<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 MARCH 31, 1999
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 13-3675988
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
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 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
--- ---
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 MAY 10, 1999, 119,565,664 OF THE REGISTRANT'S COMMON SHARES OF BENEFICIAL
INTEREST WERE OUTSTANDING.
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT FOR SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
----------------- -------------------
<S> <C> <C>
ASSETS
Investment in real estate
Land $ 1,351,360 $ 1,326,148
Depreciable property 9,647,811 9,519,579
Construction in progress 83,111 96,336
------------- -------------
11,082,282 10,942,063
Accumulated depreciation (814,330) (718,491)
------------- -------------
------------- -------------
Investment in real estate, net of accumulated depreciation 10,267,952 10,223,572
Real estate held for disposition -- 29,886
Cash and cash equivalents 10,738 3,965
Investment in mortgage notes, net 86,913 88,041
Rents receivable 1,765 4,758
Deposits - restricted 48,276 69,339
Escrow deposits - mortgage 66,737 68,725
Deferred financing costs, net 26,363 27,569
Other assets 193,217 184,405
------------- -------------
TOTAL ASSETS $ 10,701,961 $ 10,700,260
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 2,353,479 $ 2,341,011
Notes, net 2,049,183 2,049,516
Lines of credit 165,000 290,000
Accounts payable and accrued expenses 88,299 100,926
Accrued interest payable 60,685 46,176
Rents received in advance and other liabilities 64,240 54,616
Security deposits 37,013 37,439
Distributions payable 112,306 18,755
------------- -------------
TOTAL LIABILITIES 4,930,205 4,938,439
------------- -------------
COMMITMENTS AND CONTINGENCIES
Minority Interests 434,399 431,374
------------- -------------
Shareholders' equity:
Preferred Shares of beneficial interest, $.01 par value; 100,000,000 shares
authorized; 29,091,555 shares issued and outstanding as of March 31, 1999
and 29,097,951 shares issued and outstanding as of December 31, 1998 $ 1,410,414 $ 1,410,574
Common Shares of beneficial interest, $.01 par value;
350,000,000 shares authorized; 119,299,232 shares issued
and outstanding as of March 31, 1999 and 118,230,009
shares issued and outstanding as of December 31, 1998 1,193 1,182
Paid in capital 4,196,538 4,169,102
Employee notes (4,826) (4,873)
Distributions in excess of accumulated earnings (265,962) (245,538)
------------- -------------
Total shareholders' equity 5,337,357 5,330,447
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,701,961 $ 10,700,260
------------- -------------
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES
2
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-------------------------------------
1999 1998
-------------------------------------
<S> <C> <C>
REVENUES
Rental income $ 406,062 $ 277,226
Fee and asset management 1,234 1,360
Interest income - investment in mortgage notes 2,895 4,931
Interest and other income 6,046 2,824
--------------- -----------------
Total revenues 416,237 286,341
--------------- -----------------
EXPENSES
Property and maintenance 97,047 66,713
Real estate taxes and insurance 42,048 27,443
Property management 14,201 11,579
Fee and asset management 867 1,052
Depreciation 96,901 64,390
Interest:
Expense incurred 79,197 50,254
Amortization of deferred financing costs 845 624
General and administrative 5,867 4,880
--------------- -----------------
Total expenses 336,973 226,935
--------------- -----------------
Income before gain on disposition of properties, net
and allocation to Minority Interests 79,264 59,406
Gain on disposition of properties, net 21,416 1,869
--------------- -----------------
Income before allocation to Minority Interests 100,680 61,275
Income allocated to Minority Interests (7,126) (3,688)
--------------- -----------------
Net income 93,554 57,587
Preferred distributions (29,377) (21,692)
--------------- -----------------
Net income available to Common Shares $ 64,177 $ 35,895
--------------- -----------------
--------------- -----------------
Weighted average Common Shares outstanding 118,956 93,361
--------------- -----------------
--------------- -----------------
Distributions declared per Common Share outstanding $ 0.71 $ 0.67
--------------- -----------------
--------------- -----------------
Net income per weighted average Common Share outstanding $ 0.54 $ 0.38
--------------- -----------------
--------------- -----------------
Net income per weighted average Common Share
outstanding - assuming dilution $ 0.54 $ 0.38
--------------- -----------------
--------------- -----------------
</TABLE>
SEE ACCOMPANYING NOTES
3
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
------------------------
1999 1998
------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 93,554 $ 57,587
---------- --------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Income allocated to Minority Interests 7,126 3,688
Depreciation 96,901 64,390
Amortization of deferred financing costs 845 624
Amortization of discounts and premiums on debt (608) (524)
Amortization of treasury locks and options on debt 257 398
Interest capitalized to real estate developments (609) --
Gain on disposition of properties, net (21,416) (1,869)
CHANGES IN ASSETS AND LIABILITIES:
Decrease (increase) in rents receivable 2,661 (496)
(Increase) decrease in deposits - restricted (3,465) 357
Decrease (increase) in other assets 4,362 (2,093)
(Decrease) in accounts payable and accrued expenses (12,627) (912)
Increase in accrued interest payable 14,509 7,466
(Decrease) increase in security deposits (531) 1,518
Increase in rents received in advance and other liabilities 12,687 3,600
-------- --------
Net cash provided by operating activities 193,646 133,734
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate, net (107,058) (142,203)
Improvements to real estate (24,922) (14,091)
Additions to non-real estate property (2,450) (2,385)
Proceeds from disposition of real estate, net 75,997 16,665
Purchase of management contract rights (285) (119)
Decrease (increase) in mortgage deposits 1,864 (450)
Decrease (increase) in deposits on real estate acquisitions, net 24,527 (3,628)
Decrease in investment in mortgage notes 1,128 531
Investment in limited partnerships (15,847) (11,094)
Costs related to Mergers (2,612) (987)
Other investing activities (355) 20
-------- --------
Net cash (used for) investing activities (50,013) (157,741)
-------- --------
</TABLE>
SEE ACCOMPANYING NOTES
4
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
------------------------------------
1999 1998
------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of Common Shares 2,197 356,829
Proceeds from exercise of options 15,374 1,568
Payment of offering costs (182) (10,013)
Distributions to Common Share and Preferred Share owners (29,448) (23,235)
Distributions to Minority Interests (316) (312)
Principal receipts on employee notes 47 158
Principal receipts on pledged notes receivable 4,681 --
Proceeds from lines of credit 298,000 --
Repayments on lines of credit (423,000) (235,000)
Principal payments on mortgage notes payable (4,161) (20,542)
Loan and bond acquisition costs (52) (1,166)
--------- ---------
Net cash (used for) provided by financing activities (136,860) 68,287
--------- ---------
Net increase in cash and cash equivalents 6,773 44,280
Cash and cash equivalents, beginning of period 3,965 33,295
--------- ---------
Cash and cash equivalents, end of period $10,738 $77,575
--------- ---------
--------- ---------
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $65,297 $42,788
--------- ---------
--------- ---------
Mortgage loans assumed and/or entered into through acquisitions
of real estate $16,903 $93,617
--------- ---------
--------- ---------
Real estate contributed in exchange for OP Units, net $8,929 $50
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES
5
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DEFINITION OF SPECIAL TERMS:
Capitalized terms used but not defined in this Quarterly Report on Form 10-Q are
as defined in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 ("Form 10-K").
1. BUSINESS
As used herein, the term "Company" means Equity Residential Properties
Trust ("EQR") and its subsidiaries as the survivor of the mergers between EQR
and each of Wellsford Residential Property Trust ("Wellsford") (the "Wellsford
Merger"), Evans Withycombe Residential, Inc. ("EWR") (the "EWR Merger") and
Merry Land & Investment Company, Inc. ("MRY") (the "MRY Merger"). The Company is
engaged in the acquisition, ownership and operation of multifamily properties
and is a self-administered and self-managed equity real estate investment trust
("REIT"). As of March 31, 1999, the Company controlled a portfolio of 654
multifamily properties (individually a "Property" and collectively the
"Properties"). The Company's interest in six of these Properties at the time of
acquisition thereof consisted 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 and an investment in six
joint ventures consisting of six properties (collectively, the "Additional
Properties").
2. BASIS OF PRESENTATION
The balance sheet and statements of operations and cash flows as of and
for the quarter ended March 31, 1999 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, the Financing Partnerships, the LLCs and Merry Land DownREIT I LP,
each such entity has been consolidated with the Company for financial reporting
purposes. In regard to Management Corp., Management Corp. II, Evans Withycombe
Management, Inc. and ML Services, Inc., the Company does not have legal control;
however, these entities are consolidated for financial reporting purposes, the
effects of which are immaterial. Certain reclassifications have been made to the
prior year's financial statements in order to conform to the current year
presentation.
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. 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.
6
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS
During the first quarter of 1999, the Company issued 8,543 Common
Shares pursuant to the Share Purchase - DRIP Plan and received net proceeds of
approximately $349,986.
In February 1999, the Company issued 53,488 Common Shares pursuant to
the Employee Share Purchase Plan, at a price of $34.37 per share, and received
net proceeds of approximately $1.8 million.
The following table presents the changes in the Company's issued and
outstanding Common Shares for the quarter ended March 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------- ------------------
Balance at January 1, 1999 118,230,009
- --------------------------------------------------------------------------- ------------------
Common Shares issued through Share Purchase - DRIP Plan 8,543
Common Shares issued through Dividend Reinvestment - DRIP Plan 201
Common Shares issued through Employee Share Purchase Plan 53,488
Common Shares issued through conversion of Series H Preferred Shares 4,627
Conversion of OP Units into Common Shares 233,792
Common Shares issued through restricted share awards 309,091
Common Shares issued through exercise of options 429,221
Common Shares issued through 401(k) Plan 30,260
- --------------------------------------------------------------------------- ------------------
Balance at March 31, 1999 119,229,232
- --------------------------------------------------------------------------- ------------------
------------------
</TABLE>
Assuming conversion of all OP Units and Junior Convertible Preference
Units into Common Shares, total Common Shares outstanding at March 31, 1999
would have been 132,534,211.
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 March 31, 1999, the Minority Interests held 13,234,979 OP Units, which
included the OP Unit equivalent of 98,626 for the Junior Convertible Preference
Units that were outstanding at March 31, 1999. As a result, the Minority
Interests had a 9.99% interest in the Operating Partnership at March 31, 1999.
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.
7
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The following table presents the Company's issued and outstanding
Preferred Shares as of March 31, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
--------------------------------------------------------------------- -- -------------- -- ---------------
MARCH 31, DECEMBER 31,
1999 1998
--------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Preferred Shares of beneficial interest, $.01 par value; 100,000,000
shares authorized:
9 3/8% Series A Cumulative Redeemable Preferred $ 153,000 $ 153,000
$25 per share, 6,120,000 shares issued and outstanding
at March 31, 1999 and December 31, 1998
9 1/8% Series B Cumulative Redeemable Preferred 125,000 125,000
$250 per share, 500,000 shares issued and outstanding
at March 31, 1999 and December 31, 1998
9 1/8% Series C Cumulative Redeemable Preferred 115,000 115,000
$250 per share, 460,000 shares issued and outstanding
at March 31, 1999 and December 31, 1998
8.60% Series D Cumulative Redeemable Preferred 175,000 175,000
$250 per share, 700,000 shares issued and outstanding
at March 31, 1999 and December 31, 1998
Series E Cumulative Convertible Preferred 99,925 99,925
$25 per share, 3,997,000 shares issued and outstanding at March
31, 1999 and December 31, 1998
9.65% Series F Cumulative Redeemable Preferred 57,500 57,500
$25 per share, 2,300,000 shares issued and outstanding
at March 31, 1999 and December 31, 1998
7 1/4% Series G Convertible Cumulative Preferred 316,250 316,250
$250 per share, 1,265,000 shares issued and outstanding
at March 31, 1999 and December 31, 1998
7.00% Series H Cumulative Convertible Preferred 3,754 3,914
$25 per share, 150,155 and 156,551 shares issued and
outstanding at March 31, 1999 and December 31,
1998, respectively
8.82% Series I Cumulative Convertible Preferred 100,000 100,000
$25 per share, 4,000,000 shares issued and outstanding
at March 31, 1999 and December 31, 1998
8.60% Series J Cumulative Convertible Preferred 114,985 114,985
$25 per share, 4,599,400 shares issued and outstanding
at March 31, 1999 and December 31, 1998
8.29% Series K Cumulative Redeemable Preferred 50,000 50,000
$50 per share, 1,000,000 shares issued and outstanding
at March 31, 1999 and December 31, 1998
7.625% Series L Cumulative Redeemable Preferred 100,000 100,000
$25 per share, 4,000,000 shares issued and outstanding
at March 31, 1999 and December 31, 1998
-------------------------------------------------------------------- ----------------- --------------
$ 1,410,414 $ 1,410,574
-------------------------------------------------------------------- ----------------- --------------
----------------- --------------
</TABLE>
8
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The following table summarizes the distributions paid to Preferred and
Depositary Share holders and Common Share holders as of the record date of March
19, 1999 related to the quarter ended March 31, 1999:
<TABLE>
<CAPTION>
DISTRIBUTION
AMOUNT DATE PAID
- ----------------------------- ------------------------ ---------------
<S> <C> <C>
Series A Preferred $0.5859380 04/15/99
Series B Depositary $0.5703130 04/15/99
Series C Depositary $0.5703130 04/15/99
Series D Depositary $0.5375000 04/15/99
Series E Preferred $0.4375000 04/01/99
Series F Preferred $0.6031250 04/15/99
Series G Depositary $0.4531250 04/15/99
Series H Depositary $0.4375000 03/31/99
Series I Depositary $0.5512500 03/31/99
Series J Depositary $0.5375000 03/31/99
Series K Depositary $1.0362500 03/31/99
Series L Depositary $0.4765625 03/31/99
Common Shares $ 0.71 04/09/99
</TABLE>
4. REAL ESTATE ACQUISITIONS
During the quarter ended March 31, 1999, the Company acquired the
seven Properties listed below, of which three were acquired from unaffiliated
third parties and four were acquired from an affiliated party. In connection
with certain of the acquisitions listed below, the Company assumed mortgage
indebtedness of approximately $16.9 million and issued OP Units having a
value of approximately $8.9 million. The cash portion of these transactions
was funded primarily from proceeds received from the disposition of certain
properties and working capital.
9
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------- --------------------- --------------------------- ------------- -----------------
DATE NUMBER PURCHASE PRICE
ACQUIRED PROPERTY LOCATION OF UNITS (IN THOUSANDS)
- --------------- --------------------- --------------------------- ------------- -----------------
<S> <C> <C> <C> <C>
01/22/99 Fireside Park Rockville, MD 236 $14,279
01/22/99 Mill Pond Glen Burnie, MD 240 11,745
01/28/99 Aspen Crossing Wheaton, MD 192 11,386
02/24/99 Copper Canyon Highlands Ranch, CO 222 16,200
03/04/99 Siena Terrace Lake Forest, CA 356 33,000
03/23/99 Greenbriar Kirkwood, MO 218 12,033
03/24/99 Fairland Gardens Silver Spring, MD 400 25,897
- --------------- --------------------- --------------------------- ------------- -----------------
1,864 $124,540
- --------------- --------------------- --------------------------- ------------- -----------------
------------- -----------------
</TABLE>
5. REAL ESTATE DISPOSITIONS
During the quarter ended March 31, 1999, the Company disposed of the
properties listed below. Each property was sold to an unaffiliated third party.
The Company recognized a net gain for financial reporting purposes of
approximately $21.4 million on the disposition of these seven properties.
<TABLE>
<CAPTION>
--------------- ----------------------------- ----------------------- --------------- -----------------
DISPOSITION
DATE NUMBER PRICE
DISPOSED PROPERTY LOCATION OF UNITS (IN THOUSANDS)
--------------- ----------------------------- ----------------------- --------------- -----------------
<S> <C> <C> <C> <C>
01/06/99 Fox Run Little Rock, AR 337 $10,623
01/06/99 Greenwood Forest Little Rock, AR 239 7,533
01/06/99 Walnut Ridge Little Rock, AR 252 7,943
01/06/99 Williamsburg Little Rock, AR 211 6,651
01/27/99 The Hawthorne Phoenix, AZ 276 20,500
03/02/99 The Atrium Durham, NC 208 10,750
03/24/99 Greenbriar Kirkwood, MO 218 12,525
--------------- ----------------------------- ----------------------- --------------- -----------------
1,741 $76,525
--------------- ----------------------------- ----------------------- --------------- -----------------
--------------- -----------------
</TABLE>
6. COMMITMENTS TO ACQUIRE/DISPOSE OF REAL ESTATE
As of March 31, 1999, in addition to the Properties that were
subsequently acquired as discussed in Note 14 of the Notes to Consolidated
Financial Statements, the Company entered into separate agreements to acquire
five multifamily properties containing 1,254 units from affiliated and
unaffiliated parties. The expected combined purchase price is approximately
$75.9 million, which includes the assumption of mortgage indebtedness of
approximately $19.6 million.
As of March 31, 1999, in addition to the Property that was subsequently
disposed of as discussed in Note 14 of the Notes to Consolidated Financial
Statements, the Company entered into separate agreements to dispose of nine
multifamily properties containing 2,688 units to unaffiliated third parties. The
expected combined disposition price is approximately $148.3 million.
10
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 paragraphs.
7. CALCULATION OF NET INCOME PER WEIGHTED AVERAGE COMMON SHARE
The following tables set forth the computation of net income per
weighted average Common Share outstanding and net income per weighted average
Common Share outstanding - assuming dilution.
11
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------------------
1999 1998
-----------------------------------
(AMOUNTS IN THOUSANDS EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
NUMERATOR:
Income before gain on disposition of properties, net,
allocation of income to Minority Interests and
preferred distributions $ 79,264 $ 59,406
Allocation of income to Minority Interests (7,126) (3,688)
Distributions to preferred shareholders (29,377) (21,692)
-----------------------------------
Income before gain on disposition of properties, net 42,761 34,026
Gain on disposition of properties, net 21,416 1,869
-----------------------------------
Numerator for net income per weighted average
Common Share outstanding 64,177 35,895
Effect of dilutive securities:
Allocation of income to Minority Interests 7,126 3,688
-----------------------------------
Numerator for net income per weighted average
Common Share outstanding - assuming dilution $ 71,303 $ 39,583
-----------------------------------
-----------------------------------
DENOMINATOR:
Denominator for net income per weighted
average Common Share outstanding $ 118,956 $ 93,361
Effect of dilutive securities:
Contingent incremental employee share options 568 1,152
OP Units 13,209 9,587
-----------------------------------
Denominator for net income per weighted average
Common Share outstanding - assuming dilution $ 132,733 $ 104,100
-----------------------------------
-----------------------------------
Net income per weighted average Common
Share outstanding $ 0.54 $ 0.38
-----------------------------------
-----------------------------------
Net income per weighted average Common
Share outstanding - assuming dilution $ 0.54 $ 0.38
-----------------------------------
-----------------------------------
</TABLE>
12
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------------------
1999 1998
-----------------------------------
(AMOUNTS IN THOUSANDS EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
NET INCOME PER WEIGHTED AVERAGE COMMON SHARE OUTSTANDING:
Income before gain on disposition of properties, net,
per weighted average Common Share outstanding $ 0.36 $ 0.36
Gain on disposition of properties, net 0.18 0.02
---------- ----------
Net income per weighted average Common Share
Outstanding $ 0.54 $ 0.38
---------- ----------
---------- ----------
NET INCOME PER WEIGHTED AVERAGE COMMON SHARE OUTSTANDING - ASSUMING DILUTION:
Income before gain on disposition of properties, net, per weighted average
Common Share outstanding -
assuming dilution $ 0.36 $ 0.36
Gain on disposition of properties, net 0.18 0.02
---------- ----------
Net income per weighted average Common Share
outstanding - assuming dilution $ 0.54 $ 0.38
---------- ----------
---------- ----------
</TABLE>
CONVERTIBLE PREFERRED SHARES THAT COULD BE CONVERTED INTO 13,123,062 AND
7,623,745 WEIGHTED COMMON SHARES WERE OUTSTANDING FOR THE QUARTER ENDED MARCH
31, 1999 AND 1998, RESPECTIVELY, BUT WERE NOT INCLUDED IN THE COMPUTATION OF
DILUTED EARNINGS PER SHARE BECAUSE THE EFFECTS WOULD BE ANTI-DILUTIVE.
13
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
8. MORTGAGE NOTES PAYABLE
As of March 31, 1999, the Company had outstanding mortgage indebtedness
of approximately $2.4 billion encumbering 218 of the Properties. The carrying
value of such Properties (net of accumulated depreciation of $286.1 million) was
approximately $3.8 billion. The mortgage notes payables are generally due in
monthly installments of principal and interest. In connection with the
Properties acquired during the quarter ended March 31, 1999, the Company assumed
the outstanding mortgage balances on two Properties in the aggregate amount of
$16.9 million.
As of March 31, 1999, scheduled maturities for the Company's
outstanding mortgage indebtedness are at various dates through October 1, 2033.
During the quarter ended March 31, 1999, the effective interest cost on all of
the Company's debt was 7.09%.
9. NOTES
As of March 31, 1999, the Company had outstanding unsecured notes of
approximately $2.0 billion, net of a $5.0 million discount and including an $8.6
million premium.
10. LINES OF CREDIT
The Company has a revolving credit facility with Morgan Guaranty Trust
Company of New York ("Morgan Guaranty") and Bank of America Illinois ("Bank of
America") as co-agents to provide the Operating Partnership with potential
borrowings of up to $500 million. As of March 31, 1999, $125 million was
outstanding under this facility, bearing interest at a weighted average rate of
5.33%.
In connection with the MRY Merger, the Company assumed an additional
credit facility with First Union Bank as agent with potential borrowings of up
to $120 million. As of March 31, 1999, $40 million was outstanding under this
facility, bearing interest at a weighted average rate of 5.42%.
11. DEPOSITS - RESTRICTED
Deposits-restricted as of March 31, 1999 primarily included a deposit
in the amount of $20 million held in a third party escrow account to provide
collateral for third party construction financing in connection with the Joint
Venture Agreement. Also, approximately $2.7 million was held in third party
escrow accounts, representing proceeds received in connection with the Company's
disposition of one property and earnest money deposits made for additional
acquisitions. In addition, approximately $19.8 million was for tenant security,
utility deposits, and other deposits for certain of the Company's Properties.
14
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
12. COMMITMENTS AND CONTINGENCIES
The Company, as an owner of real estate, is subject to various
environmental laws of Federal and local governments. Compliance by the Company
with existing laws has not had a material adverse effect on the Company's
financial condition and results of operations. However, the Company cannot
predict the impact of new or changed laws or regulations on its current
Properties or on properties that it may acquire in the future.
The Company does not believe there is any litigation threatened against
the Company other than routine litigation arising out of the ordinary course of
business, some of which is expected to be covered by liability insurance, none
of which is expected to have a material adverse effect on the consolidated
financial statements of the Company.
In regards to the joint venture agreement with a multifamily
residential real estate developer during the quarter ended March 31, 1999, the
Company funded a total of $15.9 million and during the remainder of 1999 the
Company expects to fund approximately $48.2 million in connection with this
agreement.
In regards to certain other properties that were under development
and/or expansion during the quarter ended March 31, 1999, the Company funded
$5.1 million. During the remainder of 1999, the Company expects to fund $52.9
million related to the continued development and/or expansion of as many as five
Properties.
In regards to certain properties that are under earnout/development
agreements, during the quarter ended March 31, 1999, $16.2 million was funded
relating to the completion/acquisition of Copper Canyon. In addition, the
Company may be required to fund an additional $1 million earnout payment to the
developer of Copper Canyon if certain specified operation levels are met. During
the remainder of 1999, the Company expects to fund approximately $43.7 million
related to other earnout/development projects. Subsequent to March 31, 1999, the
Company has funded $22.7 million relating to the completion/acquisition of
Skyview, which included a $1.0 million advance of the earnout payment to the
developer of Skyview.
In connection with the Wellsford Merger, the Company has provided a
$14.8 million credit enhancement with respect to bonds issued to finance certain
public improvements at a multifamily development project. Pursuant to the terms
of a Stock Purchase Agreement with Wellsford Real Properties, Inc. ("WRP
Newco"), the Company has agreed to purchase up to 1,000,000 shares of WRP Newco
Series A Preferred at $25.00 per share on a standby basis over a three-year
period ending on May 30, 2000. As of March 31, 1999, no shares of WRP Newco
Series A Preferred had been acquired by the Company.
In connection with the MRY Merger, the Company extended a $25 million,
one year, non-revolving Senior Debt Agreement to MRYP Spinco. At March 31, 1999,
approximately $18.3 million was outstanding, bearing interest at LIBOR plus 250
basis points. The Company has a potential obligation to fund up to an additional
$6.7 million under the Senior Debt Agreement.
15
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
13. REPORTABLE SEGMENTS
The following tables set forth the reconciliation of net income and
total assets for the Company's reportable segments for the quarters ended March
31, 1999 and 1998.
<TABLE>
<CAPTION>
RENTAL REAL CORPORATE/
MARCH 31, 1999 (AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental income $ 406,062 $ -- $ 406,062
Property and maintenance expense (97,047) -- (97,047)
Real estate tax and insurance expense (42,048) -- (42,048)
Property management expense (14,201) -- (14,201)
------------- ------------- ------------
Net operating income 252,766 -- 252,766
Fee and asset management income -- 1,234 1,234
Interest income - investment in mortgage notes -- 2,895 2,895
Interest and other income -- 6,046 6,046
Fee and asset management expense -- (867) (867)
Depreciation expense on non-real estate assets -- (1,705) (1,705)
Interest expense:
Expense incurred -- (79,197) (79,197)
Amortization of deferred financing costs -- (845) (845)
General and administrative expense -- (5,867) (5,867)
Preferred distributions -- (29,377) (29,377)
Adjustment for depreciation expense related
to equity in unconsolidated joint ventures -- 276 276
------------- ------------- ------------
Funds from operations available to Common Shares and
OP Units 252,766 (107,407) 145,359
Depreciation expense on real estate assets (95,196) -- (95,196)
Gain on disposition of properties, net 21,416 -- 21,416
Income allocated to Minority Interests -- (7,126) (7,126)
Adjustment for depreciation expense related
to equity in unconsolidated joint ventures -- (276) (276)
------------- ------------- ------------
Net income available to Common Shares $ 178,986 $ (114,809) $ 64,177
------------- ------------- ------------
------------- ------------- ------------
Investment in real estate, net of
accumulated depreciation $ 10,251,871 $ 16,081 $ 10,267,952
------------- ------------- ------------
------------- ------------- ------------
Total assets $ 10,251,871 $ 450,090 $ 10,701,961
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
16
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
RENTAL REAL CORPORATE/
MARCH 31, 1998 (AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental income $ 277,226 $ -- $ 277,226
Property and maintenance expense (66,713) -- (66,713)
Real estate tax and insurance expense (27,443) -- (27,443)
Property management expense (11,579) -- (11,579)
----------- ----------- -----------
Net operating income 171,491 -- 171,491
Fee and asset management income -- 1,360 1,360
Interest income - investment in mortgage notes -- 4,931 4,931
Interest and other income -- 2,824 2,824
Fee and asset management expense -- (1,052) (1,052)
Depreciation expense on non-real estate assets -- (1,165) (1,165)
Interest expense:
Expense incurred -- (50,254) (50,254)
Amortization of deferred financing costs -- (624) (624)
General and administrative expense -- (4,880) (4,880)
Preferred distributions -- (21,692) (21,692)
Adjustment for amortization of deferred financing
costs related to predecessor business -- 12 12
----------- ----------- -----------
Funds from operations available to Common Shares and
OP Units 171,491 (70,540) 100,951
Depreciation expense on real estate assets (63,225) -- (63,225)
Gain on disposition of properties, net 1,869 -- 1,869
Income allocated to Minority Interests -- (3,688) (3,688)
Adjustment for amortization of deferred financing
costs related to predecessor business -- (12) (12)
----------- ----------- -----------
Net income available to Common Shares $ 110,135 $ (74,240) $ 35,895
----------- ----------- -----------
----------- ----------- -----------
Investment in real estate, net of
accumulated depreciation $ 6,843,693 $ 10,842 $ 6,854,535
----------- ----------- -----------
----------- ----------- -----------
Total assets $ 6,843,693 $ 485,649 $ 7,329,342
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
(1) The Company has one primary reportable business segment, which consists
of investment in rental real estate. The Company's primary business is
owning, managing, and operating multifamily residential properties which
includes the generation of rental and other related income through the
leasing of apartment units to tenants.
(2) The Company has a segment for corporate level activity including such
items as interest income earned on short-term investments, interest
income earned on investment in mortgage notes, general and administrative
expenses, and interest expense on mortgage notes payable and unsecured
note issuances. In addition, the Company has a segment for third party
management activity that is immaterial and does not meet the threshold
requirements of a reportable segment as provided for in Statement No.
131. Interest expense on debt is not allocated to individual Properties,
even if the Properties secure such debt. Further, income allocated to
Minority Interests is not allocated to the Properties.
17
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
14. SUBSEQUENT EVENTS
On April 28, 1999, the Company acquired Pine Tree Club Apartments, a
150-unit multifamily property located in Wildwood, Missouri, from an
unaffiliated third party for a purchase price of approximately $8.0 million,
which included the assumption of approximately $5.5 million of mortgage
indebtedness.
On April 28, 1999, the Company acquired Westbrooke Village I & II
Apartments, a 252-unit multifamily property located in Manchester, Missouri from
an unaffiliated third party for a purchase price of approximately $12.6 million,
which included the assumption of approximately $8.5 million of mortgage
indebtedness.
On April 29, 1999, the Company acquired Brookside Apartments, a
228-unit multifamily property located in Frederick, Maryland, from an affiliated
party for a purchase price of approximately $10.8 million, which included the
assumption of approximately $8.3 million of mortgage indebtedness.
On April 30, 1999, the Company acquired Skyview Apartments, a 260-unit
multifamily property located in Rancho Santa Margarita, California, from an
unaffiliated third party for a purchase price of approximately $21.8 million. In
addition, the Company funded a $1.0 million advance of the earnout payment to
the developer of Skyview.
In April 1999, the Company sold 1,936 Common Shares pursuant to the
Share Purchase - DRIP Plan and raised net proceeds of $88,168.
On May 6, 1999, the Company disposed of Sandstone at Bear Creek
Apartments, a 40-unit multifamily property located in Euless, TX, to an
unaffiliated third party for a total sales price of $2.1 million.
18
<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, and Merry Land DownREIT I LP, 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, 1998.
Forward-looking statements in this report are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The
words "believes", "expects" and "anticipates" and other similar expressions
which are predictions of or indicate future events and trends and which do not
relate solely to historical matters, identify forward-looking statements. Such
forward-looking statements are subject to risks and uncertainties, which could
cause actual results, performance, or achievements of the Company to differ
materially from anticipated future results, performance or achievements
expressed or implied by such forward-looking statements. Factors that might
cause such differences include, but are not limited to, the following:
- alternative sources of capital to the Company are higher than
anticipated;
- occupancy levels and market rents may be adversely affected by local
economic and market conditions, which are beyond the Company's control;
and
- additional factors as discussed in Part I of the Annual Report on
Form 10-K.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release any revisions to these
forward-looking statements, which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
The acquired properties are presented in the Consolidated Financial Statements
of the Company from the date of each acquisition or the closing dates of the
Mergers. During the year ended 1998, the Company acquired 207 properties
containing 55,143 units and four properties under development representing 1,378
units (the "1998 Acquired Properties"). In addition, during the quarter ended
March 31, 1999, the Company acquired seven properties containing 1,864 units
(the "1999 Acquired Properties").
The Company also disposed of twenty properties containing 4,719 units
during 1998 (the "1998 Disposed Properties"); and seven properties containing
1,741 units during the quarter ended March 31, 1999 (the "1999 Disposed
Properties").
19
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The Company's overall results of operations for the quarters ended
March 31, 1999 and 1998 have been significantly impacted by the Company's
acquisition and disposition activity. The significant changes in rental
revenues, property and maintenance expenses, real estate taxes and insurance,
depreciation expense, property management and interest expense can all primarily
be attributed to the acquisition of the 1998 Acquired Properties and the 1999
Acquired Properties. The impact of the 1998 Acquired Properties and the 1999
Acquired Properties is discussed in greater detail in the following paragraphs.
Properties that the Company owned for all of the quarter ended March
31, 1999 and March 31, 1998 (the "First Quarter 1999 Same Store Properties"),
which represented 127,514 units, also impacted the Company's results of
operations and are discussed as well in the following paragraphs.
COMPARISON OF QUARTER ENDED MARCH 31, 1999 TO QUARTER ENDED MARCH 31, 1998
For the quarter ended March 31, 1999, income before gain on disposition
of properties and allocation to Minority Interests increased by approximately
$19.9 million when compared to the quarter ended March 31, 1998. This increase
was primarily due to the acquisition of the 1998 Acquired Properties and the
1999 Acquired Properties as well as increases in rental revenues net of
increases in property and maintenance expenses, real estate taxes and insurance,
property management expenses, depreciation expense, interest expense and general
and administrative expenses.
In regard to the First Quarter 1999 Same Store Properties, rental
revenues increased by approximately $10.9 million or 4.2% primarily as a result
of higher rental rates charged to new tenants and tenant renewals, a 0.26%
increase in average economic occupancy levels and a 0.65% increase in income
from billing tenants for their share of utility costs. Overall, property
operating expenses, which include property and maintenance, real estate taxes
and insurance and an allocation of property management expenses, increased
approximately $1.3 million or 1.3%. This increase was primarily the result of an
increase in real estate taxes on certain properties, higher on-site compensation
costs, leasing and advertising costs and utility charges.
Property management represents expenses associated with the
self-management of the Company's Properties. These expenses increased by
approximately $2.6 million primarily due to the continued expansion of the
Company's property management business.
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 and expenses decreased due to the
Company acquiring certain of these properties that were formerly only
fee-managed.
Interest expense, including amortization of deferred financing costs,
increased by approximately $29.2 million. This increase was primarily the result
of an increase in the Company's average indebtedness outstanding which increased
by $1.8 billion. However, the
20
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Company's effective interest costs decreased from 7.27% for the quarter ended
March 31, 1998 to 7.09% for the quarter ended March 31, 1999.
General and administrative expenses, which include corporate operating
expenses, increased approximately $1.0 million between the periods under
comparison. This increase was primarily due to the addition of corporate
personnel in the Company's Human Resources, Accounting, Legal and Information
Systems groups as well as higher compensation costs, shareholder reporting costs
and professional fees. However, by gaining certain economies of scale with a
much larger operation, these expenses as a percentage of total revenues were
1.41% for the quarter ended March 31, 1999 compared to 1.70% of total revenues
for the quarter ended March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of January 1, 1999, the Company had approximately $4 million of cash
and cash equivalents and $330 million available on its line of credit, of which
$12 million was restricted. After taking into effect the various transactions
discussed in the following paragraphs, the Company's cash and cash equivalents
balance at March 31, 1999 was approximately $10.7 million and the amount
available on the Company's line of credit was $455 million, of which $12 million
was restricted. The following discussion also explains the changes in net cash
provided by operating activities, net cash (used for) investing activities and
net cash (used for) financing activities, all of which are presented in the
Company's Statements of Cash Flows.
With respect to Property acquisitions during the quarter, the Company
purchased seven Properties containing 1,864 units for a total purchase price of
approximately $124.5 million, including the assumption of and/or new mortgage
indebtedness of approximately $16.9 million and the issuance of OP Units with a
value of $8.9 million. These acquisitions were primarily funded from proceeds
received from the disposition of certain properties and working capital.
Subsequent to March 31, 1999 and through May 12, 1999, the Company
acquired four additional properties containing 890 units for a total purchase
price of approximately $53.2 million and the assumption of mortgage indebtedness
of approximately $22.3 million. These acquisitions were primarily funded with
proceeds from the disposition of certain properties, the lines of credit and
working capital.
During the quarter ended March 31, 1999, the Company disposed of seven
properties that generated net proceeds of $76 million. These proceeds were or
will be ultimately applied to purchase additional properties.
Subsequent to March 31, 1999 and through May 12, 1999, the Company
disposed of one property for a total sales price of $2.1 million. These proceeds
will be utilized to purchase additional properties. The Company anticipates that
it will continue to sell certain properties in
21
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
the portfolio.
In regards to the joint venture agreement with a multifamily
residential real estate developer during the quarter ended March 31, 1999, the
Company funded a total of $15.9 million and during the remainder of 1999 the
Company expects to fund approximately $48.2 million in connection with this
agreement.
In regards to certain other properties that were under development
and/or expansion during the quarter ended March 31, 1999, the Company funded
$5.1 million. During the remainder of 1999, the Company expects to fund $52.9
million related to the continued development and/or expansion of as many as five
Properties.
In regards to certain properties that are under earnout/development
agreements, during the quarter ended March 31, 1999, $16.2 million was funded
relating to the completion/acquisition of Copper Canyon. In addition, the
Company may be required to fund an additional $1 million earnout payment to the
developer of Copper Canyon if certain specified operation levels are met. During
the remainder of 1999, the Company expects to fund approximately $43.7 million
related to other earnout/development projects. Subsequent to March 31, 1999, the
Company has funded $22.7 million relating to the completion/acquisition of
Skyview, which included a $1.0 million advance of the earnout payment to the
developer of Skyview.
As of March 31, 1999, the Company had total indebtedness of
approximately $4.6 billion, which included mortgage indebtedness of $2.4 billion
(including premiums of $4.2 million), of which $930.4 million represented
tax-exempt bond indebtedness, and unsecured debt of $2.0 billion, including net
discounts and premiums in the amount of $3.6 million.
In May 1999, the Company expects to repay its 1999 Notes that mature on
May 15, 1999. The $125 million repayment will be initially funded from
borrowings under the Company's lines of credit. In addition, on June 1, 1999,
the Company anticipates repaying the principal balance on one of its mortgage
notes in the amount of $8.0 million. This repayment will also be primarily
funded from additional borrowings under the lines of credit.
The Company has a policy of capitalizing expenditures made for new
assets, including newly acquired properties and the costs associated with
placing these assets into service. Expenditures for improvements and renovations
that significantly enhance the value of existing assets or substantially extend
the useful life of an asset are also capitalized. Capital spent for
replacement-type items such as appliances, draperies, carpeting and floor
coverings, mechanical equipment and certain furniture and fixtures is also
capitalized. Expenditures for ordinary maintenance and repairs are expensed to
operations as incurred. With respect to acquired properties, the Company has
determined that it generally spends $1,000 per unit during its first
22
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
three years of ownership to fully improve and enhance these properties to meet
the Company's standards. In regard to replacement-type items described above,
the Company generally expects to spend $250 per unit on an annual recurring
basis.
During the quarter ended March 31, 1999, total capital expenditures for
the Company approximated $27.4 million. Of this amount, approximately $8.8
million, or $73 per unit, related to capital improvements and major repairs for
the 1997, 1998 and 1999 Acquired Properties. Capital improvements and major
repairs for all of the Company's pre-EQR IPO properties and 1993, 1994, 1995 and
1996 Acquired Properties approximated $5.9 million, or $92 per unit. Capital
spent for replacement-type items approximated $10.2 million, or $55 per unit.
Also included in total capital expenditures was approximately $2.5 million
expended for non-real estate additions such as computer software, computer
equipment, and furniture and fixtures and leasehold improvements for the
Company's property management offices and its corporate headquarters. 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 1999 are budgeted to be approximately $90 million.
Minority Interests as of March 31, 1999 increased by $2.9 million when
compared to December 31, 1998. The primary factors that impacted this account
during the three month period were distributions declared to Minority Interests,
which amounted to $9.3 million for the three month period, the allocation of
income from operations in the amount of $7.1 million and the conversion of OP
Units into Common Shares and the issuances of Common Shares and OP Units during
the quarter.
Total distributions paid in April 1999 amounted to approximately $115.2
million, which included distributions declared for the quarter ended March 31,
1999.
In April 1999, the Company sold 1,936 Common Shares pursuant to the
Share Purchase - DRIP Plan and received net proceeds of $88,168 therefrom.
The Company expects to meet its short-term liquidity requirements,
including capital expenditures related to maintaining its existing Properties
and certain scheduled unsecured note and mortgage note repayments, generally
through its working capital, net cash provided by operating activities and
borrowings under its lines of credit. 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 unsecured note and mortgage debt maturities,
reduction of outstanding amounts under its line of credit, property
acquisitions, financing of construction and development activities and capital
improvements through the issuance of unsecured notes and equity securities
including additional OP Units as well as from undistributed FFO and 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 alternative sources of capital to the Company is too
high.
23
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The Company has a revolving credit facility with Morgan Guaranty and
Bank of America as co-agents to provide the Operating Partnership, with
potential borrowings of up to $500 million. This credit facility matures in
November 1999 and will continue to be used to fund property acquisitions and
short term liquidity requirements. As of May 11, 1999, $175 million was
outstanding under this facility.
In connection with the MRY Merger, the Company assumed a second
revolving credit facility with First Union Bank as agent with potential
borrowings of up to $120 million. This credit facility matures in September 2000
and will also be used to fund property acquisitions, costs for certain
Properties under development and short term liquidity requirements. As of May
11, 1999, $27 million was outstanding under this facility.
In connection with the Wellsford Merger, the Company provided a $14.8
million credit enhancement with respect to bonds issued to finance certain
public improvements at a multifamily development project. Pursuant to the terms
of a Stock Purchase Agreement with Wellsford Real Properties, Inc. ("WRP
Newco"), the Company has agreed to purchase up to 1,000,000 shares of WRP Newco
Series A Preferred at $25.00 per share on a standby basis over a three-year
period ending on May 30, 2000. As of May 12, 1999, no shares of WRP Newco
Series A Preferred had been acquired by the Company.
In conjunction with the MRY Merger in October 1998, the Company entered
into six joint venture agreements with MRYP Spinco, the entity spun-off in the
MRY Merger. The Company contributed six properties with an initial value of
$52.7 million in return for a 50% ownership interest in each joint venture. In
return for the spin-off of certain assets and liabilities to MRYP Spinco, the
Company received (from MRYP Spinco) a Subordinated Note receivable totaling $20
million, a preferred stock investment with an initial value of $5 million and a
$25 million, one year, non-revolving Senior Note receivable. At March 31, 1999
approximately $18.3 million was outstanding on the Senior Note, bearing interest
at LIBOR plus 250 basis points. The Company has a potential obligation to fund
up to an additional $6.7 million under the Senior Note.
YEAR 2000 ISSUE
The year 2000 issue ("Year 2000") is the result of computer programs
being written using two digits rather than four to define the applicable year.
Any of the Company's computer programs that have time-sensitive hardware and
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, collect rents, or engage in similar normal business
activities.
The Company believes that it has identified all of its information
technology ("IT") and non-IT systems to assess their Year 2000 readiness.
Critical systems include, but are not limited to: accounts receivable and rent
collections, accounts payable and general ledger, human
24
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
resources and payroll (both property and corporate levels), cash management,
fixed assets, all IT hardware (such as desktop/laptop computers, data networking
equipment, telephone systems, fax machines, copy machines, etc.) and software,
and property environmental, health safety and security systems (such as
elevators and alarm systems).
The Company anticipates that previously scheduled system upgrades to
many of its IT systems will remediate any existing Year 2000 problems. The
Company is currently in the process of testing and implementing the majority of
its Year 2000 IT and non-IT system projects with completion anticipated during
the second or third quarter of 1999. The Company has estimated that the total
Year 2000 project cost will approximate $1 million, of which approximately 80%
has been incurred as of March 31, 1999. During the first quarter of 1999, the
primary focus of the Year 2000 remediation efforts has been on implementing and
testing the previously scheduled upgrades and Year 2000 compliant versions of
existing IT systems as well as continuing the assessment of the Company's
exposure regarding non-IT systems at property sites. Of the remaining $200,000
budgeted to complete the Company's Year 2000 remediation project, approximately
$50,000 has been allocated to engage Year 2000 consultants to help the Company
monitor its IT compliance progress and to complete final IT testing and
implementation. The remaining $150,000 has been allocated to remediate non-IT
systems at various property sites. The estimates are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
and there can be no guarantees that these estimates will be achieved.
In some cases, various third party vendors have been queried on their
Year 2000 readiness. The Company continues to query its significant suppliers
and vendors to determine the extent to which the Company's interface systems are
vulnerable to those third parties' failure to remediate their own Year 2000
issues. To date, the Company is not aware of any significant suppliers or
vendors with a Year 2000 issue that would materially impact the Company's
results of operations, liquidity, or capital resources. However, there can be no
assurances that the systems of other companies, on which the Company's systems
rely, will be timely converted and would not have an adverse effect on the
Company's systems.
Management of the Company believes it has an effective program in place
to resolve the Year 2000 issue in a timely manner. In addition, the Company is
developing its contingency plans for critical operational areas that might be
affected by the Year 2000 issue if compliance by the Company is delayed. Aside
from catastrophic failure of utility companies, banks or governmental agencies,
the Company believes that it could continue its normal business operations if
compliance by the Company is delayed. The Company does not believe that the Year
2000 issue will materially impact its results of operations, liquidity or
capital resources.
FUNDS FROM OPERATIONS
The Company generally considers Funds From Operations ("FFO") to be one
measure of the performance of real estate companies including an equity REIT.
The resolution adopted by
25
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
the Board of Governors of NAREIT defines FFO as 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 in and of itself 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. The Company's calculation of FFO
represents net income available to Common Shares, excluding gains on
dispositions of properties, gains on early extinguishment of debt, and write-off
of unamortized costs on refinanced debt, plus depreciation on real estate
assets, income allocated to Minority Interests and amortization of deferred
financing costs related to the Predecessor Business. The Company's calculation
of FFO may differ from the methodology for calculating FFO utilized by other
REIT's and, accordingly, may not be comparable to such other REIT's.
For the quarter ended March 31, 1999, FFO increased by $44.4 million
representing a 44% increase when compared to the quarter ended March 31, 1998.
The following is a reconciliation of net income available to Common
Shares to FFO available to Common Shares and OP Units for the quarters ended
March 31, 1999 and 1998:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
Quarter Quarter
Ended 3/31/99 Ended 3/31/98
----------------------------------------------------------------------------------
<S> <C> <C>
Net income available to Common Shares $ 64,177 $ 35,895
Adjustments:
Income allocated to Minority Interests 7,126 3,688
Depreciation on real estate assets* 95,472 63,225
Amortization of deferred financing costs
related to predecessor business -- 12
Gain on disposition of properties (21,416) (1,869)
----------- ----------
FFO available to Common Shares and OP Units $ 145,359 $ 100,951
----------- ----------
----------------------------------------------------------------------------------
</TABLE>
* Includes $275,603 related to the Company's share of depreciation from
unconsolidated joint ventures for the quarter ended March 31, 1999.
26
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no new or significant developments related to the legal
proceedings that were discussed in Part I, Item III of the Company's Form 10-K
for the year ended December 31, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
12 Computation of Ratio of Earnings to Fixed Charges.
(B) Reports on Form 8-K:
A Report on Form 8-K dated February 24, 1999, reporting the risk factors
relating to the ownership of the Company's Common Shares and Preferred Shares
and the Operating Partnership's OP Units.
27
<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: May 12, 1999 By: /s/ Bruce C. Strohm
------------ ------------------------------------------
Bruce C. Strohm
Executive Vice President, General Counsel
and Secretary
Date: May 12, 1999 By: /s/ Michael J. McHugh
------------ ------------------------------------------
Michael J. McHugh
Executive Vice President, Chief Accounting
Officer and Treasurer
28
<PAGE>
Exhibit 12
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED HISTORICAL
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED DISTRIBUTIONS RATIO
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------------------------------
3/31/99 3/31/98 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
------------------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Rental income $ 406,062 $ 277,226 $1,293,560 $ 707,733 $454,412 $373,919 $220,727
Fee income - outside managed 1,234 1,360 5,622 5,697 6,749 7,030 4,739
Interest income - investment in mortgage notes 2,895 4,931 18,564 20,366 12,819 4,862 -
Interest and other income 6,046 2,824 19,703 13,525 4,405 4,573 5,568
----------- ---------- ---------- --------- -------- -------- --------
Total revenues 416,237 286,341 1,337,449 747,321 478,385 390,384 231,034
----------- ---------- ---------- --------- -------- -------- --------
EXPENSES
Property and maintenance 97,047 66,713 326,567 176,075 127,172 112,186 66,534
Real estate taxes and insurance 42,048 27,443 126,009 69,520 44,128 37,002 23,028
Property management 14,201 11,579 52,705 26,793 17,512 15,213 10,249
Property management - non-recurring - - - - - - 879
Fee and asset management 867 1,052 4,207 3,364 3,837 3,887 2,056
Depreciation 96,901 64,390 301,869 156,644 93,253 72,410 37,273
Interest:
Expense incurred 79,197 50,254 246,585 121,324 81,351 78,375 37,044
Amortization of deferred financing costs 845 624 2,757 2,523 4,242 3,444 1,930
General and administrative 5,867 4,880 21,718 15,064 9,857 8,129 6,053
----------- ---------- ---------- --------- -------- -------- --------
Total expenses 336,973 226,935 1,082,417 571,307 381,352 330,646 185,046
----------- ---------- ---------- --------- -------- -------- --------
Income (loss) before extraordinary items $ 79,264 59,406 255,032 176,014 $ 97,033 $ 59,738 $ 45,988
----------- ---------- ---------- --------- -------- -------- --------
----------- ---------- ---------- --------- -------- -------- --------
Combined Fixed Charges and Preferred Distributions:
Interest and other financing costs $ 79,197 50,254 246,585 121,324 $ 81,351 $ 78,375 $ 37,044
Amortization of deferred financing costs 845 624 2,757 2,523 4,242 3,444 1,930
Preferred distributions 29,377 21,692 92,917 59,012 29,015 10,109 -
----------- ---------- ---------- --------- -------- -------- --------
TOTAL COMBINED FIXED CHARGES
AND PREFERRED DISTRIBUTIONS $ 109,419 72,570 342,259 182,859 $114,608 $ 91,928 $ 38,974
----------- ---------- ---------- --------- -------- -------- --------
----------- ---------- ---------- --------- -------- -------- --------
EARNINGS BEFORE COMBINED FIXED CHARGES
AND PREFERRED DISTRIBUTIONS $ 159,306 110,284 504,374 299,861 $182,626 $141,557 $ 84,962
----------- ---------- ---------- --------- -------- -------- --------
----------- ---------- ---------- --------- -------- -------- --------
FUNDS FROM OPERATIONS BEFORE COMBINED FIXED
CHARGES AND PREFERRED DISTRIBUTIONS $ 256,207 174,674 806,243 456,505 $275,879 $213,967 $123,114
----------- ---------- ---------- --------- -------- -------- --------
----------- ---------- ---------- --------- -------- -------- --------
RATIO OF EARNINGS BEFORE COMBINED FIXED CHARGES
AND PREFERRED DISTRIBUTIONS TO COMBINED FIXED CHARGES
AND PREFERRED DISTRIBUTIONS 1.46 1.52 1.47 1.64 1.59 1.54 2.18
----------- ---------- ---------- --------- -------- -------- --------
----------- ---------- ---------- --------- -------- -------- --------
RATIO OF FUNDS FROM OPERATIONS BEFORE COMBINED FIXED
CHARGES AND PREFERRED DISTRIBUTIONS TO COMBINED FIXED
CHARGES AND PREFERRED DISTRIBUTIONS 2.34 2.41 2.36 2.50 2.41 2.33 3.16
----------- ---------- ---------- --------- -------- -------- --------
----------- ---------- ---------- --------- -------- -------- --------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 10,738
<SECURITIES> 0
<RECEIVABLES> 1,765
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 298,820
<PP&E> 11,082,282
<DEPRECIATION> 814,330
<TOTAL-ASSETS> 10,701,961
<CURRENT-LIABILITIES> 362,543
<BONDS> 4,567,662
0
1,410,414
<COMMON> 1,193
<OTHER-SE> 3,925,750
<TOTAL-LIABILITY-AND-EQUITY> 10,701,961
<SALES> 410,191
<TOTAL-REVENUES> 416,237
<CGS> 0
<TOTAL-COSTS> 154,163
<OTHER-EXPENSES> 5,867
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,042
<INCOME-PRETAX> 79,264
<INCOME-TAX> 0
<INCOME-CONTINUING> 79,264
<DISCONTINUED> 21,416
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,303
<EPS-PRIMARY> .54
<EPS-DILUTED> .54
</TABLE>
