or prior to the first day of each
calendar month, commencing on the first day of the second full calendar month of
the Revolving Advance and shall apply to the first full calendar month of the
MBS backed by the Revolving Advance. Subsequent installments shall be payable on
the first day of each calendar month thereafter during the term of such MBS with
the final installment being payable on the maturity date of such MBS. Each
installment of the Revolving Facility Fee shall be in an amount equal to the
product of multiplying (i) the Revolving Facility Fee, by (ii) the amount of the
Revolving Advance, by (iii) 1/12.
SECTION 2.5 Coupon Rates for Revolving Advances. The Coupon Rate for a
Revolving Advance shall be a rate, per annum, as follows:
(a) The Coupon Rate for a Revolving Advance shall equal the sum of (i)
an interest rate as determined by the Lender (rounded to three places) payable
for the Fannie Mae MBS pursuant to the MBS Commitment backed by the Revolving
Advance ("MBS Imputed Interest Rate") and (ii) the Revolving Facility Fee.
(b) Notwithstanding anything to the contrary in this Section 2.5, if a
Revolving Advance is not made on the first day of a calendar month, and the MBS
Issue Date for the MBS backed by the Revolving Advance is the first day of the
month following the month in which the Revolving Advance is made, the Coupon
Rate for such Revolving Advance for such period shall be determined by the
Lender, based on the Lender's cost of funds, and approved in advance, in
writing, by the Borrower pursuant to procedures mutually agreed upon by the
Borrower and the Lender.
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SECTION 2.6 Revolving Facility Note. The obligation of the Borrower to repay the
Revolving Advances will be evidenced by the Revolving Facility Note. The
Revolving Facility Note shall be payable to the order of the Lender and shall be
made in the amount of the Revolving Facility Commitment.
SECTION 2.7 No Amortization. The Borrower shall not be required to make any
payments of principal on a Revolving Advance until the maturity date of such
Revolving Advance (or on any sooner date on which the principal of the Revolving
Advance is accelerated after the occurrence of an Event of Default or on which
the Revolving Advance is required to be repaid by the Borrower pursuant to the
terms of this Agreement for application by the Lender on the maturity date of
such Revolving Advance to repay such principal amount).
SECTION 2.8 Limit on Number of Outstanding Advances. The Borrower shall not be
permitted to have more than 10 Advances Outstanding at any one time.
SECTION 2.9 Reduction of Revolving Facility Commitment Upon Rating Downgrade. If
the credit rating of the long-term unsecured senior debt of Fannie Mae assigned
by Moody's or S&P falls to or below "A3" or "A-", as applicable, for a period of
90 or more days (for all purposes hereof, only actual ratings of long-term
unsecured senior indebtedness of Fannie Mae shall be taken into account, and not
any rating that assumes the absence of any then-existing implicit or explicit
government benefits giving rise to the implication of such guarantee), and such
downgraded rating results in a material increase in the cost to the Borrower of
obtaining and maintaining Revolving Advances, then, so long as such conditions
continue, the Borrower may reduce or terminate the Revolving Facility Commitment
pursuant to Article VIII, Article X or Article XI without incurring a Revolving
Facility Termination Fee.
ARTICLE III
THE BASE FACILITY COMMITMENT
SECTION 3.1 Conversion of Revolving Facility Commitment to Base Facility
Commitment. The Borrower shall have the right, from time to time during the Base
Facility Availability Period, to convert all or a portion of the Revolving
Facility Commitment to the Base Facility Commitment, in which event the
Revolving Facility Commitment shall be reduced by, and the Base Facility
Commitment shall be increased by, the amount of the conversion.
(a) Request. In order to convert all or a portion of the Revolving
Facility Commitment to the Base Facility Commitment, the Borrower shall deliver
a written request for a conversion ("Conversion Request") to the Lender, in the
form attached as Exhibit M to this Agreement. Each Conversion Request shall be
accompanied by a designation of the amount of the conversion and a designation
of any Revolving Advances Outstanding which will be repaid on the Closing Date
for the conversion as required by Section 3.8(c).
(b) Closing. If none of the limitations contained in Section 3.8 is
violated, and all conditions contained in Section 3.9 are satisfied, the Lender
shall permit the requested
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conversion, at a closing to be held at offices designated by the Lender on a
Closing Date selected by the Lender, and occurring within 15 Business Days after
the Lender's receipt of the Conversion Request (or on such other date to which
the Borrower and the Lender may agree), by executing and delivering, all at the
sole cost and expense of the Borrower, an amendment to this Agreement, in the
form attached as Exhibit N to this Agreement, together with an amendment to each
Security Document and other applicable Loan Documents, in form and substance
satisfactory to the Lender, reflecting the change in the Base Facility
Commitment and the Revolving Facility Commitment. The documents and instruments
referred to in the preceding sentence are referred to in this Article III as the
"Conversion Documents."
SECTION 3.2 Base Facility Commitment. Subject to the terms, conditions and
limitations set forth in this Article III, the Lender agrees to make Base
Facility Advances to the Borrower from time to time during the Base Facility
Availability Period. The aggregate original principal of the Base Facility
Advances shall not exceed the Base Facility Commitment. Except as permitted
pursuant to Section 3.10, the repayment of a Base Facility Advance shall
permanently reduce the Base Facility Commitment by the amount of such payment.
Except as permitted pursuant to Section 3.10, the Borrower may not re-borrow any
part of the Base Facility Advance which it has previously borrowed and repaid.
SECTION 3.3 Requests for Base Facility Advances. The Borrower shall request a
Base Facility Advance by giving the Lender an Initial Advance Request in
accordance with Section 5.1 or a Future Advance Request in accordance with
Section 5.2, as applicable.
SECTION 3.4 Maturity Date of Base Facility Advances; Amortization Period. The
maturity date of each Base Facility Advance shall be a date selected by the
Borrower and, if the maturity date of the Base Facility Advance will extend
beyond the Revolving Facility Termination Date, approved by the Lender in the
Lender's sole and absolute discretion, and shall be (i) no earlier than the
second anniversary of the date on which the Base Facility Advance is made and
(ii) no later than the 30th anniversary of the date on which the Base Facility
Advance is made. The principal of each Base Facility Advance shall be amortized
on a 30-year schedule or such lesser period of time as the Borrower shall
request ("Amortization Period"). If the maturity date of a Base Facility Advance
occurs during the first five Loan Years, or such Base Facility Advance is
accelerated after the occurrence of an Event of Default or is prepaid or repaid
at any time during the first five Loan Years, the Borrower shall pay to the
Lender at the time of such payment or prepayment, as applicable, the Base
Facility Fee Yield Maintenance Amount set forth in the Base Facility Note;
provided, however, that, in the case of a maturing Base Facility Advance, if all
or a portion of the maturing Base Facility Advance is rolled over by the
Borrower in accordance with Section 3.10, then such Base Facility Fee Yield
Maintenance Amount shall not be due and payable with respect to all or such
portion of such Base Facility Advance that is rolled over.
SECTION 3.5 Interest on Base Facility Advances. Each Base Facility Advance shall
bear interest at a rate, per annum, equal to the sum of (i) the MBS Pass-Through
Rate determined for such Base Facility Advance and (ii) the Base Facility Fee.
Notwithstanding anything to the contrary in this Section 3.5, if a Base Facility
Advance is
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the first day of the month following the month in which the Base Facility
Advance is made, the Borrower shall pay interest on the original stated
principal amount of the Base Facility Advance for the partial month period
commencing on the Closing Date for the Base Facility Advance and ending on the
last day of the calendar month in which the Closing Date occurs at a rate, per
annum, equal to the greater of (i) the interest rate for the Base Facility
Advance described in the first sentence of this Section 3.5 and (ii) a rate
determined by the Lender, based on the Lender's cost of funds, and approved in
advance, in writing, by the Borrower, pursuant to procedures mutually agreed
upon by the Borrower and the Lender.
SECTION 3.6 Coupon Rates for Base Facility Advances. The Coupon Rate for a Base
Facility Advance shall be the rate of interest applicable to such Base Facility
Advance pursuant to Section 3.5.
SECTION 3.7 Base Facility Notes. The obligation of the Borrower to repay a Base
Facility Advance will be evidenced by a Base Facility Note. The Base Facility
Note shall be payable to the order of the Lender and shall be made in the
original principal amount of the Base Facility Advance.
SECTION 3.8 Limitations on Right to Convert. The right of the Borrower to
convert all or a portion of the Revolving Facility Commitment to the Base
Facility Commitment is subject to the following limitations:
(a) Closing Date. The Closing Date shall occur during the Base
Facility Availability Period and, if in connection with such conversion, either:
(i) it will be necessary for the Borrower to repay a Revolving Advance
Outstanding pursuant to Section 3.8(c) or (ii) the Borrower is converting all or
any portion of a Revolving Advance Outstanding to a Base Facility Advance, such
Closing Date shall occur on the maturity date of such Revolving Advance.
(b) Minimum Request. Each Request for a conversion shall be in the
minimum amount of $3,000,000.
(c) Obligation to Repay Revolving Advances. If, after the conversion,
the aggregate unpaid principal balance of all Revolving Advances Outstanding
will exceed the Revolving Facility Commitment, the Borrower shall be obligated
to repay, as a condition precedent to the conversion, an amount of Revolving
Advances Outstanding which is at least equal to the amount of the excess. In
such instance, Borrower shall not be required to pay a Revolving Facility
Termination Fee.
SECTION 3.9 Conditions Precedent to Conversion/Rollover. The conversion of all
or a portion of the Revolving Facility Commitment to the Base Facility
Commitment is subject to the satisfaction of the following conditions precedent
on or before the Closing Date, and the rollover of a maturing Base Facility
Advance pursuant to Section 3.10 is subject to the satisfaction of the
conditions precedent set forth in Sections 3.9(c) and 3.9(e) on or before the
Closing Date:
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(a) If the conversion is evidenced by a Base Facility Advance that has
a maturity date which extends beyond the Revolving Facility Termination Date,
after giving effect to the requested conversion, the Coverage and LTV Tests will
be satisfied;
(b) Repayment by the Borrower in full of any Revolving Advances
Outstanding which the Borrower is required to pay pursuant to Section 3.8(c);
(c) The receipt by the Lender of an endorsement to each Title
Insurance Policy, amending the effective date of the Title Insurance Policy to
the Closing Date and showing no additional exceptions to coverage other than
Permitted Liens;
(d) Receipt by the Lender of one or more counterparts of each
Conversion Document, dated as of the Closing Date, signed by each of the parties
(other than the Lender) who is a party to such Conversion Document; and
(e) The satisfaction of all General Conditions set forth in Section
12.1; provided, however, that, (i) in the case of a conversion of a Revolving
Advance to a Base Facility Advance where the Base Facility Advance will have a
maturity date which does not extend beyond the Revolving Facility Termination
Date, only Sections 12.1(a) and 12.1(c) through 12.1(f), inclusive, shall be
applicable, and (ii) in the case of a rollover of a maturing Base Facility
Advance pursuant to Section 3.10, only Sections 12.1(a), 12.1(c), 12.1(e) and
12.1(f) shall be applicable.
SECTION 3.10 Rollover of Maturing Base Facility Advances. The Borrower shall
have the right to rollover all or a portion of a maturing Base Facility Advance
with another Base Facility Advance, but not with a Revolving Advance, provided
that:
(a) the maturity date of such rollover Base Facility Advance shall not
extend beyond the Revolving Facility Termination Date; and
(b) the requirements set forth in Sections 3.2 through 3.7, inclusive,
Section 3.8(b) and Section 3.9 shall have been satisfied.
All or such portion of a maturing Base Facility Advance that is repaid by a
rollover Base Facility Advance shall not result in a permanent reduction of the
Base Facility Commitment.
SECTION 3.11 Repayment of Base Facility Advances Upon Rating Downgrade. If the
credit rating of the long-term unsecured senior debt of Fannie Mae assigned by
Moody's or S&P falls to or below "A3" or "A-", as applicable, for a period of 90
or more days (for all purposes hereof, only actual ratings of long-term
unsecured senior indebtedness of Fannie Mae shall be taken into account, and not
any rating that assumes the absence of any then-existing implicit or explicit
government benefits giving rise to the implication of such guarantee), and such
downgraded rating results in a material increase in the cost to the Borrower of
obtaining and maintaining Base Facility Advances, then, so long as such
conditions continue, the Borrower may repay at maturity any or all Base Facility
Advances then Outstanding without incurring a Base Facility Termination Fee.
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ARTICLE IV
RATE SETTING FOR THE ADVANCES
SECTION 4.1 Rate Setting for an Advance. Rates for an Advance shall be set in
accordance with the following procedures:
(a) Preliminary, Nonbinding Quote. At the Borrower's request the
Lender shall quote to the Borrower an estimate of the MBS Pass-Through Rate (for
a proposed Base Facility Advance) or MBS Imputed Interest Rate (for a proposed
Revolving Advance) for a Fannie Mae MBS backed by a proposed Advance. The
Lender's quote shall be based on (i) a solicitation of bids from institutional
investors selected by the Lender and (ii) the proposed terms and amount of the
Advance selected by the Borrower. The quote shall not be binding upon the
Lender. Lender will consider soliciting bids from institutional investors
identified by the Borrower, but the Lender shall not have any obligation to do
so.
(b) Rate Setting. If the Borrower satisfies all of the conditions to
the Lender's obligation to make the Advance in accordance with Article V, then
the Borrower may propose a MBS Pass-Through Rate (for a proposed Base Facility
Advance) or MBS Imputed Interest Rate (for a proposed Revolving Advance) by
submitting to the Lender by facsimile transmission a completed and executed
document, in the form attached as Exhibit O to this Agreement ("Rate Setting
Form"), before 1:00 p.m. Washington, D.C. time on any Business Day ("Rate
Setting Date"). The Rate Setting Form contains various factual certifications
required by the Lender and specifies:
(i) for a Revolving Advance, the amount, term, MBS Issue Date,
MBS Delivery Date, Revolving Facility Fee, the proposed
maximum Coupon Rate ("Maximum Annual Coupon Rate"),
Discount, Price, and Closing Date for the Advance; and
(ii) for a Base Facility Advance, the amount, term, MBS Issue
Date, MBS Delivery Date, Base Facility Fee, Maximum Annual
Coupon Rate, Price (which will be in a range between 99-1/2
and 100-1/2), Yield Maintenance Period, Specified U.S.
Treasury Security, Amortization Period and Closing Date for
the Advance.
(c) Rate Confirmation. Within one Business Day after receipt of the
completed and executed Rate Setting Form, the Lender shall solicit bids from
institutional investors selected by the Lender based on the information in the
Rate Setting Form and, provided the actual Coupon Rate (if the low bid were
accepted) would be at or below the Maximum Annual Coupon Rate, shall obtain a
commitment ("MBS Commitment") for the purchase of a Fannie Mae MBS having the
bid terms described in the related Rate Setting Form, and shall immediately
deliver to the Borrower by facsimile transmission a completed document, in the
form attached as Exhibit P to this Agreement ("Rate Confirmation Form"). The
Rate Confirmation Form will confirm:
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(i) for a Revolving Advance, the amount, term, MBS Issue Date,
MBS Delivery Date, MBS Imputed Interest Rate, Revolving
Facility Fee, Coupon Rate, Discount, Price, and Closing Date
for the Advance; and
(ii) for a Base Facility Advance, the amount, term, MBS Issue
Date, MBS Delivery Date, MBS Pass-Through Rate, Base
Facility Fee, Coupon Rate, Price, Yield Maintenance Period,
Specified U.S. Treasury Security, Amortization Period and
Closing Date for the Advance.
SECTION 4.2 Advance Confirmation Instrument for Revolving Advances. On or before
the Closing Date for a Revolving Advance, the Borrower shall execute and deliver
to the Lender an instrument ("Advance Confirmation Instrument"), in the form
attached as Exhibit Q to this Agreement, confirming the amount, term, MBS Issue
Date, MBS Delivery Date, MBS Imputed Interest Rate, Revolving Facility Fee,
Coupon Rate, Discount, Price and Closing Date for the Advance, and the
Borrower's obligation to repay the Revolving Advance in accordance with the
terms of the Revolving Facility Note and this Agreement. Upon the funding of the
Revolving Advance, the Lender shall note the date of funding in the appropriate
space at the foot of the Advance Confirmation Instrument and deliver a copy of
the completed Advance Confirmation Instrument to the Borrower. The Lender's
failure to do so shall not invalidate the Advance Confirmation Instrument or
otherwise affect in any way any obligation of the Borrower to repay Revolving
Advances in accordance with the Advance Confirmation Instrument, the Revolving
Facility Note or the other Loan Documents, but is merely meant to facilitate
evidencing the date of funding and to confirm that the Advance Confirmation
Instrument is not effective until the date of funding.
SECTION 4.3 Breakage and other Costs. In the event that the Lender obtains an
MBS Commitment and the Lender fails to fulfill the MBS Commitment because the
Advance is not made (for a reason other than the default of the Lender to make
the Advance), the Borrower shall pay all breakage and other costs, fees and
damages incurred by the Lender in connection with its failure to fulfill the MBS
Commitment.
ARTICLE V
MAKING THE ADVANCES
SECTION 5.1 Initial Advance. The Borrower may make a request ("Initial Advance
Request") for the Lender to make the Initial Advance. If all conditions
contained in this Section 5.1 are satisfied on or before the Closing Date for
the Initial Advance, the Lender shall make the Initial Advance on the Initial
Closing Date or on another date selected by the Borrower and approved by the
Lender. The obligation of the Lender to make the Initial Advance is subject to
the following conditions precedent:
(a) The receipt by the Lender of the Initial Advance Request;
(b) The receipt by the Lender of one or more counterparts of the Cash
Management Agreement, dated as of the Initial Closing Date, signed by the
Borrower;
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(c) The delivery to the Title Company, for filing and/or recording in
all applicable jurisdictions, of all applicable Loan Documents required by the
Lender, including duly executed and delivered original copies of the Revolving
Facility Note, the Initial Security Instruments covering the Initial Mortgaged
Properties and UCC-1 Financing Statements covering the portion of the Collateral
comprised of personal property, and other appropriate instruments, in form and
substance satisfactory to the Lender and in form proper for recordation, as may
be necessary in the opinion of the Lender to perfect the Liens created by the
applicable Security Instruments and any other Loan Documents creating a Lien in
favor of the Lender, and the payment of all taxes, fees and other charges
payable in connection with such execution, delivery, recording and filing;
(d) The receipt by the Lender, dated as of the Initial Closing Date,
in form and substance satisfactory to the Lender in all respects, of a favorable
opinion of the Borrower's counsel that, in the event of the bankruptcy of any
Person who is not the Borrower, there shall occur no substantive consolidation
of the assets of the Borrower with the assets of such Person;
(e) The receipt by the Lender of fully executed originals of the REIT
Guaranty, duly executed and delivered by the REIT;
(f) The receipt by the Lender of the Initial Origination Fee pursuant
to Section 18.2, the Initial Due Diligence Fee pursuant to Section 18.3(a), all
legal fees and expenses payable pursuant to Section 18.4(a) and all legal fees
and expenses payable in connection with the Initial Advance pursuant to Section
18.4(b);
(g) One or more Hedges shall be in effect in accordance with Article
XXIII in an aggregate notional principal amount at least equal to the aggregate
principal sum of the Initial Advance; and
(h) The satisfaction of all General Conditions set forth in Article
XII.
SECTION 5.2 Future Advances. In order to obtain a Future Advance, the Borrower
may from time to time deliver a written request for a Future Advance ("Future
Advance Request") to the Lender, in the form attached as Exhibit R to this
Agreement. Each Future Advance Request shall be accompanied by (a) a designation
of the amount of the Future Advance requested, and (b) a designation of the
maturity date of the Advance. Each Future Advance Request shall be in the
minimum amount of $3,000,000. If all conditions contained in Section 5.3 are
satisfied, the Lender shall make the requested Future Advance, at a closing to
be held at offices designated by the Lender on a Closing Date selected by the
Lender, and occurring on a date selected by the Borrower, which date shall be
not less than 5 Business Days, and not more than 8 Business Days, after the
Lender's receipt of the Future Advance Request and the Borrower's receipt of the
Rate Confirmation Form (or on such other date to which the Borrower and the
Lender may agree).
SECTION 5.3 Conditions Precedent to Future Advances. The obligation of the
Lender to make a requested Future Advance is subject to the following conditions
precedent:
(a) The receipt by the Lender of a Future Advance Request;
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(b) The Lender has delivered the Rate Setting Form for the Future
Advance to the Borrower;
(c) (i) If the requested Future Advance is a new Advance, and not a
rollover of a maturing Advance or a conversion of a Revolving
Advance to a Base Facility Advance that has a maturity date
which does not extend beyond the Revolving Facility
Termination Date, after giving effect to the requested Future
Advance, the Coverage and LTV Tests will be satisfied;
(ii) If the requested Future Advance is a rollover of a maturing
Advance or a conversion of a Revolving Advance to a Base
Facility Advance that has a maturity date which does not
extend beyond the Revolving Facility Termination Date, the
Coverage and LTV Tests under this Section 5.3(c) will not be
applied; or
(iii) If the requested Future Advance is a conversion of a Revolving
Advance to a Base Facility Advance that has a maturity date
which does extend beyond the Revolving Facility Termination
Date, after giving effect to the requested Future Advance, the
Coverage and LTV Tests will be satisfied.
(d) If the Advance is a Base Facility Advance, delivery of a Base
Facility Note, duly executed by the Borrower, in the amount of the Advance,
reflecting all of the terms of the Base Facility Advance;
(e) If the Advance is a Revolving Advance, delivery of the Advance
Confirmation Instrument, duly executed by the Borrower;
(f) For any Title Insurance Policy not containing a Revolving Credit
Endorsement, the receipt by the Lender of an endorsement to the Title Insurance
Policy, amending the effective date of the Title Insurance Policy to the Closing
Date and showing no additional exceptions to coverage other than Permitted
Liens;
(g) The receipt by the Lender of all legal fees and expenses payable
by the Borrower in connection with the Future Advance pursuant to Section
18.4(b);
(h) The sum of the aggregate unpaid principal balance of Base Facility
Advances Outstanding and Revolving Advances Outstanding, at any time, shall not
exceed the Maximum Credit Facility Commitment;
(i) The making of the Advance shall not cause more than 10 separate
Advances to be Outstanding at any one time;
(j) One or more Hedges shall be in effect in accordance with Article
XXIII in an aggregate notional principal amount at least equal to the aggregate
principal sum of all Revolving Advances then Outstanding after giving effect to
such Future Advance; and
(k) The satisfaction of all General Conditions set forth in Section
12.1; provided, however, that (i) if the Advance is a conversion of a Revolving
Advance to a Base
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Facility Advance where the Base Facility Advance will have a maturity date which
does not extend beyond the Revolving Facility Termination Date, then only
Sections 12.1(a) and 12.1(c) through 12.1(f), inclusive, shall be applicable,
and (ii) if the Advance is a rollover of a maturing Advance, then only Sections
12.1(a), 12.1(c), 12.1(e) and 12.1(f) shall be applicable.
ARTICLE VI
ADDITIONS OF COLLATERAL
SECTION 6.1 Right to Add Collateral. Subject to the terms and conditions of this
Article VI, the Borrower shall have the right, from time to time during the Term
of this Agreement, but not more frequently than once each calendar month, to add
one or more Multifamily Residential Properties to the Collateral Pool in
accordance with the provisions of this Article VI. The addition of an Additional
Mortgaged Property to the Collateral Pool pursuant to this Article VI shall not
result in an increase to the Maximum Credit Facility Commitment, except in
accordance with an increase in the Revolving Facility Commitment pursuant to
Article IX.
SECTION 6.2 Procedure for Adding Collateral.
(a) Request. The Borrower may, not more frequently than once each
calendar month, deliver a written request ("Collateral Addition Request") to the
Lender, in the form attached as Exhibit S to this Agreement, to add one or more
Multifamily Residential Properties to the Collateral Pool. Each Collateral
Addition Request shall be accompanied by the following:
(i) The information relating to the proposed Additional Mortgaged
Property required by the form attached as Exhibit T to this
Agreement ("Collateral Addition Description Package"), as
amended from time to time to include information required
under the DUS Guide; and
(ii) The payment of all Additional Collateral Due Diligence Fees
pursuant to Section 18.3(b).
(b) Additional Information. The Borrower shall promptly deliver to the
Lender any additional information concerning the proposed Additional Mortgaged
Property that the Lender may from time to time reasonably request.
(c) Underwriting. The Lender shall evaluate the proposed Additional
Mortgaged Property, and shall make underwriting determinations as to the
Aggregate Debt Service Coverage Ratios and the Aggregate Loan to Value Ratio
applicable to the Collateral Pool, on the basis of a Valuation made with respect
to the proposed Additional Mortgaged Property, and otherwise in accordance with
Fannie Mae's DUS Underwriting Requirements. Within 30 days after receipt of (i)
the Collateral Addition Request for the Additional Mortgaged Property and (ii)
all reports, certificates and documents set forth on Exhibit U to this
Agreement, including a zoning analysis undertaken in accordance with Section 206
of the DUS Guide, the Lender shall notify the Borrower whether or not it shall
consent to the addition of the proposed Additional Mortgaged Property to the
Collateral Pool and, if it shall so consent, shall set forth the Aggregate Debt
Service Coverage Ratios and the Aggregate Loan to Value Ratio which it estimates
shall result from the addition of the proposed
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Additional Mortgaged Property to the Collateral Pool. If the Lender declines to
consent to the addition of the proposed Additional Mortgaged Property to the
Collateral Pool, the Lender shall include, in its notice, a brief statement of
the reasons for doing so. Within five Business Days after receipt of the
Lender's notice that it shall consent to the addition of the proposed Additional
Mortgaged Property to the Collateral Pool, the Borrower shall notify the Lender
whether or not it elects to cause the proposed Additional Mortgaged Property to
be added to the Collateral Pool. If the Borrower fails to respond within the
period of five Business Days, it shall be conclusively deemed to have elected
not to cause the proposed Additional Mortgaged Property to be added to the
Collateral Pool.
(d) Closing. If, pursuant to Section 6.2(c), the Lender consents to
the addition of the proposed Additional Mortgaged Property to the Collateral
Pool, the Borrower timely elects to cause the proposed Additional Mortgaged
Property to be added to the Collateral Pool and all conditions contained in
Section 6.3 are satisfied, the Lender shall permit the proposed Additional
Mortgaged Property to be added to the Collateral Pool, at a closing to be held
at offices designated by the Lender on a Closing Date selected by the Lender,
and occurring within 10 Business Days after the Lender's receipt of the
Borrower's election (or on such other date to which the Borrower and the Lender
may agree).
SECTION 6.3 Conditions Precedent to Addition of an Additional Mortgaged Property
to the Collateral Pool. The addition of an Additional Mortgaged Property to the
Collateral Pool on the Closing Date applicable to the Additional Mortgaged
Property is subject to the satisfaction of the following conditions precedent:
(a) On the Closing Date the Coverage and LTV Tests are satisfied;
(b) The receipt by the Lender of the Collateral Addition Fee and all
legal fees and expenses payable by the Borrower in connection with the
Additional Mortgaged Property pursuant to Section 18.4(b);
(c) The delivery to the Title Company, with fully executed
instructions directing the Title Company to file and/or record in all applicable
jurisdictions, all applicable Collateral Addition Loan Documents required by the
Lender, including duly executed and delivered original copies of any Security
Instruments and UCC-1 Financing Statements covering the portion of the
Additional Mortgaged Property comprised of personal property, and other
appropriate documents, in form and substance satisfactory to the Lender and in
form proper for recordation, as may be necessary in the opinion of the Lender to
perfect the Lien created by the applicable additional Security Instrument, and
any other Collateral Addition Loan Document creating a Lien in favor of the
Lender, and the payment of all taxes, fees and other charges payable in
connection with such execution, delivery, recording and filing;
(d) If required by the Lender, amendments to the Notes and the
Security Instruments, reflecting the addition of the Additional Mortgaged
Property to the Collateral Pool and, as to any Security Instrument so amended,
the receipt by the Lender of an endorsement to the Title Insurance Policy
insuring the Security Instrument, amending the effective date of the Title
Insurance Policy to the Closing Date and showing no additional exceptions to
coverage other than Permitted Liens;
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(e) If the Title Insurance Policy for the Additional Mortgaged
Property contains a Tie-In Endorsement, an endorsement to each other Title
Insurance Policy containing a Tie-In Endorsement, adding a reference to the
Additional Mortgaged Property; and
(f) The satisfaction of all General Conditions set forth in Sections
12.1(a) and 12.1(c) through 12.1(f), inclusive, 12.2 and 12.3.
ARTICLE VII
SUBSTITUTION OF COLLATERAL
SECTION 7.1 Right to Substitute Collateral. Subject to the terms and conditions
of this Article VII, the Borrower shall have the right, from time to time during
the Term of this Agreement, but not more frequently than once each calendar
month, to add one or more Multifamily Residential Properties to the Collateral
Pool in substitution of one or more Mortgaged Properties then in the Collateral
Pool in accordance with the provisions of this Article VII.
SECTION 7.2 Procedure for Substituting Collateral.
(a) Request. The Borrower may, not more frequently than once each
calendar month, deliver a written request ("Collateral Substitution Request") to
the Lender, in the form attached as Exhibit V to this Agreement, to add one or
more Multifamily Residential Properties to the Collateral Pool in substitution
of one or more Mortgaged Properties then in the Collateral Pool. Each Collateral
Substitution Request shall be accompanied by the following:
(i) The information relating to the proposed Substituted Mortgaged
Property required by the form attached as Exhibit W to this
Agreement ("Collateral Substitution Description Package"), as
amended from time to time to include information required
under the DUS Guide;
(ii) A statement whether the addition of the proposed Substituted
Mortgaged Property will occur simultaneously with the release
of the proposed Collateral Release Property and, if not, the
Borrower shall provide the Lender with a certification that
the Collateral Release Property will be Sold, and the Borrower
shall specify the proposed date on which the proposed
Substituted Mortgaged Property will be added to the Collateral
Pool which, in no event, shall be a date which is more than 90
days after the proposed date of the release of the proposed
Collateral Release Property; and
(iii) The payment of all Substituted Collateral Due Diligence Fees
pursuant to Section 18.3(b).
(b) Additional Information. The Borrower shall promptly deliver to the
Lender any additional information concerning the proposed Substituted Mortgaged
Property
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and the proposed Collateral Release Property that the Lender may from time to
time reasonably request.
(c) Underwriting. The Lender shall evaluate the proposed Substituted
Mortgaged Property, and shall make underwriting determinations as to (i) the
Aggregate Debt Service Coverage Ratios and the Loan to Value Ratio applicable to
the Collateral Pool immediately prior to and immediately after giving effect to
the proposed substitution, and (ii) the Valuation and the Net Operating Income
for the Trailing 12 Month Period for both the proposed Substituted Mortgaged
Property and the proposed Collateral Release Property. Notwithstanding anything
to the contrary contained herein, for purposes of making such underwriting
determinations with respect to the proposed Substituted Mortgaged Property, such
determinations shall be made on the basis of a Valuation made with respect to
the proposed Substituted Mortgaged Property, and otherwise in accordance with
Fannie Mae's DUS Underwriting Requirements. Within 30 days after receipt of (i)
the Collateral Substitution Request for the proposed Substituted Mortgaged
Property and the proposed Collateral Release Property and (ii) all reports,
certificates and documents set forth on Exhibit X to this Agreement, including a
zoning analysis undertaken in accordance with Section 206 of the DUS Guide, the
Lender shall notify the Borrower whether or not the proposed Substituted
Mortgaged Property meets the Coverage and LTV Tests and DUS Underwriting
Requirements required by this Section 7.2(c) and Section 7.3(b), and therefore
whether or not it shall consent to the addition of the proposed Substituted
Mortgaged Property to the Collateral Pool in substitution of the proposed
Collateral Release Property and, if it shall so consent, shall set forth the
Aggregate Debt Service Coverage Ratios and the Aggregate Loan to Value Ratio
which it estimates shall result from the substitution of the proposed
Substituted Mortgaged Property into the Collateral Pool in replacement of the
proposed Collateral Release Property. If the proposed Substituted Mortgaged
Property does not meet the Coverage and LTV Tests and DUS Underwriting
Requirements required by this Section 7.2(c) and Section 7.3(b), and therefore
the Lender does not consent to the substitution of the proposed Additional
Mortgaged Property into the Collateral Pool in replacement of the proposed
Collateral Release Property, the Lender shall include, in its notice, a brief
statement of the reasons for doing so. Within five Business Days after receipt
of the Lender's notice that it shall consent to the substitution of the proposed
Additional Mortgaged Property into the Collateral Pool in replacement of the
proposed Collateral Release Property, the Borrower shall notify the Lender
whether or not it elects to cause such substitution to occur. If the Borrower
fails to respond within the period of five Business Days, it shall be
conclusively deemed to have elected not to cause the proposed substitution to
occur.
(d) Closing. If, pursuant to Section 7.2(c), the Lender consents to
the substitution of the proposed Additional Mortgaged Property into the
Collateral Pool in replacement of the proposed Collateral Release Property, the
Borrower timely elects to cause such substitution to occur and all conditions
contained in Section 7.3 are satisfied, the Lender shall permit the proposed
Additional Mortgaged Property to be substituted into the Collateral Pool in
replacement of the proposed Collateral Release Property, at a closing to be held
at offices designated by the Lender on a Closing Date selected by the Lender,
and occurring --
(i) if the substitution of the proposed Substituted Collateral
Property is to occur simultaneously with the release of the
proposed Collateral Released
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Property, within 30 days after the Lender's receipt of the
Borrower's election (or on such other date to which the
Borrower and the Lender may agree); or
(ii) if the substitution of the proposed Substituted Collateral
Property is to occur subsequent to the release of the
Collateral Release Property, within 90 days after the release
of the Collateral Release Property in accordance with Section
8.3 (other than clause (b) with respect to the requirement
pertaining to a Release Price and clauses (h) and (i)).
If, in the case of clause (ii), the addition of the proposed Substituted
Collateral Property to the Collateral Pool does not occur within 90 days after
the release of the Collateral Release Property in accordance with such clause
(ii), then the Borrower shall have waived its right to substitute such
Collateral Release Property with the proposed Substituted Mortgaged Property,
the Release Price shall be determined pursuant to Section 8.2(c) and the
Borrower shall comply with the requirement set forth in Section 8.3(i). Such
Release Price, or the applicable portion thereof, shall be credited against the
undrawn amount of the Maximum Credit Facility Commitment available under this
Agreement and/or be immediately due and payable by the Borrower to the Lender to
reduce the Advances Outstanding as required by, and the manner set forth in,
Section 8.2(d), the Maximum Credit Facility Commitment shall be permanently
reduced by the amount of the Release Price in accordance with Section 8.2(e) and
the Borrower shall immediately pay to the Lender the Credit Facility Termination
Fee, if any, required by Section 8.2(e).
SECTION 7.3 Conditions Precedent to Substitution of a Substituted Mortgaged
Property into the Collateral Pool. The substitution of a Substituted Mortgaged
Property into the Collateral Pool in replacement of a Collateral Release
Property on the Closing Date is subject to the satisfaction of the following
conditions precedent:
(a) On the Closing Date the Coverage and LTV Tests are satisfied both
immediately prior to and immediately after giving effect to such substitution;
(b) The Lender shall have made the determination, as a part of the
underwriting evaluations made in accordance with Section 7.2(c), that (i) the
Aggregate Debt Service Coverage Ratios immediately after giving effect to the
proposed substitution will be equal to or higher than the Debt Service Coverage
Ratios immediately prior to the proposed substitution, and (ii) the Aggregate
Loan to Value Ratio immediately after giving effect to the proposed substitution
will be equal to or less than the Aggregate Loan to Value Ratio immediately
prior to giving effect to the proposed substitution;
(c) With respect to the release of the proposed Collateral Release
Property, the Borrower shall have complied with Sections 8.3 (other than clause
(b) with respect to the requirement pertaining to the Release Price and clauses
(h) and (i)) within the applicable time period set forth therein;
(d) If the substitution of the proposed Substituted Mortgaged Property
is not to occur simultaneously with the release of the Collateral Release
Property, the Borrower shall deliver to the Lender a certification, certified by
the general partner of the Borrower, that
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the Collateral Release Property is to be Sold concurrently or substantially
concurrently with the release of such Collateral Release Property;
(e) The receipt by the Lender of the Collateral Substitution Fee and
all legal fees and expenses payable by the Borrower in connection with the
substitution pursuant to Section 18.4(b);
(f) The delivery to the Title Company, with fully executed
instructions directing the Title Company to file and/or record in all applicable
jurisdictions, all applicable Collateral Substitution Loan Documents required by
the Lender, including duly executed and delivered original copies of any
Security Instruments and UCC-1 Financing Statements covering the portion of the
Substituted Mortgaged Property comprised of personal property, and other
appropriate documents, in form and substance satisfactory to the Lender and in
form proper for recordation, as may be necessary in the opinion of the Lender to
perfect the Lien created by the applicable additional Security Instrument, and
any other Collateral Substitution Loan Document creating a Lien in favor of the
Lender, and the payment of all taxes, fees and other charges payable in
connection with such execution, delivery, recording and filing;
(g) If required by the Lender, amendments to the Notes and the
Security Instruments, reflecting the addition of the Substituted Mortgaged
Property to the Collateral Pool and, as to any Security Instrument so amended,
the receipt by the Lender of an endorsement to the Title Insurance Policy
insuring the Security Instrument, amending the effective date of the Title
Insurance Policy to the Closing Date and showing no additional exceptions to
coverage other than Permitted Liens;
(h) If the Title Insurance Policy for the Substituted Mortgaged
Property contains a Tie-In Endorsement, an endorsement to each other Title
Insurance Policy containing a Tie-In Endorsement, adding a reference to the
Substituted Mortgaged Property;
(i) The delivery to the Lender of Additional Collateral or the
repayment of Advances Outstanding to the extent required pursuant to Section
7.4; and
(j) The satisfaction of all General Conditions set forth in Sections
12.1(a) and 12.1(c) through 12.1(f), inclusive, 12.2 and 12.3.
SECTION 7.4 Restriction on Borrowings. In the case that the substitution of the
proposed Substituted Mortgaged Property is not to occur simultaneously with the
release of the proposed Collateral Release Property, from and after the release
of the proposed Collateral Release Property until the addition of the proposed
Substituted Mortgaged Property into the Collateral Pool in accordance with this
Article VII, the Borrower shall not be permitted to have the aggregate unpaid
principal balance of Advances Outstanding to be in excess of an amount equal to
the then-existing Maximum Credit Facility Commitment minus the Allocable Credit
Facility Amount attributable to the Collateral Release Property that was
released, unless the Borrower shall have delivered to the Lender Additional
Collateral in an amount at least equal to such Allocable Credit Facility Amount.
In the event that the aggregate unpaid principal balance of Advances Outstanding
exceeds such amount (and Additional Collateral in an amount at least equal to
the applicable Allocable Credit Facility Amount has not been
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delivered by the Borrower to the Lender), as a condition precedent to the
substitution of a Substituted Mortgaged Property into the Collateral Pool, the
Borrower shall pay such excess. Any payment received by the Lender under this
Section 7.4 shall be applied against Advances Outstanding in the manner
prescribed for Release Prices pursuant to clauses (ii) and (iii) of Section
8.2(d). Subject to the provisions of Section 18.5, the Additional Collateral
shall be released to the Borrower upon the addition of the applicable
Substituted Mortgaged Property to the Collateral Pool in accordance with this
Article VII.
ARTICLE VIII
RELEASES OF COLLATERAL
SECTION 8.1 Right to Obtain Releases of Collateral. Subject to the terms and
conditions of this Article VIII, the Borrower shall have the right, from time to
time during the Term of this Agreement, but not more frequently than once each
calendar month, to obtain a release of one or more Mortgaged Properties and
other Collateral solely related to such Mortgaged Properties from the Collateral
Pool (other than in connection with a substitution of Collateral permitted in
accordance with Article VII) in accordance with the provisions of this Article
VIII.
SECTION 8.2 Procedure for Obtaining Releases of Collateral.
(a) Request. In order to obtain a release of Collateral from the
Collateral Pool, the Borrower may, not more frequently than once each calendar
month, deliver a written request for the release of one or more Mortgaged
Properties (and the related Collateral covered by the UCC-1 Financing Statements
filed with respect to such Mortgaged Properties) from the Collateral Pool
("Collateral Release Request") to the Lender, in the form attached as Exhibit Y
to this Agreement. The Collateral Release Request shall be accompanied by the
name, address and location of the Mortgaged Properties to be released from the
Collateral Pool ("Collateral Release Property").
(b) Closing. If all conditions contained in Section 8.3 are satisfied,
the Lender shall cause the Collateral Release Property to be released from the
Collateral Pool, at a closing to be held at offices designated by the Lender on
a Closing Date selected by the Lender, and occurring within 30 days after the
Lender's receipt of the Collateral Release Request (or on such other date to
which the Borrower and the Lender may agree), by executing and delivering, and
causing all applicable parties to execute and deliver, all at the sole cost and
expense of the Borrower, instruments, in the form customarily used by the Lender
for releases in the jurisdiction governing the perfection of the security
interest being released, releasing the applicable Security Instrument as a Lien
on the Collateral Release Property, and UCC-3 Termination Statements terminating
the UCC-1 Financing Statements perfecting a Lien on the portion of the
Collateral Release Property comprised of personal property and such other
documents and instruments as the Borrower may reasonably request evidencing the
release of the applicable Collateral from any lien securing the Obligations
(including a termination of any restriction on the use of any accounts relating
to the Collateral Release Property) and the release and return to the Borrower
of any and all escrowed amounts relating thereto. The instruments referred to in
the preceding sentence are referred to in this Article VIII as the "Collateral
Release Documents."
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(c) Release Price.
(i) With respect to the release of up to two Mortgaged Properties
up to the aggregate Allocable Credit Facility Amounts
attributable to such Mortgaged Properties of 10% of the
initial Revolving Facility Commitment, the "Release Price"
means 110% of the Allocable Credit Facility Amount for such
Mortgaged Property; or
(ii) With respect to any release of a Mortgaged Property for which
clause (i) does not apply, the "Release Price" means 125% of
the Allocable Credit Facility Amount attributable to such
Mortgaged Property;
provided, however, that with respect to clauses (i) or (ii) above, if,
immediately after giving effect to the release of a Mortgaged Property, the
Aggregate Debt Service Coverage Ratios are equal to or higher than 160% and the
Aggregate Loan to Value Ratio is equal to or less than 55%, all as determined by
the Lender, then the "Release Price" means 100% of the Allocable Credit Facility
Amount attributable to such Mortgaged Property.
(d) Application of Release Price. The Release Price shall be applied
as follows: (i) first, the Release Price, or the applicable portion thereof,
shall be credited against the undrawn amount of the Maximum Credit Facility
Commitment available under this Agreement; (ii) second, the Release Price, or
the applicable portion thereof, shall be paid by the Borrower to the Lender to
reduce the Revolving Advances Outstanding until there are no further Revolving
Advances Outstanding; and (iii) third, the Release Price, or the applicable
portion thereof, shall be paid by the Borrower to the Lender in an amount equal
to the aggregate unpaid principal balance of Base Facility Advances Outstanding
which amount shall be held by the Lender (or its appointed collateral agent) as
substituted Collateral ("Cash Collateral"), in accordance with a security
agreement and other documents in form and substance acceptable to the Lender.
Any portion of the Release Price held as Cash Collateral will, at the Borrower's
option, either be used by the Borrower to repay Base Facility Advances on the
applicable maturity dates of such Advances or be released by the Lender to the
Borrower, in whole or in part, as Base Facility Advances are repaid by the
Borrower on the applicable maturity dates of such Base Facility Advances (other
than as a result of a rollover of a Base Facility Advance pursuant to Section
3.10), provided that, in either case, no Event of Default or Potential Event of
Default then exists hereunder. If, on the date on which a release occurs all or
a portion of the Release Price is to be paid to reduce Revolving Advances
Outstanding, but all or a portion of such Revolving Advances Outstanding are not
then due and payable, the Lender shall hold the applicable payments as
additional Collateral for the Credit Facility until the next date on which such
Revolving Advances are due and payable, at which time the Lender shall apply the
amounts held by it to the amounts of the Revolving Advances then due and
payable.
(e) Permanent Reduction of Maximum Credit Facility Commitment/Payment
of Credit Facility Termination Fee. Immediately after giving effect to a release
of a Mortgaged Property pursuant to this Article VIII, the Maximum Credit
Facility Commitment shall be permanently reduced by the amount of the Release
Price paid in connection with such release. Subject to Sections 2.9 and 3.11,
with respect to any release of
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a Mortgaged Property (other than a release for which the Release Price set forth
in Section 8.2(c)(i) applies), the Borrower shall, concurrently with the
release, pay to the Lender the Credit Facility Termination Fee, if any,
calculated based on the entire amount of such Release Price.
(f) Release of Unimproved Parcel at "Oaks in Fairlakes". If the
Borrower decides not to construct the Additional Phase (as defined in Section
14.2(s)) at the Mortgaged Property known as "Oaks in Fairlakes" as contemplated
by Sections 9.2 and 14.2(s), then the Lender agrees to release the "Additional
Phase Land" (as hereinafter defined), provided that (i) the release of the
Additional Phase Land shall not cause any MBS backing an Advance to be deemed to
have been sold or exchanged under the Internal Revenue Code; (ii) the Lender
shall have approved in its sole discretion the intended use of the Additional
Phase Land and, if desired by the Lender, such release shall be expressly
conditioned upon an agreement in writing by the Borrower, and binding upon any
successor owners, that such Additional Phase Land shall be used solely for such
use; (iii) the Borrower shall have demonstrated to the Lender's satisfaction
that the Additional Phase Land has been properly subdivided in accordance with
Applicable Law; and (iv) the conditions set forth in Section 8.3 (other than
Sections 8.3(a), 8.3(b), 8.3(h) and 8.3(i)) shall have been satisfied by the
Borrower. For purposes hereof, the term "Additional Phase Land" shall mean that
undeveloped portion of the Mortgaged Property known as "Oaks in Fairlakes",
consisting of approximately 1.51 acres and located on Fair Lakes Parkway
directly west of Oak Creek Lane, upon which the contemplated Additional Phase is
to be constructed, and which is, as of the date hereof, subject to deed
restrictions regarding the future development of such land.
SECTION 8.3 Conditions Precedent to Release of Collateral Release Property from
the Collateral. The obligation of the Lender to release a Collateral Release
Property from the Collateral Pool, by executing and delivering the Collateral
Release Documents on the Closing Date, is subject to the satisfaction of the
following conditions precedent on or before the Closing Date:
(a) Immediately prior to and immediately after giving effect to the
requested release the Coverage and LTV Tests will be satisfied;
(b) Receipt by the Lender of the Release Price which is required to be
paid by the Borrower to the Lender to reduce Advances Outstanding pursuant to
Sections 8.2(c) and 8.2(d), the Credit Facility Termination Fee, if any, which
is required pursuant to Section 8.2(e) and all legal fees and expenses payable
by the Borrower in connection with the release pursuant to Section 18.4(b);
(c) Receipt by the Lender on the Closing Date of one or more
counterparts of each Collateral Release Document, dated as of the Closing Date,
signed by each of the parties (other than the Lender) who is a party to such
Collateral Release Document;
(d) If required by the Lender, amendments to the Notes and the
Security Instruments, reflecting the release of the Collateral Release Property
from the Collateral Pool and, as to any Security Instrument so amended, the
receipt by the Lender of an endorsement to the Title Insurance Policy insuring
the Security Instrument, amending the effective date of the
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Title Insurance Policy to the Closing Date and showing no additional exceptions
to coverage other than Permitted Liens;
(e) If the Lender determines the Collateral Release Property to be one
phase of a project, and one or more other phases of the project are Mortgaged
Properties which will remain in the Collateral Pool ("Remaining Mortgaged
Properties"), the Lender's determination that the Remaining Mortgaged Properties
can be operated separately from the Collateral Release Property and any other
phases of the project which are not Mortgaged Properties. In making this
determination, the Lender shall evaluate whether the Remaining Mortgaged
Properties comply with the terms of Sections 203 and 208 of the DUS Guide,
which, as of the date of this Agreement, require, among other things, that a
phase which constitutes collateral for a loan made in accordance with the terms
of the DUS Guide (i) have adequate ingress and egress to existing public
roadways, either by location of the phase on a dedicated, all-weather road or by
access to such a road by means of a satisfactory easement, (ii) have access
which is sufficiently attractive and direct from major thoroughfares to be
conducive to continued good marketing, (iii) have a location which is not (A)
inferior to other phases, (B) such that inadequate maintenance of other phases
would have a significant negative impact on the phase, and (C) such that the
phase is visible only after passing through the other phases of the project and
(iv) comply with such other issues as are dictated by prudent practice;
(f) Receipt by the Lender of endorsements to the Tie-In Endorsements
of the Title Insurance Policies, if deemed necessary by the Lender, to reflect
the release;
(g) Receipt by the Lender on the Closing Date of a writing, dated as
of the Closing Date, signed by the Borrower Parties, in the form attached as
Exhibit Z to this Agreement, pursuant to which the Borrower Parties confirm that
their obligations under the Loan Documents are not adversely affected by the
release of the Collateral Release Property from the Collateral;
(h) The remaining Mortgaged Properties in the Collateral Pool shall
satisfy the Geographical Diversification Requirements;
(i) Receipt by the Lender of a Revolving Facility Termination Request
in the amount of the applicable Release Price; and
(j) The satisfaction of all General Conditions set forth in Sections
12.1(a) and 12.1(c) through 12.1(f), inclusive.
ARTICLE IX
INCREASE OF REVOLVING FACILITY COMMITMENT
SECTION 9.1 Request to Increase Revolving Facility Commitment. Subject to the
terms, conditions and limitations of this Section 9.1, the Borrower may, at any
time or from time to time during the first four Loan Years, request an increase
in the Revolving Facility Commitment. Any request to increase the Revolving
Facility Commitment is subject to the approval of the Lender, which approval may
be granted or withheld in Lender's sole discretion.
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SECTION 9.2 Right to Increase Revolving Facility Commitment Based on "Oaks in
Fairlakes". Subject to the terms, conditions and limitations of this Section
9.2, the Borrower shall have a one-time right, at any time during the first
three Loan Years, to increase the Revolving Facility Commitment by an amount not
to exceed $3,000,000 ("an "Oaks in Fairlakes Commitment Increase"). The
Borrower's right to increase the Revolving Facility Commitment pursuant to this
Section 9.2 is subject to the satisfaction of the following conditions precedent
on or before the Closing Date:
(a) The construction of the Additional Phase (as defined in Section
14.2(s)) of the Mortgaged Property known as "Oaks in Fairlakes" is fully
Completed (as defined in Section 14.2(s)) in accordance with Section 14.2(s),
and such Additional Phase has achieved stabilization, as determined by the
Lender;
(b) After giving effect to the requested increase the Coverage and LTV
Tests will be satisfied;
(c) Payment by the Borrower of the Expansion Origination Fee in
accordance with Section 18.2(b) and all legal fees and expenses payable by the
Borrower in connection with the increase of the Revolving Facility Commitment
pursuant to Section 18.4(b);
(d) The receipt by the Lender of an endorsement to each Title
Insurance Policy, amending the effective date of the Title Insurance Policy to
the Closing Date, increasing the limits of liability to the increased Maximum
Credit Facility Commitment, as increased pursuant to this Section 9.2, showing
no additional exceptions to coverage other than the exceptions shown on the
Initial Closing Date (or, if applicable, the last Closing Date with respect to
which the Title Insurance Policy was endorsed) and other exceptions approved by
the Lender, together with any reinsurance agreements required by the Lender;
(e) The receipt by the Lender of fully executed original copies of the
Credit Facility Expansion Loan Documents, each of which shall be in full force
and effect, and in form and substance satisfactory to the Lender in all
respects; and
(f) The satisfaction of all applicable General Conditions set forth in
Sections 12.1(a) and 12.1(c) through 12.1(f), inclusive, 12.2 and 12.3.
If all conditions contained in this Section 9.2 are satisfied, the Lender shall
permit the increase in the then-existing Maximum Credit Facility Commitment as a
result of the Oaks in Fairlakes Commitment Increase, at a closing to be held at
offices designated by the Lender on a Closing Date selected by the Lender, and
occurring within 15 Business Days.
SECTION 9.3 Additional Limited Right to Increase Revolving Facility Commitment.
Subject to the terms, conditions and limitations of this Section 9.3, the
Borrower shall have a right, at any time during the first six months after the
Initial Closing Date, to increase the Revolving Facility Commitment by an amount
not to exceed the lesser of: (i) $7,000,000 in the aggregate or (ii) an amount
which would not cause the ratio of (A) the Maximum Credit Facility Commitment,
after giving effect to such increase under this Section 9.3, to (B) the
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most recent Valuations of all of the Mortgaged Properties to exceed 65% ("an
"Additional Commitment Increase"). The Borrower's right to increase the
Revolving Facility Commitment pursuant to this Section 9.3 is subject to the
satisfaction of the following conditions precedent on or before the Closing
Date:
(a) After giving effect to the requested increase the Coverage and LTV
Tests will be satisfied;
(b) Payment by the Borrower of the Expansion Origination Fee in
accordance with Section 18.2(b) and all legal fees and expenses payable by the
Borrower in connection with the increase of the Revolving Facility Commitment
pursuant to Section 18.4(b);
(c) The receipt by the Lender of an endorsement to each Title
Insurance Policy, amending the effective date of the Title Insurance Policy to
the Closing Date, increasing the limits of liability to the increased Maximum
Credit Facility Commitment, as increased pursuant to this Section 9.3, showing
no additional exceptions to coverage other than the exceptions shown on the
Initial Closing Date (or, if applicable, the last Closing Date with respect to
which the Title Insurance Policy was endorsed) and other exceptions approved by
the Lender, together with any reinsurance agreements required by the Lender;
(d) The receipt by the Lender of fully executed original copies of the
Credit Facility Expansion Loan Documents, each of which shall be in full force
and effect, and in form and substance satisfactory to the Lender in all
respects; and
(e) The satisfaction of all applicable General Conditions set forth in
Sections 12.1(a) and 12.1(c) through 12.1(f), inclusive, 12.2 and 12.3.
If all conditions contained in this Section 9.3 are satisfied, the Lender shall
permit the increase in the then-existing Maximum Credit Facility Commitment as a
result of the Additional Commitment Increase, at a closing to be held at offices
designated by the Lender on a Closing Date selected by the Lender, and occurring
within 15 Business Days.
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ARTICLE X
COMPLETE OR PARTIAL TERMINATION OF REVOLVING FACILITY
SECTION 10.1 Right to Complete or Partial Termination of Revolving Facility.
Subject to the terms and conditions of this Article X, the Borrower shall have
the right to permanently reduce the Revolving Facility Commitment in accordance
with the provisions of this Article X.
SECTION 10.2 Procedure for Complete or Partial Termination of Revolving
Facility.
(a) Request. In order to permanently reduce the Revolving Facility
Commitment, the Borrower may deliver a written request for the reduction
("Revolving Facility Termination Request") to the Lender, in the form attached
as Exhibit AA to this Agreement. A permanent reduction of the Revolving Facility
Commitment to $0 shall be referred to as a "Complete Revolving Facility
Termination." The Revolving Facility Termination Request shall be accompanied by
the following:
(i) A designation of the proposed amount of the reduction in the
Revolving Facility Commitment; and
(ii) Unless there is a Complete Revolving Facility Termination, a
designation by the Borrower of any Advances which will be
prepaid.
Any release of Collateral, whether or not made in connection with a Revolving
Facility Termination Request, must comply with all conditions to a release which
are set forth in Article VIII.
(b) Closing. If all conditions contained in Section 10.3 are
satisfied, the Lender shall permit the Revolving Facility Commitment to be
reduced to the amount designated by the Borrower, at a closing to be held at
offices designated by the Lender on a Closing Date selected by the Lender,
within 15 Business Days after the Lender's receipt of the Revolving Facility
Termination Request (or on such other date to which the Borrower and the Lender
may agree), by executing and delivering a counterpart of an amendment to this
Agreement, in the form attached as Exhibit BB to this Agreement, evidencing the
reduction in the Revolving Facility Commitment. The document referred to in the
preceding sentence is referred to in this Article X as the "Revolving Facility
Termination Document."
SECTION 10.3 Conditions Precedent to Partial Termination of Revolving Facility.
The right of the Borrower to reduce the Revolving Facility Commitment and the
obligation of the Lender to execute the Revolving Facility Termination Document,
are subject to the satisfaction of the following conditions precedent on or
before the Closing Date:
(a) Payment by the Borrower in full of all of the Revolving Advances
Outstanding required to be paid in order that the aggregate unpaid principal
balance of all Revolving Advances Outstanding is not greater than the Revolving
Facility Commitment (but if the Borrower is not required to prepay all of the
Revolving Advances, the Borrower shall have the right to select which of the
Revolving Advances shall be repaid). If, on the date on which the Borrower is
required to make such payment, the Revolving Advances to be paid are
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Outstanding but are not then due and payable, the Lender shall hold such payment
as additional Collateral for the Credit Facility until the next day on which
Revolving Advances are due and payable, at which time the Lender shall apply the
amounts held by it to the amounts of the Revolving Advances then due and
payable;
(b) Subject to Section 2.9, payment by the Borrower of the Revolving
Facility Termination Fee, if any;
(c) Receipt by the Lender on the Closing Date of one or more
counterparts of the Credit Facility Partial Termination Document, dated as of
the Closing Date, signed by each of the parties (other than the Lender) who is a
party to such Credit Facility Partial Termination Document; and
(d) Each Revolving Facility Termination request shall be in the
minimum amount of $3,000,000.
After giving effect to a Revolving Facility Termination Request in accordance
with this Article X, the Revolving Facility Commitment shall be permanently
reduced by the amount of the reduction.
ARTICLE XI
TERMINATION OF CREDIT FACILITY
SECTION 11.1 Right to Terminate Credit Facility. Subject to the terms and
conditions of this Article XI, the Borrower shall have the right to terminate
this Agreement and the Credit Facility and receive a release of all of the
Collateral from the Collateral Pool in accordance with the provisions of this
Article XI.
SECTION 11.2 Procedure for Terminating Credit Facility.
(a) Request. In order to terminate this Agreement and the Credit
Facility, the Borrower shall deliver a written request for the termination
("Credit Facility Termination Request") to the Lender, in the form attached as
Exhibit CC to this Agreement.
(b) Closing. If all conditions contained in Section 11.3 are
satisfied, this Agreement shall terminate, and the Lender shall cause all of the
Collateral to be released from the Collateral Pool, at a closing to be held at
offices designated by the Lender on a Closing Date selected by the Lender,
within 15 Business Days after the Lender's receipt of the Credit Facility
Termination Request (or on such other date to which the Borrower and the Lender
may agree), by executing and delivering, and causing all applicable parties to
execute and deliver, all at the sole cost and expense of the Borrower, (i)
instruments, in the form customarily used by the Lender for releases in the
jurisdictions in which the Mortgaged Properties are located, releasing all of
the Security Instruments as a Lien on the Mortgaged Properties, (ii) UCC-3
Termination Statements terminating all of the UCC-1 Financing Statements
perfecting a Lien on the personal property located on the Mortgaged Properties,
in form customarily used in the jurisdiction governing the perfection of the
security interest being released, (iii) such other documents and instruments as
the Borrower may reasonably request evidencing the release of the Collateral
from any lien securing the Obligations (including a termination of any
restriction on the use of any accounts relating to the Collateral)
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and the release and return to the Borrower of any and all escrowed amounts
relating thereto, (iv) instruments releasing the REIT from its obligations under
the REIT's Guaranty and this Agreement and any and all other Loan Documents, and
(v) the Note, marked paid and cancelled. The instruments referred to in the
preceding sentence are referred to in this Article XX as the "Facility
Termination Documents."
SECTION 11.3 Conditions Precedent to Termination of Credit Facility. The right
of the Borrower to terminate this Agreement and the Credit Facility and to
receive a release of all of the Collateral from the Collateral Pool and the
Lender's obligation to execute and deliver the Facility Termination Documents on
the Closing Date are subject to the following conditions precedent:
(a) Payment by the Borrower in full of the Notes Outstanding on the
Closing Date and all other amounts owing by the Borrower to the Lender under
this Agreement; and
(b) Payment of the Credit Facility Termination Fee, if any.
ARTICLE XII
GENERAL CONDITIONS PRECEDENT TO ALL REQUESTS
Except as otherwise expressly provided in this Agreement, the
obligation of the Lender to close the transaction requested in a Request shall
be subject to the following conditions precedent ("General Conditions") in
addition to any other conditions precedent set forth in this Agreement:
SECTION 12.1 Conditions Applicable to All Requests. Except as otherwise
expressly provided in this Agreement, each of the following conditions precedent
shall apply to all Requests:
(a) Payment of Expenses. The payment by the Borrower on the Closing
Date for the Request of the Lender's fees and expenses payable in accordance
with this Agreement for which the Lender has presented an invoice (which invoice
shall include reasonable estimates by the Lender of additional fees and expenses
payable in accordance with this Agreement to and including the Closing Date) not
less than two Business Days before the Closing Date for such Request.
(b) No Material Adverse Change. There has been no material adverse
change in the financial condition or results of operation of the Borrower
Parties or in the operating performance of any of the Mortgaged Properties since
the Initial Closing Date (or, with respect to the conditions precedent to the
Initial Advance, from the condition or results of operation reflected in the
financial statements, reports and other information obtained by the Lender
during its review of the Borrower Parties and the Initial Mortgaged Properties).
(c) No Default. There shall exist no Event of Default or Potential
Event of Default on the Closing Date for the Request and, after giving effect to
the transaction requested in the Request, no Event of Default or Potential Event
of Default shall occur.
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(d) Representations and Warranties. All representations and warranties
made by any Borrower Party in the Loan Documents shall be true and correct in
all material respects on the Closing Date for the Request with the same force
and effect as if such representations and warranties had been made on and as of
the Closing Date for the Request; provided, however, that (i) in the case of a
Request for a rollover of a maturing Advance, the date-down of such
representations and warranties pursuant to this Section 12.1(d) shall not apply,
(ii) in the case of any Request occurring after the Initial Closing Date (other
than a Request for a rollover of a maturing Advance), the date-down of such
representations and warranties shall exclude Sections 13.1(g)(i) and 13.2(q) set
forth herein and any representation or warranty contained in any of the other
Loan Documents that is solely related to an earlier date; and (iii) in the case
of a Request for a conversion of a Revolving Advance to a Base Facility Advance
where the maturity date of such Base Facility Advance does not extend beyond the
Revolving Facility Termination Date, the date-down of such representations and
warranties shall also exclude Sections 13.1(g)(iii) and 13.2(y). On the Closing
Date of any Request (other than a Request for a rollover of a maturing Advance),
the applicable representations and warranties as referred to in this Section
12.1(d) shall be deemed remade by such Borrower Party.
(e) No Condemnation or Casualty. There shall not be pending or
threatened any condemnation or other taking, whether direct or indirect, against
any Mortgaged Property, and there shall not have occurred any casualty to any
improvements located on any Mortgaged Property, which, in the case of any such
condemnation or taking or casualty, would have, or may reasonably be expected to
have, a Material Adverse Effect on the Mortgaged Properties then in the
Collateral Pool, taken as a whole.
(f) Delivery of Closing Documents. The receipt by the Lender of the
following, each dated as of the Closing Date for the Request, in form and
substance satisfactory to the Lender in all respects:
(i) A Compliance Certificate;
(ii) An Organizational Certificate (only if there is a change from
the Organizational Certificate previously submitted by the
Borrower); and
(iii) Such other documents, instruments, approvals (and, if
requested by the Lender, certified duplicates of executed
copies thereof) and opinions as the Lender may reasonably
request.
SECTION 12.2 Delivery of Closing Documents Relating to Initial Advance Request,
Collateral Addition Request, Collateral Substitution Request, Oaks in Fairlakes
Commitment Increase or Additional Commitment Increase. With respect to the
closing of the Initial Advance Request, a Collateral Addition Request, a
Collateral Substitution Request, an Oaks in Fairlakes Commitment Increase or an
Additional Commitment Increase, it shall be a condition precedent that the
Lender receives each of the following, each dated as of the Closing Date for the
Request, in form and substance satisfactory to the Lender in all respects:
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(a) Loan Documents. Fully executed original copies of each Loan
Document required to be executed in connection with the Request, duly executed
and delivered by the parties thereto (other than the Lender), each of which
shall be in full force and effect.
(b) Opinion. Favorable opinions of counsel to the Borrower Parties, as
to the due organization and qualification of the Borrower Parties, the due
authorization, execution, delivery and enforceability of each Loan Document
executed in connection with the Request and such other matters as the Lender may
reasonably require.
SECTION 12.3 Delivery of Property-Related Documents. With respect to each of the
Mortgaged Properties to be made part of the Collateral Pool on the Closing Date
for the Initial Advance Request, a Collateral Addition Request, a Collateral
Substitution Request, an Oaks in Fairlakes Commitment Increase or an Additional
Commitment Increase, it shall be a condition precedent that the Lender receive
the following, each dated as of the Closing Date for the Initial Advance
Request, a Collateral Addition Request or Collateral Substitution Request, as
the case may be, in form and substance satisfactory to the Lender in all
respects:
(a) A favorable opinion of local counsel to the Borrower Parties or
the Lender as to the enforceability of the Security Instrument, and any other
Loan Documents, executed in connection with the Request, which Security
Instrument and other Loan Documents shall be governed by the laws of the State
where the Mortgaged Property is located.
(b) A commitment for the Title Insurance Policy applicable to the
Mortgaged Property and a pro forma Title Insurance Policy based on the Maximum
Credit Facility Commitment.
(c) The Insurance Policy (or a certified copy of the Insurance Policy)
applicable to the Mortgaged Property.
(d) The Survey applicable to the Mortgaged Property.
(e) Evidence satisfactory to the Lender of compliance of the Mortgaged
Property with property laws as required by Sections 205 and 206 of Part III of
the DUS Guide.
(f) An Appraisal of the Mortgaged Property.
(g) A Replacement Reserve Agreement, providing for the establishment
of a replacement reserve account, to be pledged to the Lender, in which the
owner shall (unless waived by the Lender) periodically deposit amounts for
replacements for improvements at the Mortgaged Property and as additional
security for the Borrower Parties' obligations under the Loan Documents.
(h) A Completion/Repair and Security Agreement, on the standard form
required by the DUS Guide, if the Lender determines such Agreement to be
necessary.
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(i) An Assignment of Management Agreement, on the standard form
required by the DUS Guide.
(j) An Assignment of Leases and Rents, if the Lender determines one to
be necessary or desirable, provided that the provisions of any such assignment
shall be substantively identical to those in the Security Instrument covering
the Collateral, with such modifications as may be necessitated by applicable
state or local law.
(k) With respect to a Collateral Addition Request or a Collateral
Substitution Request, an amendment to the Cash Management Agreement executed by
the Borrower on the Initial Closing Date, adding a Property Account for the
Mortgaged Property.
(l) If Borrower has entered into any Reimbursement Documents (as
defined in Section 15.4) which are still in effect, the Borrower shall have
delivered to Fannie Mae a Second Security Instrument and a title insurance
policy for such Second Security Instrument, in an amount and otherwise in form
and substance satisfactory to Fannie Mae, and the Borrower shall have satisfied
any other requirements required by Fannie Mae with respect to such Reimbursement
Documents.
ARTICLE XIII
REPRESENTATIONS AND WARRANTIES
SECTION 13.1 Representations and Warranties of the Borrower Parties. Each
Borrower Party hereby represents and warrants to the Lender, with respect to
itself, as follows:
(a) Due Organization; Qualification.
(1) The REIT is qualified to transact business and is in
good standing in the State of Maryland. The Borrower
is qualified to transact business and is in good
standing in the State in which it is organized and in
each other jurisdiction in which such qualification
and/or standing is necessary to the conduct of its
business and where the failure to be so qualified
would adversely affect the validity of, the
enforceability of, or the ability of the Borrower to
perform its Obligations under this Agreement and the
other Loan Documents. The Borrower is qualified to
transact business and is in good standing in each
State in which it owns a Mortgaged Property.
(2) The Borrower Party's principal place of business and
principal office is in Englewood, Colorado, and the
offices where it keeps its books and records as to
the Collateral are in Englewood, Colorado and El
Paso, Texas, both of which addresses are set out in
Section 25.8.
(b) Power and Authority. The Borrower Party has the requisite power
and authority to execute and deliver this Agreement and the other Loan Documents
and to carry out the transactions contemplated by this Agreement and the other
Loan Documents.
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(c) Due Authorization. The execution, delivery and performance of this
Agreement and the other Loan Documents have been duly authorized by all
necessary action and proceedings by or on behalf of the Borrower Party, and no
further approvals or filings of any kind, including any approval of or filing
with any Governmental Authority, are required by or on behalf of the Borrower
Party as a condition to the valid execution, delivery and performance by the
Borrower Party of this Agreement or any of the other Loan Documents.
(d) Valid and Binding Obligations. This Agreement and the other Loan
Documents have been duly authorized, executed and delivered by the Borrower
Party and constitute the legal, valid and binding obligations of the Borrower
Party, enforceable against the Borrower Party in accordance with their
respective terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable
principles affecting the enforcement of creditors' rights generally or by
equitable principles or by the exercise of discretion by any court.
(e) Compliance with the Loan Documents. The Borrower Party is in
compliance with all provisions of the Loan Documents to which it is a party or
by which it is bound. The representations and warranties made by the Borrower
Party in the Loan Documents are true, complete and correct as of the Closing
Date and do not contain any untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
(f) Governmental Approvals. No Governmental Approval not already
obtained or made is required for the execution and delivery of this Agreement or
any other Loan Document or the performance of the terms and provisions hereof or
thereof by the Borrower.
(g) Financial Information.
(i) The financial projections relating to the Borrower Party and
delivered to the Lender on or prior to the date hereof, if
any, were prepared on the basis of assumptions believed by the
Borrower Party, in good faith at the time of preparation, to
be reasonable and the Borrower Party was not aware at such
time of any fact or information that would have lead it to
believe that such assumptions were incorrect or misleading in
any material respect; provided, however, that no
representation or warranty is made that any result set forth
in such financial projections shall be achieved.
(ii) The financial statements of the Borrower Party which have been
furnished to the Lender present fairly, in all material
respects, the financial condition of the Borrower Party, as of
the date of such statements, and were prepared in accordance
with generally accepted accounting methods, applied on a
consistent basis.
(iii) Since the date of the most recent of such financial statements
of the Borrower Party no event has occurred which has had, or
would reasonably be
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expected to have, a Material Adverse Effect. No Borrower Party
has any contingent obligation or liability for any taxes,
long-term leases or commitments, not reflected in its audited
financial statements delivered to the Lender on or prior to
the Initial Closing Date or otherwise disclosed in writing to
the Lender, which has had or would reasonably be expected to
have a Material Adverse Effect.
(h) Accuracy of Information. No information, statement or report
furnished in writing to the Lender by the Borrower Party in connection with this
Agreement or any other Loan Document or in connection with the consummation of
the transactions contemplated hereby contains any statement which is incorrect
in any material respect.
(i) Status as a Real Estate Investment Trust. The REIT currently
qualifies, and is being taxed as, a real estate investment trust under
Subchapter M of the Internal Revenue Code.
SECTION 13.2 Representations and Warranties of the Borrower. The Borrower hereby
represents and warrants to the Lender as follows:
(a) Non-contravention; No Liens. Neither the execution and delivery of
this Agreement and the other Loan Documents, nor the fulfillment of or
compliance with the terms and conditions of this Agreement and the other Loan
Documents nor the performance of the Obligations:
(1) will conflict with or result in any breach or
violation of any Applicable Law enacted or issued by
any Governmental Authority or other agency having
jurisdiction over the Borrower, any of the Mortgaged
Properties or any other portion of the Collateral or
other assets of the Borrower, or any judgment or
order applicable to the Borrower Party or to which
the Borrower, any of the Mortgaged Properties or
other assets of the Borrower are subject;
(2) will conflict with or result in any material breach
or violation of, or constitute a default under, any
of the terms, conditions or provisions of any
indenture, existing agreement or other instrument to
which the Borrower is a party or to which the
Borrower, any of the Mortgaged Properties or any
other portion of the Collateral or other assets of
the Borrower are subject;
(3) does or will result in or require the creation of any
Lien on all or any portion of the Collateral or any
of the Mortgaged Properties, except for the Permitted
Liens; or
(4) does or will require the consent or approval of any
creditor of the Borrower, any Governmental Authority
or any other Person except such consents or approvals
which have already been obtained.
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(b) Pending Litigation or other Proceedings. There is no pending or,
to the best knowledge of the Borrower, threatened action, proceeding or
investigation before any court, governmental agency or arbitrator against or
affecting any Mortgaged Property or any other portion of the Collateral or other
assets of the Borrower, which, if decided adversely to the Borrower, would have,
or may reasonably be expected to have, a Material Adverse Effect.
(c) Solvency. The Borrower is not insolvent and will not be rendered
insolvent by the transactions contemplated by this Agreement or the other Loan
Documents and, after giving effect to such transactions, the Borrower will not
be left with an unreasonably small amount of capital with which to engage in its
business or undertakings, nor will the Borrower have incurred, have intended to
incur, or believe that it has incurred, debts beyond its ability to pay such
debts as they mature. There (i) is no contemplated, pending or, to the best of
the Borrower's knowledge, threatened bankruptcy, reorganization, receivership,
insolvency or like proceeding, whether voluntary or involuntary, affecting the
Borrower or any of the Mortgaged Properties and (ii) has been no assertion or
exercise of jurisdiction over the Borrower or any of the Mortgaged Properties by
any court empowered to exercise bankruptcy powers.
(d) No Contractual Defaults. There are no defaults by the Borrower or,
to the knowledge of the Borrower, by any other Person under any contract to
which the Borrower is a party relating to any Mortgaged Property, including any
management, rental, service, supply, security, maintenance or similar contract,
other than defaults which do not permit the non-defaulting party to terminate
the contract and which do not have, and are not reasonably expected to have, a
Material Adverse Effect. Neither the Borrower nor, to the knowledge of the
Borrower, any other Person, has received notice or has any knowledge of any
existing circumstances in respect of which it could receive any notice of
default or breach in respect of any contracts affecting or concerning any
Mortgaged Property, other than defaults or breaches which do not have, and are
not reasonably expected to have, a Material Adverse Effect.
(e) ERISA. The Borrower is in compliance in all material respects with
all applicable provisions of ERISA and has not incurred any liability to the
PBGC on a Plan under Title IV of ERISA, other than violations or liabilities
which do not have, and are not reasonably expected to have, a Material Adverse
Effect. None of the assets of the Borrower constitute plan assets (within the
meaning of Department of Labor Regulation Section 2510.3-101) of any employee
benefit plan subject to Title I of ERISA.
(f) No Conflicts of Interest. To the best knowledge of the Borrower,
no member, officer, agent or employee of the Lender has been or is in any manner
interested, directly or indirectly, in that Person's own name, or in the name of
any other Person, in the Loan Documents, the Borrower or any Mortgaged Property,
in any contract for property or materials to be furnished or used in connection
with such Mortgaged Property or in any aspect of the transactions contemplated
by the Loan Documents.
(g) Governmental Orders. The Borrower is not presently under any cease
or desist order or other orders of a similar nature, temporary or permanent, of
any Governmental Authority which would have the effect of preventing or
hindering performance
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of its duties hereunder, nor are there any proceedings presently in progress or
to its knowledge contemplated which would, if successful, lead to the issuance
of any such order.
(h) No Reliance. The Borrower acknowledges, represents and warrants
that it understands the nature and structure of the transactions contemplated by
this Agreement and the other Loan Documents, that it is familiar with the
provisions of all of the documents and instruments relating to such
transactions; that it understands the risks inherent in such transactions,
including the risk of loss of all or any of the Mortgaged Properties; and that
it has not relied on the Lender or Fannie Mae for any guidance or expertise in
analyzing the financial or other consequences of the transactions contemplated
by this Agreement or any other Loan Document or otherwise relied on the Lender
or Fannie Mae in any manner in connection with interpreting, entering into or
otherwise in connection with this Agreement, any other Loan Document or any of
the matters contemplated hereby or thereby.
(i) Compliance with Applicable Law. The Borrower is in compliance with
Applicable Law, including all Governmental Approvals, if any, except for such
items of noncompliance that, singly or in the aggregate, have not had and are
not reasonably expected to cause, a Material Adverse Effect.
(j) Contracts with Affiliates. Except as otherwise approved in writing
by the Lender, the Borrower has not entered into and is not a party to any
contract, lease or other agreement with any Affiliate of the Borrower for the
provision of any service, materials or supplies to any Mortgaged Property
(including any contract, lease or agreement for the provision of property
management services, cable television services or equipment, gas, electric or
other utilities, security services or equipment, laundry services or equipment
or telephone services or equipment). The Lender hereby approves the property
management agreements set forth on Exhibit DD to this Agreement.
(k) Lines of Business. The Borrower is not engaged in any businesses
other than the acquisition, ownership, development, construction, leasing,
financing or management of Multifamily Residential Properties, and the conduct
of these businesses does not violate the Organizational Documents pursuant to
which it is formed.
(l) Year 2000 Compliance. The Borrower has reviewed its business and
operations and has developed a plan (a "Year 2000 Plan") to address, and provide
for any reprogramming required, on a timely basis, the risk that computer
applications used by it in performing date sensitive functions in and following
the year 2000 (the "Year 2000 Problem") would reasonably be expected to result
in an Event of Default, a Potential Event of Default or a Material Adverse
Effect.
(m) Title. The Borrower has good, valid, marketable and indefeasible
title to each Mortgaged Property, free and clear of all Liens whatsoever except
the Permitted Liens. Each Security Instrument, if and when properly recorded in
the appropriate records, together with any Uniform Commercial Code financing
statements required to be filed in connection therewith, will create a valid,
perfected first lien on the Mortgaged Property intended to be encumbered thereby
(including the Leases of such Mortgaged Property and the rents and all rights to
collect rents under such Leases), subject only to Permitted Liens.
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Except for any Permitted Liens, there are no Liens or claims for work, labor or
materials affecting any Mortgaged Property which are or may be prior to,
subordinate to, or of equal priority with, the Liens created by the Loan
Documents. The Permitted Liens do not have, and may not reasonably be expected
to have, a Material Adverse Effect.
(n) Impositions. Subject to Borrower's right to contest as set forth
in the Security Instruments, the Borrower has filed all property and similar tax
returns required to have been filed by it with respect to each Mortgaged
Property and has paid and discharged, or caused to be paid and discharged, all
installments for the payment of all Taxes due to date, and all other material
Impositions imposed against, affecting or relating to each Mortgaged Property
other than those which have not become due, together with any fine, penalty,
interest or cost for nonpayment pursuant to such returns or pursuant to any
assessment received by it. The Borrower has no knowledge of any new proposed
Tax, levy or other governmental or private assessment or charge in respect of
any Mortgaged Property which has not been disclosed in writing to the Lender.
(o) Zoning. Each Mortgaged Property complies in all material respects
with all Applicable Laws affecting such Mortgaged Property. Without limiting the
foregoing, all material Permits, including certificates of occupancy, have been
issued and are in full force and effect. Neither the Borrower nor, to the
knowledge of the Borrower, any former owner of any Mortgaged Property, has
received any written notification or threat of any actions or proceedings
regarding the noncompliance or nonconformity of any Mortgaged Property with any
Applicable Laws or Permits, nor is the Borrower otherwise aware of any such
pending actions or proceedings.
(p) Leases. The Borrower has delivered to the Lender a true and
correct copy of its form apartment lease for each Mortgaged Property. Except as
set forth in a Rent Roll or except as permitted pursuant to Section 14.2(n), no
Lease for any unit in any Mortgaged Property (i) is for a term in excess of one
year, including any renewal or extension period unless such renewal or extension
period is subject to termination by the Borrower upon not more than 30 days'
written notice, (ii) provides for prepayment of more than one month's rent, or
(iii) was entered into in other than the ordinary course of business.
(q) Rent Roll. The Borrower has executed and delivered to the Lender a
Rent Roll for each Mortgaged Property, each dated as of and delivered within 30
days prior to the Closing Date. Each Rent Roll sets forth each and every unit
subject to a Lease which is in full force and effect as of the date of such Rent
Roll. The information set forth on each Rent Roll is true, correct and complete
in all material respects as of its date and there has occurred no material
adverse change in the information shown on any Rent Roll from the date of each
such Rent Roll to the Closing Date. Except as disclosed in the Rent Roll with
respect to each Mortgaged Property or otherwise previously disclosed in writing
to the Lender, no Lease is in effect as of the date of the Rent Roll with
respect to such Mortgaged Property. Notwithstanding the foregoing, any
representation in this Section 13.2(q) made with respect to a time period
occurring prior to the date on which the Borrower owned the Mortgaged Property
is made to the best of the Borrower's knowledge.
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(r) Status of Landlord under Leases. Except for any assignment of
leases and rents which is a Permitted Lien or which is to be released in
connection with the consummation of the transactions contemplated by this
Agreement, the Borrower is the owner and holder of the landlord's interest under
each of the Leases of units in each Mortgaged Property and there are no prior
outstanding assignments of any such Lease, or any portion of the rents,
additional rents, charges, issues or profits due and payable or to become due
and payable thereunder.
(s) Enforceability of Leases. Each Lease constitutes the legal, valid
and binding obligation of the Borrower and, to the knowledge of the Borrower ,
of each of the other parties thereto, enforceable in accordance with its terms,
subject only to bankruptcy, insolvency, reorganization or other similar laws
relating to creditors' rights generally, and equitable principles, and except as
disclosed in writing to the Lender, no notice of any default by the Borrower
which remains uncured has been sent by any tenant under any such Lease, other
than defaults which do not have, and are not reasonably expected to have, a
Material Adverse Effect on the Mortgaged Property subject to the Lease.
(t) No Lease Options. All premises demised to tenants under Leases are
occupied by such tenants as tenants only. No Lease contains any option or right
to purchase, right of first refusal or any other similar provisions. No option
or right to purchase, right of first refusal, purchase contract or similar right
exists with respect to any Mortgaged Property.
(u) Insurance. The Borrower has delivered to the Lender true and
correct certified copies of all Insurance Policies currently in effect as of the
date of this Agreement with respect to the Mortgaged Properties. Each such
Insurance Policy complies in all material respects with the requirements set
forth in the Loan Documents.
(v) Tax Parcels. Each Mortgaged Property is on one or more separate
tax parcels, and each such parcel (or parcels) is (or are) separate and apart
from any other property.
(w) Encroachments. Except as disclosed on the Survey with respect to
each Mortgaged Property, none of the improvements located on any Mortgaged
Property encroaches upon the property of any other Person or upon any easement
encumbering the Mortgaged Property, nor lies outside of the boundaries and
building restriction lines of such Mortgaged Property and no improvement located
on property adjoining such Mortgaged Property lies within the boundaries of or
in any way encroaches upon such Mortgaged Property.
(x) Independent Unit. Except for Permitted Liens or as disclosed in a
Title Insurance Policy or Survey for the Mortgaged Property, each Mortgaged
Property is an independent unit which does not rely on any drainage, sewer,
access, parking, structural or other facilities located on any property not
included either in such Mortgaged Property or on public or utility easements for
the (i) fulfillment of any zoning, building code or other requirement of any
Governmental Authority that has jurisdiction over such Mortgaged Property, (ii)
structural support, or (iii) the fulfillment of the requirements of any Lease or
other agreement affecting such Mortgaged Property. The Borrower, directly or
indirectly, has
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the right to use all amenities, easements, public or private utilities, parking,
access routes or other items necessary or currently used for the operation of
each Mortgaged Property. All public utilities are installed and operating at
each Mortgaged Property and all billed installation and connection charges have
been paid in full. Each Mortgaged Property is either (x) contiguous to or (y)
benefits from an irrevocable unsubordinated easement permitting access from such
Mortgaged Property to a physically open, dedicated public street, and has all
necessary permits for ingress and egress and is adequately serviced by public
water, sewer systems and utilities. No building or other improvement not located
on a Mortgaged Property relies on any part of the Mortgaged Property to fulfill
any zoning requirements, building code or other governmental or municipal
requirement for structural support or to furnish to such building or improvement
any essential building systems or utilities.
(y) Condition of the Mortgaged Properties. Except as disclosed in any
third party report delivered to the Lender prior to the date on which the
Mortgaged Property is added to the Collateral Pool, or otherwise disclosed in
writing by the Borrower to the Lender prior to such date, each Mortgaged
Property is in good condition, order and repair, there exist no structural or
other material defects in such Mortgaged Property (whether latent or otherwise)
and the Borrower has not received notice from any insurance company or bonding
company of any defects or inadequacies in such Mortgaged Property, or any part
of it, which would adversely affect the insurability of such Mortgaged Property
or cause the imposition of extraordinary premiums or charges for insurance or of
any termination or threatened termination of any policy of insurance or bond,
other than such matters described in the foregoing which would not have, or
reasonably be expected to have, a Material Adverse Effect on the Mortgaged
Properties then in the Collateral Pool, taken as a whole. To the best knowledge
of the Borrower, no claims have been made against any contractor, architect or
other party with respect to the condition of any Mortgaged Property or the
existence of any structural or other material defect therein, other than claims
which would not have, or reasonably be expected to have, a Material Adverse
Effect on the Mortgaged Properties then in the Collateral Pool, taken as a
whole.
ARTICLE XIV
AFFIRMATIVE COVENANTS
SECTION 14.1 Covenants of the Borrower Parties. Each Borrower Party, with
respect to itself, agrees and covenants with the Lender that, at all times
during the Term of this Agreement:
(a) Compliance with Agreements; No Amendments. The Borrower Party
shall comply with all the terms and conditions of each Loan Document to which it
is a party or by which it is bound; provided, however, that the Borrower Party's
failure to comply with such terms and conditions shall not be an Event of
Default until the expiration of the applicable notice and cure periods, if any,
specified in the applicable Loan Document.
(b) Maintenance of Existence. The Borrower Party shall maintain its
existence and continue to be a limited partnership, real estate investment
trust, limited liability company or corporation, as the case may be, organized
under the laws of the state of its organization. The Borrower Party shall
continue to be duly qualified to do business in each
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jurisdiction in which such qualification is necessary to the conduct of its
business and where the failure to be so qualified would adversely affect the
validity of, the enforceability of, or the ability to perform, its obligations
under this Agreement or any other Loan Document.
(c) Maintenance of REIT Status. During the Term of this Agreement, the
REIT shall qualify and be taxed as a real estate investment trust under
Subchapter M of the Internal Revenue Code.
(d) Financial Statements; Accountants' Reports; Other Information. The
Borrower Party shall keep and maintain at all times complete and accurate books
of accounts and records in sufficient detail to correctly reflect all of the
Borrower Party's financial transactions and assets. In addition, the Borrower
Parties shall furnish, or cause to be furnished, to the Lender:
(i) Annual Financial Statements. As soon as available, and in any
event within 90 days after the close of its fiscal year during
the Term of this Agreement, the audited consolidated balance
sheet of the REIT as of the end of such fiscal year, the
audited consolidated statement of earnings, the audited
consolidated statement of owners' equity of the REIT for such
fiscal year and the audited consolidated statement of cash
flows of the REIT for such fiscal year, all in reasonable
detail and stating in comparative form the respective figures
for the corresponding date and period in the prior fiscal
year, prepared in accordance with GAAP, consistently applied,
and accompanied by a certificate of the REIT's independent
certified public accountants to the effect that such financial
statements have been prepared in accordance with GAAP,
consistently applied, and that such financial statements
fairly present the results of its operations and financial
condition for the periods and dates indicated, with such
certification to be free of exceptions and qualifications as
to the scope of the audit or as to the going concern nature of
the business.
(ii) Quarterly Financial Statements. As soon as available, and in
any event within 50 days after each of the first three fiscal
quarters of each fiscal year during the Term of this
Agreement, the unaudited balance sheet of the REIT as of the
end of such fiscal quarter, the unaudited statement of
earnings of the REIT and the unaudited statement of cash flows
of the REIT for the portion of the fiscal year ended with the
last day of such quarter, all in reasonable detail and stating
in comparative form the respective figures for the
corresponding date and period in the previous fiscal year,
accompanied by a certificate of any Senior Management, the
Controller, any Senior Vice President or any Vice President of
the REIT to the effect that such financial statements have
been prepared in accordance with GAAP, consistently applied,
and that such financial statements fairly present the results
of its operations and financial condition for the periods and
dates indicated subject to year end adjustments in accordance
with GAAP.
(iii) Security Law Reporting Information. Promptly upon the mailing
thereof, (a) copies of all financial statements, reports and
proxy statements sent
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or made available generally by the REIT or any other Borrower
Party, or any of their Affiliates, to their respective
security holders, and (b) all press releases and other
statements made available generally by the REIT or any
Borrower Party, or any of their Affiliates, to the public
concerning material developments in the business of the REIT
or other party. Promptly upon the filing thereof, all regular
and periodic reports and all registration statements (other
than the exhibits thereto and any registration statements on
Form S-8 or a similar form) and prospectuses, if any, filed by
the REIT or any other Borrower Party, or any of their
Affiliates, with the Securities and Exchange Commission or
other Governmental Authorities.
(iv) Accountants' Reports. Promptly upon receipt thereof, copies of
any reports or management letters submitted to the Borrower
Party by its independent certified public accountants in
connection with the examination of its financial statements
made by such accountants (except for reports otherwise
provided pursuant to Section 14.1(d)(i) above); provided,
however, that the Borrower Party shall only be required to
deliver such reports and management letters to the extent that
they relate to any Borrower Party or any Mortgaged Property.
(v) REIT Plans and Projections. Promptly after providing any
statement, report or other information to S&P, Moody's, Duff &
Phelps, Fitch and/or any other rating agency on a collective
basis (as opposed to an individual basis, e.g., providing
information to a rating agency to respond to a particular
request of such rating agency), the REIT shall deliver to the
Lender information which is similar, in all material respects,
to the information provided to any such rating agencies.
(vi) Strategic Plan. The REIT shall brief the Lender on its
business plan and financial strategy upon request of the
Lender, but not more frequently than once per quarter.
(vii) Other Reports. Promptly upon receipt thereof, all schedules,
financial statements or other similar reports delivered by the
Borrower Party pursuant to the Loan Documents or reasonably
requested by the Lender with respect to the Borrower Party's
business affairs or condition (financial or otherwise).
(viii) Confidentiality of Certain Information. The Lender agrees to
treat all information received by the Lender under Sections
14.1(d)(v) and (vi) as confidential; provided, however, that
such confidential information may be disclosed (A) as required
by law or pursuant to generally accepted accounting
procedures, (B) to officers, directors, employees, agents,
partners, attorneys, accountants, engineers and other
consultants of the Lender or Fannie Mae, or its respective
successors or assigns, who need to know such information,
provided such Persons are instructed to treat such information
confidentially, (C) by the Lender or Fannie Mae to any
successor or assign of such Party, (D) to any federal or state
regulatory authority having jurisdiction over the Lender
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or Fannie Mae, or its respective successors or assigns, (E) to
any other Person to which such delivery or disclosure may be
necessary or appropriate (x) in compliance with any law, rule,
regulation or order applicable to the Lender or Fannie Mae, or
its respective successors or assigns, (y) in response to any
subpoena or other legal process or information investigative
demand or (z) in connection with any litigation to which the
Lender or Fannie Mae, or its respective successors or assigns,
is a party. Notwithstanding the foregoing, this Section
14.1(d)(viii) shall not apply to the Lender or Fannie Mae, or
its respective successors or assigns, so long as an Event of
Default shall have occurred and is continuing and, in any such
event, the Lender and Fannie Mae, and their respective
successors and assigns, shall be entitled to disclosure any
such information as they deem necessary or appropriate in
their sole discretion. The Borrower agrees that information
subject to this Section 14.1(d)(viii) does not include
information which (i) was publicly known, or otherwise known
to the Lender or Fannie Mae, or its respective successors or
assigns, at the time of disclosure, (ii) subsequently becomes
publicly known through no act of or omission by the Lender or
Fannie Mae, or its respective successors or assigns, other
than through disclosure by Borrower or by any other Person in
violation of this or any other confidentiality arrangement and
the Lender or Fannie Mae, or its respective successors or
assigns, has knowledge of such violation; provided, however,
that in the event the Lender or Fannie Mae, or its respective
successors or assigns, discloses confidential information to
any Party, such disclosing Party shall reasonably endeavor to
notify the Borrower thereof as soon as possible after such
disclosure has been made and the Borrower shall be afforded an
opportunity to seek protective orders, or such other
confidential treatment of such disclosed information as the
Borrower may deem reasonable.
(e) Certificate of Compliance. The Borrower Party shall deliver to the
Lender concurrently with the delivery of the financial statements and/or reports
required to be delivered pursuant to Sections 14.1(d)(i) and (ii) above (i) a
certificate signed by any Senior Management, the Controller, any Senior Vice
President or any Vice President of the REIT stating, to the best of the
knowledge of such individual following reasonable inquiry, whether or not the
REIT was in compliance with the requirements of Sections 16.2 and 16.3 on the
date of such financial statements and setting forth in reasonable detail the
calculations required to make such determination, and (ii) a certificate signed
by a responsible officer of the general partner of the Borrower stating that, to
the best of the knowledge of such individual following reasonable inquiry, no
Event of Default or Potential Event of Default has occurred, or if an Event of
Default or Potential Event of Default has occurred, specifying the nature
thereof in reasonable detail and the action which the Borrower is taking or
proposes to take with respect thereto.
(f) Access to Records; Discussions With Officers and Accountants. To
the extent permitted by law and in addition to the applicable requirements of
the Security Instruments, the Borrower Party shall permit the Lender:
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(i) to inspect, make copies and abstracts of, and have reviewed or
audited, such of the Borrower Party's books and records as may
relate to the Obligations or any Mortgaged Property;
(ii) to discuss the Borrower Party's affairs, finances and accounts
with any of the Borrower Party's officers, partners and
employees;
(iii) to discuss the Borrower Party's affairs, finances and accounts
with its independent public accountants, provided that a
responsible officer of the general partner of the Borrower has
been given the opportunity by the Lender to be a party to such
discussions; and
(iv) to receive any other information that the Lender deems
reasonably necessary or relevant in connection with any
Advance, any Loan Document or the Obligations.
Notwithstanding the foregoing, prior to an Event of Default or Potential Event
of Default, all inspections shall be conducted at reasonable times during normal
business hours and, provided no Event of Default then exists, upon reasonable
prior notice to the Borrower Party.
(g) Ownership. SCA-North Carolina (1) Incorporated, a Maryland
corporation, shall be the sole general partner of, and SCA - North Carolina (1)
Incorporated, a Maryland corporation, and SCA - North Carolina (2) Incorporated,
a Maryland corporation, shall, in the aggregate, own at least 75% of the
Ownership Interests in, the Borrower, free and clear of any Liens. The REIT
shall continue, at all times, to own 100% of the outstanding stock of SCA-North
Carolina (1) Incorporated, a Maryland corporation, and of SCA - North Carolina
(2) Incorporated, a Maryland corporation.
(h) Minimum Assets in Multifamily Housing. The REIT shall, at all
times maintain, a minimum of 60% of its Total Assets in multifamily residential
real estate assets.
SECTION 14.2 Covenants of the Borrower. The Borrower agrees and covenants with
the Lender that, at all times during the Term of the Agreement.
(a) Property Statements; Other Information. The Borrower shall keep
and maintain at all times complete and accurate books of accounts and records in
sufficient detail to correctly reflect the results of operation of each
Mortgaged Property and copies of all written contracts, leases and other
instruments which affect each Mortgaged Property (including all bills, invoices
and contracts for electrical service, gas service, water and sewer service,
waste management service, telephone service and management services). In
addition, the Borrower shall furnish, or cause to be furnished, to the Lender:
(i) Monthly Property Statements. Upon the Lender's request (but
not more frequently than monthly) within 30 days of the last
day of the prior month, a statement of income and expenses of
each Mortgaged Property accompanied by a certificate of a
responsible officer of the general partner of the Borrower to
the effect that each such statement of income and expenses
fairly, accurately
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and completely presents the operations of each such Mortgaged
Property for the period indicated.
(ii) Annual Property Statements. On an annual basis within 30 days
of the end of the fiscal year, an annual statement of income
and expenses of each Mortgaged Property accompanied by a
certificate of a responsible officer of the general partner of
the Borrower to the effect that each such statement of income
and expenses fairly, accurately and completely presents the
operations of each such Mortgaged Property for the period
indicated.
(iii) Updated Rent Rolls. Upon the Lender's request (but not more
frequently than once each calendar quarter), a current Rent
Roll for each Mortgaged Property, showing the name of each
tenant, and for each tenant, the space occupied, the lease
expiration date, the rent payable, the rent paid and any other
information requested by the Lender and accompanied by a
certificate of a responsible officer of the general partner of
the Borrower to the effect that each such Rent Roll fairly,
accurately and completely presents the information required
therein.
(iv) Security Deposit Information. Upon the Lender's request (but
not more frequently than once each calendar quarter), an
accounting of all security deposits held in connection with
any lease of any part of any Mortgaged Property, including the
name and identification number of the accounts in which such
security deposits are held, the name and address of the
financial institutions in which such security deposits are
held and the name and telephone number of the person to
contact at such financial institution, along with any
authority or release necessary for the Lender to access
information regarding such accounts.
(v) Annual Budgets. Promptly, and in any event within 60 days
after the start of its fiscal year, an annual budget for each
Mortgaged Property for such fiscal year, setting forth an
estimate of all of the costs and expenses, including capital
expenses, of maintaining and operating each Mortgaged
Property.
(vi) Other Reports. Promptly upon receipt thereof, all schedules,
financial statements or other similar reports delivered by the
Borrower pursuant to the Loan Documents or reasonably
requested by the Lender with respect to any of the Mortgaged
Properties.
(vii) Upon Event of Default. If an Event of Default has occurred and
is continuing, upon written demand, the Borrower shall either
make readily available or deliver to the Lender all books and
records relating to the Mortgaged Properties, or any of them
as requested by the Lender.
(b) Inspection. The Borrower shall permit any Person designated by the
Lender: (i) to make entries upon and inspections of the Mortgaged Properties;
and (ii) to otherwise verify, examine and inspect the amount, quantity, quality,
value and/or condition of,
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or any other matter relating to, any Mortgaged Property; provided, however, that
so long as no Event of Default exists the Lender shall give the Borrower
reasonable prior notice of such entries, examinations and inspections and such
entries, examinations and inspections shall be conducted at reasonable times
during normal business hours.
(c) Maintain Licenses. The Borrower shall procure and maintain in full
force and effect all licenses, Permits, charters and registrations which are
material to the conduct of its business.
(d) Compliance with Applicable Laws. The Borrower shall comply in all
material respects with all Applicable Laws now or hereafter affecting any
Mortgaged Property or any part of any Mortgaged Property or requiring any
alterations or improvements to any Mortgaged Property. The Borrower shall
procure and continuously maintain in full force and effect, and shall abide by
and satisfy all material terms and conditions of all Permits.
(e) Inform the Lender of Material Events. The Borrower shall promptly
inform the Lender in writing of any of the following of which the Borrower has
actual knowledge:
(i) Defaults. The occurrence of any Event of Default or any
Potential Event of Default under this Agreement or any other
Loan Document;
(ii) Regulatory Proceedings. The commencement of any rulemaking or
disciplinary proceeding or the promulgation of any proposed or
final rule which would have, or may reasonably be expected to
have, a Material Adverse Effect;
(iii) Legal Proceedings. The commencement or threat of, or amendment
to, any proceedings by or against any Borrower Party in any
Federal, state or local court or before any Governmental
Authority, or before any arbitrator, which, if adversely
determined, would have, or at the time of determination may
reasonably be expected to have, a Material Adverse Effect;
(iv) Bankruptcy Proceedings. The commencement of any proceedings by
or against any Borrower Party under any applicable bankruptcy,
reorganization, liquidation, insolvency or other similar law
now or hereafter in effect or of any proceeding in which a
receiver, liquidator, trustee or other similar official is
sought to be appointed for it;
(v) Regulatory Supervision or Penalty. The receipt of notice from
any Governmental Authority having jurisdiction over any
Borrower Party that (A) the Borrower Party is being placed
under regulatory supervision, (B) any license, Permit,
charter, membership or registration material to the conduct of
the Borrower Party's business or the Mortgaged Properties is
to be suspended or revoked or (C) the Borrower Party is to
cease and desist any practice, procedure or policy employed by
the Borrower Party in the conduct of its business, and such
cessation would have, or may reasonably be expected to have, a
Material Adverse Effect;
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<PAGE>
(vi) Environmental Claim. The receipt from any Governmental
Authority or other Person of any notice of violation, claim,
demand, abatement, order or other order or direction
(conditional or otherwise) for any damage, including personal
injury (including sickness, disease or death), tangible or
intangible property damage, contribution, indemnity, indirect
or consequential damages, damage to the environment,
pollution, contamination or other adverse effects on the
environment, removal, cleanup or remedial action or for fines,
penalties or restrictions, resulting from or based upon (a)
the existence or occurrence, or the alleged existence or
occurrence, of a Hazardous Substance Activity or (b) the
violation, or alleged violation, of any Hazardous Materials
Laws in connection with any Mortgaged Property or any of the
other assets of a Borrower Party;
(vii) Material Adverse Effects. The occurrence of any act, omission,
change or event which has a Material Adverse Effect,
subsequent to the date of the most recent audited financial
statements of the Borrower Parties delivered to the Lender
pursuant to Section 14.1(d)(i); and
(viii) Accounting Changes. Any material change in any Borrower
Party's accounting policies or financial reporting practices
not already reported in the financial statements delivered
pursuant to Sections 14.1(d)(i) and (ii).
(f) Single-Purpose Entities. The Borrower shall at all times maintain
and conduct itself as a Single-Purpose entity.
(g) Warranty of Title. The Borrower shall warrant and defend (a) the
title to each Mortgaged Property and every part of each Mortgaged Property,
subject only to Permitted Liens, and (b) the validity and priority of the lien
of the applicable Loan Documents, subject only to Permitted Liens, in each case
against the claims of all Persons whatsoever. The Borrower shall reimburse the
Lender for any losses, costs, damages or expenses (including reasonable
attorneys' fees and court costs) incurred by the Lender if an interest in any
Mortgaged Property, other than with respect to a Permitted Lien, is claimed by
others.
(h) Defense of Actions. The Borrower shall appear in and defend any
action or proceeding purporting to affect the security for this Agreement or the
rights or power of the Lender hereunder, and shall pay all costs and expenses,
including the cost of evidence of title and reasonable attorneys' fees, in any
such action or proceeding in which the Lender may appear. If the Borrower fails
to perform any of the covenants or agreements contained in this Agreement, or if
any action or proceeding is commenced that is not diligently defended by the
Borrower which affects in any material respect the Lender's interest in any
Mortgaged Property or any part thereof, including eminent domain, code
enforcement or proceedings of any nature whatsoever under any Applicable Law,
whether now existing or hereafter enacted or amended, then the Lender may, but
without obligation to do so and without notice to or demand upon the Borrower
and without releasing the Borrower from any Obligation, make such appearances,
disburse such sums and take such action as the Lender deems necessary or
appropriate to protect the Lender's interest, including disbursement of
attorney's fees, entry
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upon such Mortgaged Property to make repairs or take other action to protect the
security of said Mortgaged Property, and payment, purchase, contest or
compromise of any encumbrance, charge or lien which in the judgment of the
Lender appears to be prior or superior to the Loan Documents. In the event (i)
that any Security Instrument is foreclosed in whole or in part or that any Loan
Document is put into the hands of an attorney for collection, suit, action or
foreclosure, or (ii) of the foreclosure of any mortgage, deed to secure debt,
deed of trust or other security instrument prior to or subsequent to any
Security Instrument or any Loan Document in which proceeding the Lender is made
a party or (iii) of the bankruptcy of the Borrower or an assignment by the
Borrower for the benefit of their respective creditors, the Borrower shall be
chargeable with and agrees to pay all costs of collection and defense, including
actual attorneys' fees in connection therewith and in connection with any
appellate proceeding or post-judgment action involved therein, which shall be
due and payable together with all required service or use taxes.
(i) Additions to the Mortgaged Properties. Except as otherwise
provided in the Loan Documents, the Borrower shall have the right to undertake
any alteration, improvement, demolition, removal or construction (collectively,
"Alterations") to the Mortgaged Property which it owns without the prior consent
of the Lender; provided, however, that in any case, no such Alteration shall be
made to any Mortgaged Property without the prior written consent of the Lender
if (i) such Alteration could reasonably be expected to adversely affect the
value of such Mortgaged Property or its operation as a multifamily housing
facility in substantially the same manner in which it is being operated on the
date such property became Collateral, (ii) the construction of such Alteration
could reasonably be expected to result in interference to the occupancy of
tenants of such Mortgaged Property such that tenants in occupancy with respect
to five percent (5%) or more of the Leases would be permitted to terminate their
Leases or to abate the payment of all or any portion of their rent, or (iii)
such Alteration will be completed in more than 12 months from the date of
commencement or in the last year of the Term of this Agreement. Notwithstanding
the foregoing, the Borrower must obtain the Lender's prior written consent to
construct Alterations with respect to the Mortgaged Property costing in excess
of $250,000 and the Borrower must give prior written notice to the Lender of its
intent to construct Alterations with respect to such Mortgaged Property costing
in excess of $100,000 (the Lender shall be deemed to have received such notice
from the Borrower with respect to any Alteration costing in excess of $100,000
up to and including $250,000 if the Borrower includes such Alteration in the
budget for the applicable fiscal year required to be delivered by the Borrower
pursuant to Section 14.2(a)(v)); provided, however, that the preceding
requirements shall not be applicable to Alterations made, conducted or
undertaken by the Borrower as part of the Borrower's routine maintenance and
repair of the Mortgaged Properties as required by the Loan Documents. The
Borrower may, on an annual basis, obtain the prior consent of the Lender to
undertake, during a fiscal year, Alterations which require the Lender's consent
pursuant to this Section 14.2(i) by including in the annual budget for such
fiscal year delivered by the Borrower pursuant to Section 14.2(a)(v) the
following information: (x) the identity of the Mortgaged Property or Properties
affected by such Alterations, a description of the Alterations to be undertaken,
a proposed time schedule for the performance of such Alterations and a
description of the expenses shown in the annual budget that pertain to such
Alterations; (y) a description of the number of units that will be affected by
such Alterations, the time period that any or all of such units will not be
available for occupancy and an
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estimate of the loss revenue that will result therefrom; and (z) a request, in
writing that the Lender consent, in advance, to the undertaking of such
specified Alterations. Within 45 days after receipt of any such request, the
Lender shall approve or disapprove such request in writing and, if the Lender
disapproves such request, it will provide the Borrower with a brief statement of
the reasons for such disapproval. If the Lender does not either approve or
disapprove such request within such 45 day period, such request shall be deemed
approved.
(j) ERISA. The Borrower shall at all times remain in compliance in all
material respects with all applicable provisions of ERISA and similar
requirements of the PBGC.
(k) Loan Document Taxes. If any tax, assessment or Imposition (other
than a franchise tax imposed on or measured by, the net income or capital
(including branch profits tax) of the Lender (or any transferee or assignee
thereof, including a participation holder)) ("Loan Document Taxes") is levied,
assessed or charged by the United States, or any State in the United States, or
any political subdivision or taxing authority thereof or therein upon any of the
Loan Documents or the obligations secured thereby, the interest of the Lender in
the Mortgaged Properties, or the Lender by reason of or as holder of the Loan
Documents, the Borrower Party shall pay all such Loan Document Taxes to, for, or
on account of the Lender (or provide funds to the Lender for such payment, as
the case may be) as they become due and payable and shall promptly furnish proof
of such payment to the Lender, as applicable. In the event of passage of any law
or regulation permitting, authorizing or requiring such Loan Document Taxes to
be levied, assessed or charged, which law or regulation in the opinion of
counsel to the Lender may prohibit the Borrower from paying the Loan Document
Taxes to or for the Lender, the Borrower shall enter into such further
instruments as may be permitted by law to obligate the Borrower to pay such Loan
Document Taxes.
(l) Further Assurances. The Borrower, at the request of the Lender,
shall execute and deliver and, if necessary, file or record such statements,
documents, agreements, UCC financing and continuation statements and such other
instruments and take such further action as the Lender from time to time may
request as reasonably necessary, desirable or proper to carry out more
effectively the purposes of this Agreement or any of the other Loan Documents or
to subject the Collateral to the lien and security interests of the Loan
Documents or to evidence, perfect or otherwise implement, to assure the lien and
security interests intended by the terms of the Loan Documents or in order to
exercise or enforce its rights under the Loan Documents.
(m) Monitoring Compliance. Upon the request of the Lender, from time
to time, the Borrower shall promptly provide to the Lender such documents,
certificates and other information as may be deemed reasonably necessary to
enable the Lender to perform its functions under the Special Pool Purchase
Contract.
(n) Leases. Each unit in each Mortgaged Property will be leased
pursuant to the form lease delivered to, and acceptable to, the Lender, with no
material modifications to such approved form lease, except as disclosed in
writing to the Lender. Each Lease will be for a term of no more than fifteen
months; provided, however, that the Borrower may enter into Leases for a
month-to-month term or for terms in excess of fifteen months so long as no more
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<PAGE>
than (i) 25% of the total units in any one Mortgaged Property, or 10% of the
total units in all of the Mortgaged Properties in the Collateral Pool, will be
leased for a month-to-month term; (ii) 2% of the total units in all of the
Mortgaged Properties in the Collateral Pool will be originally leased for a
month-to-month term; and (iii) 25% of the total units in any one Mortgaged
Property, or 6% of the total units in all of the Mortgaged Properties in the
Collateral Pool, will be leased for a term in excess of fifteen months. No more
than 2% of the total Leases for units in the Mortgaged Property in the
Collateral Pool will provide for prepayment of more than one month's rent. The
Borrower may, from time to time, request increases in the foregoing limitations
subject to the Lender's approval, which approval shall not be unreasonably
withheld or delayed.
(o) Appraisals. At the time of the addition of a Mortgaged Property to
the Collateral Pool (including an addition as a result of a substitution), and
at any time and from time to time thereafter (so long as the Lender reasonably
believes that a Material Adverse Effect has or may have occurred with respect to
any Mortgaged Property), the Lender shall be entitled to obtain an Appraisal of
any Mortgaged Property. The Borrower shall pay all of the Lender's costs of
obtaining the Appraisal.
(p) Change in Senior Management. The Borrower shall give the Lender
notice of any change in the identity of any member of Senior Management within
10 Business Days of the occurrence thereof.
(q) Geographical Diversification. The Borrower shall maintain
Mortgaged Properties in the Collateral Pool so that the Geographic
Diversification Requirements are satisfied.
(r) Year 2000 Compliance. The Borrower is taking and will take
reasonable efforts to comply with its Year 2000 Plan (as defined in Section
13.2(l)) and to address the Year 2000 Plan on a timely basis. The Borrower will
provide the Lender with written notice of any deficiencies it discovers in its
Year 2000 Plan or if there is any change in the status, timing or cost of
implementing its Year 2000 Plan which would reasonably be expected to result in
an Event of Default or a Potential Event of Default or have a Material Adverse
Effect. The Lender acknowledges that (i) due to the inherent complexity and
nature of the Year 2000 Problem (as defined in Section 13.2(l)), it is
impossible to ensure that the Year 2000 Problem will be successfully addressed
and (ii) the Year 2000 Plan depends on factors beyond the control of the
Borrower (including, without limitation, timely provision of software products
and services and upgrades or replacements for embedded control systems by
vendors or other providers thereof and the Year 2000 Problem being
satisfactorily addressed by other Persons with whom the Borrower does business
or conducts its operations).
(s) Additional Phase at "Oaks in Fairlakes". In connection with the
development of additional multifamily residential housing units ("Additional
Phase") at the Mortgaged Property known as "Oaks in Fairlakes" (the "Oaks
Property"), the Borrower hereby agrees that:
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(i) Prior to commencing construction of such Additional Phase, the
Borrower shall have submitted to the Lender, and the Lender
shall have approved:
(1) true, correct and complete copies of all plans,
specifications, working drawings, and related items
that provide for and detail the manner of
construction of the Additional Phase (the "Plans and
Specifications"); and
(2) a construction schedule showing the commencement and
completion of construction of each stage of the
Additional Phase (the "Construction Schedule").
(ii) Prior to commencing construction of the Additional Phase, the
Borrower shall certify to the Lender that:
(1) the Plans and Specifications (A) have received final
approval from all Governmental Authorities required
to approve such Plans and Specifications and (B)
contain sufficient specificity to permit the
completion of the Additional Phase;
(2) the Borrower has the requisite power and the Borrower
is in compliance in all respects with all Applicable
Law (including all Hazardous Materials Laws) and all
Permits, and no notices of violation of any Permit
relating to the Oaks Property or the Additional Phase
have been issued, entered or received by the
Borrower;
(3) (A) there are no Permits that are required or
will become required for the ownership,
construction or operation of the Oaks
Property or the Additional Phase other than
the Permits disclosed in writing to and
approved by the Lender;
(B) such disclosure accurately states the stage
in construction by which each such Permit is
required to be obtained;
(C) each Permit disclosed and described as
required to be obtained by the date that
this certification is made by the Borrower
is in full force and effect and is not
subject to any appeals or further
proceedings or to any unsatisfied condition
that may allow modification or revocation;
(D) each Permit disclosed and described as not
required to have been obtained by the date
that this certification is made by the
Borrower is of a type that is granted on
application following ministerial review (as
opposed to discretionary review or public
hearing);
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(E) the Borrower has no reason to believe that
any Permit so indicated will not be obtained
before it becomes necessary for the
ownership, construction or operation of the
Oaks Property or the Additional Phase or
that obtaining such Permit will result in
undue expense or delay; and
(F) the Borrower is not in violation of any
condition in any Permit.
(iii) The Borrower agrees and covenants that, at all times after the
commencement of construction and prior to the Completion (as
hereinafter defined) of the Additional Phase, the Borrower
shall:
(1) take or cause to be taken all actions, make or cause
to be made all contracts and do or cause to be done
all things necessary to construct and complete the
Additional Phase diligently in accordance with the
Plans and Specifications, and in any event, complete
each stage of the Additional Phase within the
applicable time period set forth in the Construction
Schedule, subject to such extensions as may be
granted by the Lender in its reasonable discretion.
The Borrower's completion of the Additional Phase
("Completion") shall be deemed to occur upon the
Borrower's receipt of written confirmation from the
Lender that the Additional Phase has been completed
to the Lender's reasonable satisfaction, which
written confirmation shall be issued by the Lender
upon the Borrower's satisfaction of each of the
following conditions:
(A) notwithstanding anything herein or in the
Plans and Specifications to the contrary,
the quality and class of the improvements
comprising the Additional Phase shall be
substantially equal to the original quality
and class of the other improvements on the
Oaks Property;
(B) delivery by the Borrower to the Lender of
duly executed acknowledgements of payments
and releases of mechanics' and materialmen's
liens in form and substance satisfactory to
the Lender, from the Borrower's general
contractor with respect to the Additional
Phase and from each other contractor and
supplier with respect to the Additional
Phase, for all work, services and materials,
done, performed or furnished for the
construction of the Additional Phase;
(C) delivery by the Borrower to the Lender of a
so-called "date-down" endorsement to the
Title Insurance Policy with respect to the
Oaks Property dated on or after the
completion date of the Additional Phase and
confirming the continuing priority of the
Lien of the Security Instrument with respect
to the Oaks Property and confirming that the
Oaks Property is (a)
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not subject to any mechanics' or
materialmen's liens and (b) free and clear
of all other Liens, except the Permitted
Liens (for purposes of this Section 14.2(s),
however, Permitted Liens shall not include
mechanics' or materialmen's liens referred
to in the immediately preceding clause (a));
(D) delivery of valid and unconditional
certificates of occupancy with respect to
all of the Additional Phase; and
(E) delivery of a certificate by the Borrower's
architect with respect to the Additional
Phase, certifying to the Lender that the
Additional Phase has been completed in
accordance with the Plans and Specifications
and in accordance with all applicable
zoning, subdivision, building, environmental
and land use laws, ordinances, rules,
regulations and similar regulations.
(2) After commencement of construction of the Additional
Phase, the Borrower shall not abandon the
construction of the Additional Phase or otherwise
cease to pursue Completion of the Additional Phase in
accordance with standard industry practice.
(3) The Borrower shall promptly and diligently (a)
construct, maintain and operate the Additional Phase
and the Oaks Property in compliance with all
requirements of Applicable Law (including, but not
limited to Hazardous Materials Laws) and (b) procure,
maintain and comply with the requirements of all
Permits necessary for the construction, maintenance
or operation of the Additional Phase and the Oaks
Property or any part thereof at or before the time
such Permit becomes necessary for the ownership,
construction, maintenance or operation of the
Additional Phase and the Oaks Property, as the case
may be.
(4) Prior to the Completion of the Additional Phase, the
Borrower shall deliver to the Lender, within thirty
(30) days following the end of each calendar quarter,
a quarterly status report describing in reasonable
detail the progress of the construction of the
Additional Phase as a whole since the immediately
preceding report hereunder, including without
limitation, any costs incurred to the end of such
quarter, an estimate of the time and costs required
to complete the Additional Phase and such other
information which the Lender may reasonably request.
(5) In addition to any insurance required to be obtained
by the Borrower under the terms of the Security
Instrument with respect to the Oaks Property, at all
times prior to Completion of the Additional Phase,
the Borrower shall maintain so-called builder's risk
insurance with respect to the construction of the
Additional Phase, in form, substance
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and amount and issued by carriers at all times
satisfactory to the Lender. All premiums on such
insurance policies shall be paid by the Borrower when
due, directly to the carrier and such insurance
coverage shall otherwise conform to the requirements
of the applicable Security Instrument.
(t) Creation of Accounts; Delivery of Restricted Account Letters. To
the extent that Borrower has failed to do so as of the Initial Closing Date, the
Borrower shall, within 60 days after the Initial Closing Date: (i) establish the
"Accounts" satisfying the requirements of the Cash Management Agreement; (ii)
notify each depository of the grant, pledge and assignment effected by the Cash
Management Agreement by executing and delivering to each such depository an
irrevocable "Restricted Account Letter" substantially in the form of Exhibit A
to the Cash Management Agreement, and delivering to and obtaining a
countersigned original of such "Restricted Account Letter" from the respective
depository, all in accordance with the requirements of the Cash Management
Agreement; (iii) delivering to the Lender a revised Schedule 1 to the Cash
Management Agreement, which shall (A) be in form and substance acceptable to the
Lender in its discretion and (B) upon acceptance thereof by the Lender, be
automatically deemed to supplement and amend the existing Schedule 1 to the Cash
Management Agreement and incorporated into the Cash Management Agreement; and
(iv) execute such uniform commercial code financing statements as may be
required by the Lender in order to perfect the security interest granted herein
in the "Collateral", as defined in the Cash Management Agreement (the
requirements in clauses (i) through (iv) being referred to herein as the "Cash
Management Post Closing Obligations"). Notwithstanding anything herein to the
contrary, the Borrower's failure to satisfy all of the Cash Management Post
Closing Obligations within the time period set forth above shall be an Event of
Default under this Agreement.
ARTICLE XV
NEGATIVE COVENANTS OF THE BORROWER
The Borrower agrees and covenants with the Lender that, at all times during the
Term of this Agreement:
SECTION 15.1 Other Activities. The Borrower shall not:
(a) either directly or indirectly sell, Transfer, exchange or
otherwise dispose of any of its assets except as permitted hereunder, by the
Security Instruments or the Cash Management Agreement;
(b) engage in any business or activity other than in connection with
the ownership, management and operation of Multifamily Residential Properties;
(c) amend its Organizational Documents in any manner inconsistent with
the Loan Documents without the prior written consent of the Lender;
(d) dissolve or liquidate in whole or in part;
(e) merge or consolidate with any Person; or
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(f) use, or permit to be used, any Mortgaged Property for any uses or
purposes other than as a Multifamily Residential Property.
SECTION 15.2 Value of Security. The Borrower shall not take any action which
could reasonably be expected to have any Material Adverse Effect.
SECTION 15.3 Zoning. The Borrower shall not initiate or consent to any zoning
reclassification of any Mortgaged Property or seek any variance under any zoning
ordinance or use or permit the use of any Mortgaged Property in any manner that
could result in the use becoming a nonconforming use under any zoning ordinance
or any other applicable land use law, rule or regulation.
SECTION 15.4 Liens. The Borrower shall not create, incur, assume or suffer to
exist any Lien on (a) any Mortgaged Property or any part of any Mortgaged
Property, except the Permitted Liens or any second priority deed of trust or
mortgage executed by the Borrower in favor of Fannie Mae (each, a "Second
Security Instrument") which secures the Borrower's obligations under any
reimbursement agreement or any related documents which may be entered into by
the Borrower with Fannie Mae from time to time in connection with a Swap (in
each case, the "Reimbursement Documents"), or (b) any Ownership Interests in the
Borrower.
SECTION 15.5 [Intentionally omitted.]
SECTION 15.6 Indebtedness. The Borrower shall not incur or be obligated at any
time with respect to aggregate Indebtedness (other than Advances) in excess of
$100,000.
SECTION 15.7 Principal Place of Business. The Borrower shall not change its
principal place of business or the location of its books and records, each as
set forth in Section 25.8, without first giving 30 days' prior written notice to
the Lender.
SECTION 15.8 Frequency of Requests. The Borrower shall make all Requests (other
than a Future Advance Request) in any calendar month on the same day in the
calendar month. Accordingly, once the Borrower makes one or more Requests (other
than a Future Advance Request) in a calendar month, it shall not make any
further Requests (other than a Future Advance Request) in the calendar month.
The Borrower shall have the right, subject to the terms, conditions and
limitations of this Agreement, to make a Future Advance Request for a Revolving
Advance on any day until the expiration of the Revolving Facility Availability
Period and to make a Future Advance for a Base Facility Advance on any day until
the expiration of the Base Facility Availability Period.
SECTION 15.9 Change in Property Management. The Borrower shall not change the
management agent for any Mortgaged Property except to a management agent which
the Lender determines is qualified in accordance with the criteria set forth in
Section 701 of the DUS Guide.
SECTION 15.10 Shelf Condominiums. The Borrower shall not submit any Mortgaged
Property to a condominium regime during the Term of this Agreement.
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SECTION 15.11 Restrictions on Partnership Distributions. The Borrower shall not
make any distributions of any nature or kind whatsoever to the owners of its
Ownership Interests as such if, at the time of such distribution, an Event of
Default has occurred and remains uncured.
SECTION 15.12 Lines of Business. The Borrower shall not engage in any businesses
other than the acquisition, ownership, development, construction, leasing,
financing or management, directly or indirectly, of Multifamily Residential
Properties, and the conduct of these businesses shall not violate the
Organizational Documents pursuant to which it is formed.
ARTICLE XVI
FINANCIAL COVENANTS OF THE BORROWER PARTIES
Each Borrower Party agrees and covenants with the Lender that, at all times
during the Term of this Agreement:
SECTION 16.1 Financial Definitions. For all purposes of this Agreement, the
following terms shall have the respective meanings set forth below:
"Annual Service Charge" as of any date means the interest expense in
any period for Consolidated Debt of the REIT and its Subsidiaries and the amount
of dividends which are payable in respect of any Disqualified Stock.
"Capital Stock" means, with respect to any Person, any capital stock
(including preferred stock), shares, interests, participations or other
ownership interests (however designated) of such Person and any rights (other
than debt securities convertible or exchangeable for corporate stock), warrants
or options to purchase any thereof.
"Consolidated Income Available for Debt Service" for any period means
Earnings from Operations of the REIT and its Subsidiaries plus amounts which
have been deducted, and minus amounts which have been added, for the following
(without duplication): (a) interest on Debt of the REIT and its Subsidiaries,
(b) provision for taxes of the REIT and its Subsidiaries based on income, (c)
amortization of debt discount, (d) provisions for gains and losses on properties
and property depreciation and amortization, (e) the effect of any noncash charge
resulting from a change in accounting principles in determining Earnings from
Operations for such period and (f) amortization of deferred charges.
"Consolidated Debt" of the REIT or any Subsidiary means any
indebtedness of the REIT or any Subsidiary, whether or not contingent, in
respect of (i) borrowed money or evidenced by bonds, notes, debentures or
similar instruments, (ii) indebtedness secured by any mortgage, pledge, lien,
charge, encumbrance or any security interest existing on property owned by the
REIT or any Subsidiary, (iii) the reimbursement obligations, contingent or
otherwise, in connection with any letters of credit actually issued or amounts
representing the balance deferred and unpaid of the purchase price of any
property or services, except any such balance that constitutes an accrued
expense or trade payable, or all conditional sale obligations or obligations
under any title retention agreement, (iv) the principal amount of all
obligations of the REIT or any Subsidiary with respect to redemption, repayment
or other repurchase of
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any Disqualified Stock or (v) any lease of property by the REIT or any
Subsidiary as lessee which is reflected on the REIT's consolidated financial
statements as a capitalized lease in accordance with GAAP to the extent, in the
case of items of indebtedness under (i) through (iii) above, that any such items
(other than letters of credit) would appear as a liability on the REIT's
Consolidated Balance Sheet in accordance with GAAP, and also includes, to the
extent not otherwise included, any obligation by the REIT or any Subsidiary to
be liable for, or to pay, as obligor, guarantor or otherwise (other than for
purposes of collection in the ordinary course of business), Debt of another
Person (other than the REIT or any Subsidiary).
"Disqualified Stock" means, with respect to any Person, any Capital
Stock of such Person which by the terms of such Capital Stock (or by the terms
of any security into which it is convertible or for which it is exchangeable or
exercisable), upon the happening of any event or otherwise (i) matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, (ii)
is convertible into or exchangeable or exercisable for Debt of Disqualified
Stock or (iii) is redeemable at the option of the holder thereof, in whole or in
part, in each case on or prior to the stated maturity of such debt securities.
"Earnings from Operations" for any period means net earnings excluding
gains and losses on sales of depreciated real estate, net as reflected in the
financial statements of the REIT and its Subsidiaries for such period determined
on a consolidated basis in accordance with GAAP.
"Total Assets" as of any date means the sum of (i) the REIT's
Undepreciated Real Estate Assets and (ii) all other assets of the REIT
determined in accordance with GAAP (but excluding accounts receivable and
intangibles).
"Undepreciated Real Estate Assets" as of any date means the cost
(original cost plus capital improvements) of real estate assets of the REIT and
its Subsidiaries on such date, before depreciation and amortization determined
on a consolidated basis in accordance with GAAP.
SECTION 16.2 Compliance with REIT's Consolidated Debt to Total Assets Ratio. The
REIT shall not permit the ratio of Consolidated Debt to Total Assets to exceed
58% at any time.
SECTION 16.3 Compliance with REIT's Consolidated Income Available for Debt
Service to Annual Service Charge Ratio. The REIT shall not permit the ratio of
Consolidated Income Available for Debt Service to Annual Service Charge for the
four consecutive quarters most recently ended prior to the date of such
determination, in the aggregate, to be less than 160%.
SECTION 16.4 Cure by REIT of Financial Covenants. If the REIT is in breach of
either or both of the covenants set forth in Sections 16.2 and 16.3, then such
breach shall not constitute a default hereunder provided that that the Borrower,
within 5 days after such breach, delivers Additional Collateral to the Lender in
an amount sufficient to cause the Aggregate Loan to Value Ratio to be 60% or
less; provided, however, that if, at such time, the Aggregate Debt Service
Coverage Ratios are then at 180% or higher, the requirement to deliver
Additional Collateral to the Lender shall be waived by the Lender. Any
Additional Collateral in the form
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of Cash Collateral (as defined in Section 8.2(d)) which is delivered to the
Lender pursuant to this Section 16.4 for application to Advances Outstanding
shall be applied in the order and manner set forth in clauses (ii) and (iii) of
Section 8.2(d). Any Cash Collateral held by the Lender as a result of this
Section 16.4 with respect to the repayment of Base Facility Advances then
Outstanding will be used by the Borrower to repay maturing Base Facility
Advances or released by the Lender to the Borrower in the same manner and
subject to the same conditions as set forth in Section 8.2(d).
SECTION 16.5 Additional Collateral.
(a) In order to comply with certain requirements set forth in this
Agreement, the Borrower may deliver to the Lender Additional Collateral. The
Additional Collateral may be in the form of an Additional Collateral Letter of
Credit (as hereinafter defined) or Permitted Investments acceptable to the
Lender. If the Additional Collateral is in the form of an Additional Collateral
Letter of Credit, then the Borrower shall, at all times, be in compliance with
Sections 16.5(b) through 16.5(g), inclusive, and if the Additional Collateral is
in the form of Permitted Investments acceptable to the Lender, then the Borrower
shall, at all times, be in compliance with Sections 16.5(h) through 16.5(l),
inclusive. Borrower acknowledges that an Additional Collateral Letter of Credit
cannot be used for purposes of satisfying the Aggregate Debt Service Coverage
Ratios.
(b) Delivery of Additional Collateral Letter of Credit. In accordance
with Section 16.5(a), the Borrower may deliver to the Lender a letter of credit
as Additional Collateral (an "Additional Collateral Letter of Credit"). Any
Additional Collateral Letter of Credit delivered to the Lender in accordance
with this Section 16.5(b) shall be a clean, irrevocable letter of credit, naming
the Lender as beneficiary, in an amount sufficient to cause the Borrower to be
in compliance with the requirements set forth in this Agreement. Any Additional
Collateral Letter of Credit must be issued by an issuer (the "Issuer") that
meets the Lender's requirements for ratings of issuers of acceptable letters of
credit as set forth in the DUS Guide and must comply with all other requirements
for letters of credit contained in the DUS Guide (including furnishing an
opinion of counsel relating to the Issuer and the Additional Collateral Letter
of Credit). (The term "Additional Collateral Letter of Credit" shall mean the
letter of credit delivered to the Lender pursuant to this Section 16.5(b), any
replacement letter of credit, and any amendment or renewal of the letter of
credit or the replacement letter of credit.) If the Borrower at any time
provides a confirming letter of credit, a replacement confirming letter of
credit or an amendment or renewal of the confirming letter of credit or the
replacement confirming letter of credit, then the term "Additional Collateral
Letter of Credit" shall also mean the confirming letter of credit as so amended,
renewed or replaced.)
(c) Additional Collateral Letter of Credit as Additional Collateral.
The Borrower agrees that any Additional Collateral Letter of Credit provides
collateral for the Notes in addition to the lien of the Security Instruments on
the Mortgaged Properties and the other Collateral and, during the continuance of
any Event of Default, the Lender shall be entitled to take any action permitted
under this Agreement, in addition to pursuing any other remedy the Lender may
have with respect to any other Collateral or secured property, including the
Mortgaged Properties.
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(d) Conditions for Providing and Holding an Additional Collateral
Letter of Credit.
(i) Period During Which Borrower Must Renew, Amend or Replace a
Specific Additional Collateral Letter of Credit. Until the
earliest of (A) payment in full of all sums secured by the
Security Instruments and release by the Lender of the liens of
the Security Instruments, (B) the date that the Lender fully
draws on such Additional Collateral Letter of Credit as
permitted by this Agreement (no inference shall be drawn from
this clause that the Borrower shall not, at such time or at a
later time, be obligated to deliver to the Lender additional
Additional Collateral in accordance with the provisions of
this Agreement), or (C) the date that such Additional
Collateral Letter of Credit is no longer needed by the
Borrower to be in compliance with the requirements set forth
in this Agreement, the Borrower shall renew, amend or replace
such Additional Collateral Letter of Credit in accordance with
the terms of this Agreement, to ensure that such Additional
Collateral Letter of Credit remains in effect and does not
expire.
(ii) Return of an Additional Collateral Letter of Credit or the
Proceeds Thereof. The Lender shall return an Additional
Collateral Letter of Credit, or the proceeds of any draws on
such Additional Collateral Letter of Credit (less all amounts
which have been applied by the Lender pursuant to the terms of
this Article XVI) to the Borrower 10 days after the date on
which either clause (A) or (C) of Section 16.5(d)(i) is
satisfied.
(iii) Application for Prepayment. If the proceeds of an Additional
Collateral Letter of Credit are applied to payment of a
portion of the principal amount of a Note, a prepayment
premium attributable to such prepaid principal amount shall be
due to the Lender to the extent, if any, provided in such
Note.
(e) (i) Renewal or Replacement. At least 30 days prior to the
expiration date of any Additional Collateral Letter of Credit, the Borrower
shall either (A) cause such Additional Collateral Letter of Credit to be amended
to extend its expiration date, or (B) furnish a replacement Additional
Collateral Letter of Credit. In either case, the amended Additional Collateral
Letter of Credit or the replacement Additional Collateral Letter of Credit must
(x) be in compliance with the requirements for letters of credit under the DUS
Guide, and be from an Issuer which meets the Lender's requirements for ratings
of issuers of acceptable letters of credit as set forth in the DUS Guide, (y)
have a term of 364 days or more (unless a shorter term is approved in writing by
the Lender), and (z) be in an amount sufficient to cause the Borrower to be in
compliance with the requirements set forth in this Agreement.
(ii) Review of Rating of Issuer; Replacement of an Additional
Collateral Letter of Credit. From time to time, the Lender
shall review the rating of any Issuer of the then outstanding
Additional Collateral Letter of Credit. If the Lender
notifies the Borrower that at the time of any such review the
issuing bank does not meet Lender's requirements for ratings
of issuers of acceptable letters of credit as set forth in the
DUS Guide, the Borrower shall replace such
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outstanding Additional Collateral Letter of Credit with an
Additional Collateral Letter of Credit that complies with all
of the requirements set forth in the DUS Guide, no later than
30 days after the Lender's notice to the Borrower, unless such
outstanding Additional Collateral Letter of Credit would
expire prior to such 30-day period, in which case the Borrower
shall provide the replacement Additional Collateral Letter of
Credit no later than 5 Business Days prior to the expiration
date of such outstanding Additional Collateral Letter of
Credit.
(iii) Draw on an Additional Collateral Letter of Credit. If the
Borrower does not provide an amendment to, or replacement of,
an Additional Collateral Letter of Credit when required
pursuant to Section 16.5(e)(i) or (ii) above, as the case may
be, which amended or replacement Additional Collateral Letter
of Credit satisfies all of the requirements of Sections
16.5(e)(i) and (ii) above, the Lender shall draw the full
amount of the Additional Collateral Letter of Credit and hold
and apply the proceeds as permitted hereunder and, in such
event, no Event of Default shall be deemed to exist by virtue
of the Borrower's failure to comply with said Sections
16.5(e)(i) and (ii).
(f) (i) Remedies. During the continuance of an Event of Default, the
Lender shall be entitled, in its sole and absolute discretion, to:
(1) Draw on any Additional Collateral Letter of Credit
and hold the proceeds of such Additional Collateral
Letter of Credit as additional cash Collateral;
(2) Draw on any Additional Collateral Letter of Credit
and apply all or any portion of the proceeds of such
Additional Collateral Letter of Credit to payment of
the unpaid principal amount of any Note, the Credit
Facility Termination Fee resulting therefrom, if any,
and the prepayment premium, if any (calculated as
provided in the Note) on the principal amount
prepaid; provided, however, that such application of
proceeds shall not cure or be deemed to cure any
default;
(3) Draw on any Additional Collateral Letter of Credit
and apply all or any portion of the proceeds of such
Additional Collateral Letter of Credit to reimburse
the Lender for any losses or expenses (including
legal fees) suffered or incurred by the Lender as a
result of such default; and/or
(4) Exercise all rights and remedies available to the
Lender at law or in equity or under any of the Loan
Documents (including this Section 16.5).
(ii) No Obligation to Apply Proceeds; No Cure. Nothing in this
Section 16.5 shall obligate the Lender to apply all or any
portion of the proceeds of any Additional Collateral Letter of
Credit to cure any default under the Loan Documents or to
reduce the indebtedness evidenced by any Note. No
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application of proceeds of any Additional Collateral Letter
of Credit by Lender shall be deemed to cure any default.
(g) Proceeds of an Additional Collateral Letter of Credit.
(i) Providing Replacement Additional Collateral Letter of Credit
after a Draw. Provided that Borrower is not otherwise in
default under any of the Loan Documents (including the
Security Instruments), after the Lender has drawn on any
Additional Collateral Letter of Credit, but prior to
application of proceeds, the Lender may, but is not obligated
to, permit the Borrower to provide a replacement Additional
Collateral Letter of Credit that complies with all the
requirements set forth in the DUS Guide and in Section
16.5(e)(i), in which case the Lender shall return the proceeds
of the draw to the Borrower, less the Lender's costs and
expenses (including reasonable attorneys' fees and expenses).
(ii) Proceeds Held in Account(s). If the Lender draws on any
Additional Collateral Letter of Credit and holds the proceeds,
such funds shall be held by the Lender as cash Collateral in
accordance with a security agreement and other documents in
form and substance acceptable to the Lender.
(iii) No Obligation to Draw or to Apply Proceeds. The Lender shall
not be obligated to draw on any Additional Collateral Letter
of Credit upon any default under any of the Loan Documents or
apply the proceeds of any draw on any Additional Collateral
Letter of Credit to cure a default under the Loan Documents.
The Lender may hold any Additional Collateral Letter of Credit
or the proceeds of any Additional Collateral Letter of Credit
until the date for return as determined pursuant to Section
16.5(d)(ii), or apply all or any portion of the proceeds as
permitted by this Agreement or any of the Loan Documents and
hold any remaining proceeds until the date for return
determined under Section 16.5(d)(ii).
(h) Delivery of Permitted Investments. In accordance with Section
16.5(a), the Borrower may pledge to the Lender Permitted Investments acceptable
to the Lender as Additional Collateral ("Additional Collateral Permitted
Investments"). (The term "Additional Collateral Permitted Investments" shall
mean the Additional Collateral Permitted Investments pledged to the Lender
pursuant to this Section 16.5(h), any certificates and instruments, if any, from
time to time representing or evidencing such Additional Collateral Permitted
Investments, all investments from time to time representing or evidencing such
Additional Collateral Permitted Investments and all certificates and
instruments, if any, from time to time representing or evidencing such
investments, all instruments from time to time delivered to or otherwise
possessed by the Lender in substitution for or in addition to any or all of the
then-existing Additional Collateral Permitted Investments, and all cash and
noncash proceeds and products of any of the foregoing).
(i) Additional Collateral Permitted Investments as Additional
Collateral. The Borrower agrees that any Additional Collateral Permitted
Investments provides collateral
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for the Notes in addition to the lien of the Security Instruments on the
Mortgaged Properties and the other Collateral and, during the continuance of any
Event of Default, the Lender shall be entitled to take any action permitted
under this Agreement, in addition to pursuing any other remedy the Lender may
have with respect to any other Collateral or secured property, including the
Mortgaged Properties.
(j) Conditions for Providing and Holding Additional Collateral
Permitted Investments.
(i) Period During Which Borrower Must Provide Specific Additional
Collateral Permitted Investments. Until the earliest of (A)
payment in full of all sums secured by the Security
Instruments and release by the Lender of the liens of the
Security Instruments, or (B) the date that such Additional
Collateral Permitted Investments are no longer needed by the
Borrower to be in compliance with the requirements set forth
in this Agreement, the Borrower shall continue to provide such
Additional Collateral Permitted Investments in accordance with
the terms of this Agreement.
(ii) Return of Additional Collateral Permitted Investments. The
Lender shall return such Additional Collateral Permitted
Investments (less all amounts which have been applied by the
Lender pursuant to the terms of this Article XIV) to the
Borrower 10 days after the date on which either clause (A) or
(B) of Section 16.5(j)(i) is satisfied.
(iii) Application for Prepayment. If the proceeds of any Additional
Collateral Permitted Investments are applied to payment of a
portion of the principal amount of a Note, a prepayment
premium attributable to such prepaid principal amount shall be
due to the Lender to the extent, if any, provided in such
Note.
(k) (i) Remedies. During the continuance of an Event of Default, the
Lender shall be entitled, in its sole discretion, to:
(1) Liquidate any Additional Collateral Permitted
Investments and hold the proceeds of such Additional
Collateral Permitted Investments as additional cash
Collateral;
(2) Liquidate any Additional Collateral Permitted
Investments and apply all or any portion of the
proceeds of such Additional Collateral Permitted
Investments to payment of the unpaid principal amount
of any Note, the Credit Facility Termination Fee
resulting therefrom, if any, and the prepayment
premium, if any (calculated as provided in such Note)
on the principal amount prepaid; provided, however,
that such application of proceeds shall not cure or
be deemed to cure any default;
(3) Liquidate any Additional Collateral Permitted
Investments and apply all or any portion of the
proceeds of such Additional Collateral
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Permitted Investments to reimburse the Lender for any
losses or expenses (including legal fees) suffered or
incurred by the Lender as a result of such default;
and/or
(4) Exercise all rights and remedies available to the
Lender at law or in equity or under any of the Loan
Documents (including this Section 16.5).
(ii) No Obligation to Apply Proceeds; No Cure. Nothing in this
Section 16.5 shall obligate the Lender to apply all or any
portion of the proceeds of any Additional Collateral Permitted
Investments to cure any default under the Loan Documents or to
reduce the indebtedness evidenced by any Note. No application
of proceeds of any Additional Collateral Permitted Investments
by Lender shall be deemed to cure any default.
(l) Proceeds of Additional Collateral Permitted Investments. The
Lender shall not be obligated to liquidate any Additional Collateral Permitted
Investments upon any default under any of the Loan Documents or apply any
Additional Collateral Permitted Investments to cure a default under the Loan
Documents. The Lender may hold any Additional Collateral Permitted Investments
or the proceeds of any Additional Collateral Permitted Investments until the
date for return as determined pursuant to Section 16.5(j)(ii), or apply all or
any portion of the proceeds as permitted by this Agreement or any of the Loan
Documents and hold any remaining proceeds until the date for return determined
under Section 16.5(j)(ii).
ARTICLE XVII
REPRESENTATIONS AND WARRANTIES
AND COVENANTS BY LENDER
SECTION 17.1 Representations and Warranties of the Lender. The Lender hereby
represents and warrants to the Borrower Parties as follows:
(a) Due Organization. The Lender is a limited partnership duly
organized, validly existing and in good standing under the laws of the State of
Massachusetts.
(b) Power and Authority. The Lender has the requisite power and
authority to execute and deliver this Agreement and to perform its obligations
under this Agreement.
(c) Due Authorization. The execution and delivery by the Lender of
this Agreement, and the consummation by it of the transactions contemplated
thereby, and the performance by it of its obligations thereunder, have been duly
and validly authorized by all necessary action and proceedings by it or on its
behalf.
SECTION 17.2 Determination of Allocable Credit Facility Amount and Valuations.
(a) The Lender shall determine the Allocable Credit Facility Amount
for each Mortgaged Property on the Initial Closing Date, annually thereafter on
or before
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December 31 of each year and at the time of any addition, release or
substitution of Collateral. Once each Loan Year, within 20 Business Days after
the Borrower Parties have delivered to the Lender the reports required in
Sections 14.1(d)(i) and (ii), the Lender shall perform a Valuation for each of
the Mortgaged Properties and determine the Aggregate Debt Service Coverage
Ratios and Aggregate Loan to Value Ratio. If the Lender decides that changed
market or property conditions warrant, the Lender may determine new Allocable
Credit Facility Amounts and Valuations at any other times. The Lender shall
determine Capitalization Rates when determining Valuations in its sole and
absolute discretion on the basis of its internal survey and analysis of
capitalization rates for comparable sales in the vicinity of the Mortgaged
Property, with such adjustments as the Lender deems appropriate and shall not be
obligated to use any information provided by the Borrower. The Lender shall
promptly disclose its determinations to the Borrower. Until redetermined, the
Allocable Credit Facility Amounts and Valuations determined by the Lender shall
remain in effect. In performing a Valuation of a Multifamily Residential
Property to be added to the Collateral Pool (including an addition as part of a
substitution), the Lender shall be entitled to obtain an Appraisal. The Lender
shall also have the right to obtain an Appraisal in connection with the
redetermination of a Valuation of a Mortgaged Property, but only if the Lender
is unable to determine a Capitalization Rate for such Mortgaged Property and
then only if the Lender has not obtained an Appraisal for such Mortgaged
Property within the prior year.
(b) If the Borrower disagrees with the Lender's Valuation of any
Mortgaged Property, the Borrower shall have the right to substitute for the
Capitalization Rate determined by the Lender with a new Capitalization Rate
based on a capitalization rate study conducted by an appraiser, provided the
Borrower gives notice to the Lender of its desire to substitute a new
Capitalization Rate for the Lender's Capitalization Rate within 15 Business Days
after the Borrower receives the Lender's determinations. In such event the
Borrower and the Lender shall determine the Capitalization Rate in accordance
with the following procedure:
(i) the Lender shall give the Borrower a list of approved
appraisers for the local market in which the Multifamily
Residential Property is located within 10 Business Days after
the date on which the Borrower gives the Lender its notice;
(ii) the Borrower shall select an appraiser within 10 Business Days
after the date on which the Lender gives the Borrower the list
of Lender-approved appraisers;
(iii) the Lender shall engage the appraiser selected by the Borrower
pursuant to clause (ii) to perform the capitalization rate
study within 10 Business Days after the date on which the
Borrower makes its selection; and
(iv) the Borrower shall pay all out-of-pocket fees and expenses of
obtaining the capitalization rate study, whether incurred by
the Borrower or the Lender.
If the Borrower elects to substitute a new Capitalization Rate for the Lender's
Capitalization Rate, the new Capitalization Rate shall be used to determine the
Valuation for the Mortgaged Property and, until the earlier of (A) the 30th day
after the date on which the appraiser is
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engaged by the Lender or (B) the date on which the new Capitalization Rate is
determined, the Valuation of the Mortgaged Property in effect immediately prior
to the Lender's Valuation shall continue to be in effect. In the event the new
Capitalization Rate is not determined on or before the 30th day after which the
appraiser is engaged by the Lender, then, commencing on such 30th day, and
continuing until the new Capitalization Rate is determined, the Valuation based
on the Lender's determination of the Capitalization Rate shall be in effect.
ARTICLE XVIII
FEES
SECTION 18.1 Standby Fee. The Borrower shall pay a Standby Fee to the Lender for
the period from the date of this Agreement to the end of the Term of this
Agreement. The Standby Fee shall be payable monthly, in arrears, on the first
Business Day following the end of the month, except that the Standby Fee for the
last month during the Term of this Agreement shall be paid on the last day of
the Term of this Agreement. The Standby Fee for a month shall be an amount equal
to the product obtained by multiplying: (i) 1/12, by (ii) 28 basis points, by
(iii) the Unused Capacity for such month. The term "Unused Capacity" means, for
any month, the sum of the daily average during such month of the undrawn amount
of the Maximum Credit Facility Commitment (i.e., the sum of Base Facility
Commitment and Revolving Facility Commitment) available under this Agreement for
the making of Advances, without regard to any unclosed Requests or to the fact
that a Request must satisfy conditions precedent.
SECTION 18.2 Origination Fees.
(a) Initial Origination Fee. The Borrower shall pay to the Lender an
origination fee ("Initial Origination Fee") equal to $1,800,000 (which is equal
to the product obtained by multiplying (i) the Maximum Credit Facility
Commitment as of the date of this Agreement ($300,000,000), by (ii) 60 basis
points). The Borrower shall pay a portion of the Initial Origination Fee, in the
amount of $1,705,350, on or before the Initial Closing Date. The remainder of
the Initial Origination Fee, in the amount of $94,650, shall be due and payable
to the Lender, in whole or in part, when one or more Additional Mortgaged
Properties or Substituted Mortgaged Properties, are added to the Collateral Pool
to increase the amount available to be borrowed under the Credit Facility (each,
an "Additional Origination Fee"). The amount of the Additional Origination Fee
that shall be paid, in each instance, will be in an amount equal to the product
of: (i) the increase in the amount available to be borrowed under the Credit
Facility up to the amount which, when added to the amount already available to
be borrowed under the Credit Facility, equals the initial Maximum Credit
Facility Commitment of $300,000,000, and (ii) 30 basis points. The origination
fee that is payable in connection with any increase in the Maximum Credit
Facility Commitment beyond $300,000,000 shall be governed by Section 18.2(b).
(b) Expansion Origination Fee. Upon the Closing of the Oaks in
Fairlakes Commitment Increase pursuant to Section 9.2 or upon the Closing of any
Additional Commitment Increase pursuant to Section 9.3, the Borrower shall pay
to the Lender an origination fee ("Expansion Origination Fee") equal to the
product obtained by multiplying (i) the increase in the then-existing Maximum
Credit Facility Commitment made on such Closing
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Date, by (ii) 60 basis points. The Borrower shall pay the applicable Expansion
Origination Fee on or before the Closing Date for the Oaks in Fairlakes
Commitment Increase or any Additional Commitment Increase, as the case may be.
SECTION 18.3 Due Diligence Fees.
(a) Initial Due Diligence Fees. The Borrower shall pay to the Lender
actual due diligence fees (including reasonable legal fees and expenses relating
to due diligence and the closing of this Agreement and the Initial Advance)
("Initial Due Diligence Fees") with respect to the Initial Mortgaged Properties
(such Initial Due Diligence Fees are estimated by the Lender to be equal to a
sum of the product obtained by multiplying -
(1) $13,500, by
(2) the number of Initial Mortgaged Properties, but such
estimate shall not be used to provide a ceiling or a
floor on the amount of the actual Fees).
The Borrower has previously paid to the Lender a portion of the estimated amount
of Initial Due Diligence Fees. On or prior to the Initial Closing Date, the
Lender shall notify the Borrower of the actual amount of the Initial Due
Diligence Fees and the Borrower shall pay to the Lender the remainder of such
Initial Due Diligence Fees (if the actual amount of such Fee exceeds the portion
of the estimated amount previously paid by the Borrower) or the Lender shall
return to the Borrower the excess payment of such Fees (if the actual amount of
such Fees is less than the portion of the estimated amount previously paid by
the Borrower). The Borrower acknowledges and agrees that the Initial Due
Diligence Fees shall include a fee payable to Fannie Mae in an amount equal to
$1500 times the number of Initial Mortgaged Properties.
(b) Additional Due Diligence Fees for Additional/Substituted
Collateral. The Borrower shall pay to the Lender additional actual due diligence
fees (including reasonable legal fees and expenses related to due diligence and
the Closing of such Request) (the "Additional/Substituted Collateral Due
Diligence Fees") with respect to each Additional Mortgaged Property or
Substituted Mortgaged Property (such Additional/Substituted Collateral Due
Diligence Fees are estimated by the Lender to be $13,500, but such estimate
shall not be used to provide a ceiling or a floor on the amount of the actual
Fees). The Borrower shall pay the estimated amount of $13,500 as the
Additional/Substituted Collateral Due Diligence Fees for the Additional
Mortgaged Property or the Substituted Mortgaged Property, as applicable, to the
Lender on the date on which it submits the Collateral Addition Request or the
Collateral Substitution Request for the addition of the Additional Mortgaged
Property or the Substituted Mortgaged Property, as applicable, to the Collateral
Pool. Prior to the Closing of such Request, the Lender shall notify the Borrower
of the actual amount of the Additional/Substituted Due Diligence Fees and on or
prior to the Closing of such Request, the Borrower shall pay to the Lender the
remaining balance of such Fees (if the actual amount of such Fees exceeds the
estimated amount previously paid by the Borrower) or the Lender shall return to
the Borrower the excess payment of such Fees (if the actual amount of such Fees
is less than the estimated amount previously paid by the Borrower). The Borrower
acknowledges and agrees that the Additional/Substituted Collateral Due Diligence
Fees shall
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include a fee payable to Fannie Mae in an amount equal to $1500 times each
Additional Mortgaged Property or Substituted Mortgaged Property.
SECTION 18.4 Legal Fees and Expenses.
(a) Initial Legal Fees. The Borrower shall pay, or reimburse the
Lender for, all out-of-pocket legal fees and expenses incurred by the Lender and
by Fannie Mae in connection with the preparation, review and negotiation of this
Agreement and any other Loan Documents executed on the date of this Agreement.
On the date of this Agreement, the Borrower shall pay all such legal fees and
expenses not previously paid or for which funds have not been previously
provided.
(b) Fees and Expenses Associated with Requests. The Borrower shall
pay, or reimburse the Lender for, all costs and expenses incurred by the Lender,
including the out-of-pocket legal fees and expenses reasonably incurred by the
Lender in connection with the preparation, review and negotiation of all
documents, instruments and certificates to be executed and delivered in
connection with each Request, the performance by the Lender of any of its
obligations with respect to the Request, the satisfaction of all conditions
precedent to the Borrower's rights or the Lender's obligations with respect to
the Request, and all transactions related to any of the foregoing, including the
cost of title insurance premiums and applicable recordation and transfer taxes
and charges and all other costs and expenses in connection with a Request. The
obligations of the Borrower under this subsection shall be absolute and
unconditional, regardless of whether the transaction requested in the Request
actually occurs. The Borrower shall pay such costs and expenses to the Lender on
the Closing Date for the Request, or, as the case may be, after demand by the
Lender when the Lender determines that such Request will not close.
SECTION 18.5 MBS-Related Rollover Costs. The Borrower shall be required to pay
to the Lender the following fees with respect to a rollover of a maturing
Revolving Advance on any given day:
(a) with respect to the first rollover of a maturing Revolving Advance
to be made by the Lender on such day, a fee equal to the lesser of: (i) the
actual expenses incurred by the Lender with respect to such rollover Revolving
Advance, as reasonably determined by the Lender, or (ii) $2500; and
(b) with respect to each additional rollover of a maturing Revolving
Advance to be made by the Lender on such day, a fee equal to the lesser of: (i)
the actual expenses incurred by the Lender with respect to such rollover
Revolving Advance, as reasonably determined by the Lender, or (ii) $1000.
SECTION 18.6 Failure to Close any Request. If the Borrower makes a Request and
fails to close on the Request for any reason other than the default by the
Lender, then the Borrower shall pay to the Lender all actual damages (excluding
consequential, punitive or exemplary damages) incurred by the Lender in
connection with the failure to close including, notwithstanding anything to the
contrary contained herein, and without limitation, all breakage costs incurred
or suffered by the Lender and any and all other losses or damages arising out of
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contractual obligations or commitments to third parties incurred or suffered by
the Lender as a result of the Borrower's failure to close on the Request.
SECTION 18.7 Other Fees. The Borrower shall pay the following additional fees
and payments, if and when required pursuant to the terms of this Agreement:
(a) The Collateral Substitution Fee, pursuant to Section 7.3(e), in
connection with the addition of a Substituted Mortgaged Property into the
Collateral Pool in replacement of a Mortgaged Property pursuant to Article VII;
(b) The Collateral Addition Fee, pursuant to Section 6.3(b), in
connection with the addition of an Additional Mortgaged Property into the
Collateral Pool pursuant to Article VI;
(c) All or the applicable portion of the Release Price which is
required by Sections 8.2(c) and 8.2(d) to be paid by the Borrower to the Lender
in connection with the release of a Mortgaged Property from the Collateral Pool
pursuant to Article VIII;
(d) The Revolving Facility Termination Fee, pursuant to Section
10.3(b) in connection with a complete or partial termination of the Revolving
Facility pursuant to Article X; and
(e) The Credit Facility Termination Fee, pursuant to Section 11.3(b),
in connection with the termination of the Credit Facility pursuant to Article
XI.
ARTICLE XIX
EVENTS OF DEFAULT
SECTION 19.1 Events of Default. Each of the following events shall constitute an
"Event of Default" under this Agreement, whatever the reason for such event and
whether it shall be voluntary or involuntary, or within or without the control
of a Borrower Party, or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
Governmental Authority:
(a) the occurrence of a default under any Loan Document beyond any
cure period set forth therein; or
(b) the failure by the Borrower to pay when due any amount payable by
the Borrower under the Notes, any Security Instrument, this Agreement, any other
Loan Document, any Reimbursement Documents or any Second Security Instrument,
including any fees, costs or expenses; or
(c) the failure by any Borrower Party to perform or observe any
covenant set forth in Section 14.1(g), Section 14.2(e), or Sections 15.1 through
15.4, inclusive, 15.9 or 15.11 or to perform any obligation of the Borrower
under any Reimbursement Documents or any Second Security Instrument after the
expiration of any notice and/or cure period provided therein; or
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(d) (i) the failure by any Borrower Party to perform or observe any
covenant set forth in Section 14.1 (other than 14.1(g)), Sections 14.2 (a), (b),
(c), (f), (g), (h), (i), (j) through (q), inclusive, or Section 15.7, 15.10 or
15.12 within 30 days after receipt of notice from the Lender, or (ii) the
failure by the Borrower to perform or observe the covenant set forth in Section
15.6 within 30 days after its breach of such covenant; or
(e) any warranty, representation or other written statement made by or
on behalf of a Borrower Party contained in this Agreement, any other Loan
Document or in any instrument furnished in compliance with or in reference to
any of the foregoing, is false or misleading in any material respect on any date
when made or deemed made; or
(f) any other Indebtedness in an aggregate amount in excess of
$150,000 of the Borrower or assumed by the Borrower (i) is not paid when due nor
within any applicable grace period in any agreement or instrument relating to
such Indebtedness or (ii) becomes due and payable before its normal maturity by
reason of a default or event of default, however described, or any other event
of default shall occur and continue after the applicable grace period, if any,
specified in the agreement or instrument relating to such Indebtedness; or
(g) (i) A Borrower Party shall (A) commence a voluntary case under the
Federal bankruptcy laws (as now or hereafter in effect), (B) file a petition
seeking to take advantage of any other laws, domestic or foreign, relating to
bankruptcy, insolvency, reorganization, debt adjustment, winding up or
composition or adjustment of debts, (C) consent to or fail to contest in a
timely and appropriate manner any petition filed against it in an involuntary
case under such bankruptcy laws or other laws, (D) apply for or consent to, or
fail to contest in a timely and appropriate manner, the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of a substantial part of its property, domestic or foreign, (E) admit in
writing its inability to pay, or generally not be paying, its debts as they
become due, (F) make a general assignment for the benefit of creditors, (G)
assert that the Borrower Party has no liability or obligations under this
Agreement or any other Loan Document to which it is a party; or (H) take any
action for the purpose of effecting any of the foregoing; or (ii) a case or
other proceeding shall be commenced against a Borrower Party in any court of
competent jurisdiction seeking (A) relief under the Federal bankruptcy laws (as
now or hereafter in effect) or under any other laws, domestic or foreign,
relating to bankruptcy, insolvency, reorganization, winding upon or composition
or adjustment of debts, or (B) the appointment of a trustee, receiver,
custodian, liquidator or the like of the Borrower Party, or of all or a
substantial part of the property, domestic or foreign, of the Borrower Party and
any such case or proceeding shall continue undismissed or unstayed for a period
of 90 consecutive calendar days, or any order granting the relief requested in
any such case or proceeding against the Borrower Party (including an order for
relief under such Federal bankruptcy laws) shall be entered; or
(h) if any provision of this Agreement or any other Loan Document or
the lien and security interest purported to be created hereunder or under any
Loan Document shall at any time for any reason cease to be valid and binding in
accordance with its terms on any Borrower Party, or shall be declared to be null
and void, or the validity or enforceability hereof or thereof or the validity or
priority of the lien and security interest created hereunder or under any other
Loan Document shall be contested by any Borrower Party seeking to
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establish the invalidity or unenforceability hereof or thereof, or any Borrower
Party shall deny that it has any further liability or obligation hereunder or
thereunder; or
(i) (i) the execution by the Borrower of a chattel mortgage or other
security agreement on any materials, fixtures or articles used in the
construction or operation of the improvements located on any Mortgaged Property
or on articles of personal property located therein, or (ii) if any such
materials, fixtures or articles are purchased pursuant to any conditional sales
contract or other security agreement or otherwise so that the ownership thereof
will not vest unconditionally in the Borrower free from encumbrances, or (iii)
if the Borrower does not furnish to the Lender upon request the contracts, bills
of sale, statements, receipted vouchers and agreements, or any of them, under
which the Borrower claims title to such materials, fixtures, or articles; or
(j) the failure, upon request, to furnish to the Lender the results of
official searches made by any Governmental Authority, or the failure by the
Borrower to comply with any requirement of any Governmental Authority within 30
days after written notice of such requirement shall have been given to the
Borrower by such Governmental Authority; provided that, if action is commenced
and diligently pursued by the Borrower within such 30 days, then the Borrower
shall have such additional time to comply with such requirement as is permitted
by the Governmental Authority; or
(k) a dissolution or liquidation for any reason (whether voluntary or
involuntary) of any Borrower Party; or
(l) any judgment against any Borrower Party, any attachment or other
levy against any portion of any Borrower Party's assets with respect to a claim
(i) in the case of the Borrower, in an amount in excess of $250,000 individually
and/or $500,000 in the aggregate or (ii) in the case of the REIT, in an amount
in excess of $2,500,000 individually and/or $5,000,000 in the aggregate, which
remains unpaid, unstayed on appeal, undischarged, unbonded, not fully insured or
undismissed for a period of sixty (60) days; or
(m) the failure by the Borrower to cause the Gross Revenues with
respect to any Mortgaged Property to be deposited into the applicable Pledgee
Account in accordance with the requirements of the Cash Management Agreement; or
(n) The failure of any Borrower Party to perform or observe any of its
respective Financial Covenants in Sections 16.2 and 16.3, if not cured in
accordance with Section 16.4, which failure shall continue for a period of 30
days after the date on which the Borrower Party receives a notice from the
Lender specifying the failure; or
(o) Any of the following occurs without the prior written consent of
the Lender, which consent may be granted or denied, in Lender's sole and
absolute discretion (which consent may, among other things, be conditioned upon
the payment by the Borrower to the Lender of a fee equal to 1% of the
then-existing Maximum Credit Facility Amount):
(i) any Ownership Interests in the Borrower are Transferred, if
such Transfer will result in a breach of Section 14.1(g);
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(ii) any Ownership Interests in SCA - North Carolina (1)
Incorporated, a Maryland corporation, or in SCA North Carolina
(2) Incorporated, a Maryland corporation are Transferred; or
(iii) a Change in Control in the REIT occurs; or
(p) the failure by any Borrower Party to perform or observe any term,
covenant, condition or agreement hereunder, other than as set forth in
subsections (a) through (o) above, or in any other Loan Document, within 30 days
after receipt of notice from the Lender identifying such failure; provided,
however, that if in the Lender's judgment, (i) the cure of such failure requires
a period in excess of 30 days, (ii) such failure will not result in a Material
Adverse Effect, and (iii) corrective action is instituted by the Borrower Party
within such period and pursued diligently and in good faith, then such failure
shall not constitute an Event of Default unless such failure is not cured by the
Borrower Party within sixty (60) days after receipt of notice from the Lender
identifying such failure.
ARTICLE XX
REMEDIES
SECTION 20.1 Remedies; Waivers. Upon the occurrence of an Event of Default, the
Lender may do any one or more of the following (without presentment, protest or
notice of protest, all of which are expressly waived by the Borrower):
(a) by written notice to the Borrower, to be effective upon dispatch,
terminate the Maximum Credit Facility Commitment and declare the principal of,
and interest on, the Advances and all other sums owing by the Borrower to the
Lender under any of the Loan Documents forthwith due and payable, whereupon the
Maximum Credit Facility Commitment will terminate and the principal of, and
interest on, the Advances and all other sums owing by the Borrower to the Lender
under any of the Loan Documents will become forthwith due and payable.
(b) The Lender shall have the right to pursue any other remedies
available to it under any of the Loan Documents.
(c) The Lender shall have the right to pursue all remedies available
to it at law or in equity, including obtaining specific performance and
injunctive relief.
SECTION 20.2 Waivers; Rescission of Declaration. The Lender shall have the
right, to be exercised in its complete discretion, to waive any breach hereunder
(including the occurrence of an Event of Default), by a writing setting forth
the terms, conditions, and extent of such waiver signed by the Lender and
delivered to the Borrower Parties. Unless such writing expressly provides to the
contrary, any waiver so granted shall extend only to the specific event or
occurrence which gave rise to the waiver and not to any other similar event or
occurrence which occurs subsequent to the date of such waiver.
SECTION 20.3 The Lender's Right to Protect Collateral and Perform Covenants and
Other Obligations. If any Borrower Party fails to perform the covenants and
agreements contained
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in this Agreement or any of the other Loan Documents, then the Lender at the
Lender's option may make such appearances, disburse such sums and take such
action as the Lender deems necessary, in its sole discretion, to protect the
Lender's interest, including (i) disbursement of attorneys' fees, (ii) entry
upon the Mortgaged Property to make repairs and Replacements, (iii) procurement
of satisfactory insurance as provided in Section 19 of the Security Instrument
encumbering the Mortgaged Property, and (iv) if the Security Instrument is on a
leasehold, exercise of any option to renew or extend the ground lease on behalf
of the Borrower and the curing of any default of the Borrower in the terms and
conditions of the ground lease. Any amounts disbursed by the Lender pursuant to
this Section 20.3, with interest thereon, shall become additional indebtedness
of the Borrower secured by the Loan Documents. Unless the Borrower and the
Lender agree to other terms of payment, such amounts shall be immediately due
and payable and shall bear interest from the date of disbursement at the Default
Rate (as defined in the Revolving Facility Note), unless collection from the
Borrower of interest at such rate would be contrary to applicable law, in which
event such amounts shall bear interest at the highest rate which may be
collected from the Borrower under applicable law. Nothing contained in this
Section 20.3 shall require the Lender to incur any expense or take any action
hereunder.
SECTION 20.4 No Remedy Exclusive. Unless otherwise expressly provided, no remedy
herein conferred upon or reserved is intended to be exclusive of any other
available remedy, but each remedy shall be cumulative and shall be in addition
to other remedies given under the Loan Documents or existing at law or in
equity.
SECTION 20.5 No Waiver. No delay or omission to exercise any right or power
accruing under any Loan Document upon the happening of any Event of Default or
Potential Event of Default shall impair any such right or power or shall be
construed to be a waiver thereof, but any such right and power may be exercised
from time to time and as often as may be deemed expedient.
SECTION 20.6 No Notice. In order to entitle the Lender to exercise any remedy
reserved to the Lender in this Article, it shall not be necessary to give any
notice, other than such notice as may be required under the applicable
provisions of this Agreement or any of the other Loan Documents.
SECTION 20.7 Application of Payments. Except as otherwise expressly provided in
the Loan Documents, and unless applicable law provides otherwise, (i) all
payments received by the Lender from any of the Borrower Parties under the Loan
Documents shall be applied by the Lender against any amounts then due and
payable under the Loan Documents by any of the Borrower Parties, in any order of
priority that the Lender may determine and (ii) the Borrower shall have no right
to determine the order of priority or the allocation of any payment it makes to
the Lender.
ARTICLE XXI
RIGHTS OF FANNIE MAE
SECTION 21.1 Special Pool Purchase Contract. The Borrower Parties acknowledge
that Fannie Mae is entering into an agreement with the Lender ("Special Pool
Purchase Contract"),
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pursuant to which, inter alia, (i) the Lender shall agree to assign all of its
rights under this Agreement to Fannie Mae, (ii) Fannie Mae shall accept the
assignment of the rights, (iii) subject to the terms, limitations and conditions
set forth in the Special Pool Purchase Contract, Fannie Mae shall agree to
purchase each Advance issued under this Agreement by issuing to the Lender a
Fannie Mae MBS, in the amount and for a term equal to the Advance purchased and
backed by an interest in the Note and the Collateral Pool securing the Notes,
(iv) the Lender shall agree to assign to Fannie Mae all of the Lender's interest
in the Notes and Collateral Pool securing the Notes, and (v) the Lender shall
agree to service the loans evidenced by the Notes.
SECTION 21.2 Assignment of Rights. The Borrower Parties acknowledge and consent
to the assignment to Fannie Mae of all of the rights of the Lender under this
Agreement and all other Loan Documents, including the right and power to make
all decisions on the part of the Lender to be made under this Agreement and the
other Loan Documents, but Fannie Mae, by virtue of this assignment, shall not be
obligated to perform the obligations of the Lender under this Agreement or the
other Loan Documents.
SECTION 21.3 Release of Collateral. The Borrower Parties hereby acknowledge
that, after the assignment of Loan Documents contemplated in Section 21.2, the
Lender shall not have the right or power to effect a release of any Collateral
pursuant to Articles VII, VIII or XI. The Borrower Parties acknowledge that the
Security Instruments provide for the release of the Collateral under Articles
VII, VIII and XI. Accordingly, the Borrower Parties shall not look to the Lender
for performance of any obligations set forth in Articles VII, VIII and XI, but
shall look solely to the party secured by the Collateral to be released for such
performance. The Lender represents and warrants to the Borrower Parties that the
party secured by the Collateral shall be subject to the release provisions
contained in Articles VII, VIII and XI by virtue of the release provisions in
each Security Instrument.
SECTION 21.4 Replacement of Lender. At the request of Fannie Mae, the Borrower
Parties and the Lender shall agree to the assumption by another lender
designated by Fannie Mae, of all of the obligations of the Lender under this
Agreement and the other Loan Documents, and/or any related servicing
obligations, and, at Fannie Mae's option, the concurrent release of the Lender
from its obligations under this Agreement and the other Loan Documents, and/or
any related servicing obligations, and shall execute all releases, modifications
and other documents which Fannie Mae determines are necessary or desirable to
effect such assumption.
SECTION 21.5 Fannie Mae and Lender Fees and Expenses. The Borrower Parties agree
that any provision providing for the payment of fees, costs or expenses incurred
or charged by the Lender pursuant to this Agreement shall be deemed to provide
for the Borrower's payment of all fees, costs and expenses incurred or charged
by the Lender or Fannie Mae in connection with the matter for which fees, costs
or expenses are payable.
SECTION 21.6 Third-Party Beneficiary. The Borrower Parties hereby acknowledge
and agree that Fannie Mae is a third party beneficiary of all of the
representations, warranties and covenants made by any Borrower Parties to, and
all rights under this Agreement conferred upon, the Lender, and, by virtue of
its status as third-party beneficiary and/or assignee of the
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Lender's rights under this Agreement, Fannie Mae shall have the right to enforce
all of the provisions of this Agreement against the Borrower Parties.
ARTICLE XXII
INSURANCE, REAL ESTATE TAXES AND
REPLACEMENT RESERVES
SECTION 22.1 Insurance and Real Estate Taxes.
(a) Imposition Deposits.
(i) The Borrower shall deposit with the Lender, on or before the
Initial Closing Date, cash in an amount equal to the highest
aggregate monthly amount which would have been in escrow for
Taxes and insurance premiums if individual escrow accounts
were established for each Mortgaged Property in the Collateral
Pool as of the Initial Closing Date, as such amount is
determined by the Lender based on the DUS Guide. The amounts
deposited under the preceding sentence are collectively
referred to as the "Imposition Deposits." On or before the
first day of each Loan Year after the Initial Closing Date,
and on or before the Closing Date of a Collateral Substitution
Request, a Collateral Addition Request or a Collateral Release
Request, if the Lender determines, based on the foregoing
methodology, that a modified amount is required to be
deposited with the Lender as Imposition Deposits, the Borrower
shall deposit any deficiency with the Lender, or the Lender
shall release any overage to the Borrower, provided that, in
the case of the latter, no Event of Default or Potential Event
of Default then exists hereunder. The Borrower shall, subject
to the Borrower's right to contest under Section 15(d) of the
Security Instruments, pay each Imposition relating to a
Mortgaged Property before the last date upon which such
payment may be made without any penalty or interest charge
being added. Subject to the Borrower's right to contest under
Section 15(d) of the Security Instruments, the Borrower shall
deliver to the Lender evidence that the Borrower has paid each
Imposition within thirty days after making such payment.
(ii) Imposition Deposits shall be held in an institution (which may
be the Lender, if the Lender is such an institution) whose
deposits or accounts are insured or guaranteed by a federal
agency. The Lender shall not be obligated to open additional
accounts or deposit Imposition Deposits in additional
institutions when the amount of the Imposition Deposits
exceeds the maximum amount of the federal deposit insurance or
guaranty. So long as no Event of Default or Potential Event of
Default has occurred and is continuing, the Lender shall
release, or cause to be released, to the Borrower, not more
frequently than once each month, interest on the Imposition
Deposits at a per annum rate equal to LIBOR (as hereinafter
defined) minus .65%, but not to exceed the actual amount of
interest and other income earned by the Lender on the
Imposition Deposits during such period of time. The Borrower
hereby pledges and grants to the Lender a security interest in
the Imposition Deposits
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as additional security for all of the Obligations under this
Agreement and the other Loan Documents. Any amounts deposited
with the Lender under this Section 22.1 shall not be trust
funds, nor shall they operate to reduce the Obligations,
unless applied by the Lender for that purpose under Section
22.1(v). For purposes of this Section 22.1(a), the term
"LIBOR" means interest per annum which is equal to the
arithmetic mean of the U.S. Dollar London Interbank Offered
Rates for one (1) month periods as of 11:00 a.m. London time
on the first Business Day of each week on which the London
Interbank market is open, as published by Bridge Information
Services on its MoneyCenter system. LIBOR shall be rounded,
if necessary, to the next higher one sixteenth of one percent
(1.16%). If such U.S. dollar LIBOR rates are not so offered
or published for any period, then during such period LIBOR
shall mean the London Interbank Offered Rate for one (1) month
periods published on the first Business Day of each week on
which the London Interbank market is open, in the Wall Street
Journal in its regular column entitled "Money Rates".
(iii) If an Event of Default has occurred and is continuing, the
Lender may apply any Imposition Deposits, in any amounts and
in any order as the Lender determines, in the Lender's
discretion, to pay any Impositions or as a credit against the
Obligations. On the Credit Facility Termination Date, the
Lender shall refund to the Borrower any Imposition Deposits
then held by the Lender.
(b) Delivery of Impounds Letter of Credit. Provided that no Event of
Default has occurred and is then continuing, at any time during the Term of this
Agreement during which Imposition Deposits are deposited with the Lender, the
Borrower may, upon notice to the Lender, elect to substitute for the Imposition
Deposits a single Impounds Letter of Credit (as defined below) in accordance
with this Section 22.1(b), in which event the Lender shall return the Imposition
Deposits to the Borrower within 10 days after the Borrower delivers the Impounds
Letter of Credit to the Lender. Provided that no Event of Default has occurred
and is then continuing, at any time during the Term of this Agreement during
which an Impounds Letter of Credit is held by the Lender, the Borrower may, upon
notice to the Lender, elect to substitute for the Impounds Letter of Credit the
Imposition Deposits, in which event the Borrower shall deliver to the Lender, in
cash, the amount of the Imposition Deposits which would have been required at
the time of the substitution if the Borrower had not elected to furnish the
Impounds Letter of Credit and the Lender shall return the Impounds Letter of
Credit to the Borrower within 10 days after its receipt of the cash for the
Imposition Deposits. Notwithstanding the foregoing, the Borrower may not
exercise its right to substitute an Impounds Letter of Credit for the Imposition
Deposits or the Imposition Deposits for the Impounds Letter of Credit if the
Borrower has made prior substitution under this Section 22.1(b) during the 12
months preceding the proposed substitution. Any Impounds Letter of Credit
delivered to the Lender in accordance with this Section 22.1(b) shall be a
clean, irrevocable letter of credit, naming the Lender as beneficiary, in an
amount equal to the amount which would have been required to have been on
deposit as Imposition Deposits (the "Maximum Escrow Amount"), if Imposition
Deposits had been maintained, as such amount is determined by the Lender in
accordance with the methodology set forth in Section 22.1(a)(i). The Impounds
Letter of Credit must be issued by an issuer (the "Issuer") that meets the
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Lender's requirements for ratings of issuers of acceptable letters of credit as
set forth in the DUS Guide and must comply with all other requirements for
letters of credit contained in the DUS Guide (including furnishing an opinion of
counsel relating to the Issuer and the Impounds Letter of Credit). (The term
"Impounds Letter of Credit" shall mean the letter of credit delivered to the
Lender pursuant to this Section 22.1(b), any replacement letter of credit, and
any amendment or renewal of the letter of credit or the replacement letter of
credit.) If the Borrower at any time provides a confirming letter of credit, a
replacement confirming letter of credit or an amendment or renewal of the
confirming letter of credit or the replacement confirming letter of credit, then
the term "Impounds Letter of Credit" shall also mean the confirming letter of
credit as so amended, renewed or replaced.)
(c) Impounds Letter of Credit as Additional Collateral. The Borrower
agrees that the Impounds Letter of Credit provides collateral for the Note in
addition to the lien of the Security Instruments on the Mortgaged Properties and
the other Collateral and, during the continuance of any Event of Default, the
Lender shall be entitled to take any action permitted under this Agreement, in
addition to pursuing any other remedy the Lender may have with respect to any
other Collateral or secured property, including the Mortgaged Properties.
(d) Conditions for Providing and Holding the Impounds Letter of
Credit.
(i) Period During Which Borrower Must Provide Impounds Letter of
Credit. Until the earliest of (A) payment in full of all sums
secured by the Security Instruments and release by the Lender
of the liens of the Security Instruments, or (B) the date that
the Lender fully draws on the Impounds Letter of Credit as
permitted by this Agreement, the Borrower shall renew, amend
or replace the Impounds Letter of Credit in accordance with
the terms of this Agreement, to ensure that the Impounds
Letter of Credit remains in effect and does not expire.
(ii) Return of the Impounds Letter of Credit or the Proceeds
Thereof. The Lender shall return the Impounds Letter of
Credit, or the proceeds of any draws on such Impounds Letter
of Credit (less all amounts which have been applied by the
Lender pursuant to the terms of this Article XIX) to the
Borrower 10 days after the date on which the Lender releases
the lien of all of the Security Instruments following payment
in full of all amounts secured by the Security Instruments.
(iii) Application for Prepayment. If the proceeds of the Impounds
Letter of Credit are applied to payment of a portion of the
principal amount of a Note, a prepayment premium attributable
to such prepaid principal amount shall be due to the Lender to
the extent, if any, provided in such Note.
(iv) Adjustment of the Impounds Letter of Credit. The Maximum
Escrow Amount may be adjusted from time to time as set forth
in Section 22.1(a)(i). If the Maximum Escrow Amount is to be
adjusted upward, on or before the
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applicable date specified in Section 22.1(a)(i), the Borrower
shall deliver to the Lender an amendment or replacement of the
Impounds Letter of Credit.
(e) (i) Renewal or Replacement. At least 30 days prior to the
expiration date of the Impounds Letter of Credit, the Borrower shall either (A)
cause the Impounds Letter of Credit to be amended to extend its expiration date,
or (B) furnish a replacement Impounds Letter of Credit. In either case, the
amended Impounds Letter of Credit or the replacement Impounds Letter of Credit
must (x) be in compliance with the requirements for letters of credit under the
DUS Guide, and be from an Issuer which meets the Lender's requirements for
ratings of issuers of acceptable letters of credit as set forth in the DUS
Guide, (y) have a term of 364 days or more (unless a shorter term is approved in
writing by the Lender), and (z) be in the amount of the outstanding Impounds
Letter of Credit, amended to the extent required pursuant to Section 22.1(d)(iv)
above.
(ii) Review of Rating of Issuer; Replacement of Impounds Letter of
Credit. From time to time, the Lender shall review the rating of the Issuer of
the then outstanding Impounds Letter of Credit. If the Lender notifies the
Borrower that at the time of any such review the issuing bank does not meet
Lender's requirements for ratings of issuers of acceptable letters of credit as
set forth in the DUS Guide, the Borrower shall replace the outstanding Impounds
Letter of Credit with an Impounds Letter of Credit that complies with all of the
requirements set forth in the DUS Guide, no later than 30 days after the
Lender's notice to the Borrower, unless the outstanding Impounds Letter of
Credit would expire prior to such 30-day period, in which case the Borrower
shall provide the replacement Impounds Letter of Credit no later than 5 Business
Days prior to the expiration date of the outstanding Impounds Letter of Credit.
(iii) Draw on Letter of Credit. If the Borrower does not provide an
amendment to, or replacement of, the Impounds Letter of Credit when required
pursuant to Section 22.1(e)(i) or (ii) above, as the case may be, which amended
or replacement Impounds Letter of Credit satisfies all of the requirements of
Sections 22.1(e)(i) and (ii) above, the Lender shall draw the full amount of the
Impounds Letter of Credit and hold and apply the proceeds as permitted hereunder
and, in such event, no Event of Default shall be deemed to exist by virtue of
the Borrower's failure to comply with said Sections 22.1(e)(i) and (ii).
(f) (i) Remedies. During the continuance of an Event of Default, the
Lender shall be entitled, in its sole and absolute discretion, to:
(1) Draw on the Impounds Letter of Credit and hold the
proceeds of the Impounds Letter of Credit as
additional cash Collateral;
(2) Draw on the Impounds Letter of Credit and apply all
or any portion of the proceeds of the Impounds Letter
of Credit to payment of the unpaid principal amount
of any Note, the Credit Facility Termination Fee
resulting therefrom, if any, and the prepayment
premium, if any (calculated as provided in such Note)
on the principal amount prepaid; provided, however,
that such application of proceeds shall not cure or
be deemed to cure any default;
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(3) Draw on the Impounds Letter of Credit and apply all
or any portion of the proceeds of the Impounds Letter
of Credit to reimburse the Lender for any losses or
expenses (including legal fees) suffered or incurred
by the Lender as a result of such default; and/or
(4) Exercise all rights and remedies available to the
Lender at law or in equity or under any of the Loan
Documents (including this Section 22.1).
(ii) No Obligation to Apply Proceeds; No Cure. Nothing in this Section
22.1 shall obligate the Lender to apply all or any portion of the proceeds of
the Impounds Letter of Credit to cure any default under the Loan Documents or to
reduce the indebtedness evidenced by any Note. No application of proceeds of the
Impounds Letter of Credit by Lender shall be deemed to cure any default.
(g) Proceeds of the Impounds Letter of Credit.
(i) Providing Replacement Impounds Letter of Credit after a Draw.
Provided that Borrower is not otherwise in default under any
of the Loan Documents (including the Security Instruments),
after the Lender has drawn on the Impounds Letter of Credit,
but prior to application of proceeds, the Lender may, but is
not obligated to, permit the Borrower to provide a replacement
Impounds Letter of Credit that complies with all the
requirements set forth in the DUS Guide and Section
22.1(e)(i), in which case the Lender shall return the proceeds
of the draw to the Borrower, less the Lender's costs and
expenses (including reasonable attorneys' fees and expenses).
(ii) Proceeds Held in Escrow Funds Account(s). If the Lender draws
on the Impounds Letter of Credit and holds the proceeds under
the Security Instruments, such funds shall be held by the
Lender in an account in accordance with Section 22.1(a)(ii)
above.
(iii) No Obligation to Draw or to Apply Proceeds. The Lender shall
not be obligated to draw on the Impounds Letter of Credit upon
any default under any of the Loan Documents or apply the
proceeds of any draw on the Impounds Letter of Credit to cure
a default under the Loan Documents. The Lender may hold the
Impounds Letter of Credit or the proceeds of any Impounds
Letter of Credit until the date for return as determined
pursuant to Section 22.1(d)(ii), or apply all or any portion
of the proceeds as permitted by this Agreement or any of the
Loan Documents and hold any remaining proceeds until the date
for return determined under Section 22.1(d)(ii).
SECTION 22.2 Replacement Reserves. The Borrower shall execute a Replacement
Reserve Agreement for each of the Mortgaged Properties and shall (unless waived
by the Lender) make all deposits for replacement reserves in accordance with the
terms of the Replacement Reserve Agreement.
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ARTICLE XXIII
HEDGES
SECTION 23.1 Interest Rate Protection.
(a) The Initial Hedge. To protect against fluctuations in interest
rates, the Borrower shall make arrangements for Hedges, in an aggregate notional
principal amount equal to or greater than the Revolving Advances Outstanding
from time to time, to be in place and maintained at all times until the
Revolving Facility Termination Date. Notwithstanding the immediately preceding
sentence, the Hedge which shall be in place on the Initial Closing Date shall be
in the form of a Cap in a notional amount equal to $118,450,000, which covers
only a portion of the Revolving Advances Outstanding as of the Initial Closing
Date, for a period beginning on the Initial Closing Date and ending not earlier
than the last day of the fourth Loan Year or such earlier date as is acceptable
to the Lender in its sole and absolute discretion. On the Initial Closing Date
and until the earlier of (the "Initial Closing Hedge Escrow Termination Date"):
(i) January 29, 1999 or (ii) the date that the Borrower provides a Hedge, in an
amount which, when added to the notional amount of any Hedges then in effect, is
equal to or greater than the Revolving Advances then Outstanding, for a period
ending not earlier than the last day of the fourth Loan Year or such earlier
date as is acceptable to the Lender in its sole discretion and otherwise in
satisfaction of the requirements of this Article XXIII, the Borrower shall
deposit with the Lender an amount not less than 200% of the cost, as estimated
by the Lender, to obtain a Cap, in a notional amount of $150,000,000, at a
capped interest rate of 9.25% and for a term equal to four Loan Years (the
"Initial Closing Hedge Escrow Amount"). The Initial Closing Hedge Escrow Amount
shall be redetermined by the Lender on a weekly basis until the Initial Closing
Hedge Escrow Termination Date. If, based on any such redetermination, the amount
then on deposit with the Lender pursuant to this Section 23.1(a) is less than an
amount equal to 180% of the redetermined Initial Closing Hedge Escrow Amount,
the Borrower shall, within two Business Days of the Lender's request, deposit
with the Lender additional funds to cause the amount then on deposit with the
Lender to equal not less than 200% of the redetermined Initial Closing Hedge
Escrow Amount. The Borrower hereby pledges and assigns to the Lender, and grants
to the Lender a lien and security interest in, and right of setoff against, any
right, title and interest the Borrower may have in and to any funds deposited
with the Lender pursuant to this Section 23.1(a). If the Borrower fails to
provide a Hedge in compliance with the requirements of Section 23.1(a)(ii) above
on or before January 29, 1999, such failure shall constitute an Event of Default
hereunder, notwithstanding anything to the contrary contained herein. So long as
no Potential Event of Default or Event of Default exists, the Lender will permit
funds on deposit with the Lender pursuant to this Section 23.1(a) to be used to
acquire the Hedge contemplated by Section 23.1(a)(ii). Promptly after the
Initial Closing Hedge Escrow Termination Date, and provided that no Potential
Event of Default or Event of Default then exists, the Lender shall return to the
Borrower all remaining funds then on deposit with the Lender pursuant to this
Section 23.1(a).
Notwithstanding the foregoing, with the consent of the Lender, the Borrower may
provide interest rate protection through any combination of Swaps and Caps so
long as, from and after the Initial Closing Hedge Escrow Termination Date, a
Hedge or combination of Hedges is in effect with respect to all Revolving
Advances Outstanding from time to time until the last day
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of the fourth Loan Year or such earlier date as is acceptable to the Lender, and
such Hedge or Hedges otherwise satisfy the requirements of this Article XXIII.
In addition, with the consent of the Lender, any Hedges required under this
Article XXIII may be provided by the REIT, in which case the Cap Security
Agreement or Swap Security Agreement shall be executed by the REIT and shall be
in form and substance satisfactory to the Lender, and the covenants and
agreements contained in this Article XXIII with respect to such Hedge shall
apply to the REIT.
(b) Subsequent Hedges. Additional Hedges (each, a "Subsequent Hedge")
shall be required if the aggregate sum of Revolving Advances Outstanding is
increased to an amount that exceeds the aggregate notional principal amount of
all Hedges then in effect; such Subsequent Hedge shall be in effect prior to or
concurrently with the Lender making any such Revolving Advance. It is the
intention of the parties, and a condition of the Revolving Facility Commitment,
that the Borrower shall obtain, and shall maintain at all times until the
Revolving Facility Termination Date, a Hedge or Hedges in an aggregate notional
principal amount not less than the aggregate sum of all Revolving Advances
Outstanding from time to time. If the aggregate sum of Revolving Advances
Outstanding at any time is less than the aggregate notional principal amount of
all Hedges then in effect, the Borrower may amend and/or terminate one or more
Hedges to provide for a decrease in the aggregate notional principal amount of
all such Hedges then in place to an amount not less than the aggregate sum of
all Revolving Advances then Outstanding, provided that the Lender gives its
prior written approval to the documents reflecting the amendment or termination
(which approval shall not be unreasonably withheld or delayed), and provided
further that any such reduction shall not affect in any manner the Borrower's
obligation to provide a Subsequent Hedge when required by this Section 23.1.
SECTION 23.2 Terms and Conditions. The Borrower may determine from time to time
whether to provide a Cap and/or a Swap in satisfaction of the Hedge requirement,
provided that each Hedge shall:
(a) be obtained on terms and conditions approved by the Lender;
(b) be evidenced and governed by Hedge Documents in form and substance
acceptable to the Lender;
(c) be with a counterparty acceptable to the Lender;
(d) provide for a notional principal amount which, when added to the
aggregate sum of all notional principal amounts of other Hedges, if any, then in
effect, is at least equal to the aggregate sum of all Revolving Advances then
Outstanding;
(e) require the counterparty to make any interest or other payments
under the Hedge to an account pledged to the Lender pursuant to a Cap Security
Agreement or a Swap Security Agreement, as applicable; and
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(f) provide for a capped or a swapped fixed interest rate which is not
higher than the interest rate that would have resulted in the Debt Service
Coverage Ratios, computed as of the Initial Closing Date, being equal to 115%.
SECTION 23.3 Hedge Assignment; Delivery of Hedge Payments. Pursuant to a Cap
Security Agreement or a Swap Security Agreement, as applicable, the Lender shall
be granted an enforceable, perfected, first priority lien on and security
interest in each Hedge and payments due under the Hedge (including scheduled and
termination payments) in order to secure the Obligations under this Agreement
and the other Loan Documents. With respect to each Hedge, the Cap Security
Agreement or the Swap Security Agreement, as the case may be, must be delivered
by the Borrower to the Lender no later than the effective date of the Hedge.
SECTION 23.4 Termination. Except as provided in Section 23.1, the Borrower shall
not terminate, transfer or consent to any transfer of any existing Hedge without
the Lender's prior written consent as long as the Borrower is required to
maintain a Hedge pursuant to this Agreement; provided, however, that after the
Revolving Facility Termination Date, the Borrower shall have the right to
terminate the then-existing Hedges.
SECTION 23.5 Performance Under Hedge Documents. The Borrower agrees to comply
fully with, and to otherwise perform when due, its obligations under, all
applicable Hedge Documents and all other agreements evidencing, governing and/or
securing any Hedge arrangement contemplated under this Article XXIII. Except as
specifically provided in this Article XXIII, the Borrower shall not exercise,
without the Lender's prior written consent, and shall exercise, at the Lender's
direction, any rights or remedies under any Hedge Document, including, without
limitation, the right of termination. The Borrower shall notify the Lender of
any downgrading of the credit rating of any counterparty under a Hedge promptly
after the Borrower receives notice from such counterparty of such downgrading.
SECTION 23.6 Escrow Provisions.
(a) Annual Cap Escrow Payment. Until the date on which the Borrower
obtains, and so long as the Borrower thereafter maintains, one or more Hedges
expiring on the Revolving Facility Termination Date for the aggregate sum of all
Revolving Advances Outstanding from time to time, the Borrower shall, on the
first day of each Loan Year, deposit, in advance, with the Lender the Annual Cap
Escrow Payment. The "Annual Cap Escrow Payment" means, with respect to each Loan
Year, an amount equal to the quotient obtained by dividing --
(i) the difference between --
(1) 110% of the cost, as estimated by the Lender, and
computed on a weighted average basis, to obtain on
such date of determination a Cap for a term equal to
the time period from the expiration date of each
Hedge then in effect until the Revolving Credit
Termination Date and in an aggregate notional
principal amount at least equal to the aggregate sum
of all Revolving Advances then Outstanding, and
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(2) the amount in the Cap Escrow Fund on the date
immediately preceding the commencement of the Loan
Year, by
(ii) the number of Loan Years then remaining until the Revolving
Credit Termination Date, as of the date immediately preceding
the commencement of such Loan Year.
At least 10 days before the commencement of each Loan Year, the Lender shall
give the Borrower notice of the estimate under Section 23.6(a) and the amount of
the Annual Cap Escrow Payment for such Loan Year.
(b) Ninety Day Reconciliation. Approximately 90 days prior to the
expiration of the then effective Cap, the Lender shall determine the amount
equal to --
(i) 110% of the cost, as estimated by the Lender, and computed on
a weighted average basis, to obtain on such date of
determination a Cap for a term equal to the time period from
the expiration date of each Hedge then in effect until the
Revolving Credit Termination Date and in an aggregate notional
principal amount at least equal to the aggregate sum of all
Revolving Advances then Outstanding, minus
(ii) the amount in the Cap Escrow Fund on the date of such
calculation.
If the foregoing calculation results in a positive number, the Borrower shall,
within 10 days after the Lender's request, deposit with the Lender such amount.
Upon receipt, the Lender shall deposit such amount into the Cap Escrow Fund.
(c) Cap Escrow Fund. The Lender shall establish an escrow fund (the
"Cap Escrow Fund") and shall deposit each Annual Cap Escrow Payment, together
with any additional amount deposited by the Borrower with the Lender pursuant to
Section 23.6(b), into the Cap Escrow Fund. The Cap Escrow Fund shall be placed
in a deposit account with a financial institution selected by the Lender and
shall be invested by the Lender in Permitted Investments selected by the
Borrower. So long as no Event of Default or Potential Event of Default then
exists, all interest on funds in the Cap Escrow Fund, including all earnings on
such Permitted Investments, shall be released to the Borrower not more
frequently than once each month. The Borrower hereby pledges and assigns to the
Lender, and grants to Lender a lien and security interest in, and right of
setoff against, any right, title and interest the Borrower may have in and to
the Cap Escrow Fund. At the Lender's request, the Borrower shall cause the
financial institution holding the Cap Escrow Fund to execute and deliver a
Restricted Account Letter in form and substance similar to that attached as an
Exhibit to the Cap Security Agreement. Provided no Event of Default or Potential
Event of Default has then occurred and is continuing, the Cap Escrow Fund shall
be returned to the Borrower within 10 days after the date on which the Borrower
obtains a Cap covering the period ending on the last day of the Term of this
Agreement.
(d) Delivery of Cap Letter of Credit. Provided that no Event of
Default has occurred and is then continuing, at any time during the Term of this
Agreement during which
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the Cap Escrow Fund is maintained, the Borrower may, upon notice to the Lender,
elect to substitute for the Cap Escrow Fund a Cap Letter of Credit (as defined
below) in accordance with this Section 23.6(d), in which event the Lender shall
return the amount in the Cap Escrow Fund to the Borrower within 10 days after
the Borrower delivers the Cap Letter of Credit to the Lender. Provided that no
Event of Default has occurred and is then continuing, at any time during the
Term of this Agreement during which a Cap Letter of Credit is held by the
Lender, the Borrower may, upon notice to the Lender, elect to substitute for the
Cap Letter of Credit the Cap Escrow Funds, in which event the Borrower shall
deliver to the Lender, in cash, the amount of the Cap Escrow Funds which would
have been required at the time of the substitution if the Borrower had not
elected to furnish the Cap Letter of Credit and the Lender shall return the Cap
Letter of Credit to the Borrower within 10 days after its receipt of the cash
for the Cap Escrow Fund. Notwithstanding the foregoing, the Borrower may not
exercise its right to substitute a Cap Letter of Credit for the Cap Escrow Fund
or the Cap Escrow Fund for the Cap Letter of Credit if the Borrower has made
prior substitution under this Section 23.6(d) during the 12 months preceding the
proposed substitution. Any Cap Letter of Credit delivered to the Lender in
accordance with this Section 23.6(d) shall be a clean, irrevocable letter of
credit, naming the Lender as beneficiary, in an amount equal to the amount which
would have been required to have been on deposit in the Cap Escrow Fund (the
"Required Amount"), if Cap Escrow Funds had been maintained, as such amount is
determined by the Lender in accordance with this Section 23.6. The Cap Letter of
Credit must be issued by an issuer (the "Issuer") that meets the Lender's
requirements for ratings of issuers of acceptable letters of credit as set forth
in the DUS Guide and must comply with all other requirements for letters of
credit contained in the DUS Guide (including furnishing an opinion of counsel
relating to the Issuer and the Cap Letter of Credit). (The term "Cap Letter of
Credit" shall mean the letter of credit delivered to the Lender pursuant to this
Section 23.6(d), any replacement letter of credit, and any amendment or renewal
of the letter of credit or the replacement letter of credit.) If the Borrower at
any time provides a confirming letter of credit, a replacement confirming letter
of credit or an amendment or renewal of the confirming letter of credit or the
replacement confirming letter of credit, then the term "Cap Letter of Credit"
shall also mean the confirming letter of credit as so amended, renewed or
replaced.)
(e) Cap Letter of Credit as Additional Collateral. The Borrower agrees
that the Cap Letter of Credit provides collateral for the Notes in addition to
the lien of the Security Instruments on the Mortgaged Properties and the other
Collateral and, during the continuance of any Event of Default, the Lender shall
be entitled to take any action permitted under this Agreement, in addition to
pursuing any other remedy the Lender may have with respect to any other
Collateral or secured property, including the Mortgaged Properties.
(f) Conditions for Providing and Holding Cap Letter of Credit.
(i) Period During Which Borrower Must Provide Cap Letter of
Credit. Until the earliest of (A) payment in full of all sums
secured by the Security Instruments and release by the Lender
of the liens of the Security Instruments, (B) the date that
the Lender fully draws on the Cap Letter of Credit as
permitted by this Agreement, or (C) the date on which the
Borrower obtains a Hedge expiring on the Revolving Facility
Termination Date covering all of the Revolving Advances then
Outstanding, the Borrower shall renew, amend or
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replace the Cap Letter of Credit in accordance with the terms
of this Agreement, to ensure that the Cap Letter of Credit
remains in effect and does not expire.
(ii) Return of the Cap Letter of Credit or the Proceeds Thereof.
The Lender shall return the Cap Letter of Credit, or the
proceeds of any draws on such Cap Letter of Credit (less all
amounts which have been applied by the Lender pursuant to the
terms of this Article XXIII) to the Borrower 10 days after the
date on which either clause (A) or (C) of Section 23.6(f)(i)
is satisfied.
(iii) Application for Prepayment. If the proceeds of the Cap Letter
of Credit are applied to payment of a portion of the principal
amount of a Note, a prepayment premium attributable to such
prepaid principal amount shall be due to the Lender to the
extent, if any, provided in such Note.
(iv) Adjustment of the Cap Letter of Credit. The Borrower shall,
within 10 days after receipt of notice from the Lender of the
dollar determinations under Sections 23.6(a) or 23.6(b),
deliver to Lender an amendment or replacement of the Cap
Letter of Credit in the then determined Required Amount.
(g) (i) Renewal or Replacement. At least 30 days prior to the
expiration date of the Cap Letter of Credit, the Borrower shall either (A) cause
the Cap Letter of Credit to be amended to extend its expiration date, or (B)
furnish a replacement Cap Letter of Credit. In either case, the amended Cap
Letter of Credit or the replacement Cap Letter of Credit must (x) be in
compliance with the requirements for letters of credit under the DUS Guide, and
be from an Issuer which meets the Lender's requirements for ratings of issuers
of acceptable letters of credit as set forth in the DUS Guide, (y) have a term
of 364 days or more (unless a shorter term is approved in writing by the
Lender), and (z) be in the amount of the outstanding Cap Letter of Credit,
amended to the extent required pursuant to Section 23.6(f)(iv) above.
(ii) Review of Rating of Issuer; Replacement of Cap Letter of Credit.
From time to time, the Lender shall review the rating of the Issuer of the then
outstanding Cap Letter of Credit. If the Lender notifies the Borrower that at
the time of any such review the issuing bank does not meet Lender's requirements
for ratings of issuers of acceptable letters of credit as set forth in the DUS
Guide, the Borrower shall replace the outstanding Cap Letter of Credit with an
Cap Letter of Credit that complies with all of the requirements set forth in the
DUS Guide and Section 23.6(g)(i), no later than 30 days after the Lender's
notice to the Borrower, unless the outstanding Cap Letter of Credit would expire
prior to such 30-day period, in which case the Borrower shall provide the
replacement Cap Letter of Credit no later than 5 Business Days prior to the
expiration date of the outstanding Cap Letter of Credit.
(iii) Draw on Letter of Credit. If the Borrower does not provide an
amendment to, or replacement of, the Cap Letter of Credit when required pursuant
to Section 23.6(g)(i) or (ii) above, as the case may be, which amended or
replacement Cap Letter of Credit satisfies all of the requirements of Sections
23.6(g)(i) and (ii) above, the Lender shall draw the full amount of the Cap
Letter of Credit and hold and apply the proceeds as permitted
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<PAGE>
hereunder and, in such event, no Event of Default shall be deemed to exist by
virtue of the Borrower's failure to comply with said Sections 23.6(g)(i) and
(ii).
(h) (i) Remedies. During the continuance of an Event of Default, the
Lender shall be entitled, in its sole discretion, to:
(1) Draw on the Cap Letter of Credit and hold the
proceeds of the Cap Letter of Credit as additional
cash Collateral;
(2) Draw on the Cap Letter of Credit and apply all or any
portion of the proceeds of the Cap Letter of Credit
to payment of the unpaid principal amount of any
Note, the Credit Facility Termination Fee resulting
therefrom, if any, and the prepayment premium, if any
(calculated as provided in such Note) on the
principal amount prepaid; provided, however, that
such application of proceeds shall not cure or be
deemed to cure any default;
(3) Draw on the Cap Letter of Credit and apply all or any
portion of the proceeds of the Cap Letter of Credit
to reimburse the Lender for any losses or expenses
(including legal fees) suffered or incurred by the
Lender as a result of such default; and/or
(4) Exercise all rights and remedies available to the
Lender at law or in equity or under any of the Loan
Documents (including this Section 23.6).
(ii) No Obligation to Apply Proceeds; No Cure. Nothing in this Section
23.6 shall obligate the Lender to apply all or any portion of the proceeds of
the Cap Letter of Credit to cure any default under the Loan Documents or to
reduce the indebtedness evidenced by the Notes. No application of proceeds of
the Cap Letter of Credit by Lender shall be deemed to cure any default.
(i) Proceeds of the Cap Letter of Credit.
(i) Providing Replacement Cap Letter of Credit after a Draw.
Provided that Borrower is not otherwise in default under any
of the Loan Documents (including the Security Instruments),
after the Lender has drawn on the Cap Letter of Credit, but
prior to application of proceeds, the Lender may, but is not
obligated to, permit the Borrower to provide a replacement Cap
Letter of Credit that complies with all the requirements set
forth in the DUS Guide and Section 23.6(g)(i), in which case
the Lender shall return the proceeds of the draw to the
Borrower, less the Lender's costs and expenses (including
reasonable attorneys' fees and expenses).
(ii) Proceeds Held in Escrow Funds Account(s). If the Lender draws
on the Cap Letter of Credit and holds the proceeds, such funds
shall be held by the Lender in the Cap Escrow Fund account.
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<PAGE>
(iii) No Obligation to Draw or to Apply Proceeds. The Lender shall
not be obligated to draw on the Cap Letter of Credit upon any
default under any of the Loan Documents or apply the proceeds
of any draw on the Cap Letter of Credit to cure a default
under the Loan Documents. The Lender may hold the Cap Letter
of Credit or the proceeds of any Cap Letter of Credit until
the date for return as determined pursuant to Section
23.6(f)(ii), or apply all or any portion of the proceeds as
permitted by this Agreement or any of the Loan Documents and
hold any remaining proceeds until the date for return
determined under Section 23.6(f)(ii).
ARTICLE XXIV
LIMITS ON PERSONAL LIABILITY
SECTION 24.1 Limits on Personal Liability.
(a) Limits on Personal Liability Except as otherwise provided in this
Article XXIV, no Borrower Party shall have any personal liability under this
Agreement, the Note, the Security Instruments or any other Loan Document for the
performance of any Obligations of any Borrower Party under the Loan Documents,
and the Lender's only recourse for the payment and performance of the
Obligations shall be the Lender's exercise of its rights and remedies with
respect to the Mortgaged Property and any other Collateral held by the Lender as
security for the Obligations. This limitation on the Borrower's Parties'
liability shall not limit or impair the Lender's enforcement of its rights
against any guarantor of all or part of the Obligations, but, if such guarantor
is a Borrower Party, such guarantor's liability shall also be limited to the
extent set forth in this Article XXIV.
(b) Exceptions to Limits on Personal Liability. The Borrower Parties
shall be personally liable to the Lender on a joint and several basis for the
repayment of a portion of the Advances and other amounts due under the Loan
Documents equal to any loss or damage suffered by the Lender as a result of (1)
failure of the Borrower to pay to the Lender upon demand after an Event of
Default, all Rents to which the Lender is entitled under Section 3(a) of the
Security Instrument encumbering the Mortgage Property and the amount of all
security deposits collected by the Borrower from tenants then in residence; (2)
failure of the Borrower to apply all insurance proceeds and condemnation
proceeds as required by the Security Instrument encumbering the applicable
Mortgage Property; (3) failure of the Borrower to comply with Section
14.2(a)(vii); (4) fraud or written material misrepresentation by any Borrower
Party or any officer, director, partner, member or employee of any Borrower
Party in connection with the application for or creation of the Obligations or
any request for any action or consent by the Lender; (5) failure to apply Rents,
first, to the payment of reasonable operating expenses and then to amounts
("Debt Service Amounts") payable under the Loan Documents (except that the
Borrower Party will not be personally liable (i) to the extent that the Borrower
Party lacks the legal right to direct the disbursement of such sums because of a
bankruptcy, receivership or similar judicial proceeding, or (ii) with respect to
Rents of a Mortgaged Property that are distributed in any calendar year if the
Borrower has paid all operating expenses and Debt Service Amounts for that
calendar year); or (6) the Borrower's failure to deposit all Gross Revenues into
a Property Account (as defined in the Cash Management Agreement) in accordance
with the Cash Management Agreement.
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<PAGE>
(c) Full Recourse. The Borrower Parties shall become personally liable
to the Lender on a joint and several basis for the payment and performance of
all Obligations upon the occurrence of any of the following Events of Default:
(1) the Borrower's acquisition of any property or operation of any business not
permitted by Section 33 of the Security Instruments; or (2) an Event of Default
under Section 19.1(o) of this Agreement.
(d) Permitted Transfer Not Release. No Transfer by any party of its
Ownership Interests in the Borrower shall release the party from liability under
this Article XXIV, this Agreement or any other Loan Document, unless the Lender
shall have approved the Transfer in its sole and absolute discretion and shall
have expressly released the party in connection with the Transfer.
(e) Miscellaneous. To the extent that the Borrower Parties have
personal liability under this Article XXIV, the Lender may exercise its rights
against the Borrower Parties personally on a joint and several basis without
regard to whether the Lender has exercised any rights against the Mortgaged
Property or any other security, or pursued any rights against any guarantor, or
pursued any other rights available to the Lender under the Loan Documents or
applicable law. For purposes of this Article XXIV, the term "Mortgaged Property"
shall not include any funds that (1) have been applied by the Borrower as
required or permitted by the Loan Documents prior to the occurrence of an Event
of Default, or (2) are owned by the Borrower and which the Borrower was unable
to apply as required or permitted by the Loan Documents because of a bankruptcy,
receivership, or similar judicial proceeding.
ARTICLE XXV
MISCELLANEOUS PROVISIONS
SECTION 25.1 Counterparts. To facilitate execution, this Agreement may be
executed in any number of counterparts. It shall not be necessary that the
signatures of, or on behalf of, each party, or that the signatures of all
persons required to bind any party, appear on each counterpart, but it shall be
sufficient that the signature of, or on behalf of, each party, appear on one or
more counterparts. All counterparts shall collectively constitute a single
agreement. It shall not be necessary in making proof of this Agreement to
produce or account for more than the number of counterparts containing the
respective signatures of, or on behalf of, all of the parties hereto.
SECTION 25.2 Amendments, Changes and Modifications. This Agreement may be
amended, changed, modified, altered or terminated only by written instrument or
written instruments signed by all of the parties hereto.
SECTION 25.3 Payment of Costs, Fees and Expenses. The Borrower shall pay, on
demand, all fees, costs, charges or expenses (including the reasonable fees and
expenses of attorneys, accountants and other experts) incurred by the Lender in
connection with:
(a) Any amendment, consent or waiver to this Agreement or any of the
Loan Documents (whether or not any such amendments, consents or waivers are
entered into).
(b) Defending or participating in any litigation arising from actions
by third parties and brought against or involving the Lender with respect to (i)
any Mortgaged
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<PAGE>
Property, (ii) any event, act, condition or circumstance in connection with any
Mortgaged Property or (iii) the relationship between the Lender and the
Borrower, any Borrower Party or the REIT in connection with this Agreement or
any of the transactions contemplated by this Agreement.
(c) The administration or enforcement of, or preservation of rights or
remedies under, this Agreement or any other Loan Documents or in connection with
the foreclosure upon, sale of or other disposition of any Collateral granted
pursuant to the Loan Documents (the reasonableness standard as to fees and
expenses of attorneys, accountants and other experts shall only apply under this
Section 25.3(c) with respect to the administration of this Agreement and the
other Loan Documents when no Event of Default exists hereunder).
The Borrower shall also pay, on demand, any transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by reason of the
execution, delivery, filing, recordation, performance or enforcement of any of
the Loan Documents or the Advances. However, the Borrower will not be obligated
to pay any franchise, estate, inheritance, income, excess profits or similar tax
on the Lender. Any attorneys' fees and expenses payable by the Borrower pursuant
to this Section shall be recoverable separately from and in addition to any
other amount included in such judgment, and such obligation is intended to be
severable from the other provisions of this Agreement and to survive and not be
merged into any such judgment. Any amounts payable by the Borrower pursuant to
this Section, with interest thereon if not paid when due, shall become
additional indebtedness of the Borrower secured by the Loan Documents. Such
amounts shall bear interest from the date such amounts are due until paid in
full at the weighted average, as determined by Lender, of the interest rates in
effect from time to time for each Advance unless collection from the Borrower of
interest at such rate would be contrary to applicable law, in which event such
amounts shall bear interest at the highest rate which may be collected from the
Borrower under applicable law. The provisions of this Section are cumulative
with, and do not exclude the application and benefit to the Lender of, any
provision of any other Loan Document relating to any of the matters covered by
this Section.
SECTION 25.4 Payment Procedure. All payments to be made to the Lender pursuant
to this Agreement or any of the Loan Documents shall be made in lawful currency
of the United States of America and in immediately available funds by wire
transfer to an account designated by the Lender before 1:00 p.m. (Washington,
D.C. time) on the date when due.
SECTION 25.5 Payments on Business Days. In any case in which the date of payment
to the Lender or the expiration of any time period hereunder occurs on a day
which is not a Business Day, then such payment or expiration of such time period
need not occur on such date but may be made on the next succeeding Business Day
with the same force and effect as if made on the day of maturity or expiration
of such period, except that interest shall continue to accrue for the period
after such date to the next Business Day.
SECTION 25.6 Choice of Law; Consent to Jurisdiction; Waiver of Jury Trial. EACH
OF THE TERMS AND PROVISIONS, AND RIGHTS AND OBLIGATIONS OF EACH BORROWER PARTY
UNDER THIS AGREEMENT AND ANY OTHER LOAN DOCUMENT INCORPORATING THIS SECTION BY
REFERENCE SHALL BE GOVERNED BY, INTERPRETED, CONSTRUED AND ENFORCED PURSUANT TO
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<PAGE>
AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (EXCLUDING THE LAW
APPLICABLE TO CONFLICTS OR CHOICE OF LAW) EXCEPT TO THE EXTENT OF PROCEDURAL AND
SUBSTANTIVE MATTERS RELATING ONLY TO THE PERFECTION, THE EFFECT OF PERFECTION
AND NON-PERFECTION AND FORECLOSURE OF DEPOSIT ACCOUNTS, WHICH MATTERS SHALL BE
GOVERNED BY THE LAWS OF THE JURISDICTION IN WHICH THE DEPOSIT ACCOUNT IS
LOCATED. THE BORROWER PARTIES AND LENDER AGREE, HOWEVER, THAT ANY CONTROVERSY
ARISING UNDER OR IN RELATION TO THE NOTES, THE SECURITY DOCUMENTS OR ANY OTHER
LOAN DOCUMENT SHALL BE, EXCEPT (1) AS OTHERWISE PROVIDED HEREIN, (2) TO THE
EXTENT OF PROCEDURAL AND SUBSTANTIVE MATTERS RELATING ONLY TO THE CREATION,
PERFECTION AND FORECLOSURE OF LIENS AND SECURITY INTERESTS, AND ENFORCEMENT OF
THE RIGHTS AND REMEDIES, AGAINST THE MORTGAGED PROPERTIES, WHICH MATTERS SHALL
BE GOVERNED BY THE LAWS OF THE JURISDICTION IN WHICH THE MORTGAGED PROPERTY IS
LOCATED, AND (3) THE PERFECTION, THE EFFECT OF PERFECTION AND NON-PERFECTION AND
FORECLOSURE OF SECURITY INTERESTS ON PERSONAL PROPERTY (OTHER THAN DEPOSIT
ACCOUNTS), WHICH MATTERS SHALL BE GOVERNED BY THE LAWS OF THE JURISDICTION IN
WHICH THE PERSONAL PROPERTY IS LOCATED, LITIGATED IN NEW YORK. THE LOCAL AND
FEDERAL COURTS AND AUTHORITIES WITH JURISDICTION IN NEW YORK SHALL, EXCEPT AS
OTHERWISE PROVIDED HEREIN, HAVE JURISDICTION OVER ALL CONTROVERSIES WHICH MAY
ARISE UNDER OR IN RELATION TO THE LOAN DOCUMENTS, INCLUDING THOSE CONTROVERSIES
RELATING TO THE EXECUTION, JURISDICTION, BREACH, ENFORCEMENT OR COMPLIANCE WITH
THE NOTES, THE SECURITY DOCUMENTS OR ANY OTHER ISSUE ARISING UNDER, RELATING TO,
OR IN CONNECTION WITH ANY OF THE LOAN DOCUMENTS. EACH BORROWER PARTY AND LENDER
IRREVOCABLY CONSENTS TO SERVICE, JURISDICTION, AND VENUE OF SUCH COURTS FOR ANY
LITIGATION ARISING FROM THE NOTES, THE SECURITY DOCUMENTS OR ANY OF THE OTHER
LOAN DOCUMENTS, AND WAIVES ANY OTHER VENUE TO WHICH IT MIGHT BE ENTITLED BY
VIRTUE OF DOMICILE, HABITUAL RESIDENCE OR OTHERWISE. NOTHING CONTAINED HEREIN,
HOWEVER, SHALL PREVENT THE LENDER FROM BRINGING ANY SUIT, ACTION OR PROCEEDING
OR EXERCISING ANY RIGHTS AGAINST THE BORROWER PARTIES, AND AGAINST THE
COLLATERAL IN ANY OTHER JURISDICTION. INITIATING SUCH SUIT, ACTION OR PROCEEDING
OR TAKING SUCH ACTION IN ANY OTHER JURISDICTION SHALL IN NO EVENT CONSTITUTE A
WAIVER OF THE AGREEMENT CONTAINED HEREIN THAT THE LAWS OF NEW YORK SHALL GOVERN
THE RIGHTS AND OBLIGATIONS OF THE BORROWER PARTIES AND THE LENDER AS PROVIDED
HEREIN OR THE SUBMISSION HEREIN BY THE BORROWER PARTIES TO PERSONAL JURISDICTION
WITHIN NEW YORK. EACH BORROWER PARTY AND LENDER (I) COVENANTS AND AGREES NOT TO
ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING UNDER ANY OF THE LOAN
DOCUMENTS TRIABLE BY A JURY AND (II) WAIVES ANY RIGHT TO TRIAL BY JURY TO THE
EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER
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<PAGE>
EXIST. THIS WAIVER IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH
ISSUE AS TO WHICH THE RIGHT TO A JURY TRIAL WOULD OTHERWISE ACCRUE. FURTHER,
EACH BORROWER PARTY HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER
(INCLUDING, BUT NOT LIMITED TO, LENDER'S COUNSEL) HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, TO EACH BORROWER PARTY THAT LENDER WILL NOT SEEK TO ENFORCE THE
PROVISIONS OF THIS SECTION. THE FOREGOING PROVISIONS WERE KNOWINGLY, WILLINGLY
AND VOLUNTARILY AGREED TO BY THE BORROWER PARTIES UPON CONSULTATION WITH
INDEPENDENT LEGAL COUNSEL SELECTED BY THE BORROWER PARTIES' FREE WILL.
SECTION 25.7 Severability. In the event any provision of this Agreement or in
any other Loan Document shall be held invalid, illegal or unenforceable in any
jurisdiction, such provision will be severable from the remainder hereof as to
such jurisdiction and the validity, legality and enforceability of the remaining
provisions will not in any way be affected or impaired in any jurisdiction.
SECTION 25.8 Notices.
(a) Manner of Giving Notice. Each notice, direction, certificate or
other communication hereunder (in this Section referred to collectively as
"notices" and singly as a "notice") which any party is required or permitted to
give to the other party pursuant to this Agreement shall be in writing and shall
be deemed to have been duly and sufficiently given if:
(1) personally delivered with proof of delivery thereof
(any notice so delivered shall be deemed to have been
received at the time so delivered);
(2) sent by Federal Express (or other similar overnight
courier) designating morning delivery (any notice so
delivered shall be deemed to have been received on
the Business Day it is delivered by the courier);
(3) sent by United States registered or certified mail,
return receipt requested, postage prepaid, at a post
office regularly maintained by the United States
Postal Service (any notice so sent shall be deemed to
have been received on the Business Day it is
delivered); or
(4) sent by telecopier or facsimile machine which
automatically generates a transmission report that
states the date and time of the transmission, the
length of the document transmitted, and the telephone
number of the recipient's telecopier or facsimile
machine (to be confirmed with a copy thereof sent in
accordance with paragraphs (1), (2) or (3) above
within two Business Days) (any notice so delivered
shall be deemed to have been received (i) on the date
of transmission, if so transmitted before 5:00 p.m.
(local time of the recipient) on a Business Day, or
(ii) on the next Business Day, if so transmitted on
or
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<PAGE>
after 5:00 p.m. (local time of the recipient) on a
Business Day or if transmitted on a day other than a
Business Day);
addressed to the parties as follows:
As to any Borrower Party:
Archstone Communities Trust
7777 Market Center Avenue
El Paso, Texas 79912
Attention: Controller
Telecopy No.: (915) 877-3301
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Thomas S. Reif, Esq. or J. Paul Forrester, Esq.
Telecopy No.: (312) 701-7711
Archstone Communities Trust
7670 South Chester, Suite 100
Englewood, Colorado 80112
Attention: Charles E. Mueller, Jr.
Telecopy No.: (303) 708-5999
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<PAGE>
Archstone Communities Trust
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Attention: Jeffrey A. Klopf
Telecopy No.: (505) 988-8920
As to the Lender:
Berkshire Mortgage Finance Limited Partnership
One Beacon Street, 14th Floor
Boston, Massachusetts 02108
Attention: Carol Mills, Director of Portfolio Management
Telecopy No.: (617) 574-8355
with a copy to:
McGovern Noel & Benik
155 Federal Street
Boston, Massachusetts 02110
Attention: Scott E. Cooper, Esq.
Telecopy No.: (617) 574-9800
As to Fannie Mae:
Fannie Mae
3939 Wisconsin Avenue, N.W.
Washington, D.C. 20016-2899
Attention: Vice President for
Multifamily Asset Management
Telecopy No.: (202) 752-5016
with a copy to:
O'Melveny & Myers LLP
610 Newport Center Drive, Suite 1700
Newport Beach, California 92660
Attention: Scott A. Meyerhoff, Esq.
Telecopy No.: (949) 823-6994
(b) Change of Notice Address. Any party may, by notice given pursuant
to this Section, change the person or persons and/or address or addresses, or
designate an additional person or persons or an additional address or addresses,
for its notices, but notice of a change of address shall only be effective upon
receipt. Each party agrees that it shall not refuse or reject delivery of any
notice given hereunder, that it shall acknowledge, in writing, receipt of the
same upon request by the other party and that any notice rejected or refused by
it shall be deemed for all purposes of this Agreement to have been received by
the rejecting
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<PAGE>
party on the date so refused or rejected, as conclusively established by the
records of the U.S. Postal Service, the courier service or facsimile.
SECTION 25.9 Further Assurances and Corrective Instruments.
(a) Further Assurances. To the extent permitted by law, the parties
hereto agree that they shall, from time to time, execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered, such supplements
hereto and such further instruments as the Lender or the Borrower Parties may
request and as may be required in the opinion of the Lender or its counsel to
effectuate the intention of or facilitate the performance of this Agreement or
any Loan Document.
(b) Further Documentation. Without limiting the generality of
subsection (a), in the event any further documentation or information is
required by the Lender to correct patent mistakes in the Loan Documents,
materials relating to the Title Insurance Policies or the funding of the
Advances, the Borrower Parties shall provide, or cause to be provided to the
Lender, at their cost and expense, such documentation or information. The
Borrower Parties shall execute and deliver to the Lender such documentation,
including any amendments, corrections, deletions or additions to the Notes, the
Security Instruments or the other Loan Documents as is required by the Lender.
(c) Compliance with Investor Requirements. Without limiting the
generality of subsection (a), the Borrower Parties shall do anything necessary
to comply with the requirements of the Lender in order to enable the Lender to
sell the MBS backed by an Advance.
SECTION 25.10 Term of this Agreement. This Agreement shall continue in effect
until the Credit Facility Termination Date.
SECTION 25.11 Assignments; Third-Party Rights. No Borrower Party shall assign
this Agreement, or delegate any of its obligations hereunder, without the prior
written consent of the Lender. The Lender may assign its rights and obligations
under this Agreement separately or together, without the Borrower Parties'
consent, only to Fannie Mae, but may not delegate its obligations under this
Agreement unless required to do so pursuant to Section 21.4.
SECTION 25.12 Headings. Article and Section headings used herein are for
convenience of reference only, are not part of this Agreement and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Agreement.
SECTION 25.13 General Interpretive Principles. For purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires,
(i) the terms defined in Article I, Section 16.1 and elsewhere in this Agreement
have the meanings assigned to them in this Agreement and include the plural as
well as the singular, and the use of any gender herein shall be deemed to
include the other genders; (ii) accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with GAAP; (iii) references
herein to "Articles," "Sections," "subsections," "paragraphs" and other
subdivisions without reference to a document are to designated Articles,
Sections, subsections, paragraphs and other subdivisions of this Agreement; (iv)
a reference to a subsection without further reference
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<PAGE>
to a Section is a reference to such subsection as contained in the same Section
in which the reference appears, and this rule shall also apply to paragraphs and
other subdivisions; (v) a reference to an Exhibit or a Schedule without a
further reference to the document to which the Exhibit or Schedule is attached
is a reference to an Exhibit or Schedule to this Agreement; (vi) the words
"herein," "hereof," "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular provision; and (vii) the word
"including" means "including, but not limited to."
SECTION 25.14 Interpretation. The parties hereto acknowledge that each party and
their respective counsel have participated in the drafting and revision of this
Agreement and the Loan Documents. Accordingly, the parties agree that any rule
of construction which disfavors the drafting party shall not apply in the
interpretation of this Agreement and the Loan Documents or any amendment or
supplement or exhibit hereto or thereto.
SECTION 25.15 Decisions in Writing. Any approval, designation, determination,
selection, action or decision of the Lender must be in writing to be effective.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
Borrower Parties
----------------
REIT
----
ARCHSTONE COMMUNITIES TRUST,
a Maryland real estate trust
By:
-------------------------------
Charles E. Mueller, Jr.
Senior Vice President
Borrower
--------
ASN MULTIFAMILY LIMITED PARTNERSHIP,
a Delaware limited partnership
By: SCA-NORTH CAROLINA (1)
INCORPORATED, a Maryland
corporation, Its General Partner
By:
-----------------------------
Charles E. Mueller, Jr.
Senior Vice President
Lender
------
BERKSHIRE MORTGAGE FINANCE LIMITED
PARTNERSHIP, a Massachusetts limited
partnership
By: BRF CORPORATION,
a Massachusetts corporation,
Its General Partner
By:
-----------------------------
Name:
----------------------
Title:
---------------------
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<PAGE>
EXHIBIT 12.1
Archstone Communities Trust
Computation of Ratio of Earnings to Fixed Charges
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------
1998 1997 (1) 1996 1995 1994
------------ ---------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Earnings from operations...................... $ 133,926 $ 24,686 $ 94,089 $ 81,696 $ 46,719
Add:
Interest expense............................ 83,350 61,153 35,288 19,584 19,442
------------ ---------- --------------- --------------- ---------------
Earnings as adjusted.......................... $ 217,276 $ 85,839 $ 129,377 $ 101,280 $ 66,161
============ ========== =============== =============== ===============
Fixed charges:
Interest expense............................ $ 83,350 $ 61,153 $ 35,288 $ 19,584 $ 19,442
Capitalized interest........................ 29,942 17,606 16,941 11,741 6,029
------------ ---------- --------------- --------------- ---------------
Total fixed charges...................... $ 113,292 $ 78,759 $ 52,229 $ 31,325 $ 25,471
============ ========== =============== =============== ===============
Ratio of earnings to fixed charges............ 1.9 1.1 2.5 3.2 2.6
============ ========== =============== =============== ===============
</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 would be 2.0.
<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>
Year Ended December 31,
---------------------------------------------------------------------------------
1998 1997 (1) 1996 1995 1994
------------ ----------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Earnings from operations...................... $133,926 $24,686 $ 94,089 $ 81,696 $46,719
Add:
Interest expense......................... 83,350 61,153 35,288 19,584 19,442
------------ ----------- --------------- --------------- ---------------
Earnings as adjusted.......................... $217,276 $85,839 $129,377 $101,280 $66,161
============ =========== =============== =============== ===============
Combined fixed charges and Preferred
Share dividends:
Interest expense......................... $ 83,350 $61,153 $ 35,288 $ 19,584 $19,442
Capitalized interest..................... 29,942 17,606 16,941 11,741 6,029
------------ ----------- --------------- --------------- ---------------
Total fixed charges................. $113,292 $78,759 $ 52,229 $ 31,325 $25,471
============ =========== =============== =============== ===============
Preferred Share dividends................ 20,938 19,384 24,167 21,823 16,100
------------ ----------- --------------- --------------- ---------------
Combined fixed charges and Preferred
Share dividends............................ $134,230 $98,143 $ 76,396 $ 53,148 $41,571
============ =========== =============== =============== ===============
Ratio of earnings to combined fixed
charges and Preferred Share dividends...... 1.6 0.9 1.7 1.9 1.6
============ =========== =============== =============== ===============
</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 for the year ended December 31, 1997. Excluding this
charge, the ratio of earnings to combined fixed charges and Preferred Share
dividends for the year ended December 31, 1997 would be 1.6.
<PAGE>
EXHIBIT 21
<TABLE>
<CAPTION>
State of Incorporation or
Subsidiary Name Organization
- --------------- -------------------------
<S> <C>
Archstone Communities Trust Maryland
Archstone Communities Incorporated Delaware
SCP Nevada Holdings 1 Incorporated Nevada
SCP Utah Holdings 1 Incorporated Utah
SCP Utah Holdings 2 Incorporated Utah
SCP Utah Holdings 4 Incorporated Utah
SCP Utah Holdings 5 Incorporated Utah
Las Flores Development Texas
PTR Holdings (Texas) Incorporated Texas
PTR-California Holdings (1) Incorporated Maryland
PTR-California Holdings (2) Incorporated Maryland
PTR-California Holdings (3) Incorporated Delaware
PTR-New Mexico (1) Incorporated Delaware
PTR Multifamily Holdings Incorporated Delaware
Spectrum Apartment Locators, Inc. Texas
Archstone Financial Services, Inc. Delaware
Ameriton Properties Incorporated Maryland
PTR-Colorado (1), LLC Colorado
Security Capital Atlantic Multifamily Inc. Delaware
SCA Florida Holdings (1) Incorporated Florida
Atlantic-Alabama (3) Incorporated Delaware
Atlantic-Alabama (4) Incorporated Delaware
Atlantic-Alabama Multifamily Trust Alabama
Atlantic-Alabama (5) Incorporated Maryland
Atlantic-Alabama (6) Incorporated Maryland
SCA-Alabama Multifamily Trust Alabama
SCA-South Carolina (1) Incorporated Maryland
SCA-North Carolina (1) Incorporated Maryland
SCA-North Carolina (2) Incorporated Maryland
SCA North Carolina Limited Partnership Delaware
SCA-Indiana Limited Partnership Delaware
SCA-Tennessee (1) Incorporated Maryland
SCA-Tennessee (2) Incorporated Maryland
SCA-Tennessee Limited Partnership Delaware
SCA-Tennessee (3) Incorporated Maryland
SCA-Tennessee (4) Incorporated Maryland
Atlantic-Tennessee Limited Partnership Delaware
SCA Florida Holdings (2) Incorporated Delaware
SCA-1 Incorporated Delaware
Atlantic Multifamily Limited Partnership-1 Delaware
Archstone Communities Limited Partnership Delaware
ASN Minnesota Holdings (1) LLC Delaware
ASN Multifamily Limited Partnership Delaware
Ameriton Properties LLC Delaware
ASN-Massachusetts Holdings (1) Incorporated Delaware
ASN-Washington Holdings (1) Incorporated Delaware
</TABLE>
<PAGE>
EXHIBIT 22
Independent Auditors' Consent
The Board of Trustees and Shareholders
of Archstone Communities Trust:
We consent to incorporation by reference in registration statements No. 333-
43723 (Form S-8), No. 333-60847 (Form S-8), No. 333-60815 (Form S-8), No. 333-
60817 (Form S-8), No. 333-44639 (Form S-3), No. 333-68591 (Form S-3) and No.
333-51139 (Form S-4) of Archstone Communities Trust of our reports dated January
22, 1999, except as to Note 15 which is as of March 5, 1999, relating to the
balance sheets of Archstone Communities Trust as of December 31, 1998 and 1997,
and the related statements of earnings, shareholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1998, and the
related schedule, which reports appear in the December 31, 1998 annual report on
Form 10-K of Archstone Communities Trust.
KPMG LLP
Chicago, Illinois
January 22, 1999, except as to Note 15,
which is as of March 5, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-
K FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 10,119
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4,869,801
<DEPRECIATION> 205,795
<TOTAL-ASSETS> 5,059,898
<CURRENT-LIABILITIES> 0
<BONDS> 1,907,780
0
272,515
<COMMON> 143,313
<OTHER-SE> 2,212,497
<TOTAL-LIABILITY-AND-EQUITY> 5,059,898
<SALES> 484,539
<TOTAL-REVENUES> 513,645
<CGS> 0
<TOTAL-COSTS> 270,097
<OTHER-EXPENSES> 21,572
<LOSS-PROVISION> 4,700
<INTEREST-EXPENSE> 83,350
<INCOME-PRETAX> 178,519
<INCOME-TAX> 0
<INCOME-CONTINUING> 178,519
<DISCONTINUED> 0
<EXTRAORDINARY> 1,497
<CHANGES> 0
<NET-INCOME> 177,022
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 1.49
</TABLE>
<PAGE>
EXHIBIT 99.1
Current Development Activity
The following table summarizes Archstone's development communities under
construction as of December 31, 1998 (dollar amounts in thousands):
<TABLE>
<CAPTION>
Actual or Expected
Total Expected Date for Stabilization
Number of Archstone Expected Start Date First Units Date %
Units Investment Investment(1) (Quarter/Year) (Quarter/Year)(2) (Quarter/Year) Leased (3)
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Central Region:
Austin, Texas:
Monterey Ranch I................ 168 $ 5,449 $ 12,856 Q2/98 Q2/99 Q4/99 n/a
Monterey Ranch III.............. 448 6,994 31,669 Q3/98 Q4/99 Q2/00 n/a
----------------------------------
Total Austin................... 616 $ 12,443 $ 44,525
----------------------------------
Denver, Colorado:
Archstone Dakota Ridge.......... 480 $ 19,423 $ 35,540 Q1/98 Q1/99 Q4/00 n/a
Fox Creek II.................... 112 6,947 9,296 Q2/98 Q1/99 Q3/99 n/a
----------------------------------
Total Denver................... 592 $ 26,370 $ 44,836
----------------------------------
Houston, Texas:
Braeswood Park II............... 36 $ 2,114 $ 4,179 Q3/98 Q2/99 Q3/99 n/a
Oaks at Medical Center II....... 318 18,431 20,229 Q4/97 Q3/98 Q3/99 68.2%
----------------------------------
Total Houston.................. 354 $ 20,545 $ 24,408
----------------------------------
Kansas City, Kansas:
Crown Chase..................... 220 $ 10,415 $ 16,384 Q1/98 Q1/99 Q1/00 n/a
----------------------------------
Salt Lake City, Utah:
Archstone River Oaks............ 448 $ 19,047 $ 37,483 Q2/98 Q2/99 Q4/00 n/a
----------------------------------
Total Central Region........... 2,230 $ 88,820 $167,636
==================================
East Region:
Atlanta, Georgia:
Cameron at Barrett Creek........ 332 $ 23,605 $ 27,822 Q4/97 Q4/98 Q1/00 20.5%
Cameron at North Point.......... 264 22,539 24,384 Q4/97 Q3/98 Q3/99 65.9%
Cameron Bridge.................. 224 18,700 19,909 Q4/97 Q3/98 Q3/99 62.5%
----------------------------------
Total Atlanta.................. 820 $ 64,844 $ 72,115
----------------------------------
Birmingham, Alabama:
Cameron at the Summit II........ 268 $ 8,979 $ 18,939 Q2/98 Q2/99 Q3/00 n/a
----------------------------------
Indianapolis, Indiana:
Cameron at River Ridge.......... 202 $ 7,058 $ 14,846 Q2/98 Q2/99 Q2/00 n/a
----------------------------------
Nashville, Tennessee:
Monthaven Place................. 216 $ 8,325 $ 15,361 Q2/98 Q2/99 Q3/00 n/a
----------------------------------
Orlando, Florida:
Cameron Promenade............... 212 $ 16,010 $ 16,908 Q3/97 Q2/98 Q1/99 90.6%
Cameron Wellington II........... 120 10,955 11,835 Q3/97 Q2/98 Q1/99 91.7%
----------------------------------
Total Orlando.................. 332 $ 26,965 $ 28,743
----------------------------------
Raleigh, North Carolina:
Archstone at Preston............ 388 $ 12,557 $ 31,289 Q2/98 Q2/99 Q2/01 n/a
Cameron Southpoint.............. 288 18,835 21,450 Q3/97 Q3/98 Q3/99 56.6%
Cameron Woods................... 328 20,901 23,457 Q3/97 Q3/98 Q1/00 45.7%
----------------------------------
Total Raleigh.................. 1,004 $ 52,293 $ 76,196
----------------------------------
Richmond, Virginia:
Archstone at Swift Creek........ 288 $ 8,788 $ 22,873 Q2/98 Q3/99 Q1/01 n/a
Cameron at Virginia Center...... 264 20,385 21,313 Q2/97 Q2/98 Q1/99 90.5%
Cameron at Virginia Center II... 88 3,891 7,588 Q2/98 Q3/99 Q1/00 n/a
Cameron at Wyndham.............. 312 26,044 26,985 Q3/96 Q4/97 Q1/99 90.4%
----------------------------------
Total Richmond................. 952 $ 59,108 $ 78,759
----------------------------------
Southeast Florida:
Cameron Gardens................. 300 $ 23,890 $ 25,524 Q4/97 Q3/98 Q3/99 53.3%
Cameron Palms................... 340 26,539 29,599 Q4/97 Q4/98 Q1/00 10.6%
Cameron Park I.................. 196 16,635 17,244 Q4/97 Q3/98 Q3/99 87.8%
----------------------------------
Total Southeast Florida........ 836 $ 67,064 $ 72,367
----------------------------------
Washington, D.C.:
Archstone Governor's Green...... 338 $ 15,621 $ 36,446 Q3/98 Q3/99 Q3/00 n/a
----------------------------------
West Coast, Florida:
Archstone Rocky Creek........... 264 $ 4,955 $ 19,750 Q3/98 Q3/99 Q3/00 n/a
----------------------------------
Total East Region.............. 5,232 $315,212 $433,522
==================================
</TABLE>
<PAGE>
EXHIBIT 99.1
<TABLE>
<CAPTION>
Actual or Expected
Total Expected Date for Stabilization
Number of Archstone Expected Start Date First Units Date %
Units Investment Investment(1) (Quarter/Year) (Quarter/Year)(2) (Quarter/Year) Leased (3)
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
West Region:
Orange County, California:
Las Flores Apartment Homes...... 504 $ 49,880 $ 53,120 Q4/96 Q2/98 Q2/99 74.4%
-------------------------------------
Phoenix, Arizona:
Arrowhead I..................... 272 $ 18,086 $ 18,805 Q3/96 Q1/98 Q1/99 89.3%
Arrowhead II.................... 200 8,899 13,535 Q2/98 Q1/99 Q2/00 n/a
San Marbeya..................... 404 21,164 28,246 Q4/97 Q4/98 Q1/00 25.0%
San Valiente II................. 228 12,750 14,459 Q4/97 Q4/98 Q4/99 22.8%
-------------------------------------
Total Phoenix.................. 1,104 $ 60,899 $ 75,045
-------------------------------------
Portland, Oregon:
Hedges Creek.................... 408 $ 27,423 $ 27,720 Q2/97 Q2/98 Q2/99 62.5%
-------------------------------------
Reno, Nevada:
The Enclave II.................. 180 $ 5,053 $ 16,203 Q4/98 Q3/99 Q1/00 n/a
-------------------------------------
San Diego, California:
Archstone Torrey Hills.......... 340 $ 21,764 $ 42,963 Q1/98 Q2/99 Q2/00 n/a
-------------------------------------
San Francisco Bay Area,
California:
Archstone Emerald Park.......... 324 $ 26,774 $ 45,152 Q4/97 Q2/99 Q1/00 n/a
Archstone Hacienda.............. 540 30,455 74,452 Q2/98 Q2/99 Q3/00 n/a
Archstone Monterey Grove........ 224 20,444 26,678 Q4/97 Q1/99 Q4/99 n/a
-------------------------------------
Total San Francisco Bay Area 1,088 $ 77,673 $ 146,282
-------------------------------------
Seattle, Washington:
Archstone Inglewood Hills....... 230 $ 11,015 $ 20,343 Q2/98 Q2/99 Q2/00 n/a
Archstone Northcreek............ 524 21,720 44,025 Q2/98 Q1/99 Q1/01 n/a
Stonemeadow Farms............... 280 22,438 22,600 Q2/97 Q2/98 Q1/99 83.2%
-------------------------------------
Total Seattle.................. 1,034 $ 55,173 $ 86,968
-------------------------------------
Total West Region............. 4,658 $297,865 $ 448,301
=====================================
Total Communities
Under Construction...... 12,120 $701,897 $1,049,459
=====================================
</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). Archstone 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 December
31, 1998. A "n/a" indicates the communities where Lease-Up has not yet
commenced.
<PAGE>
EXHIBIT 99.2
Long-Term Unsecured Debt
As of December 31, 1998, Archstone had $1.2 billion of Long-Term Unsecured
Debt issued and outstanding (including $154.1 million of Long-Term Unsecured
Debt assumed in the Atlantic Merger). The following table summarizes the Long-
Term Unsecured Debt as of December 31, 1998 (dollar amounts in thousands):
<TABLE>
<CAPTION>
Average Principal
Outstanding Coupon Effective Interest Maturity Remaining Payment
Date of Issuance Principal Amount Rate Rate Date Life (Years) Requirement
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/08/98............ $ 10,000 7.00% 7.35% 01/15/09 10.04 (1)
10/30/98............ 120,000 7.20 7.34 04/15/03 4.29 (1)
10/29/98............ 3,000 7.00 7.11 10/30/01 2.83 (1)
10/28/98............ 5,000 7.00 7.12 10/29/01 2.83 (1)
10/27/98............ 18,000 7.00 7.13 10/29/01 2.83 (1)
10/26/98............ 13,000 6.63 6.78 10/26/00 1.83 (1)
10/23/98............ 15,000 6.75 6.92 10/23/00 1.83 (1)
10/20/98............ 3,000 6.89 7.09 10/20/00 1.83 (1)
10/19/98............ 9,000 6.81 7.02 10/19/00 1.79 (1)
10/15/98............ 10,000 6.93 7.18 10/15/00 1.79 (1)
10/13/98(2)......... 5,000 6.84 7.10 10/15/01 2.79 (2)
10/09/98(2)......... 50,000 7.17 7.36 10/09/02 3.75 (2)
10/01/98............ 5,000 6.32 6.51 10/01/01 2.75 (1)
10/01/98............ 10,000 6.95 7.08 10/01/08 9.75 (1)
09/25/98............ 25,000 6.17 6.40 10/13/00 1.79 (1)
09/23/98............ 21,200 6.37 6.57 10/15/01 2.79 (1)
---------------------------------------- -------------
Subtotal/Average.... $322,200 6.95% 7.12% 3.71
---------------------------------------- -------------
03/06/98............ $125,000 7.20% 7.86% 03/01/13 12.17 (3)
---------------------------------------- -------------
08/20/97............ $ 52,372 7.86% 7.91% 08/15/17 16.63 (4)
08/20/97............ 101,595 7.25 7.27 08/15/09 6.95 (5)
---------------------------------------- -------------
Subtotal/Average.... $153,967 7.46% 7.49% 10.24
---------------------------------------- -------------
03/31/97............ $ 20,000 7.50% 7.44% 04/01/07 8.25 (1)
03/31/97............ 30,000 8.05 8.04 04/01/17 18.25 (1)
---------------------------------------- -------------
Subtotal/Average.... $ 50,000 7.91% 7.85% 14.25
---------------------------------------- -------------
10/21/96............ $ 15,000 6.60% 7.03% 10/15/99 0.79 (1)
10/21/96............ 20,000 6.95 7.40 10/15/02 3.79 (1)
10/21/96............ 20,000 7.15 7.50 10/15/03 4.79 (1)
10/21/96............ 20,000 7.25 7.63 10/15/04 5.79 (1)
10/21/96............ 20,000 7.30 7.64 10/15/05 6.79 (1)
10/21/96............ 20,000 7.38 7.69 10/15/06 7.79 (1)
10/21/96............ 15,000 6.50 6.75 10/15/26 0.79 (6)
---------------------------------------- -------------
Subtotal/Average.... $130,000 7.35% 7.50% 4.64
---------------------------------------- -------------
</TABLE>
<PAGE>
EXHIBIT 99.2
<TABLE>
<CAPTION>
Average Principal
Outstanding Coupon Effective Interest Maturity Remaining Payment
Date of Issuance Principal Amount Rate Rate Date Life (Years) Requirement
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
08/06/96.............. $ 20,000 7.55% 7.68% 08/01/08 9.58 (1)
08/06/96.............. 20,000 7.63 7.73 08/01/09 10.58 (1)
08/06/96.............. 20,000 7.65 7.77 08/01/10 11.58 (1)
08/06/96.............. 20,000 8.10 8.21 08/01/15 16.58 (1)
08/06/96.............. 20,000 8.15 8.25 08/01/16 17.58 (1)
------------------------------------------------------ ----------------
Subtotal/Average...... $ 100,000 7.84% 7.95% 13.18
------------------------------------------------------ ----------------
02/23/96.............. $ 50,000 7.15% 7.30% 02/15/10 7.63 (7)
02/23/96.............. 100,000 7.90 8.03 02/15/16 15.13 (8)
------------------------------------------------------ ----------------
Subtotal/Average...... $ 150,000 7.71% 7.84% 12.63
------------------------------------------------------ ----------------
02/08/94.............. $ 100,000 6.88% 6.98% 02/15/08 5.63 (9)
02/08/94.............. 100,000 7.50 7.65 02/15/14 13.13 (10)
------------------------------------------------------ ----------------
Subtotal/Average...... $ 200,000 7.24% 7.37% 9.38
------------------------------------------------------ ----------------
Grand Total/Average... $1,231,167 7.34% 7.51% 8.69
====================================================== ================
</TABLE>
- ----------------
(1) Entire principal amount due at maturity.
(2) The $5.0 million and $50.0 million of notes were originally issued at
floating interest rates of 7.10% and 7.36%, respectively. In January 1999,
the notes were converted through interest rate swap agreements to fixed
interest rates of 6.87% and 7.14%, respectively.
(3) These notes require annual principal payments of $25.0 million commencing
in 2009.
(4) These notes require annual principal payments of $10.0 million commencing
in 2013.
(5) These notes require aggregate annual principal payments of $15.0 million in
2002, $12.5 million from 2003 to 2008 and $10.0 million in 2009.
(6) The 6.50% notes may be repaid on October 15, 1999 at the option of the
holders at their full principal amount together with accrued interest.
(7) These notes require aggregate annual principal payments of $6.25 million
commencing in 2003.
(8) These notes require aggregate annual principal payments of $10.0 million in
2011, $12.5 million in 2012, $15.0 million in 2013, $17.5 million in 2014,
$20.0 million in 2015 and $25.0 million in 2016.
(9) These notes require annual principal payments of $12.5 million commencing
in 2001.
(10) These notes require aggregate annual principal payments of $10.0 million in
2009, $12.5 million in 2010, $15.0 million in 2011, $17.5 million in 2012,
$20.0 million in 2013 and $25.0 million in 2014.
<PAGE>
EXHIBIT 99.3
Mortgages Payable
Mortgages payable at December 31, 1998 consisted of the following (dollar
amounts in thousands):
<TABLE>
<CAPTION>
Principal Balance at
Effective Scheduled Periodic Balloon December 31,
Interest Maturity Payment Payment Due -------------------------
Community Rate (1) Date Terms at Maturity 1998 1997
- ---------------- ----------- ------------ ----------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Conventional fixed rate:
La Tierra at the Lakes................... N/A% 12/01/98 (2) $ N/A $ - $ 25,560
Fairwood Landing......................... 8.75 12/21/99 (2) 5,501 5,621 5,730
Greenpointe.............................. N/A 03/01/00 (3) N/A - 3,574
Mountain Shadow.......................... N/A 03/01/00 (3) N/A - 3,282
Sunterra................................. N/A 03/01/00 (3) N/A - 7,991
Brompton Court........................... N/A 09/01/00 (3) N/A - 14,074
Country Place Village I.................. 6.71 11/01/00 (2) 1,849 1,967 -
Cameron Hidden Harbor.................... 6.86 05/12/01 (2) 4,869 5,475 -
Marina Lakes............................. N/A 07/19/01 (3) N/A - 13,338
Treat Commons............................ N/A 09/14/01 (3) N/A - 7,070
El Dorado Hills.......................... N/A 10/01/02 (3) N/A - 16,549
Knoxbridge............................... 7.63 07/01/03 (2) 14,741 15,650 -
Cameron at Hickory Grove................. 7.09 07/10/03 (2) 5,556 6,187 -
Shadowbluff.............................. 7.10 12/01/05 (2) 4,926 5,835 -
Victorian Village........................ 7.63 02/10/06 (4) 6,600 8,020 -
Cameron Palm Harbor...................... 7.10 11/01/06 (2) 4,661 5,622 -
Ashton Place............................. 8.25 10/01/23 (5) N/A 46,204 46,795
Cameron on the Cahaba II................. 7.67 03/01/29 (5) N/A 8,007 -
------------- ------------
108,588 143,963
------------- ------------
Tax-exempt fixed rate(6):
Cherry Creek............................. 8.03 11/01/01 (7) 2,780 3,598 3,750
Cameron Station.......................... 5.81 05/01/07 (2) 12,563 15,352 -
Redwood Shores........................... 5.74 10/01/08 (2) 16,820 24,280 24,770
Cloverland............................... 7.35 03/01/10 (2) 3,273 4,178 4,229
The Crossroads........................... 6.66 12/15/18 (8) 4,435 4,435 4,435
Carrington Place......................... 7.93 04/01/19 (5) N/A 3,444 3,510
Eden Commons............................. 7.88 03/01/25 (5) N/A 6,317 -
------------- ------------
61,604 40,694
------------- ------------
Tax-exempt floating rate(6):
River Meadows............................ 4.35 10/01/05 (9) 10,000 10,000 10,000
Seascape................................. 4.37 12/01/05 (9) 15,115 15,115 -
Apple Creek.............................. N/A 09/01/07 (3) N/A - 11,100
Amberwood at Bellevue.................... 4.79 07/01/13 (10) 3,702 5,102 -
La Jolla Point........................... 4.48 08/01/14 (2) 13,232 21,200 21,400
Oakridge................................. 4.59 06/01/15 (2) 10,650 13,050 -
Le Club.................................. 4.43 11/01/15 (9) 21,700 21,700 21,700
Carmel Del Mar........................... 4.43 12/01/15 (9) 13,608 13,608 -
Azalea Park.............................. 4.41 06/01/25 (5) N/A 15,179 -
Cameron Brook............................ 4.40 06/01/25 (5) N/A 18,950 -
Cameron Cove............................. 4.52 06/01/25 (5) N/A 8,259 -
Clairmont Crest.......................... 4.40 06/01/25 (5) N/A 11,273 -
Forestwood............................... 4.42 06/01/25 (5) N/A 11,158 -
Foxbridge on the Bay..................... 4.43 06/01/25 (5) N/A 10,109 -
Cameron Greens........................... 4.29 06/01/25 (5) N/A 10,107 -
Parrot's Landing I....................... 4.50 06/01/25 (5) N/A 15,386 -
Winters Creek............................ 4.52 06/01/25 (5) N/A 4,880 -
Fox Creek................................ 4.75 08/15/27 (11) N/A 4,240 4,240
------------- ------------
209,316 68,440
------------- ------------
</TABLE>
<PAGE>
EXHIBIT 99.3
<TABLE>
<CAPTION>
Other:
<S> <C> <C> <C> <C> <C> <C>
Las Flores(12)........................... 8.84 06/01/24 (5) N/A $ 5,726 $ 5,794
Mello-Roos bonds(13)..................... 5.65 Various (5) N/A 22,929 6,761
------------- -------------
28,655 12,555
------------- -------------
Fannie Mae Secured Debt(14).............. 6.12 01/01/06 (15) 268,450 268,450 -
---------- ------------- -------------
Total/Average.......................... 5.91% $676,613 $265,652
========== ============= =============
</TABLE>
(1) Represents the effective interest rate, including loan cost amortization
and other ongoing fees and expenses.
(2) Regular amortization with a balloon payment due at maturity.
(3) Mortgage was prepaid by Archstone or assumed by the buyer upon disposition
of the community.
(4) Apartment community has two notes; one note is interest only with a balloon
payment of $6.6 million and the second note is fully amortizing.
(5) Fully amortizing.
(6) Tax-exempt effective interest rates include credit enhancement and other
bond-related costs, where applicable.
(7) Tax-exempt nominal rate is 6.13%, 6.27%, 6.37 % and 6.47% for 1998, 1999,
2000 and 2001, respectively.
(8) Semi-annual payments are interest only until December 2003 at 5.4%, at
which time the interest rate is adjusted to the current market rate.
(9) Payments are interest only until maturity and the interest rate is adjusted
weekly or monthly.
(10) Requires annual principal payments of $100,000 each year until maturity.
(11) Payments are interest only until August 2007, at which time monthly
principal and interest payments commence in an amount sufficient to
amortize the balance over the remaining term.
(12) The bonds consist of $4.5 million Series A tax-exempt fixed rate bonds and
$1.7 million Series B taxable fixed rate bonds. The bonds are guaranteed
by the GNMA mortgage-backed securities program.
(13) Primarily represents bonded indebtedness associated with improvements to
public facilities and infrastructure in certain California taxing
jurisdictions known as "Mello-Roos districts." The bonds have a weighted-
average rate of 5.65% and mature at dates ranging from 2007 to 2027.
(14) The following apartment communities secure the Fannie Mae Secured Debt:
Canyon Creek, Pebble Cove, The Remington, Hunters' Run I & II, Monterey
Ranch II, Legacy Heights, Memorial Heights I & II, Miralago I, Scottsdale
Greens, Cameron Creek, Cameron Landing, Cameron Pointe, Cameron Matthews,
52 Magnolia, Waterford Point and Oaks at Fair Lakes.
(15) In connection with the closing of the $268.5 million Fannie Mae Secured
Debt agreement in December 1998, Archstone entered into an interest rate
cap agreement on December 30, 1998 with a notional amount aggregating
$118.5 million, which capped this portion of the debt at an effective
interest rate of 6.9% through December 2002. The actual floating effective
interest rate on the $118.5 million was 5.9% at December 31, 1998.
Additionally, Archstone entered into an interest rate swap agreement in
January 1999 for the remaining $150.0 million, which effectively provides
for a fixed interest rate of 6.3% until maturity in 2006.
