<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________.
Commission File Number 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 80112
Englewood, Colorado (Zip Code)
(Address of principal executive offices)
(303) 708-5959
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing for the past 90 days.
Yes X No
--- ---
At November 4, 1999, there were approximately 139,400,000 of the
Registrant's Common Shares outstanding.
<PAGE>
Archstone Communities Trust
Index
<TABLE>
<CAPTION>
Page
Number
-------------
PART I. Condensed Financial Information
Item I. Financial Statements
<S> <C> <C>
Condensed Balance Sheets - September 30, 1999 (unaudited) and December 31, 1998........... 3
Condensed Statements of Earnings - Three and nine months ended September 30, 1999 and 4
1998 (unaudited)..........................................................................
Condensed Statement of Shareholders' Equity - Nine months ended September 30, 1999 5
(unaudited)..............................................................................
Condensed Statements of Cash Flows - Nine months ended September 30, 1999 and 1998 6
(unaudited)..............................................................................
Notes to Condensed Financial Statements (unaudited)....................................... 7
Independent Accountants' Review Report.................................................... 15
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................ 22
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K.......................................................... 23
</TABLE>
2
<PAGE>
Archstone Communities Trust
Condensed Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
------ 1999 1998
------------- ------------
(unaudited)
<S> <C> <C>
Real estate......................................................................... $5,155,095 $4,869,801
Less accumulated depreciation....................................................... 277,428 205,795
---------- ----------
4,877,667 4,664,006
Mortgage notes receivable, net...................................................... 209,499 211,967
---------- ----------
Net investments.............................................................. 5,087,166 4,875,973
Cash and cash equivalents........................................................... 8,316 10,119
Restricted cash in tax-deferred exchange escrow..................................... 80,284 90,874
Other assets........................................................................ 123,939 82,932
---------- ----------
Total assets................................................................. $5,299,705 $5,059,898
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Unsecured credit facilities...................................................... $ 419,072 $ 264,651
Long-Term Unsecured Debt......................................................... 1,306,649 1,231,167
Mortgages payable................................................................ 713,673 676,613
Distributions payable............................................................ - 53,364
Accounts payable................................................................. 35,334 55,649
Accrued expenses and other liabilities........................................... 140,761 128,670
---------- ----------
Total liabilities............................................................ 2,615,489 2,410,114
---------- ----------
Minority interest................................................................... 45,565 21,459
---------- ----------
Shareholders' equity:
Series A Convertible Preferred Shares (3,796,790 shares in 1999 and 94,920 117,515
4,700,615 in 1998; stated liquidation preference of $25 per share)............
Series B Preferred Shares (4,200,000 shares; stated liquidation preference of $25 105,000 105,000
per share).....................................................................
Series C Preferred Shares (2,000,000 shares; stated liquidation preference of $25 50,000 50,000
per share).....................................................................
Series D Preferred Shares (2,000,000 shares; stated liquidation preference of $25 50,000 -
per share)....................................................................
Common Shares (139,677,185 shares in 1999 and 143,313,015 in 1998)............... 139,677 143,313
Additional paid-in capital....................................................... 2,306,104 2,376,514
Employee share purchase notes.................................................... (19,807) (26,275)
Distributions in excess of net earnings.......................................... (87,243) (137,742)
---------- ----------
Total shareholders' equity................................................... 2,638,651 2,628,325
---------- ----------
Total liabilities and shareholders' equity................................... $5,299,705 $5,059,898
========== ==========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
3
<PAGE>
Archstone Communities Trust
Condensed Statements of Earnings
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ----------------------
1999 1998 1999 1998
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rental revenues..................................................... $161,546 $151,516 $471,444 $331,621
Other income........................................................ 7,326 7,529 22,132 21,211
-------- -------- -------- --------
168,872 159,045 493,576 352,832
-------- -------- -------- --------
Expenses:
Rental expenses..................................................... 42,670 43,300 122,741 90,823
Real estate taxes................................................... 11,927 12,971 39,985 28,623
Depreciation on real estate investments............................. 32,742 31,903 96,989 64,276
Interest............................................................ 31,777 24,522 87,818 56,151
General and administrative.......................................... 5,958 5,136 16,462 10,999
Other............................................................... 437 3,252 4,475 6,652
-------- -------- -------- --------
125,511 121,084 368,470 257,524
-------- -------- -------- --------
Earnings from operations.............................................. 43,361 37,961 125,106 95,308
Gains on dispositions of depreciated real estate, net............... 27,909 21,204 46,887 36,688
-------- -------- -------- --------
Earnings before extraordinary item.................................... 71,270 59,165 171,993 131,996
Less: extraordinary items.......................................... - 1,497 1,113 1,497
-------- -------- -------- --------
Net earnings.......................................................... 71,270 57,668 170,880 130,499
Less: Preferred Share dividends.................................... 6,036 5,723 17,342 15,192
-------- -------- -------- --------
Net earnings attributable to Common Shares - Basic.................... $ 65,234 $ 51,945 $153,538 $115,307
======== ======== ======== ========
Weighted average Common Shares outstanding - Basic.................... 139,552 143,059 139,968 110,278
-------- -------- -------- --------
Weighted average Common Shares outstanding - Diluted.................. 145,473 150,600 139,997 117,168
-------- -------- -------- --------
Earnings before extraordinary item per Common Share:
Basic............................................................... $ 0.47 $ 0.37 $ 1.10 $ 1.06
======== ======== ======== ========
Diluted............................................................. $ 0.46 $ 0.37 $ 1.10 $ 1.06
======== ======== ======== ========
Net earnings per Common Share:
Basic............................................................... $ 0.47 $ 0.36 $ 1.10 $ 1.05
======== ======== ======== ========
Diluted............................................................. $ 0.46 $ 0.36 $ 1.10 $ 1.04
======== ======== ======== ========
Distributions paid per Common Share................................... $ 0.370 $ 0.355 $ 1.110 $ 1.035
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
4
<PAGE>
Archstone Communities Trust
Condensed Statement of Shareholders' Equity
Nine Months Ended September 30, 1999
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Series A
Convertible Series B Series C Series D
Preferred Preferred Preferred Preferred
Shares at Shares at Shares at Shares at Employee
aggregate aggregate aggregate aggregate Common Addtional share Distributions
liquidation liquidation liquidation liquidation Shares at paid-in purchase in excess of
preference preference preference preference par value capital notes net earnings Total
---------- ---------- ---------- ---------- --------- ------- --------- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1998.. $117,515 $105,000 $50,000 $ - $143,313 $2,376,514 $(26,275) $(137,742) $2,628,325
Comprehensive
income:
Net earnings...... - - - - - - - 170,880 170,880
Preferred Share
dividends paid... - - - - - - - (17,342) (17,342)
----------
Comprehensive
income attri-
butable to
Common Shares..... - - - - - - - - 153,538
----------
Common Share
distributions..... - - - - - - - (103,039) (103,039)
Repurchase of
shares, net
of expenses....... (750) - - - (5,129) (96,630) - - (102,509)
Issuance of
shares, net of
expenses.......... - - - 50,000 - (1,740) - - 48,260
Other, net......... (21,845) - - - 1,493 27,960 6,468 - 14,076
-------- -------- ------- ------- -------- ---------- -------- --------- ----------
Balances at
September 30,
1999............... $ 94,920 $105,000 $50,000 $50,000 $139,677 $2,306,104 $(19,807) $ (87,243) $2,638,651
======== ======== ======= ======= ======== ========== ======== ========= ==========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
5
<PAGE>
Archstone Communities Trust
Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Operating activities:
Net earnings.................................................................... $ 170,880 $ 130,499
Adjustments to reconcile net earnings to net cash flow provided by operating
activities:
Depreciation and amortization................................................. 97,814 64,470
Gains on dispositions of depreciated real estate, net......................... (46,887) (36,688)
Provision for possible loss on investments.................................... 2,000 3,000
Extraordinary items........................................................... 1,113 1,497
Change in accounts payable...................................................... (18,862) (3,955)
Change in accrued expenses and other liabilities................................ 10,973 10,430
Change in other assets.......................................................... (13,025) (15,362)
---------- ----------
Net cash flow provided by operating activities................................ 204,006 153,891
---------- ----------
Investing activities:
Real estate investments......................................................... (574,983) (437,543)
Proceeds from dispositions, net of closing costs................................ 375,409 221,177
Cash acquired in Atlantic Merger................................................ - 79,359
Change in tax-deferred exchange escrow.......................................... 10,590 (86,315)
Funding of convertible mortgage notes receivable................................ - (11,895)
Other, net...................................................................... 4,315 (362)
---------- ----------
Net cash flow used in investing activities.................................... (184,669) (235,579)
---------- ----------
Financing activities:
Proceeds from Long-Term Unsecured Debt.......................................... - 171,200
Proceeds from Fannie Mae secured debt........................................... 36,206 -
Debt issuance costs incurred.................................................... (5,586) (8,999)
Proceeds from bond refinancing.................................................. 16,000 -
Principal prepayment of mortgages payable....................................... (29,253) (39,950)
Regularly scheduled principal payments on mortgages payable..................... (4,241) (3,181)
Proceeds from unsecured credit facilities....................................... 1,117,163 768,529
Principal payments on unsecured credit facilities............................... (962,742) (716,048)
Proceeds from sale of Common Shares, net........................................ - 44,009
Repurchase of Common Shares..................................................... (102,509) -
Cash distributions paid on Common Shares........................................ (156,403) (114,726)
Cash dividends paid on Preferred Shares......................................... (17,342) (15,192)
Proceeds from sale of Series D Preferred Shares................................. 50,000 -
Proceeds from issuance of Series E and Series F Preferred Units................. 32,240 -
Other, net...................................................................... 5,327 358
---------- ----------
Net cash flow provided by (used in) financing activities...................... (21,140) 86,000
---------- ----------
Net change in cash and cash equivalents........................................... (1,803) 4,312
Cash and cash equivalents at beginning of period.................................. 10,119 4,927
---------- ----------
Cash and cash equivalents at end of period........................................ $ 8,316 $ 9,239
========== ==========
Significant non-cash investing and financing activities:
Assumption of mortgages payable upon purchase of apartment communities......... $ 94,562 $ 50,841
Series A Convertible Preferred Shares converted to Common Shares............... $ 21,845 $ 14,687
Bond refinancing (secured to unsecured)........................................ $ 59,715 $ -
Partnership units exchanged for Common Shares.................................. $ 7,012 $ -
Change in unrealized holding gain on convertible mortgage notes receivable..... $ - $(83,794)
</TABLE>
The accompanying notes are an integral part of the condensed
financial statements.
6
<PAGE>
Archstone Communities Trust
Notes to Condensed Financial Statements
September 30, 1999 and 1998
(Unaudited)
(1) General
In July 1998, Security Capital Pacific Trust consummated a merger with
Security Capital Atlantic Incorporated (the "Atlantic Merger") to form the
company now known as Archstone Communities Trust. The transaction was accounted
for as a purchase and therefore, the financial information as of and for the
periods prior to the merger date reflects only the balances and activity of
Security Capital Pacific Trust.
The condensed financial statements of Archstone are unaudited and certain
information and footnote disclosures normally included in financial statements
have been omitted. While management believes that the disclosures presented are
adequate, these interim financial statements should be read in conjunction with
the financial statements and notes included in Archstone's 1998 Annual Report on
Form 10-K ("1998 Form 10-K").
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary for a fair presentation of Archstone's
financial statements for the interim periods presented. The results of
operations for the three and nine month periods ended September 30, 1999 and
1998 are not necessarily indicative of the results to be expected for the entire
year.
The accounts of Archstone and its controlled subsidiaries are consolidated in
the accompanying condensed 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 generally
accepted accounting principles ("GAAP") required 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.
Reclassifications
Certain 1998 amounts have been reclassified to conform to the 1999
presentation.
Administrative Services Agreement
During the nine months ended September 30, 1999 and 1998, Archstone recorded
$4.4 million and $3.8 million ($5.2 million during this period in 1998 on a
combined basis including amounts recorded by Security Capital Atlantic
Incorporated prior to the Atlantic Merger), respectively, for services purchased
from an affiliate under an administrative services agreement.
7
<PAGE>
Archstone Communities Trust
Notes to Condensed Financial Statements - (Continued)
Per Share Data
Following is a reconciliation of the components used to compute basic and
diluted net earnings per share ("EPS") for the periods indicated (in thousands).
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- -------- --------
Reconciliation of numerator between basic and diluted
net earnings per Common Share:
<S> <C> <C> <C> <C>
Net earnings attributable to Common Shares - Basic........................... $65,234 $51,945 $153,538 $115,307
Dividends on Series A Preferred Shares..................................... 1,922 2,283 - 7,026
Minority interest.......................................................... 221 323 - -
Incremental options........................................................ 7 - 9 -
------- ------- -------- --------
Net earnings attributable to Common Shares - Diluted......................... $67,384 $54,551 $153,547 $122,333
======= ======= ======== ========
</TABLE>
Reconciliation of denominator between basic and diluted net earnings
per Common Share:
<TABLE>
<S> <C> <C> <C> <C>
Weighted average number of Common Shares outstanding - Basic................. 139,552 143,059 139,968 110,278
Assumed conversion of Series A Preferred Shares into Common Shares......... 5,290 6,625 - 6,878
Minority interest.......................................................... 598 908 - -
Incremental options outstanding............................................ 33 8 29 12
------- ------- -------- --------
Weighted average number of Common Shares outstanding - Diluted............... 145,473 150,600 139,997 117,168
======= ======= ======== ========
</TABLE>
(2) Real Estate
Investments in Real Estate
Equity investments in real estate, at cost, were as follows (dollar amounts
in thousands):
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
---------------------- ---------------------
Investment Units Investment Units
----------- ------- ----------- -------
<S> <C> <C> <C> <C>
Apartment communities:
Operating communities...................................................... $4,367,116 68,962 $4,027,044 69,341
Communities under construction(1).......................................... 556,710 7,974 701,897 12,120
Development communities in Planning(1) (2):
Owned................................................................... 64,486 2,520 69,710 3,398
Under Control(3)........................................................ - 2,696 - 3,772
---------- ------ ---------- ------
Total development communities In Planning............................. 64,486 5,216 69,710 7,170
---------- ------ ---------- ------
Total apartment communities........................................ 4,988,312 82,152 4,798,651 88,631
---------- ====== ---------- ======
Hotel asset.................................................................. 22,870 22,870
---------- ----------
Other real estate assets..................................................... 143,913 48,280
---------- ----------
Total real estate.................................................. $5,155,095 $4,869,801
========== ==========
</TABLE>
(1) Unit information is based on management's estimates and has not been
audited or reviewed by Archstone's independent accountants.
(2) "In Planning" is defined as parcels of land owned or Under Control upon
which construction of apartments is expected to commence within 36 months.
"Under Control" means Archstone has an exclusive right (through contingent
contract or letter of intent) during a contractually agreed-upon time
period to acquire land for future development of apartment communities at a
fixed prices, subject to approval of contingencies during the due diligence
process, but does not currently own the land. There can be no assurance
that such land will be acquired.
(3) Archstone's investment as of September 30, 1999 and December 31, 1998 for
developments Under Control was $5.5 million and $4.8 million, respectively,
and is reflected in the "Other assets" caption of Archstone's Balance
Sheets.
8
<PAGE>
Archstone Communities Trust
Notes to Condensed Financial Statements - (Continued)
The change in investments in real estate, at cost, consisted of the
following (in thousands):
<TABLE>
<S> <C>
Balance at January 1, 1999...................................................... $4,869,801
Apartment communities:
Acquisition-related expenditures......................................... 259,766
Redevelopment expenditures............................................... 50,288
Recurring capital expenditures........................................... 9,786
Development expenditures, excluding land acquisitions.................... 275,033
Acquisition and improvement of land for development...................... 41,492
Dispositions............................................................. (378,982)
Provision for possible loss on investments............................... (450)
----------
Net apartment community activity...................................... 5,126,734
Other:
Change in other real estate assets....................................... 31,087
Provision for possible loss on investments............................... (1,550)
Dispositions............................................................. (1,176)
----------
Other, net............................................................ 28,361
----------
Balance at September 30, 1999................................................... $5,155,095
==========
</TABLE>
At September 30, 1999, Archstone had unfunded apartment construction,
redevelopment and operating community acquisition commitments aggregating
approximately $311.4 million.
Archstone had 24 apartment communities and certain other real estate assets
under contract for sale or letter of intent with an aggregate carrying value of
$303.7 million as of September 30, 1999. 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 September 30, 1999, were $15.0 million
and $15.1 million for the nine months ended September 30, 1999 and 1998,
respectively.
During the three months ended March 31, 1999, Archstone concluded that the
full recovery of certain real estate assets was doubtful. As a result, a
provision for possible loss of $2.0 million was recorded to reduce these assets
to their estimated net realizable value. A similar provision of $3.0 million
($2.3 million of which related to certain mortgage notes receivable secured by
other real estate assets) was recorded during the six months ended June 30,
1998.
(3) Borrowings
Unsecured Credit Facilities
Archstone has a $750 million unsecured revolving line of credit provided by
a group of financial institutions led by Chase Bank of Texas, National
Association ("Chase"). The $750 million line of credit matures in July 2001, at
which time it may be converted into a two-year term loan at Archstone's option.
The line of credit bears interest at the greater of prime or the federal funds
rate plus 0.50% or at Archstone's option, LIBOR (5.38% at September 30, 1999)
plus 0.65%. Under a competitive bid option contained in the credit agreement,
Archstone may be able to borrow at a lower interest rate spread over LIBOR,
depending on market conditions, on up to $375 million of borrowings. Under the
agreement, Archstone pays a facility fee, which is equal to 0.15% of the
commitment.
The following table summarizes Archstone's line of credit borrowings
(dollars in thousands):
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1999 December 31, 1998
------------------- ------------------
<S> <C> <C>
Total line of credit................................................. $750,000 $750,000
Borrowings outstanding at end of period.............................. $399,000 $234,000
Weighted average daily borrowings.................................... $367,722 $340,658
Weighted average daily nominal interest rate......................... 5.8% 6.3%
Weighted average daily effective interest rate....................... 6.3% 6.8%
Weighted average nominal interest rate at end of period.............. 6.0% 6.2%
</TABLE>
9
<PAGE>
Archstone Communities Trust
Notes to Condensed Financial Statements - (Continued)
Archstone's $100 million short-term, unsecured borrowing agreement with
Chase bears interest at an overnight rate that ranged from 5.44% to 6.25% during
the nine months ended September 30, 1999. At September 30, 1999, there was $20.1
million outstanding under this agreement.
Long-Term Unsecured Debt
A summary of Archstone's long-term unsecured notes and unsecured tax-exempt
bonds (collectively, "Long-Term Unsecured Debt") outstanding at September 30,
1999 follows (amounts in thousands):
<TABLE>
<CAPTION>
Effective Balance at Balance at Average
Coupon Interest September 30, December 31, Remaining
Type of Debt Rate (1) Rate (2) 1999 1998 Life
- ---------------------------------- ------------ ------------ ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Long-term unsecured notes(3)...... 7.3% 7.5% $1,230,934 $1,231,167 7.9
Unsecured tax-exempt bonds(4)..... 3.9% 4.3% 75,715 - 8.7
---- ---- ---------- ---------- ---
Total/average................... 7.1% 7.3% $1,306,649 $1,231,167 8.0
==== ==== ========== ========== ===
</TABLE>
(1) Represents a fixed rate for the long-term unsecured notes and a variable
rate for the unsecured tax-exempt bonds. See "Derivative Financial
Instruments".
(2) Represents the effective interest rate, including loan cost amortization
and other ongoing fees and expenses.
(3) Archstone's long-term unsecured notes generally have semi-annual interest
payments and either amortizing annual principal payments or balloon
payments due at maturity--see "Scheduled Debt Maturities".
(4) Includes $60.6 million issued on June 29, 1999 and $15.1 million issued on
July 28, 1999.
Mortgages Payable
Archstone's mortgages payable generally have either monthly interest and
principal payments or monthly interest-only payments with balloon payments due
at maturity (see "Scheduled Debt Maturities"). A summary of all mortgages
payable outstanding at September 30, 1999 follows (amounts in thousands):
<TABLE>
<CAPTION>
Effective Interest Principal Balance at Principal Balance at
Type of Mortgage Rate (1) September 30, 1999 December 31, 1998
- -------------------------------------------------- ------------------ -------------------- ---------------------
<S> <C> <C> <C>
Fannie Mae secured debt........................... 6.2% $304,496 $268,450
Conventional fixed rate........................... 7.9 116,774 108,588
Tax-exempt fixed rate............................. 6.6 67,331 61,604
Tax-exempt floating rate.......................... 4.4 196,865 209,316
Other............................................. 6.3 28,207 28,655
---- -------- --------
Total/average mortgage debt..................... 6.1% $713,673 $676,613
==== ======== ========
</TABLE>
(1) Includes the effect of interest rate hedges, credit enhancement fees, other
bond-related costs and loan cost amortization, where applicable, as of
September 30, 1999.
The change in mortgages payable during the nine months ended September 30,
1999 consisted of the following (in thousands):
<TABLE>
<S> <C>
Balance at January 1, 1999............................................................. $676,613
Mortgage notes issued/assumed.......................................................... 130,768
Bond refinancing....................................................................... (59,715)
Principal payments, including prepayments and amortization............................. (33,993)
--------
Balance at September 30, 1999.......................................................... $713,673
========
</TABLE>
10
<PAGE>
Archstone Communities Trust
Notes to Condensed Financial Statements - (Continued)
Scheduled Debt Maturities
Approximate principal payments due during each of the next five calendar
years and thereafter, as of September 30, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Long-Term Mortgages
Unsecured Debt Payable Total
-------------- ------------- ----------
<S> <C> <C> <C>
1999 /(1)/...................................... $ 30,077 $ 6,696 $ 36,773
2000............................................ 75,310 7,665 82,975
2001............................................ 70,010 13,523 83,533
2002............................................ 97,810 6,025 103,835
2003............................................ 171,560 26,640 198,200
Thereafter...................................... 861,882 653,124 1,515,006
---------- -------- ----------
Total............................. $1,306,649 $713,673 $2,020,322
========== ======== ==========
</TABLE>
(1) On October 15, 1999, Archstone repaid $30 million of Long-Term
Unsecured Debt.
The average annual principal payments due from 2004 to 2018 are $96.3
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.
Derivative Financial Instruments
Archstone has limited involvement with derivative financial instruments and
does not use them for trading purposes. Archstone occasionally utilizes
derivative financial instruments in anticipation of future debt transactions to
hedge well-defined interest rate risk or to manage exposure to variable rate
debt.
On July 28, 1999, Archstone entered into an interest rate swap agreement
with a notional amount of $15.1 million, relating to unsecured tax-exempt bonds
carrying a fixed interest rate of 5.3% per annum. The $15.1 million swap
effectively provides for a floating interest rate through the bond mandatory
tender date of June 1, 2008, at which time the agreement terminates. The actual
floating effective interest rate at September 30, 1999, was 4.1% per annum.
On June 29, 1999, Archstone entered into an interest rate swap agreement
with a notional amount of $60.6 million, relating to unsecured tax-exempt bonds
carrying a fixed interest rate of 5.3% per annum. The $60.6 million swap
effectively provides for a floating interest rate through the bond mandatory
tender date of June 1, 2008, at which time the agreement terminates. The actual
floating effective interest rate at September 30, 1999, was 4.3% per annum.
On May 12, 1999, Archstone entered into an interest rate swap agreement
with a notional amount of $36.3 million, relating to secured tax-exempt bonds
carrying a fixed interest rate of 9.0% per annum. The $36.3 million swap
effectively provides for a floating interest rate through the bond maturity date
of May 1, 2004, at which time the agreement terminates. The actual floating
effective interest rate at September 30, 1999, was 4.6% per annum.
On April 13, 1999, Archstone entered into an interest rate swap agreement
with a notional amount of $100 million, relating to a portion of the outstanding
balance on its $750 million unsecured line of credit. The $100 million swap
effectively provides for a fixed interest rate of 5.9% through April 13, 2000,
at which time the agreement terminates. The effective interest rate on
Archstone's unsecured line of credit, including the effect of the hedge, was
6.3% per annum as of September 30, 1999.
On January 21, 1999, Archstone entered into two interest rate swap
agreements with notional amounts aggregating $55.0 million, relating to Long-
Term Unsecured Debt. The $55.0 million of notes, which were originally issued at
a floating weighted average effective interest rate of 7.3%, were effectively
converted to a fixed weighted average interest rate of 7.1% through maturity.
11
<PAGE>
Archstone Communities Trust
Notes to Condensed 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 at September 30, 1999, was 6.0% per annum. Additionally
in January 1999, Archstone entered into an interest rate swap on the remaining
$150 million, which was originally issued at a floating weighted average
interest rate of 5.9% per annum. The swap effectively provides for a fixed
interest rate of 6.3% until maturity in 2006.
As of September 30, 1999, marking Archstone's various interest rate
agreements to market would result in a net gain of $12.9 million, if each had
been terminated on such date.
General
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 financial covenants pertaining to its debt instruments at
September 30, 1999.
For the nine months ended September 30, 1999 and 1998, the total interest
paid in cash on all outstanding debt was $114.2 million and $75.0 million,
respectively. Archstone capitalizes interest incurred during the construction
period as part of the cost of apartment communities under development. Interest
capitalized during the nine months ended September 30, 1999 and 1998 was $25.4
million and $20.8 million, respectively.
Amortization of loan costs included in interest expense for the nine months
ended September 30, 1999 and 1998 was $3.7 million and $2.4 million,
respectively.
(4) Mortgage Notes Receivable
In May 1999, Homestead Village Incorporated consummated a common share
rights offering and, in accordance with the terms of the agreement governing
Archstone's convertible mortgage notes receivable, the conversion ratio of the
notes was adjusted. The notes are convertible into Homestead common stock on the
basis of one share of Homestead common stock for every $10.44 of principal face
amount outstanding. Previously the conversion ratio was $11.50. As a result of
this lower conversion ratio, Archstone has the right to convert its Homestead
notes into 1,944,860 additional Homestead common shares, for a total of
21,191,262 Homestead common shares.
(5) Minority Interest
In August 1999, a consolidated subsidiary of Archstone issued 520,000
Series E Cumulative Redeemable Perpetual Preferred units ("Series E Preferred
Units") to a limited partnership in exchange for $13.0 million ($25 per unit).
The Series E Preferred Units pay cumulative quarterly dividends of $0.5234 per
share ($2.09375 or 8.375% per annum), are redeemable at Archstone's option after
August 13, 2004 and are convertible into Archstone Series E Cumulative
Redeemable Perpetual Preferred shares on or after August 13, 2009.
In September 1999, a consolidated subsidiary of Archstone issued 800,000
Series F Cumulative Redeemable Perpetual Preferred units ("Series F Preferred
Units") to a limited partnership in exchange for $20.0 million ($25 per unit).
The Series F Preferred Units pay cumulative quarterly dividends of $0.5078 per
share ($2.03125 or 8.125% per annum), are redeemable at Archstone's option after
September 27, 2004 and are convertible into Archstone Series F Cumulative
Redeemable Perpetual Preferred shares on or after September 27, 2009.
The total net proceeds of $32.2 million were used to repay borrowings under
Archstone's unsecured credit facilities. The Series E and Series F Preferred
Units are reflected as minority interest in the accompanying Condensed Balance
Sheet.
12
<PAGE>
Archstone Communities Trust
Notes to Condensed Financial Statements - (Continued)
(6) Cash Distributions/Dividends
Archstone paid first, second and third quarter 1999 distributions of $0.37
per Archstone Common Share of Beneficial Interest, par value $1.00 per share
("Common Share"), on February 26, May 28, and August 27, 1999, respectively. On
October 22, 1999, Archstone's Board of Trustees (the "Board") declared the
fourth quarter 1999 cash distribution of $0.37 per Common Share, payable on
November 30, 1999, to shareholders of record on November 15, 1999. On March 31,
June 30, and September 30, 1999, Archstone paid quarterly dividends of $0.4984
per Cumulative Convertible Series A Preferred Share of Beneficial Interest (the
"Series A Convertible Preferred Shares"), $0.5625 per Series B Cumulative
Redeemable Preferred Share of Beneficial Interest (the "Series B Preferred
Shares") and $0.5391 per Series C Cumulative Redeemable Preferred Share of
Beneficial Interest (the "Series C Preferred Shares"). On September 30, 1999,
Archstone also paid a prorated quarterly dividend of $0.3342 per Series D
Cumulative Redeemable Preferred Share of Beneficial Interest (the "Series D
Preferred Shares"). Collectively, the Series A Convertible Preferred Shares,
Series B Preferred Shares, Series C Preferred Shares and Series D Preferred
Shares are referred to as the "Preferred Shares".
(7) Shareholders' Equity
On August 6, 1999, Archstone sold 2,000,000 Series D Preferred Shares at
$24.2125 per share (after underwriters' commissions) in an underwritten public
offering. The Series D Preferred Shares have a liquidation preference of $25 per
share and were issued to yield $2.1875 or 8.75% per annum, payable quarterly.
The net proceeds of approximately $48.3 million (net of underwriting and
offering costs) were used to repay borrowings under Archstone's unsecured credit
facilities.
In February 1999, the Board authorized the repurchase of up to $100 million
of Archstone's Common Shares. At the conclusion of the program in July 1999,
Archstone had repurchased 5.04 million of its Common Shares at a weighted
average price of $19.78 per share, for a total purchase price of $100.0 million.
In September 1999, the Board authorized an additional repurchase of up to $50
million of Archstone's Common Shares. As of September 30, 1999, Archstone had
repurchased 127,000 of its Common Shares in the $50 million share repurchase
program at a weighted average price of $19.72 per share for a total purchase
price of $2.5 million. Proceeds from apartment community dispositions were used
to reduce Archstone's unsecured credit facilities, providing the capacity to
fund the share purchases.
During the nine months ended September 30, 1999, approximately 335,500 of
Series A Convertible Preferred Shares were converted, at the option of the
holders, into approximately 451,900 Common Shares. In addition, 314,700
partnership units, in a partnership of which Archstone is the sole general
partner, were exchanged for 314,700 Common Shares. The activity is included in
"Other, net" in the accompanying Condensed Statement of Shareholders' Equity.
At September 30, 1999, Security Capital Group Incorporated, Archstone's
largest shareholder, owned approximately 39% of Archstone's Common Shares
outstanding.
(8) Segment Data
During 1998, Archstone adopted Statement of Financial Accounting Standards
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 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 ("NOI") (defined as rental
revenues less property operating expenses and real estate taxes) for purposes of
making decisions about allocating resources and assessing segment performance.
13
<PAGE>
Archstone Communities Trust
Notes to Condensed Financial Statements - (Concluded)
Following are reconciliations of the reportable segment's: (i) revenues to
Archstone's consolidated revenues and (ii) NOI to Archstone's consolidated
earnings from operations (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------------
1999 1998 1999 1998
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Reportable apartment community segment revenues.................. $160,377 $149,836 $468,515 $327,283
Other non-reportable operating segment revenues/(1)/............. 8,495 9,209 25,061 25,549
-------- --------- ---------- ----------
Total segment and consolidated revenues.......................... $168,872 $159,045 $493,576 $352,832
======== ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Reportable apartment community segment Net Operating Income...... $105,773 $ 93,831 $305,799 $208,406
Other non-reportable operating segment Net Operating Income...... 1,176 1,414 2,919 3,769
-------- -------- -------- --------
Total segment Net Operating Income.......................... $106,949 95,245 $308,718 $212,175
-------- -------- -------- --------
Reconciling items:
Other income................................................ 7,326 7,529 22,132 21,211
Depreciation on real estate investments..................... (32,742) (31,903) (96,989) (64,276)
Interest expense............................................ (31,777) (24,522) (87,818) (56,151)
General and administrative expenses......................... (5,958) (5,136) (16,462) (10,999)
Other expenses.............................................. (437) (3,252) (4,475) (6,652)
-------- -------- -------- --------
Consolidated earnings from operations............................ $ 43,361 $ 37,961 $125,106 $ 95,308
======== ======== ======== ========
</TABLE>
(1) Includes $17.6 million and $17.1 million of interest income on the
convertible mortgage notes receivable for the nine months ended September
30, 1999 and 1998, respectively. Also includes revenues generated from the
operation or sale of other real estate assets, interest income and other
income.
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.
14
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Trustees and Shareholders
of Archstone Communities Trust
We have reviewed the accompanying condensed balance sheet of Archstone
Communities Trust as of September 30, 1999, the related condensed statements of
earnings for the three and nine month periods ended September 30, 1999 and 1998,
the condensed statement of shareholders' equity for the nine month period ended
September 30, 1999 and the condensed statements of cash flows for the nine month
periods ended September 30, 1999 and 1998. These condensed financial statements
are the responsibility of the Trust's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed financial statements referred to above for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Archstone Communities Trust as of December 31,
1998, and the related statements of earnings, shareholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
January 22, 1999, except as to Note 15, which is as of March 5, 1999, we
expressed an unqualified opinion on those financial statements. In our opinion,
the information set forth in the accompanying condensed balance sheet as of
December 31, 1998 is fairly stated, in all material respects, in relation to the
balance sheet from which it has been derived.
KPMG LLP
Chicago, Illinois
October 25, 1999
15
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following information should be read in conjunction with Archstone's 1998
Form 10-K as well as the financial statements and notes included in Item 1 of
this report. The statements contained in this report that are not historical
facts are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities and Exchange Act of
1934. These forward-looking statements are based on current expectations 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. Except for its ongoing obligations to disclose material information
as required by the federal securities laws, Archstone undertakes no obligation
to update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise. See Archstone's 1998 Form 10-K "Item 1.
Business" for a discussion of risk factors that could impact Archstone's future
financial performance.
Results of Operations
Three and Nine Months Ended September 30, 1999 Compared to September 30, 1998
Net earnings attributable to Common Shares for the three months ended
September 30, 1999 and 1998 were $65.2 million and $51.9 million, respectively,
an increase of $13.3 million (25.6%). This net increase resulted from a $5.4
million increase in earnings from operations, a $6.7 million increase in net
gains on dispositions of depreciated real estate and a $1.5 million
extraordinary item related to the write-off of unamortized loan costs in 1998.
The increases were partially offset by a $0.3 million increase in Preferred
Share dividends.
Net earnings attributable to Common Shares for the nine months ended September
30, 1999 and 1998 were $153.5 million and $115.3 million, respectively, an
increase of $38.2 million (33.2%). This net increase resulted from a $29.8
million increase in earnings from operations and a $10.2 million increase in net
gains on dispositions of depreciated real estate. The increases were partially
offset by a $2.2 million increase in Preferred Share dividends. The Atlantic
Merger, which was consummated in July 1998, contributed to higher revenues and
operating expenses for the nine months ended September 30, 1999 as compared to
the same period in the prior year.
Apartment Community Operations
At September 30, 1999, investments in apartment communities comprised over 99%
of Archstone's total real estate portfolio, based on total expected investment.
The following table summarizes the NOI generated from Archstone's apartment
communities for each period (in thousands, except for units and percentages):
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------------------------------------------------------
1999 1998 Increase 1999 1998 Increase
-------- -------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Rental revenues......................... $160,377 $149,836 7.0% $468,515 $327,283 43.2%
Property operating expenses:
Rental expenses........................ 42,686 43,076 (0.9)% 122,740 90,381 35.8%
Real estate taxes...................... 11,918 12,929 (7.8)% 39,976 28,496 40.3%
-------- -------- ------ --------- -------- -----
Total property operating expenses..... 54,604 56,005 (2.5)% 162,716 118,877 36.9%
-------- -------- ------ --------- -------- -----
Net operating income.................... $105,773 $ 93,831 12.7% $305,799 $208,406 46.7%
======== ======== ====== ========= ======== =====
Operating margin 66.0% 62.6% 3.4% 65.3% 63.7% 1.6%
(NOI/rental revenues)................... ======== ======== ====== ========= ======== =====
Average number of operating units....... 68,957 67,396 2.3% 68,999 50,998 35.3%
======== ======== ====== ========= ======== =====
</TABLE>
The increase in net operating income for the three months ended September 30,
1999 compared to the three months ended September 30, 1998 is attributable to an
increase in rental revenues from operating communities and the successful lease-
up of development communities. A key component of Archstone's strategy is the
redeployment of capital from non-core secondary markets to supply-constrained,
high-growth markets, such as Northern and Southern California; Boston,
Massachusetts; Chicago, Illinois; and Minneapolis, Minnesota, which typically
command higher rental rates and more stable revenue growth. During the quarter
ended September 30, 1999, Archstone's 164 operating communities (48,726 units)
which have been in operation since July 1, 1998 produced NOI growth of 4.4% as
compared to the same period in 1998. A decrease in real estate taxes also
contributed to the increase in net operating
16
<PAGE>
income as a result of successful challenges to property tax assessments in
certain tax jurisdictions. The slight decrease in rental expenses is due to
expense controls, including increased levels of utility reimbursements from
residents.
The increase in net operating income for the nine months ended September 30,
1999 and September 30, 1998 is generally due to the same factors noted above for
the three months, coupled with an increase in operating communities due to the
Atlantic Merger. Archstone's 140 communities (41,766 units) which have been in
operation since January 1, 1998, posted NOI growth of 5.2% for the first nine
months of 1999 as compared to the same period of 1998. This growth in NOI was
driven primarily by strong revenue growth in several of Archstone's target
markets, including Northern and Southern California; Washington, D.C.; and
Denver, Colorado, combined with a slight reduction in expenses. Increased
operating efficiencies and Archstone's commitment to customer-focused operations
have contributed to the improvement in NOI.
Approximately 85.7% and 83.4% of Archstone's operating portfolio was
classified as stabilized (meaning that development/redevelopment, new marketing
programs and possibly new management have been completed for a sufficient period
of time to achieve 93% occupancy at market rents) as of September 30, 1999 and
1998, respectively. The full impact on NOI from Archstone's development
activities and, to a lesser extent, acquisition activities, is not reflected
until after the communities are stabilized. As newly developed buildings are
completed and leased, NOI increases until the overall community is producing a
stabilized yield, which is generally achieved 18 to 24 months after construction
commences. Management believes Archstone's operating results continue to
demonstrate that its development activities contribute positively to long-term
performance of the company.
Management believes that future property operating results will be positively
impacted by Archstone's customer focused operating initiatives and its national
branding strategy. This strategy was designed to increase customer loyalty and
reduce turnover rates through quality service guarantees and other similar
initiatives .
Depreciation Expense
The increase in depreciation expense for the three months ended September 30,
1999 compared to September 30, 1998 is primarily due to the increase in the cost
basis of operating communities as a result of Archstone's active capital
redeployment program. The increase in depreciation expense for the nine months
ended September 30, 1999 compared to September 30, 1998 resulted primarily from
an increase in the number of operating communities due to the Atlantic Merger.
The increases were partially offset by dispositions.
Interest Expense
The increase in interest expense is 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. Capitalized
interest decreased in the third quarter of 1999, relative to the same period in
1998, due to more completions and lower development expenditures. Interest
expense is expected to be higher in 1999 as compared to 1998 primarily due to
the debt assumed in the Atlantic Merger and the additional debt issued in 1998
and 1999.
General and Administrative Expenses
The overall increases in general and administrative expenses for the three and
nine months ended September 30, 1999 compared to the same period in 1998 relate
in part to the costs incurred in expanding into new markets such as Boston,
Massachusetts; Chicago, Illinois; and Minneapolis, Minnesota, and the costs
related to the development of customer-service and technology initiatives,
including internet and telecommunication services being offered to customers.
The increase in general and administrative expenses for the nine months ended
September 30, 1999 compared to September 30, 1998 is also attributable to the
incremental costs associated with operating the company after the Atlantic
Merger.
Provision for Possible Loss on Investments
In March 1999, management concluded that the full recovery of certain real
estate investments was doubtful. As a result, a provision for possible loss of
$2.0 million, which is included in "Other" in the accompanying Condensed
Statements of Earnings, was recorded to reduce these assets to their estimated
net realizable value. A similar provision of $3.0 million ($2.3 million of which
related to certain mortgage notes receivable secured by other real estate
assets) was recorded in June 1998.
17
<PAGE>
Gains on Dispositions of Depreciated Real Estate
During the three months ended September 30, 1999, Archstone disposed of 15
apartment communities and certain other real estate assets, representing gross
proceeds of $215.3 million. Archstone disposed of six apartment communities and
certain other real estate assets, representing gross proceeds of $122.4 million
during the three months ended September 30, 1998. Aggregate net gains of $27.9
million and $21.2 million were recorded for the three months ended September
1999 and 1998, respectively.
During the nine months ended September 30, 1999, Archstone disposed of 30
apartment communities and certain other real estate assets, representing gross
proceeds of $413.8 million. Archstone disposed of 11 apartment communities and
certain other real estate assets, representing gross proceeds of $223.5 million
during the nine months ended September 30, 1998. Aggregate net gains of $46.9
million and $36.7 million were recorded for the nine months ended September 30,
1999 and 1998, respectively.
As part of its ongoing asset optimization strategy, Archstone had 24 apartment
communities and certain other real estate assets under contract or letter of
intent for sale with an aggregate carrying value of $303.7 million as of
September 30, 1999. Subject to normal closing risks, Archstone expects to
complete these and other dispositions during 1999 or the first quarter of 2000,
and use the proceeds to fund future investment opportunities and repay
borrowings on Archstone's credit facilities. As part of management's long-term
strategy of proactively managing its investments, Archstone intends to continue
to pursue favorable opportunities to dispose of assets that do not meet its
long-term investment criteria, and to use such proceeds for incremental
investments in its specifically targeted markets, including Washington, D.C.;
Boston, Massachusetts; Chicago, Illinois; Minneapolis, Minnesota; and selected
markets in California.
Preferred Share Dividends
The higher level of Preferred Share dividends for the three months ended
September 30, 1999 compared to September 30, 1998, is attributable to the
issuance of the Series D Preferred Shares on August 6, 1999. The higher level of
Preferred Share dividends for the nine months ended September 30, 1999 compared
to September 30, 1998, is attributable to the assumption of the Series C
Preferred Shares in the Atlantic Merger, an increase in the Series A Convertible
Preferred Share dividend rate, and the issuance of the Series D Preferred
Shares. The increases are partially offset by conversions of Series A
Convertible Preferred Shares into Common Shares.
Liquidity and Capital Resources
Archstone is committed to preserving its strong balance sheet and maintaining
financial flexibility. Archstone proactively manages its financial position with
the objective of having access to capital when many in the industry are unable
to fund incremental investment opportunities. Archstone seeks to take advantage
of compelling investment opportunities that are more likely to emerge in a
capital-constrained environment.
Archstone continues to focus on community dispositions in its non-core markets
as a source of funds for incremental strategic investments in its targeted
markets, which include Northern and Southern California; Washington, D.C.;
Boston, Massachusetts; Chicago, Illinois; and Minneapolis, Minnesota.
Additionally, during the third quarter of 1999, Archstone issued $50 million of
Series D Preferred Shares, and subsidiaries of Archstone issued $13 million of
Series E Preferred Units and $20 million of Series F Preferred Units. The net
proceeds from these capital-raising activities aggregated approximately $80.5
million. After using these proceeds to repay borrowings on its unsecured credit
facilities, Archstone had approximately $373.6 million of undrawn capacity on
its unsecured credit facilities to fund incremental investment opportunities on
November 4, 1999. As of September 30, 1999, the Company had only $112.3 million
of debt with final maturities in 1999 and 2000, excluding its unsecured credit
facilities. Additionally, Archstone has $4.1 billion of unencumbered assets.
Accordingly, Archstone believes its financial and liquidity position are
relatively strong and it is well positioned to capitalize on investment
opportunities that may arise during the remainder of 1999 and 2000.
Operating Activities
Net cash flow provided by operating activities increased by $50.1 million
(32.6%) for the nine months ended September 30, 1999 as compared to the same
period of 1998. This increase in cash flow is due primarily to operating
communities acquired in the Atlantic Merger in July 1998, newly developed
apartment communities coming on line and
18
<PAGE>
cash flow growth from existing apartment communities.
Investing and Financing Activities
During the nine months ended September 30, 1999 and 1998, Archstone invested
$575.0 million and $437.5 million, respectively, in real estate investments. The
$575.0 million invested in real estate and the repurchase of $102.5 million of
Common Shares during the nine months ended September 30, 1999 were financed
primarily from property dispositions, tax-deferred exchange escrow proceeds,
cash flow from operations, proceeds from preferred share and preferred share
unit issuances, and additional borrowings. The $437.5 million invested in real
estate during the nine months ended September 30, 1998 was financed primarily
from property dispositions, tax-deferred exchange proceeds, cash flow from
operations and borrowings under Archstone's unsecured credit facilities. These
unsecured credit facilities were partially repaid with proceeds from the
issuance of $171.2 million of Long-Term Unsecured Debt during the period.
Other significant financing activities included the payment of $173.7 million
and $129.9 million in Common Share and Preferred Share distributions for the
nine months ended September 30, 1999 and 1998, respectively. The increases are
primarily attributable to an increase in the overall number of Common Shares
outstanding, Series C Preferred Shares assumed in the Atlantic Merger in 1998,
the issuance of the Series D Preferred Shares and an increase in the cash
distributions paid per Common Share. Archstone prepaid mortgages of $29.3
million and $40.0 million during the nine months ended September 30, 1999 and
1998, respectively.
Archstone's significant non-cash investing and financing activities during the
nine months ended September 30, 1999 and 1998 included the assumption of
mortgage debt relating to operating community acquisitions, and the conversion
of Series A Convertible Preferred Shares into Common Shares.
Scheduled Debt Maturities and Line of Credit Balances
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. On October 15, 1999, Archstone repaid $30.0 million of Long-Term
Unsecured Debt. After giving effect to this repayment, Archstone has only $5.5
million of long-term debt payments with final maturities due during the
remainder of 1999 and only $76.8 million of final maturities during 2000.
Archstone currently has $850 million in total borrowing capacity under its
unsecured credit facilities, with $476.4 million outstanding and an available
balance of $373.6 million on November 4, 1999. Archstone's unsecured credit
facilities, Long-Term Unsecured Debt and mortgages payable had effective
interest rates of 6.3%, 7.3% and 6.1% respectively, as of September 30, 1999.
Shareholder Dividend/Distribution Requirements
Based on current distribution levels (excluding the impact of anticipated
future increases in Archstone's dividend/distribution levels) and the number of
Archstone shares outstanding as of September 30, 1999, the company anticipates
that it will pay the following dividends/distributions during the next 12 months
(in thousands):
<TABLE>
<S> <C>
Common Share distributions..................................... $206,722
Series A Convertible Preferred Share dividends................. 7,569
Series B Preferred Share dividends............................. 9,450
Series C Preferred Share dividends............................. 4,312
Series D Preferred Share dividends............................. 4,375
Series E Preferred Unit distributions.......................... 1,089
Series F Preferred Unit distributions.......................... 1,625
Other distributions on minority interests...................... 885
--------
Total dividend/distribution requirements....................... $236,027
========
</TABLE>
19
<PAGE>
Share Repurchase Program
In February 1999, the Board authorized the repurchase of up to $100 million of
Archstone's Common Shares. At the conclusion of the program in July 1999,
Archstone had repurchased 5.04 million of its Common Shares at a weighted
average price of $19.78 per share, for a total purchase price of $100.0 million.
In September 1999, the Board authorized an additional repurchase of up to $50
million of Archstone's Common Shares. As of November 4, 1999, Archstone had
repurchased 405,100 of its Common Shares in the $50 million share repurchase
program at a weighted average price of $19.80 per share for a total purchase
price of $8.0 million. Proceeds from apartment community dispositions were used
to reduce Archstone's unsecured credit facilities, providing the capacity to
fund the share repurchases.
Planned Investments
Following is a summary of unfunded planned investments as of September 30,
1999 (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. For
community acquisitions under contract, only the transactions with non-refundable
earnest money are reflected as "Committed".
<TABLE>
<CAPTION>
Planned Investments
----------- ---------------------------
Units Discretionary Committed
----------- ------------- -----------
<S> <C> <C> <C>
Planned operating community improvements............. - $ 69,846 $ 921
Communities under construction....................... 7,974 - 217,455
Communities In Planning and owned.................... 2,520 229,067 -
Communities In Planning and Under Control............ 2,696 312,292 -
Operating community acquisitions under contract or
letter of intent................................... 1,716 128,450 92,975
----------- ------------ -----------
Total...................................... 14,906 $ 739,655 $ 311,351
=========== ============ ===========
</TABLE>
Archstone anticipates completion of most of the communities that are currently
under construction and the planned operating community improvements in the
remainder of 1999 and 2000 and expects to start construction on two or three
communities that are currently in planning, during the remainder of 1999.
Acquisitions of operating communities that are currently under contract or
letter of intent are expected to be funded with disposition proceeds during the
remainder of 1999 and early 2000. 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 activities and operating expenses,
including those outlined above, primarily with cash flow from operating
activities, disposition proceeds and borrowings under its unsecured credit
facilities, prior to arranging long-term financing. At September 30, 1999,
Archstone had 24 apartment communities and certain other real estate assets
under contract or letter of intent for sale with an aggregate carrying value of
$303.7 million. Subject to normal closing risks, Archstone expects to complete
these and other dispositions during 1999 or the first quarter of 2000.
Archstone also 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.
In addition, Archstone currently has $777.2 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. Archstone also continues to explore
the potential monetization of its $221.3 million (face amount at September 30,
1999) 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.
20
<PAGE>
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 in anticipation of future debt
transactions to hedge well-defined interest rate risk or to manage exposure to
variable rate debt. See "Item 1. Financial Statements, Note 3, Borrowings" for
more information on Archstone's derivative financial instruments.
Year 2000 Issue
Archstone uses a significant number of information technology ("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.
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). All of Archstone's key IT systems, including its property
management and financial accounting software, have been replaced or upgraded.
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.
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 available 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 made to improve operational efficiency and were not
accelerated due to the year 2000 issue. 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.
21
<PAGE>
Funds From Operations
Archstone believes that funds from operations is helpful to the reader as one
commonly used measure of the performance of an equity real estate investment
trust ("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 "--Shareholder Dividend/Distribution
Requirements". Funds from operations were as follows (amounts in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net earnings attributable to Common Shares - Basic.............. $ 65,234 $ 51,945 $153,538 $115,307
Add (Deduct):
Depreciation on real estate investments....................... 32,742 31,903 96,989 64,276
Gains on dispositions of depreciated real estate, net......... (27,909) (21,204) (46,887) (36,688)
Nonrecurring expenses......................................... - 2,193 - 2,193
Other, net.................................................... (74) 1,511 3,143 3,772
-------- -------- -------- --------
Funds from operations attributable to Common Shares - Basic..... 69,993 66,348 206,783 148,860
Dividends on Series A Preferred Shares........................ 1,922 2,283 6,351 7,026
Minority interest............................................. 221 - 559 -
Incremental options........................................... 7 - 12 -
-------- -------- -------- --------
Funds from operations attributable to Common Shares - Diluted... $ 72,143 $ 68,631 $213,705 $155,886
======== ======== ======== ========
FFO weighted average Common Shares outstanding - Diluted........ 145,473 150,600 146,583 117,475
======== ======== ======== ========
</TABLE>
Item 3. 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 in anticipation of future debt transactions to hedge well-defined
interest rate risk or to manage exposure to variable rate debt.
See Archstone's 1998 Form 10-K "Item 7A. Quantitative and Qualitative
Disclosures About Market Risk" for a more complete discussion of Archstone's
interest rate sensitive assets and liabilities. As of September 30, 1999, there
have been no material changes in the fair values of assets and liabilities
disclosed in "Item 7A. Quantitative and Qualitative Disclosures About Market
Risk" in Archstone's 1998 Form 10-K, as compared to their respective book
values. See "Item 1. Financial Statements, Note 3, Borrowings" for information
on Archstone's derivative financial instruments.
22
<PAGE>
PART II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
4.1 --Articles Supplementary dated August 13, 1999 related to the
Series E Cumulative Redeemable Preferred Shares of Beneficial
Interest
4.2 --Certificate of Correction, dated October 12, 1999, to the
Articles Supplementary, dated August 13, 1999, related to the
Series E Cumulative Redeemable Preferred Shares of Beneficial
Interest
4.3 --Articles Supplementary dated September 27, 1999 related to
the Series F Cumulative Redeemable Preferred Shares of
Beneficial Interest
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
15.1 --Letter from KPMG LLP dated November 11, 1999 regarding
unaudited financial information
27 --Financial Data Schedule
99.1 --Current Development Activity
(b) Reports on Form 8-K
Date Item Reported Financial Statements
-------------- ------------------- -------------------------
August 4, 1999 Item 5, Item 7 No
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARCHSTONE COMMUNITIES TRUST
By: /s/ Charles E. Mueller, Jr.
----------------------------
Charles E. Mueller, Jr.
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
BY: /s/ William Kell
-----------------
William Kell
Senior Vice President and Controller
(Principal Accounting Officer)
Date: November 11, 1999
24
<PAGE>
Exhibit 4.1
SERIES E CUMULATIVE REDEEMABLE PREFERRED
SHARES OF BENEFICIAL INTEREST
ARCHSTONE COMMUNITIES TRUST
________________
Articles Supplementary of Board of Trustees Classifying
and Designating a Series of Preferred Shares as
Series E Cumulative Redeemable Preferred Shares of Beneficial Interest
and Fixing Distribution and Other Preferences and Rights of Such Series
__________________
Archstone Communities Trust, a Maryland real estate investment trust
(the "Trust"), hereby certifies to the State Department of Assessments and
Taxation of Maryland pursuant to section 8-203(b) of the Annotated Code of
Maryland that:
FIRST: Pursuant to the authority granted and vested in the Board of
Trustees of the Trust (the "Board of Trustees") by Article II, Section 1 of the
Amended and Restated Declaration of Trust dated June 30, 1998, as amended (the
"Declaration of Trust"), the Board of Trustees has reclassified 520,000 unissued
Common Shares of Beneficial Interest of the Trust as Series E Cumulative
Redeemable Preferred Shares of Beneficial Interest, $1.00 par value per share
(the "Series E Preferred Shares").
SECOND: The following is a description of the Series E Preferred
Shares, including the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption thereof:
Section 1. Number of Shares and Designation. This class of preferred
Shares shall be designated as Series E Cumulative Redeemable Preferred Shares of
Beneficial Interest ("Series E Preferred Shares") and the number of shares which
shall constitute such series shall be 520,000 Shares, par value $1.00 per Share.
Section 2. Definitions. For purposes of the Series E Preferred
Shares, the following terms shall have the meanings indicated:
"Board" shall mean the Board of Trustees or any committee authorized
by the Board of Trustees to perform any of its duties or exercise any of
its powers with respect to the Series E Preferred Shares.
<PAGE>
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which state or federally chartered banking institutions in New York
City, New York are not required to be open.
"Call Date" shall mean the date specified in the notice to holders
required under Section 5 below as the Call Date.
"Common Shares" shall mean the common shares of beneficial interest,
par value $1.00 per share, of the Trust.
"Dividend Payment Date" shall mean the last calendar day of March,
June, September and December in each year, commencing September 30, 1999;
provided, however, that if any Dividend Payment Date falls on any day other
than a Business Day, the dividend payment due on such Dividend Payment Date
shall be paid on the next succeeding Business Day.
"Dividend Periods" shall mean quarterly dividend periods commencing on
January 1, April 1, July 1 and October 1 of each year and ending on and
including the day preceding the first day of the next succeeding Dividend
Period.
"Dividend Record Date" shall have the meaning set forth in Section 3.
"Fully Junior Shares" shall mean the Common Shares and any other class
or series of Shares of the Trust now or hereafter issued and outstanding to
which the Series E Preferred Shares have preference or priority in both
(i) the payment of dividends and (ii) the distribution of assets on any
liquidation, dissolution or winding up of the Trust.
"Junior Shares" shall mean the Common Shares and any other class or
series of Shares of the Trust now or hereafter issued and outstanding to
which the Series E Preferred Shares have preference or priority in either
(i) the payment of dividends or (ii) the distribution of assets on any
liquidation, dissolution or winding up of the Trust and, unless the context
clearly indicates otherwise, shall include Fully Junior Shares.
"Parity Shares" shall have the meaning set forth in Section 7.
"Person" shall mean any individual, firm, partnership, corporation,
real estate investment trust, limited liability company or other entity,
and shall include any successor (by merger or otherwise) of such entity.
"set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Trust in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to
authorization or declaration of dividends or other distribution by the
Board, the allocation of funds to be so paid on any class or series of
Shares of the Trust; provided, however, that if any funds for any Junior
Shares or any
2
<PAGE>
Parity Shares are placed in a separate account of the Trust
or delivered to a disbursing, paying or other similar agent, then "set
apart for payment" with respect to the Series E Preferred Shares shall mean
placing such funds in a separate account or delivering such funds to a
disbursing, paying or other similar agent.
"Transfer Agent" means ChaseMellon Shareholder Services, L.L.C., New
York City, New York, or such other agent or agents of the Trust as may be
designated by the Board or its designee as the transfer agent for the
Series E Preferred Shares.
"Voting Preferred Shares" shall have the meaning set forth in
Section 8
Section 3. Dividends.
(a) The holders of Series E Preferred Shares shall be entitled to
receive, when, as and if authorized or declared by the Board, out of funds
legally available for such purpose, cash dividends in an amount per share equal
to 8.375% of the liquidation preference per annum (equivalent to $2.09375 per
share). Such dividends shall begin to accrue and shall be fully cumulative from
August 13, 1999, whether or not in any Dividend Period or Periods there are
funds of the Trust legally available for the payment of such dividends, and
shall be payable quarterly, when, as and if declared by the Board, in arrears on
each Dividend Payment Date. Each such dividend shall be payable in arrears to
the holders of record of Series E Preferred Shares, as they appear in the Share
records of the Trust at the close of business on such record date as is fixed by
the Board, which shall be not less than 10 nor more than 50 days prior to the
corresponding Dividend Payment Date (each, a "Dividend Record Date"). Accrued
and unpaid dividends for any past Dividend Periods may be authorized or declared
and paid at any time and for such interim periods, without reference to any
regular Dividend Payment Date, to holders of record on such record date as may
be fixed by the Board, which shall be not less than 10 nor more than 50 days
prior to the corresponding payment date.
(b) The dividend for each full Dividend Period for the Series E
Preferred Shares shall be computed by dividing the annual dividend rate by four.
The dividend for any period shorter than a full Dividend Period on the Series E
Preferred Shares shall be computed on the basis of a 360-day year of twelve 30-
day months. Holders of Series E Preferred Shares shall not be entitled to any
dividends, whether payable in cash, property or shares, in excess of full
cumulative dividends, as provided herein, on the Series E Preferred Shares. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on the Series E Preferred Shares which may be
in arrears.
(c) So long as any Series E Preferred Shares are outstanding, no
dividends, except as described in the immediately following sentence, shall be
declared or paid or set apart for payment on any Parity Shares for any period
unless (i) full cumulative dividends have been or contemporaneously are paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past Dividend Periods with respect to the Series E Preferred Shares and (ii)
a sum
3
<PAGE>
sufficient for the payment thereof has been or contemporaneously is set
apart for payment of the dividend for the current Dividend Period with respect
to the Series E Preferred Shares. When dividends are not paid in full, or a sum
sufficient for the payment thereof is not set apart for payment, on the Series E
Preferred Shares and any Parity Shares as provided above, all dividends declared
on the Series E Preferred Shares and any Parity Shares shall be declared ratably
in proportion to the respective amounts of dividends accrued and unpaid on the
Series E Preferred Shares and on such Parity Shares.
(d) So long as any Series E Preferred Shares are outstanding, no
dividends (other than dividends or distributions paid solely in, or options,
warrants or rights to subscribe for or purchase, Fully Junior Shares) shall be
declared or paid or set apart for payment or other distribution shall be
declared or made on Junior Shares, nor shall any Junior Shares be redeemed,
purchased or otherwise acquired (other than a redemption, purchase or other
acquisition of Common Shares made for purposes of an employee incentive or
benefit plan of the Trust or any subsidiary) for any consideration (or any
moneys be paid to or made available for a sinking fund for the redemption of any
Junior Shares) by the Trust, directly or indirectly (except by conversion into
or exchange for Fully Junior Shares), unless in each case (i) full cumulative
dividends have been or contemporaneously are paid or declared and a sum
sufficient for the payment thereof set apart for payment for all past Dividend
Periods with respect to the Series E Preferred Shares and all past dividend
periods with respect to any Parity Shares and (ii) a sum sufficient for the
payment thereof has been or contemporaneously is set apart for payment of the
dividend for the current Dividend Period with respect to the Series E Preferred
Shares and the current dividend period with respect to any Parity Shares. Any
dividend payment on the Series E Preferred Shares shall first be credited
against the earliest accrued but unpaid dividend due which remains payable.
(e) No distributions on Series E Preferred Shares shall be declared or
paid or set apart for payment by the Trust at such time as the terms and
provisions of any agreement of the Trust, including any agreement relating to
its indebtedness, prohibits such declaration, payment or setting apart for
payment or provides that such declaration, payment or setting apart for payment
would constitute a breach thereof or a default thereunder, or if such
declaration, payment or setting apart for payment is restricted or prohibited by
law.
Section 4. Liquidation Preference.
(a) Upon any liquidation, dissolution or winding up of the Trust,
whether voluntary or involuntary, before any payment or distribution of the
assets of the Trust (whether capital or surplus) is made to or set apart for the
holders of the Common Shares or any other class or series of Shares of the Trust
now or hereafter issued and outstanding to which the Series E Preferred Shares
have preference or priority in the distribution of assets on any liquidation,
dissolution or winding up of the Trust, the holders of Series E Preferred Shares
shall be entitled to receive out of assets of the Trust legally available for
such purpose, liquidating distributions in the amount of $25.00 per Series E
Preferred Share, plus an amount equal to all dividends (whether or not earned or
authorized or declared) accrued and unpaid thereon to the date of final
distribution to
4
<PAGE>
such holders, if any; but such holders shall not be entitled to any further
payment. If, upon any liquidation, dissolution or winding up of the Trust, the
assets of the Trust, or the proceeds thereof, distributable among the holders of
Series E Preferred Shares are insufficient to pay in full such preferential
amount with respect to the Series E Preferred Shares and the corresponding
amounts with respect to all Parity Shares, then such assets, or the proceeds
thereof, shall be distributed among the holders of Series E Preferred Shares and
all such Parity Shares in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
(b) Subject to the rights of the holders of shares of any class or
series of Shares ranking on a parity with or senior to the Series E Preferred
Shares in the distribution of assets on any liquidation, dissolution or winding
up of the Trust, upon any liquidation, dissolution or winding up of the Trust,
whether voluntary or involuntary, after payment has been made in full to the
holders of Series E Preferred Shares, as provided herein, the holders of any
Junior Shares shall, subject to the respective terms and provisions (if any)
applying thereto, be entitled to receive any and all assets remaining to be paid
or distributed, and the holders of Series E Preferred Shares shall not be
entitled to share therein.
(c) For the purposes hereof, (i) a consolidation or merger of the
Trust with or into one or more corporations, real estate investment trusts or
other entities, (ii) a sale, lease or transfer of all or substantially all of
the Trust's assets or (iii) a statutory share exchange shall not be deemed to be
a liquidation, dissolution or winding up of the Trust, whether voluntary or
involuntary.
Section 5. Redemption at the Option of the Trust.
(a) Subject to Section 9 below, the Series E Preferred Shares are not
redeemable by the Trust prior to August 13, 2004. On and after such date, the
Trust, at its option, may redeem the Series E Preferred Shares, in whole at any
time or in part from time to time, for cash at a redemption price of $25.00 per
Series E Preferred Share, plus the amounts indicated in subsection (b) below.
(b) Upon any redemption of Series E Preferred Shares pursuant to this
Section 5, the Trust shall pay all dividends accrued and unpaid thereon, if any,
in arrears for any Dividend Period ending on or prior to the Call Date. If the
Call Date falls after a Dividend Record Date and prior to the corresponding
Dividend Payment Date, then each holder of Series E Preferred Shares at the
close of business on such Dividend Record Date shall be entitled to receive the
dividend payable on such Series E Preferred Shares on the corresponding Dividend
Payment Date notwithstanding the redemption of such Series E Preferred Shares
before such Dividend Payment Date. Except as provided above, the Trust shall
make no payment or allowance for unpaid dividends, whether or not in arrears, on
Series E Preferred Shares called for redemption.
(c) Unless (i) full cumulative dividends have been or
contemporaneously are paid or declared and a sum sufficient for the payment
thereof set apart for payment for all past Dividend Periods with respect to the
Series E Preferred Shares and all past dividend periods with respect to
5
<PAGE>
any Parity Shares and (ii) a sum sufficient for the payment thereof has been or
contemporaneously is set apart for payment of the dividend for the current
Dividend Period with respect to the Series E Preferred Shares and the current
dividend period with respect to any Parity Shares, the Series E Preferred Shares
may not be redeemed under this Section 5 in part and the Trust may not purchase
or otherwise acquire Series E Preferred Shares, except pursuant to a purchase or
exchange offer made on the same terms to all holders of Series E Preferred
Shares or by conversion into or exchange for Fully Junior Shares or pursuant to
Section 9 below.
(d) The redemption price to be paid upon any redemption of the Series
E Preferred Shares (other than any amounts indicated in subsection (b) above and
other than a redemption pursuant to Section 9 below) shall be payable solely out
of the sale proceeds of other shares of the Trust and from no other source.
(e) Notice of the redemption of any Series E Preferred Shares under
this Section 5 shall be mailed by first class mail, not less than 30 nor more
than 60 days prior to the Call Date, to each holder of record of Series E
Preferred Shares to be redeemed at the address of such holder as shown on the
Trust's Share records. Neither the failure to mail any notice required by this
subsection (e), nor any defect therein or in the mailing thereof, to any
particular holder, shall affect the sufficiency of the notice or the validity of
the proceedings for redemption with respect to any other holder. Any notice
which was mailed in the manner provided herein shall be conclusively presumed to
have been duly given on the date mailed whether or not the holder receives the
notice. Each such mailed notice shall state, as appropriate: (i) the Call
Date; (ii) the number of Series E Preferred Shares to be redeemed and, if fewer
than all Series E Preferred Shares held by such holder are to be redeemed, the
number of Series E Preferred Shares to be redeemed from such holder; (iii) the
redemption price; (iv) the place or places at which certificates representing
such Series E Preferred Shares are to be surrendered; and (v) that dividends on
the Series E Preferred Shares to be redeemed shall cease to accrue on the Call
Date except as otherwise provided herein. If notice of redemption of any Series
E Preferred Shares has been mailed as provided above, then from and after the
Call Date (unless the Trust fails to make available an amount of cash necessary
to effect such redemption), (A) except as otherwise provided herein, dividends
shall cease to accrue on the Series E Preferred Shares so called for redemption,
(B) such Series E Preferred Shares shall no longer be deemed to be outstanding
and (C) all rights of the holders thereof as holders of Series E Preferred
Shares shall terminate (except the right to receive cash payable upon such
redemption, without interest thereon, upon surrender and endorsement of their
certificates if so required and to receive any dividends payable thereon). The
Trust's obligation to provide cash in accordance with the preceding sentence
shall be deemed fulfilled if, on or before the Call Date, the Trust deposits
with a bank or trust company (which may be an affiliate of the Trust) which has
an office in the Borough of Manhattan, City of New York, and which has, or is an
affiliate of a bank or trust company which has, capital and surplus of at least
$50,000,000, the funds necessary for such redemption, in trust, with irrevocable
instructions that such cash be applied to the redemption of the Series E
Preferred Shares so called for redemption. No interest shall accrue for the
benefit of the holders of Series E Preferred Shares to be redeemed on any cash
so set aside by the Trust. Subject to applicable escheat laws, any such cash
unclaimed at the end of two years after the Call Date shall revert to the
general
6
<PAGE>
funds of the Trust, after which reversion the holders of Series E Preferred
Shares so called for redemption shall look only to the general funds of the
Trust for the payment of such cash.
As promptly as practicable after the surrender in accordance with such
notice of the certificates representing any Series E Preferred Shares so
redeemed (properly endorsed or assigned for transfer, if the Trust so requires
and if the notice so states), such Series E Preferred Shares shall be exchanged
for any cash (without interest thereon) for which such Series E Preferred Shares
have been redeemed. If fewer than all the outstanding Series E Preferred Shares
are to be redeemed, the Series E Preferred Shares to be redeemed shall be
selected by the Trust from outstanding Series E Preferred Shares not previously
called for redemption by lot or pro rata (as nearly as may be) or by any other
method determined by the Board or the Chairman or any Co-Chairman of the Trust
in its, his or her sole discretion to be equitable. If fewer than all the
Series E Preferred Shares represented by any certificate are redeemed, then new
certificates representing the unredeemed Series E Preferred Shares shall be
issued without cost to the holder thereof.
Section 6. Shares to Be Retired. All Series E Preferred Shares which
are issued and reacquired in any manner by the Trust shall be restored to the
status of authorized but unissued Shares of the Trust.
Section 7. Ranking. Any class or series of Shares of the Trust shall
be deemed to rank:
(i) senior to the Series E Preferred Shares, in the payment of
dividends or in the distribution of assets on any liquidation, dissolution
or winding up of the Trust, if the holders of such class or series are
entitled to the receipt of dividends or amounts distributable on any
liquidation, dissolution or winding up of the Trust, as the case may be, in
preference or priority to the holders of Series E Preferred Shares;
(ii) on a parity with the Series E Preferred Shares, in the payment
of dividends and in the distribution of assets on any liquidation,
dissolution or winding up of the Trust, whether or not the dividend rates,
dividend payment dates or redemption or liquidation prices per share
thereof are different from those of the Series E Preferred Shares, if the
holders of such class or series and the holders of Series E Preferred
Shares are entitled to the receipt of dividends and amounts distributable
on any liquidation, dissolution or winding up of the Trust in proportion to
their respective amounts of dividends accrued and unpaid per share or
liquidation preferences, without preference or priority to each other
("Parity Shares");
(iii) junior to the Series E Preferred Shares, in the payment of
dividends or in the distribution of assets on any liquidation, dissolution
or winding up of the Trust, if such class or series is Junior Shares; and
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(iv) junior to the Series E Preferred Shares, in the payment of
dividends and in the distribution of assets on any liquidation, dissolution
or winding up of the Trust, if such class or series is Fully Junior Shares.
Section 8. Voting. Holders of the Series E Preferred Shares will not
have any voting rights, except as set forth below.
(a) If at any time full distributions shall not have been timely made
on any Series E Preferred Shares with respect to any six (6) prior
quarterly distribution periods, whether or not consecutive (a "Preferred
Distribution Default"), the holders of such Series E Preferred Shares,
voting together as a single class with the holders of each class or series
of Parity Shares upon which like voting rights have been conferred and are
exercisable, will have the right to elect two additional Trustees to serve
on the Board (the "Preferred Shares Trustees") at a special meeting called
by the holders of record of at least 10% of the outstanding Series E
Preferred Shares or any such class or series of Parity Shares or at the
next annual meeting of shareholders, and at each subsequent annual meeting
of shareholders or special meeting held in place thereof, until all such
distributions in arrears and distributions for the current quarterly period
on the Series E Preferred Shares and each such class or series of Parity
Shares have been paid in full.
(b) At any time when such voting rights shall have vested, a proper
officer of the Trust shall call or cause to be called, upon written request
of holders of record of at least 10% of the outstanding Series E Preferred
Shares, a special meeting of the holders of Series E Preferred Shares and
all the series of Parity Shares upon which like voting rights have been
conferred and are exercisable (collectively, the "Voting Preferred Shares")
by mailing or causing to be mailed to such holders a notice of such special
meeting to be held not less than ten and not more than 45 days after the
date such notice is given. The record date for determining holders of the
Voting Preferred Shares entitled to notice of and to vote at such special
meeting will be the close of business on the third Business Day preceding
the day on which such notice is mailed. At any such special meeting, all
of the holders of the Voting Preferred Shares, by plurality vote, voting
together as a single class without regard to series will be entitled to
elect two Trustees (the "Preferred Shares Trustees") on the basis of one
vote per $25 of liquidation preference to which such Voting Preferred
Shares are entitled by their terms (excluding amounts in respect of
accumulated and unpaid dividends) and not cumulatively. The holder or
holders of one-third of the Voting Preferred Shares then outstanding,
present in person or by proxy, will constitute a quorum for the election of
the Preferred Shares Trustees except as otherwise provided by law. Notice
of all meetings at which holders of the Series E Preferred Shares shall be
entitled to vote will be given to such holders at their addresses as they
appear in the transfer records. At any such meeting or adjournment thereof
in the absence of a quorum, subject to the provisions of any applicable
law, a majority of the holders of the Voting Preferred Shares present in
person or by proxy shall have the power to adjourn the meeting for the
election of the Preferred Shares Trustees, without notice other than an
announcement at the meeting, until a quorum is present. If a
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Preferred Distribution Default shall terminate after the notice of a
special meeting has been given but before such special meeting has been
held, the Trust shall, as soon as practicable after such termination, mail
or cause to be mailed notice of such termination to holders of the Series E
Preferred Shares that would have been entitled to vote at such special
meeting.
(c) If and when all accumulated distributions and the distribution for
the current distribution period on the Series E Preferred Shares shall have
been paid in full or a sum sufficient for such payment is irrevocably
deposited in trust for payment, the holders of the Series E Preferred
Shares shall be divested of the voting rights set forth in subsection b
above (subject to revesting in the event of each and every Preferred
Distribution Default) and, if all distributions in arrears and the
distributions for the current distribution period have been paid in full or
set aside for payment in full on all other classes or series of Parity
Shares upon which like voting rights have been conferred and are
exercisable, the term and office of each Preferred Shares Trustee so
elected shall terminate. Any Preferred Shares Trustee may be removed at
any time with or without cause by the vote of, and shall not be removed
otherwise than by the vote of, the holders of record of a majority of the
outstanding Series E Preferred Shares when they have the voting rights set
forth in subsection b above (voting separately as a single class with all
other classes or series of Parity Shares upon which like voting rights have
been conferred and are exercisable). So long as a Preferred Distribution
Default shall continue, any vacancy in the office of a Preferred Shares
Trustee may be filled by written consent of the Preferred Shares Trustee
remaining in office, or if none remains in office, by a vote of the holders
of record of a majority of the outstanding Series E Preferred Shares when
they have the voting rights set forth in subsection b above) (voting
separately as a single class with all other classes or series of Parity
Shares upon which like voting rights have been conferred and are
exercisable). The Preferred Shares Trustee shall each be entitled to one
vote per Trustee on any matter.
(d) So long as any Series E Preferred Shares remains outstanding, the
Trust shall not, without the affirmative vote of the holders of at least
two-thirds of the Series E Preferred Shares outstanding at the time (A)
designate or create, or increase the authorized or issued amount of, any
class or series of shares ranking senior to or on parity with the Series E
Preferred Shares with respect to payment of distributions or rights upon
liquidation, dissolution or winding-up of the Trust or reclassify any
authorized shares of the Trust into any such shares, or create, authorize
or issue any obligations or security convertible into or evidencing the
right to purchase any such shares, (B) designate or create, or increase the
authorized or issued amount of, any Parity Shares or reclassify any
authorized shares of the Trust into any such shares, or create, authorize
or issue any obligations or security convertible into or evidencing the
right to purchase any such shares, but only to the extent such Parity
Shares are issued to an Affiliate of the Trust, or (C) either (x)
consolidate, merge into or with, or convey, transfer or lease its assets
substantially as an entirety, to any corporation, real estate investment
trust or other entity, or (y) amend, alter or repeal the provisions of the
Declaration of Trust (including these Articles Supplementary) or Bylaws,
whether by merger, consolidation or otherwise, in each case that would
materially and
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adversely affect the powers, special rights, preferences, privileges or
voting power of the Series E Preferred Shares or the holders thereof;
provided, however, that with respect to the occurrence of a merger,
consolidation or a sale or lease of all of the Trust's assets as an
entirety, so long as (1) the Trust is the surviving entity and the Series E
Preferred Shares remain outstanding with the terms thereof unchanged, or
(2) the resulting, surviving or transferee entity is a corporation or real
estate investment trust organized under the laws of any state and
substitutes the Series E Preferred Shares for other preferred shares having
substantially the same terms and same rights as the Series E Preferred
Shares, including with respect to distributions, voting rights and rights
upon liquidation, dissolution or winding-up, then the occurrence of any
such event shall not be deemed to materially and adversely affect such
rights, privileges or voting powers of the holders of the Series E
Preferred Shares and provided further that any increase in the amount of
authorized preferred shares or the creation or issuance of any other class
or series of preferred shares, or any increase in an amount of authorized
shares of each class or series, in each case ranking either (m) junior to
the Series E Preferred Shares with respect to payment of distributions and
the distribution of assets upon liquidation, dissolution or winding-up, or
(n) on a parity with the Series E Preferred Shares with respect to payment
of distributions or the distribution of assets upon liquidation,
dissolution or winding-up to the extent such preferred shares are not
issued to an affiliate of the Trust, shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting powers.
Section 9. Transfer Restrictions. The Series E Preferred Shares
shall be subject to the provisions of Article 2 of the Declaration of Trust.
Section 10. No Conversion Rights. The holders of the Series E
Preferred Shares shall not have any rights to convert such shares into shares of
any other class or series of shares or into any other securities of, or interest
in, the Trust.
Section 11. No Preemptive Rights. No holder of the Series E
Preferred Shares shall, as such holder, have any preemptive rights to purchase
or subscribe for additional shares of shares of the Trust or any other security
of the Trust which it may issue or sell.
Section 12. Record Holders. The Trust and the Transfer Agent may
deem and treat the record holder of any Series E Preferred Shares as the true
and lawful owner thereof for all purposes, and neither the Trust nor the
Transfer Agent shall be affected by any notice to the contrary.
Section 13. Sinking Fund. The Series E Preferred Shares shall not be
entitled to the benefit of any retirement or sinking fund.
THIRD: The Series E Preferred Shares have been classified by the
Board of Trustees under the authority contained in Article II, Section 1, of the
Declaration of Trust.
FOURTH: These Articles Supplementary have been approved by the Board
of Trustees in the manner and by the votes required by law.
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FIFTH: The undersigned each acknowledges these Articles Supplementary
to be the act of the Trust and further, as to all matters or facts required to
be verified under oath, each of the undersigned acknowledges that to the best of
his knowledge, information and belief, these matters and facts are true in all
material respects and this statement is made under the penalties of perjury.
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IN WITNESS WHEREOF, the Trust has caused these Articles Supplementary
to be signed in its name and on its behalf by its Senior Vice President and
Chief Financial Officer and attested to by its Assistant Secretary on this
13/th/ day of August, 1999.
ARCHSTONE COMMUNITIES TRUST
By: /s/ Charles E. Mueller, Jr.
----------------------------
Charles E. Mueller, Jr.
Senior Vice President and
Chief Financial Officer
ATTEST:
/s/ Mark W. Pearson
----------------------------
Mark W. Pearson
Assistant Secretary
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Exhibit 4.2
ARCHSTONE COMMUNITIES TRUST
(a real estate investment trust of the State of Maryland)
CERTIFICATE OF CORRECTION
Archstone Communities Trust, a Maryland real estate investment trust
("Archstone"), hereby certifies to the State Department of Assessments and
Taxation of Maryland (the "Department") that:
FIRST: The title of the document that is being corrected is "Articles
Supplementary of Board of Trustees Classifying and Designating a Series of
Preferred Shares as Series E Cumulative Redeemable Preferred Shares of
Beneficial Interest and Fixing Distribution and Other Preferences and Rights of
Such Series".
SECOND: Archstone is the sole party to the document being corrected.
THIRD: The document to be corrected hereby was filed with the Department on
August 13, 1999.
FOURTH: The provisions to be corrected in clause (A) of the first sentence
of Section 8(d) of the document as previously filed read as follows:
"(A) designate or create, or increase the authorized or issued amount of,
any class or series of shares ranking senior to or on parity with the
Series E Preferred Shares with respect to payment of distributions or
rights upon liquidation, dissolution or winding-up of the Trust or
reclassify any authorized shares of the Trust into any such shares, or
create, authorize or issue any obligations or security convertible into or
evidencing the right to purchase any such shares,"
The provisions in clause (A) of the first sentence of Section 8(d) of the
document as corrected shall read as follows:
"(A) designate or create, or increase the authorized or issued amount of,
any class or series of shares ranking senior to the Series E Preferred
Shares with respect to payment of distributions or rights upon liquidation,
dissolution or winding-up of the Trust or reclassify any authorized shares
of the Trust into any such shares, or create, authorize or issue any
obligations or security convertible into or evidencing the right to
purchase any such shares,"
* * * * * * *
<PAGE>
Exhibit 4.2
Each of the individuals signing this Certificate of Correction acknowledges
this Certificate of Correction to be the act of the party hereto, and, as to all
other matters of facts required to be verified under oath, that to the best of
his or her knowledge, information and belief, these matters are true in all
material respects and that this statement is made under penalties of perjury.
IN WITNESS WHEREOF, the undersigned have executed this Certificate of
Correction as of this 12th day of October, 1999.
ARCHSTONE COMMUNITIES TRUST
By: /s/ Charles E. Mueller, Jr.
---------------------------
Charles E. Mueller, Jr.
Senior Vice President and
Chief Financial Officer
ATTEST:
/s/ Caroline Brower
----------------------------
Caroline Brower
General Counsel and Secretary
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Exhibit 4.3
ARCHSTONE COMMUNITIES TRUST
SERIES F CUMULATIVE REDEEMABLE PREFERRED
SHARES OF BENEFICIAL INTEREST
________________
Articles Supplementary Classifying
and Designating a Series of Preferred Shares as
Series F Cumulative Redeemable Preferred Shares of Beneficial Interest
and Fixing Distribution and Other Preferences and Rights of Such Series
__________________
Archstone Communities Trust, a Maryland real estate investment trust
(the "Trust"), hereby certifies to the State Department of Assessments and
Taxation of Maryland pursuant to section 8-203(b) of the Corporations and
Associations Article of the Annotated Code of Maryland that:
FIRST: Pursuant to the authority granted and vested in the Board of
Trustees of the Trust (the "Board of Trustees") by Article II, Section 1 of the
Amended and Restated Declaration of Trust dated June 30, 1998, as amended (the
"Declaration of Trust"), the Board of Trustees has reclassified 800,000 unissued
Common Shares of Beneficial Interest of the Trust as Series F Cumulative
Redeemable Preferred Shares of Beneficial Interest, $1.00 par value per share
(the "Series F Preferred Shares").
SECOND: The following is a description of the Series F Preferred
Shares, including the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption thereof:
Section 1. Number of Shares and Designation. This class of preferred
Shares shall be designated as Series F Cumulative Redeemable Preferred Shares of
Beneficial Interest ("Series F Preferred Shares") and the number of shares which
shall constitute such series shall be 800,000 Shares, par value $1.00 per Share.
Section 2. Definitions. For purposes of the Series F Preferred
Shares, the following terms shall have the meanings indicated:
"Board" shall mean the Board of Trustees or any committee authorized
by the Board of Trustees to perform any of its duties or exercise any of
its powers with respect to the Series F Preferred Shares.
<PAGE>
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which state or federally chartered banking institutions in New York
City, New York are not required to be open.
"Call Date" shall mean the date specified in the notice to holders
required under Section 5 below as the Call Date.
"Common Shares" shall mean the common shares of beneficial interest,
par value $1.00 per share, of the Trust.
"Dividend Payment Date" shall mean the 25th day of March, June,
September and December in each year, commencing with the first such date to
occur following the issuance of Series F Preferred Shares; provided,
however, that if any Dividend Payment Date falls on any day other than a
Business Day, the dividend payment due on such Dividend Payment Date shall
be paid on the next succeeding Business Day.
"Dividend Periods" shall mean quarterly dividend periods commencing on
the 26th day of March, June, September and December of each year and ending
on and including the day preceding the first day of the next succeeding
Dividend Period.
"Dividend Record Date" shall have the meaning set forth in Section 3.
"Fully Junior Shares" shall mean the Common Shares and any other class
or series of Shares of the Trust now or hereafter issued and outstanding to
which the Series F Preferred Shares have preference or priority in both (i)
the payment of dividends and (ii) the distribution of assets on any
liquidation, dissolution or winding up of the Trust.
"Junior Shares" shall mean the Common Shares and any other class or
series of Shares of the Trust now or hereafter issued and outstanding to
which the Series F Preferred Shares have preference or priority in either
(i) the payment of dividends or (ii) the distribution of assets on any
liquidation, dissolution or winding up of the Trust and, unless the context
clearly indicates otherwise, shall include Fully Junior Shares.
"Parity Shares" shall have the meaning set forth in Section 7.
"Person" shall mean any individual, firm, partnership, corporation,
real estate investment trust, limited liability company or other entity,
and shall include any successor (by merger or otherwise) of such entity.
"set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Trust in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to
authorization or declaration of dividends or
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<PAGE>
other distribution by the Board, the allocation of funds to be so paid on
any class or series of Shares of the Trust; provided, however, that if any
funds for any Junior Shares or any Parity Shares are placed in a separate
account of the Trust or delivered to a disbursing, paying or other similar
agent, then "set apart for payment" with respect to the Series F Preferred
Shares shall mean placing such funds in a separate account or delivering
such funds to a disbursing, paying or other similar agent.
"Transfer Agent" means ChaseMellon Shareholder Services, L.L.C., New
York City, New York, or such other agent or agents of the Trust as may be
designated by the Board or its designee as the transfer agent for the
Series F Preferred Shares.
"Voting Preferred Shares" shall have the meaning set forth in Section
8.
Section 3. Dividends.
(a) The holders of Series F Preferred Shares shall be entitled to
receive, when, as and if authorized or declared by the Board, out of funds
legally available for such purpose, cash dividends in an amount per share equal
to 8.125% of the liquidation preference per annum (equivalent to $2.03125 per
share). Such dividends shall begin to accrue and shall be fully cumulative from
and including the date of issuance of Series F Preferred Shares, whether or not
in any Dividend Period or Periods there are funds of the Trust legally available
for the payment of such dividends, and shall be payable quarterly, when, as and
if declared by the Board, in arrears on each Dividend Payment Date. Each such
dividend shall be payable in arrears to the holders of record of Series F
Preferred Shares, as they appear in the Share records of the Trust at the close
of business on such record date as is fixed by the Board, which shall be not
less than 10 nor more than 50 days prior to the corresponding Dividend Payment
Date (each, a "Dividend Record Date"). Accrued and unpaid dividends for any
past Dividend Periods may be authorized or declared and paid at any time and for
such interim periods, without reference to any regular Dividend Payment Date, to
holders of record on such record date as may be fixed by the Board, which shall
be not less than 10 nor more than 50 days prior to the corresponding payment
date.
(b) The dividend for each full Dividend Period for the Series F
Preferred Shares shall be computed by dividing the annual dividend rate by four.
The dividend for any period shorter than a full Dividend Period on the Series F
Preferred Shares shall be computed on the basis of a 360-day year of twelve 30-
day months. Holders of Series F Preferred Shares shall not be entitled to any
dividends, whether payable in cash, property or shares, in excess of full
cumulative dividends, as provided herein, on the Series F Preferred Shares. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on the Series F Preferred Shares which may be
in arrears.
(c) So long as any Series F Preferred Shares are outstanding, no
dividends, except as described in the immediately following sentence, shall be
declared or paid or set apart for
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<PAGE>
payment on any Parity Shares for any period unless (i) full cumulative dividends
have been or contemporaneously are paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past Dividend Periods with respect
to the Series F Preferred Shares and (ii) a sum sufficient for the payment
thereof has been or contemporaneously is set apart for payment of the dividend
for the current Dividend Period with respect to the Series F Preferred Shares.
When dividends are not paid in full, or a sum sufficient for the payment thereof
is not set apart for payment, on the Series F Preferred Shares and any Parity
Shares as provided above, all dividends declared on the Series F Preferred
Shares and any Parity Shares shall be declared ratably in proportion to the
respective amounts of dividends accrued and unpaid on the Series F Preferred
Shares and on such Parity Shares.
(d) So long as any Series F Preferred Shares are outstanding, no
dividends (other than dividends or distributions paid solely in, or options,
warrants or rights to subscribe for or purchase, Fully Junior Shares) shall be
declared or paid or set apart for payment or other distribution shall be
declared or made on Junior Shares, nor shall any Junior Shares be redeemed,
purchased or otherwise acquired (other than a redemption, purchase or other
acquisition of Common Shares made for purposes of an employee incentive or
benefit plan of the Trust or any subsidiary) for any consideration (or any
moneys be paid to or made available for a sinking fund for the redemption of any
Junior Shares) by the Trust, directly or indirectly (except by conversion into
or exchange for Fully Junior Shares), unless in each case (i) full cumulative
dividends have been or contemporaneously are paid or declared and a sum
sufficient for the payment thereof set apart for payment for all past Dividend
Periods with respect to the Series F Preferred Shares and all past dividend
periods with respect to any Parity Shares and (ii) a sum sufficient for the
payment thereof has been or contemporaneously is set apart for payment of the
dividend for the current Dividend Period with respect to the Series F Preferred
Shares and the current dividend period with respect to any Parity Shares. Any
dividend payment on the Series F Preferred Shares shall first be credited
against the earliest accrued but unpaid dividend due which remains payable.
(e) No distributions on Series F Preferred Shares shall be declared or
paid or set apart for payment by the Trust at such time as the terms and
provisions of any agreement of the Trust, including any agreement relating to
its indebtedness, prohibits such declaration, payment or setting apart for
payment or provides that such declaration, payment or setting apart for payment
would constitute a breach thereof or a default thereunder, or if such
declaration, payment or setting apart for payment is restricted or prohibited by
law.
Section 4. Liquidation Preference.
(a) Upon any liquidation, dissolution or winding up of the Trust,
whether voluntary or involuntary, before any payment or distribution of the
assets of the Trust (whether capital or surplus) is made to or set apart for the
holders of the Common Shares or any other class or series of Shares of the Trust
now or hereafter issued and outstanding to which the Series F Preferred Shares
have preference or priority in the distribution of assets on any liquidation,
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<PAGE>
dissolution or winding up of the Trust, the holders of Series F Preferred Shares
shall be entitled to receive out of assets of the Trust legally available for
such purpose, liquidating distributions in the amount of $25.00 per Series F
Preferred Share, plus an amount equal to all dividends (whether or not earned or
authorized or declared) accrued and unpaid thereon to the date of final
distribution to such holders, if any; but such holders shall not be entitled to
any further payment. If, upon any liquidation, dissolution or winding up of the
Trust, the assets of the Trust, or the proceeds thereof, distributable among the
holders of Series F Preferred Shares are insufficient to pay in full such
preferential amount with respect to the Series F Preferred Shares and the
corresponding amounts with respect to all Parity Shares, then such assets, or
the proceeds thereof, shall be distributed among the holders of Series F
Preferred Shares and all such Parity Shares in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
(b) Subject to the rights of the holders of shares of any class or
series of Shares ranking on a parity with or senior to the Series F Preferred
Shares in the distribution of assets on any liquidation, dissolution or winding
up of the Trust, upon any liquidation, dissolution or winding up of the Trust,
whether voluntary or involuntary, after payment has been made in full to the
holders of Series F Preferred Shares, as provided herein, the holders of any
Junior Shares shall, subject to the respective terms and provisions (if any)
applying thereto, be entitled to receive any and all assets remaining to be paid
or distributed, and the holders of Series F Preferred Shares shall not be
entitled to share therein.
(c) For the purposes hereof, (i) a consolidation or merger of the
Trust with or into one or more corporations, real estate investment trusts or
other entities, (ii) a sale, lease or transfer of all or substantially all of
the Trust's assets or (iii) a statutory share exchange shall not be deemed to be
a liquidation, dissolution or winding up of the Trust, whether voluntary or
involuntary.
Section 5. Redemption at the Option of the Trust.
(a) Subject to Section 9 below, the Series F Preferred Shares are not
redeemable by the Trust prior to September 27, 2004. On and after such date,
the Trust, at its option, may redeem the Series F Preferred Shares, in whole at
any time or in part from time to time, for cash at a redemption price of $25.00
per Series F Preferred Share, plus the amounts indicated in subsection (b)
below.
(b) Upon any redemption of Series F Preferred Shares pursuant to this
Section 5, the Trust shall pay all dividends accrued and unpaid thereon, if any,
in arrears for any Dividend Period ending on or prior to the Call Date. If the
Call Date falls after a Dividend Record Date and prior to the corresponding
Dividend Payment Date, then each holder of Series F Preferred Shares at the
close of business on such Dividend Record Date shall be entitled to receive the
dividend payable on such Series F Preferred Shares on the corresponding Dividend
Payment Date notwithstanding the redemption of such Series F Preferred Shares
before such Dividend Payment
5
<PAGE>
Date. Except as provided above, the Trust shall make no payment or allowance for
unpaid dividends, whether or not in arrears, on Series F Preferred Shares called
for redemption.
(c) Unless (i) full cumulative dividends have been or
contemporaneously are paid or declared and a sum sufficient for the payment
thereof set apart for payment for all past Dividend Periods with respect to the
Series F Preferred Shares and all past dividend periods with respect to any
Parity Shares and (ii) a sum sufficient for the payment thereof has been or
contemporaneously is set apart for payment of the dividend for the current
Dividend Period with respect to the Series F Preferred Shares and the current
dividend period with respect to any Parity Shares, the Series F Preferred Shares
may not be redeemed under this Section 5 in part and the Trust may not purchase
or otherwise acquire Series F Preferred Shares, except pursuant to a purchase or
exchange offer made on the same terms to all holders of Series F Preferred
Shares or by conversion into or exchange for Fully Junior Shares or pursuant to
Section 9 below.
(d) The redemption price to be paid upon any redemption of the Series
F Preferred Shares (other than any amounts indicated in subsection (b) above and
other than a redemption pursuant to Section 9 below) shall be payable solely out
of the sale proceeds of other shares of the Trust and from no other source.
(e) Notice of the redemption of any Series F Preferred Shares under
this Section 5 shall be mailed by registered mail, not less than 10 nor more
than 60 days prior to the Call Date, to each holder of record of Series F
Preferred Shares to be redeemed at the address of such holder as shown on the
Trust's Share records. Neither the failure to mail any notice required by this
subsection (e), nor any defect therein or in the mailing thereof, to any
particular holder, shall affect the sufficiency of the notice or the validity of
the proceedings for redemption with respect to any other holder. Any notice
which was mailed in the manner provided herein shall be conclusively presumed to
have been duly given on the date mailed whether or not the holder receives the
notice. Each such mailed notice shall state, as appropriate: (i) the Call
Date; (ii) the number of Series F Preferred Shares to be redeemed and, if fewer
than all Series F Preferred Shares held by such holder are to be redeemed, the
number of Series F Preferred Shares to be redeemed from such holder; (iii) the
redemption price; (iv) the place or places at which certificates representing
such Series F Preferred Shares are to be surrendered; and (v) that dividends on
the Series F Preferred Shares to be redeemed shall cease to accrue on the Call
Date except as otherwise provided herein. If notice of redemption of any Series
F Preferred Shares has been mailed as provided above, then from and after the
Call Date (unless the Trust fails to make available an amount of cash necessary
to effect such redemption), (A) except as otherwise provided herein, dividends
shall cease to accrue on the Series F Preferred Shares so called for redemption,
(B) such Series F Preferred Shares shall no longer be deemed to be outstanding
and (C) all rights of the holders thereof as holders of Series F Preferred
Shares shall terminate (except the right to receive cash payable upon such
redemption, without interest thereon, upon surrender and endorsement of their
certificates if so required and to receive any dividends payable thereon). The
Trust's obligation to provide cash in accordance with the preceding sentence
shall be deemed fulfilled if, on or before the Call Date, the Trust deposits
with
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<PAGE>
a bank or trust company (which may be an affiliate of the Trust) which has
an office in the Borough of Manhattan, City of New York, and which has, or is an
affiliate of a bank or trust company which has, capital and surplus of at least
$50,000,000, the funds necessary for such redemption, in trust, with irrevocable
instructions that such cash be applied to the redemption of the Series F
Preferred Shares so called for redemption. No interest shall accrue for the
benefit of the holders of Series F Preferred Shares to be redeemed on any cash
so set aside by the Trust. Subject to applicable escheat laws, any such cash
unclaimed at the end of two years after the Call Date shall revert to the
general funds of the Trust, after which reversion the holders of Series F
Preferred Shares so called for redemption shall look only to the general funds
of the Trust for the payment of such cash.
As promptly as practicable after the surrender in accordance with such
notice of the certificates representing any Series F Preferred Shares so
redeemed (properly endorsed or assigned for transfer, if the Trust so requires
and if the notice so states), such Series F Preferred Shares shall be exchanged
for any cash (without interest thereon) for which such Series F Preferred Shares
have been redeemed. If fewer than all the outstanding Series F Preferred Shares
are to be redeemed, the Series F Preferred Shares to be redeemed shall be
selected by the Trust from outstanding Series F Preferred Shares not previously
called for redemption by lot or pro rata (as nearly as may be) or by any other
method determined by the Board or the Chairman or any Co-Chairman of the Trust
in its, his or her sole discretion to be equitable. If fewer than all the
Series F Preferred Shares represented by any certificate are redeemed, then new
certificates representing the unredeemed Series F Preferred Shares shall be
issued without cost to the holder thereof.
Section 6. Shares to Be Retired. All Series F Preferred Shares which
are issued and reacquired in any manner by the Trust shall be restored to the
status of authorized but unissued Shares of the Trust.
Section 7. Ranking. Any class or series of Shares of the Trust shall
be deemed to rank:
(i) senior to the Series F Preferred Shares, in the payment of
dividends or in the distribution of assets on any liquidation, dissolution
or winding up of the Trust, if the holders of such class or series are
entitled to the receipt of dividends or amounts distributable on any
liquidation, dissolution or winding up of the Trust, as the case may be, in
preference or priority to the holders of Series F Preferred Shares;
(ii) on a parity with the Series F Preferred Shares, in the payment
of dividends and in the distribution of assets on any liquidation,
dissolution or winding up of the Trust, whether or not the dividend rates,
dividend payment dates or redemption or liquidation prices per share
thereof are different from those of the Series F Preferred Shares, if the
holders of such class or series and the holders of Series F Preferred
Shares are entitled to the receipt of dividends and amounts distributable
on any liquidation, dissolution or winding up of the
7
<PAGE>
Trust in proportion to their respective amounts of dividends accrued and
unpaid per share or liquidation preferences, without preference or priority
to each other ("Parity Shares");
(iii) junior to the Series F Preferred Shares, in the payment of
dividends or in the distribution of assets on any liquidation, dissolution
or winding up of the Trust, if such class or series is Junior Shares; and
(iv) junior to the Series F Preferred Shares, in the payment of
dividends and in the distribution of assets on any liquidation, dissolution
or winding up of the Trust, if such class or series is Fully Junior Shares.
Section 8. Voting. Holders of the Series F Preferred Shares will not
have any voting rights, except as set forth below.
(a) If at any time full distributions shall not have been timely
made on any Series F Preferred Shares with respect to any six (6) prior
quarterly distribution periods, whether or not consecutive (a "Preferred
Distribution Default"), the holders of such Series F Preferred Shares,
voting together as a single class with the holders of each class or series
of Parity Shares upon which like voting rights have been conferred and are
exercisable, will have the right to elect two additional Trustees to serve
on the Board (the "Preferred Shares Trustees") at a special meeting called
by the holders of record of at least 10% of the outstanding Series F
Preferred Shares or any such class or series of Parity Shares or at the
next annual meeting of shareholders, and at each subsequent annual meeting
of shareholders or special meeting held in place thereof, until all such
distributions in arrears and distributions for the current quarterly period
on the Series F Preferred Shares and each such class or series of Parity
Shares have been paid in full.
(b) At any time when such voting rights shall have vested, a proper
officer of the Trust shall call or cause to be called, upon written request
of holders of record of at least 10% of the outstanding Series F Preferred
Shares, a special meeting of the holders of Series F Preferred Shares and
all the series of Parity Shares upon which like voting rights have been
conferred and are exercisable (collectively, the "Voting Preferred Shares")
by mailing or causing to be mailed to such holders a notice of such special
meeting to be held not less than ten and not more than 45 days after the
date such notice is given. The record date for determining holders of the
Voting Preferred Shares entitled to notice of and to vote at such special
meeting will be the close of business on the third Business Day preceding
the day on which such notice is mailed. At any such special meeting, all
of the holders of the Voting Preferred Shares, by plurality vote, voting
together as a single class without regard to series will be entitled to
elect two Trustees (the "Preferred Shares Trustees") on the basis of one
vote per $25 of liquidation preference to which such Voting Preferred
Shares are entitled by their terms (excluding amounts in respect of
accumulated and unpaid dividends) and not cumulatively. The holder or
holders of one-third of the Voting Preferred Shares then
8
<PAGE>
outstanding, present in person or by proxy, will constitute a quorum for
the election of the Preferred Shares Trustees except as otherwise provided
by law. Notice of all meetings at which holders of the Series F Preferred
Shares shall be entitled to vote will be given to such holders at their
addresses as they appear in the transfer records. At any such meeting or
adjournment thereof in the absence of a quorum, subject to the provisions
of any applicable law, a majority of the holders of the Voting Preferred
Shares present in person or by proxy shall have the power to adjourn the
meeting for the election of the Preferred Shares Trustees, without notice
other than an announcement at the meeting, until a quorum is present. If a
Preferred Distribution Default shall terminate after the notice of a
special meeting has been given but before such special meeting has been
held, the Trust shall, as soon as practicable after such termination, mail
or cause to be mailed notice of such termination to holders of the Series F
Preferred Shares that would have been entitled to vote at such special
meeting.
(c) If and when all accumulated distributions and the distribution for
the current distribution period on the Series F Preferred Shares shall have
been paid in full or a sum sufficient for such payment is irrevocably
deposited in trust for payment, the holders of the Series F Preferred
Shares shall be divested of the voting rights set forth in subsection (b)
above (subject to revesting in the event of each and every Preferred
Distribution Default) and, if all distributions in arrears and the
distributions for the current distribution period have been paid in full or
set aside for payment in full on all other classes or series of Parity
Shares upon which like voting rights have been conferred and are
exercisable, the term and office of each Preferred Shares Trustee so
elected shall terminate. Any Preferred Shares Trustee may be removed at
any time with or without cause by the vote of, and shall not be removed
otherwise than by the vote of, the holders of record of a majority of the
outstanding Series F Preferred Shares when they have the voting rights set
forth in subsection (b) above (voting separately as a single class with all
other classes or series of Parity Shares upon which like voting rights have
been conferred and are exercisable). So long as a Preferred Distribution
Default shall continue, any vacancy in the office of a Preferred Shares
Trustee may be filled by written consent of the Preferred Shares Trustee
remaining in office, or if none remains in office, by a vote of the holders
of record of a majority of the outstanding Series F Preferred Shares when
they have the voting rights set forth in subsection (b) above) (voting
separately as a single class with all other classes or series of Parity
Shares upon which like voting rights have been conferred and are
exercisable). The Preferred Shares Trustee shall each be entitled to one
vote per Trustee on any matter.
(d) So long as any Series F Preferred Shares remains outstanding, the
Trust shall not, without the approval of the holders of at least two-thirds
of the Series F Preferred Shares outstanding at the time (A) designate or
create, or increase the authorized or issued amount of, any class or series
of shares ranking senior to the Series F Preferred Shares with respect to
payment of distributions or rights upon liquidation, dissolution or
winding-up of the Trust or reclassify any authorized shares of the Trust
into any such shares, or create, authorize or issue any obligations or
security convertible into or evidencing the right to purchase any such
shares, (B) designate or create, or increase the authorized or issued
amount of, any Parity Shares or reclassify any authorized shares of the
Trust into any such shares, or create, authorize or issue any obligations
or security convertible into or evidencing the right to purchase any such
9
<PAGE>
shares, but only to the extent such Parity Shares are issued to an
Affiliate of the Trust, or (C) either (x) consolidate, merge into or with,
or convey, transfer or lease its assets substantially as an entirety, to
any corporation, real estate investment trust or other entity, or (y)
amend, alter or repeal the provisions of the Declaration of Trust
(including these Articles Supplementary) or Bylaws, whether by merger,
consolidation or otherwise, in each case that would materially and
adversely affect the powers, special rights, preferences, privileges or
voting power of the Series F Preferred Shares or the holders thereof;
provided, however, that with respect to the occurrence of a merger,
consolidation or a sale or lease of all of the Trust's assets as an
entirety, so long as (1) the Trust is the surviving entity and the Series F
Preferred Shares remain outstanding with the terms thereof unchanged, or
(2) the resulting, surviving or transferee entity is a corporation or real
estate investment trust organized under the laws of any state and
substitutes the Series F Preferred Shares for other preferred shares having
substantially the same terms and same rights as the Series F Preferred
Shares, including with respect to distributions, voting rights and rights
upon liquidation, dissolution or winding-up, then the occurrence of any
such event shall not be deemed to materially and adversely affect such
rights, privileges or voting powers of the holders of the Series F
Preferred Shares and provided further that any increase in the amount of
authorized preferred shares or the creation or issuance of any other class
or series of preferred shares, or any increase in an amount of authorized
shares of each class or series, in each case ranking either (m) junior to
the Series F Preferred Shares with respect to payment of distributions and
the distribution of assets upon liquidation, dissolution or winding-up, or
(n) on a parity with the Series F Preferred Shares with respect to payment
of distributions or the distribution of assets upon liquidation,
dissolution or winding-up to the extent such preferred shares are not
issued to an affiliate of the Trust, shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting powers.
Section 9. Transfer Restrictions. The Series F Preferred Shares
shall be subject to the provisions of Article 2 of the Declaration of Trust.
Section 10. No Conversion Rights. The holders of the Series F
Preferred Shares shall not have any rights to convert such shares into shares of
any other class or series of shares or into any other securities of, or interest
in, the Trust.
Section 11. No Preemptive Rights. No holder of the Series F
Preferred Shares shall, as such holder, have any preemptive rights to purchase
or subscribe for additional shares of the Trust or any other security of the
Trust which it may issue or sell.
Section 12. Record Holders. The Trust and the Transfer Agent may
deem and treat the record holder of any Series F Preferred Shares as the true
and lawful owner thereof for all purposes, and neither the Trust nor the
Transfer Agent shall be affected by any notice to the contrary.
10
<PAGE>
Section 13. Sinking Fund. The Series F Preferred Shares shall not be
entitled to the benefit of any retirement or sinking fund.
THIRD: The Series F Preferred Shares have been classified by the
Board of Trustees under the authority contained in Article II, Section 1, of the
Declaration of Trust.
FOURTH: These Articles Supplementary have been approved by the Board
of Trustees in the manner and by the votes required by law.
FIFTH: The undersigned each acknowledges these Articles Supplementary
to be the act of the Trust and further, as to all matters or facts required to
be verified under oath, each of the undersigned acknowledges that to the best of
his knowledge, information and belief, these matters and facts are true in all
material respects and this statement is made under the penalties of perjury.
11
<PAGE>
IN WITNESS WHEREOF, the Trust has caused these Articles Supplementary
to be signed in its name and on its behalf by its Senior Vice President and
Chief Financial Officer and attested to by its Assistant Secretary on this 27th
day of September, 1999.
ARCHSTONE COMMUNITIES TRUST
By: /s/ Charles E. Mueller, Jr.
----------------------------
Charles E. Mueller, Jr.
Senior Vice President and
Chief Financial Officer
ATTEST:
/s/ Jeffrey A. Klopf
----------------------------
Jeffrey A. Klopf
Assistant Secretary
12
<PAGE>
EXHIBIT 12.1
Archstone Communities Trust
Computation of Ratio of Earnings to Fixed Charges
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Twelve Months Ended December 31,
---------------------- ----------------------------------------
1999 1998 1998 1997(1) 1996
---------------------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
Earnings from operations...................... $125,106 $ 95,308 $133,926 $24,686 $ 94,089
Add:
Interest expense............................. 87,818 56,151 83,350 61,153 35,288
-------- -------- -------- ------- --------
Earnings as adjusted.......................... 212,924 $151,459 $217,276 $85,839 $129,377
======== ======== ======== ======= ========
Fixed charges:
Interest expense............................. $ 87,818 $ 56,151 $ 83,350 $61,153 $ 35,288
Capitalized interest......................... 25,385 20,764 29,942 17,606 16,941
-------- -------- -------- ------- --------
Total fixed charges......................... $113,203 $ 76,915 $113,292 $78,759 $ 52,229
======== ======== ======== ======= ========
Ratio of earnings to fixed charges............ 1.9 2.0 1.9 1.1 2.5
======== ======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Twelve Months Ended December 31,
--------------------------------
1995 1994
-------- -------
<S> <C> <C>
Earnings from operations...................... $ 81,696 $46,719
Add:
Interest expense............................. 19,584 19,442
-------- -------
Earnings as adjusted.......................... $101,280 $66,161
======== =======
Fixed charges:
Interest expense............................. $ 19,584 $19,442
Capitalized interest......................... 11,741 6,029
-------- -------
Total fixed charges......................... $ 31,325 $25,471
======== =======
Ratio of earnings to fixed charges............ 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>
Nine Months Ended
September 30, Twelve Months Ended December 31,
--------------------- ---------------------------------
1999 1998 1998 1997(1) 1996
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Earnings (loss) from operations............... $125,106 $ 95,308 $133,926 $24,686 $ 94,089
Add:
Interest expense........................... 87,818 56,151 83,350 61,153 35,288
-------- -------- -------- ------- --------
Earnings as adjusted.......................... $212,924 $151,459 $217,276 $85,839 $129,377
======== ======== ======== ======= ========
Combined fixed charges and Preferred Share
dividends:
Interest expense........................... $ 87,818 $ 56,151 $ 83,350 $61,153 $ 35,288
Capitalized interest...................... 25,385 20,764 29,942 17,606 16,941
-------- -------- -------- ------- --------
Total fixed charges.................... $113,203 $ 76,915 $113,292 $78,759 $ 52,229
-------- -------- -------- ------- --------
Preferred Share dividends................ 17,342 15,192 20,938 19,384 24,167
-------- -------- -------- ------- --------
Combined fixed charges and Preferred Share
dividends.................................... $130,545 $ 92,107 $134,230 $98,143 $ 76,396
======== ======== ======== ======= ========
Ratio of earnings to combined fixed charges
and Preferred Share dividends................ 1.6 1.6 1.6 0.9 1.7
======== ======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Twelve Months Ended December 31,
--------------------------------
1995 1994
-------- -------
<S> <C> <C>
Earnings (loss) from operations............... $ 81,696 $46,719
Add:
Interest expense........................... 19,584 19,442
-------- -------
Earnings as adjusted.......................... $101,280 $66,161
======== =======
Combined fixed charges and Preferred Share
dividends:
Interest expense........................... $ 19,584 $19,442
Capitalized interest...................... 11,741 6,029
-------- -------
Total fixed charges.................... $ 31,325 $25,471
-------- -------
Preferred Share dividends................. 21,823 16,100
-------- -------
Combined fixed charges and Preferred Share
dividends.................................... $ 53,148 $41,571
======== =======
Ratio of earnings to combined fixed charges
and Preferred Share dividends................ 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 $12.5 million. 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 15.1
Board of Trustees and Shareholders
Archstone Communities Trust
Gentlemen:
Re: Registration Statements Nos. 333-43723, 333-44639, 333-51139, 333-60815,
333-60817, 333-60847, 333-68591, and 333-77387.
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated October 25, 1999 related to our
review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered a part of a registration statement prepared or certified by an
accountant, or a report prepared by an accountant within the meaning of sections
7 and 11 of the Act.
KPMG LLP
Chicago, Illinois
November 11, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Form 10-Q for the nine months ended September 30, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,316
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,155,095
<DEPRECIATION> 277,428
<TOTAL-ASSETS> 5,299,705
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
299,920
<COMMON> 139,677
<OTHER-SE> 2,199,054
<TOTAL-LIABILITY-AND-EQUITY> 5,299,705
<SALES> 471,444
<TOTAL-REVENUES> 493,576
<CGS> 0
<TOTAL-COSTS> 259,715
<OTHER-EXPENSES> 18,937
<LOSS-PROVISION> 2,000
<INTEREST-EXPENSE> 87,818
<INCOME-PRETAX> 154,651
<INCOME-TAX> 0
<INCOME-CONTINUING> 154,651
<DISCONTINUED> 0
<EXTRAORDINARY> 1,113
<CHANGES> 0
<NET-INCOME> 153,538
<EPS-BASIC> 1.10
<EPS-DILUTED> 1.10
</TABLE>
<PAGE>
EXHIBIT 99.1
Current Development Activity
The following table summarizes Archstone's development communities under
construction as of September 30, 1999 (dollar amounts in thousands):
<TABLE>
<CAPTION> Actual or
Expected
Date for Expected
Total First Units Stabilization %
Number of Archstone Expected Start Date (Quarter/Year) Date Leased
Units Investment Investment(1) (Quarter/Year) (2) (Quarter/Year) (3)
--------- ---------- ------------- -------------- -------------- -------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Central Region:
Austin, Texas:
Archstone Monterey Ranch III... 448 $ 10,714 $ 31,669 Q3/98 Q2/00 Q2/01 n/a
----- -------- --------
Denver, Colorado:
Cedars II...................... 172 $ 2,995 $ 16,376 Q3/99 Q2/00 Q2/01 n/a
Archstone Dakota Ridge......... 480 34,247 35,541 Q1/98 Q1/99 Q1/00 92.71%
----- -------- --------
Total Denver, Colorado........ 652 $ 37,242 $ 51,917
----- -------- --------
Salt Lake City, Utah:
Archstone River Oaks........... 448 $ 34,627 $ 37,483 Q2/98 Q1/99 Q4/00 75.67%
----- -------- --------
Total Central Region....... 1,548 $ 82,583 $121,069
----- -------- --------
East Region:
Atlanta, Georgia:
Cameron at Barrett Creek....... 332 $ 26,573 $ 27,822 Q4/97 Q4/98 Q1/00 88.55%
----- -------- --------
Birmingham, Alabama:
Cameron at the Summit II....... 268 $ 17,404 $ 18,939 Q2/98 Q2/99 Q3/00 54.85%
----- -------- --------
Boston, Massachusetts:
Archstone Tewksbury............ 168 $ 16,399 $ 21,402 Q1/99 Q4/99 Q3/00 n/a
----- -------- --------
Charlotte, North Carolina:
Archstone Tyvola Centre........ 404 $ 5,646 $ 31,398 Q3/99 Q3/00 Q2/02 n/a
----- -------- --------
Indianapolis, Indiana:
Cameron at River Ridge......... 202 $ 14,943 $ 15,846 Q2/98 Q2/99 Q2/00 54.95%
----- -------- --------
Raleigh, North Carolina:
Archstone at Preston........... 388 $ 25,744 $ 31,289 Q2/98 Q2/99 Q2/01 40.46%
----- -------- --------
Richmond, Virginia:
Archstone at Swift Creek I..... 288 $ 19,919 $ 22,873 Q2/98 Q3/99 Q1/01 19.10%
----- -------- --------
Southeast Florida:
Archstone at Woodbine.......... 408 $ 6,704 $ 30,722 Q3/99 Q3/00 Q4/01 n/a
----- -------- --------
Washington, D.C.:
Archstone Governor's Green..... 338 $ 30,651 $ 36,446 Q3/98 Q3/99 Q3/00 32.54%
Archstone Woodland Park........ 392 14,720 42,622 Q2/99 Q2/00 Q3/01 n/a
----- -------- --------
Total Washington, D.C......... 730 $ 45,371 $ 79,068
----- -------- --------
West Coast, Florida:
Archstone Rocky Creek.......... 264 $ 18,041 $ 19,750 Q3/98 Q2/99 Q3/00 51.52%
----- -------- --------
Total East Region............. 3,452 $196,744 $299,109
----- -------- --------
West Region:
Phoenix, Arizona:
Cochise at Arrowhead II........ 200 $ 12,598 $ 13,535 Q2/98 Q1/99 Q1/00 82.00%
----- -------- --------
Reno, Nevada:
The Enclave II................. 180 $ 14,491 $ 16,204 Q4/98 Q3/99 Q4/00 42.22%
----- -------- --------
San Diego, California:
Archstone Torrey Hills......... 340 $ 36,750 $ 42,963 Q1/98 Q3/99 Q2/00 14.41%
----- -------- --------
San Francisco Bay Area,
California
Archstone Emerald Park......... 324 $ 43,098 $ 45,652 Q4/97 Q3/99 Q3/00 19.75%
Archstone Hacienda............. 540 59,438 74,533 Q2/98 Q3/99 Q1/01 14.44%
Archstone Monterey Grove....... 224 26,810 26,817 Q4/97 Q1/99 Q4/99 83.48%
----- -------- --------
Total San Francisco Bay Area.. 1,088 $129,346 $147,002
----- -------- --------
San Jose, California:
Archstone Willow Glen.......... 412 $ 24,230 $ 69,581 Q3/99 Q1/01 Q1/02 n/a
----- -------- --------
Seattle, Washington:
Archstone Inglewood Hill....... 230 $ 20,143 $ 20,677 Q2/98 Q2/99 Q2/00 67.39%
Archstone Northcreek........... 524 39,825 44,025 Q2/98 Q2/99 Q1/01 54.01%
----- -------- --------
Total Seattle................. 754 $ 59,968 $ 64,702
----- -------- --------
Total West Region......... 2,974 $277,383 $353,987
----- -------- --------
Total Communities
Under Construction.... 7,974 $556,710 $774,165
====== ======== ========
</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 September
30, 1999. An "n/a" indicates the communities where lease-up has not yet
commenced.
