<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 March 31, 2000
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 80012
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 May 4, 2000, there were approximately 139,200,000 of the Registrant's common
shares outstanding.
<PAGE>
Archstone Communities Trust
Index
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
PART I. Condensed Financial Information
Item 1. Financial Statements
Condensed Balance Sheets - March 31, 2000 (unaudited) and December 31, 1999........... 3
Condensed Statements of Earnings - Three months ended March 31, 2000 and 1999
(unaudited).......................................................................... 4
Condensed Statement of Shareholders' Equity - Three months ended March 31, 2000
(unaudited).......................................................................... 5
Condensed Statements of Cash Flows - Three months ended March 31, 2000 and 1999
(unaudited).......................................................................... 6
Notes to Condensed Financial Statements (unaudited)................................... 7
Independent Accountants' Review Report................................................ 14
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................... 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................ 20
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K...................................................... 20
</TABLE>
2
<PAGE>
PART I - CONDENSED FINANCIAL INFORMATION
Item 1. Financial Statements
Archstone Communities Trust
Condensed Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 2000 1999
------ ----------- ------------
(unaudited)
<S> <C> <C>
Real estate................................................................................ $5,411,314 $5,217,331
Less accumulated depreciation.............................................................. 328,244 300,658
---------- ----------
5,083,070 4,916,673
Mortgage notes receivable, net............................................................. 246,723 210,357
---------- ----------
Net investments.................................................................... 5,329,793 5,127,030
Cash and cash equivalents.................................................................. 9,601 10,072
Restricted cash in tax-deferred exchange escrow............................................ 9,943 68,729
Other assets............................................................................... 95,131 96,606
---------- ----------
Total assets....................................................................... $5,444,468 $5,302,437
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Unsecured credit facilities............................................................ $ 563,664 $ 493,536
Long-Term Unsecured Debt............................................................... 1,276,494 1,276,572
Mortgages payable...................................................................... 766,201 694,948
Distributions payable.................................................................. -- 53,518
Accounts payable....................................................................... 28,804 26,677
Accrued expenses....................................................................... 57,070 74,462
Other liabilities...................................................................... 49,879 59,915
---------- ----------
Total liabilities.................................................................. 2,742,112 2,679,628
---------- ----------
Minority interest:
Perpetual preferred units.............................................................. 73,242 41,996
Convertible operating partnership units................................................ 20,150 13,307
---------- ----------
Total minority interest............................................................ 93,392 55,303
---------- ----------
Shareholders' equity:
Series A Convertible Preferred Shares (3,646,140 shares in 2000 and 3,705,390 in
1999; liquidation preference of $25 per share)....................................... 91,154 92,635
Series B Preferred Shares (4,200,000 shares; liquidation preference of $25 per share).. 105,000 105,000
Series C Preferred Shares (2,000,000 shares; liquidation preference of $25 per share).. 50,000 50,000
Series D Preferred Shares (2,000,000 shares; liquidation preference of $25 per share).. 50,000 50,000
Common Shares (139,132,921 shares in 2000 and 139,008,353 in 1999)..................... 139,133 139,008
Additional paid-in capital............................................................. 2,293,287 2,291,026
Unrealized holding gain................................................................ 359 394
Employee share purchase notes.......................................................... (18,050) (19,170)
Distributions in excess of net earnings................................................ (101,919) (141,387)
---------- ----------
Total shareholders' equity......................................................... 2,608,964 2,567,506
---------- ----------
Total liabilities and shareholders' equity......................................... $5,444,468 $5,302,437
========== ==========
</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 March 31,
----------------------------------------
<S> <C> <C>
2000 1999
-------- --------
Revenues:
Rental revenues..................................................... $168,464 $153,254
Other income........................................................ 8,552 8,133
-------- --------
177,016 161,387
-------- --------
Expenses:
Rental expenses............................................................... 37,796 39,119
Rental expenses paid to affiliate............................................. 658 570
Real estate taxes............................................................. 15,243 14,052
Depreciation on real estate investments....................................... 36,525 32,797
Interest expense.............................................................. 34,202 27,018
General and administrative expenses........................................... 6,097 4,733
General and administrative expenses paid to affiliate......................... 188 599
Other expenses................................................................ 3,110 2,831
-------- --------
133,819 121,719
-------- --------
Earnings from operations......................................................... 43,197 39,668
Less: minority interest - perpetual preferred units........................... 1,214 -
minority interest - convertible operating partnership units............. 230 338
Plus: gains on dispositions of depreciated real estate, net................... 4,132 5,319
-------- --------
Earnings before extraordinary item............................................... 45,885 44,649
Less: extraordinary item - loss on early extinguishment of debt.............. - 1,113
-------- --------
Net earnings..................................................................... 45,885 43,536
Less: Preferred Share dividends.............................................. 6,431 5,691
-------- --------
Net earnings attributable to Common Shares - Basic............................... $ 39,454 $ 37,845
======== ========
Weighted average Common Shares outstanding - Basic............................... 139,072 141,295
-------- --------
Weighted average Common Shares outstanding - Diluted............................. 139,099 141,300
-------- --------
Earnings before extraordinary item per Common Share:
Basic......................................................................... $ 0.28 $ 0.28
======== ========
Diluted....................................................................... $ 0.28 $ 0.28
======== ========
Net earnings per Common Share:
Basic......................................................................... $ 0.28 $ 0.27
======== ========
Diluted....................................................................... $ 0.28 $ 0.27
======== ========
Distributions paid per Common Share.............................................. $ 0.385 $ 0.370
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
4
<PAGE>
Archstone Communities Trust
Condensed Statement of Shareholders' Equity
Three Months Ended March 31, 2000
(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 Additional Unrealized share Distributions
liquidation liquidation liquidation liquidation Shares at paid-in holding purchase in excess of
preference preference preference preference par value capital gain/loss notes net earnings Total
---------- ---------- ---------- ---------- --------- ------- --------- ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1999.. $92,635 $105,000 $50,000 $50,000 $139,008 $2,291,026 $394 $(19,170) $(141,387) $2,567,506
Comprehensive
income:
Net earnings..... - - - - - - - - 45,885 45,885
Preferred Share
dividends paid.. - - - - - - - - (6,431) (6,431)
Other
comprehensive
income.......... - - - - - - (35) - - (35)
----------
Comprehensive
income
attributable to
Common Shares..... - - - - - - - - - 39,419
----------
Other, net.......... (1,481) - - - 125 2,261 - 1,120 14 2,039
------- -------- ------- ------- -------- ---------- ---- -------- --------- ----------
Balances at March
31, 2000........... $91,154 $105,000 $50,000 $50,000 $139,133 $2,293,287 $359 $(18,050) $(101,919) $2,608,964
======= ======== ======= ======= ======== ========== ==== ======== ========= ==========
</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>
Three Months Ended
March 31,
------------------------
2000 1999
--------- ---------
<S> <C> <C>
Operating activities:
Net earnings............................................................................. $ 45,885 $ 43,536
Adjustments to reconcile net earnings to net cash flow provided by operating
activities:
Depreciation and amortization.......................................................... 36,762 32,830
Gains on dispositions of depreciated real estate, net.................................. (4,132) (5,319)
Provision for possible loss on investments............................................. -- 2,000
Loss recognized on write-down of convertible mortgage notes............................ 2,753 --
Minority interest...................................................................... 1,444 338
Change in accounts payable............................................................... 3,847 (998)
Change in accrued expenses and other liabilities......................................... (28,717) (22,936)
Change in other assets................................................................... 3,889 2,896
--------- ---------
Net cash flow provided by operating activities......................................... 61,731 52,347
--------- ---------
Investing activities:
Real estate investments.................................................................. (234,684) (236,921)
Proceeds from dispositions, net of closing costs......................................... 31,239 110,502
Change in tax-deferred exchange escrow................................................... 58,786 90,824
Other, net............................................................................... (3,858) 1,491
--------- ---------
Net cash flow used in investing activities............................................. (148,517) (34,104)
--------- ---------
Financing activities:
Proceeds from secured debt............................................................... 53,528 36,206
Debt issuance costs...................................................................... (2,377) (1,852)
Principal prepayment of mortgages payable................................................ (5,648) (7,871)
Regularly scheduled principal payments on mortgages payable.............................. (1,205) (1,733)
Proceeds from unsecured credit facilities, net........................................... 70,128 123,192
Repurchase of Common Shares.............................................................. -- (88,196)
Proceeds from issuance of perpetual preferred units...................................... 31,224 --
Cash distributions paid on Common Shares................................................. (53,504) (53,364)
Cash dividends paid on Preferred Shares.................................................. (6,431) (5,691)
Cash distributions paid to minority interests............................................ (1,444) (338)
Other, net............................................................................... 2,044 774
--------- ---------
Net cash flow provided by financing activities......................................... 86,315 1,127
--------- ---------
Net change in cash and cash equivalents.................................................... (471) 19,370
Cash and cash equivalents at beginning of period........................................... 10,072 10,119
--------- ---------
Cash and cash equivalents at end of period................................................. $ 9,601 $ 29,489
========= =========
Significant non-cash investing and financing activities:
Assumption of mortgages payable upon purchase of apartment communities................... $ 24,679 $ 9,411
Receipt of mortgage note receivable in exchange for apartment community.................. $ 35,880 $ --
Issuance of convertible operating partnership units in exchange for development site..... $ 6,843 $ --
Series A Convertible Preferred Shares converted to Common Shares......................... $ 1,481 $ 4,422
</TABLE>
The accompanying notes are an integral part
of the condensed financial statements.
6
<PAGE>
Archstone Communities Trust
Notes to Condensed Financial Statements
March 31, 2000 and 1999
(Unaudited)
(1) General
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 1999 Annual Report on
Form 10-K ("1999 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 month periods ended March 31, 2000 and 1999 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 other 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") requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the dates of the financial statements
and the reported amounts of revenues and expenses during the reporting periods.
Actual amounts realized or paid could differ from those estimates.
Reclassifications
Certain 1999 amounts have been reclassified to conform to the 2000
presentation.
Per Share Data
Following is a reconciliation of the denominator used to compute basic and
diluted net earnings per share ("EPS"), for the periods indicated (in
thousands). The numerator, net earnings attributable to Common Shares, is the
same for both the basic and the diluted calculations.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
------- -------
<S> <C> <C>
Weighted average number of Common Shares outstanding - Basic................. 139,072 141,295
Incremental options outstanding........................................... 27 5
------- -------
Weighted average number of Common Shares outstanding - Diluted/(1)/.......... 139,099 141,300
======= =======
</TABLE>
(1) Excludes the impact of potentially dilutive equity securities during
the period in which they are anti-dilutive.
7
<PAGE>
Archstone Communities Trust
Notes to Condensed Financial Statements - (Continued)
(2) Real Estate
Investments in Real Estate
Equity investments in real estate, at cost, were as follows (dollar amounts
in thousands):
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
--------------------------------- ---------------------------------
Investment Units Investment Units
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Apartment Communities:
Operating communities................................. $4,590,219 68,108 $4,444,289 68,255
Communities under construction (1).................... 574,915 7,712 563,020 7,830
Development communities In Planning (1) (2):
Owned.............................................. 67,443 2,152 45,481 2,096
Under Control (3).................................. - 1,771 - 2,375
--------------- --------------- --------------- ---------------
Total development communities In Planning......... 67,443 3,923 45,481 4,471
--------------- --------------- --------------- ---------------
Total apartment communities...................... 5,232,577 79,743 5,052,790 80,556
--------------- =============== --------------- ===============
Hotel asset (4)......................................... 22,870 22,870
Other real estate assets (5)............................ 155,867 141,671
--------------- ---------------
Total real estate................................ $5,411,314 $5,217,331
=============== ===============
</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 price, 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 March 31, 2000 and December 31, 1999 for
developments Under Control was $5.7 million and $5.3 million, respectively,
and is reflected in the "Other assets" caption of Archstone's Balance
Sheets.
(4) Represents Archstone's investment in a five-story Holiday Inn hotel located
in the Fisherman's Wharf area of San Francisco, California.
(5) Includes land that is not In Planning and our investment in an
unconsolidated taxable real estate subsidiary.
The change in investments in real estate, at cost, consisted of the following
(in thousands):
<TABLE>
<S> <C>
Balance at January 1, 2000........................................... $ 5,217,331
Apartment communities:
Acquisition-related expenditures................................ 158,451
Redevelopment expenditures...................................... 8,376
Recurring capital expenditures.................................. 1,422
Development expenditures, excluding land acquisitions........... 60,344
Acquisition and improvement of land for development............. 21,664
Dispositions.................................................... (70,470)
------------------
Net apartment community activity............................. 5,397,118
Other:
Change in other real estate assets, net............................ 14,196
------------------
Balance at March 31, 2000............................................ $ 5,411,314
==================
</TABLE>
At March 31, 2000, we had unfunded contractual commitments related to real
estate investment activities aggregating approximately $229.2 million.
8
<PAGE>
Archstone Communities Trust
Notes to Condensed Financial Statements - (Continued)
We were committed to the sale of six apartment communities and certain
other real estate assets having an aggregate carrying value of $132.4 million as
of March 31, 2000. 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 under
contract at March 31, 2000, which are included in our earnings from operations
for the three months ended March 31, 2000 and 1999 were $2.2 million and $2.1
million, respectively.
During the three months ended March 31, 1999, we 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 fair value.
(3) Mortgage Notes Receivable
Convertible Mortgage Notes
During the three months ended March 31, 2000, we concluded that for various
reasons, including the proposed transaction which would eliminate the publicly-
traded common shares of Homestead Village Incorporated, the conversion feature
associated with our Homestead convertible mortgage notes receivable had no
continuing economic value. A write-off of the net unamortized balance of the
conversion feature, aggregating $2.8 million, was therefore recorded. The
remaining balances associated with the convertible mortgage notes were not
affected.
(4) Borrowings
Unsecured Credit Facilities
We have 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 our option. The line of credit
bears interest at the greater of prime or the federal funds rate plus 0.50%, or
at our option, LIBOR (6.1% at March 31, 2000) plus 0.65%. Under a competitive
bid option contained in the credit agreement, we 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, we pay a facility fee, which is
equal to 0.15% of the commitment.
The following table summarizes our unsecured credit facility borrowings
(dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, 2000 December 31, 1999
--------------------- ---------------------
<S> <C> <C>
Total line of credit................................................. $750,000 $750,000
Borrowings outstanding at end of period.............................. $558,000 $485,000
Weighted average daily borrowings.................................... $528,121 $387,082
Maximum borrowings outstanding during the period..................... $618,000 $485,000
Weighted average daily nominal interest rate......................... 6.8% 6.0%
Weighted average daily effective interest rate....................... 6.9% 6.4%
</TABLE>
Our $100 million short-term, unsecured borrowing agreement with Chase bears
interest at an overnight rate that ranged from 6.3% to 7.1% during the three
months ended March 31, 2000. At March 31, 2000, there was $5.7 million
outstanding under this agreement.
9
<PAGE>
Archstone Communities Trust
Notes to Condensed Financial Statements - (Continued)
Long-Term Unsecured Debt
A summary of our long-term unsecured notes and unsecured tax-exempt bonds
(collectively, "Long-Term Unsecured Debt") outstanding at March 31, 2000 follows
(amounts in thousands):
<TABLE>
<CAPTION>
Effective Average
Coupon Interest Balance at Balance at Remaining
Type of Debt Rate/(1)/ Rate/(2)/ March 31, 2000 December 31, 1999 Life (years)
- ------------------------------- --------- --------- -------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Long-term unsecured notes/(3)/.... 7.3% 7.5% $1,200,779 $1,200,857 7.6
Unsecured tax-exempt bonds/(4)/... 4.2% 4.6% 75,715 75,715 8.2
---- ---- ---------- ---------- ---
Total/average................ 7.1% 7.3% $1,276,494 $1,276,572 7.7
==== ==== ========== ========== ===
</TABLE>
(1) Represents a fixed rate for the long-term unsecured notes and a variable
rate for the unsecured tax-exempt bonds. See Archstone's 1999 10-K for
information on our derivative financial instruments.
(2) Represents the effective interest rate, including interest rate hedges,
loan cost amortization and other ongoing fees and expenses, where
applicable.
(3) Our 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) The unsecured tax-exempt bonds require semi-annual interest payments and
are due upon maturity in 2008.
Mortgages Payable
Archstone's mortgages payable generally feature either monthly interest and
principal payments or monthly interest-only payments with balloon payments due
at maturity. A summary of mortgages payable outstanding at March 31, 2000
follows (amounts in thousands):
<TABLE>
<CAPTION>
Effective Interest Principal Balance at
Type of Mortgage Rate/(1)/ March 31, 2000 December 31, 1999
- -------------------------------- ------------------ -------------- -----------------
<S> <C> <C> <C>
Fannie Mae secured debt/(2)/....... 6.5% $304,265 $304,365
Conventional fixed rate............ 7.9% 163,830 110,776
Tax-exempt fixed rate.............. 6.4% 41,325 56,576
Tax-exempt floating rate........... 4.7% 232,249 192,847
Other.............................. 5.7% 24,532 30,384
---- -------- --------
Total/average mortgage debt... 6.2% $766,201 $694,948
==== ======== ========
</TABLE>
(1) Includes the effect of interest rate hedges, credit enhancements, other
bond-related costs and loan cost amortization, where applicable.
(2) Represents a long-term secured debt agreement with Fannie Mae. The Fannie
Mae secured debt matures January 2006, although Archstone has the option to
extend the term of any portion of the debt for up to an additional 30-year
period at any time, subject to Fannie Mae's approval.
The change in mortgages payable during the three months ended March 31,
2000 consisted of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Balance at January 1, 2000....................................... $694,948
Mortgage notes assumed or originated............................. 78,207
Regularly scheduled principal amortization....................... (1,205)
Prepayments, final maturities and other.......................... (5,749)
--------
Balance at March 31, 2000........................................ $766,201
========
</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 March 31, 2000 are as follows (in thousands):
<TABLE>
<CAPTION>
Mortgages Payable
-------------------------
Regularly
Long-Term Scheduled Final
Unsecured Principal Maturities
Debt Amortization and Other Total
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
2000........ $ 75,232 $ 3,504 $ 2,186 $ 80,922
2001........ 70,010 5,629 5,194 80,833
2002........ 97,810 6,015 293 104,118
2003........ 171,560 6,350 20,590 198,500
2004........ 51,560 6,698 36,580 94,838
Thereafter.. 810,322 155,790 517,372 1,483,484
---------- ------------ ---------- ----------
Total..... $1,276,494 $ 183,986 $ 582,215 $2,042,695
========== ============ ========== ==========
</TABLE>
The average annual principal payments due from 2005 to 2019 are $95.5
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 our option.
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. We were in
compliance with all financial covenants pertaining to our debt instruments at
March 31, 2000.
For the three months ended March 31, 2000 and 1999, the total interest paid
in cash on all outstanding debt was $46.5 million and $41.3 million,
respectively. We capitalize interest incurred during the construction period as
part of the cost of apartment communities under development. Interest
capitalized during the three months ended March 31, 2000 and 1999 was $6.6
million and $8.8 million, respectively.
Amortization of loan costs included in interest expense for the three
months ended March 31, 2000 and 1999 was $1.1 million and $1.4 million,
respectively.
Derivative Financial Instruments
Our involvement with derivative financial instruments is limited and we do
not use them for trading or other speculative purposes. We occasionally utilize
derivative financial instruments to lower our overall borrowing costs. See
Archstone's 1999 Form 10-K for additional information on Archstone's derivative
financial instruments.
In March, 2000, we entered into an interest rate cap agreement with a
notional amount of $20.9 million, relating to a tax-exempt bond which carried a
floating interest rate of 4.3% per annum as of March 31, 2000. The debt is
capped at an effective interest rate of 8.9% per annum until termination in
March 2005.
As of March 31, 2000, marking our various interest rate agreements to
market would result in a net gain of $16.7 million, prior to consideration of
the associated issuance costs, if each had been terminated on such date.
11
<PAGE>
Archstone Communities Trust
Notes to Condensed Financial Statements - (Continued)
(5) Minority Interest
In February 2000, a consolidated subsidiary issued 680,000 Series E
perpetual preferred units ($25 liquidation preference per unit) to a limited
partnership in exchange for $17.0 million. The units pay cumulative quarterly
distributions of $0.5234 per share ($2.09375 or 8.375% per annum), are
redeemable at our option after August 13, 2004 and are exchangeable for
Archstone Series E Cumulative Redeemable Perpetual Preferred shares on or after
August 13, 2009.
In March 2000, a consolidated subsidiary issued 600,000 Series G perpetual
preferred units ($25 liquidation preference per unit) to a limited partnership
in exchange for $15.0 million. The units pay cumulative quarterly distributions
of $0.5391 per share ($2.15625 or 8.625% per annum), are redeemable at our
option after March 3, 2005 and are exchangeable for Archstone Series G
Cumulative Redeemable Perpetual Preferred shares on or after March 3, 2010.
The total net proceeds of $31.2 million from the issuance of perpetual
preferred units during the three months ended March 31, 2000 were used to repay
borrowings under our unsecured credit facilities.
In March 2000, a consolidated subsidiary acquired a development site in Los
Angeles County, California in exchange for cash and 351,000 convertible
operating partnership units valued at approximately $6.8 million. The units are
convertible on a one for one basis into Common Shares and are generally entitled
to distributions in amounts equal to those distributed on Common Shares.
The units are included in minority interest in the accompanying Balance
Sheets. Distributions associated with the units were equal to the income
allocated to these minority interests, which is reflected as minority interest
expense in the accompanying Statements of Earnings.
(6) Cash Distributions/Dividends
The following table summarizes the cash dividends paid per share on the
Common Shares and Preferred Shares during 2000:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 2000
------------------
<S> <C>
Common Shares................................ $ 0.3850
Series A Convertible Preferred Shares/(1)/... $ 0.5186
Series B Preferred Shares/(1)/............... $ 0.5625
Series C Preferred Shares/(1)/............... $ 0.5391
Series D Preferred Shares/(1)/............... $ 0.5469
</TABLE>
(1) Collectively, the Series A, B, C and D Preferred Shares are referred
to as the "Preferred Shares".
On April 19, 2000, Archstone's Board of Trustees declared the second
quarter 2000 cash distribution of $0.385 per Common Share, payable on May 26,
2000, to shareholders of record on May 12, 2000. This distribution represents
our 97th consecutive Common Share distribution.
(7) Shareholders' Equity
During the three months ended March 31, 2000, approximately 59,200 of
Series A Convertible Preferred Shares were converted, at the option of the
holders, into approximately 79,800 Common Shares. This activity is included in
"Other, net" in the accompanying Condensed Statement of Shareholders' Equity.
At March 31, 2000, Security Capital Group Incorporated, our largest
shareholder, owned approximately 39% of our Common Shares outstanding. In April
2000, Security Capital transferred 1,589,776 Common Shares to an unaffiliated
party in exchange for Security Capital's convertible subordinated debentures as
part of its share repurchase program. As a result of the exchange, Security
Capital reduced its ownership in Archstone to approximately 38% of the
outstanding Common Shares and approximately 35% on a fully diluted basis.
12
<PAGE>
Archstone Communities Trust
Notes to Condensed Financial Statements - (Concluded)
(8) Segment Data
We define each of our apartment communities as individual operating
segments. We have determined that all of our apartment communities have similar
economic characteristics and also meet the other criteria which permit the
apartment communities to be aggregated into one reportable segment. We rely
primarily on net operating income, defined as rental revenues less rental
expenses and real estate taxes, for purposes of making decisions about
allocating resources and assessing segment performance.
Following are reconciliations of the reportable segment's: (i) revenues to
consolidated revenues and (ii) net operating income to consolidated earnings
from operations (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
<S> <C> <C>
2000 1999
------------ ----------
Reportable segment revenues......................................... $167,731 $152,490
Other non-reportable operating segment revenues /(1)/............... 9,285 8,897
------------ --------
Total segment and consolidated revenues............................. $177,016 $161,387
============ ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
<S> <C> <C>
2000 1999
-------- --------
Reportable segment net operating income............................. $114,036 $ 98,772
Other non-reportable operating segment net operating income......... 731 741
-------- --------
Total segment net operating income................................. 114,767 99,513
-------- --------
Reconciling items:
Other income....................................................... 8,552 8,133
Depreciation on real estate investments............................ (36,525) (32,797)
Interest expense................................................... (34,202) (27,018)
General and administrative expenses................................ (6,285) (5,332)
Other expenses..................................................... (3,110) (2,831)
-------- --------
Consolidated earnings from operations............................... $ 43,197 $ 39,668
======== ========
</TABLE>
(1) Includes $6.0 million and $5.8 million of interest income on the
convertible mortgage notes receivable for the three months ended March 31,
2000 and 1999, respectively. Also includes Archstone's share of income
from our unconsolidated taxable real estate subsidiary, rental revenue from
a hotel and interest income on cash equivalents and other notes receivable.
For the three months ended March 31, 2000, includes a $3.3 million gain on
the sale of Spectrum Apartment Locators, an apartment locator service
acquired in January 1998.
Archstone does not derive any of our consolidated revenues from foreign
countries and does not have any major customers that individually account for
10% or more of our consolidated revenues.
13
<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 March 31, 2000, and the related condensed statements of
earnings for the three month periods ended March 31, 2000 and 1999, the
condensed statement of shareholders' equity for the three month period ended
March 31, 2000 and the condensed statements of cash flows for the three month
periods ended March 31, 2000 and 1999. 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,
1999, 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 27, 2000, except as to Note 16, which is as of February 4, 2000, 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, 1999 is fairly stated, in all material respects, in relation to the
balance sheet from which it has been derived.
KPMG LLP
Chicago, Illinois
April 25, 2000
14
<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
1999 Form 10-K as well as the financial statements and notes included in Item 1
of this report. Certain statements in this Form 10-Q are "forward-looking
statements" as that term is defined under the Private Securities Litigation
Reform Act of 1995. These forward-looking statements are based on management's
current expectations, estimates and projections about the industry and markets
in which Archstone operates. 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 and many of
which are beyond the control of Archstone. Therefore, actual outcomes and
results may differ materially from what is expressed, forecasted or implied in
such forward-looking statements. Information concerning expected investment
balances, expected funding sources, planned investments and revenue and expense
growth assumptions are examples of forward-looking statements. We undertake no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise, except as required by
applicable law.
Archstone's operating results depend primarily on income from apartment
communities, which is substantially influenced by demand and supply of apartment
units in Archstone's primary target markets and submarkets, operating expense
levels, property level operations and the pace and price at which we can
develop, acquire or dispose of apartment communities. Capital and credit market
conditions which affect Archstone's cost of capital also influence operating
results. See Archstone's 1999 Form 10-K "Item 1. Business" for a more complete
discussion of risk factors that could impact Archstone's future financial
performance.
Results of Operations
Three Months Ended March 31, 2000 Compared to March 31, 1999
Archstone's overall rental revenues increased $15.2 million (9.9%) and net
operating income increased $15.3 million (15.3%) during the three months ended
March 31, 2000 as compared to the same period in 1999. These increases were
attributable to strong performance from our operating communities and the
execution of our capital redeployment program, which involves the disposition of
operating communities in secondary markets with less attractive growth prospects
to fund new investments in targeted markets with higher barriers to entry.
In addition, net earnings attributable to Common Shares increased $1.6
million during the three months ended March 31, 2000 over the same period in
1999. This net increase resulted primarily from a $3.5 million increase in
earnings from operations in 2000 and a $1.1 million extraordinary item charge
related to early extinguishment of debt in 1999. The increases were partially
offset in 2000 by a $1.8 million increase in minority interest expense and
Preferred Share dividends and a $1.2 million decrease in net gains on
dispositions of depreciated real estate.
Apartment Community Operations
At March 31, 2000, investments in apartment communities comprised over 99% of
our total real estate portfolio, based on total expected investment, including
planned capital expenditures. The following table summarizes the net operating
income generated from our apartment communities for each period (in thousands,
except for percentages):
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------------
<S> <C> <C>
2000 1999
----------------- ---------------
Rental revenues.......................................... $167,731 $152,490
Property operating expenses.............................. 53,695 53,718
----------------- ---------------
Net operating income..................................... $114,036 $ 98,772
================= ===============
Operating margin (net operating income/rental revenues).. 68.0% 64.8%
================= ===============
Average occupancy during period.......................... 95.6% 94.5%
----------------- ---------------
Average number of operating units........................ 68,094 69,019
----------------- ---------------
</TABLE>
15
<PAGE>
The increase in net operating income for the three months ended March 31, 2000
compared to the three months ended March 31, 1999 is primarily attributable to
an increase in rental revenues resulting from a changing mix of operating
communities, an improvement in average occupancy and the successful lease-up of
development communities. The execution of our capital redeployment program
continues to improve operating margins as a result of higher rental rates and
more stable revenue growth as capital is redeployed into markets with higher
barriers to entry. Such markets typically achieve higher and more consistent
growth in net operating income. The improved operating margin for the three
months ended March 31, 2000 was also impacted by operating efficiencies, lower
insurance expenses due to refinement of claim estimates and lower utility costs
due to increased levels of utility reimbursements from residents. Offsetting
these expense reductions were increases in personnel costs and higher real
estate taxes in 2000 due to projected increases in certain property tax
valuations. We anticipate that property operating expenses will increase at a
rate more consistent with the rate of inflation for the remainder of the year.
Other Income
Other income is primarily influenced by interest income on convertible
mortgage notes receivable. During the three months ended March 31, 2000, other
income also included a $3.3 million gain from the sale of Spectrum Apartment
Locators, a wholly-owned start-up company we acquired in January 1998. This
benefit was largely offset by lower earnings from Archstone's investment in an
unconsolidated taxable real estate subsidiary in 2000 as compared to 1999.
Depreciation Expense
The $3.7 million increase in depreciation expense resulted primarily from the
increase in the cost basis of operating communities, partially offset by
dispositions.
Interest Expense
The $7.2 million increase in interest expense is primarily attributable to
higher outstanding debt balances associated with the financing of our investment
activities, higher interest rates and a decrease in interest capitalization due
to lower levels of investments undergoing active development.
General and Administrative Expenses
The overall increase in general and administrative expenses relates primarily
to higher severance costs in 2000 as a result of certain staff reductions. In
addition, research and development costs associated with information technology
initiatives and higher expenses associated with Archstone's long-term incentive
plan increased general and administrative expenses during the three months ended
March 31, 2000 as compared to the same period in 1999.
Other Expenses
During the three months ended March 31, 2000, we concluded that for various
reasons, including the proposed transaction which would eliminate the publicly-
traded common shares of Homestead Village Incorporated, the conversion feature
associated with our Homestead convertible mortgage notes receivable had no
continuing economic value. A write-off of the net unamortized balance of the
conversion feature, aggregating $2.8 million, was therefore recorded. The
remaining balances associated with the convertible mortgage notes were not
affected. As a result of the write-off, approximately $1.2 million in non-cash
amortization, which would have been recorded as other income during the year
ended December 31, 2000, will not be reflected. During the three months ended
March 31, 1999, we concluded that full recovery of certain real estate
investments was doubtful. As a result, a provision for possible loss of $2.0
million was recorded to reduce these assets to their estimated fair value. Both
charges are included in "Other" in the accompanying Condensed Statements of
Earnings.
Gains on Dispositions of Depreciated Real Estate
During the three months ended March 31, 2000, we disposed of five apartment
communities representing gross proceeds of $68.9 million, including a $35.9
million note receivable relating to one community. We disposed of nine apartment
communities and certain other real estate assets, representing gross proceeds of
$113.1 million during the three months ended March 31, 1999. Aggregate net gains
of $4.1 million and $5.3 million were recorded for the three months ended March
31, 2000 and 1999, respectively.
16
<PAGE>
Preferred Share Dividends
The higher level of Preferred Share dividends is attributable to an increase
in the Series A Convertible Preferred Share dividend rate and the issuance of
Series D Preferred Shares in August 1999, partially offset by conversions of
Series A Convertible Preferred Shares into Common Shares.
Liquidity and Capital Resources
We believe Archstone's liquidity and financial condition are strong and we
remain committed to managing our balance sheet to preserve financial
flexibility. Despite the capital-constrained operating environment that exists
in the real estate industry, we have continued to fund attractive new investment
opportunities primarily through the use of proceeds from favorable dispositions
in non-core secondary markets. We believe our solid financial position will
continue to allow us to take advantage of investment opportunities that become
available in the future.
We consider our liquidity and ability to generate cash from operations,
dispositions and financings to be adequate to meet all of our cash flow needs
during the remainder of 2000.
Operating Activities
Net cash flow provided by operating activities increased by $9.4 million, or
17.9%, for the three months ended March 31, 2000 as compared to the same period
of 1999. This increase is due primarily to cash flow growth from operating
apartment communities.
Investing and Financing Activities
Real estate investments of $234.7 million during the three months ended March
31, 2000 were financed primarily from proceeds from property dispositions, cash
held in escrow pending tax-deferred exchanges and borrowings under unsecured
credit facilities. These unsecured credit facilities were partially repaid with
$53.5 million in proceeds from secured debt financing, net proceeds of $31.2
million from the issuance of perpetual preferred limited partnership units and
cash flow from operations. Real estate investments of $236.9 million and the
repurchase of $88.2 million of Common Shares during the three months ended March
31, 1999 were financed primarily from proceeds from property dispositions, cash
held in escrow pending tax-deferred exchanges and borrowings under unsecured
credit facilities. These unsecured credit facilities were partially repaid with
cash flow from operations and secured debt proceeds.
Other significant financing activities included the payment of $61.4 million
and $59.4 million in Common, Preferred Share and minority interest distributions
for the three months ended March 31, 2000 and 1999, respectively. The increases
are primarily attributable to the issuance of the Series D Preferred Shares in
August 1999, an increase in the cash distributions paid per Common Share and an
increase in the number of units issued to minority interests. We prepaid
mortgages due to community dispositions of $5.6 million and $7.9 million during
the three months ended March 31, 2000 and 1999, respectively.
Significant non-cash investing and financing activities during the three
months ended March 31, 2000 and 1999 included the assumption of mortgage debt,
the issuance of a note receivable upon the disposition of an apartment
community, the issuance of convertible operating partnership units and the
conversion of Series A Convertible Preferred Shares into Common Shares.
Scheduled Debt Maturities and Interest Payment Requirements
In order to reduce refinancing risk, our long-term debt obligations are
carefully structured to create a relatively level principal maturity schedule in
an attempt to minimize the requirement for large payments due in any single
year. As of March 31, 2000, we have only $80.9 million of long-term debt
maturing during the remainder of 2000 and $80.8 million maturing during 2001.
See Note 4 to the financial statements contained in Item 1 for more information
on scheduled debt maturities.
17
<PAGE>
We currently have $850 million in total borrowing capacity under our unsecured
credit facilities, with $544.4 million outstanding and an available balance of
$305.6 million at May 4, 2000. Archstone's unsecured credit facilities, Long-
Term Unsecured Debt and mortgages payable had effective interest rates of 6.9%,
7.3% and 6.2%, respectively, as of March 31, 2000. These rates give effect to
interest rate swaps and caps, as applicable.
We were in compliance with all financial covenants pertaining to our debt
instruments at March 31, 2000.
Shareholder Dividend/Distribution Requirements
Based on announced distribution levels for 2000 (assuming no changes in our
dividend/distribution levels) and the number of Archstone shares outstanding as
of March 31, 2000, we anticipate that Archstone will pay the following
dividends/distributions during the next 12 months (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Per Share/
Unit Total
------------- -------------
<S> <C> <C>
Common Share distributions................................................. $1.54 $214,265
Series A Convertible Preferred Share dividends............................. 2.07 7,562
Series B Preferred Share dividends......................................... 2.25 9,450
Series C Preferred Share dividends......................................... 2.16 4,312
Series D Preferred Share dividends......................................... 2.19 4,375
Series E perpetual preferred limited partnership unit distributions /(1)/.. 2.09 3,350
Series F perpetual preferred limited partnership unit distributions /(1)/.. 2.03 1,625
Series G perpetual preferred limited partnership unit distributions /(1)/.. 2.16 1,294
Other distributions on minority interests /(1)/............................ 1.54 1,461
-------------
Total dividend/distribution requirements................................... $247,694
=============
</TABLE>
(1) See Note 5 to the financial statements contained in Item 1 for information
on the perpetual preferred limited partnership units and other minority
interests.
Planned Investments
Following is a summary of unfunded planned investments as of March 31, 2000
(dollar amounts in thousands). The amounts labeled "Discretionary" represent
future investments that we plan to make, although there is not a contractual
commitment to do so. The amounts labeled "Committed" represent the approximate
amount that Archstone has contractually committed to fund.
<TABLE>
<CAPTION>
Planned Investments
--------------- -----------------------------------
Units Discretionary Committed
--------------- ----------------- ---------------
<S> <C> <C> <C>
Planned operating community improvements............. 68,108 $ 83,509 $ 2,231
Communities under construction....................... 7,712 - 226,947
Communities In Planning and owned.................... 2,152 227,263 -
Communities In Planning and Under Control............ 1,771 260,889 -
Operating community acquisition under contract....... 227 29,950 -
--------------- ----------------- ---------------
Total........................................... 79,970 $ 601,611 $ 229,178
=============== ================= ===============
</TABLE>
We anticipate completion of most of the communities that are currently under
construction and the planned operating community improvements in the remainder
of 2000 and 2001 and expect to start construction on approximately $250 million,
based on total expected investment, of communities that are currently in
planning, during the remainder of 2000. No assurances can be given that
communities we do not currently own will be acquired or that planned
developments will actually occur. In addition, actual costs incurred could be
greater or less than our current estimates.
18
<PAGE>
Funding Sources
We expect to finance the company's planned investment and operating needs
primarily with cash flow from operating activities, disposition proceeds derived
from our capital redeployment program, joint venture financing and borrowings
under unsecured credit facilities prior to arranging long-term financing. We
anticipate that net cash flow from operating activities during 2000 will be
sufficient to fund anticipated dividend/distribution requirements and scheduled
debt principal payments. To fund planned investment activities, we had $286.3
million in available capacity on our unsecured credit facilities, $9.9 million
in tax-deferred exchange escrow and $132.4 million of operating communities and
certain other real estate assets under contract for sale as of March 31, 2000.
Subject to normal closing risks, we anticipate that we will complete the
majority of these dispositions during the second or third quarter of 2000.
Furthermore, we expect that additional proceeds will be generated from other
dispositions during 2000 in connection with the ongoing execution of our capital
redeployment program. In addition, we anticipate receiving net proceeds of
approximately $95 million from the formation of a new real estate joint venture
transaction, which is expected to close during the three months ended June 30,
2000.
We currently have $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 our ability to effect offerings on
satisfactory terms.
Other Contingencies and Hedging Activities
We are a party to various claims and routine litigation arising in the
ordinary course of business. We do not believe that the results of any such
claims and litigation, individually or in aggregate, will have a material
adverse effect on our business, financial position or results of operations.
Our involvement with derivative financial instruments is limited and we do not
use them for trading or other speculative purposes. We occasionally utilize
derivative financial instruments to lower our overall borrowing costs. See Note
4 to the financial statements contained in Item 1 of this Form 10-Q and
Archstone's 1999 Form 10-K for more information on derivative financial
instruments currently in use.
Funds From Operations
Funds from operations has been a supplemental industry-wide standard to
measure operating performance of a real estate investment trust ("REIT") since
its adoption by the National Association of Real Estate Investment Trusts
("NAREIT") in 1991. In October 1999, NAREIT revised the definition of funds from
operations. The changes involved bringing funds from operations into closer
alignment with net income in accordance with GAAP. The revised measure generally
calls for adjustments to net income for those items which are unique to the real
estate industry or defined as "extraordinary items" under GAAP. To conform to
the revised definition, Archstone's primary changes were: (i) to include in
funds from operations certain non-cash components of interest income associated
with our convertible mortgage notes receivable, consistent with GAAP, and (ii)
to include the impact of net gains and losses associated with the disposition of
undepreciated real estate. We have restated our 1999 funds from operations to
conform to this revised definition.
Funds from operations should not be considered as an alternative to net
earnings or any other GAAP measurement of 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 NAREIT's 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. Anticipated cash distributions to shareholders
are summarized above in "-Shareholder Dividend/Distribution Requirements". Funds
from operations using the revised definition were as follows (amounts in
thousands):
19
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
<S> <C> <C>
2000 1999
------------------ --------------
(restated)
Net earnings attributable to Common Shares - Basic........................... $ 39,454 $ 37,845
Add (Deduct):
Depreciation on real estate investments................................... 36,525 32,797
Gains on dispositions of investments, net................................. (4,132) (5,750)
Extraordinary item - loss on early extinguishment of debt................. 1,113
Other, net................................................................ 828 472
------------------ --------------
Funds from operations attributable to Common Shares - Basic.................. 72,675 66,477
Minority Interest - convertible operating partnership units............... 230 338
Series A Convertible Preferred Share dividends............................ 1,897 2,250
------------------ --------------
Funds from operations attributable to Common Shares - Diluted................ $ 74,802 $ 69,065
================== ============
Weighted average Common Shares outstanding - Diluted......................... 144,700 148,419
================== ============
</TABLE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Archstone is exposed to interest rate changes associated with our unsecured
credit facilities and other variable rate debt as well as refinancing risk on
fixed-rate debt. Our involvement with derivative financial instruments is
limited and we do not use them for trading or other speculative purposes. We
occasionally utilize derivative financial instruments to lower our overall
borrowing costs.
See Archstone's 1999 Form 10-K "Item 7A. Quantitative and Qualitative
Disclosures About Market Risk" for a more complete discussion of our interest
rate sensitive assets and liabilities. As of March 31, 2000, 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
1999 Form 10-K as compared to their respective fair market values at March 31,
2000.
PART II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
4.1 --Articles Supplementary dated March 3, 2000 related to the
Series G Cumulative Redeemable Preferred Shares of Beneficial
Interest
10.1 --Administrative Services Agreement, dated as of January 1,
2000, between Archstone and Security Capital Group
Incorporated
12.1 --Computation 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 May 9, 2000 regarding unaudited
financial information
27 --Financial Data Schedule
99.1 --Current Development Activity
(b) Reports on Form 8-K:
None.
20
<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: May 9, 2000
21
<PAGE>
EXHIBIT 4.1
ARCHSTONE COMMUNITIES TRUST
SERIES G CUMULATIVE REDEEMABLE PREFERRED
SHARES OF BENEFICIAL INTEREST
________________
Articles Supplementary Classifying
and Designating a Series of Preferred Shares as
Series G 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 600,000 unissued
Common Shares of Beneficial Interest of the Trust as Series G Cumulative
Redeemable Preferred Shares of Beneficial Interest, $1.00 par value per share
(the "Series G Preferred Shares").
SECOND: The following is a description of the Series G 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 G Cumulative Redeemable Preferred Shares of
Beneficial Interest ("Series G Preferred Shares") and the number of shares which
shall constitute such series shall be 600,000 Shares, par value $1.00 per Share.
Section 2. Definitions. For purposes of the Series G 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 G 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 G 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 G 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.
"Series G 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 G 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
<PAGE>
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 Series G 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 G 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 G Preferred Shares.
"Voting Preferred Shares" shall have the meaning set forth in Section
8.
Section 3. Dividends.
(a) The holders of Series G 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 8.625% of the liquidation preference per annum (equivalent to $2.15625 per
share). Such dividends shall begin to accrue and shall be fully cumulative from
and including the date of issuance of Series G 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 G
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 G
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 G
Preferred Shares shall be computed on the basis of a 360-day year of twelve 30-
day months. Holders of Series G 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 G 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 G Preferred Shares which may be
in arrears.
(c) So long as any Series G Preferred Shares are outstanding, no
dividends, except as described in the immediately following sentence, shall be
declared or paid or set apart
<PAGE>
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 G 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 G
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 G Preferred
Shares and any Parity Shares as provided above, all dividends declared on the
Series G Preferred Shares and any Parity Shares shall be declared ratably in
proportion to the respective amounts of dividends accrued and unpaid on the
Series G Preferred Shares and on such Parity Shares.
(d) So long as any Series G 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 Series G Junior Shares, nor shall any Series G 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
Series G 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 G 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 G
Preferred Shares and the current dividend period with respect to any Parity
Shares. Any dividend payment on the Series G Preferred Shares shall first be
credited against the earliest accrued but unpaid dividend due which remains
payable.
(e) No distributions on Series G 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 G Preferred Shares
have preference or priority in the distribution of assets on any liquidation,
<PAGE>
dissolution or winding up of the Trust, the holders of Series G 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 G
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 G Preferred Shares are insufficient to pay in full such
preferential amount with respect to the Series G 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 G
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 G 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 G Preferred Shares, as provided herein, the holders of any
Series G 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 G 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 G Preferred Shares are not
redeemable by the Trust prior to March 3, 2005. On and after such date, the
Trust, at its option, may redeem the Series G 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 G Preferred Share, plus the amounts indicated in subsection (b) below.
(b) Upon any redemption of Series G 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 G Preferred Shares at the
close of business on such Dividend Record Date shall be entitled to receive the
dividend payable on such Series G Preferred Shares on the corresponding Dividend
Payment Date notwithstanding the redemption of such Series G Preferred Shares
before such
<PAGE>
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 G
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 G 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 G Preferred Shares and the current
dividend period with respect to any Parity Shares, the Series G Preferred Shares
may not be redeemed under this Section 5 in part and the Trust may not purchase
or otherwise acquire Series G Preferred Shares, except pursuant to a purchase or
exchange offer made on the same terms to all holders of Series G 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
G 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 G 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 G
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 G Preferred Shares to be redeemed and, if fewer
than all Series G Preferred Shares held by such holder are to be redeemed, the
number of Series G Preferred Shares to be redeemed from such holder; (iii) the
redemption price; (iv) the place or places at which certificates representing
such Series G Preferred Shares are to be surrendered; and (v) that dividends on
the Series G 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
G 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 G Preferred Shares so called for redemption,
(B) such Series G Preferred Shares shall no longer be deemed to be outstanding
and (C) all rights of the holders thereof as holders of Series G 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
<PAGE>
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 G Preferred Shares so called for redemption. No interest shall
accrue for the benefit of the holders of Series G 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 G 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 G Preferred Shares so
redeemed (properly endorsed or assigned for transfer, if the Trust so requires
and if the notice so states), such Series G Preferred Shares shall be exchanged
for any cash (without interest thereon) for which such Series G Preferred Shares
have been redeemed. If fewer than all the outstanding Series G Preferred Shares
are to be redeemed, the Series G Preferred Shares to be redeemed shall be
selected by the Trust from outstanding Series G 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 G Preferred Shares represented by any certificate are redeemed, then new
certificates representing the unredeemed Series G Preferred Shares shall be
issued without cost to the holder thereof.
Section 6. Shares to Be Retired. All Series G 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 G 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 G Preferred Shares;
(ii) on a parity with the Series G 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 G Preferred Shares, if the holders of
such class or series and the holders of Series G Preferred Shares are
entitled to
<PAGE>
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 G 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 Series G Junior
Shares; and
(iv) junior to the Series G 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 G 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 G 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 G 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 G
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 G 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 G Preferred
Shares, a special meeting of the holders of Series G 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
<PAGE>
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 G 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 G 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 G 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 G 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 G 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 G 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 G Preferred Shares remains outstanding, the
Trust shall not, without the approval of the holders of at least two-thirds
of the Series G 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
<PAGE>
G 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 adversely affect the powers, special rights, preferences,
privileges or voting power of the Series G 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 G
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 G Preferred Shares for other preferred shares having
substantially the same terms and same rights as the Series G 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 G
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 G 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 G 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 G 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 G
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.
<PAGE>
Section 11. No Preemptive Rights. No holder of the Series G
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 G 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 G Preferred Shares shall not be
entitled to the benefit of any retirement or sinking fund.
THIRD: The Series G 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.
<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 3rd
day of March, 2000.
ARCHSTONE COMMUNITIES TRUST
Charles E. Mueller, Jr.
Senior Vice President and
Chief Financial Officer
ATTEST:
Caroline Brower
General Counsel and Secretary
<PAGE>
EXHIBIT 10.1
ADMINISTRATIVE SERVICES AGREEMENT
---------------------------------
THIS ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") is made and entered
---------
into by and between Archstone Communities Trust, a Maryland Real Estate
Investment Trust ("the Company"), and SCGroup Incorporated, a Texas corporation
-----------
("SCGroup"). This Agreement shall supersede and replace the Administrative
-------
Services Agreement executed by the parties on January 1, 1999 upon expiration of
that earlier agreement on December 31, 1999.
WHEREAS, the Company wishes to purchase from SCGroup certain administrative
services designed to assist the Company in the cost-efficient management of the
Company's administrative and business affairs in the manner and pursuant to
terms and conditions as more specifically described herein; and
WHEREAS, SCGroup desires to provide or cause to be provided those services
requested by the Company under such terms and conditions; and
WHEREAS, SCGroup will perform similar administrative services for other
entities (collectively "SCGroup Clients") which may vary from time to time.
---------------
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
Section 1. Services
--------
1.1 Scope of Services. The specific services to be provided by
-----------------
SCGroup to the Company (each a "Service" and collectively the "Services") are
and shall be described in Schedule A. Except as provided in Section 3.2, the
scope of such Services selected may not be expanded, reduced or otherwise
modified by the Company without the written consent of SCGroup.
1.2 Access, Information, Cooperation and Assistance. The Company will
-----------------------------------------------
provide SCGroup with all access, Company information, cooperation and
assistance necessary for SCGroup to perform the Services in accordance with this
Agreement.
1.3 Increases in Volume of Service. If the Company completes a
------------------------------
transaction, such as the acquisition of a new business unit, that will result in
an increase of twenty-five (25%) percent or more in the volume of Services to be
delivered in any service category (e.g., Disbursements, Cash Management,
Corporate Tax) as designated on Schedule A, the Company shall promptly notify
SCGroup of such change. SCGroup shall exercise commercially reasonable efforts
to accommodate and deliver the increased
<PAGE>
volume of Services as soon as practicable and, in any event, within 60 days of
its receipt of notice of such increased volume.
1.4 Subcontracting. SCGroup may delegate and subcontract some or all
--------------
of its obligations under this Agreement to one or more third parties. If SCGroup
does so, it will remain responsible for the performance of all obligations
performed by such subcontractors to the same extent as if such obligations were
performed by SCGroup employees.
Section 2. Charges.
-------
2.1 Charges.
-------
(a) The charges to be paid by the Company to SCGroup for the Services
to be performed by SCGroup during the Initial Term and any extension of such
Term ("Renewal Period") are and shall be set forth in Schedule B ("Charges").
Unless otherwise agreed, such Charges shall be subject to modification only in
accordance with Sections 1.3 or 3.2. The Company agrees that the Charges paid by
the Company in each service category during the Initial Term and any Renewal
Period shall equal at least seventy-five percent (75%) of the Charges that would
have been paid by the Company in such service category based upon the estimated
service volume agreed upon by the parties for such period (the "Estimated
Charges"). If the Charges fail to reach such level during the Initial Term or
any Renewal Period, the Company shall pay to SCGroup an amount equal to the
total Charges that would have been paid by the Company in such service category
if the actual service volume had equaled seventy-five percent (75%) of the
agreed upon estimate, less the total Charges actually paid by Company in such
service category during the period in question. The Company shall pay such
amount to SCGroup within fifteen (15) days after the expiration or termination
of the Initial Term and thereafter within fifteen (15) days after the expiration
or termination of any applicable Renewal Period. For purposes of this Section
2.1, "service volume" shall include the volumes of the Company plus the volumes
of any subsidiaries of the Company that are administrative services customers of
SCGroup for the applicable service category. Should this Agreement be terminated
in accordance with Section 10.3, the estimated service volumes for purposes of
this Section 2.1 shall be prorated through the date of termination.
(b) Notwithstanding the above, if during any calendar quarter during
the Initial Term or any Renewal Period the Charges paid by the Company for any
service category are less than 75% or more than 125% of the Estimated Charges,
the parties may renegotiate the applicable rates and minimum volumes
prospectively under mutually acceptable terms; provided that if the parties are
unable to reach agreement on changes to rates or minimum volumes, the Company
may elect to terminate this Agreement in accordance with Section 10.3 or proceed
under the existing agreement. If the Charges paid by the Company are less than
75% of the Estimated Charges and the Company elects to terminate the Agreement
in accordance with Section 10.3, the Company shall pay SCGroup an amount equal
to 75% of the Estimated Charges through the date of
<PAGE>
termination, less the total charges actually paid by the Company for the
terminated service category during the applicable period.
2.2 Pass-Through Expenses. Pass-through expenses are listed in
---------------------
Schedule C. Unless otherwise agreed by the parties, pass-through expenses shall
be paid by the Company directly. SCGroup will promptly provide the Company with
the original third-party invoice for such expenses, together with a statement
that SCGroup has reviewed and validated the invoiced charges. SCGroup will
highlight any charges that appear to be inappropriate and will work with the
Company to reconcile all bills with the third-party suppliers.
2.3 Retained Expenses. The Company shall retain financial
-----------------
responsibility for those functions and expense items shown as retained expenses
in Schedule D. The Company will be billed directly by third parties for such
services. The Company agrees to pay such expenses in a timely manner and in the
ordinary course of business.
2.4 Extra Services. Any services requested by the Company beyond
--------------
those set forth in Schedule A will be performed in accordance with mutually
agreed terms, conditions and charges.
2.5 Payment for Services.
--------------------
(a) At the beginning of each calendar month, SCGroup shall invoice
the Company for the Charges specified in Schedule B for the Services received by
the Company during the preceding month. Such Charges shall be payable in full
within 20 days of receipt of such invoice by the Company. Any past due amounts,
unless such amounts have been disputed by the Company in accordance with Section
2.5(b), shall be subject to a late payment fee equal to the Wells Fargo Bank
N.A. prime lending rate plus 2 percent on the past due balance or the maximum
rate allowable by law, whichever is less. The Company shall cause payment to be
received by SCGroup at SCGroup's offices at 7777 Market Center Avenue, El Paso,
Texas 79912, or by wire transfer in accordance with the wire instructions
provided from time to time to the Company in writing by SCGroup.
(b) The Company shall provide SCGroup with prompt written
notification of any disputed Charges prior to the payment date of such Charges.
The notification shall provide a description of the specific reasons for the
dispute. No payment may be withheld for undisputed Charges.
2.6 Taxes.
-----
(a) Each party will pay any real estate or personal property taxes on
property it owns or leases, franchise and privilege taxes on its business, and
taxes based on its net income or gross receipts.
<PAGE>
(b) SCGroup will pay all sales, use, excise, value-added, services,
consumption, and other taxes and duties payable by SCGroup on any goods or
services used or consumed by SCGroup in providing the Services where the tax is
imposed on SCGroup's acquisition or use of such goods or services and the amount
of tax is measured by SCGroup's costs in acquiring such goods or services.
(c) In the case of any sales, use, excise, value-added, services,
consumption, or other tax that is assessed on the provision of the Services as a
whole, or on any particular hardware, software, or Service received by the
Company from SCGroup, the Company will pay such taxes.
(d) The Parties agree to fully cooperate with each other to enable
each to more accurately determine its own tax liability and to minimize such
liability to the extent legally permissible.
Section 3. Term.
----
3.1 Initial Term. Subject to Section 3.2, the term of this Agreement
------------
shall commence on January 1, 2000 and, unless terminated earlier in accordance
with Section 10, shall end, other than with respect to Human Resources and
Payroll services, on December 31, 2000 (the "Term"). The term of this Agreement
----
with respect to Human Resources and Payroll services shall end on July 1, 2000.
3.2 Term Extension.
--------------
(a) On or before September 1 of each calendar year, SCGroup shall
deliver to the Company (i) a list of the services (other than Risk Management
services) to be offered by SCGroup during the succeeding calendar year ("Renewal
Period"), (ii) the charges and performance standards associated with such
services, (iii) any additional or different terms and conditions applicable to
such service offerings, and (iv) a budget for the Renewal Period using estimated
service volumes. Thereafter, on or before September 30, the Company shall
provide SCGroup in writing with a nonbinding list of the services it wishes to
purchase during the succeeding calendar year; provided that, for any Service
that the Company is using in the then current calendar year not included in the
list, this Agreement shall terminate on December 31 of that year. On or before
November 30, the Company shall provide SCGroup with a written confirmation of
the Services it wishes to purchase during the succeeding calendar year; provided
that, if the Company fails to respond by such date, it shall be deemed to have
declined to purchase such services for the succeeding calendar year and this
Agreement shall terminate as to such services on the succeeding February 28 with
no termination fee due SCGroup. For terminated services, SCGroup and the Company
shall work together to transfer pertinent information to the Company or its
designee, and the Company agrees to pay SCGroup for the SCGroup employees
providing such information at their customary hourly rates and to reimburse
SCGroup for any expenses reasonably incurred by SCGroup in connection with this
effort. After the Company selects the Services to be provided by SCGroup
<PAGE>
during the Renewal Period, the scope of such Services may not be expanded,
reduced or otherwise modified by the Company without the written consent of
SCGroup.
(b) With respect to Risk Management services, in March of each year
SCGroup shall begin the renewal process for the then upcoming fiscal year that
begins June 30. During the renewal process, SCGroup shall provide periodic
updates to the Company regarding negotiations with underwriters and SCGroup's
estimated fees. On or before June 1 of each year, SCGroup shall deliver a
description of the services offered for the upcoming fiscal year, together with
the terms, charges and performance standards for such services. On or before
June 15, the Company shall notify SCGroup in writing whether the Company wishes
to purchase Risk Management services from SCGroup; provided that if the Company
fails to respond by June 15, it shall be deemed to have declined to purchase
such services for the succeeding fiscal year and this Agreement shall terminate
with respect to Risk Management services on June 30 of the then current year.
(c) If the Company has chosen to purchase Services for the succeeding
calendar year in accordance with Section 3.2(a), SCGroup shall prepare and
deliver to the Company on or before December 15 a Schedule A describing the
specific Services to be provided to the Company during the Renewal Period.
SCGroup also shall revise and deliver to the Company Schedules B, C, D and E on
or before that date to reflect the charges, performance standards and other
terms and conditions applicable to such Services.
Section 4. Audit of Services. At any time during regular business hours
-----------------
and as often as reasonably requested by the Company's officers, SCGroup shall
permit the Company or its authorized representatives to examine and make copies
and abstracts from the records and books of SCGroup for the purpose of auditing
the performance and Charges of SCGroup under the terms of this Agreement;
provided, that all costs and expenses of such inspection shall be borne by the
- --------
Company and provided further that the Company shall have no right and shall not
-------- -------
make copies of abstracts of any SCGroup Materials (as defined in Section 9.2).
Section 5. Company Data. Data obtained by SCGroup from the Company in
------------
connection with the performance of any Services ("Company Data") is and shall
remain the exclusive property of the Company. SCGroup is authorized to have
access to and make use of the Company Data as necessary and appropriate for the
performance by or for SCGroup of its obligations under this Agreement. Upon the
termination or expiration of this Agreement, SCGroup will return to the Company
all Company Data then in its possession. SCGroup will not use Company Data for
any purpose other than for providing the Services.
Section 6. Confidentiality. Except as otherwise provided in this
---------------
Agreement, SCGroup and the Company each agree that all information communicated
to it by the other, whether before or after the effective date of this
Agreement, will be received in strict confidence, will be used only for purposes
of this Agreement, and will not be disclosed by the recipient party without the
prior written consent of the other party. Each
<PAGE>
party agrees to use the same means it uses to protect its own Confidential
Information, but in any event not less than reasonable means, to prevent the
disclosure of such information to outside parties. However, neither party will
be prevented from disclosing information to its counsel or regular public
accountants, or from disclosing information which belongs to such party, or is
(a) already known by the recipient party without an obligation of
confidentiality; (b) publicly known or becomes publicly known through no
unauthorized act of the recipient party; (c) rightfully received from a third
party; (d) independently developed without use of the other party's confidential
information; (e) disclosed without similar restrictions to a third party by the
party owning the confidential information; or (f) required to be disclosed
pursuant to a requirement of a governmental agency or legal requirement if the
disclosing party provides the other party with notice of this requirement prior
to disclosure.
Section 7. Performance Standards
---------------------
7.1 Service Levels. SC Group shall exercise commercially reasonable
--------------
efforts to perform the Services in accordance with the service levels set forth
in Schedule E. To the extent any service level is determined by the parties to
be unattainable using commercially reasonable efforts, SCGroup will identify the
level of service which is reasonably attainable, the modifications or changes
necessary to attain the higher service level and the costs associated with such
modifications or changes. The parties will meet as necessary to evaluate and
revise the service levels. SCGroup will measure the quality and quantity of the
Services actually delivered by SCGroup. The data obtained by SCGroup will be one
of the bases for evaluating and possibly revising Schedule E. All such revisions
must be agreed to by the Company and SCGroup. If requested, the Company will
provide copies of relevant information in its possession to SCGroup to assist in
any review or revision of the service levels.
7.2 Failure to Attain Service Levels. If SCGroup fails to attain any
--------------------------------
service level, SCGroup will (i) promptly investigate the cause of the problem;
(ii) prepare a report identifying the cause of the problem and recommending
solutions; and (iii) use commercially reasonable efforts to correct the problem
and to begin meeting the service levels as soon as practicable, at no
incremental cost to the Company.
Section 8. Prevention of Performance. SCGroup shall not be determined to
-------------------------
be in violation of this Agreement if it is prevented from performing any
Services hereunder, in whole or in part, by the acts or omissions of the Company
or a third party or for any other reason beyond its reasonable control,
including without limitation acts of God, nature or public enemy, war, civil
disturbance, labor dispute, failure or fluctuation in electrical power, heat,
light, air conditioning or telecommunication service, or limitations of law,
regulations or rules of the Federal, state or local government or of any agency
thereof.
Section 9. Software and Other Intellectual Property.
----------------------------------------
<PAGE>
9.1 Company Materials. To the extent the Company possesses any
------------------
ownership, license or other right (including any patent, copyright, trademark,
trade secret or other proprietary right) in any software, equipment, data,
information, process or material ("Company Materials"), it shall retain such
right or interest and, except as provided in this Section, SCGroup shall not
acquire any right or interest in such Company Materials pursuant to this
Agreement. The Company hereby grants to SCGroup, without charge, the limited
nonexclusive nontransferable right to access and use Company Materials during
the term of this Agreement as and to the extent necessary for the performance of
the Services.
9.2 SCGroup Materials. To the extent SCGroup possesses any ownership,
-----------------
license or other right (including any patent, copyright, trademark, trade secret
or other proprietary right) in any software, equipment, data, information,
process or material ("SCGroup Materials") used in providing the Services, it
shall retain such right or interest and the Company shall not acquire any right
or interest in such SCGroup Materials pursuant to this Agreement.
9.3 Intellectual Property Rights. If, in the course of providing
----------------------------
Services under this Agreement, the Company requests and SCGroup agrees to
develop any Software, process or other material to the specification of the
Company, not being SCGroup Materials or an enhancement of SCGroup Materials, and
the Company pays all of the Charges associated with such development ("Work
Product"), then all legal and beneficial ownership rights therein (including all
patent, copyright, trademark, trade secret or other proprietary rights) shall
belong to the Company. SCGroup hereby assigns to the Company all right, title
and interest that arises in SCGroup with respect to such Work Product, including
all the patent, copyright, trademark, trade secret or other proprietary rights
related thereto, and SCGroup agrees to take all reasonable steps and execute all
documents necessary to perfect title to such Work Product in the Company.
SCGroup shall be permitted to access and use such Software, process or other
material as and to the extent necessary for the provision of the Services.
9.4 SCGroup Ownership Rights. Except as provided for in Section 9.3
-------------------------
above, all patent, copyright, trademark, trade secret or other proprietary
rights in any Software, process or other material created by SCGroup, its
employees or agents and all legal and beneficial rights therein shall belong to
SCGroup.
Section 10. Termination.
-----------
10.1 Termination for Cause. Either party may terminate this
---------------------
Agreement, in whole or in part, by giving written notice to the other party, if
such other party materially breaches any of its duties or obligations set forth
herein and fails to cure such breach within thirty (30) days of written notice
of such breach. If less than all
<PAGE>
Services are terminated, the parties will equitably adjust the Charges to be
paid by the Company hereunder for the remaining Services.
10.2 Terminate for Insolvency. Either party may terminate this
------------------------
Agreement, upon written notice to the other party, if such other party (a) files
for bankruptcy; (b) becomes or is declared insolvent (c) is the subject of any
proceedings related to its liquidation or insolvency or the appointment of a
receiver or similar officer; (d) makes an assignment for the benefit of all or
substantially all of its creditors; or (e) enters into an agreement for the
composition, extension, or readjustment of substantially all of its obligations.
10.3 Termination for Convenience. The Company may terminate any or
---------------------------
all Services covered by this Agreement at any time upon ninety (90) days prior
written notice to SCGroup and the payment of a termination fee equal to the
average of the monthly Charges for the terminated Services for the three months
preceding the notice of termination. SCGroup and the Company shall work together
to transfer pertinent information to the Company or its designee, and the
Company agrees to pay SCGroup for the SCGroup employees providing such
information at their customary hourly rates and to reimburse SCGroup for any
expenses reasonably incurred by SCGroup in connection with this effort.
Section 11. Disclaimer and Limitation of Liability and Intellectual
-------------------------------------------------------
Property Claims Between Parties.
-------------------------------
11.1 DISCLAIMER. EXCEPT AS SPECIFICALLY STATED IN THIS AGREEMENT,
-----------
NEITHER SCGROUP NOR THE COMPANY MAKES ANY REPRESENTATIONS OR WARRANTIES, EXPRESS
OR IMPLIED, REGARDING ANY MATTER, INCLUDING THE MERCHANTABILITY, SUITABILITY,
ORIGINALITY, TITLE, OR FITNESS FOR A PARTICULAR USE OR PURPOSE.
11.2 LIMITATION OF LIABILITY. IN NO EVENT SHALL A PARTY BE LIABLE FOR
-----------------------
INDIRECT, SPECIAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES EVEN IF SUCH
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. Additionally, the
total aggregate liability of either party for claims asserted by the other party
under or in connection with this Agreement, regardless of the form of the action
or the theory of recovery, shall be limited to the total Charges paid by the
Company to SCGroup during the 12 months preceding the event which is the subject
of the claim (the "Liability Cap"); provided, however, that the Liability Cap
--------
shall not apply with respect to (i) claims that are the subject of the
indemnification provisions set forth herein, or (ii) any failure to pay Charges
due and owing to SCGroup under this Agreement.
Section 12. Indemnification.
----------------
<PAGE>
12.1 By SCGroup. SCGroup shall indemnify, defend and hold harmless
----------
the Company and its officers, directors, employees, agents, successors, and
assigns from any and all Losses attributable to third party claims arising from
willful misconduct or gross negligence by SCGroup in the performance of its
obligations under this Agreement.
12.2 By the Company. Except as provided in Section 12.1, the Company
--------------
shall indemnify, defend and hold harmless SCGroup and its officers, directors,
employees, agents, successors, and assigns from any and all Losses attributable
to third party claims arising under or in connection with this Agreement.
Section 13. Relationship of the Parties.
---------------------------
13.1 Independent Contractor Status. SCGroup is an Independent
-----------------------------
Contractor. This Agreement will not be construed as creating any partnership,
agency relationship or other form of legal association that would impose
liability upon one party for the other party's actions or failure to act. Nor
will this Agreement be construed as providing either party with the right, power
or authority (express or implied) to create any duty for, or obligation of, the
other party.
13.2 Responsibility for Employees. Each party will be responsible for
----------------------------
the management, direction and control of its employees and other agents. All
SCGroup employees used in performing SCGroup's obligations under this contract
shall be employed solely and exclusively by SCGroup, and all Company employees
used in performing the Company's obligations under this Agreement shall be
employed solely and exclusively by the Company. Thus, SCGroup and the Company
shall not be considered a joint or single employer of any employee.
13.3 SCGroup Control of Services. Except where this Agreement
----------------------------
expressly provides that SCGroup will perform certain identified Services as
agent for the Company, the Services will be under the control, management and
supervision of SCGroup.
Section 14. Notices.
-------
14.1 Manner of Delivery. Each notice, demand, request, consent,
------------------
report, approval or communication (each a "Notice") which is or may be required
------
to be given by either party to the other party in connection with this Agreement
and the transactions contemplated hereby, shall be in writing, and given by
telecopy, personal delivery, receipted delivery service, or by certified mail,
return receipt requested, prepaid and properly addressed to the party to be
served.
14.2 Addresses. Notices shall be addressed as follows:
---------
If to the Company:
Archstone Communities Trust
7777 Market Center Avenue
<PAGE>
El Paso, TX 79912
Attention: William Kell
With a copy to:
Archstone Communities Trust
7670 S. Chester Street, Suite 100
Englewood, CO 80112
Attention: Charles E. Mueller, Jr.
If to SCGroup:
SCGroup Incorporated
7777 Market Center Avenue
El Paso, Texas 79912
Attention: Vincent L. Dodds
14.3 Effective Date of Notice. Notices shall be effective on the date
------------------------
sent via telecopy, the date delivered personally or by receipted delivery
service, or three (3) days after the date mailed.
14.4 Change of Address. Each party may designate by notice to the
-----------------
others in writing, given in the foregoing manner, a new address to which any
notice may thereafter be so given, served or sent.
Section 15. Entire Agreement. This Agreement, together with the Schedules
----------------
hereto, constitutes and sets forth the entire agreement and understanding of the
parties pertaining to the subject matter hereof, and no prior or contemporaneous
written or oral agreements, understandings, undertakings, negotiations,
promises, discussions, warranties or covenants not specifically referred to or
contained herein or attached hereto shall be valid and enforceable. No
supplement, modification, termination in whole or in part, or waiver of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed,
or shall constitute, a waiver of any other provision hereof (whether or not
similar), nor shall any such waiver constitute a continuing waiver unless
otherwise expressly provided.
Section 16. Priority. If there is any apparent conflict or inconsistency
--------
between the provisions set forth in this Agreement, and the provisions set forth
in any schedule, exhibit, attachment or supplement attached hereto, to the
extent possible such provisions will be interpreted in a manner so as to make
them consistent. If it is not possible to interpret such provisions
consistently, the provisions set forth in the body of this Agreement will
prevail.
Section 17. No Third Party Beneficiaries. The parties do not intend, nor
----------------------------
will any clause of this Agreement be interpreted to create, for any third party
any obligation to or benefit from the Company or SCGroup.
<PAGE>
Section 18. Survival. All provisions of this Agreement which contemplate
--------
performance or observance following the expiration or earlier termination of
this Agreement, will survive any such expiration or earlier termination.
Additionally, all provisions of this Agreement will survive the expiration or
earlier termination of this Agreement to the fullest extent necessary to give
the parties the full benefit of the bargain expressed herein.
Section 19. Consents and Approvals. Where agreement, approval, permission,
----------------------
acceptance, consent or similar action by either party is required by any
provision of this Agreement, such action will not be unreasonably delayed,
conditioned or withheld.
Section 20. Binding Effect. This Agreement shall be binding upon and shall
--------------
inure to the benefit of the parties hereto, each of their respective successors
and permitted assigns, but may not be assigned by either party without the prior
written consent of the other party, and no other persons shall have or derive
any right, benefit or obligation hereunder.
Section 21. Headings. The headings and titles of the various paragraphs of
--------
this Agreement are inserted merely for the purpose of convenience, and do not
expressly or by implication limit, define, extend or affect the meaning or
interpretation of this Agreement or the specific terms or text of the paragraph
so designated.
Section 22. Governing Law. This Agreement shall be governed in all
-------------
respects, whether as to validity, construction, capacity, performance or
otherwise, by the laws of the State of Texas.
Section 23. Severability. If any provision of this Agreement shall be held
-------------
invalid by a court with jurisdiction over the parties to this Agreement, then
and in that event such provision shall be deleted from the Agreement, which
shall then be construed to give effect to the remaining provisions thereof. If
any one or more of the provisions contained in this Agreement or in any other
instrument referred to herein shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, then in that event, to the maximum
extent permitted by law, such invalidity, illegality or enforceability shall not
affect any other provisions of this Agreement or any other such instrument.
Section 24. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall be considered one and the same instrument.
Section 25. Limitation of Liability. In accordance with the Declaration
-----------------------
of Trust of the Company, notice is hereby given that all persons dealing with
the Company
<PAGE>
will look to the assets of the Company for the enforcement of any claim against
the Company, as none if the trustees, officers, employees or shareholders of the
Company assume any personal liability for obligations entered into by or on
behalf of the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
ARCHSTONE COMMUNITIES TRUST
By: /s/ CHARLES E. MUELLER, JR.
---------------------------
Charles E. Mueller, Jr.
Chief Financial Officer
SCGROUP INCORPORATED
By: /s/ THOMAS N. KENDALL
----------------------
Thomas N. Kendall
Managing Director
<PAGE>
SCHEDULE A
DESCRIPTION OF SERVICES
The Services to be provided by SCGroup to the Company are described in this
Schedule A. Such Services shall be provided to the home office, as well as all
regional offices within the United States.
The Company and SCGroup shall each designate a service manager with authority to
act on its behalf with respect to all matters pertaining to this Agreement. The
contact information for each service manager and any related personnel may be
found on Appendix 1.
1. Business Services
-----------------
1.1 General Ledger Accounting Services (NOT APPLICABLE)
1.2 Financial Reporting and Analysis (NOT APPLICABLE)
1.3 Budgeting and Forecasting (NOT APPLICABLE)
1.4 Payroll Bank Reconciliations
. Reconcile Company payroll bank accounts on a monthly basis
utilizing SCGroup standard bank reconciliation forms
. Provide journal entries necessary to correct Company book
cash balance by the end of the following month
. Prepare bank reconciliations generally by the end of each
subsequent month
1.5 Registrar and Transfer Agent Services (NOT APPLICABLE)
1.6 Stock Option Administration and Reporting (NOT APPLICABLE)
2. Cash Management
---------------
2.1 Bank Account Management
. Set up and maintain internal controls
. Open, close, and change bank or investment accounts (i.e.,
tax ID, legal name, certificate, resolution, signors)
. Set up Mellon automated investment sweep
. Maintain bank account database and files
. Reconcile accounts daily and forecast cash needs
. Support controlled disbursement/positive pay, investment,
concentration accounts
<PAGE>
. Maintain XRT relating to accounts/folios
. Provide deposit slips and endorsement stamps
. Execute internal funds transfers to concentrate cash
efficiently
. Utilize target balance to optimize cash
. Cross-train team members and create contingency plans
. Prepare daily bank deposits and overnight to concentration
account
. Checks received in Cash Management by 3:00 pm will be sent
overnight to the bank provided that the transaction costs
are lower than the additional interest earnings
. Research inquiries requested by companies on existing
accounts
. Assist with bank research on existing accounts
. Process Direct Debits
. Letter of Credit management services (same charge as a low
maintenance account)
. Balance, activity, and NSF reports will generally be
provided daily
. Cash optimization procedures will generally be performed
daily
. All investments managed by Cash Management will adhere to
Company investment guidelines
2.2 Electronic Disbursements
. Sort, mark and distribute Company wires
. Input and transmit wires
. Create and maintain XRT scripts relating to wires/ACHs
. Maintain wire software and passwords
. Ensure that funds are available for payment
. Process for further credit wires
. Facilitate payments for utilities, taxes, payroll, and
mortgages
. Fund utility payments daily
. Fund controlled disbursement checking accounts
. Set up repetitive wires/ACHs, including setup in XRT; i.e.,
construction draws, interest payments
. Subject to receipt of accurate and timely information (noon
on the business day before for U.S. wires; four business
days ahead for international wires), wires will generally be
sent on time. Wires are executed subject to receipt of any
necessary funding.
2.3 Special Handling Electronic Disbursements
. Execute late wires
. Execute and monitor tentative wires
. Obtain and provide Fed reference numbers
<PAGE>
. Monitor incoming wires
. Execute AM wires
. Morning payments are executed subject to receipt of any
necessary funding
. Execute cashier's checks
. Execute foreign currency drafts
. Execute international wires
. Setup/maintenance of FX (foreign exchange) relationships
. Participate in FX competitive bidding
. Combine multiple wires into one payment (count as one
special handling wire)
. Execute tax payments - EFTPS debit notification
. Late requests will be processed on a best-efforts basis
. Special handling instructions will be followed provided that
the instructions are included on the disbursement request
form
2.4 Investing and Borrowing
. Manage line of credit activities
. Monitor monthly LIBOR rates
. Maintain and report LOC status reports
. Summarize LOC agreements
. Federated investment activities - invest and redeem cash as
deemed prudent or necessary consistent with Company
guidelines
. Maintain investment guidelines
. Maintain Federated Investment Software
. All investments executed by Cash Management will adhere to
Company investment guidelines
. Investment and borrowing decisions will be made daily and
executed in time to meet financial institution deadlines
2.5 Transaction Reporting
. XRT to PeopleSoft automated journal entries
. Federated reports
. NSF reports
. Wire templates
. XRT reports
. Remittance information via phone/email
. Hardware support
. Other software support
. XRT research support
. Balance, activity, and NSF reports will be provided daily
2.6 Bank Fee and Relationship Management
<PAGE>
. Negotiate and review bank fees
. Process fees for payment - including check requests
. Utilize bank earnings credits to the extent possible or
practicable
. Coordinate and participate in bank visits
. Process monthly account analysis statement
. Set up electronic account analysis in XRT
2.7 Projects/Research (charged at an hourly rate)
. Research Company inquiries not included in services above
. Create XRT to PeopleSoft interface
. Coordinate company mergers
. Set up Direct Debit
. Set up new companies in XRT and related software and
databases
. Special projects require Company vice president approval
before execution
. SCGroup performance is subject to external constraints
including, but not limited to, receipt of information on
transactions, Company's operational needs, bank availability
schedules, bank deadlines, borrowing provisions, and
transaction costs
3. Corporate Tax Administration (NOT APPLICABLE)
-----------------------------
4. Disbursements
-------------
4.1 Invoice Processing Services (paper and Web-based invoice
processing)
(a) General
. Process all properly approved and coded invoices for
payment; issue check to vendor
. Enter invoices into system (paper-based only)
. Enter wire transfers into system
. Reclass invoices to correct G/L accounts
. Generate bi-weekly check runs
. Match remittances
. Obtain authorized manual signature if check amount is
over $10,000
. Overnight/Special Handling checks processed daily
. Mail checks
. File "processed" invoices (paper-based only)
. Issue positive-pay bank transmissions daily
<PAGE>
. Perform back-end audits for policy compliance (paper-
based only)
. AP documentation generally filed within two business
days of processing (paper-based only)
. Checks disbursed within one business day after
issuance
. Customer Service Calls generally returned within two
business hours; research completed and resolved within
two business days
. SODA's generally processed within three business days
of receipt
. Purchase Card Administration
. Issue/change/cancel P-Cards
. Issue cardholders statements monthly
. Provide standard P-Card reports on an as-requested
basis
. Provide one custom report (excess reports to be billed
at $50.00 each)
. Download MasterCard transactions to G/L system monthly
(more than once monthly to be billed at $50.00 each)
. Prepare payment to Wells Fargo for P-Card transactions
monthly
. Other Services
. Electronic funds validation
. Recurring payment processing
. Returned checks
. Issue void at bank and in system
. Reissue, if necessary
. 1099 reporting compliance and issuance
. Download CASS transactions to G/L system monthly (more
than once monthly to be billed at $50.00 each)
(b) Emergency (Manual) Check Services
. Process emergency or manual check as requested by Company
. Overnight/Special Handling processing
. Emergency checks generally disbursed same business day
after issuance per special handling instructions
(c) AP Compliance (Reject) Program Services (for paper-based
invoice processing only)
<PAGE>
. Prepare reject notification for improperly completed
vouchers; return to sender
. Oversee and administer the AP Compliance Program and
review with Company senior management
. Monitor compliance by company, property and non-
compliance type
. Provide monthly reports on all non-compliance issues to
Company senior management
(d) Stop Payments and Reissued Checks
. Process stop payments; void check in system and at bank
4.2 Accounts Payable Help Desk Services
(a) General
. Answer general accounts payable ("A/P") Help Desk calls
. Provide payment status of invoices, date paid, check
numbers, etc.
. Provide residents information on their refunds
. Provide Signature Authorization Level information
. Provide A/P Manuals/Stamps (one manual per property;
additional hard copy manuals to be billed at $15.00 each
and stamps to be billed at cost)
. Provide information on common A/P forms
. Provide information on A/P Policies and Procedures
. Perform A/P research as required
(b) Vendor Management
. Process and enter New Vendor Setup Forms (forms received
must be complete and accurate per A/P Manual)
. Update vendor information in vendor database
. Maintain Full-Risk/No-Risk Vendor Compliance Program
. Maintain insurance certificates for full-risk vendors
. Maintain filing system for full-risk/no-risk vendors
. Prepare Vendor Credit Applications
. Maintain filing system for credit applications
. Process BCL vendor downloads
4.3 Corporate Travel Center
(a) Corporate Charge and Phone Card Administration
<PAGE>
. Process corporate charge card and phone card
applications, generally within one business day of
receipt, and distribute cards generally within one
business day of receipt from card provider(s)
. Acknowledge inquiries from cardholders regarding card
losses, past due accounts, and reconciliation questions
generally within two business hours of receipt
. Notify delinquent cardholders on a monthly basis
. Assist in individual card reconciliation and credit
refund research
. Liaison to AMEX on behalf of cardholders
. Prepare and coordinate weekly wire transfers to AMEX
. Provide standard card activity reports to Management on a
quarterly basis
. Full charge card account reconciliation provided at a
rate of $65.00 per hour
. Ad hoc reports provided at a rate of $25.00 each
(b) Corporate Travel
. Manage relationship with Travel Agency Partner (AMEX)
. Negotiate agreements with travel agency, charge card,
air, car, and hotel providers for Company's use
. Provide timely updates to all travelers and travel
planners on travel policy and industry/vendor changes
. Acknowledge inquiries regarding travel-related service
issues, generally within two business hours of receipt
. Track and trend all travel-related service issues
. Conduct annual survey, by company, to identify
opportunities for improvement
. Update and maintain corporate travel policy manual
. Process new Business Traveler Profiles, generally within
one business day of receipt
. Process, approve and reconcile Company direct billing
accounts for air, car and hotel
. Analyze travel data and provide standard reports to each
company on a quarterly basis with benchmarking
information. Reports will generally be generated by the
25th day of the month following quarter end.
. Monitor travel policy compliance and provide standard
exception reports to Management
. Provide ad hoc reports at a rate of $25.00 each
<PAGE>
4.4 T&E Voucher Processing Services
. Process and enter New Vendor Setup Forms for employee expense
reimbursements, generally within one business day of receipt
. Date stamp all vouchers received
. Code expense report vouchers for correct general ledger
account and enter into accounting system
. Perform random back-end audits for policy compliance
. File and archive processed expense reports
. Generate files for wire transfers to American Express on
behalf of employee
. Generate employee checks for out-of-pocket expenses
. Process expense reimbursement emergency checks and American
Express payments at a rate of $50.00 per request
. Process and reconcile employee cash advances
4.5 Special Projects (subject to the Special Projects hourly rates)
. Train SCGroup affiliated company employees on use of A/P
system
. Set up and train on P-card, utility outsourcing programs
. Change in business structure and operation which requires
process changes
. Consult with companies for special projects
. Major research projects
. Copies of checks, invoices and employee expense vouchers and
other documentation as requested by the Company.
. Requests from external auditors
. Special reports and logs
. Sales and Use Tax compliance
5. Facilities Management
---------------------
(Services are available only at the El Paso, Texas office at 7777
Market Center Avenue.)
5.1 National Supply/Service Agreements
. Provide a centralized contact for the purchase/lease of copy,
fax, and postage equipment in addition to Steelcase cube
components
. Assist in the purchase process and establish national
purchasing agreements for the benefit of the Company
5.2 Access Control System
. Maintain an access control system for the benefit of all
associates and their guests
. This is a 24-hour per day, 7 day a week service
<PAGE>
. Requests for visitor/guest access should be made 24 hours in
advance of the required need
5.3 Reception
. Receive and redirect telephone calls
. Greet visitors
. Receive and log in deliveries
. Switchboard and lobby hours:
. Main Building
. 7:30 am-5:30 pm: Monday through Thursday (excluding
holidays)
. 7:30 am-5:00 pm: Friday, or the last workday of the
week
. MIS Building
. 8:00 am-5:00 pm: Monday through Friday (excluding
holidays)
5.4 Mail Center
. Receipt and distribution of USPS mail, packages, and
supplies
. Prepare various items for shipment, both domestic and
international, generated by the Company
. Track mail
. Additional requirements/service cutoffs:
. All USPS mail items must be received in the mail room by
4:15 pm for delivery to the Post Office on the same day
. All other shipments must be received in the mailroom by
4:45 pm for delivery to the various carriers the same day
5.5 Reprographics Center
. Provide bulk copy services and booklet preparation
. Assist in the maintenance of self-serve copy equipment
throughout the facility
5.6 Other
. Provide central facsimile services, incoming documents, to
be delivered in conjunction with mail delivery (or through
an automated fax mail system)
. Assist in the maintenance of fax machines throughout the
facility
. Local purchasing responsibility for day-to-day operating
needs, including office supplies. Special order items will
be billed directly to the requesting department.
. Provide basic new hire and associate cube supplies
. Housekeeping and janitorial responsibilities in the
Operations and the MIS facilities
<PAGE>
. Prepare coffee between the hours of 7:30 am - 2:00 pm
. Relocation of equipment and cube renovation/modification
. Conference room setup and tear-down as required
. General facility maintenance as required
. Replacement of printer toner cartridges
. Provide ground transportation needs for guests/visitors
. Provide pick up and delivery of items (non-food) and
documents
6. Human Resources
---------------
6.1 Health Plan Administration (NOT APPLICABLE)
6.2 401(k) and NSP Plan Administration (NOT APPLICABLE)
6.3 Pre-Employment Services (NOT APPLICABLE)
6.4 Compliance
. HR File Room Services
. General Company support - retrieve information from files
. Receive and facilitate orders for HR forms and supplies,
including transition boxes.
. Create personnel files as paperwork is received
. Process all filing received, including active,
terminated, and benefits filing
. Maintain current state and federal posters
6.5 Performance Review & Compensation Services (NOT APPLICABLE)
6.6 Relocation Services (NOT APPLICABLE)
6.7 Database Management Services
. Maintain database information on employee documentation
. System Administration for human resources, benefits and
payroll
. Prepare and comply with government reporting: EEO-1, VETS100
and Census Bureau, as submitted by the HR Manager
. Process Employment Verifications
. Review hiring paperwork for Company compliance (I-9's, W-
4's, Applications, etc.)
. Maintain current new hire forms via public folders,
corporate service intranet
. Maintain company-wide telephone directory
<PAGE>
6.8 HRIS Reports
. Standard report processing delivered by PeopleSoft as defined
by the HR/Payroll Implementation Team
. HRIS Custom Reports are available upon request by the Company
6.9 Recruitment Services (where services are required to be performed
in a specific location, this agreement refers to the El Paso,
Texas office at 7777 Market Center Avenue)
(a) Resume Management
. Receive resumes, log into central database and send
notification cards to all applicants
(b) Employment Process
. Accept open position forms and post to the weekly posting
. Update the Career Opportunities Jobline, Security Capital
Group Incorporated Web Page
. Review and screen applicants for position requirements
. Schedule interviews with applicants, prepare interview
packets and forward to hiring manager
. If out-of-town applicant, ensure that all receipts are
received and expense form is completed
. In conjunction with hiring manager, make conditional offer
of employment to candidate and generate offer letter
. Schedule new hire for pre-employment testing
. Send rejection letters to unsuccessful applicants after
acceptance of offer
(c) New Hire Process
. File the candidate resume, offer letter and completed
application in employee's file
. Submit new hire to pre-employment for processing
. Create new hire agenda for orientation (name, date,
company, supervisor)
. Send out email announcing new hire (name, title,
supervisor, company, cube #)
. Notify candidate of pre-employment results and new hire
orientation
. Conduct new hire orientation
. Ensure new employees complete all required paperwork and
forward to HR File Room
<PAGE>
(d) Advertisement and Recruitment Strategies
. Manage, develop and implement recruiting strategies
. In conjunction with hiring manager, prepare and place all
advertisements for open positions
. Review Monster Board Internet system for appropriate
candidates
. Attend Professional and College Job Fairs to source
candidates
. Coordinate College Relations and Recruiting activities
including: on-campus interviews, Co-op/Internship
Program, Mentor Program, Scholarship Program, and
student/faculty relationships
. Act as liaison with external search agencies.
(e) Temporary Employee Requests
. Coordinate with manager to discuss temporary position
requirements and contact temporary agencies to request
personnel
. Interview temporary employee candidates
. Process all temporary employee invoices
7. Business Process & Risk Assessment Services (formerly Internal
-------------------------------------------
Audit)
7.1 Business Process & Risk Assessment Services provides
services to Shared Service clients based upon detailed
Internal Audit Plans (the "Audit Plan"). The Audit Plan
will explain the type of services to be provided, specific
audit objectives and cost to complete the plan. The Plan
costs will be billed on a flat monthly basis and
represents a minimum level of work to be performed by
Business Process & Risk Assessment Services.
To ensure the highest risks of the organization are
adequately addressed, Audit Plans are based upon a
comprehensive risk assessment model and management input.
All Audit Plans are presented to client management for
review and approval, and then to the Audit Committee (for
publicly traded companies) for final approval.
To provide the highest level of service in meeting
the Audit Plan, Business Process & Risk Assessment
Services takes the following steps:
. Audits will be performed in an objective manner with
due professional care. Audits are conducted in
accordance with the Institute of Internal Auditors
Professional Standards.
<PAGE>
. Significant departures from the Audit Plan will be
communicated to management for approval in advance of
completing the audit work
. Strive to conduct the audits in the most efficient and
effective manner possible, both in the utilization of
audit staff and travel expenditures
. For any audit requests outside the Audit Plan, prepare
detailed audit proposals for management approval prior
to the performance of any audit work
. Coordinate work with the Company's external audit firm
to ensure maximum audit coverage and prevent
duplication of effort
. If Business Process & Risk Assessment Services does not
possess specialized skills necessary for any audit,
retain professionals with the required skills to
perform the work
. Strive to constantly improve internal audit services,
by seeking Company input and monitoring "best practice"
audit techniques
8. Management Information Systems
------------------------------
8.1 Technical Products and Services
(a) Technical Consulting
. Network domain architecture design and project
management
. Network and Operating System hardware and software
refresh and/or upgrade (e.g., Novel to NT upgrade)
. Purchasing program advisory services
. Email services (i.e., security and server
administration)
. Database administration (MS SQL, Server, Oracle)
. Central web server administration
. Desktop software review and analysis
(b) Infrastructure Usage Recovery
. Recovery of cost of equipment, such as Novell and NT
servers, telecom switches and datacom equipment,
purchased by SCGroup but used exclusively by the
Company
8.2 Telecommunications
(a) Base Services
. Contract management for "Consortium Model"
agreements:
. Long distance
. Local
. Data services
. Teleconferencing
. Calling Card
<PAGE>
. Equipment maintenance and monitor service levels, pricing, etc.,
in these agreements
. Inter-Company Voicemail Node Maintenance
. Vendor Service Trouble Escalation (Second Level Support)
. Establish and maintain Telecommunications Standards
. Quarterly audit of one month of invoices for the following
invoices:
. Qwest
. NetSolve
. AT&T
. Local Service Providers
(b) Telecommunications Consulting/Office Setup
. Help Desk and telephone support
. Service Level A
. Questions and advice
. Service Level B
. Service problem ticket creation
. Contact Vendor to resolve service problem on PBX or
Voicemail Equipment or Network Services
. Remotely correct equipment problems (if remote access to
system available)
. Dispatch affiliate's service vendor if problem cannot be
corrected remotely (additional charges from Vendor would
apply)
. Consult with Vendor to resolve issue
. Service Level C
. MAC order tracking
. MAC order creation with Vendor
. Remote Administration of MAC order (if remote access to system
available)
. Dispatch Vendor if MAC order cannot be implemented remotely
(additional charges from Vendor would apply)
. Consult with Vendor to complete MAC order
. Generate monthly MAC order history
. Consulting services
. Telecommunication Systems Audit
. Telecommunications Invoices Audits (other than those covered
under Basic Charge Services)
. Recommendations on optimizing Telecommunications
infrastructure
. Equipment recommendations and procurement
. Office Setup Consulting and Coordination
. On-Site survey of requirements (on-site visit)
<PAGE>
. Design of wiring layout
. Equipment recommendations
. Coordinate purchase through selected vendors
. Coordinate wiring and equipment vendors (remotely)
. On-site acceptance of vendor work
8.3 Applications Integration - PeopleSoft
. New technology solution planning, design, development and
implementation services for the PeopleSoft application to
include:
. Report development
. Maintenance configuration data, such as chart of accounts,
departments, properties, etc.
. PeopleSoft training
. Implement new PeopleSoft modules and interfaces
8.4 PeopleSoft Operations
. Operate and maintain the El Paso-based servers and software
. Second level (after TSAs) problem escalation and resolution
for desk-top issues
. Capacity planning and performance tuning as related to regular
growth of the
. PeopleSoft production databases
. Track and manage all production problems and issues. This
includes working with each company's PS power user to define
priorities and work with the support team to assign, status,
coordinate, and communicate updates.
. Maintain production PeopleSoft user IDs and production
security classes
. Troubleshoot and repair problems in PeopleSoft-delivered or
SCG- customized software
. Apply HP, Oracle and PeopleSoft patches and updates as
required for maintenance of the production environments
. Analyze and update SCGroup customized production software
(interfaces, reports, customizations) impacted by HP, Oracle
and PeopleSoft patches and updates
. Also included in the PeopleSoft Operations costs is the Unix
server depreciation and related vendor maintenance fees
. SCGroup shall perform routine maintenance and make routine
changes and upgrades to the PeopleSoft systems from time to
time. During this process, the systems will be unavailable.
SCGroup shall provide at least ten (10) business days prior
notice of such regularly scheduled
<PAGE>
maintenance which will occur on Saturdays at any time or on
business days as follows (El Paso time):
System
------
PS Fin 7.0 7:00 pm to 6:00 am
PS Fin 7.5 12:00 pm to 11:00 pm
PS HRMS 7.5 7:00 pm to 6:00 am
The Company may request that any announced maintenance activity be
rescheduled, provided that the Company shall pay SCGroup $10,000 upon
notification from SCGroup of such rescheduling. Any request for
rescheduling must be in writing and provide at least three alternative
dates and times during the aforesaid periods. The acceptance of any
such request and the rescheduling of any maintenance or upgrade
activity will be at the sole discretion of SCGroup.
9. Payroll
-------
9.1 Non-Web Based Input
. Receive payroll batch sheets
. Receive payroll bonus batch sheets
. Input payroll batch sheet data
9.2 Payroll Payments
. Run and calculate bi-weekly payroll information
. Review bi-weekly payroll information
. Audit bi-weekly exception reports and queries
. Create and execute payroll interfaces, including positive pay,
direct deposits, 401(k), and general ledger data
. Produce and generate bi-weekly payroll data and reports
. Prepare and distribute reports and funding requests
. Reconcile 401(k) contributions
. Prepare electronic funds request for 401(k) funding
. Maintain payroll systems tables, including deduction codes and
subsets, earnings code/special accumulators, holiday schedules,
leave plans, new company setup, new year setup, and tax locations
. Assist in external payroll audits
. Audit employee transfers from affiliates
. Maintain and abide by the Bureau of National Affairs (BNA)
guidelines
9.3 Manual Checks (Off-Cycle)
. All activities in 9.2 including the following:
<PAGE>
. Receive and input manual check requests
. Produce manual check reporting
. Issue manual check
. Print and distribute manual check to employee
. Execute special mailing instruction
. Transmit positive pay files
9.4 Special Processes
(i) Large:
. Process garnishments and remit funds to proper agency
. Generate W2C's
(ii) Medium:
. Execute electronic funds transfer payments
. Process relocation payments
. Compute and process retroactive payments
. Manage tax refunds
. Initiate stop payments and ACH reversals
. Maintain and process vacation and sick balances by employee
. Process and generate reimbursement adjustments
. Process short term disability payments
. Administer signing/annual/special bonuses
. Process severance agreements and terminations
(iii)Small:
. Administer target bonus advances and salary advance payments
. Special mailing instruction-checks mailed to locations other
than work address
. Distribute pamphlets and other documents with pay-checks
. Manage imputed interest payments
. Record and adjust earnings associated with stock options, loan
forgiveness and taxable/non-taxable fringe benefits
. Input and process housing deductions, uniform deductions and
advanced repayments
9.5 Payments for Expatriates (including Canada) and Monthly Payroll (NOT
APPLICABLE)
9.6 Tax Jurisdictions Maintained
. Maintain payroll database, including tax and system upgrades
. Review tax correspondence, reply to agency inquiries, and
research tax discrepancies
<PAGE>
. Process tax deductions and remit funds to appropriate taxing
agency
. Ensure tax returns and government regulatory reports are filed
. Complete tax applications, set up appropriate withholding,
unemployment and other accounts
9.7 Pay Check Distribution
. Print, stuff, and distribute bi-weekly/monthly checks and
advices to employee work location
9.8 W-2 Statement Creation and Distribution
. Generate and distribute W2's and duplicate W2's, as necessary
9.9 Projects/Research (hourly charge)
. Research Company inquiries not included in services above
. Customize non-standard reports
. Special projects require Company vice president approval before
execution
Note: Companies will also be billed directly for expenses such as:
. ProBusiness
. Pre-1999 ADP Research
. Postage
. Tax Returns
10. Property Tax Administration (NOT APPLICABLE)
----------------------------
11. Risk Management
---------------
11.1 Insurance Policy Procurement
. Obtain new and renewal insurance quotations for all property and
casualty coverages
. Meet with Company to determine coverage, limit, deductible, and
service requirements
. Prepare underwriting submission and send to markets
. Meet with key underwriters
. Answer underwriting questions
. Negotiate coverage, rates, policy terms and conditions, and
services
. Evaluate insurer reliability
. Prepare insurance proposal and present to Company
. Review and maintain policies
<PAGE>
. Verify policy terms and conditions are consistent with quote
. Review policy endorsements for accuracy and file
. Maintain original policy
. Process certificate of insurance requests
. Process premium invoices and provide breakdown of premium by
property, company or as applicable
. Prepare annual insurance budget
. Review insurance contracts for compliance
. Review insurance contracts and make recommendations concerning
risk acceptability (the Risk Management Department does not make
management decision.)
. Answer coverage questions
. Maintain standard SCGroup Underwriting Database for all existing
properties to include:
. Property name, address and location code
. Building and contents values
. Estimated annual rent/revenue
. Square footage/number of units
. Construction type
. Roof composition
. Year built
. Flood and earthquake zones
. Payroll
. Vehicles
. Update underwriting database on a quarterly basis to reflect
newly acquired and developed properties, sales, and other
activity
11.2 Claims Administration
(a) Manage claim and litigation process for all insured claims and
lawsuits
. Report claims to appropriate carrier or third party
administrator
. Notify Company of losses in excess of $25,000 and keep
apprised of claim status
. Set up claim file
. Enter claim in RMIS OMEGA system
. Assist with coverage determination
. Assign legal counsel on lawsuits
. Coordinate discovery requests
. Review and maintain copies of all correspondence and related
documents associated with claim/lawsuit
. Participate in claim settlement discussions
<PAGE>
. Request settlement approval from Company on general liability
claims of $2,500 and above
. Monitor insured claims and lawsuits to conclusion
(b) Process Claim Payments
. Review invoices with claim documents to ensure amounts are
accurate and justified
. Enter invoice data in RMIS OMEGA system
(c) Issue Loss Reports
. Issue monthly reports for property, casualty and quarterly
reports for workers compensation claims and lawsuits
(d) Maintain RMIS OMEGA claim database to include
. Claimant name
. Claim number
. Date of loss
. Property name and location code
. Claim amount (paid and reserved)
. Description of loss
. Status of claim (open or closed)
11.3 Bond Procurement and Maintenance
(a) Facilitate issuance and execution of bond indemnification
agreements
. Negotiate account rates annually
. Process requests for bonds
. Set up bond file and enter data in RMIS OMEGA system
. Renew bonds as required by obligee
(b) Process Bond Invoices
. Review bond premium invoices for accuracy
. Enter invoice information in RMIS OMEGA system
. Complete check requests
(c) Maintain RMIS OMEGA bond database to include the following
. Bond number
. Surety company
. Bond amount
. Bond type and description
. Property name and address
. Bond rate and premium
. Obligee name and address
<PAGE>
. Effective dates of coverage
12. Special Projects
----------------
. Direction and support of all special projects, as requested and
authorized in advance by the Company
. Special projects are outside the scope of services provided by
SCGroup. If SCGroup and Company determine that SCGroup has the
personnel with the qualifications and time necessary to complete
the special project requested by Company with due professional care
and competence, SCGroup and Company will agree to an hourly billing
rate for such services.
<PAGE>
APPENDIX 1
APPENDIX TO SCHEDULE A OF THE ADMINISTRATIVE SERVICES AGREEMENT BETWEEN SCGROUP
INCORPORATED (SCGROUP) AND ARCHSTONE COMMUNITIES TRUST, AGREEMENT DATED JANUARY
1, 2000.
SCGroup Service Manager responsible for managing the respective rights and
obligations of the parties:
Vincent L. Dodds
SCGroup Incorporated
7777 Market Center Avenue
El Paso, TX 79912
Phone: 915-877-5831
Fax: 915-877-6768
Company Service Manager responsible for managing the respective rights and
obligations of the parties:
William Kell
Archstone Communities Trust
7777 Market Center Avenue
El Paso, TX 79912
Phone: 915-877-1773
Fax: 915-877-3301
<PAGE>
SCHEDULE B
----------
SCGroup will provide the services listed in Schedule A to be billed at the
following rates:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Service Description Cost Driver Rate / Cost Driver
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Business Services:
- ----------------------------------------------------------------------------------------------------------------------------------
Payroll Bank Reconciliations Hours $ 35.00
- ----------------------------------------------------------------------------------------------------------------------------------
Special Projects Hours $ 65.00
- ----------------------------------------------------------------------------------------------------------------------------------
Cash Management:
- ----------------------------------------------------------------------------------------------------------------------------------
Bank Account Management # of Accounts/month $ 100.00/(1)/
- ----------------------------------------------------------------------------------------------------------------------------------
Electronic Disbursements # of Wires $ 20.00
- ----------------------------------------------------------------------------------------------------------------------------------
Special Handling Electronic Disbursements # of Disbursements $ 50.00
- ----------------------------------------------------------------------------------------------------------------------------------
Investment and Borrowing $000's Bor. & Inv./month $ 0.0167/(2)/
- ----------------------------------------------------------------------------------------------------------------------------------
Transaction Reporting # of Transactions $ 0.75/(2)/
- ----------------------------------------------------------------------------------------------------------------------------------
Bank Fee and Relationship Management % of Bank Fees 10.0%
- ----------------------------------------------------------------------------------------------------------------------------------
Projects/Research Hours $ 65.00
- ----------------------------------------------------------------------------------------------------------------------------------
Disbursements:
- ----------------------------------------------------------------------------------------------------------------------------------
Invoice Processing Services
- ----------------------------------------------------------------------------------------------------------------------------------
Paper Invoices $ 2.50
- ----------------------------------------------------------------------------------------------------------------------------------
Web-based Invoices $ 1.50
- ----------------------------------------------------------------------------------------------------------------------------------
Web-based Invoice Processing over 200,000 per year Invoices $ 1.20
- ----------------------------------------------------------------------------------------------------------------------------------
P-Card Administration # of P-Cards $ 80.00
- ----------------------------------------------------------------------------------------------------------------------------------
Emergency Checks Checks $ 50.00
- ----------------------------------------------------------------------------------------------------------------------------------
Rejects # of Rejects $ 20.00
- ----------------------------------------------------------------------------------------------------------------------------------
Stop Pays/Voids # of Stop Pays $ 50.00
- ----------------------------------------------------------------------------------------------------------------------------------
Accounts Payable Help Desk Services Calls $ 4.00
- ----------------------------------------------------------------------------------------------------------------------------------
Corporate Travel Center Per Transaction $ 15.00
- ----------------------------------------------------------------------------------------------------------------------------------
T&E Voucher Processing Services Vouchers $ 9.00
- ----------------------------------------------------------------------------------------------------------------------------------
Copies Per Copy $ 0.20
- ----------------------------------------------------------------------------------------------------------------------------------
Special Projects Hours $ 65.00
- ----------------------------------------------------------------------------------------------------------------------------------
Facilities Management:
- ----------------------------------------------------------------------------------------------------------------------------------
Facilities & Administration El Paso Employees $ 125.00
- ----------------------------------------------------------------------------------------------------------------------------------
Human Resources:/(3)/
- ----------------------------------------------------------------------------------------------------------------------------------
Compliance - Personnel File Administration Per Month $4,166.67
- ----------------------------------------------------------------------------------------------------------------------------------
Database Management-Maintenance Headcount/month $ 5.00
- ----------------------------------------------------------------------------------------------------------------------------------
Database Management-Set-up Fees # of Setups $ 8.00
- ----------------------------------------------------------------------------------------------------------------------------------
HRIS Standard Reports Per Report/month $ 6.00
- ----------------------------------------------------------------------------------------------------------------------------------
HRIS Custom Reports # of Reports $ 65.00
- ----------------------------------------------------------------------------------------------------------------------------------
Recruitment Services New Hires $2,230.00
- ----------------------------------------------------------------------------------------------------------------------------------
Special Projects Hours $ 65.00
- ----------------------------------------------------------------------------------------------------------------------------------
Business Process & Risk Assessment Services
- ----------------------------------------------------------------------------------------------------------------------------------
(formerly Internal Audit)
- ----------------------------------------------------------------------------------------------------------------------------------
Perform audits Hours $ 100.00
- ----------------------------------------------------------------------------------------------------------------------------------
Information Systems
- ----------------------------------------------------------------------------------------------------------------------------------
Technical Products & Services:
- ----------------------------------------------------------------------------------------------------------------------------------
Infrastructure Usage Recovery Per Month $9,216.00
- ----------------------------------------------------------------------------------------------------------------------------------
Telecom Voice Networks Per Line/month $ 9.00
- ----------------------------------------------------------------------------------------------------------------------------------
Telecom Consulting/Setup Hours $ 100.00
- ----------------------------------------------------------------------------------------------------------------------------------
Applications Integration:
- ----------------------------------------------------------------------------------------------------------------------------------
Project Manager/DBA Hours $ 105.00
- ----------------------------------------------------------------------------------------------------------------------------------
Programmer/Analyst Hours $ 85.00
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Service Description Cost Driver Rate / Cost Driver
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PeopleSoft Operations:
- ----------------------------------------------------------------------------------------------------------------------------
PS Financials Per Month $ 33,882.00
- ----------------------------------------------------------------------------------------------------------------------------
PS HRMS/(3)/ Per Month $ 11,295.00
- ----------------------------------------------------------------------------------------------------------------------------
Payroll:/(3)/
- ----------------------------------------------------------------------------------------------------------------------------
On-Cycle Paychecks Checks/Direct Deposits $ 4.50
- ----------------------------------------------------------------------------------------------------------------------------
Batch Manual Inputs # of Inputs $ 1.50
- ----------------------------------------------------------------------------------------------------------------------------
Manual Checks (Off-Cycle) Checks $ 50.00/(4)/
- ----------------------------------------------------------------------------------------------------------------------------
Special Processes Per Service (large/medium/small) $90/$60/$30
- ----------------------------------------------------------------------------------------------------------------------------
Tax Jurisdictions Maintained # of Jurisdictions $ 20.00
- ----------------------------------------------------------------------------------------------------------------------------
Paycheck Distribution # of Checks/Advices $ 0.50
- ----------------------------------------------------------------------------------------------------------------------------
W-2 Statement Creation and Distribution Statements $ 6.00
- ----------------------------------------------------------------------------------------------------------------------------
Special Projects/Research Hours $ 65.00
- ----------------------------------------------------------------------------------------------------------------------------
Risk Management:
- ----------------------------------------------------------------------------------------------------------------------------
Insurance Policy Procurement Per Premium $ $ 0.045/(5)/
- ----------------------------------------------------------------------------------------------------------------------------
Claims Administration Claims $ 220.00
- ----------------------------------------------------------------------------------------------------------------------------
Bond Procurement and Maintenance Per Premium $ $ 0.12
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Property bank accounts are counted as one quarter of corporate bank
accounts.
(2) The total annual charges for Investment and Borrowing services and Bank Fee
and Relationship Management services shall not exceed $65,000 and $40,000,
respectively; provided that, in the event the Company is a party to any
merger, acquisition and/or other transaction during the year which results
in an increase in the amount of time and expense required to provide these
services, the Company will be responsible for any fees over and above these
maximums.
(3) January through June only.
(4) New Hire packets received after the second Thursday of the pay period will
result in a manual check charge.
(5) SCGroup's fees are earned based on total premiums earned by the insurance
provider during the contract. This includes premium adjustments resulting
from changes in the ratable exposure base. Fees are due to SCGroup upon
payment of premiums to the insurance provider.
<PAGE>
SCHEDULE C
Pass-Through Expenses are expenses and costs incurred by the Company
for which SCGroup has oversight responsibility for the third-party vendor and
will review and validate the invoiced charges. These Pass-Through Expenses
include but are not limited to the following:
- Independent audit expenses
- Insurance premiums and claims
- Banking fees
- SCGroup may withdraw funds from the Company's concentration
bank account to cover the Company's share of monthly fees and
expenses paid by SCGroup to the Company's banks. SCGroup shall
provide the Company with a monthly statement of such charges and
expenses.
- External payroll processing fees
- Third-party vendors hired at the direction of the Company
- Out-of-pocket expenses
- All out-of-pocket expenses will be billed as incurred.
Applicable out-of-pocket expenses may include but are not
limited to: postage, envelopes, labels, forms and stationery and
delivery and freight charges
- Computer hardware, software or telephone equipment purchases
<PAGE>
SCHEDULE D
Retained Expenses are costs and expenses incurred by the Company from
third parties which may provide the Company with administrative services in an
outsource arrangement. Retained expenses include, but are not limited to, the
following:
. Costs and expenses of third party service providers (e.g.: IBM,
CompuCom or Merrill Lynch), including fees and out-of-pocket
expenses.
<PAGE>
SCHEDULE E
SERVICE LEVELS
1. GENERAL PROVISIONS
1.1 General. The Service Levels set forth in this Schedule E are intended
to measure SCGroup's performance of the Services.
1.2 Reporting. SCGroup shall provide, at no additional charge to Company,
periodic reports describing the quality and quantity of the Services
actually delivered by SCGroup during the defined measurement period
and assessing SCGroup's performance during such period against the
service levels. SCGroup will also be responsible for promptly
investigating and correcting failures to meet the service levels in
accordance with Section 7.2 of the Agreement.
1.3 Exclusions. SCGroup will be relieved of responsibility if and to the
extent SCGroup's failure to meet the service level(s) is due to:
1.3.1 changes made to the in-scope environment by Company (e.g.,
installation of applications, which were not tested and
approved for production use)
1.3.2 Company's reprioritization of tasks to be performed by
SCGroup
1.3.3 circumstances specified in Section 8 of the Agreement
1.3.4 outages for preventive maintenance or the installation,
upgrade or replacement of equipment or software or at
other times agreed upon in advance by Company
2. SERVICE LEVELS
2.1 Disbursement Processing
SCGroup shall perform disbursement processing in accordance with
the following service levels:
(1) SCGroup shall process third party invoices 95% of the time
by the end of the third business day after the business day
on which it receives approved and properly coded invoices
from the Company.
<PAGE>
(2) SCGroup shall pay third party invoices 95% of the time by
the end of the business day after the business day on which
it completes processing of such invoices or in accordance
with the third party's payment terms, whichever is later.
(3) SCGroup shall process invoices correctly and shall pay the
correct amount to the correct vendor 99% of the time.
2.2 Accounts Payable Help Desk
SCGroup shall provide accounts payable help desk services in
accordance with the following service levels:
(1) The abandon rate for calls to the accounts payable help desk
shall be less than 12%. Abandon rate means the percentage of
times that callers who wish to talk to a help desk agent
drop off the call before talking to such an agent. If a
caller hangs up before the expiration of thirty (30)
seconds, the call will not be considered abandoned.
(2) SCGroup shall return customer service inquiries received by
voice mail or electronic mail within two (2) business hours
90% of the time. Business hours shall mean 8:00 a.m. to 6:00
p.m., Mountain Time, Monday through Friday, excluding
holidays.
(3) Research requests shall be completed and responded to by
SCGroup by the end of the second business day after the
business day on which such requests are received 90% of the
time.
(4) Third party vendors will be added to the PeopleSoft accounts
payable system by SCGroup by the end of the second business
day after the business day on which properly completed
requests are received 90% of the time. A properly completed
request form must comply with the requirements specified in
the Accounts Payable Manual.
2.3 Corporate Tax (NOT APPLICABLE)
<PAGE>
2.4 Human Resources
SCGroup shall provide human resources services in accordance with
the following service levels:
(1) SCGroup shall process Personnel Action Forms 90% of the time
by the end of the third business day after the business day
on which it receives approved and properly completed
Personnel Action Forms from the Company.
(2) SCGroup shall respond to employee requests for information
or assistance with respect to health or retirement benefits
by the end of the second business day after the business day
on which such requests are received 90% of the time
(provided the employee has first contacted the applicable
benefits service provider and followed the escalation
procedures prescribed by such service provider for problem
resolution).
2.5 Management Information Systems
(1) Critical (Severity 1) MIS production application support
----------------------------------
problems communicated by the Company in accordance with
--------
SCGroup's established reporting process shall be
acknowledged by SCGroup (via telephone, voice mail or email)
and assigned an initial prioritization level within two (2)
hours 90% of the time.
(2) Non-critical (Severity 2-4) MIS production application
--------------------------
support problems communicated by the Company in accordance
----------------
with SCGroup's established reporting process shall be
acknowledged by SCGroup (via telephone, voice mail or email)
and assigned an initial prioritization level by the end of
the business day after the business day on which such
problems are reported 90% of the time.
(3) MIS application project requests communicated by the Company
--------------------------------
in accordance with SCGroup's established reporting process
shall be acknowledged by SCGroup (via telephone, voice mail
or email) and assigned an initial prioritization level by
the end of the business day after the business day on which
such requests are made 90% of the time.
<PAGE>
(4) SCGroup shall complete and submit estimates in response to
critical (Severity 1) MIS application project requests
--------------------------------
communicated by the Company in accordance with SCGroup's
established reporting process by the end of the fifth
business day after the business day on which such requests
are made 90% of the time.
(5) SCGroup shall complete and submit estimates in response to
non-critical (Severity 2-4) MIS application project requests
--------------------------------
communicated by the Company in accordance with SCGroup's
established reporting process by the end of the tenth
business day after the business day on which such requests
are made 90% of the time.
For purposes of Service Levels 2.5 (1) through (5), the following
severity definitions shall be applied:
Severity 1 - Critical: Business process has stopped.
Severity 2 - High: Business process hindered; a work-around
exists but requires a substantial amount of work.
Severity 3 - Normal: Annoyance; a work-around exists; nominal or
no extra work required.
Severity 4 - Hold: Problem is in a `wait' status.
2.6 Payroll
SCGroup shall provide payroll services in accordance with the
following service levels:
(1) SCGroup shall prepare payroll checks in accordance with the
applicable monthly or biweekly schedule for payroll
processing 99% of the time, provided SCGroup receives
accurate, timely and properly approved time sheets and
Personnel Action Forms from the Company for the employees in
question.
(2) SCGroup shall deliver payroll checks on a timely basis to
the last known place of business of the employees in
question and such checks shall accurately reflect the
approved gross to net payroll calculations from such
employees 99% of the time.
2.7 Property Tax Appeals (NOT APPLICABLE)
<PAGE>
2.8 Risk Management
SCGroup shall process insurance claims 95% of the time by the end
of the second business day after the business day on which it
receives notice of such claim from the Company.
<PAGE>
EXHIBIT 12.1
ARCHSTONE COMMUNITIES TRUST
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, Twelve Months Ended December 31,
------------------ -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
2000 1999 1999 1998 1997(1) 1996 1995
------- ------- -------- -------- ------- -------- --------
Earnings from operations............. $43,197 $39,668 $169,339 $134,571 $24,686 $ 94,089 $ 81,696
Add:
Interest expense................... 34,202 27,018 121,494 83,350 61,153 35,288 19,584
------- ------- -------- -------- ------- -------- --------
Earnings as adjusted................. $77,399 $66,686 $290,833 $217,921 $85,839 $129,377 $101,280
======= ======= ======== ======== ======= ======== ========
Fixed charges:
Interest expense................... $34,202 $27,018 121,494 $ 83,350 $61,153 $ 35,288 $ 19,584
Capitalized interest............... 6,570 8,838 31,912 29,942 17,606 16,941 11,741
------- ------- -------- -------- ------- -------- --------
Total fixed charges...... ....... $40,772 $35,856 $153,406 $113,292 $78,759 $ 52,229 $ 31,325
======= ======= ======== ======== ======= ======== ========
Ratio of earnings to fixed charges... 1.9 1.9 1.9 1.9 1.1 2.5 3.2
======= ======= ======== ======== ======= ======== ========
</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>
Three Months Ended
March 31, Twelve Months Ended December 31,
------------------------------ -------------------------------------------
2000 1999 1999 1998 1997(1) 1996 1995
------- ------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings from operations.................... $43,197 $39,668 $169,339 $134,571 $24,686 $ 94,089 $ 81,696
Add:
Interest expense.......................... 34,202 27,018 121,494 83,350 61,153 35,288 19,584
------- ------- -------- -------- ------- -------- --------
Earnings as adjusted........................ $77,399 $66,686 $290,833 $217,921 $85,839 $129,377 $101,280
======= ======= ======== ======== ======= ======== ========
Combined fixed charges and Preferred Share
dividends:
Interest expense......................... $34,202 $27,018 $121,494 $ 83,350 $61,153 $ 35,288 $ 19,584
Capitalized interest..................... 6,570 8,838 31,912 29,942 17,606 16,941 11,741
------- ------- -------- -------- ------- -------- --------
Total fixed charges.................... 40,772 35,856 153,406 113,292 78,759 52,229 31,325
------- ------- -------- -------- ------- -------- --------
Preferred Share dividends................. 6,431 5,691 23,731 20,938 19,384 24,167 21,823
------- ------- -------- -------- ------- -------- --------
Combined fixed charges and Preferred Share
dividends................................. $47,203 $41,547 $177,137 $134,230 $98,143 $ 76,396 $ 53,148
======= ======= ======== ======== ======= ======== ========
Ratio of earnings to combined charges and
Preferred Share dividends................. 1.6 1.6 1.6 1.6 0.9 1.7 1.9
======= ======= ======== ======== ======= ======== ========
</TABLE>
(1) Earnings from operations for 1997 includes a one-time, non-cash charge of
$71.7 million associated with costs incurred in acquiring the management
companies from an affiliate. Accordingly, earnings from operations were
insufficient to cover combined fixed charges and Preferred Share dividends
by $12.3 million. Excluding this charge, the ratio of earnings to combined
fixed charges and Preferred Share dividends for the year ended December 31,
1997 would be 1.6.
<PAGE>
EXHIBIT 15.1
Board of Trustees
Archstone Communities Trust
Ladies and Gentlemen:
Re: Registration Statements Nos. 333-43723, 333-44639, 333-51139, 333-60815,
333-60817, 333-60847 and 333-68591.
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated April 25, 2000 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 or certified by an accountant within the
meaning of sections 7 and 11 of the Act.
KPMG LLP
Chicago, Illinois
May 9, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the Form 10-Q for the three months ended March 31, 2000 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 9,601
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,411,314
<DEPRECIATION> 328,244
<TOTAL-ASSETS> 5,444,468
<CURRENT-LIABILITIES> 0
<BONDS> 2,042,695
0
296,154
<COMMON> 139,133
<OTHER-SE> 2,173,677
<TOTAL-LIABILITY-AND-EQUITY> 5,444,468
<SALES> 168,464
<TOTAL-REVENUES> 177,016
<CGS> 0
<TOTAL-COSTS> 90,222
<OTHER-EXPENSES> 9,395
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,202
<INCOME-PRETAX> 39,454
<INCOME-TAX> 0
<INCOME-CONTINUING> 39,454
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,454
<EPS-BASIC> 0.28
<EPS-DILUTED> 0.28
</TABLE>
<PAGE>
EXHIBIT 99.1
Current Development Activity
The following table summarizes Archstone's development communities under
construction as of March 31, 2000 (dollar amounts in thousands):
<TABLE>
<CAPTION>
Actual or Expected
Number Total Expected Date for Stabilization
of Archstone Expected Start Date First Units Date %
Units Investment Investment(1) (Quarter/Year) (Quarter/Year)(2) (Quarter/Year) Leased(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Central Region:
Austin, Texas:
Archstone Monterey Ranch III... 448 $ 19,262 $ 31,669 Q3/98 Q2/00 Q2/01 N/A
------- -------- --------
Denver, Colorado:
Cedars II, The................. 172 $ 7,956 $ 16,376 Q3/99 Q2/00 Q2/01 N/A
------- -------- --------
Salt Lake City, Utah:
Archstone River Oaks........... 448 $ 34,500 $ 37,483 Q2/98 Q1/99 Q3/00 86.4%
------- -------- --------
Total Central Region.......... 1,068 $ 61,718 $ 85,528
------- -------- --------
East Region:
Birmingham, Alabama:
Cameron at the Summit II....... 268 $ 17,980 $ 18,939 Q2/98 Q2/99 Q3/00 81.7%
------- -------- --------
Boston, Massachusetts:
Archstone Tewksbury II......... 168 $ 20,599 $ 21,402 Q1/99 Q4/99 Q2/00 82.7%
------- -------- --------
Charlotte, North Carolina:
Archstone Tyvola Centre........ 404 $ 12,952 $ 31,398 Q3/99 Q3/00 Q2/02 N/A
------- -------- --------
Indianapolis, Indiana:
Archstone River Ridge.......... 202 $ 15,768 $ 16,083 Q2/98 Q2/99 Q3/00 72.3%
------- -------- --------
Raleigh, North Carolina:
Archstone at Preston........... 388 $ 27,934 $ 31,289 Q2/98 Q2/99 Q4/00 71.7%
------- -------- --------
Richmond, Virginia:
Archstone Swift Creek I........ 288 $ 23,067 $ 23,674 Q2/98 Q3/99 Q1/01 44.4%
------- -------- --------
Southeast Florida:
Archstone at Woodbine.......... 408 $ 15,805 $ 30,722 Q3/99 Q3/00 Q4/01 N/A
------- -------- --------
Washington, D.C.:
Archstone Governor's Green..... 338 $ 33,754 $ 36,446 Q3/98 Q3/99 Q3/00 72.8%
Archstone Milestone II......... 132 5,027 13,615 Q4/99 Q3/00 Q1/01 N/A
Cameron Woodland Park.......... 392 23,198 42,622 Q2/99 Q2/00 Q3/01 N/A
------- -------- --------
Total Washington, D.C........ 862 $ 61,979 $ 92,683
------- -------- --------
West Coast, Florida:
Archstone Rocky Creek.......... 264 $ 19,195 $ 19,750 Q3/98 Q2/99 Q2/00 92.1%
------- -------- --------
Total East Region............ 3,252 $215,279 $285,940
------- -------- --------
West Region:
Phoenix, Arizona
Miralago II.................... 336 $ 3,455 $ 23,680 Q1/00 Q1/01 Q2/02 N/A
------- -------- --------
Reno, Nevada:
Enclave II, The................ 180 $ 14,744 $ 16,204 Q4/98 Q3/99 Q4/00 77.8%
------- -------- --------
San Diego, California:
Archstone Mission Valley....... 736 $ 40,800 $106,328 Q4/99 Q4/00 Q3/03 N/A
Archstone Torrey Hills......... 340 42,386 43,139 Q1/98 Q3/99 Q3/00 61.8%
------- -------- --------
Total San Diego, California.. 1,076 $ 83,186 $149,467
------- -------- --------
San Francisco Bay Area, California:
Archstone Emerald Park......... 324 $ 48,405 $ 49,165 Q4/97 Q3/99 Q3/00 74.4%
Archstone Hacienda............. 540 72,600 78,272 Q2/98 Q3/99 Q1/01 49.1%
------- -------- --------
Total San Francisco Bay Area. 864 $121,005 $127,437
------- -------- --------
San Jose, California:
Archstone Willow Glen......... 412 $ 34,375 $ 69,581 Q3/99 Q1/01 Q1/02 N/A
------- -------- --------
Seattle, Washington:
Archstone Northcreek........... 524 $ 41,153 $ 44,025 Q2/98 Q2/99 Q4/00 71.0%
------- -------- --------
Total West Region............ 3,392 $297,918 $430,394
------- -------- --------
Total Communities
Under Construction......... 7,712 $574,915 $801,862
======= ======== ========
</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 March 31,
2000. An "n/a" indicates the communities where Lease-Up has not yet
commenced.
