<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 80112
Englewood, Colorado (Zip Code)
(Address of principal executive offices)
(303) 708-5959
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing for the past 90 days.
Yes X No__________
--------
At November 7, 2000, there were approximately 122,485,000 of the Registrant's
common shares outstanding.
<PAGE>
Archstone Communities Trust
Index
<TABLE>
<CAPTION>
Page
Number
----------
PART I. Condensed Financial Information
Item 1. Financial Statements
<S> <C>
Condensed Balance Sheets - September 30, 2000 (unaudited) and December 31, 1999......... 3
Condensed Statements of Earnings - Three and nine months ended September 30, 2000 and
1999 (unaudited)...................................................................... 4
Condensed Statement of Shareholders' Equity - Nine months ended September 30, 2000
(unaudited)........................................................................... 5
Condensed Statements of Cash Flows - Nine months ended September 30, 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.............................. 21
PART II. Other Information
Item 5. Other Information....................................................................... 21
Item 6. Exhibits and Reports on Form 8-K........................................................ 21
</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>
September 30, December 31,
ASSETS 2000 1999
------ ---------------- ----------------
(unaudited)
<S> <C> <C>
Real estate.......................................................................... $5,027,546 $5,086,486
Less accumulated depreciation........................................................ 353,854 300,658
---------------- ----------------
4,673,692 4,785,828
Investments in and advances to unconsolidated entities............................... 129,943 130,845
Mortgage notes receivable, net....................................................... 4,061 210,357
---------------- ----------------
Net investments.................................................................... 4,807,696 5,127,030
Cash and cash equivalents............................................................ 12,934 10,072
Restricted cash in tax-deferred exchange escrow...................................... 90,471 68,729
Other assets......................................................................... 101,703 96,606
---------------- ----------------
Total assets....................................................................... $5,012,804 $5,302,437
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Unsecured credit facilities......................................................... $ 133,103 $ 493,536
Long-Term Unsecured Debt............................................................ 1,476,339 1,276,572
Mortgages payable................................................................... 854,346 694,948
Dividends payable................................................................... - 53,518
Accounts payable.................................................................... 27,963 26,677
Accrued expenses.................................................................... 87,636 74,462
Other liabilities................................................................... 37,906 59,915
---------------- ----------------
Total liabilities.................................................................. 2,617,293 2,679,628
---------------- ----------------
Minority interest:
Perpetual preferred units........................................................... 73,222 41,996
Convertible operating partnership units............................................. 20,152 13,307
---------------- ----------------
Total minority interest............................................................ 93,374 55,303
---------------- ----------------
Shareholders' equity:
Series A Convertible Preferred Shares (3,450,935 shares in 2000 and 3,705,390 in
1999; liquidation preference of $25 per share)..................................... 86,273 92,635
Series B Preferred Shares (4,187,700 shares in 2000 and 4,200,000 shares in 1999,
liquidation preference of $25 per share)........................................... 104,693 105,000
Series C Preferred Shares (1,989,200 shares in 2000 and 2,000,000 shares in 1999,
liquidation preference of $25 per share)........................................... 49,730 50,000
Series D Preferred Shares (1,992,200 shares in 2000 and 2,000,000 shares in 1999,
liquidation preference of $25 per share)........................................... 49,805 50,000
Common Shares (122,254,941 shares in 2000 and 139,008,353 in 1999).................. 122,255 139,008
Additional paid-in capital.......................................................... 1,939,459 2,291,026
Unrealized holding gain............................................................. 167 394
Employee share purchase notes....................................................... (7,489) (19,170)
Distributions in excess of net earnings............................................. (42,756) (141,387)
---------------- ----------------
Total shareholders' equity......................................................... 2,302,137 2,567,506
---------------- ----------------
Total liabilities and shareholders' equity......................................... $5,012,804 $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 Nine Months Ended
September 30, September 30,
---------------------- --------------------
2000 1999 2000 1999
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Rental revenues.................................................. $172,824 $161,546 $516,360 $471,444
Income from unconsolidated entities.............................. 1,506 151 2,707 2,179
Other income..................................................... 13,559 7,175 30,651 19,953
--------- -------- -------- --------
187,889 168,872 549,718 493,576
--------- -------- -------- --------
Expenses:
Rental expenses.................................................. 43,369 42,227 122,831 121,199
Rental expenses paid to affiliate................................ 530 443 1,724 1,542
Real estate taxes................................................ 13,939 11,927 44,715 39,985
Depreciation on real estate investments.......................... 36,655 32,742 109,876 96,989
Interest expense................................................. 37,483 31,777 109,010 87,818
General and administrative expenses.............................. 5,495 5,670 16,909 15,141
General and administrative expenses paid to affiliate............ 145 288 482 1,321
Other expenses................................................... 302 52 4,121 3,414
--------- -------- -------- --------
137,918 125,126 409,668 367,409
--------- -------- -------- --------
Earnings from operations............................................ 49,971 43,746 140,050 126,167
Less: minority interest - perpetual preferred units.............. 1,567 164 4,348 164
minority interest - convertible operating partnership units 365 221 961 897
Plus: gains on dispositions of investments, net.................. 37,495 27,909 83,496 46,887
--------- -------- -------- --------
Earnings before extraordinary item.................................. 85,534 71,270 218,237 171,993
Less: extraordinary item - loss on early extinguishment of debt. -- -- -- 1,113
--------- -------- -------- --------
Net earnings........................................................ 85,534 71,270 218,237 170,880
Less: Preferred Share dividends................................. 6,307 6,036 19,108 17,344
--------- -------- -------- --------
Net earnings attributable to Common Shares - Basic.................. $ 79,227 $ 65,234 $199,129 $153,536
========= ======== ======== ========
Weighted average Common Shares outstanding - Basic.................. 126,843 139,552 135,019 139,968
--------- -------- -------- --------
Weighted average Common Shares outstanding - Diluted................ 132,954 145,473 140,847 139,997
--------- -------- -------- --------
Earnings before extraordinary item per Common Share:
Basic............................................................ $ 0.62 $ 0.47 $ 1.47 $ 1.10
========= ======== ======== ========
Diluted.......................................................... $ 0.61 $ 0.46 $ 1.46 $ 1.10
========= ======== ======== ========
Net earnings per Common Share:
Basic............................................................ $ 0.62 $ 0.47 $ 1.47 $ 1.10
========= ======== ======== ========
Diluted.......................................................... $ 0.61 $ 0.46 $ 1.46 $ 1.10
========= ======== ======== ========
Dividends paid per Common Share..................................... $ 0.385 $ 0.370 $ 1.155 $ 1.110
========= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
4
<PAGE>
Archstone Communities Trust
Condensed Statement of Shareholders' Equity
Nine Months Ended September 30, 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> <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.......... - - - - - - - - 218,237 218,237
Preferred Share
dividends paid....... - - - - - - - - (19,108) (19,108)
Other................. - - - - - - (227) - - (227)
--------
Comprehensive income
attributable to
Common Shares........ 198,902
--------
Common Share dividends.. - - - - - - - - (100,498) (100,498)
Conversion of Series A
Preferred Shares into
Common Shares.......... (6,362) - - - 343 6,019 - - - -
Common Shares
repurchased........... - - - - (17,479) (366,362) - - - (383,841)
Other, net............. - (307) (270) (195) 383 8,776 - 11,681 - 20,068
------- -------- ------- -------- -------- ---------- ----- -------- ---------- ----------
Balances at September
30, 2000.............. $86,273 $104,693 $49,730 $49,805 $122,255 $1,939,459 $ 167 $ (7,489) $ (42,756) $2,302,137
======= ======== ======= ======== ======== ========== ===== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
5
<PAGE>
Archstone Communities Trust
Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------
2000 1999
-------------- -------------
<S> <C> <C>
Operating activities:
Net earnings............................................................................. $ 218,237 $ 170,880
Adjustments to reconcile net earnings to net cash flow provided by operating activities:
Depreciation and amortization.......................................................... 110,794 97,814
Gains on dispositions of investments, net.............................................. (83,496) (46,887)
Gain on exchange of Homestead mortgage notes........................................... (9,313) --
Provision for possible loss on investments............................................. 400 2,000
Extraordinary items.................................................................... -- 1,113
Loss recognized on write-down of convertible mortgage notes............................ 2,753 --
Minority interest...................................................................... 5,309 1,061
Change in accounts payable, accrued expenses and other liabilities....................... 2,719 (8,950)
Change in other assets................................................................... (6,106) (1,639)
-------------- -------------
Net cash flow provided by operating activities......................................... 241,297 215,392
-------------- -------------
Investing activities:
Real estate investments.................................................................. (499,043) (543,526)
Change in investments in and advances to unconsolidated entities......................... 24,095 (31,457)
Proceeds from dispositions, net of closing costs......................................... 609,709 375,409
Change in tax-deferred exchange escrow................................................... (21,742) 10,590
Change in pursuit costs and earnest money deposits....................................... 4,151 (8,735)
Other, net............................................................................... (2,605) 1,664
-------------- -------------
Net cash flow provided by (used in) investing activities............................... 114,565 (196,055)
-------------- -------------
Financing activities:
Proceeds from issuance of unsecured long-term debt....................................... 200,000 --
Proceeds from secured debt............................................................... 156,528 36,206
Proceeds from tax-exempt bond refinancing................................................ -- 16,000
Principal prepayment of mortgages payable................................................ (34,053) (29,253)
Regularly scheduled principal payments on mortgages payable.............................. (3,451) (4,241)
Proceeds from (repayments on) unsecured credit facilities, net........................... (360,433) 154,421
Repurchase of Common and Preferred Shares................................................ (179,439) (102,509)
Proceeds from issuance of Preferred Shares and perpetual preferred units................. 31,224 82,240
Debt issuance costs...................................................................... (5,834) (5,586)
Cash dividends paid on Common Shares..................................................... (154,016) (156,403)
Cash dividends paid on Preferred Shares.................................................. (19,108) (17,342)
Cash dividends paid to minority interests................................................ (5,309) (1,061)
Proceeds from dividend reinvestment and repayment of share purchase loans, net........... 15,305 5,206
Other, net............................................................................... 5,586 1,182
-------------- -------------
Net cash flow used in financing activities............................................. (353,000) (21,140)
-------------- -------------
Net change in cash and cash equivalents.................................................... 2,862 (1,803)
Cash and cash equivalents at beginning of period........................................... 10,072 10,119
-----------------------------------
Cash and cash equivalents at end of period................................................. $ 12,934 $ 8,316
===================================
Significant non-cash investing and financing activities:
Exchange of Homestead notes for Archstone common shares................................. $ 195,662 --
Assumption of mortgages payable upon purchase of apartment communities.................. $ 40,674 $ 94,562
Apartment communities/land exchanged for ownership interest in unconsolidated entities.. $ 19,844 --
Bond refinancing........................................................................ -- $ 59,715
Issuance of convertible operating partnership units in exchange for development site.... $ 6,843 --
Series A Convertible Preferred Shares converted to Common Shares........................ $ 6,362 $ 21,845
Partnership units exchanged for Common Shares........................................... -- $ 7,012
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
6
<PAGE>
Archstone Communities Trust
Notes to Condensed Financial Statements
September 30, 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 and nine month periods ended September 30, 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 a real estate investee accounted for
under the equity method, Archstone's share of net earnings or losses of the
investee is reflected in "Income from unconsolidated entities" as earned and
distributions 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 basic earnings per share ("EPS") to diluted
EPS for the periods indicated (in thousands).
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ----------------------
2000 1999 2000 1999
--------- ------- -------- ---------
Reconciliation of numerator between basic and diluted net earnings per Common
Share/(1)/:
<S> <C> <C> <C> <C>
Net earnings attributable to Common Shares - Basic......................... $79,227 $65,234 $199,129 $153,536
Dividends on Series A Preferred Shares.................................... 1,790 1,922 5,538 -
Minority interest - convertible operating partnership units............... 365 221 961 -
Other, net................................................................ - 7 - 9
--------- -------- -------- ---------
Net earnings attributable to Common Shares - Diluted....................... $81,382 $67,384 $205,628 $153,545
========= ======== ======== =========
Reconciliation of denominator between basic and diluted net earnings per Common
Share/(1)/:
Weighted average number of Common Shares outstanding - Basic............... 126,843 139,552 135,019 139,968
Assumed conversion of Series A Preferred Shares into Common Shares........ 4,664 5,290 4,806 -
Minority interest - convertible operating partnership units............... 949 598 852 -
Other, net................................................................ 498 33 170 29
---------- -------- -------- --------
Weighted average number of Common Shares outstanding - Diluted............. 132,954 145,473 140,847 139,997
========== ======== ======== ========
</TABLE>
(1) Excludes the impact of potentially dilutive equity securities during
periods 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>
September 30, 2000 December 31, 1999
--------------------------------- ---------------------------------
Investment Units Investment Units
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Apartment Communities:
Operating communities................................. $4,610,719 63,443 $4,444,289 68,255
Communities under construction/(1)/................... 311,590 4,803 563,020 7,830
Development communities In Planning/(1) (2)/
Owned.............................................. 69,004 1,905 45,481 2,096
Under Control/(3)/................................. - 2,167 - 2,375
--------------- --------------- --------------- ---------------
Total development communities In Planning......... 69,004 4,072 45,481 4,471
--------------- --------------- --------------- ---------------
Total apartment communities...................... 4,991,313 72,318 5,052,790 80,556
--------------- =============== --------------- ===============
Hotel asset/(4)/....................................... 22,870 22,870
Land held............................................... 13,363 10,826
--------------- ---------------
Total real estate................................ $5,027,546 $5,086,486
=============== ===============
</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 is no assurance that
such land will be acquired.
(3) Archstone's investment as of September 30, 2000 and December 31, 1999 for
developments Under Control was $5.5 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.
The change in investments in real estate, at cost, consisted of the following
(in thousands):
<TABLE>
<S> <C>
Balance at January 1, 2000............................................. $5,086,486
Apartment communities:
Acquisition-related expenditures................................ 244,506
Redevelopment expenditures...................................... 56,335
Recurring capital expenditures.................................. 9,566
Development expenditures, excluding land acquisitions........... 145,746
Acquisition and improvement of land for development............. 66,637
Dispositions.................................................... (583,867)
Provision for possible loss on investments...................... (400)
----------------------
Net apartment community activity............................... 5,025,009
Other:
Change in land held............................................. 2,537
----------------------
Balance at September 30, 2000.......................................... $5,027,546
======================
</TABLE>
At September 30, 2000, we had unfunded contractual commitments related to real
estate investment activities aggregating approximately $243.2 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 $123.5 million as of
September 30, 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 these communities under
contract at September 30, 2000, which are included in our earnings from
operations for the nine months ended September 30, 2000 and 1999 were $6.0
million and $3.9 million, respectively.
During the nine months ended September 30, 2000, we concluded that the full
recovery of certain real estate assets was doubtful. As a result, a provision
for possible loss of $400,000 was recorded to reduce these assets to their
estimated fair value. A similar provision of $2.0 million was recorded during
the three months ended March 31, 1999.
(3) Investments in and Advances to Unconsolidated Entities
Archstone has investments in entities that are accounted for using the equity
method. The most significant of these investments is Ameriton Properties
Incorporated ("Ameriton"), a corporation whose business is acquiring and
developing properties to sell to third parties. Archstone owns a 95% economic
interest through its investment in Ameriton's non-voting common stock. The
voting common stock is owned by an unaffiliated limited liability company.
Archstone's investment in Ameriton at September 30, 2000 and December 31, 1999
was $113.1 million and $130.8 million, respectively.
In June and July of 2000, Archstone formed two joint ventures with the First
Islamic Investment Bank ("FIIB"). The ventures were formed through Archstone's
contribution of 11 apartment communities with an estimated aggregate fair value
of approximately $237.0 million. FIIB contributed $66.7 million of cash for an
80% ownership interest in each of the ventures. The ventures also obtained an
aggregate of $153.7 million in mortgage loans from Freddie Mac, secured by the
11 communities, which are located in Salt Lake City, San Antonio, Nashville,
Raleigh, Phoenix, Albuquerque, Houston, Richmond, and three in Atlanta.
Archstone maintained a 20% ownership interest in each of the ventures valued at
approximately $16.7 million and received cash distributions totaling $220.4
million. For financial reporting purposes, Archstone accounted for the
transactions as a partial disposition of the communities, which resulted in
recognition of an aggregate net gain of $13.3 million. Archstone only
recognized 80% of the total gain, due to the 20% continuing ownership interest
in the joint ventures. The ventures have a five-year life with flexible
liquidation terms to ensure an orderly disposition of the communities, based on
prevailing market conditions. Archstone will receive management fees for
managing the communities and the ventures.
(4) Mortgage Notes Receivable
During the three months ended March 31, 2000, we concluded that for various
reasons, including the then proposed transaction that eliminated the publicly
traded common shares of Homestead Village Incorporated, the conversion feature
associated with our Homestead 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.
In July 2000, we completed a transaction to repurchase approximately 17.5
million of our Common Shares held by Security Capital in exchange for Homestead
mortgage notes receivable with a face amount of $221.3 million and cash of
$178.7 million. The Homestead mortgage notes and related balances had a net
book value of $195.7 million on the date of the transaction. We recognized a
gain of $9.3 million related to this transaction in the third quarter of 2000.
(5) Borrowings
Unsecured Credit Facilities
In October 2000, Archstone signed an amendment to its $750 million unsecured
revolving line of credit provided by a group of financial institutions led by
The Chase Manhattan Bank, National Association ("Chase"). The amendment reduced
the total commitment from $750 million to $600 million, which will reduce
Archstone's commitment fees paid to the banks. The $600 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 (6.62% at
September 30, 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.
9
<PAGE>
Archstone Communities Trust
Notes to Condensed Financial Statements - (Continued)
The following table summarizes our unsecured revolving line of credit
borrowings (dollars in thousands):
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 2000 December 31, 1999
---------------------- ----------------------
<S> <C> <C>
Total line of credit at end of period................................ $750,000 $750,000
Borrowings outstanding at end of period.............................. $120,000 $485,000
Weighted average daily borrowings.................................... $368,628 $387,082
Maximum borrowings outstanding during the period..................... $618,000 $485,000
Weighted average daily nominal interest rate......................... 7.0% 6.0%
Weighted average daily effective interest rate....................... 7.3% 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 7.6% during the nine
months ended September 30, 2000. At September 30, 2000 and December 31, 1999,
there was $13.1 million and $8.5 million, respectively, outstanding under this
agreement.
Long-Term Unsecured Debt
A summary of our long-term unsecured notes and unsecured tax-exempt bonds
(collectively, "Long-Term Unsecured Debt") outstanding at September 30, 2000
follows (amounts in thousands):
<TABLE>
<CAPTION>
Effective Average
Coupon Interest Balance at Balance at Remaining
Type of Debt Rate /(1)/ Rate /(2)/ September 30, 2000 December 31, 1999 Life (years)
---------------------------------- ------------ ----------- ------------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Long-term unsecured notes/(3)/.... 7.4% 7.6% $1,400,624 $1,200,857 6.8
Unsecured tax-exempt bonds/(4)/... 4.7% 5.1% 75,715 75,715 7.7
---------- --------- ----------------- --------------- --------
Total/average................... 7.3% 7.5% $1,476,339 $1,276,572 6.9
========== ========= ================= =============== ========
</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) Includes the effect of 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
have a mandatory tender date of June 1, 2008.
In July 2000, we issued $200.0 million of Long-Term Unsecured Debt. The notes
have a coupon rate of 8.2% and pay interest semi-annually through maturity on
July 3, 2005. The effective interest rate, including discount and issuance costs
is approximately 8.4%. We used the $198.6 million of net proceeds to repay
borrowings under our unsecured credit facilities.
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 September 30, 2000
follows (amounts in thousands):
<TABLE>
<CAPTION>
Effective Interest Principal Balance at
Type of Mortgage Rate /(1)/ September 30, 2000 December 31, 1999
----------------------------------------------- --------------------- -------------------------- --------------------------
<S> <C> <C> <C>
Fannie Mae secured debt/(2)/................... 7.0% $407,094 $304,365
Conventional fixed rate........................ 7.8% 178,706 110,776
Tax-exempt fixed rate.......................... 7.3% 17,733 56,576
Tax-exempt floating rate....................... 5.1% 226,673 192,847
Other.......................................... 5.7% 24,140 30,384
--------------------- -------------------------- --------------------------
Total/average mortgage debt.................. 6.6% $854,346 $694,948
===================== ========================== ==========================
</TABLE>
(1) Includes the effect of interest rate hedges, credit enhancement fees, other
bond-related costs and loan cost amortization, where applicable.
(2) Represents long-term secured debt agreements with Fannie Mae. Archstone
issued $103.0 million of Fannie Mae secured debt in June 2000, which
matures in June 2009.
10
<PAGE>
Archstone Communities Trust
Notes to Condensed Financial Statements - (Continued)
The change in mortgages payable during the nine months ended September 30,
2000 consisted of the following (in thousands):
<TABLE>
<S> <C>
Balance at January 1, 2000................................ $ 694,948
Mortgage notes assumed or originated...................... 197,202
Regularly scheduled principal amortization................ (3,451)
Prepayments, final maturities and other................... (34,353)
-----------------------
Balance at September 30, 2000............................. $ 854,346
=======================
</TABLE>
Scheduled Debt Maturities
Approximate principal payments due during each of the next five calendar years
and thereafter, as of September 30, 2000 are as follows (in thousands):
<TABLE>
<CAPTION>
Mortgages Payable
----------------------------------------------
Regularly Scheduled
Long-Term Principal Final Maturities
Unsecured Debt Amortization and Other Total
------------------ --------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
2000 (October through December)... $ 75,077 $ 752 $ 2,135 $ 77,964
2001.............................. 70,010 5,544 5,154 80,708
2002.............................. 97,810 5,900 267 103,977
2003.............................. 171,560 6,220 20,564 198,344
2004.............................. 51,560 6,543 36,562 94,665
Thereafter........................ 1,010,322 144,236 620,469 1,775,027
------------------ --------------------- -------------------- -------------------
Total........................ $ 1,476,339 $ 169,195 $ 685,151 $ 2,330,685
================== ===================== ==================== ===================
</TABLE>
The scheduled annual principal payments due from 2005 to 2019 average $115.7
million per year.
The $600 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
September 30, 2000.
For the nine months ended September 30, 2000 and 1999, the total interest paid
in cash on all outstanding debt was $126.0 million and $114.2 million,
respectively. We capitalize interest incurred during the construction period as
part of the cost of apartment communities under development. Interest
capitalized during the nine months ended September 30, 2000 and 1999 was $18.7
million and $25.4 million, respectively.
Amortization of loan costs included in interest expense for the nine months
ended September 30, 2000 and 1999 was $3.7 million for both periods.
11
<PAGE>
Archstone Communities Trust
Notes to Condensed Financial Statements - (Continued)
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 manage our exposure to interest rates. 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 4.9% per annum as of September 30, 2000. The debt is capped at
an effective interest rate of 8.9% per annum until termination in March 2005.
In September 2000, we entered into an interest rate swap agreement with a
notional amount of $21.0 million, relating to a tax-exempt bond, which carries a
fixed interest rate of 5.3% per annum. The fixed payment was swapped to a
floating rate of the Bond Market Association rate plus .539%. The debt maturity
is October 2008.
As of September 30, 2000, marking our various interest rate agreements to
market would result in a net gain of $11.8 million, prior to consideration of
the associated issuance costs, if each had been terminated on such date.
(6) 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 nine months ended September 30, 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.
(7) Cash Dividends
The following table summarizes the quarterly cash dividends paid per share on
Common and Preferred Shares during each of the three months ended March 31, June
30, and September 30, 2000.
<TABLE>
<CAPTION>
Quarterly Cash
Dividend Per Share
------------------------
<S> <C>
Common Shares................................. $ 0.3850
Series A Convertible Preferred Shares......... $ 0.5186
Series B Preferred Shares..................... $ 0.5625
Series C Preferred Shares..................... $ 0.5391
Series D Preferred Shares..................... $ 0.5469
</TABLE>
12
<PAGE>
Archstone Communities Trust
Notes to Condensed Financial Statements - (Concluded)
On October 20, 2000, Archstone's Board of Trustees declared the fourth
quarter 2000 cash dividend of $0.385 per Common Share, payable on November 29,
2000, to shareholders of record on November 14, 2000. This dividend represents
our 99/th/ consecutive quarterly Common Share dividend.
(8) Shareholders' Equity
During the nine months ended September 30, 2000, approximately 254,500 of
Series A Convertible Preferred Shares were converted, at the option of the
holders, into approximately 342,700 Common Shares.
In July 2000, we completed a transaction to repurchase approximately 17.5
million of our Common Shares held by Security Capital in exchange for Homestead
mortgage notes receivable with a face amount of $221.3 million and cash of
$178.7 million. Security Capital's ownership of our Common Shares was reduced
from approximately 36% to approximately 27% on a fully diluted basis (from
approximately 38% to approximately 29% based on Common Shares outstanding).
(9) 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 Nine Months Ended
September 30, September 30,
------------------------------ -------------------------------
2000 1999 2000 1999
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Reportable apartment community segment revenues......... $ 171,517 $ 160,377 $ 513,210 $ 468,515
Income from unconsolidated entities..................... 1,506 151 2,707 2,179
Income from hotel asset................................. 1,307 1,169 3,150 2,929
Other/(1)/.............................................. 13,559 7,175 30,651 19,953
------------ ------------- ------------- -------------
Total segment and consolidated revenues................. $ 187,889 $ 168,872 $ 549,718 $ 493,576
============ ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ -------------------------------
2000 1999 2000 1999
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Reportable apartment community segment net operating income... $ 113,683 $ 105,773 $ 343,949 $ 305,799
Net operating income from hotel asset......................... 1,303 1,176 3,141 2,919
------------ ------------- ------------- -------------
Total segment net operating income......................... $ 114,986 $ 106,949 $ 347,090 $ 308,718
------------ ------------- ------------- -------------
Reconciling items:
Income from unconsolidated entities........................ $ 1,506 $ 151 $ 2,707 $ 2,179
Other income............................................... 13,559 7,175 30,651 19,953
Depreciation on real estate investments.................... (36,655) (32,742) (109,876) (96,989)
Interest expense........................................... (37,483) (31,777) (109,010) (87,818)
General and administrative expenses........................ (5,640) (5,958) (17,391) (16,462)
Other expenses............................................. (302) (52) (4,121) (3,414)
------------ ------------- ------------- -------------
Consolidated earnings from operations......................... $ 49,971 $ 43,746 $ 140,050 $ 126,167
============ ============= ============= =============
</TABLE>
(1) Includes $13.6 million and $17.6 million of interest income on the
Homestead mortgage notes for the nine months ended September 30, 2000 and
1999, respectively. Interest income on cash equivalents and other notes
receivable is also included. For the nine months ended September 30,
2000, includes a $3.3 million gain on the sale of Spectrum Apartment
Locators, an apartment locator company acquired in January 1998, and a $9.3
million gain on the exchange of Homestead mortgage notes for Common Shares
held by Security Capital. The $9.3 million gain is also included in the
quarter ended September 30, 2000.
Archstone does not derive any of its consolidated revenues from foreign
countries and does not have any major customers that individually account for
10% or more of its 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 (the "Trust") as of September 30, 2000, and the related
condensed statements of earnings for the three and nine month periods ended
September 30, 2000 and 1999, the condensed statement of shareholders' equity for
the nine month period ended September 30, 2000 and the condensed statements of
cash flows for the nine month periods ended September 30, 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 the 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
October 26, 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 and Nine Months Ended September 30, 2000 Compared to September 30, 1999
Archstone's overall rental revenues increased $11.3 million (7.0%) and net
operating income ("NOI") increased $8.0 million (7.5%) during the three months
ended September 30, 2000 as compared to the same period in 1999. During the
nine months ended September 30, 2000, rental revenues increased $44.9 million
(9.5%) and NOI increased $38.4 million (12.4%) 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 our primary
target markets, including California, Washington D.C. and Boston.
Net earnings attributable to Common Shares increased $14.0 million during the
three months ended September 30, 2000 as compared to the same period in 1999.
This increase resulted primarily from a $6.2 million increase in earnings from
operations and a $9.6 million increase in gains on dispositions in 2000. The
increases were partially offset in 2000 by a $1.8 million increase in minority
interest expense and Preferred Share dividends.
During the nine months ended September 30, 2000, net earnings attributable to
Common Shares increased $45.6 million as compared to the same period in 1999.
This increase resulted primarily from a $13.9 million increase in earnings from
operations and a $36.6 million increase in gains on dispositions in 2000. The
increases were partially offset in 2000 by a $6.0 million increase in minority
interest expense and Preferred Share dividends.
Apartment Community Operations
At September 30, 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 NOI
generated from our apartment communities for each period (in thousands, except
for percentages):
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------ ---------------------------------
2000 1999 2000 1999
---------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Rental revenues............................... $ 171,517 $ 160,377 $ 513,210 $ 468,515
Property operating expenses................... 57,834 54,604 169,261 162,716
---------------- --------------- -------------- -------------
Net operating income.......................... $ 113,683 $ 105,773 $ 343,949 $ 305,799
================ =============== ============== =============
Operating margin (NOI/rental revenues)........ 66.3% 66.0% 67.0% 65.3%
================ =============== ============== =============
Average occupancy during period............... 96.8% 95.4% 96.1% 94.9%
---------------- --------------- -------------- -------------
Average number of operating units............. 64,716 68,957 66,781 68,999
---------------- --------------- -------------- -------------
</TABLE>
15
<PAGE>
The increases in NOI for the three months ended September 30, 2000 compared to
the same period in 1999 are primarily attributable to an increase in rental
revenues from our operating communities 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
improved revenue growth as capital is redeployed into primary target markets
with higher barriers to entry. Such markets typically achieve higher and more
consistent growth in NOI.
The improved operating margins for the three months ended September 30, 2000
were also impacted by operating efficiencies and lower utility costs due to
increased levels of utility reimbursements from residents. Offsetting these
expense reductions were higher real estate taxes in 2000 due to known and
projected increases in certain property tax valuations, higher insurance costs
due to increasing premiums and higher repair and maintenance costs.
Higher operating margins for the nine months ended September 30, 2000 were
also impacted by operating efficiencies, lower overall insurance costs due to
refinement of claim estimates offset with higher premiums 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 known and projected increases in certain
property tax valuations and higher repair and maintenance costs.
Income from Unconsolidated Entities
Income from unconsolidated entities is primarily influenced by Archstone's
investment in Ameriton, a corporation whose business is acquiring and developing
properties to sell to third parties. Archstone owns a 95% economic interest
through its investment in Ameriton's non-voting common stock. The voting common
stock is owned by an unaffiliated limited liability company. For the three and
nine months ended September 30, 2000 Archstone's equity in Ameriton's earnings
were $1.5 million and $2.8 million, respectively. Archstone's income from
unconsolidated entities in 1999 is related entirely to our investment in
Ameriton.
In June and July of 2000, Archstone formed two joint ventures with FIIB. The
ventures were formed through Archstone's contribution of 11 apartment
communities with an estimated aggregate fair value of approximately $237.0
million. Archstone maintained a 20% ownership interest in each of the ventures
valued at approximately $16.7 million and received cash distributions totaling
$220.4 million. Archstone will receive management fees for managing the
communities and the ventures. See Note 3 to the financial statements contained
in Item 1 of this Form 10-Q for more information on the FIIB transactions.
Other Income
During the nine months ended September 30, 2000 other income increased $10.7
million as compared to the same period in 1999. This increase resulted
primarily from a $3.3 million gain in March 2000 from the sale of Spectrum
Apartment Locators, a wholly-owned start-up company we acquired in January 1998,
and a $9.3 million gain in July 2000 associated with the exchange of Homestead
mortgage notes for Common Shares held by Security Capital. These increases were
partially offset by a $4.0 million decrease in interest income related to the
Homestead mortgage notes.
Depreciation Expense
The $3.9 million and the $12.9 million increases in depreciation expense for
the three and nine months ended September 30, 2000 as compared to 1999 resulted
primarily from the increase in the cost basis of operating communities as a
result of our active capital redevelopment program and the reduction in
depreciable lives on certain real estate investments during 2000.
Interest Expense
The $5.7 million and $21.2 million increases in interest expense for the three
and nine months ended September 30, 2000 as compared to 1999 are 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.
16
<PAGE>
General and Administrative Expenses
The overall increase during the nine months ended September 30, 2000 as
compared to the same period in 1999 relates primarily to higher information
technology related costs and higher expenses associated with Archstone's long-
term incentive plan.
Other Expenses
During the three months ended March 31, 2000, we concluded that for various
reasons, including the then proposed transaction that eliminated the publicly
traded common shares of Homestead, 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.
During the nine months ended September 30, 2000, we concluded that full
recovery of certain real estate investments was doubtful. As a result, a
provision for possible loss of $400,000 was recorded to reduce these assets to
their estimated fair value. A similar provision of $2.0 million was recorded
during the three months ended March 31, 1999.
Gains on Dispositions of Investments
During the nine months ended September 30, 2000, we disposed of 34 apartment
communities and certain other real estate assets representing gross proceeds of
$625.3 million. We disposed of 30 apartment communities and certain other real
estate assets, representing gross proceeds of $413.8 million during the nine
months ended September 30, 1999. Aggregate net gains of $83.5 million and $46.9
million were recorded for the nine months ended September 30, 2000 and 1999,
respectively.
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 environment that has existed for
publicly traded real estate companies, we have continued to fund attractive new
investment opportunities in supply-constrained, primary target markets
principally through the use of proceeds from dispositions of assets in non-core,
secondary markets and internally generated cash flow from operations. 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 anticipated cash
flow needs during the remainder of 2000 and 2001.
Operating Activities
Net cash flow provided by operating activities increased by $25.9 million, or
12.0%, for the nine months ended September 30, 2000 as compared to the same
period of 1999. This increase is due primarily to cash flow growth from
operating apartment communities.
17
<PAGE>
Investing and Financing Activities
Real estate investments of $499.0 million and the repurchase of $179.4 million
of Common and Preferred Shares during the nine months ended September 30, 2000
were financed primarily with cash flow from operations, dispositions, the joint
venture transaction with FIIB, net proceeds from the issuance of Long-Term
Unsecured Debt, net proceeds from secured debt financing and cash held in escrow
pending tax-deferred exchanges. Real estate investments of $543.5 million and
the repurchase of $102.5 million of Common Shares during the nine months ended
September 30, 1999 were financed primarily with cash flow from operations,
proceeds from property dispositions, proceeds from the issuance of Preferred
Shares and perpetual preferred units and cash held in escrow pending tax-
deferred exchanges. Our unsecured credit facilities were used to finance our
investments on a short-term basis prior to the completion of the above long-term
financing sources.
Other significant financing activities included the payment of $178.4 million
and $174.8 million in Common and Preferred Share and minority interest
dividends/distributions for the nine months ended September 30, 2000 and 1999,
respectively. The increase was primarily attributable to the issuance of the
Series D Preferred Shares in August 1999, an increase in the cash dividends paid
per Common Share and an increase in the number of units issued to minority
interests. We prepaid mortgages due to community dispositions of $34.1 million
and $29.3 million during the nine months ended September 30, 2000 and 1999,
respectively.
Significant non-cash investing and financing activities during the nine months
ended September 30, 2000 and 1999 included (i) the exchange of Homestead
mortgage notes for Common Shares held by Security Capital, (ii) the assumption
of mortgage debt and the issuance of convertible operating partnership units
upon purchase of apartment communities, (iii) the exchange of apartment
communities/land for ownership interest in unconsolidated entities and (iv) the
conversion of Series A Convertible Preferred Shares into Common Shares.
Scheduled Debt Maturities and Interest Payment Requirements
As of November 7, 2000, we have approximately $2.3 million of long-term debt
maturing during the remainder of 2000, $80.7 million maturing during 2001 and
$104.0 million maturing during 2002. See Note 5 to the financial statements
contained in Item 1 for more information on scheduled debt maturities.
We currently have $700 million in total borrowing capacity under our unsecured
credit facilities, with $100 million outstanding and an available balance of
$600 million at November 7, 2000. Archstone's unsecured credit facilities, Long-
Term Unsecured Debt and mortgages payable had effective interest rates of 7.3%,
7.5% and 6.6%, respectively, as of September 30, 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 September 30, 2000.
Shareholder Dividend Requirements
Based on announced dividend levels for 2000 (assuming no changes in our
dividend levels) and the number of Archstone shares or units outstanding as of
September 30, 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............................................................... $ 1.54 $188,273
Series A Convertible Preferred Share....................................... 2.07 7,158
Series B Preferred Share................................................... 2.25 9,422
Series C Preferred Share................................................... 2.16 4,289
Series D Preferred Share................................................... 2.19 4,359
Series E perpetual preferred limited partnership units /(1)/............... 2.09 3,350
Series F perpetual preferred limited partnership units /(1)/............... 2.03 1,625
Series G perpetual preferred limited partnership units /(1)/............... 2.16 1,294
Other distributions on minority interests /(1)/............................ 1.54 1,461
------------------
Total dividend/distribution requirements................................... $221,231
==================
</TABLE>
(1) See Note 6 to the financial statements contained in Item 1 for information
on the perpetual preferred limited partnership units and other minority
interests.
18
<PAGE>
Planned Investments
Following is a summary of unfunded planned investments as of September 30,
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............. 63,443 $ 31,123 $ 7,053
Communities under construction....................... 4,803 - 236,195
Communities In Planning and owned.................... 1,905 270,506 -
Communities In Planning and Under Control............ 2,167 342,972 -
Operating community acquisition under contract....... 180 33,500 -
---------------- ---------------------- ------------------------
Total........................................... 72,498 $ 678,101 $ 243,248
================ ====================== ========================
</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 through 2002 and expect to start construction on one
community, representing a total expected investment of approximately $30.0
million, 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.
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 and 2001
will be sufficient to fund anticipated dividend requirements and scheduled debt
principal payments. To fund planned investment activities, we had $600 million
in available capacity on our unsecured credit facilities at November 7, 2000. We
expect to complete the disposition of additional operating communities and
certain other real estate assets during the remainder of 2000 and 2001.
Archstone currently has $577.2 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 manage our exposure to interest rates. See
Note 5 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.
19
<PAGE>
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 the calculation of funds from
operations into closer alignment with GAAP net income. The revised measure
generally calls for adjustments to net income for gains (losses) from sales of
depreciated real estate, depreciation on real estate investments and items
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
Homestead 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 dividends to shareholders are
summarized above in "-Shareholder Dividend Requirements". Funds from operations
using the revised definition were as follows (amounts in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- --------------------------
2000 1999 2000 1999
------------- -------------- ------------ ------------
(restated) (restated)
<S> <C> <C> <C> <C>
Net earnings attributable to Common Shares - Basic.................. $ 79,227 $ 65,234 $ 199,129 $ 153,536
Add (Deduct):
Depreciation on real estate investments.......................... 36,655 32,742 109,876 96,989
Gains on dispositions of investments, net........................ (37,495) (28,002) (83,496) (47,587)
Extraordinary item - loss on early extinguishment of debt........ - - - 1,113
Provision for possible loss on investments....................... - - 400 450
Other, net....................................................... 310 5 1,418 9
------------- ------------- ------------- ------------
Funds from operations attributable to Common Shares - Basic......... 78,697 69,979 227,327 204,510
Minority interest - convertible operating partnership units...... 365 221 961 897
Series A Convertible Preferred Share dividends................... 1,790 1,922 5,538 6,351
Other, net....................................................... - 7 - 12
------------- ------------- ------------- ------------
Funds from operations attributable to Common Shares - Diluted....... $ 80,852 $ 72,129 $ 233,826 $ 211,770
============= ============= ============= ============
Weighted average Common Shares outstanding - Diluted................ 132,954 145,473 140,847 146,583
============= ============= ============= ============
</TABLE>
20
<PAGE>
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 manage our exposure to
interest rates.
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 September 30, 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
September 30, 2000.
PART II-OTHER INFORMATION
Item 5. Other Information
On November 8, 2000, Archstone filed a registration statement with the SEC
to register all of the 35,471,214 Common Shares owned by Security Capital.
Security Capital requested the filing of the registration statement under the
provisions of the Third Amended and Restated Investor Agreement, as amended,
between Security Capital and Archstone. Once effective, the registration
statement will enable Security Capital to sell all or part of the Common Shares
it owns in the manner described in the registration statement. The registration
statement must be declared effective by the SEC before Security Capital can sell
any Common Shares under the registration statement.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Agreement and Third Amendment to Amended and Restated Credit
Agreement, dated as of October 6, 2000, among Archstone, Chase
Bank of Texas, National Association, Morgan Guaranty Trust
company of New York, and Wells Fargo National Association, as
co-agents, and the lenders named therein.
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 November 13, 2000 regarding
unaudited financial information
27 Financial Data Schedule
99.1 Current Development Activity
(b) Reports on Form 8-K:
None.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARCHSTONE COMMUNITIES TRUST
BY: /s/ Charles E. Mueller, Jr.
--------------------------
Charles E. Mueller, Jr.
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
BY: /s/ William Kell
--------------------------
William Kell
Senior Vice President and Controller
(Principal Accounting Officer)
Date: November 13, 2000
22
