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, 1996.......................
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 1-11224
SOUTH WEST PROPERTY TRUST INC.
(Exact name of registrant as specified in its charter)
Maryland 75-2434995
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
5949 Sherry Lane, Suite 1400, Dallas, Texas 75225-8010
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (214) 369-1995
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___.
The number of shares of the registrant's common stock, $.01 par value,
outstanding as of April 29, 1996: 20,451,904 shares.
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PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
SOUTH WEST PROPERTY TRUST INC.
CONSOLIDATED INCOME STATEMENTS
(in thousands except per share amounts)
(unaudited)
For the Three Months
Ended March 31,
1996 1995
<S> <C> <C>
Revenues:
Rental operations................................................... $ 19,164 $ 16,622
Other income........................................................ 192 306
------- -------
19,356 16,928
Expenses:
Property operating expenses......................................... 8,715 7,592
General and administrative.......................................... 428 548
Depreciation and amortization....................................... 3,266 2,825
Interest............................................................ 3,008 2,962
------- -------
15,417 13,927
Operating income........................................................ 3,939 3,001
Minority interest in net income of consolidated partnerships............ ( 6)
----- -------
Net income.............................................................. $ 3,939 $ 2,995
======= =======
Per share:
Net income.......................................................... $ .19 $ .18
======= =======
Weighted average number of shares outstanding........................... 20,638 16,311
======= ======
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<CAPTION>
SOUTH WEST PROPERTY TRUST INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<S> <C> <C>
March 31, December 31,
1996 1996
(unaudited)
ASSETS
Real estate investments:
Property............................................................ $ 357,795 $ 356,278
Less accumulated depreciation....................................... ( 72,862) ( 69,584)
-------- --------
284,933 286,694
Construction in progress............................................ 80,157 69,436
-------- --------
365,090 356,130
Cash and cash equivalents............................................... 3,860 2,406
Cash reserved for additions to property, including $2,655 and
$2,413 of restricted cash in 1996 and 1995, respectively............ 4,884 4,643
Escrow deposits......................................................... 3,142 6,708
Deferred charges, less accumulated amortization of $1,942
and $1,664 in 1996 and 1995, respectively........................... 4,286 4,448
Other assets, net....................................................... 3,223 3,830
-------- -------
$ 384,485 $ 378,165
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage loans payable.................................................. $ 109,171 $ 129,286
Construction loans payable.............................................. 38,214 32,256
Revolving line of credit................................................ 41,800 16,500
Accounts payable and accrued expenses................................... 4,495 9,104
Dividends payable....................................................... 5,331 5,112
Accrued interest........................................................ 795 557
Tenant security deposits................................................ 1,907 1,878
-------- --------
201,713 194,693
-------- -------
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized, none issued and outstanding..........................
Common stock, $.01 par value; 50,000,000 shares authorized, 20,422,117 and
20,319,405 shares issued and outstanding
in 1996 and 1995, respectively................................... 205 203
Paid-in capital..................................................... 231,909 231,208
Accumulated deficit................................................. ( 49,342) ( 47,939)
-------- --------
Total stockholders' equity....................................... 182,772 183,472
-------- -------
$ 384,485 $ 378,165
========= ========
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<CAPTION>
SOUTH WEST PROPERTY TRUST INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands except share data)
<S> <C> <C> <C> <C> <C>
Total
Common Stock Paid-In Accumulated Stockholders
Shares Amount Capital Deficit Equity
For the Three Months ended March 31, 1996
(unaudited)
Balance, January 1, 1996........................ 20,319,405 $ 203 $ 231,208 $( 47,939) $ 183,472
Net income.................................. 3,939 3,939
Sale of common stock........................ 53,697 1 705 706
Exercise of options for common stock, net
of stock tendered in payment............. 49,015 1 449 450
Notes receivable from common stock
options exercised........................ ( 453) ( 453)
Common stock dividends declared,
$.26 per share........................... ( 5,342) ( 5,342)
----------- -- ------- ------ -------
Balance, March 31, 1996........................ 20,422,117 $ 205 $ 231,909 $( 49,342) $ 182,772
=========== === ======== ======= ========
For the Three Months ended March 31, 1995
(unaudited)
Balance, January 1, 1995........................ 16,182,019 $ 161 $ 188,665 $( 41,974) $ 146,852
Net income.................................. 2,995 2,995
Repurchase common stock..................... ( 115,000) ( 1) ( 1,508) ( 1,509)
Offering costs.............................. ( 3) ( 3)
Conversion of debentures to common stock.... 286,000 3 2,767 2,770
Common stock dividends declared,
$.25 per share........................... ( 4,088) ( 4,088)
----------- -- ------- ------- -------
Balance, March 31, 1995........................ 16,353,019 $ 163 $ 189,921 $( 43,067) $ 147,017
=========== === ======== ======== ========
For the Year Ended December 31, 1995
Balance, January 1, 1995........................ 16,182,019 $ 161 $ 188,665 $( 41,974) $ 146,852
Net income.................................. 13,031 13,031
Repurchase common stock..................... ( 115,000) ( 1) ( 1,508) ( 1,509)
Sale of common stock, net of offering costs 2,711,853 27 30,648 30,675
Exercise of options for common stock, net
of stock tendered in payment............. 189,033 2 2,036 2,038
Notes receivable from common stock
options exercised........................ ( 1,945) ( 1,945)
Conversion of debentures to common stock.... 1,351,500 14 13,312 13,326
Common stock dividends declared,
$1.00 per share.......................... ___ ( 18,996) ( 18,996)
----------- ------- ------- -------
Balance, December 31, 1995...................... 20,319,405 $ 203 $ 231,208 $( 47,939) $ 183,472
=========== === ======== ======== ========
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<CAPTION>
SOUTH WEST PROPERTY TRUST INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<S> <C> <C>
For the Three Months
Ended March 31,
1996 1995
Cash flows provided by operating activities:
Cash received from rental operations................................ $ 19,381 $ 16,760
Cash received from other sources.................................... 197 306
Operating expenses paid............................................. ( 9,762) ( 8,672)
Interest paid....................................................... ( 2,491) ( 2,850)
------- -------
Net cash provided by operating activities........................ 7,325 5,544
------- -------
Cash flows used in investing activities:
Cost of construction in progress.................................... ( 10,721) ( 17,631)
Purchase of additional partnership interests........................ ( 1,593)
Additions to properties............................................. ( 1,517) ( 836)
Additions to capital improvement reserves ......................... ( 241) ( 775)
Insurance claims advances........................................... ( 14)
Receipts on mortgage notes.......................................... 73
------- -------
Net cash used in investing activities............................ ( 12,479) ( 20,776)
------- -------
Cash flows provided by financing activities:
Revolving line of credit draws...................................... 25,300 10,300
Cash received from construction loans............................... 6,042 9,760
Repayment of mortgage loans......................................... ( 19,566)
Mortgage principal payments......................................... ( 633) ( 567)
Payment of loan costs............................................... ( 115) ( 10)
Repurchase of common stock.......................................... ( 1,509)
Payment of stock offering costs..................................... ( 3)
Cash distributions.................................................. ( 5,126) ( 3,770)
Proceeds from issuance of common stock.............................. 706
-------
Net cash provided by financing activities........................ 6,608 14,201
------- -------
Net increase (decrease) in cash and cash equivalents.................... 1,454 ( 1,031)
Cash and cash equivalents at beginning of period........................ 2,406 1,334
------- -------
Cash and cash equivalents at end of period.............................. $ 3,860 $ 303
======= =======
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<CAPTION>
SOUTH WEST PROPERTY TRUST INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<S> <C> <C>
For the Three Months
Ended March 31,
1996 1995
Reconciliation of net income to net cash
provided by operating activities:
Net income.......................................................... $ 3,939 $ 2,995
Depreciation of real estate assets.................................. 3,166 2,725
Depreciation and amortization of other assets....................... 100 100
Amortization of loan costs.......................................... 277 215
Interest forfeited by debentureholders upon conversion.............. 5
Amortization of note receivable discount............................ ( 17)
Minority interest in income of consolidated partnerships............ 6
Decrease in other assets............................................ 619 719
Decrease in escrow deposits......................................... 3,566 2,390
Decrease in accounts payable and accrued expenses................... ( 4,609) ( 3,459)
Increase (decrease) in accrued interest............................. 238 ( 177)
Increase in tenant security deposits................................ 29 42
------ ------
Net cash provided by operations..................................... $ 7,325 $ 5,544
======= =======
<CAPTION>
Supplemental disclosure of non-cash financing and investing activities for the
three months ended March 31, 1995:
<S> <C>
Conversion of debentures into 286,000 shares of common stock as follows -
Principal amount of debentures converted............................................. $ 2,860
Accrued interest forfeited by debenture holders upon conversion...................... 5
Unamortized debenture issue costs reclassified to cost of equity..................... ( 95)
------
$ 2,770
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SOUTH WEST PROPERTY TRUST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The consolidated financial statements included herein have been
prepared in accordance with Securities and Exchange Commission Regulations and
therefore do not include all disclosures required under generally accepted
accounting principles. Reference is made to the consolidated financial
statements filed with Form 10-K for the year ended December 31, 1995 with
respect to significant accounting and financial reporting policies as well as
other pertinent information of South West Property Trust Inc. ("SWP" or the
"Company"). The consolidated financial statements reflect all adjustments which
are, in the opinion of management, of a normal recurring nature and necessary
for a fair statement of the results for the interim periods. Interim results of
operations are not necessarily indicative of the results to be expected for the
full year.
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation and presentation - The consolidated financial statements
include the accounts of the Company, its wholly owned corporate subsidiaries and
partnerships in which the Company owns at least a 50% controlling interest. The
portion of net income from consolidated properties attributable to persons
holding minority interests in these consolidated properties is presented as a
single line item deduction from the Company's operating income in the income
statements. Investments in partnerships in which the Company owns less than a
50% interest are accounted for on the equity method. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Earnings per share - Earnings per share is based on the net income or
loss attributable to the common stock and the weighted average number of shares
of common stock and dilutive common stock equivalents outstanding during the
periods presented. Earnings per share for the three months ended March 31, 1996
and 1995 was based on 20,638,952 and 16,310,567 weighted average shares
outstanding during each of the periods, respectively. The number of shares
assumed outstanding related to options to purchase common stock has been
calculated by application of the treasury stock method.
Cash and cash equivalents - Cash and cash equivalents consist primarily
of cash in demand deposits and money market accounts and short-term commercial
paper carried at cost, which approximates fair value. Highly liquid debt
instruments purchased with a maturity of three months or less are considered to
be cash equivalents.
Cash reserved for additions to property - The Company has set aside
cash reserves in the amount of $2,229,000 to provide for the payment of
recurring replacements to certain of its properties. In addition, reserves in
the amount of $2,655,000 are being held in escrow by trustees and certain
mortgage holders for recurring replacements to the properties which secure the
first mortgage financing in the original principal amount of $100,000,000 (the
"REMIC Financing") and two other first mortgages. The carrying amount of these
deposits approximates their fair value.
NOTE 2 - NOTES PAYABLE
In March 1996, the Company repaid the $8,873,000 mortgage secured by
the Sunset Pointe Apartments and the $10,693,000 mortgage loan secured by the
Oak Forest Apartments with funds from the line of credit. Mortgage loans payable
at March 31, 1996 carry a weighted average interest rate of 7.83% and have a
weighted average maturity of 5.5 years.
<PAGE>
A portion of the construction costs of the Company's development
program are financed with construction loans. The Company presently has
construction loan commitments of $68,506,000, which bear interest at rates
ranging from LIBOR plus 2% to LIBOR plus 2.25%. These construction loans, by
their terms, generally may be extended by the Company for up to three years.
In September 1994, the Company obtained a revolving line of credit in
the maximum amount of up to $75,000,000. The line of credit has a maturity date
of March 1997, followed by an amortization period of two years. The interest
rate on the line of credit is LIBOR plus 1.5%.
At March 31, 1996, the Company had an interest rate swap agreement with
a notional amount of $58,250,000. The Company has entered into the interest rate
swap agreement to convert floating rate liabilities to fixed rate liabilities.
The agreement fixes the interest rate on this amount of the Company's variable
rate debt at 7.9% through April 1997.
For the three months ended March 31, 1996, the Company has capitalized
interest of approximately $283,000 related to construction and development of
properties.
NOTE 3 - STOCKHOLDERS' EQUITY (DEFICIT)
During the first three months of 1996, the Company accepted notes
receivable totaling $453,000 from certain officers and directors to exercise
options to purchase common stock. The notes receivable, which mature on December
31, 2003, are in amounts of 50% of the option exercise price and bear interest
at the Applicable Federal Rate (as published by the Internal Revenue Service) at
the date of exercise. Principal will be forgiven ratably over seven years
beginning January 1, 1997, contingent upon continued service as an officer or
director. Options to purchase 83,300 shares of common stock were exercised, and
34,285 previously issued shares of common stock were applied (at the market
price of such shares at the date of such application) to the exercise price of
the options and were retired. As of March 31, 1996, the Company had outstanding
20,422,117 shares of common stock and 1,668,952 options to purchase common stock
(of which 421,000 are vested).
The Company declared dividends of $.26 per share of common stock for
the quarter ended March 31, 1996.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Three months ended March 31, 1996 compared to three months ended March
31, 1995 - Rental revenues for the first three months of 1996 were $19,164,000,
a 15% increase over rental revenues of $16,622,000 for the first three months of
1995. This increase was primarily due to revenues from Oak Forest Apartments,
which was fully operational during the first quarter of 1996 and the increasing
contribution from the Company's development properties. Other income was
$192,000 for the first three months of 1996, compared to $306,000 for the first
three months of 1995. The decrease in other income is primarily the result of
the repayment of the Company's mortgage notes receivable during 1995. Total
revenues were $19,356,000 for the first three months of 1996 compared to
$16,928,000 for the first three months of 1995.
Operating expenses (property operating expenses plus general and
administrative expenses) were $9,143,000 for the first three months of 1996,
compared to $8,140,000 for the same period in 1995. This increase was primarily
attributable to expenses of recently completed development units and higher
operating expenses on the properties that were operational for all of 1995 and
1996. Total operating expenses as a percentage of total revenues declined from
48% in the first three months of 1995 to 47% in the first three months of 1996,
primarily as the result of higher profit margins from the Company's completed
development units and general and administrative expenses being spread over a
larger number of units.
Net operating income per unit (total revenues less operating expenses,
divided by the weighted average number of apartment units owned during the
period) increased from $2,826 in 1995 to $3,123 on an annualized basis for the
first quarter of 1996. This increase is primarily due to the impact of completed
development units.
Additions to property during the first three months of 1996 were
$1,517,000, compared to $836,000 for the first three months of 1995.
Depreciation and amortization increased $441,000 for the first three months of
1996 compared to the first three months of 1995, as the result of depreciation
on completed construction and capitalized improvements made to the properties.
Interest expense was $3,008,000 for the first three months of 1996,
compared to $2,962,000 for the first three months of 1995. This increase is
attributable to increased balances on the construction loans and the line of
credit.
Liquidity and Capital Resources
Cash and cash equivalents at March 31, 1996 aggregated $3,860,000,
compared to $2,406,000 at December 31, 1995. In addition, the Company has
accumulated cash reserves of $4,884,000 to fund recurring replacements to its
properties. The estimate of the requirements for these reserves is based on the
replacement cost and useful lives of roofs, pools, boilers, parking lots,
exterior painting, signage and clubroom and model apartment furniture. Annual
cash reserve requirements in 1996 are estimated to be $105 per apartment unit.
Management anticipates that cash generated from property operations and cash on
hand will be adequate to fund working capital requirements in the near-term and
for the foreseeable future.
Additions to property, which includes recurring replacements as well as
capital improvements, were $1,517,000 in the first three months of 1996 compared
to $836,000 in the first three months of 1995. The Company plans to continue
upgrading its properties to increase their revenue-generating capabilities.
In September 1994, the Company obtained a revolving line of credit in
the maximum amount of $75,000,000. The Company can currently draw up to a total
of $65,050,000 on the line of credit, which amount may be increased as
additional properties are added as security for the loan. At March 31, 1996, the
outstanding balance on the line of credit was $41,800,000.
During the first quarter of 1996, the Company drew $25,300,000 on the
line of credit. Such funds were used to repay the mortgage loan secured by the
Oak Forest Apartments and the mortgage secured by the Sunset Pointe Apartments
and to pay construction costs related to the Company's development program.
<PAGE>
The Company plans to complete four new development properties with
1,614 units and three additions or substantial modifications to existing
properties with 422 units in 1996 and 1997. The total cost of this development
program is estimated to be $119,000,000. The Company has arranged for
$68,506,000 of the estimated development costs to be funded from construction
loans, and has committed to fund the remaining $50,494,000 from available funds
or draws on the Company's line of credit. As of March 31, 1996, the Company had
funded all but $8,551,000 of this commitment.
SWP plans to spend approximately $6,000,000 in 1996 on capital
improvements to increase the revenue-generating capabilities of its existing
properties. Funds for these improvements will come from available funds or draws
on the Company's line of credit.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit No. Description
27 Article 5 Financial Data Schedule for the Three Months
Ended March 31, 1996.
(b) Reports on Form 8-K:
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
SOUTH WEST PROPERTY TRUST INC.
By: /s/ LEWIS H. SANDLER
Lewis H. Sandler, Executive Vice President,
Secretary, General Counsel and Director
By: /s/ DIANA M. LAING
Diana M. Laing, Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
Date: May 1, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 000887983
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> $ 8,744
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 437,952
<DEPRECIATION> 72,862
<TOTAL-ASSETS> 384,485
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 205
<OTHER-SE> 182,567
<TOTAL-LIABILITY-AND-EQUITY> 384,485
<SALES> 19,164
<TOTAL-REVENUES> 19,356
<CGS> 0
<TOTAL-COSTS> 12,409
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,008
<INCOME-PRETAX> 3,939
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,939
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,939
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
