<PAGE>
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-12252
EQUITY RESIDENTIAL PROPERTIES TRUST
(Exact Name of Registrant as Specified in Its Charter)
MARYLAND 36-3877868
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation Or Organization) Identification No.)
TWO NORTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
(Address of Principal Executive Offices) (Zip Code)
(312) 474-1300
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the (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
--- ---
APPLICABLE ONLY TO CORPORATE USERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
AT AUGUST 13, 1996, 43,382,139 OF THE REGISTRANT'S COMMON SHARES OF BENEFICIAL
INTEREST WERE OUTSTANDING.
<PAGE>
<TABLE>
<CAPTION>
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except for share amounts)
(Unaudited)
June 30, December 31,
1996 1995
---------- -----------
<S> <C> <C>
ASSETS
Investment in rental property
Land $ 237,482 $ 210,369
Depreciable property 2,242,492 1,976,267
---------- ----------
2,479,974 2,186,636
Accumulated depreciation (252,872) (217,183)
---------- ----------
Investment in rental property, net of accumulated depreciation 2,227,102 1,969,453
Real estate held for disposition 4,165 -
Cash and cash equivalents 11,906 13,428
Investment in mortgage notes, net 86,768 87,154
Rents receivable 1,734 1,073
Deposits - restricted 11,300 18,272
Escrow deposits - mortgage 17,456 16,745
Deferred financing costs, net 11,094 12,653
Other assets 22,610 22,482
---------- ----------
Total assets $2,394,135 $2,141,260
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 667,803 $ 561,695
Notes, net 348,681 348,524
Line of credit 20,000 92,000
Accounts payable and accrued expenses 29,478 23,544
Accrued interest payable 8,047 8,354
Due to affiliates 1,639 1,568
Rents received in advance and other liabilities 12,817 11,138
Security deposits 11,447 10,131
Distributions payable 37,210 30,826
---------- ----------
Total liabilities 1,137,122 1,087,780
---------- ----------
Commitments and contingencies
Minority Interests 155,031 168,963
---------- ----------
Shareholders' equity:
Preferred Shares of beneficial interest,
$.01 par value; 10,000,000 shares authorized:
9 3/8% Series A Cumulative Redeemable Preferred
Shares of Beneficial Interest, liquidation preference
$25 per share, 6,120,000 shares issued and outstanding 153,000 153,000
9 1/8% Series B Cumulative Redeemable Preferred
Shares of Beneficial Interest, liquidation preference
$250 per share, 500,000 shares issued and outstanding 125,000 125,000
Common Shares of beneficial interest, $.01 par value,
100,000,000 shares authorized, 43,349,349 shares issued
and outstanding as of June 30, 1996 and 35,011,715
shares issued and outstanding as of December 31, 1995 433 350
Paid in capital 893,262 652,829
Employee notes (5,294) (5,331)
Distributions in excess of accumulated earnings (64,419) (41,331)
---------- ----------
Total shareholders' equity 1,101,982 884,517
---------- ----------
Total liabilities and shareholders' equity $2,394,135 $2,141,260
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30, Quarters Ended June 30,
-------------------------- ------------------------
1996 1995 1996 1995
--------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 209,239 $ 179,700 $ 107,796 $ 90,274
Fee and asset management 3,303 3,761 1,758 1,899
Interest income - investment in mortgage notes 5,866 - 3,156 -
Interest and other income 1,180 1,715 557 1,121
--------- --------- --------- ---------
Total revenues 219,588 185,176 113,267 93,294
--------- --------- --------- ---------
EXPENSES
Property and maintenance 59,217 51,594 30,551 26,346
Real estate taxes and insurance 21,229 18,383 10,950 9,093
Property management 8,800 7,688 4,365 3,668
Fee and asset management 2,126 1,940 1,020 954
Depreciation 42,933 33,920 22,317 17,311
Interest:
Expense incurred 37,024 39,091 18,783 19,526
Amortization of deferred financing costs 1,895 1,702 951 916
General and administrative 4,105 4,094 2,026 1,936
--------- --------- --------- ---------
Total expenses 177,329 158,412 90,963 79,750
--------- --------- --------- ---------
Income before gain on disposition of properties,
extraordinary item and allocation to Minority Interests 42,259 26,764 22,304 13,544
Gain on disposition of properties 2,346 - 1,006 -
--------- --------- --------- ---------
Income before extraordinary item and allocation
to Minority Interests 44,605 26,764 23,310 13,544
Gain on early extinguishment of debt - 2,000 - 2,000
--------- --------- --------- ---------
Income before allocation to Minority Interests 44,605 28,764 23,310 15,544
Income allocated to Minority Interests (5,923) (5,938) (3,022) (3,062)
--------- --------- --------- ---------
Net income 38,682 22,826 20,288 12,482
Preferred distributions 12,874 1,195 6,437 1,195
--------- --------- --------- ---------
Net income available to Common Shares $ 25,808 $ 21,631 $ 13,851 $ 11,287
========= ========= ========= =========
Net income per weighted average Common Share outstanding $ 0.65 $ 0.63 $ 0.34 $ 0.33
========= ========= ========= =========
Weighted average Common Shares outstanding 39,496 34,213 41,114 34,328
========= ========= ========= =========
Distributions declared per Common Share outstanding $ 1.18 $ 1.06 $ 0.59 $ 0.53
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------------
1996 1995
-------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 38,682 $ 22,826
Adjustments to reconcile net income to
net cash provided by operating activities:
Income allocated to Minority Interests 5,923 5,938
Depreciation 42,933 33,920
Amortization of deferred financing costs (including discount on 1999
and 2002 Notes) 2,052 1,817
Gain on disposition of properties (2,346) -
Gain on early extinguishment of debt - (2,000)
Changes in assets and liabilities:
(Increase) in rents receivable (661) (294)
Decrease (increase) in deposits - restricted 10,872 (1,101)
Decrease in other assets 757 2,311
(Decrease) in due to affiliates (200) (1,172)
Increase in accounts payable and accrued expenses 6,262 3,994
(Decrease) increase in accrued interest payable (307) 1,741
Increase in rents received in advance and other liabilities 1,679 1,149
--------- ---------
Net cash provided by operating activities 105,646 69,129
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in rental properties, net (262,921) (45,574)
Improvements to rental property (13,749) (13,506)
Additions to non-rental property (725) (2,026)
Proceeds from disposition of rental property 10,183 -
(Increase) in mortgage deposits (711) (2,926)
Deposits (made) on rental property acquisitions (4,000) (500)
Deposits applied on rental property acquisitions 100 2,058
Decrease in investment in mortgage notes, net 386 -
Other investing activities (96) 4,301
--------- ---------
Net cash (used for) investing activities (271,533) (58,173)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of Common Shares 229,787 -
Proceeds from sale of Preferred Shares - 153,000
Proceeds from exercise of options 2,551 303
Proceeds from sale of Fixed Rate Notes, net of discount - 124,011
Redemption of Preference Units (1,083) (401)
Payment of offering costs (334) (5,302)
Distributions to Common Share and Preferred Share owners (55,736) (35,837)
Distributions to Minority Interests (10,100) (9,160)
Principal receipts on employee notes 37 124
Proceeds from restructuring of tax-exempt bond investments 77,095 -
Loan to title holding entities (4,900) -
Proceeds from line of credit 157,000 60,000
Repayments on line of credit (229,000) (222,000)
Principal payments on mortgage notes payable (1,864) (34,562)
Loan and bond acquisition costs (404) (2,325)
Increase in security deposits 1,316 241
--------- ---------
Net cash provided by financing activities 164,365 28,092
--------- ---------
Net (decrease) increase in cash and cash equivalents (1,522) 39,048
Cash and cash equivalents, beginning of period 13,428 20,038
--------- ---------
Cash and cash equivalents, end of period $ 11,906 $ 59,086
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1996 1995
-------------------------
<S> <C> <C>
Supplemental information:
Cash paid during the period for interest $37,331 $37,350
======= =======
Mortgage loans assumed through acquisitions of rental properties $30,878 $ -
======= =======
Rental property assumed through foreclosure $10,854 $ -
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DEFINITION OF SPECIAL TERMS:
Capitalized terms used herein and not defined are as defined in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
1. BUSINESS
Equity Residential Properties Trust, formed in March 1993, and its
subsidiaries (collectively, the "Company"), is a self-administered and self-
managed equity real estate investment trust ("REIT"). As of June 30, 1996, the
Company controlled a portfolio of 191 multifamily residential properties
(individually a "Property" and collectively the "Properties"). The Company's
interest in six of these Properties consists solely of ownership of debt
collateralized by such Properties. The Company also has an investment in
partnership interests and subordinated mortgages collateralized by 21 properties
(the "Additional Properties").
2. BASIS OF PRESENTATION
The balance sheet and statements of operations and cash flows as of and for
the quarter and six months ended June 30, 1996 represent the consolidated
financial information of the Company and its subsidiaries.
Due to the Company's ability as general partner to control either through
ownership or by contract the Operating Partnership, the Management Partnerships
and the Financing Partnerships, each such entity has been consolidated with the
Company for financial reporting purposes. In regard to Management Corp. and
Management Corp. II, the Company does not have legal control; however, these
entities are consolidated for financial reporting purposes, the effects of which
are immaterial.
These unaudited Consolidated Financial Statements of the Company have been
prepared pursuant to the Securities and Exchange Commission ("SEC") rules and
regulations and should be read in conjunction with the Financial Statements and
Notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 ("Form 10-K"). The following Notes to Consolidated
Financial Statements highlight significant changes to the notes included in the
Form 10-K and present interim disclosures as required by the SEC. The
accompanying Consolidated Financial Statements reflect, in the opinion of
management, all adjustments necessary for a fair presentation of the interim
financial statements. All such adjustments are of a normal and recurring nature.
Certain reclassifications have been made to the prior period's financial
statements in order to conform with the current period presentation.
6
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. INVESTMENT IN RENTAL PROPERTY
During the six months ended June 30, 1996, the Company acquired the 18
Properties listed below. Each Property was purchased from an unaffiliated third
party. The cash portion of these transactions was primarily funded from the
Company's line of credit.
<TABLE>
<CAPTION>
Total
Date Number Acquisition Cost
Acquired Property Location of Units (in thousands)
- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C>
02/07/96 7979 Westheimer Houston, TX 459 $ 14,410
02/27/96 Sabal Pointe (formerly
Vinings at Coral Springs) Coral Springs, FL 275 19,452
03/01/96 The Plantations Cary, NC 344 19,879
03/05/96 Heron Landing (formerly
Oxford & Sussex) Sunrise, FL 144 7,112
03/12/96 Pines of Cloverlane Ann Arbor, MI 592 19,285
03/14/96 Regency Palms Huntington Beach, CA 310 18,629
03/21/96 Port Royale II Ft. Lauderdale, FL 161 10,196
04/16/96 Twenty-nine Hundred on
First Seattle, WA 135 11,782
05/22/96 Woodland Hills Decatur, GA 228 12,254
05/31/96 Ivy Place (formerly Post
Place) Atlanta, GA 122 7,933
06/03/96 Ridgetree Dallas, TX 798 20,949
06/05/96 Country Ridge Farmington Hills, MI 252 16,058
06/07/96 Rosehill Pointe Lenexa, KS 498 20,734
06/07/96 Forest Ridge Arlington, TX 660 23,393
06/12/96 Canyon Sands Phoenix, AZ 412 14,761
06/12/96 Desert Sands Phoenix, AZ 412 14,644
06/25/96 Chandler Court Chandler, AZ 311 13,531
06/28/96 Lands End Pacifica, CA 260 18,253
----- --------
6,373 $283,255
===== ========
</TABLE>
In addition to the Properties mentioned above, on February 1, 1996,
Management Corp. II transferred to the Company its interest in Desert Park,
a 368-unit Property located in Las Vegas, Nevada, subject to $8.1 million of
indebtedness, in exchange for the forgiveness of a $2.7 million note payable
to the Company.
7
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. DISPOSITION OF RENTAL PROPERTIES
On January 31, 1996, the Company sold Sanddollar Apartments located in Tulsa,
Oklahoma for a sales price of $6.2 million. The gain for financial reporting
purposes was approximately $1.3 million.
On June 25, 1996, the Company sold Deer Run Apartments located in Charleston,
South Carolina for a sales price of $3.95 million. The gain for financial
reporting purposes was approximately $1 million.
5. COMMITMENTS TO ACQUIRE AND DISPOSE RENTAL PROPERTIES
As of June 30, 1996, the Company had entered into separate agreements to
acquire five multifamily residential properties containing 1,729 units and a
vacant land parcel from unaffiliated third parties. The expected combined
purchase price is approximately $86.1 million, which includes the assumption of
mortgage indebtedness of approximately $57.65 million.
Also as of June 30, 1996, the Company had entered into an agreement to
dispose of one Property containing 200 units to an unaffiliated third party. The
expected sales price is $5.15 million.
The closings of these pending transactions are subject to certain
contingencies and conditions; therefore, there can be no assurance that these
transactions will be consummated or that the final terms thereof will not differ
in material respects from those summarized in the two preceding paragraphs.
6. INVESTMENT IN MORTGAGE NOTES
Investment in mortgage notes, net represents the Company's investment in
subordinated mortgages collateralized by the Additional Properties.
7. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS
On May 21, 1996, the Company completed an offering of 2,300,000 publicly
registered Common Shares, which were sold at a net price of $30.50 per share. On
May 28, 1996, the Company completed the sale of 73,287 publicly registered
Common Shares to employees of the Company and to employees of EGI and certain of
their respective affiliates and consultants at a price equal to $30.50 per
share. On May 30, 1996, the Company completed an offering of 1,264,400 publicly
registered Common Shares, which were sold at a net price of $30.75 per share.
The Company received net proceeds of approximately $111.3 million in connection
with the sale of the 3,637,687 Common Shares mentioned above (collectively, the
"May 1996 Common Share Offerings").
The following table presents the changes in the Company's issued and
outstanding Common Shares for the six months ended June 30, 1996:
8
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
Balance at January 1, 1996 35,011,715
Common Shares issued through January 1996 Common Share Offering 1,725,000
Common Shares issued through February 1996 Common Share Offering 2,300,000
Common Shares issued through May 1996 Common Share Offerings 3,637,687
Conversion of OP Units into Common Shares 540,961
Common Shares issued through restricted share awards 21,879
Common Shares issued through exercise of options 102,106
Common Shares issued for profit-sharing contribution 10,001
----------
Balance at June 30, 1996 43,349,349
==========
</TABLE>
Assuming conversion of all OP Units into Common Shares, total Common Shares
outstanding at June 30, 1996 would have been 52,200,105.
On March 1, 1996, the Operating Partnership exercised its option to convert
all of the remaining Preference Units into OP Units. This conversion resulted in
1,182,835 OP Units being issued.
On June 26, 1996, the Company filed with the SEC a Form S-3 Registration
Statement to register 608,665 Common Shares which may be issued by the Company
to holders of 608,665 OP Units. The SEC has not yet declared the Registration
Statement effective.
The equity positions of various individuals and entities that contributed
their properties to the Operating Partnership in exchange for a partnership
interest are collectively referred to as the "Minority Interests". As of June
30, 1996, the Minority Interests held 8,850,756 OP Units which represented a
16.96% interest in the Operating Partnership.
Net proceeds from the Company's Common Share offerings are contributed by
the Company to the Operating Partnership in return for an increased ownership
percentage and are treated as capital transactions in the Company's Consolidated
Financial Statements. As a result, the net offering proceeds are allocated
between shareholders' equity and Minority Interests to account for the change in
their respective percentage ownership of the underlying equity of the Operating
Partnership.
The Company paid a $0.59 per Common Share distribution on July 12, 1996 for
the quarter ended June 30, 1996, to Common Share holders of record on June 28,
1996.
The Company also paid a $0.5859 per share distribution on July 15, 1996 for
the quarter ended June 30, 1996 to Series A Preferred Share holders of record on
June 28, 1996. In addition, the Company paid a $5.703 distribution per $250
Preferred Share (or a $0.5703 distribution per $25 Depositary Share) for the
quarter ended June 30, 1996 to holders of record on June 28, 1996.
9
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
8. MORTGAGE NOTES PAYABLE
As of June 30, 1996, the Company had outstanding mortgage indebtedness of
approximately $667.8 million encumbering 82 of the Properties. The carrying
value of such Properties (net of accumulated depreciation of $137.9 million) was
$893.3 million. In connection with the Properties acquired during the six months
ended June 30, 1996, the Company assumed the outstanding mortgage balances on
four Properties in the aggregate amount of $30.9 million. In addition, the
Company restructured a portion of its tax-exempt bond investments resulting in
an increase in mortgage indebtedness of approximately $77.1 million. Scheduled
maturities for the Company's outstanding mortgage indebtedness are at various
dates through April 1, 2027. As of June 30, 1996, fixed interest rates on
certain of these mortgage notes ranged from 4% to 10.27% and variable interest
rates on certain of the mortgage notes ranged from 3.15% to 7.51%. Subsequent to
June 30, 1996, the Company repaid the outstanding mortgage balance on two
Properties in the amount of approximately $19 million.
9. LINE OF CREDIT
The Company, through the Operating Partnership, has a $250 million
unsecured line of credit with Wells Fargo Realty Advisors Funding, Incorporated,
as agent. This line of credit matures in November 1996 unless extended by the
parties. Borrowings under this line of credit currently bear interest at a rate
equal to the one month LIBOR, plus 1.375%. As of June 30, 1996, $20 million was
outstanding under this facility and was bearing interest at an interest rate of
6.875%.
10. NOTES
Included in this balance are the 1999 Notes, the Floating Rate Notes and
the 2002 Notes.
The 1999 Notes were issued at a discount, which is being amortized over the
life of the 1999 Notes on a straight-line basis. As of June 30, 1996 the
unamortized discount balance was approximately $0.5 million. The 1999 Notes are
due May 15, 1999 and bear interest at a rate of 8.5%, which is payable
semiannually in arrears on May 15 and November 15.
The Floating Rate Notes are due on December 22, 1997 and bear interest at
three month LIBOR plus 0.75%, which is payable quarterly in arrears on the third
Wednesday of each February, May, August and November of each year.
The 2002 Notes were issued at a discount, which is being amortized over the
life of the 2002 Notes on a straight-line basis. As of June 30, 1996 the
unamortized discount balance was approximately $0.8 million. The 2002 Notes are
due on April 15, 2002 and bear interest at 7.95%, which is payable semi-annually
on each April 15 and October 15.
10
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
11. DEPOSITS - RESTRICTED
Deposits - restricted shown on the Company's Consolidated Balance Sheet as
of June 30, 1996 included a deposit held in a third party escrow account which
deposit was made in connection with one of the Company's dispositions.
Approximately $3.9 million were held in this account and were utilized for one
property the Company purchased subsequent to June 30, 1996. Also included in the
deposits - restricted amount were approximately $4 million of earnest money
deposits made for property acquisitions. Also included in the deposits -
restricted amount were tenant security and utility deposits made for certain of
the Company's Properties.
12. COMMITMENTS AND CONTINGENCIES
There have been no new or significant developments related to the
commitments and contingencies that were discussed in Note 16 to the Company's
Form 10-K for the year ended December 31, 1995.
13. SUBSEQUENT EVENTS
On July 2, 1996, the Company acquired Sunny Oak Village Apartments, a 548-
unit multifamily residential property located in Overland Park, Kansas from an
unaffiliated third party. The purchase price was approximately $22.2 million.
On July 2, 1996, the Company acquired Mallard Cove Apartments, a 211-unit
multifamily residential property located in Greenville, South Carolina from an
unaffiliated third party. The purchase price was $7.85 million.
On July 16, 1996, the Company acquired Pine Meadow Apartments, a 204-unit
multifamily residential property located in Greensboro, North Carolina from an
unaffiliated third party. The purchase price was $7.19 million, which included
the assumption of mortgage indebtedness of approximately $4.9 million.
On July 19, 1996, the Company acquired Summer Ridge Apartments (136 units)
located in Riverside, California; Promenade Terrace Apartments (330 units)
located in Corona Hills, California; and South Creek Apartments (528 units)
located in Mesa, Arizona, all multifamily residential properties from an
unaffiliated third party. The combined purchase price was $55.53 million, which
included the assumption of mortgage indebtedness of approximately $33.2 million.
On August 1, 1996, the Company acquired Pueblo Villas Apartments, a 232-
unit multifamily residential property located in Albuquerque, New Mexico from an
unaffiliated third party. The purchase price was $8.5 million.
Subsequent to June 30, 1996 and through August 13, 1996, the Company
entered into separate agreements to acquire 11 multifamily residential
properties consisting of 2,777 units from
11
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
unaffiliated third parties. The expected combined purchase price is
approximately $137.75 million, which includes the assumption of mortgage
indebtedness of $12.6 million.
The closings of these pending transactions are subject to certain
contingencies and conditions; therefore, there can be no assurance that these
transactions will be consummated or that the final terms thereof will not differ
in material respects from those summarized in the preceding paragraph.
In August 1996, the Operating Partnership issued $150 million of unsecured
fixed rate notes (the "2026 Notes") in connection with the Debt Shelf
Registration in a public debt offering. The 2026 Notes are due on August 15,
2026 and bear interest at 7.57%, which is payable semi-annually in arrears on
February 15 and August 15, commencing February 15, 1997. The Operating
Partnership received net proceeds of approximately $148.7 million in connection
with this offering and subsequently repaid amounts outstanding on the line of
credit.
12
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The following discussion and analysis of the results of operations and
financial condition of the Company should be read in connection with the
Consolidated Financial Statements and Notes thereto. Due to the Company's
ability to control the Operating Partnership, the Management Partnerships, the
Financing Partnerships and the LLCs, each entity has been consolidated with the
Company for financial reporting purposes. Capitalized terms used herein and not
defined, are as defined in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
RESULTS OF OPERATIONS
Since the Company's IPO, the Company has acquired direct or indirect
interests in 130 properties (the "Acquired Properties"), containing 40,755 units
in the aggregate for a total purchase price of approximately $1.9 billion,
including the assumption of approximately $442.8 million of mortgage
indebtedness. The Company's interest in six of the Acquired Properties consists
solely of ownership of the debt collateralized by such Acquired Properties. The
Company purchased ten of such Acquired Properties consisting of 2,694 units
between the IPO and December 31, 1993 (the "1993 Acquired Properties"); 84 of
such Acquired Properties consisting of 26,285 units in 1994 (the "1994 Acquired
Properties"); 17 of such Acquired Properties consisting of 5,035 units in 1995
(the "1995 Acquired Properties"); and 19 of such Acquired Properties consisting
of 6,741 units between January 1, 1996 and June 30, 1996 (the "1996 Acquired
Properties"). In addition, in August 1995, the Company made an investment in
partnership interests and subordinated mortgages collateralized by the 21
Additional Properties. The Acquired Properties were presented in the
Consolidated Financial Statements of the Company from the date of each
acquisition.
During 1995, the Company also disposed of six properties containing 2,445
units (the "1995 Disposed Properties") for a total sales price of approximately
$52 million and the release of mortgage indebtedness of $20.5 million. During
the six months ended June 30, 1996, the Company disposed of two properties (the
"1996 Disposed Properties") for a total sales price of $10.15 million.
The Company's overall results of operations for the quarter and six months
ended June 30, 1996 have been impacted by the Company's acquisition and
disposition activity. The significant increases in rental revenues, property and
maintenance expenses, real estate taxes and insurance, depreciation expense and
property management can all primarily be attributed to the acquisition of the
1995 Acquired Properties and 1996 Acquired Properties. The impact of the 1995
Acquired Properties is discussed in greater detail in the following paragraphs.
The Company's disposition activity partially offset the increases to these same
accounts.
Properties that the Company owned for all of both the six months ended June
30, 1996 and June 30, 1995 (the "Six-Month 1996 Same Store Properties") and
Properties that the Company owned for all of both the quarters ended June 30,
1996 and June 30, 1995 (the "Second-Quarter 1996 Same Store Properties") also
impacted the Company's results of operations and are discussed as well in the
13
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.(Continued)
following paragraphs.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996
TO SIX MONTHS ENDED JUNE 30, 1995
For the six months ended June 30, 1996, income before gain on disposition
of properties, extraordinary item and allocation to Minority Interests increased
by $15.5 million when compared to the six months ended June 30, 1995. This
increase was primarily due to increases in rental revenues net of increases in
property and maintenance expenses, real estate taxes and insurance, property
management expenses, fee and asset management and depreciation expense. All of
the increases in the various line item accounts mentioned above can be primarily
attributed to the 1996 Acquired Properties and 1995 Acquired Properties. These
increases were partially offset by the 1995 Disposed Properties and the 1996
Disposed Properties. Interest income of $5.9 million earned on the Company's
mortgage note investment was an additional factor that impacted the six month to
six month changes.
In regard to the Six-Month 1996 Same Store Properties, rental revenues
increased by approximately $9.9 million or 5.8% primarily as a result of higher
rental rates charged to new tenants and tenant renewals. Overall property
operating expenses which include property and maintenance, real estate taxes and
insurance and an allocation of property management expenses increased
approximately $2.9 million or 4%. This increase was primarily the result of
higher payroll expenses, leasing and advertising costs and utilities costs. For
1996 the Company also increased its per unit charge for property level insurance
which increased insurance expense by approximately $0.6 million.
Property management represents expenses associated with the management of
the Company's Properties. These expenses increased by approximately $1.1 million
primarily as a result of the expansion of the Company's property management with
the addition of a regional operations center in Seattle, Washington.
Fee and asset management revenues and fee and asset management expenses are
associated with the management of properties not owned by the Company that are
managed for affiliates. These revenues decreased by $0.5 million due to the
disposition of certain of these properties.
Interest expense, including amortization of deferred financing costs,
decreased by approximately $1.9 million. Of this decrease, $3.9 million was due
to having a lower average balance outstanding on the Company's line of credit
and $2.6 million was due to the repayment of mortgage indebtedness on certain of
the 1994 Acquired Properties and Zell Properties. This decrease was offset by an
increase of approximately $1.5 million due to the interest associated with the
debt assumed on the 1995 Acquired Properties and 1996 Acquired Properties, $0.1
million was due to interest related to the 1999 Notes and the Floating Rate
Notes and $3 million was due to interest related to the 2002 Notes.
General and administrative expenses, which include corporate operating
expenses, increased slightly between the periods under comparison. General and
administrative expenses as a percentage
14
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
Itme 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
of total revenues decreased from 2.2% for the six months ended June 30, 1995 to
1.9% for the six months ended June 30, 1996.
COMPARISON OF QUARTER ENDED JUNE 30, 1996 TO QUARTER ENDED JUNE 30, 1995
For the quarter ended June 30, 1996, income before gain on disposition of
property, extraordinary item and allocation to Minority Interests increased by
$8.8 million when compared to the quarter ended June 30, 1995. This increase was
primarily due to increases in rental revenues net of increases in property and
maintenance expenses, real estate taxes and insurance, property management
expenses, fee and asset management and depreciation expense. All of the
increases in the various line item accounts mentioned above can be primarily
attributed to the 1996 Acquired Properties and 1995 Acquired Properties. These
increases were partially offset by the 1995 Disposed Properties and the 1996
Disposed Properties. Interest income of $3.2 million earned on the Company's
mortgage note investment was an additional factor that impacted the quarter to
quarter changes.
In regard to the Second Quarter 1996 Same Store Properties, rental revenues
increased by approximately $5.3 million or 6.1% as a result of higher rental
rates charged to new tenants and tenant renewals. Overall property operating
expenses which include property and maintenance, real estate taxes and insurance
and an allocation of property management expenses increased approximately $1.2
million or 3.2%. This increase was primarily the result of higher payroll
expenses, leasing and advertising costs and utilities costs. For 1996 the
Company also increased its per unit charge for property level insurance which
increased insurance expense by $0.3 million.
Property management represents expenses associated with the management of
the Company's Properties. These expenses increased by approximately $0.7 million
primarily as a result of the expansion of the Company's property management with
the addition of a regional operations center in Seattle, Washington.
Fee and asset management revenues and fee and asset management expenses are
associated with the management of properties not owned by the Company that are
managed for affiliates. These revenues decreased by $0.1 million due to the
disposition of certain of these properties.
Interest expense, including amortization of deferred financing costs,
decreased by approximately $0.8 million. Of this decrease, $1 million was due to
having a lower average balance outstanding on the Company's line of credit and
$1 million was due to the repayment of mortgage indebtedness on certain of the
1994 Acquired Properties and Zell Properties. This decrease was offset by an
increase of approximately $0.8 million due to the interest associated with the
debt assumed on the 1995 Acquired Properties and 1996 Acquired Properties and
$0.4 million was due to interest related to the 2002 Notes.
General and administrative expenses, which include corporate operating
expenses, increased slightly between the quarters under comparison. General and
administrative expenses as a percentage
15
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (CONTINUED)
of total revenues decreased from 2.1% for the quarter ended June 30, 1995 to
1.8% for the quarter ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of January 1, 1996, the Company had approximately $13.4 million of cash
and cash equivalents and $158 million available on its line of credit. After
taking into effect the various transactions discussed in the following
paragraphs, the Company's cash and cash equivalents balance at June 30, 1996 was
approximately $11.9 million and the amount available on the Company's line of
credit was $230 million. The following discussion also explains the changes in
net cash provided by operating activities, net cash (used for) investing
activities and net cash provided by financing activities, which amounts for each
period under comparison are presented in the Company's Statements of Cash Flows.
Part of the Company's strategy in funding the purchase of multifamily
residential properties is to utilize its line of credit and to subsequently
repay the line of credit with proceeds from the issuance of additional equity or
debt securities. Continuing to employ this strategy, the Company completed the
January 1996 Common Share Offering and received net proceeds of approximately
$50.7 million, substantially all of which were applied to repay a portion of the
outstanding balance on the Company's line of credit. In addition, the Company
completed the February 1996 Common Share Offering and received net proceeds of
approximately $67.8 million. Of these proceeds, $60 million were applied to
repay the remaining outstanding balance on the Company's line of credit. The
remaining proceeds were subsequently used to purchase additional properties. In
connection with the May 1996 Common Share Offerings, the Company received net
proceeds of approximately $111.3 million. Of these proceeds, $57 million were
applied to repay the remaining outstanding balance on the Company's line of
credit and the remaining proceeds were subsequently used to purchase additional
Properties.
In June 1996, the Company restructured certain of its tax-exempt bond
investments and received approximately $77.1 million of proceeds in connection
therewith. Of these proceeds $70 million were used to repay the remaining
outstanding balance on the Company's line of credit. Also in connection with
this transaction, the Company made a loan in the amount of $4.9 million to the
entities that hold title to the Properties that collateralize the tax-exempt
bond indebtedness. The proceeds of this loan were used to pay the costs related
to this transaction.
In August 1996, the Operating Partnership issued $150 million of unsecured
fixed rate notes in connection with the Debt Shelf Registration in a public debt
offering. The Operating Partnership received net proceeds of approximately
$148.7 million in connection with this offering and subsequently repaid amounts
outstanding on the line of credit.
With respect to Property acquisitions during the six month period, the
Company purchased 19 Properties containing 6,741 units for a total of
approximately $291 million, which included the
16
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (CONTINUED)
assumption of $45.3 million of mortgage indebtedness. These acquisitions were
primarily funded from amounts drawn on the Company's line of credit, proceeds
funded from third party escrow accounts related to the tax-deferred exchange of
certain properties and a portion of the proceeds received in connection with the
Common Share offerings as mentioned in the previous paragraph. Subsequent to
June 30, 1996, the Company acquired seven additional properties for a purchase
price of $101 million. These acquisitions were primarily funded from the
Company's line of credit. The Company is actively seeking to acquire additional
multifamily residential properties with physical and market characteristics
similar to the Properties and is currently under contract with various sellers
to purchase up to 4,506 units. The combined purchase price of these probable
acquisitions is approximately $224 million. The closings of these transactions
are subject to certain contingencies and conditions, therefore, there can be no
assurance that these transactions will be consummated or that the final terms
will not differ in material respects.
During the six months ended June 30, 1996, the Company disposed of two
properties which generated net proceeds of $10 million. These proceeds were
ultimately applied to purchase additional properties.
As of June 30, 1996, the Company had total indebtedness of approximately $1
billion, which included conventional mortgages of $428.8 million, unsecured debt
of $350 million (net of a $1.3 million discount), tax exempt bond indebtedness
of $239 million and $20 million outstanding on the Company's line of credit.
During the six months ended June 30, 1996, total capital expenditures for the
Company approximated $20 million. Of this amount, $5.6 million related to
capital improvements and major repairs for the Acquired Properties. Such
capital expenditures were primarily funded from working capital reserves and
from net cash provided by operating activities. Total capital expenditures for
the remaining portion of 1996 including amounts for the 1996 Acquired Properties
are budgeted to be approximately $25 million.
Minority Interests as of June 30, 1996 decreased by $13.9 million when
compared to December 31, 1995. The primary factors that impacted this account
during the six month period were distributions declared to Minority Interests,
which amounted to $10.5 million for the six month period, the allocation of
income from operations in the amount of $5.9 million and the conversion of OP
Units into Common Shares.
Total distributions paid during the six months ended June 30, 1996 amounted
to $65.8 million. On May 29, 1996, the Company declared a $0.59 distribution per
Common Share, $0.5859 distribution per Series A Preferred Share and $5.703
distribution per $250 Preferred Share (or a $0.5703 distribution per $25
Depositary Share) payable to shareholders of record on June 28, 1996. Total
distributions paid in July 1996 for the quarter ended June 30, 1996 amounted to
approximately $37 million.
17
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (CONTINUED)
The Company expects to meet its short-term liquidity requirements generally
through its working capital and net cash provided by operating activities. The
Company considers its cash provided by operating activities to be adequate to
meet operating requirements and payments of distributions. The Company also
expects to meet its long-term liquidity requirements, such as scheduled mortgage
debt maturities, reduction of outstanding amounts under its line of credit,
property acquisitions and significant capital improvements by long-term
collateralized and un-collateralized borrowings and the issuance of equity
securities including additional OP Units as well as from proceeds received from
the disposition of certain Properties. In addition, the Company has certain
uncollateralized Properties available for additional mortgage borrowings in the
event that the public capital markets are unavailable to the Company or the cost
of capital to the Company in such markets is too high.
The Company currently has a $250 million line of credit which will continue
to be used for property acquisitions and for any working capital needs. As of
August 13, 1996, no amounts were outstanding under this facility. This facility
is scheduled to mature in November 1996; however, it is the Company's current
intent to renegotiate the extension of this facility or replace it with a
similar facility.
18
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (CONTINUED)
FUNDS FROM OPERATIONS
The Company generally considers FFO to be one measure of the performance of
real estate companies including an equity REIT. In accordance with the new
definition of FFO adopted by the Board of Governors of NAREIT, FFO represents
net income (loss) (computed in accordance with GAAP), excluding gains (or
losses) from debt restructuring and sales of property, plus depreciation on real
estate assets, and after adjustments for unconsolidated partnerships and joint
ventures. Adjustments for unconsolidated partnerships and joint ventures are
calculated to reflect FFO on the same basis. The Company believes that FFO is
helpful to investors as a measure of the performance of an equity REIT because,
along with cash flows from operating activities, financing activities and
investing activities, it provides investors an understanding of the ability of
the Company to incur and service debt and to make capital expenditures. FFO
does not represent cash generated from operating activities in accordance with
GAAP and therefore should not be considered an alternative to net income as an
indication of the Company's performance or to net cash flows from operating
activities as determined by GAAP as a measure of liquidity and is not
necessarily indicative of cash available to fund cash needs.
For the six months ended June 30, 1996, FFO, based on the new definition
(except for the effect of amortization of deferred financing costs related to
Predecessor Business of approximately $316,000), increased by $12.2 million when
compared to the six months ended June 30, 1995 to approximately $71.6 million.
For the quarter ended June 30, 1996, FFO, based on the new definition (except
for the effect of amortization of deferred financing costs related to
Predecessor Business of approximately $157,000), increased by $8.2 million when
compared to the quarter ended June 30, 1995 to approximately $37.8 million.
19
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The discussion in Note 12 of "Notes to Consolidated Financial Statements" is
incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits: None
(B) Reports on Form 8-K:
A report on Form 8-K, dated May 15, 1996, was filed on May 21, 1996.
A report on Form 8-K, dated May 23, 1996, was filed on May 30, 1996.
A report on Form 8-K, dated May 24, 1996, was filed on May 30, 1996.
20
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EQUITY RESIDENTIAL PROPERTIES TRUST
Date: August 13, 1996 By: /s/ Bruce C. Strohm
--------------- ---------------------------------------
Bruce C. Strohm
Executive Vice President, General
Counsel and Secretary
Date: August 13, 1996 By: /s/ Michael J. McHugh
--------------- ---------------------------------------
Michael J. McHugh
Senior Vice President, Chief Accounting
Officer and Treasurer
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
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